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The Importance of Understanding Export Compliance

Export compliance experts expect the Export Compliance Services Market’s CAGR to increase by 9.5% between 2021 and 2027. Besides, the COVID-19  pandemic has awakened stakeholders in this market. Today, they’re focused on the importance of export compliance. 

During the pandemic, countries are imposing stricter regulations. They are crippling the logistics chains. Countries are reducing production rates. 

They’re closing production units and canceling various projects. Yet, these have a significant impact on the export compliance services market. 

The best way to survive these uncontrollable forces is to understand export compliance.

What Is Export Compliance?

Export Compliance is a multifaceted specialty framework. It supports businesses in compliance risk management. Such risks could be administrative sanctions or legal sanctions. 

They could also be financial losses. Or, they could be reputation damages. These come when you fail to follow codes of conduct, good practices, legislations, and laws. Export compliance comprises all activities of exporting and importing goods and services.

These services and goods can be tangible or intangible. They must fall under regulations governing transactions between two distinct jurisdictions or states. Export compliance covers the transfer of payment modes.

What Does Export Compliance Entail?

Every US business must adhere to export compliance rules. Failure to abide by various export compliance rules results in penalties. These are the export customs compliance requirements you must follow:

Proper Product Classification

The office of export compliance uses Schedule B codes.  It also uses the Harmonized System. These systems help classify your products for statistical, quota, or duty purposes. Exporters must know whether the U.S. State Department or Commerce Departments regulate their exports. 

This way, they can know which particular policies to follow. The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) regulates the export and reexport of technology, software, and commodities. 

These commodities fall under the Export Administration Regulations (EAR) jurisdiction. This body also ensures effective treaty compliance systems and exports control. 

BIS enforces anti-boycott and cooperates with other countries. This helps it to control exports, strategic trade issues, and nonproliferation. It reviews exports and technology consignments to foreigners in the United States. This body also reviews license applications for re-exports.

Besides, BIS offers export compliance training. It conducts seminars and implements programs to foster adherence to the EAR. This means you must consult EAR for guidelines on classifying the items you sell.

Adhering to Laws

You can send an item classification request to the BIS. This helps you receive details on the items’ classification and the applicable license regulation. Alternatively, you can search the BIS website for these details. Moreover, you can request BIS for a written advisory opinion on particular EAR dilemmas.

Furthermore, not all the exports under BIS jurisdiction need an export license. Your exports may need a permit. This depends on the product’s technical features, the end-user, end-use, and destination country. 

These simple steps can help you determine if your products need export licenses:

  1. Check if it has a particular Export Control Classification Number (ECCN)
  2. Search your product’s ECCN code at the BIS website or in a printout of the EAR

If your products don’t have an ECCN code and no U.S. agency controls them, they are under EAR99 jurisdiction. For these products, you don’t need an export license.

But, you need a license if you’re exporting the products under this jurisdiction to embargoed countries, to restricted parties, or supporting peculiar end-use.

Proof of Destination’s Export License Requirements

The office of export compliance requires you to determine if your destination country needs an exports license. A BIS license is a must if you’re exporting or re-exporting goods to Iran, North Korea, Syria, Sudan, and Cuba.

But always confirm these countries with part 746 of the EAR. Confirm if your destination country has extra controls by the Office of Foreign Assets Control (OFAC). 

Check the Export Compliance Module. It’s in the shipping solutions professional export document and compliance software. It outlines export license needs. 

Use the Simplified Network Application Process Redesign (SNAP-R) process for products with export licenses to request a BIS export license. 

export compliance

Legitimate Parties to Your Export Transaction

The United States Government and the United Nations have lists of restricted parties.  You can’t export goods or services to these parties. You also can’t export items in the EAR99 classification. 

These restricted parties can be businesses or individuals. They can be organizations engaging in the proliferation of mass destruction weapons. 

You can’t export services and goods to restricted parties engaging in terrorism. The same goes for parties the U.S. has denied export privileges. 

This applies whether these restricted parties are within or outside the United States. Exporting goods or services to restricted parties would violate export compliance. 

So, you must check your destination countries before exporting your goods and services. You can use the Shipping Solutions Professional software’s Export Compliance Module. This helps you check all parties to your transaction before exporting your products.

Products’ End-Use

You must beware of how your clients use your products before exporting them. If your products have prohibited end-uses, you must contact the office of export compliance for appropriate guidance. Besides, you may not export missiles without specific authorization.

BIS also has a list of red flags indicating some products’ possible prohibited end-uses. Hence, you must watch out for these red flags. Exporting them would violate export compliance. 

You should also refrain from exporting goods to reasonably suspicious parties. Be careful with items that aren’t consistent with the purchaser’s needs. Avoid exporting goods to clients who decline product installation and testing when needed.

Deemed Exports Compliance

A deemed export refers to a technical service that doesn’t necessarily leave the country. But the office of export compliance considers it to be an export to the foreign national’s country or home country. National security services and industrial espionage situations often fall under deemed exports. 

The  EAR regards technology as a deemed export if:

  • It’s available for foreign national’s visual inspection
  • It involves an oral exchange
  • It’s available by application or practice under experts’ knowledge

You must check if your exports constitute deemed exports. These have export compliance restrictions if the product:

  • Involves a foreign national’s collaboration or assistance
  • Involves sharing third-party proprietary data
  • Is a software license agreement with language controls to some countries

If this is the case, you must contact BIS for specialized licensing and guidance.

Document Compliance 

The export of goods or services involves some documentation. You need pro forma invoices and commercial invoices. You also need pick-pack shipping labels and lists and transportation documents. 

Transportation documents include the Air Waybill. They also include the Bill of Lading and export compliance documents. They can also include relevant incoterms documents

You must also have the relevant export licenses and destination control statements. This helps you to export goods while being export compliant. 

Export Compliance Violation Is Costly

The  U.S. Department of Commerce’s Bureau of Industry and Security (BIS) penalizes businesses for a single export violation for up to $1 million. Yet, this only applies to criminal case violations. 

Administrative cases can also yield a fine of $250 000 or twice the value of your transaction. Criminal violations also risk a 20years imprisonment. 

Administrative penalties can result in authorities denying you export privileges. These fines apply to small, medium, and large businesses alike.

Avoiding Export Violations

Understanding export compliance helps you avoid export violations. Some legislative export  compliance laws to comply with include:

The Harmonized System

This is a multifaceted classification system that the World Customs Organization manages. It contains the terms and names of goods that export compliance experts use to compile trade statistics and custom tariffs. 

This system is relevant to you as failure to classify exports can cause errors properly. One error can lead to a chain of mistakes. These affect export and import controls, restricted goods, and rates of duties. Violations can cost you hefty fines and border delays. They can affect your business’s operational efficiency.

The Transfer Pricing System

A transfer pricing system includes contributions prices. These can consist of funds, services, assets, intangibles, and tangibles that organizations transfer internally. 

Selling goods from a parent company to a foreign subsidiary is a perfect example of transfer pricing. There are no mechanisms to regulate prices between third parties in this transaction. So, transfer prices affect profit allocation among the company’s parts. 

Transfer price affects the taxes and duties the office of export compliance collects. Transfer pricing can predispose your business to unnecessary export compliance audits. 

Transfer pricing can violate the customs valuation strategies. It’s a severe tax compliance violation. Export tax compliance auditors may penalize you if your business pays fewer duties. Transfer pricing can also force you to pay more duty than you should.

Trade Agreements 

Trade agreements are treaties between two or more states on exchanging services and goods across their borders. They determine whether you can trade without hindrances and tariffs.

Exporting goods to a country with friendly trade agreements can save you extra costs on duties. You can enjoy duty-free exports and imports. 

The U.S. Food Safety Modernization Act

The Food & Drug Administration (FDA) regulates food safety. This regulation helps importers confirm food safety. Importers can submit documented preventative control strategies to legitimize their supply chain.

Exporters can also adhere to safety standards. This way, they can avoid penalties and export barriers that come with food safety issues. So, if you deal with food supplies, you must adhere to relevant food supply logistics. Follow all FDA regulations.

Amends, Remission Orders, Refunds, and Duty Relief

Refunds help businesses enjoy lower duties and tax payables. They allow traders to make non-revenue corrections. They enable them to pay extra taxes and duties when needed. 

This legislation also helps businesses to file disputes. It helps them launch appeals against border control agencies. Duty reliefs also help companies import goods without paying customs duties during importations. 

These import-friendly policies create a suitable environment for exporters. Lenient import policies encourage clients to import more goods, enhancing your business’ growth. These policies also give you a competitive advantage.

Export Customs Compliance, Audits, and Verification 

Compliance involves conforming to all export requirements. Verification involves providing evidence that your export submissions are accurate. 

Likewise, an audit involves a formal examination of documents and records. Audit and verification help exporters establish importers’ profiles. 

They facilitate duties, taxes, and preferential duty collection. These also eliminate logistical bottlenecks, errors, and costly production downtimes. Failure to comply with these regulations may attract expensive penalties.

Export Documentation and Control

Softwood lumber, peanut butter, and firearms need special permits and have stricter controls. Sometimes the destination country may ask for an export permit. 

Understand if your exports and destination countries have specific license requirements and controls. Otherwise, you may not export products that don’t meet all the order fulfillment requirements.

Exporting goods without these specifications attracts fraud, gross negligence, and other penalties.

Effective Export Compliance Training 

Export compliance helps you tailor your export compliance training to applicable compliance rules. It helps you set parameters for offering export trade compliance jobs. 

You can train your employees on the export compliance policies. Export compliance helps you train your employees on updated controls and documentation. 

Understanding Export Compliance Is a Must 

Export compliance is an element of trade compliance. It helps you identify trade agreements in the global market for your business growth. So, always get up-to-date facts on export compliance. Stay updated on export laws. 

Understand customs laws for a more prosperous international business. Onsite Global Logistics has more insights on export compliance. We can help you understand why Businesses are responsible for export compliance. 

Do you know how expedited shipping affects your business? Global business is more complicated today than ever. Contact us to streamline your shipping process. 

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