There are various measures to assess when exporting products internationally.  An exporter must exude “reasonable care” in checking the safety and purpose of the goods being exported, as well as maintaining compliance across borders.  Not only must you comply with domestic customs authorities, but also foreign customs of the countries to which you are shipping.  In order to avoid fines, removal of export privileges or jail times, remember to perform the following five export processes to proactively ensure your goods are efficiently moving through your supply chain.

1. Perform denied party screening before money changes hands. Screening the receiving parties of exported goods prior to the transaction is essential. With denied party lists constantly being updated, performing a single search before shipment could be inefficient due to a possible lag time between order and shipment. It is therefore crucial to screen the parties at order placement (before money changes hands) and rescreen them at the time the goods are about to ship – ensuring all products will be delivered to safe parties.

2. Obtain an End Use Certificate. Not only is it important to identify the party receiving your exported goods, but it is also important to know the intended use of those goods. An End Use Certificate assures authorities of the eventual intended use of shipped products, which provides documented proof of “reasonable care” in exporting those products. End Use Certificates, as best practice, should also be stored electronically to create an audit trail.

3. Apply for an export license & file export declaration in a timely manner. Export licenses can take up to 3-6 months for review before a final determination is made, which is why one should be applied for well in advance. Best practice is for exporters to apply in advance, be specific in explaining the product in detail, attach additional supporting documents if necessary and submit the export license application via the Internet portals provided by the government. A declaration is required when exporting a controlled product that requires a license. Waiting until the last minute to file your export declaration may result in a delayed shipment, costing you time and money.

4. Utilize Incoterms. Incoterms define, in advance, where the responsibility of a shipment changes hands such as who is responsible for export formalities, delivery, transportation fees and/or import formalities. Using Incoterms helps an exporter avoid the ambiguity of who is responsible for the cargo at any point from the time the cargo leaves the exporter’s facility to the time it arrives at the importer’s door.

5. Know the required documents. Complying across borders is important in the timely delivery of products, because neglecting to obtain the necessary documents may cause delays in shipment or even refusal of entry. Exporters not only need to know the required documentation needed in the domestic country for cargo to be released, but also those documents of the foreign country for the products to be imported.

Since 2005 when first deployed by the International Accounting Standards Board (IASB), International Financing Reporting Standards (IFRS) have been steadily supplanting various forms of Generally Accepted Accounting Principles (”GAAP”) and other national accounting standards.  To date, more than 110 countries, including all of Europe, have adopted IFRS and all major economies have established time lines to converge with or embrace the standards in the near future.  For its part, the United States has agreed to a target date for substantial convergence with IFRS in 2011.

On one level, the adoption of IFRS is viewed by many as a positive event that will facilitate greater transparency while reducing information costs among countries.  As such, IFRS is expected to encourage international trade flows and investments.  On another, more complex level, the scope and scale of the required adjustments are so significant that IFRS should not be viewed as just a matter for accountants.

To help facilitate some broader consideration of the topic, below are some key issues related to the adoption of IFRS that customs and international trade professionals may wish to investigate further.

Inventory Value

In the U.S., the prevailing accounting standard today is U.S. GAAP which generally uses “historical cost” (i.e., cost as if there had been no change in value since the date of acquisition) for valuing inventory.  U.S. GAAP does not allow revaluation of inventory.  With IFRS, inventory value needs to reflect the current market price and, consequently, permits revaluation.  For companies whose products experience slow inventory turns and/or are subject to significant price swings, the move to IFRS could present challenges in claiming drawback – especially given the U.S. drawback program’s multi-year allowances or importing, exporting and filing claims.

Closely related to this matter is GAAP’s Last-In, First-Out (”LIFO”) inventory accounting method.  For various reasons (including certain income tax advantages that it offers) many companies presently use LIFO.  It’s also one of the approved GAAP methods for U.S. duty drawback accounting and can be used for tracking originating and non-originating merchandise under certain U.S. trade agreements such as CAFTA-DR.  Under IFRS, LIFO is permanently out – that is, it’s not a permitted inventory accounting method.  As such, those companies using LIFO for drawback and/or trade agreement qualification accounting may need to transition to an IFRS-permitted method.  This could prove to be a potentially challenging migration from one accounting method to another, perhaps giving rise to unexpected issues such as loss of preferential market access under trade agreements.

Contracts and Agreements

The forthcoming standards require the separation of the party that has ownership of an item from the party that has the responsibility, risk, and beneficial use of the item.  As such, certain agreements that have been negotiated with suppliers and customers prior to IFRS adoption may need to be reviewed, reworked and possibly renegotiated.  This may impact, among others, consignment, lease and long-term supply agreements – core arrangements of many of today’s global value chains.  Any changes that are made to accommodate IFRS may affect the underlying contractual obligations of the parties involved and possibly the transfer, costs and prices of the subject goods and services.  Thus, the customs and international trade function will need to help ensure that what the company declares to customs authorities prior to IFRS implementation either is, or is not, the same as what will be declared after IFRS implementation.

What’s more, IFRS-driven changes in the accounting of costs, profits and thus, income taxes associated with intercompany (i.e., related party) transactions may impact agreements related to intellectual property rights.  Depending on their structure (among other considerations), intercompany payments related to such arrangements may be considered “additions to the price paid or payable” under applicable customs laws.  Consequently, IFRS-driven changes to royalty, licenses and cost-sharing agreements may create additional work to ensure the proper customs appraisement of imported merchandise.

© 2010 Variant Advisors, Inc.

Used in international transactions to clearly identify the costs, risks, and responsibilities of buyers and sellers, Incoterms have become the standard that all importers and exporters, regardless of country, use in their daily global trade activities.  The problem is that there have been many supply chain changes in the last decade without an update to the Incoterms.  So it is now time, and the ICC is working to update the Incoterms to reflect these changes.

The biggest changes are going from 13 to 11 terms and to a new structure that organizes the Incoterms into two categories that include the following:

Incoterms for any Mode or Modes of Transport:
EXW – Ex Works
FCA – Free Carrier
CPT – Carriage Paid To
CIP – Carriage and Insurance Paid
DAT – Delivered At Terminal (new)
DAP – Delivered At Place (new)
DDP – Delivered Duty Paid

Incoterms for Sea and Inland Waterway Transport Only:
FAS – Free Alongside Ship
FOB – Free On Board
CFR – Cost and Freight
CIF – Cost, Insurance and Freight

Incoterms 2010 are expected to take effect on January 1, 2011.  To prepare yourself for these changes, attend one of the seminars being held by the ICC on the Incoterms 2010 rules.  You can also continue to check Global Trade News blog for updates on Incoterms 2010.

President Obama said this will especially benefit the auto, chemical medical device and sporting goods industries, and help the country meet the National Export Initiative (NEI) goal of doubling exports in the next five years.  How will this change the US Harmonized Tariff Schedule (HTS)?

As a result of this act, 2,670 ABI records and 664 harmonized tariff records have been modified.  Goods listed in Titles II and III of the Act are provided retroactive benefits for merchandise entered or withdrawn from a warehouse, on or after January 1, 2010, and before August 26, 2010.  CBP will liquidate or re-liquidate articles listed in Titles II and III if a request is filed with CBP within 180 days after August 11, 2010.

Additional measures of the act include:

• Amendments to the Harmonized Tariff Schedule of the United States to provide for duty suspensions and reductions through December 31, 2012, for specified chemicals and other products
• Extension of existing suspensions and reductions of duties through December 31, 2012, for other specified chemicals and products
• Modification to allow for the government to impose, suspend, and increase and/or decrease the duty on certain chemicals through December 31, 2012
• Extension of the suspension of duty on certain products through December 31, 2012
• Amendment of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) to extend certain customs fees for the processing of merchandise entered into the United States through June 14, 2018, and June 28, 2018, respectively

For questions regarding the modifications, contact Jennifer Keeling.

Almost everyone has to pay the GST/HST on purchase of taxable supplies of property and services and only a limited number of sales are exempt.  Although the consumer pays the tax, businesses are generally responsible for collecting and sending it to the government.  In general, businesses collect GST/HST on most sales and pad the GST/HST on most purchases around business operations.

How will this change affect imports and exports?  Goods imported into Canada are subject to the GST or the federal part of the HST, exempt for items specified as non-taxable importations.  Goods that are ordinarily GST/HST taxable may be zero-rated if they are exported from Canada.  This means that you do not charge GST/HST on taxable sales if you deliver the goods or make them available to a purchaser outside of Canada.

To see the change in rates of each province, click here.

Attendees will also be able to network with colleagues in the export control industry while learning about programs and services offered by US Government and industry exhibitors, including Integration Point.  This year’s BIS Update Conference promises to be just as exciting and informational as the others.  If you are unable to attend, stay tuned to Global Trade News blog as we’ll be sharing what we learned while at the conference.

Get a head start on increasing your export knowledge with this tip sheet – 5 Processes to Remember When Exporting.

The COAC recommends that CBP take the following actions to improve compliance benefits:

• For importers who are certified Customs-Trade Partnership Against Terrorism, or C-TPAT as it is commonly referred, members, high compliance with ISF requirements should be deemed a best practice and considered with respect to elevating the importer’s C-TPAT status to the Tier 3 level.
• In cases where stratified compliance exams are undertaken by CBP (where multiple shipments are under one bill of lading) and the importer is a C-TPAT member, CBP should allow sealed containers not being examined to not only move to destination, but to be released by CBP.
• CBP should also consider the option of releasing for distribution other bills of lading on the same entry (where the importer is a C-TPAT member).  As with the above recommendation, the released containers in question would be those not designated for exam.  To address potential CBP concerns, this benefit would not include containers stuffed by the same party that stuffed the container(s) designated for exam.
• For small and medium-size importers that are highly compliant, CBP should consider a streamlined process for application to C-TPAT.
• In the case of unified ISF filings (submission of the ISF data embedded within the entry data being filed at the same time), conditional release in the system at time of vessel departure should be provided.
• Consideration of mitigation for other penalties (outside those associated with ISF compliance) should be given for highly compliant importers.
• For continuous, highly compliant importers, there may be a situation where CBP identifies a problem that is very low frequency (e.g., one out of a thousand), CBP should take this into consideration with respect to penalties.

If CBP decides to approve these benefits, would you support them?

Do you consider yourself “highly compliant”?

How would these benefits affect your supply chain?

We’d like to hear your thoughts – please feel free to post a comment below.

Questions focus on key practices used by best in class companies and highlight many areas of trade compliance such as:

• Automation of compliance processes
• Department involvement in managing global trade compliance
• Trade compliance improvement initiatives planned for the next year
• Fines due to trade compliance efforts
• Main challenges in improving trade compliance

As a thank you for participating, all qualified survey participants will receive a free copy of the final report – a $399 value.

To begin the survey, click here.

A related party transaction value will be accepted only if it satisfies either the circumstances for sale or closely approximates one of the test values provided in the customs law and information must be provided by the importer.  The fact that an importer provides CBP with a transfer pricing study does not mean the related party transaction value is acceptable.  For customs valuation purposes, the price paid for imported goods sold between related parties will only be accepted by CBP if arm’s length customs requirements are satisfied.

In the ruling letters, transfer pricing methods under International Revenue Code section 482 were used, along with other supporting evidence, to help support customs arm’s-length requirements.  This evokes mixed feelings from customs compliance professionals – some view this as a positive departure from previous rulings on transfer pricing methods and others feel like the decisions represent the current unstructured arm’s-length policy.  Upon careful scrutiny, Luis Abad of KPMG’s Trade & Customs Service Group believes the truth stands somewhere in between.

According to Abad, under the transaction value method of customs valuation, the “price actually paid or payable” for imported goods sold between related parties will be accepted only if either of the two arms-length conditions established in the customs valuation law is met:

1. If an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between the buyer and seller did not influence the price actually paid or payable (also known as the circumstances of sale)
2. If the transaction value closely approximates certain “test values” (essentially these are internal comparable import transactions that have been previously accepted by CBP as the basis of customs value)

Because “test values” are not generally available to importers, the first condition is used most frequently.

Is all of this making your head spin?  If so, register for this free webcast on customs valuation today to find out what it all means.  If you are having trouble with transfer pricing or how customs determines valuation and pricing, this webcast is a must.

Register now and join Andrew Siciliano, Partner – Trade & Customs Practice at KPMG LLP and Integration Point, Inc. for the ‘Customs Valuation Rules – What it all means‘ webcast.

During this one-hour educational webcast, the discussion will focus on the following areas:

• Basics of valuation – what you need to know and pay attention to
• Transfer Pricing vs. Customs Valuation — similarities and differences
• Current challenges surrounding valuation including related party transactions, first sale, and assists
• Customs interpretation — how Customs determines valuation and pricing
• Customs valuation changes – how to apply post-importation price adjustments
• Reasonable care – ensure you are exercising reasonable care in your valuation and pricing practices

And any questions that cannot be answered during the Q&A session following the webcast will be posted and answered on this blog.  Can’t attend but have a question about customs valuation?  Send us your questions and we’ll try to post and answer on here.

Register now for this educational webcast on customs valuation.