Ch. 10: International Trade Management

Foreign and domestic merchandise may be moved into FTZs for operations not otherwise prohibited by law, including these *Permitted Activities*:

(*ON TEST*) -Assembly -Exhibition -Inspection -Salvage -Destruction -Reclassification -Manufacturing -Processing -Storage -Testing -Relabling -Repacking Port of Entry: Any port nated by the U.S. government where goods may enter the U.S. Benefits Inbound: Local and State tax breaks and benefits. Duty deferral and reduction. Streamlined cost-saving input procedures. FTZ Benefits Outbound: Re-export duty exemption. Inverted tariff relief. No duties for waste or zone-to-zone transfer Marketplace: Duties paid upon leaving FTZ and entering U.S. markets. No duties paid if re-exported. Establishing an FTZ: FTZ's may be formed by any public entity, including qusi-governmental corporations or organizations. The process is long but clear and the benefits often far outweigh time and expense of establishment.

Businesses violating trade regulations face fines of up to...

*40% of the value of the merchandise* for "negligence," *which can mean simply failing to keep certain necessary records*.

Global Supply Chain - Opportunities

*Increased revenue* through global business (i.e., more customers) and economic opportunities *Increased sourcing options* with more potential sources of supply to choose from including potential economic opportunities

An intentional or unintentional export of controlled technology can easily occur within the walls of your company, *even if located within the borders of the U.S*:

*The release can be visual, oral, through on the job training, or via systems access, etc.* "Technology" is defined as the specific information necessary for the development, production or use of a commodity Usually, technology is even more strictly controlled than a commodity The proper controls are needed to ensure that any such export occurs legally (i.e., with the proper licenses and approvals) and does not expose you or your company to penalties.

Trade Compliance Systems can

*automate the process* of checking every transaction -For commercial and non-commercial products against every legal regulation before import or export.

International Trade Compliance is a *major concern* and dozens of laws, regulations and rules have to be checked and complied with for..

*every import and/or export transaction*

While in the FTZ, merchandise is...

*not subject to U.S. duty or excise tax* -U.S. duty and excise tax, if applicable, are only payable when the material is moved outside the FTZ for consumption.

On March 1st 2003, DHS assumed responsibility for...

*securing borders and transportation systems* which straddle 350+ official ports of entry and connects our homeland to the rest of the world. The Department's first priority is to prevent the entry of terrorists and the instruments of terrorism, while simultaneously *ensuring the efficient flow of lawful traffic and commerce*

Benefits of Trade Compliance Systems

- Increased level of *compliance* compared to a manual process. - Decreased number of *physical inspections* by US Customs & Border Protection - Faster *release* of shipments by US Customs & Border Protection. - Avoidance of *fines* and *penalties*. - Opportunity to *interface* with other systems.

U.S. Department of Homeland Security's (DHS) Mission is to:

1. Prevent terrorist attacks within the United States 2. Reduce America's vulnerability to terrorism 3. Minimize the damage from potential attacks and natural disasters

Goods are *not legally entered into US commerce* until:

1. The shipment has arrived within the port of entry 2. Delivery to the shipping destination has been authorized by CBP (following submission and review of required documentation) 3. Estimated duties have been paid.

*Millions of shipments cross into the US annually* providing the US with goods and services:

11.2 million trucks 2.2 million rail cars 7,500 foreign-flag ships making 51,000 calls on U.S. ports On a typical day, 70,334 truck, rail, and sea containers are arriving at 328 ports across the US.

A typical *cross-border* shipment involves:

Accurately completing and filing about *35 documents*. Compliance with over *600 laws* and *500 trade agreements* which are constantly changing. Interfacing with about *25 parties*, including Customs, carriers, freight forwarders, other government agencies, etc.

CBP is also concerned with *revenue collection* (i.e. tariffs and duties). Revenue is determined by item such as:

Correct valuation (price paid or payable) Correct classification Country of Origin (COO) Identification of the merchandise Identification of buyer and seller and whether they are related

Import / Export Process Flow

Foreign Country *Export* to USA --> USA *Import* from a Foreign Country Foreign Country *Import* from USA <-- USA *Export* to Foreign Country

Trade Compliance Systems (or Global Trade Management systems)

Have become a vital tool for every major importing and exporting company in the US. Really the only way to *keep current* with all of the continuously changing laws, regulations and procedures.

The shipper must:

Know the product or technology being exported Know where it is being produced Know where and to whom it is being sent Know who will use the product Know whether there are any illegal restrictions in the order, L/C or other document (e.g. Boycott clauses).

International Trade Compliance

Managing international trade activities is *complicated*

Customs Brokers

Move global shipments through customs and handle documentation.

International Freight Forwarders

Move goods to and from foreign destination

Non-Vessel-Operating Common Carriers (NVOCC)

Operate like freight forwarders but use only scheduled ocean liners.

U.S. Customs and Border Protection (CBP)

Originally established in 1789, U.S. Customs and Border Protection (CBP) controls the import process It is the "*Gateway agency*" for more than 20 other government agencies each of which has some control over various aspects of international trade. Its' mission is to *safeguard America's borders* thereby protecting the public from dangerous people and materials while enhancing the Nation's global economic competitiveness by *enabling legitimate trade and travel*.

Foreign Trade Zones (FTZ's)

Physical areas *inside* the US supervised by U.S. Customs and Border Protection that are considered to be *outside of the U.S. territory*. Usually located at or near a port of entry.

Trading Companies

Put buyers and sellers from different countries together and handle export/import arrangements, documentation and transportation.

Statutory Sanctions

Seizure and forfeiture of items in violation, including the vessels and aircraft carrying the items. Loss of import and/or export privileges for a business unit, division, or for the entire company. Detailed inspections of every single shipment, and delayed release by US Customs & Border Protection.

Criminal Penalties

Substantial Fines (and/or) 10+ years imprisonment

Civil Penalties

Substantial fines per occurrence Individual and/or company sanctions

Global Supply Chain - Challenges

Tariffs or duties (i.e., import taxes) Transporting goods across borders can be *complex* and involve *new/different partners* Customs, business practices, and regulations vary by country Foreign markets are not homogeneous even within the country

Trade regulations and related content are at the heart of ITC, but *staying up-to-date is a major challenge* because:

The information changes frequently It's often made available only in a foreign language It's not always produced in an electronic form

International Freight Security

Transportation across national boundaries introduces added complexity, particularly security. Since 9/11 there is more conflict between the U.S. government and industry regarding more security and restrictions for international shipments.

Export Process

When a shipment is ready to be exported, the shipper will file *export documents* for the goods' at the port of departure. Shipments must conform to *Export Administration Regulations* Complete and submit a *Shippers Export Declaration (SED)* Submit a *Commercial Invoice* for the product.

Import Process

When a shipment reaches the US, the *Importer of Record* (i.e., the owner, or purchaser) must file entry documents at the port of entry.

CBP works to secure and facilitate imports arriving in the U.S., accommodating the...

increasing volume and complexities of international trade. "*Pushing the borders back*" Protects U.S. through *active inspections* at ports of entry. Has a strong base of *industry partnerships and technology* to safeguard the American public and promote legitimate international commerce.

Foreign-trade zone sites are subject to the laws and regulations of the United States as well as those...

of the states and communities in which they are located. There is *no limit* on the time material may remain in the zone. *Internationally*, similar areas are called *Free Trade Zones*.

Deemed Exports

the release of technology or source code that is *subject to the Export Administration Regulations*, to a *foreign national* i.e., non-US citizen) located in the United States.