EXPORT REGULATIONS, CUSTOMS BENEFITS AND TAX INCENTIVES
This chapter covers a wide range of regulations, procedures, and practices that fall into three categories: (1) regulations that exporters must follow to comply with U.S. law; (2) procedures that exporters should follow to ensure a successful export transaction; and (3) programs and certain tax procedures that open new markets or provide financial benefits to exporters.
Although export licensing is a basic part of exporting, it is one of the most widely misunderstood aspects of government regulations for exporting. The export licensing procedure may appear complex at first, but in most cases it is a rather straightforward process. Exporters should remember, however, that violations of the Export Administration Regulations (EAR) carry both civil and criminal penalties. Export controls are administered by the Bureau of Export Administration (BXA) in the U.S. Department of Commerce. Whenever there is any doubt about how to comply with export regulations, Department of Commerce officials or qualified professional consultants should be contacted for assistance.
The EAR are available by subscription from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20401; telephone 202-275-2091. Subscription forms may be obtained from local Commerce Department district offices or from the Office of Export Licensing, Exporter Counseling Division, Room 1099D, U.S. Department of Commerce, Washington, DC 20230; telephone 202-482-4811.
For reasons of national security, foreign policy, or short supply, the United States controls the export and reexport of goods and technical data through the granting of two types of export license: general licenses and individually validated licenses (IVLs). There are also special licenses that are used if certain criteria are met, for example, distribution, project, and service supply. Except for U.S. territories and possessions and, in most cases, Canada, all items exported from the United States require an export license. Several agencies of the U.S. government are involved in the export license procedure.
A general license is a broad grant of authority by the government to all exporters for certain categories of products. Individual exporters do not need to apply for general licenses, since such authorization is already granted through the EAR; they only need to know the authorization is available.
Individually Validated License_
An IVL is a specific grant of authority from the government to a particular exporter to export a specific product to a specific destination if a general license is not available. The licenses are granted on a case-by-case basis for either a single transaction or for many transactions within a specified period of time. An exporter must apply to the Department of Commerce for an IVL. One exception is munitions, which require a Department of State application and license. Other exceptions are listed in the EAR.
Determining which license to use
The first step in complying with the export licensing regulations is to determine whether a product requires a general license or an IVL. The determination is based on what is being exported and its destination. The determination is a three-step procedure:
1. Determine the destination. Check the schedule of country groups in the EAR (15 CFR Part 770, Supp. 1) to see under which country group the export destination falls.
2. Determine the export control commodity number (ECCN). All dual-use items (items used for both military and civilian purposes) are in one of several categories of commodities controlled by the Department of Commerce. To determine what ECCN applies to a particular commodity, see the Commodity Control List in the EAR (15 CFR Part 799.1, Supp. 1).
3. Determine what destinations require an IVL. Refer to the specified ECCN in Part 799.1 of the EAR. Look under the paragraph "Validated License Required" to check which country groups require an IVL. If the country group in question is not listed there, no IVL is required. If it is listed there, an IVL is required unless the commodity meets one of the technical exceptions cited under the ECCN.
To avoid confusion, the exporter is strongly advised to seek assistance in determining the proper license. The best source is the Department of Commerce's Exporter Counseling Division. Telephone or write to Exporter Counseling Division, Room 1099D, U.S. Department of Commerce, Washington, DC 20230; telephone 202-482-4811. Or the exporter may check with the local Commerce district office. An exporter can also request a preliminary, written commodity classification opinion from the Office of Technology and Policy Analysis, U.S. Department of Commerce. P.O. Box 273, Washington, DC 20044.
Shipments under a general license
If, after reviewing the EAR or after consulting with the Department of Commerce, it is determined that an IVL is not required, an exporter may ship its product under a general license.
A general license does not require a specific application. Exporters who are exporting under a general license must determine whether a destination control statement is required. (See the "Antidiversion, Antiboycott, and Antitrust Requirements" section of this chapter.)
Finally, if the shipment is destined for a free-world destination and is valued at more than $2,500 or requires a validated export license, the exporter must complete a shipper's export declaration (SED). SEDs are used by Customs to indicate the type of export license being used and to keep track of what is exported. They are also used by the Bureau of Census to compile statistics on U.S. trade patterns.
Shipments under an individually validated license
If an IVL is required, the U.S. exporter must prepare a Form BXA-622P, "Application for Export License," and submit it to BXA. The applicant must be certain to follow the instructions on the form carefully. In some instances, technical manuals and support documentation must also be included.
If the application is approved, a Validated Export License is mailed to the applicant. The license contains an export authorization number that must be placed on the SED. Unlike some goods exported under a general license, all goods exported under an IVL must be accompanied by an SED.
The final step in complying with the IVL procedure is recordkeeping. The exporter must keep records of all shipments against an IVL. All documents related to an export application should be retained for five years. Section 787.13 of the EAR covers recordkeeping requirements.
Avoiding Delays in Receiving an Individually Validated License_
In filling out license applications, exporters commonly make four errors that account for most delays in processing applications:
1. Failing to sign the application.
2. Handwriting, rather than typing, the application.
3. Responding inadequately to section 9b of the application, "Description of Commodity or Technical Data," which calls for a description of the item or items to be exported. The applicant must be specific and is encouraged to attach additional material to explain the product fully.
4. Responding inadequately to section 12 of the application, where the specific end use of the products or technical data is to be described. Again, the applicant must be specific. Answering vaguely or entering "Unknown" is likely to delay the application process.
In an emergency, the Department of Commerce may consider expediting the processing of an IVL application, but this procedure cannot be used as a substitute for the timely filing of an application. An exporting firm that feels it qualifies for emergency handling should contact the Exporter Counseling Division.
Certain applications for an IVL must be accompanied by supporting documents supplied by the prospective purchaser or the government of the country of ultimate destination. By reviewing Part 775 of the EAR, the exporter can determine whether any supporting documents are required.
The most common supporting documents are the international import certificate and the statement of ultimate consignee and purchaser. The international import certificate (Form ITA-645P/ATF-4522/DSP-53) is a statement issued by the government of the country of destination that certifies that the imported products will be disposed of responsibly in the designated country. It is the responsibility of the exporter to notify the consignee to obtain the certificate. The import certificate should be retained in the U.S. exporter's files, and a copy should be submitted with the IVL application.
The statement of ultimate consignee and purchaser (BXA Form 629P) is a written assurance that the foreign purchaser of the goods will not resell or dispose of goods in a manner contrary to the export license under which the goods were originally exported. The exporter must send the statement to the foreign consignee and purchaser for completion. The exporter then submits this form along with the export license application.
In addition to obtaining the appropriate export license, U.S. exporters should be careful to meet all other international trade regulations established by specific legislation or other authority of the U.S. government. The import regulations of foreign countries must also be taken into account. The exporter should keep in mind that even if help is received with the license and documentation from others, such as banks, freight forwarders or consultants, the exporter remains responsible for ensuring that all statements are true and accurate.
To help ensure that U.S. exports go only to legally authorized destinations, the U.S. government requires a destination control statement on shipping documents. Under this requirement, the commercial invoice and bill of lading (or air waybill) for nearly all commercial shipments leaving the United States must display a statement notifying the carrier and all foreign parties (the ultimate and intermediate consignees and purchaser) that the U.S. material has been licensed for export only to certain destinations and may not be diverted contrary to U.S. law. Exceptions to the use of the destination control statement are (1) shipments to Canada and intended for consumption in Canada and (2) shipments being made under certain general licenses. Advice on the appropriate statement to be used can be provided by the Department of Commerce, the Commerce district office, an attorney, or the freight forwarder.
The United States has an established policy of opposing restrictive trade practices or boycotts fostered or imposed by foreign countries against other countries friendly to the United States. This policy is implemented through the antiboycott provisions of the Export Administration Act enforced by the Department of Commerce and through the Tax Reform Act of 1977 enforced by the Department of the Treasury.
In general, these laws prohibit U.S. persons from participating in foreign boycotts or taking actions that further or support such boycotts. The antiboycott regulations carry out this general purpose by
The antiboycott provisions of the Export Administration Act apply to all U.S. persons, including intermediaries in the export process, as well as foreign subsidiaries that are "controlled in fact" by U.S. companies and U.S. officials.
The Department of Commerce's Office of Antiboycott Compliance (OAC) administers the program through ongoing investigations of corporate activities. OAC operates an automated boycott-reporting system providing statistical and enforcement data to Congress and to the public, issuing interpretations of the regulations for the affected public, and offering nonbinding informal guidance to the private sector on specific compliance concerns. U.S. firms with questions about complying with antiboycott regulations should call OAC at 202-482-2381 or write to Office of Antiboycott Compliance, Bureau of Export Administration, Room 6098, U.S. Department of Commerce, Washington, DC 20230.
The U.S. antitrust laws reflect this nation's commitment to an economy based on competition. They are intended to foster the efficient allocation of resources by providing consumers with goods and services at the lowest price that efficient business operations can profitably offer. Various foreign countries _ including the EC, Canada, the United Kingdom, Federal Republic of Germany, Japan, and Australia _ also have their own antitrust laws that U.S. firms must comply with when exporting to such nations.
The U.S. antitrust statutes do not provide a checklist of specific requirements. Instead they set forth broad principles that are applied to the specific facts and circumstances of a business transaction. Under the U.S. antitrust laws, some types of trade restraints, known as per se violations, are regarded as conclusively illegal. Per se violations include price-fixing agreements and conspiracies, divisions of markets by competitors, and certain group boycotts and tying arrangements.
Most restraints of trade in the United States are judged under a second legal standard known as the rule of reason. The rule of reason requires a showing that (1) certain acts occurred and (2) such acts had an anticompetitive effect. Under the rule of reason, various factors are considered, including business justification, impact on prices and output in the market, barriers to entry, and market shares of the parties.
In the case of exports by U.S. firms, there are special limitations on the application of the per se and rule of reason tests by U.S. courts. Under Title IV of the Export Trading Company Act (also known as the Foreign Trade Antitrust Improvements Act), there must be a "direct, substantial and reasonably foreseeable" effect on the domestic or import commerce of the United States or on the export commerce of a U.S. person before an activity may be challenged under the Sherman Antitrust Act or the Federal Trade Commission Act (two of the primary federal antitrust statutes). This provision clarifies the particular circumstances under which the overseas activities of U.S. exporters may be challenged under these two antitrust statutes. Under Title III of the Export Trading Company Act (see chapter 4) the Department of Commerce, with the concurrence of the U.S. Department of Justice, can issue an export trade certificate of review that provides certain limited immunity from the federal and state antitrust laws.
Although the great majority of international business transactions do not pose antitrust problems, antitrust issues may be raised in various types of transactions, among which are
The potential U.S. and foreign antitrust problems posed by such transactions are discussed in greater detail in chapter 16. Where potential U.S. or foreign antitrust issues are raised, it is advisable to obtain the advice and assistance of qualified antitrust counsel.
For particular transactions that pose difficult antitrust issues, and for which an export trade certificate of review is not desired, the Antitrust Division of the Department of Justice can be asked to state its enforcement views in a business review letter. The business review procedure is initiated by writing a letter to the Antitrust Division describing the particular business transaction that is contemplated and requesting the department's views on the antitrust legality of the transaction.
Certain aspects of the federal antitrust laws and the Antitrust Division's enforcement policies regarding international transactions are explored in the Department of Justice's Antitrust Enforcement Guidelines for International Operations (1988).
The FCPA makes it unlawful for any person or firm (as well as persons acting on behalf of the firm) to offer, pay, or promise to pay (or to authorize any such payment or promise) money or anything of value to any foreign official (or foreign political party or candidate for foreign political office) for the purpose of obtaining or retaining business. It is also unlawful to make a payment to any person while knowing that all or a portion of the payment will be offered, given, or promised directly or indirectly, to any foreign official (or foreign political party, candidate, or official) for the purposes of assisting the person or firm in obtaining or retaining business. Knowing includes the concepts of conscious disregard and willful blindness. The FCPA also contains provisions applicable to publicly held companies concerning financial recordkeeping and internal accounting controls.
The Department of Justice enforces the criminal provisions of the FCPA and the civil provisions against "domestic concerns." The Securities and Exchange Commission (SEC) is responsible for civil enforcement against "issuers." The Department of Commerce supplies general information to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA.