International Business Training - Trade Articleshttp://www.ibt-articles.com/absnet/?z=2International Logistics: Four Critical ElementsThe transport of cargo is one of the most critical aspects of international trade. As essential as transport is, however, it is only a means to an end—goods are transported from origin to destination to meet demand. Demand is driven by what individuals wish to do with the product—be it in an industrial setting or a private setting. As an executive of a drill manufacturing company once said, "People do not buy 1/4-inch drill bits, they buy 1/4-inch holes."
 
The attributes of a product have an influence on its handling requirements and mode of transport across international boundaries. For example, live lobsters moving from Australia to Japan would travel by air due to their highly sensitive nature and perishability. When lobsters get stressed, they drop their tail—an obvious problem.
 
Other examples of perishable cargo include temperature sensitive materials such as fruit, vegetables and meat, although not all of these goods travel by air. There are also a number of items that are perishable due to seasonality: fashion items (these date quickly); computers (fragile, highly expensive and outdated very quickly); and special events (Formula 1 racing cars and Christmas decorations). The list could be expanded, of course, to include a variety of cargo that is transported across all modes of transport.
 
It must be remembered that transport does not improve a product—at best it will do it no harm. A faulty product is not fixed simply because it is transported between two places. However, a good product can quite easily be made defective because it has been transported between two places.
 
With this in mind, there are four important elements of international logistics that are critical to cargo movements: 1) Integrity, 2) Pedigree, 3) Chain of Custody, and 4) Track and Trace. Each of these is discussed below. However, before discussing these, it should be noted that the choice of Incoterms 2000 (expected to be superseded by Incoterms 2010 on 1 January 2011) will determine who is responsible for the transport formalities, with consequential impact on the trading parties. For example, in EXW terms, the seller is not concerned with transport arrangements, as these belong to the buyer, whereas with delivered terms (DAF, DES, DEQ, DDU, DDP), the responsibility for transport arrangements rests with the seller.
 
Integrity
 
The integrity of the consignment is probably the most critical element of transportation. At the end of the journey the consignee is entitled to receive a product that is in accordance with the contractual requirements. It is very likely that when the product left the seller's premises the product was in good condition and in conformity with the contractual requirements, but what has happened during transportation? Was the product pilfered? Did it arrive damaged, or was it improperly handled/treated during transportation? In other words, has it been tampered with? To build quality assurance in the transportation of products, some practices, now fairly well established, are useful. In the case of temperature critical products, for example, it is customary to include a temperature monitor (or several of these) in one consignment. If the product is traveling by air, it is also usual to put ice inside shipping boxes.
 
To minimize breakdown of consignment integrity, the consignor of the goods needs to properly pack and label the consignment in accordance with the contractual requirements and provide written instructions to the carrier on how to handle the cargo. Where problems arise, records should be detailed in an exception report and monitored accordingly. Where similar events take place over a period of time, it may be necessary to consider alternative arrangements including changing the carrier, routing or handling agents.
 
Pedigree
 
Where did the product come from? It is important to know the origin of the product both from a product quality perspective and also for customs formalities. Depending on the product in question, traceability to origin may be regulated, such as in the case of meat in the European Union. The label on packs of meat sold in supermarkets must display its origin. This requirement arose from the Mad Cow disease and subsequent Foot and Mouth disease outbreaks. If a firm is operating under these circumstances, then traceability assumes greater importance. This leads us to the next point.
 
Chain of Custody
 
Who handled it? The handling of the product from a physical perspective will directly impact the integrity of the consignment. Rough handling puts stress on the product with the possibility of latent damage downstream or more immediately apparent problems in the case of obviously damaged goods. From a risk management point of view, it is important to know who has custody of the goods and at which stage of the transport process, in order to identify the party responsible and liable for delays and the compromising of the consignment. This leads us to the last point.
 
Track and Trace
 
Where is it? Transport visibility is desirable because it enables us to pinpoint exactly where the consignment is at any stage of the process. This enables us to plan for the timely arrival of goods or devise contingency plans in case of delays. For manufacturing firms following the principles of just-in-time and typically carrying minimal buffer stock, early warning of delays is vital in triggering alternate action plans to avoid shutdowns of production lines. Visibility also enables us to evaluate the performance of the carrier against either industry standards or delivery promises. It is very common for carriers to provide track and trace options free of charge via the internet, providing virtually real time information.
 
Transport is inescapable in international trade. Given the high impact of delivery delays, it is recommended that importing firms implement transport evaluation programs that identify the origin of the product, the chain of custody, and visibility en route to ensure the integrity of the consignment is not compromised.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=396Mon, 30 Aug 2010 00:00:00 GMTThe National Export Initiative: Is Help on the Way?In the State of the Union Address this past January, President Obama announced the creation of the National Export Initiative (NEI), which was later signed into effect by way of Executive Order on March 11, 2010. The NEI is designed to allow for the following:
  • Funding of export promotion activities, as well as more intra-governmental agency cooperation and coordination.
  • Creation of export assistance programs geared toward first time exporters, as well as export assistance program enhancements geared toward seasoned exporters who are looking for new export opportunities within new markets.
  • Removal of trade barriers abroad by diligently working with foreign governments.
  • Assistance for small businesses to overcome hurdles to entering new markets abroad, as well as financing objectives through the Export-Import Bank.
  • Creation of an Export Promotion Cabinet, which will report directly to the President, whose members would include the following:
    • Secretary of State
    • Secretary of Treasury
    • Secretary of Agriculture
    • Secretary of Commerce
    • Secretary of Labor
    • Director of Office of Management and Budget
    • United States Trade Representative
    • Assistant to the President for Economic Policy
    • National Security Advisor
    • Chair of the Council of Economic Advisers
    • President of the Export-Import Bank of the United States
    • Administrator of the Small Business Administration
    • President of the Overseas Private Investment Corporation
    • Director of the United States Trade and Development Agency
    • Heads of other executive branch departments, agencies and offices as may be appointed by the President.
  • Effective use of government led trade missions to ensure the promotion of exports by U.S. companies with the cooperation of state and local government officials along with the private sector.
  • Conduct of trade missions to ensure they effectively promote exports by American companies.
  • Pursuit of the first ever government-wide approach to export promotion by ensuring government-wide support for commercial advocacy objectives, as well as advocacy for American made products.
The President has signed an executive order for the implementation of the NEI, so what happens now? Within 180 days of the President signing the executive order, the Export Promotion Cabinet must present to the President a comprehensive plan that will carry out the goals of the NEI, which have been outlined above.
 
In addition to the NEI, the President will also receive information from the President's Export Council (PEC) which is considered to be the President's "national advisory committee" on international trade. Members of the PEC will advise the Administration on governmental policies and programs that directly affect trade performance, as well as the promotion of export expansion. In addition, the PEC also serves as an open forum for the discussion and resolution of trade related issues among various industrial sectors, including governmental sectors.
 
On July 7, President Obama appointed the following individuals to the PEC to represent various industrial sectors of the American economy:
  • W. James McNerney, Jr., PEC Chair, Chairman, President and Chief Executive Officer, The Boeing Company
  • Ursula M. Burns, PEC Vice Chair, Chief Executive Officer, Xerox Corporation
  • Mary Vermeer Andringa, President and Chief Executive Officer, Vermeer Corporation
  • Stephanie A. Burns, Chairman, President and Chief Executive Officer, Dow Corning
  • Scott Davis, Chairman and Chief Executive Officer, UPS
  • Richard L. Friedman, President and Chief Executive Officer, Carpenter & Company, Inc.
  • Gene Hale, President and Founder, G&C Equipment Corporation
  • C. Robert Henrikson, Chairman, President and Chief Executive Officer, MetLife, Inc.
  • William Hite, General President, United Association
  • Robert A. Iger, President and Chief Executive Officer, The Walt Disney Company
  • Charles R. Kaye, Co-President, Warburg Pincus
  • Jeffrey Kindler, Chairman and Chief Executive Officer, Pfizer
  • Andrew N. Liveris, President, Chairman and Chief Executive Officer, The Dow Chemical Company
  • Robert A. Mandell, former Chairman and Chief Executive Officer, Greater Properties
  • Alan Mulally, President and Chief Executive Officer, Ford Motor Company
  • Raul Pedraza, Founder and President, Magno International L.P.
  • Ivan Seidenberg, Chairman and Chief Executive Officer, Verizon
  • Glenn Tilton, Chairman, President and Chief Executive Officer, UAL Corporation
  • James S. Turley, Chairman and Chief Executive Officer, Ernst & Young
  • Patricia A. Woertz, Chairman of the Board, Chief Executive Officer and President, Archer Daniels Midland Company
In addition, there are five senators and five representatives serving on the PEC:
  • Congressman Pat Tiberi, R-Ohio
  • Congressman Dave Reichert, R-Washington
  • Congresswoman Linda Sanchez, D-California
  • Congressman Mark Schauer, D-Michigan
  • Congressman David Wu, D-Oregon
  • Senator Sherrod Brown, D-Ohio
  • Senator Mike Crapo, R-Idaho
  • Senator Byron Dorgan, D-North Dakota
  • Senator Debbie Stabenow, D-Michigan
  • Senator Ron Wyden, D-Oregon
With all of these people investing their time and energy into strengthening our ability to export and leveling the playing field for American businesses to become more competitive on the international market, hopefully something substantial will come from the NEI coupled with the overhaul of the export control system.
 
Those of us who conduct export transactions every day are encouraged to send concerns, ideas and suggestions to the PEC at www.trade.gov/pec.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=395Mon, 23 Aug 2010 00:00:00 GMTThe Compliant Organization—Part 1: Where Does Trade Compliance Belong?I am frequently asked where the trade compliance office should be placed within an importing or exporting organization. Should it be part of sales, accounting, shipping, legal, purchasing, supply chain? My answer may seem flippant, and among readers of this column, it may even seem controversial.
 
It really doesn't matter! The fact that your company has recognized the need for a dedicated trade compliance office and is placing it somewhere in the organization is good enough!
 
"Heresy!" you decry.
 
Fair enough. Allow me to rephrase that last statement.
 
It really doesn't much matter where the trade compliance team is placed in the organization as long as it can effectively oversee and control the importing and exporting activities of the company.
 
Is that better?
 
Experience has shown that trade compliance offices can be more successful when slotted into certain parts of the organization compared with others. No matter where your company places the group, there will be tradeoffs. This is because the concept of trade compliance extends across a broad range of business activities within any importing or exporting company. It is rare, however, that any single group within a company is tasked with all of these activities. Indeed, many organizations are divided into pockets or silos of independently operating disciplines sometimes with conflicting business objectives and agendas.
 
Let us look at some of the typical places in organizations where trade compliance is placed and discuss the advantages and disadvantages of each.
 
Traffic/Logistics
 
The logistics or transportation department seems to be a logical location for a trade compliance office. This is because the customs entry, AES and logistics processes are intertwined. The group is well positioned to be aware of and respond quickly to issues that arise. As one of the last links in a commercial supply chain the transportation team is frequently the victim of some unwitting decision made earlier in the process. Implementing controls and changing upstream behavior can be a challenge for the downstream traffic office.
 
Some logistics teams are measured using transit time and cost-minimization goals. These could be perceived to conflict with trade compliance objectives that can, on occasion, delay a shipment or cause additional expense. If this is the case a company will need to implement controls to ensure logistics and compliance goals do not conflict with one another.
 
Sales/Customer Service
 
It is not uncommon for export trade compliance to fall under the sales arm of an organization. The benefit of such placement is that the sales team has valuable visibility into the end use and end user. Because of this it is well positioned to evaluate the compliance ramifications sooner in the sales cycle, helping the company focus its limited marketing resources on both profitable and compliant business. The downside is that sales organizations frequently have conflicting short-term sales goals. These might lead the sales team to disregard compliance red flags. An organization that takes a longer term more measured approach to its markets may be able to temper this inherent conflict. Some companies do this by assigning trade compliance to the inside sales or customer services associates who are able to nurture the customer relationship while ensuring the company remains compliant.
 
Product Management/Purchasing/Inventory Management
 
The mirror image of the above for importers would be to assign trade compliance to the purchasing department or inventory managers. The benefit of such an alliance is that the trade compliance team will be better positioned to influence the beginning of the supply chain. Purchasing-based compliance teams have advanced notice of new origins, vendors and products to ensure product screening, classification and vendor compliance. Purchasing departments, however, have a vested interest in cost and duty minimization. This may cloud their judgment when assigning HTS codes or screening for antidumping duties.
 
Export offices within sales and customer service organizations and import offices within product procurement offices both suffer from the same structural weakness. They tend to be distanced from the logistics of exporting and importing and may face challenges executing delivery of goods. As a result they may be limited in their ability to respond to in-transit compliance urgencies.
 
Accounting
 
Placing trade compliance within the accounting department is another common choice of international companies. Accounting departments are steeped in the concept of control. They usually are responsible for approving new vendor and customer relationships, assigning product codes, and monitoring purchasing and sales commitments. On the back end of a transaction they are aware of vendor payments, customer receipts, and shipping and receiving variances. These controls and this vantage point complement the responsibilities of a trade compliance office. Accounting has one of the strongest tools available in business. It controls the corporate purse strings. Withholding payment is a surefire method of gaining a trading partner's attention and eventual cooperation.
 
As with the sales and purchasing examples above, these offices may be unfamiliar and distanced from supply chain management and the logistics processes and may face challenges intervening effectively when required.
 
Legal/Regulatory Compliance
 
It is not unusual for trade compliance teams to report directly through the legal or regulatory compliance team. Such departments typically have strong influence with senior management and as such can be effective at driving compliance strategies throughout all levels of an organization.
 
As with several of the operations above, such organizations are often removed from day-to-day operations. While effective at driving strategy they may be less effective at implementing successful tactical controls.
 
Supply Chain
 
Some companies have bridged their organizational silos by developing integrated supply chain teams that take a more holistic view of their operations. Placing trade compliance within such a group puts it on par with and gives it the opportunity to influence other critical parts of the supply chain.
 
Supply chain based trade compliance offices are still distanced somewhat from some of the other areas in the company such as accounting and strategic planning. Placing trade compliance within the supply chain organization can, however, be a reasonable compromise to my unreservedly favorite choice and that is to create a completely independent compliance team.
 
Independent Trade Compliance Office
 
For some companies the optimal organizational structure places trade compliance on par with operations, purchasing, finance and legal functions within the company. Such trade compliance offices are organized under a C-Level executive such as a Chief Compliance Officer who may have responsibility for a broad range of regulatory compliance functions. This type of structure is the most effective at providing corporate-wide visibility to trade compliance and for empowering the trade compliance team to take effective action within the company.
 
The greatest weakness of an independent office is that it risks isolating itself from the organization becoming what can be referred to as "fortress compliance." When integrated properly into the business, however, centralized independent compliance offices can be very effective.
 
All of the above begs the question about the human factor. Sometimes a trade compliance office falls under the responsibility of a specific area of the company because the C-level executive or vice president of that area happens to have some experience with international trade and trade compliance or simply has the bandwidth to take on the responsibility.
 
Wherever trade compliance is placed within the organization there will be tradeoffs. Acknowledging inherent organizational disadvantages and conflicts can help companies temper and overcome them. Each company will have to explore this road on its own and decide for itself where its trade compliance office will be most successful.
 
The above presumes a centralized corporate structure. What does a company do that has multiple operating groups and locations? We will discuss this in Part 2 of this article.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=394Mon, 16 Aug 2010 00:00:00 GMTThe Black Magic of International TradeIn many companies the art of moving goods across international borders is viewed as black magic. In fact, I have a colleague who keeps a magic wand in his desk just for such emergencies. When Inventory or Shipping begin screaming about backorders and delays at Customs he simply produces the potent wand, whisks it mindlessly through the air, and "presto-chango" the consignment appears… sometimes.
 
The fact is, in many companies the trade compliance group (if there is one) doesn't get the respect or resources they need to do an adequate job. Senior management maintains a "don’t look behind the curtain" mentality and is reluctant to commit additional resources.
 
Why?
 
Because as long as the "Wizard" (a role played by the import or export department) keeps delivering inventory and no one with guns or search warrants is in the lobby, they take a leap of faith that the organization is compliant. But remember what happens when we just assume?
 
This business we call international trade and/or supply chain is full of land mines and mantraps, and if you take your eye off the ball for one minute you can find yourself in significant trouble. Sadly, some companies totally neglect the necessity to be compliant until it's too late and the lobby is full of auditors or other enforcement types. When this happens it can be a very painful experience. Responding to an audit, or worse yet a subpoena, is time consuming, extremely expensive and it can have a profound impact on your transactions for years to come.
 
The cornerstone of any best-in-class import or export trade compliance program starts in the board room and executive offices. Without the unconditional support of senior leadership, building a respected and highly compliant program becomes exponentially more difficult. In some companies the trade compliance department can be viewed as a nuisance or "blocker," when in reality they are only trying to protect the company's supply chain and reputation with the authorities.
 
The senior leadership of any company engaged in global trade must recognize that the soft dollars saved on export or import compliance programs might be invisible or difficult to quantify; but all it takes is one penalty case or fine to quickly erase the hard dollar savings gleaned from cutting corners on trade compliance, not to mention the damage done to the company's reputation and suffering the full wrath and powers of the federal government.
 
So, if the support isn't there today the obvious question then becomes: "How do I garner and then maintain executive sponsorship for trade compliance at my company?"
 
There is no foolproof way, and it, of course, depends largely on corporate culture and your position within the organization. In some companies it takes a large penalty, audit or some other enforcement action before there is an awakening among the executive leadership. With that as my caveat, I've found that there are two individuals in the corporate hierarchy that you should get as close as possible to: the Chief Financial Officer (CFO) and the General Counsel. Why? Because the CFO can easily relate to the work done in the trade compliance arena with tax laws they must comply with. By using the tax analogy you just might find them a little more receptive. After all, a customs entry is just like a tax return wherein your company is making certain representations and declarations under the threat of penalty if they are inaccurate. And, you're not just doing it quarterly or annually, you're doing it every day. Also it is the CFO's duty to protect the company's purse strings, and if they are awakened to what kinds of penalties could be levied against the company for errors this also tends to get their attention.
 
Once you have the CFO convinced it is time to move on to the General Counsel because no one in the company should understand the importance and necessity of adhering to all applicable laws and regulations more than the resident lawyer. If they have any doubts you might suggest that they read up on the Federal Sentencing Guidelines or the customs penalty statutes; it might just alter their thinking.
 
Both of these individuals, the CFO and General Counsel, should have the ear of the president and/or the board at your company. Once you have penetrated the board room with your case for building a highly compliant program you should be well on your way to adequate funding and the resources necessary for your trade compliance initiatives. Good luck!
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=393Mon, 09 Aug 2010 00:00:00 GMT"Dear Cathy" Discusses the Israeli Certificate of OriginDear Cathy:
 
Our customer in Israel insists that we provide them with a U.S. Certificate of Origin (COO) each time we make a shipment to them. So, we prepared a certificate of origin using the same template we use for all of our customers and signed and dated the form. We even had a notary public sign and stamp the form.
 
The customer's freight forwarder made all the arrangements for the shipment; they picked up the freight and the documents for consolidation at their warehouse. This freight forwarder sent us an email saying that we had sent them the wrong certificate of origin! Instead, we need to provide a U.S. – Israel Free Trade Agreement COO. We Googled the form, downloaded it, filled it out, had a notary sign it, and we sent it to the freight forwarder. Guess what?!! It was rejected! What is going on?
 
(In the meantime, the freight that was so urgently needed is still sitting in the forwarder's warehouse and the customer is mad as a wet hen!)
 
Sincerely,
What to do Next in Oklahoma?
 
Dear What to do Next in Oklahoma:
 
Last month, Jonathan Heimer of the U.S. Embassy in Israel (www.buyusa.gov/Israel) spoke with me about the certificate of origin for shipments to Israel.
 
Here is the guidance that he gave, and which you can read in more detail.
  • The U.S.-Israel free trade agreement eliminated nearly all tariffs and administrative import licensing requirements.

  • In order to quality under the U.S. – Israel free trade agreement your goods must:
    • be grown, produced or manufactured in the U.S. and contain at least 35% U.S. content (materials and labor), and

    • be imported directly from the United States into the customs territory of Israel.

  • You must obtain the specific form that is required by Israeli customs. The form is green. It is available for sale from the American-Israel Chamber of Commerce, Unz & Co., or Apperson Print Resources.

  • Remember, it must be the original green form, signed in blue ink, then notarized; copies of the form (even printed in green with a laser or ink-jet printer) are not acceptable.
I know you are wondering, "Why is the form green?" The million-dollar answer is that it is quick to recognize as an original form, and it was the color of the certificate in the attachment to the Free Trade Agreement when it was signed in 1985.
 
Free the freight by buying the form and filling it out.
 
All the best to "What to do Next in Oklahoma?"!
Cathy
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=390Mon, 02 Aug 2010 00:00:00 GMTAmChams Advance the Interests of American Businesses OverseasAmerican Chambers of Commerce, traditionally referred to as AmChams, are formed to advance the interests of American overseas businesses through advocacy, information, networking and business support services. Currently, there are 94 AmChams in 82 countries affiliated with the U.S. Chamber of Commerce who strive to develop mutually beneficial social and commercial relations between American companies and those of the host country. Through four regional organizations in Asia, Europe, the Gulf Countries, and Latin America, the AmChams represent the concerns and interests of the business community at the highest levels of government.
 
My first exposure to AmChams came in 1972 when I was asked to come to an AmCham breakfast while posted in Japan. A visiting American company wanted to talk to Americans "living and working on the ground," so we could answer questions about doing business in Japan.
 
Meetings like these allow companies to learn about the challenges they will face while doing business in a particular country. By giving useful operating tips, which can save time, money and headaches, AmChams, with services like breakfast briefings, allow companies to get the greatest return on their overseas enterprises. I have lead delegations of American businessmen around the globe, and I used these informal yet informative breakfast briefings to great advantage.
 
The American Chamber of Commerce in Japan (ACCJ), the most influential organization representing the interests of international businesses in Japan, has more than 3,100 representatives from 1,300 companies and from more than 40 countries.
 
The ACCJ serves as the primary forum for the U.S. business community in Japan to identify and pursue common interests and goals. More than 70 Chamber committees and subcommittees meet on a regular basis to discuss issues and exchange ideas and information on topics relevant to specific industries and professions. The chamber offers more than 400 events and seminars annually on policy and business trends in Japan.
 
AmCham-China represents U.S. companies and individuals doing business in China and has more than 2,600 members representing more than 1,200 companies. It has more than 40 industry and issue specific forums and committees, offers unique services such as the Business Visa Program, holds a wide range of networking and informational events, and meets with U.S. and Chinese officials to discuss challenges and opportunities facing U.S. firms doing business in China.
 
Additional AmCham objectives include:
  • Promote the two-way flow of trade and investment between the U.S. and their respective host countries.
  • Provide information on trade and business activities to its members.
  • Speak up for the needs of its members before government in Washington and the host country.
  • Enhance the standing of its members in the local and international community.
  • Encourage public understanding of the role of business in a competitive market system.
  • Create a business-friendly environment between members, policy-makers and business leaders in the host country working to identify common problems in normal business operations and achieve mutually-beneficial solutions.
Additional AmChams services to assist businesses include:
  • Assist with matchmaking to help find overseas reps, agents and business partners.
  • Facilitate communications with other chambers of commerce throughout the United States and around the world.
  • Provide active links with host country industries, businesses and government organizations.
  • Publish commercially relevant "briefs and alert" style communications covering topics such as tax, immigration, security and trade issues.

Here are the four regional AmChams:

The International Division of the Chamber of Commerce of the United States of America improves the ability of U.S. businesses to compete in the global marketplace by providing its members valuable tools and resources, as well as cutting-edge events that bring world leaders to its members.
 
The U.S. Chamber's experts, policy specialists, lobbyists, and lawyers, make up the world's largest not-for-profit business federation representing 3,000,000 businesses, 2,800 state and local chambers, 830 business associations, and 102 American Chambers of Commerce abroad.
 
Members include businesses of all sizes and sectors—from large Fortune 500 companies to home-based, one-person operations. In fact, 96% of members encompass businesses with fewer than 100 employees. You can contact them 202-463-5460.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=392Mon, 26 Jul 2010 00:00:00 GMTExport Encryption Rule RevisionsThe Obama Administration has pledged to conduct an extensive review of our current export control system and to implement changes as necessary to streamline the entire export process. One of the first changes came to light in June. It has just become a little easier to export certain electronic devices found on the mass market that contain encryption or are capable of generating encryption.
 
Assistant Secretary of Commerce for Export Administration Kevin Wolf went on the record saying, "This revised rule enhances our national security and cuts red tape by eliminating the review of readily available encryption items like cell phones and household appliances and allows the government to focus its resources on more sensitive encryption items."
 
With this change, the government will no longer mandate a 30-day technical review period for most mass market items. Rather, the government will now allow exporters, as well as manufacturers, to self-certify products, which would allow those exporters and manufacturers to export those products without a license provided they register with the Bureau of Industry and Security (BIS).
 
The registration process is a one-time event that requires exporters and manufacturers to submit information pertaining to their company and the type of business they are engaged in.
 
Upon completion of the registration process, BIS will provide registrants with a registration number that will allow them to self-certify and export certain mass market items under license exception ENC.
 
As part of the new process, those companies that self-certify will be required to semi-annually provide a full report to BIS and the National Security Agency (NSA) pertaining to all of their exports under license exception ENC. The report must contain the following information:
  • the name and address of the distributor, reseller or individual consumer,
  • the item exported,
  • the quantity of the item exported, and
  • the end-user's name and address, if collected.
Before conducting your next export transaction that involves electronic devices with encryption technology, remember that the rules have changed; double check before you ship!
 
You'll find more information pertaining to the encryption export rule revision at the Bureau of Industry and Security website.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=389Mon, 19 Jul 2010 00:00:00 GMTOMG I'm Choking on Alphabet Soup—ROFLOLI have an admission to make. I am not cool. There, I said it. After all, I'm an international trade geek. What’s cool about that?
 
While I have Facebook and LinkedIn pages and my own website, I still have not succumbed to tweeting and texting. Yes, I have a smart phone, but it is smarter than I am. More vexing are the acronyms used while texting. It feels as if I am choking on alphabet soup!
 
My kids have made me feel like a dinosaur for being so ignorant of the prevailing technology. Text or perish seems to be the mantra of the day.
 
After stewing about this for awhile I have come to a realization. I have not missed the texting revolution after all. Indeed, I have texted for years. I just didn't realize it. Of course, in international trade we don't call it texting, but we do speak in acronyms. Heck, we practically invented the Three Letter Acronym (TLA), forced by the constraints of the telex to be thrifty with the use of language. Telex was the original Twitter! I am not behind the times. I am bleeding edge! How cool is that?
 
(I suppose the same could be said for Morse code and the telegraph, but please, allow me my fantasy.)
 
Even after telex technology was replaced by fax and email we have retained our TLAs, developed a few more and even sprinkled in a few acronyms of differing lengths.
 
For example, most of you exporters understand that the EAR and the FTR have changed the need for a paper SED and now require you to submit an EEI via AES.
 
If you understood that you are VERY cool in my estimation.
 
In the import world it gets more interesting as we blend acronyms with the numbers associated with Customs forms. Importers, of course, are very concerned when DHS's CBP sends them a 28 referencing a specific 7501 for which they cannot find the 3461 aka the ID. They fear it might eventually result in a 29, and we all know that's not good! But, of course, a well written 19 might just help remedy the situation.
 
Not to be outdone, the EAR and FTR also reference something called the PPI and then confuse us about whether the FPPI or the USPPI is responsible for issuing a POA to the freight forwarder.
 
Please, however, don't confuse the export POA with the import POA that the IOR issues to the CHB and is signed by the company's CEO or other corporate officer as detailed under the CFR 19.
 
On the commercial side of trade we rely on the TLAs of INCOTERMS 2000 trying to determine if our PO should reference FCA, CPT or DDU terms. That is because we have all been told that FOB is really not a proper term for most of us. We can all thank the ICC for this conundrum.
 
When it comes to getting paid we need to decide if we will use CIA, CAD or LC among other methods of payment. None of us, however, wants to get a notice of DIP or NSF from our customers or their banks.
 
The shipping industry has not been left out of the game. SS lines, OTIs and NVOCCs are all overseen by the FMC as are the HBLs and OBLs that they issue. These, of course, are regulated under the long-standing FBLA as revised under the OSRA. Carriers move cargo by the numbers with vessels measured in TEUs or FEUs. Containers are also referenced as 20's, 40's, HCs or HQs and 45's or more affectionately as "cans."
 
The FAA concerns itself with air shipments having something to say about AWBs whether they be HAWBs or MAWBs. Air freight security is controlled by the TSA, most notably by its CCSP. Not to be outdone by the ocean industry, airfreight is shipped utilizing ULDs.
 
And, of course, the shipping industry loves using TLAs when creating their invoices. Where would we all be without PSS, BAF, FAF, SS, DDC, CAF and OHC just to name a few? (Would you like fries with that?)
 
I am feeling rather smug at this point. Although my kids may think me a texting dinosaur and nobody else will comprehend what I say, I know that with readers of this column I can confidently use industry TLAs and be understood.
 
At least in some people's eyes I still might be cool.
 
TTYL ;-)
JG
 
B4 we r dun I thawt u wood lik to no wut abuv means. C B-lo
 
(In order as introduced above.)
 
OMG - Oh My Gosh
ROFLOL - Rolling on Floor, Laughing Out Loud
TLA - Three Letter Acronym
EAR - Export Administration Regulations
FTR - Foreign Trade Regulations
SED - Shipper's Export Declaration
EEI - Electronic Export Information
AES - Automated Export System
DHS - Department of Homeland Security
CBP - Customs and Border Protection
CBPF - Customs and Border Protection Form
28 - Request for Information
29 - Notice of Action
7501 - Entry Summary
3461 - Entry for Immediate Delivery also known as "ID."
19 - Protest
PPI - Principal Party in Interest
FPPI - Foreign PPI
USPPI - U.S. PPI
POA - Power of Attorney
IOR - Importer of Record
CHB - Customhouse Broker
CEO - Chief Executive Officer
CFR 19 - Code of Federal Regulations 19, Customs Regulations
PO - Purchase Order
FCA - Free Carrier At
CIP - Carriage Insurance Paid to
DDU - Delivered Duty Unpaid
FOB - Free On Board
ICC - International Chamber of Commerce
CIA - Cash In Advance
CAD - Cash Against Documents
LC - Letter of Credit
DIP - Delay In Payment
NSF - Insufficient Funds
SS Line - Steamship Line
OTI - Ocean Transportation Intermediary
NVOCC - Non Vessel Operating Common Carrier
FMC - Federal Maritime Commission
HBL - House Bill of Lading
OBL - Ocean Bill of Lading
FBLA - Federal Bill of Lading Act
OSRA - Ocean Shipping Reform Act
TEU - Twenty Foot Equivalent Units
FEU - Forty Food Equivalent Units
HC/HQ - High Cube Container
FAA - Federal Aviation Administration
AWB - Air Waybill
HAWB - House Air WayBill
MAWB - Master Air Waybill
TSA - Transportation Security Administration
CCSP - Certified Cargo Screening Program
ULD - Unit Load Device
PSS - Peak Season Surcharge
BAF - Bunker Adjustment Fee
FAF - Fuel Adjustment Fee
SS - Security Surcharge
DDC - Destination Delivery Charge
CAF - Currency Adjustment Factor
OHC - Origin Handling Charge
TTYL - Text To You Later
JG - John Goodrich
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=391Mon, 12 Jul 2010 00:00:00 GMT"Dear Cathy" Explains 6 Versus 10 Schedule B DigitsDear Cathy:
 
During the past year, we have been working diligently to ensure that our documents clearly reflect all the details and information needed for export and import clearance. This has included a project to ensure that our classifications for export are accurate. We are stymied now. The question that we are trying to resolve at this moment is whether we should report the six-digit portion of the Schedule B code number or the full 10-digit number on our commercial invoices. Which is best? What questions do we need to ask to make the decision that is best for us and our customers?
 
Confidentially signed,
Stymied on the West Coast
 
Dear Stymied on the West Coast:
 
As always, I begin with, "You are not alone in this pickle barrel!" This confusion can be resolved by examining what is needed for export clearance and what is needed by the buyer or their agent when clearing the goods for import.
 
I'd like to reinforce what you have learned through your classification process; the 10-digit code that you've assigned to your products is based on an international structure, which is the six-digit sub-heading plus the four digits that the U.S. has added.
 
You, as the exporter, are required to provide to either your forwarder or your buyer's freight forwarder under the U.S. Foreign Trade Regulations 15 CFR Part 30.3(e) either the 10-digit Schedule B Code or the Harmonized Tariff Schedule (HTS) number. (There are other requirements as well. You can find the Electronic Code of Federal Regulations online.)
 
The buyer or their customs broker is required to provide the product classifications for customs clearance. The buyer's country uses the six-digit sub-heading to create its code; they are allowed to add up to four digits under the rules established in 1988 when the Harmonized System was adopted.
 
So what is an exporter to do?
Option 1: Provide the six-digit sub-heading by line item on the commercial invoice and separately provide a shipper's letter of instruction or a report with the 10-digit code by line item.
 
Option 2: Provide the 10-digit U.S. code by line item on the commercial invoice, and state that it is a U.S. code (Schedule B or HTS).
All the best!
Cathy
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=388Mon, 21 Jun 2010 00:00:00 GMTTime is Money: Analyzing the Movement of International TransactionsOne of the critical issues involved in the international trade in goods is the timely movement of cargo across international boundaries. This is an important aspect for any business, as time is money.
 
A slow delivery increases the price of the goods because it decreases stock turns. A slow delivery also means additional costs in relation to the running of the overall business. Let us consider the following:
 
I buy products from a foreign source, and it takes 90 days for the supplies to reach me.
 
Two questions come from this simple one line statement:
  1. What is the payment period?
  2. What is the impact on the physical business resource requirements and cash flows?
The answers to these questions are not easy, as we must consider various aspects of the business operations and its financing. More questions and answers need to be provided. The answers are also interrelated as we will see below.
 
The payment period offered from a seller to a buyer is commonly referred to as supplier credit. The seller essentially funds the transactions by giving the buyer some time to pay. The longer the payment period the greater the opportunity for cash flows. The buyer receives the stock from the foreign supplier and sells this on the domestic market on less generous terms than the seller offers, thereby getting payment from domestic customers before they have to pay the foreign supplier. This way the seller funds the activities of the buyer by virtue of the extended credit terms—the seller acts as a bank. The buyer may be expected to pay a premium for extended credit terms, but this may be better than seeking a loan from the bank. Of course, the seller has to be comfortable enough to offer extended payment terms to the buyer—a credit risk consideration for the seller. Credit risk and choice of payment methods discussions are beyond the scope of this article.
 
The cash flow situation described above will only work well when product flows are efficient. Taking the 90 day product supply example given above, a buyer would need to be trading on terms that are probably 150 days to achieve the cash flow described above and work exclusively on supplier credit. This has been calculated on the basis of 90 days transit, 30 days to sell stock and 30 days to get payment from local customers, just in time to pay the supplier. Of course, if transit times are shorter, then a quicker payment period will achieve the same result.
 
One of the big problems with transit times is that these eat into the cash flow, but this is not all. The other big problem is the need to keep larger inventory holdings because supply lines are slower, and buyers do not want to have a stock-out for fear that customers will go to the competition instead. Larger stockholdings increase the cost of doing business. This is because the more stock you have, the greater the chances of obsolescence, which is easy to imagine with electronic products such as computers and phones. However, other items also have a short lifespan. Fashion, for example, is a perishable item indeed. I have it on good authority that no self-respecting woman shops to buy last season's fashion!
 
Resourcing large inventory holdings is expensive because the stock has to be held somewhere. Does the buyer need a bigger warehouse? Or is the stockholding warehousing outsourced—a 3PL (3rd party logistics provider) perhaps? Are the goods stored in a customs controlled warehouse and only imported (entered for home consumption) as required, thus delaying the payment of duties and taxes until orders are in hand? This is another cash flow consideration. Warehousing is not cheap, and staffing warehouses is equally not cheap.
 
The whole point of the discussion so far has really been a focus on reducing transit times and how one might operate with a just-in-time approach to their business to reduce costs. This is not an easy task.
 
In a perfect world we may be able to have absolute precision on delivery times, but we all know we do not live in a perfect world, so how do we estimate delivery periods? Again this is not easy and it depends on the circumstances, but we can consider a number of issues, to get an idea.
 
Let's look at the Incoterms 2000—the international delivery terms. Although there are 13 terms, it seems that sellers and buyers only use about half of them. Basically, neither sellers nor buyers are interested in becoming involved in export and import customs clearance processes in a foreign country, so the use of EXW (Ex-Works) and DDP (Delivered Duty Paid) are not favoured. Other terms that have limited application include: DAF (Delivered at Frontier), because it cannot be used for air or ocean movements, and DES (Delivered Ex-Ship), as this is commonly used for bulk cargoes such as oil, minerals and grains.
 
The popular terms are FOB (Free on Board), CFR (Cost and Freight), and CIF (Cost Insurance and Freight), but they are for sea carriage only and not suited to container traffic. Also popular are FCA (Free Carrier), CPT (Carriage Paid to), and CIP (Carriage and Insurance Paid To), and these may be used for any mode of transport including multimodal transport. Under these terms, the seller organises the movements of the goods and contracts for carriage (even in FOB this happens in practice regardless of what the Incoterms 2000 say). The buyer is advised of transport details and an estimation of vessel arrival date may be projected. But what happens when the material arrives at the buyer's shore, and it has to be customs cleared? How do we estimate the time taken for this critical step? How can we take a benchmark position to estimate the average clearance times? This may be important to identify bottlenecks and delays, and the more often these occur, the more time should be taken to analyse these with a view to finding solutions.
 
One way to get assistance in this area is to look at Time Release Study (TRS) data that is available from customs authorities for imported consignments. Not all countries have this information available, but it is available in a number of countries such as Australia, Japan and the United States. Actually, TRS is attributed to initiatives from Japan and the United States from the early 1990s, and we have to be thankful to those authorities for having devised this measurement. The TRS has been claimed to be one of the most important trade facilitation tools. So how does it work?
 
The customs authorities measure the time taken to release goods from their control from the time of arrival. The data is released so that each stage of the customs clearance process may be analysed. Usually this measurement is expressed in number of days or fractions thereof. Data from the TRS should be able to identify problematic issues. For example, in a recent TRS in Australia, there was a significant proportion of consignments that were delayed because customs formalities could not be completed. These formalities related to the lodgement and processing of an entry, and it is more than likely that the deficiencies were documentary, that is, the supplier neglected to provide certain information or documentation to allow the prompt and efficient discharge of the goods from customs control.
 
Once the buyer is able to ascertain the average border control processing time, a comparison can be made against the actual delivery time of the goods post arrival. For example, if the average customs clearance times are three days and the buyer only receives consignments five days later, the buyer would be entitled to ask, "Why the delay?" Is the service provider performing at a less than desirable level? Or was the consignment really held up in the process, maybe for a good reason.
 
The buyer should simply not accept or be happy with, "Oh look, you know what Customs is like." There should be no room for the blame game in your business. Consignments should reach the buyer more or less in accordance with the general average, and if they do not, there is cause for investigating the reasons and taking proactive action. If documentation is the problem, the solution may simply be to tell the supplier exactly what is required ahead of shipping. But, if the problem lies on the domestic side, a review of service providers may well be in order.
 
Its is recommended that the buyer familiarise themselves with the TRS data and develop and monitor service level agreements with barrier clearance service providers to ensure that product transfer times are as lean as possible and that stockholdings are kept to a minimum. This will reduce inventory holding costs and stock obsolescence, resulting in a lowering of costs and an increase in profitability.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=387Mon, 14 Jun 2010 00:00:00 GMTIndia: The Big Emerging Market—Part 4India's economy remains beset by stubborn inefficiencies that have hindered progress and prosperity for decades. It has a decrepit transportation system, inadequate communication and electrical infrastructure, and an obstructionist bureaucracy. To succeed in this complex country market, international marketers must have a clear understanding of Socio-Cultural, Technological, Economic, Ecological and Political/Regulatory (STEEP) environment in which people and businesses live and operate.
 
Critical success factors for these corporations include: product innovation and customization, multiple segmentation, local sourcing, innovative retailing, outsourcing, and use of third party distributors. Successful foreign companies in India share some characteristics. Strategies and operating practices adopted by successful global players can be described as critical success factors for international marketers. In this fourth and final article in my series on India, I give some examples of their strategies and best practices.
 
Looking beyond "Global Indians"
 
Multinationals in the grocery, durable-goods, and packaged-goods sectors entered India when restrictions on foreign investment were relaxed less than two decades ago. Some companies have adopted a specialty-player strategy, catering to a small segment of "global Indians" and marketing products much as they would be marketed to any such customer around the world. These companies concentrate on a few big cities. Their business model is low risk and easily rolled out, can often be sustained initially through imports, and requires a limited distribution network. Although businesses of this kind can be profitable, their sales volumes are typically modest and will grow only as fast as the segment does. In many ways, this strategy misses the point of entering a market as large as India.
 
Product Innovation and Customization
 
The most successful multinationals in India are those who resist the temptation merely to replicate their global product offerings. Products and price points that are competitive in India are often considerably different from those that work well in other countries. Frequently companies must develop completely new products to compete at target price points set by local competitors. For example:
  • Toyota Motor captured nearly a third of the multi-utility-vehicle (MUV) market by offering a significantly superior product at a limited price premium. Indian consumers attach significant importance to lifetime ownership costs; they are willing to pay a price premium for durable goods.

  • Hyundai reduced the engine output of the "Santro" brand in India to keep its fuel efficiency high, priced its spare parts reasonably, and made more than a dozen changes to the product specifications to suit Indian market conditions and requirements.

  • HP Labs in India identified power outages as a key factor limiting the access and utility of computers in rural areas, so it designed a community PC that can run on car batteries.
Multiple Segmentation
 
LG Electronics (LGE), reengineered its TV production specifications in order to develop three offerings specifically for India, including a no-frills one to expand the market at the low end and a premium 21 inch flat TV for the middle segment. By keeping the price of the latter offering to within 10% of the price of TVs with conventional screens, LGE succeeded in securing its favorable share of the market. The strategy led the company to a top three position in the country's consumer durables and electronic market in a little over three years, with revenues of nearly a billion dollars in India.
 
Innovative Retailing
 
In India organized retail distribution systems reach less than two percent of the market. There is considerable pressure to find innovative ways of reaching retail consumers. A third party distribution system is crucial to capturing demand created by the superior price to value offerings available in smaller cities and rural areas. Successful multinationals such as Castrol, LG Electronics and Unilever have built deep third party distribution networks that serve second tier cities and villages. In the last decade, companies selling fast-moving consumer goods have drawn rural consumers into their markets using innovative strategies such as bicycle-based distribution services, smaller packaging, and extended credit.
 
Outsourcing Logistics Management
 
Having outsourced traditional logistics activities such as outbound/inbound transportation, customs clearing, import/export management and outbound/inbound warehousing, the new generations of corporations in India are looking to outsource non-traditional logistics requirements such as reverse logistics, inventory management, order processing, distribution, labeling and packaging. Multinationals must learn from best practices adopted by the domestic corporations.
 
Modes of Entry
 
While joint ventures are still crucial to gaining access to privileged assets in industries including metal and mining and oil and gas, the trend is to go to the market on their own via foreign direct investment. Multinationals such as Hyundai and LGE have achieved real success in India and have bypassed joint venture entirely. Both these companies have built global-scale manufacturing here making it a global manufacturing hub capable of serving other country markets.
 
Mobilizing Regulatory Environment
 
Even in deregulating industries in emerging markets like India, the most successful multinationals have invested time and energy to identify and understand the key policy makers, to formulate robust positions for investment, and even to recommend regulatory changes. These companies have garnered support from constituencies such as state governments and industry trade groups and associations.
 
As home to Asia's oldest stock market and the world's largest democracy, India holds an enormous promise for companies around the world. Market success, however, comes to those who enter the country with the right attitude, long-term commitment and an open mind. To succeed in this market companies must invest time and resources to understand local consumers and business conditions and develop relationships with various stakeholders within the country. Building a supply chain from scratch, developing interest in product categories, redesigning the products, developing multiple price points for various market segments, and outsourcing the logistical and other activities are critical to success in India's market.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=386Mon, 07 Jun 2010 00:00:00 GMT“Dear Cathy” Helps Confused Exporter with IncotermsDear Cathy:
 
We are confused about Incoterms. I know the Incoterms are for international transactions, but my company tries to use them for domestic transactions.
 
Our sales team tells our domestic customers that the terms are:
  • FCA Des Moines = Customer accepts Risk/Liability or
  • FOB Destination = We accept Risk/Liability.
When we use FCA Des Moines, IA for domestic sales, we use our trucks but the customer takes all risk from the time it leaves our plant. I do not think this is right. Are the two terms that we are using correct?
 
Plus, we have been looking for the Uniform Commercial Code (UCC) on the internet and cannot find anything on it. I noticed that you had published articles on this and would like to know if there is a website on just domestic terms.
 
Please help us resolve this dispute. We are at a loss! What should we do next, and where do we go for information?
 
Confidentially signed,
Confused Exporter in Iowa!
 
Dear Confused Exporter in Iowa:
 
You are not alone; there is confusion in the world of trade terms. Part of the reason for the confusion is the well-publicized change in the UCC Code effective in 2003. However, none of the states deleted the “shipping terms,” that well-known term of F.O.B. and often stated as F.O.B. Origin or F.O.B. Destination.
 
In 2002, the National Conference of Commissioners on Uniform State Laws (NCCUSL) repealed the “Shipment Terms, F.O.B., F.A.S. and C.I.F.” from Part 3 of Article 2 of the UCC or Uniform Commercial Code. The code is not law; it is a set of rules that guides state legislatures in forming and establishing law. Each state decides when it will amend its laws to reflect the amendment to the UCC by the NCCUSL. The Cornell University Law School website has a directory of Uniform Commercial Codes by state.
 
According to Franklin G. Snyder, Professor of Law at Texas Wesleyan University Law School who writes the ContractsProf Blog, there were only three states who considered revising their law. None of those states considered eliminating the “Shipment Terms, F.O.B., F.A.S. and C.I.F.”
 
It seems that your company has taken a mix and match approach to selecting your domestic terms. Avoid the mix and match approach; use domestic terms for domestic transactions to be consistent with the law adopted by your state and supporting case law. If your firm does decide to use the Incoterms for domestic transactions, do so with supporting language in quotations and contracts that explicitly define your firm’s responsibilities and the buyer’s responsibilities.
 
My advice is use the Incoterms for international transactions; use the terms adopted by your state for domestic transactions. For Iowa laws see www.legis.state.ia.us/index.html and search for F.O.B.
 
All the best!
Cathy
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=385Mon, 24 May 2010 00:00:00 GMTUpcoming Export Control System ReformIf you are involved in the exportation of merchandise from the United States, then you will want to be more vigilant than ever as the export control reform initiative, which was announced by President Obama last August, begins to unfold in front of us.
 
On April 20, the Obama Administration announced the results of their interagency review of the export control system that included their key recommendations and proposed methodology for implementing the reformed export control system.
 
Currently, the export control system is based upon two distinctly different control lists that are not administered by the same governmental agency, three distinctly different licensing agencies that are not able to review licenses issued by the other two agencies, various governmental agencies and departments that have overlapping and/or duplicative authority, and segmentation of computer systems that contain vital information to the licensing process, which are either not compatible with one another or possess limited compatibility. In addition, some agencies do not have any access to computer systems to obtain information vital to the licensing process.
 
The revised export control system would include the following and would most likely be implemented through a three phase process:
  • a single control list,
  • a single agency responsible for enforcement of the regulations,
  • a single computer database system, and
  • a single licensing agency.
Phase I
 
The first phase of reform would allow for immediate improvements without the need for Congressional approval. These improvements include refining and harmonizing the control list to eliminate confusion over jurisdiction, streamlining measures to improve the licensing process, standardizing policies and processes applicable to the licensing process, and determining the best way to integrate the various computer database systems utilized today into a single point of contact for exporters.
 
Phase II
 
The second phase would require Congressional approval and would include the restructuring of the two control lists used today into two identical tiered structures that could be modified as conditions warranted, implementing license harmonization to allow export authorization requirements to become aligned with national security requirements, and beginning the migration toward integrating the various computer database systems.
 
Phase III
 
The third and final phase would require Congressional approval to merge the two control lists created in Phase II into a single control list with procedures in place to keep the control list relevant. It would also implement a single licensing agency, enforce export regulations through one single governmental agency, and implement a single computer database system for all export activities.
 
Keep an eye on the export control system as changes are coming, and those changes will have a significant impact on the export process you have been accustomed to for so many years.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=384Mon, 17 May 2010 00:00:00 GMTVisitor Control Program Tips for ExportersFirst impressions are very important. The manner in which you receive visitors into your company can create positive images of a quality organization and a favorable attitude about doing business with you. It can also directly impact whether or not your company is compliant with export regulations. Does your company have a written policy for receiving visitors?
 
If you are an exporter, your policy needs to incorporate practices that cover compliance issues pertinent to U.S. government export regulations. The transfer of commodities, software or technologies to foreign persons is subject to U.S. export control laws and regulations whether the transfer occurs within the U.S. or outside of the U.S.
 
This article provides some tips and best practices based on working with and observing more than 200 companies, as well as conversations with U.S. government export regulatory officials including the U.S. Department of Homeland Security’s Office of Export Enforcement and the U.S. Department of Commerce.
 
If your company is subject to an audit or potential examination by an export official, being adequately prepared is good business. Visitor control is not an option for exporters who receive non-U.S. citizen visitors and who require an export license for their products or services and/or have a research or laboratory facility on site. Even if you do not export but sell your products or services to U.S. customers who in turn export, it is still good practice to implement procedures that follow pertinent export rules and regulations accordingly.
 
Export controls need to be considered when hosting or escorting a foreign visitor at your company. The transfer of technology through business discussions, presentations and tours represent "deemed exports" to foreign nationals and could be subject to U.S. export regulations.
 
The first consideration for an effective export management and compliance program is a written company policy. The purpose of this policy is to prevent unauthorized access to your company trade secrets, controlled U.S. technology, or technical data by foreign nationals visiting the United States. If an individual or company exports, facilitates exports, or engages in controlled export activities, a basic knowledge of each department and employee is good practice.
 
In most companies, it is the export compliance manager or person charged with ensuring that export rules and regulations are followed who writes the policy. It is good practice for the company CEO or president to sign the visitor control policy indicating its importance and giving the document its proper authoritative status.
 
The second consideration for good visitor control involves the company receptionist. This person is not only the official "greeter" but provides the basis for establishing the correct protocol for the visit. Consider these questions when training your receptionist, or in some cases, your security guard:
  • Has this person been briefed on the company policy for visitation by foreign nationals?
  • Has this person been trained on how to direct export compliance issues?
  • Has this person been instructed what to do and how to handle a visit by a U.S. government official?
  • If you are visited by a government official, who is the first person the receptionist calls—human resources, the export compliance manager or both?
  • Are substitute receptionists advised and instructed on the visitor policy as well?
It is also a good idea to have a plan in the event of a visit by an export official. If the first impression of your company is positive, this hopefully sets a favorable tone for the duration of the visit. An official once told me that if an exporter does not ask on the visitor form the country of citizenship then it is presumed that the company is most likely not cognizant of export regulations and compliance issues, and the examination will most likely probe to a greater extent.
 
The next part of your company visitor policy involves the human resources (HR) department. Here are some questions to consider:
  • Does the HR department understand the importance of this program?
  • Does the HR department give adequate information to all new employees regarding the corporate visitation policy?
  • If you are visited by a government official is the HR department prepared when receiving the call from the receptionist?
Another important aspect for visitor control is the guest registration book. I have noticed two formats of the guest book. One is a three-ring notebook with one sheet per visitor (usually for foreign nationals). Another is a computer at the reception desk for the visitor to enter requested information digitally. Whatever format you use, here are some recommended items to include on a Foreign National Visitor Registration Form:
 
Visitor Name Badge Number
Telephone Number Date of the Visit
Email Address Time In
Country of Citizenship Time Out
Passport Number Person Visited
Company Name Areas to Visit
Company Address Purpose of the Visit
 
These items are offered as guidelines only. You should include these and any other items pertinent to your company, your business and the intended discussions. As with any export transaction and documents, keep these records for a minimum of five years. It is also a good policy to state that cameras, camcorders and voice recording devices may or may not be allowed pursuant to explicit authorization by management.
 
Information related to deemed exports may be found at the U.S. Bureau of Industry and Security website. If you need to get an export license for a foreign national to visit your facility you may want to obtain professional assistance, at least for the first time.
 
In conclusion, let me say that I have visited factories and offices when I went overseas, and I was the "foreign national" in their country. The practice of "visitor control" is also practiced overseas, and any global visitor should recognize good procedures based on universal practices and standards.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=383Mon, 10 May 2010 00:00:00 GMTSocks First, Then ShoesI live a rules-driven life. My daily existence is guided by the norms of what is right and wrong or by what simply works best. Call me conventional, but I find following some simple rules to be efficient. It frees up time to do other more important things with my life. It makes my day flow more smoothly.
 
Take getting dressed in the morning. I put on my pants first, then socks and then my shoes. Some days I live on the wild side and put my socks on first then pants then shoes. I’ve learned through experience, however, never to put my shoes on first. It makes putting my pants on devilishly tricky, not to mention it looks pretty silly wearing my socks on the outside of my shoes.
 
This is pretty logical stuff. Don’t you think? These are lessons learned by most people as preschoolers. Why, when it comes to trade compliance, are so many importers and exporters walking around with their socks on the outside of their shoes?
 
In the world of importing and exporting there are a variety of tasks that should occur long before a company goes to market. There is none more important than assigning the harmonized system (HS) code. Too frequently, however, importers issue and exporters accept purchase orders before they are aware of HS codes. This, in my opinion, is akin to wearing socks on the outside of your shoes.
 
This may seem a trivial distinction. Failing to assign HS codes prior to issuing an import purchase order or prior to issuing an export quote is simply not good international business practice. It can lead to issues that distract a company from its core business. It can cause inefficiencies, waste time, damage the company’s reputation with the regulators, and cost it money. How so? Consider the following:
  1. Duties: Duties are associated with HS codes. Failing to understand the HS code is commercially risky. It means not understanding a critical portion of a buyer’s cost structure. I am not simply addressing this comment to importers. Competitive exporters take the time to understand the duty rates within their buyers’ countries. In addition to standard duties, punitive antidumping and countervailing duties are frequently associated with HS codes.

  2. Free Trade Agreements: Qualifying goods for participation in the contemporary free trade agreements (NAFTA etc.) is done through understanding of HS codes. If you don’t know your HS codes, it is difficult know if a product is eligible for participation in the free trade agreement.

  3. Admissibility: Countries frequently assign other regulatory requirements based upon the HS code of a good. The new U.S. import reporting required under the Lacey Act amendment is an example of this.

  4. Importer Security Filing (“10+2”): One of the most effective methods U.S. importers have found to comply with the ISF requirement is to include the HTS code within the purchase order.

  5. Shipment Delays: Shippers risk delays and corresponding storage charges when customs brokers cannot identify the cargo and its corresponding HS codes timely.

  6. Regulatory Risk: Shippers also risk regulatory intervention. Assigning HS codes on the fly is a risky venture resulting in lower accuracy. Improper HS codes can result in the importer paying too much duty or being fined for the inaccuracy.
Every supply chain is slightly different. Some importers and exporters may choose to put on their socks…er assign HS codes even earlier within their commercial processes. For example it is not uncommon for companies to assign HS codes as part of the product development, design or specification process. The earlier HS codes are assigned in a supply chain the better prepared the company will be to address more substantive issues within its business. Such companies clearly understand the importance of assigning HS codes and desperately do not want to be seen in public with their socks on the outside of their shoes!
 
Other companies still fail to assign HS codes. That is tantamount to not wearing any socks. That, however, is a metaphor I’ll leave you to explore on your own.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=382Mon, 03 May 2010 00:00:00 GMTWelcome to the Team, Commissioner BersinOn March 27, 2010, U.S. Customs & Border Protection (CBP) welcomed its new commissioner, Alan Bersin, to the team. It is too early to tell what impact Mr. Bersin will have on this centuries old agency. One thing is for certain, however. Leadership is exactly what this $11 billion, 57,000 employee organization needs at this point in its history.
 
The new commissioner stands on the shoulders of giants like William Von Raab, George Weise and Robert Bonner. All were great, and at times controversial, commissioners who provided thoughtful leadership when we needed it the most.
 
While Mr. Bersin was nominated to this position in September 2009, his confirmation by the Senate has languished. A frustrated President Obama used his recess appointment authority to finally fill the slot. This means that the appointment will be subject to confirmation by the end of the Senate’s next session. That fact alone may curb Mr. Bersin’s inclination towards bold and innovative moves. In other words, the trade community may comfortably expect more of the same.
 
It is a well documented fact that my colleagues and I are self-described “customs groupies.” In fact, my first job was working for the legacy Customs Service under Commissioner Von Raab. And, like most people in the customs compliance and security field, we alternate between loving and hating the organization tasked with keeping our borders safe while ensuring the government gets its “fair share” of the revenue. Any bureaucratic organization can become overly zealous in its pursuits when left to its own devices, however.
 
The expectations and liabilities of importers have grown astronomically in recent years. The Modernization Act codified the need for CBP and the trade community to work together through the concept of informed compliance. Most Customs officials today would tell you it is not their job to assist you in understanding the ever increasing black book of regulations you need to follow, however. As an example, the currently published Customs-Trade Partnership Against Terrorism (C-TPAT) guidelines are so far removed from the expectations of CBP that most importers need an experienced consultant to interpret them. While that is certainly good for consultants, it was not the intent of the initial program. The rollout strategy of the Importer Security Filing (ISF) program stands in stark contrast as a strategy that involved excellent communication and understanding on the part of CBP and the trade community. Unfortunately, that is currently the exception that proves the rule.
 
I implore you, Mr. Bersin, to take a unique approach to your well deserved new position. The trade community is anxious for a serious partnership and realistic enforcement tactics. With import volumes down, utilize the vast resources you now lead to facilitate trade and focus on the truly bad guys. There is not a crook behind every lamp-post as some may lead you to believe. We simply expect fairness and consistency from our regulatory partners.
 
Be bold, Mr. Bersin. As your predecessors can attest, the U.S. trade community has a vested interest in the mark you intend to make on our beloved agency.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=381Mon, 26 Apr 2010 00:00:00 GMTIndia: The Big Emerging Market—Part 3In this third in a series of articles on India I discuss the challenges international marketers face when investing and marketing in India. The multiple challenges include unemployment and lack of infrastructure, piracy and counterfeiting, tariff and non-tariff barriers, and manufacturing, logistical, retailing and competitive challenges.
 
Unemployment and Lack of Infrastructure
 
Arguably the world's most heterogeneous land, India defies generalization with 18 official languages, hundreds of dialects, four major religious traditions, and ancient caste divisions. There are multiple major segments of the population that are untouched by globalization. Rates of rural underemployment and urban unemployment are disproportionately high. India's lack of a well-developed industrial base has hindered employment opportunities for rural and urban populations alike.
 
Although business processing, information technology, telecoms and manufacturing have boomed in India in recent years, India’s economy remains mostly agricultural. Agriculture still accounts for 18% of Gross Domestic Product (GDP) and employs 60% of its workers. Sixty-five percent of Indians subsist on agriculture, a sector that has stagnated. Rural infrastructure remains very poor making it harder to capture the huge consumer market. While the most recent five-year plan (2007-12) promised major new expenditures on rural roads, electrification and housing, the results have been disappointing, with a recent report finding that the key targets for 2007-09 were missed by between 50% and 83%.
 
Although India’s extensive transport system network has expanded rapidly since the country’s independence from the British Regime in 1947, the growth has not kept pace with the country’s booming domestic and international trade. Escalating imports and exports have led to congestion at India's docks, with ship turnaround time at the country’s twelve major ports taking several days.
 
According to the World Bank, 9% of potential industrial output in India is lost to power cuts. Some 600 million Indians have no mains electricity at all. Consultants at McKinsey estimate that the extra 20,000-25,000MW a year needed to meet the industrial demand for power supply would involve a $500 billion investment over the next decade. Several important areas such as water and sewage also remain woefully inadequate.
 
Piracy and Counterfeiting
 
India’s criminal justice system does not effectively support the protection of intellectual property. It is true that protection for confidentiality and intellectual property is quite high in India compared to other emerging economies. However, bureaucratic hurdles lead to very little protection. Lawsuits often take years to come to trial and a decade or more to reach a decision. Appeals are frequent and relatively inexpensive.
 
Case in Point: Large-scale copyright piracy, especially in the software, optical media, and publishing industries, continues to be a major problem in India. It is estimated that foreign businesses lose $500 million per year in India because of piracy. According to industry estimates half of the music, 60% of movies and 74% of software sold in India are counterfeit or pirated. In the pharmaceutical industry, fake or counterfeit drugs account for approximately 10% to 20% of the total market. The World Health Organization estimates that the value ascribed to counterfeit drugs across the world will reach $75 billion by the end of 2010, up by 90% over the 2005 level. Indian industry leaders believe that rampant piracy threatens intellectual property rights and discourages foreign investors from coming to the country.
 
Tariff and Non-Tariff Barriers
 
Despite the government of India’s economic reform program initiated in 1991, tariffs remain high in many industry sectors including petrochemicals, automobiles, motorcycles and finished steel products. Additionally, India Customs procedures require extensive documentation, which inhibits the free flow of goods and leads to frequent processing delays. These delays are largely due to India’s complex tariff structure and multiple exemptions, which may vary according to product, user or specific Indian export promotion program. Government procurement practices and procedures are non-transparent. Foreign firms rarely win Indian government contracts due to the preference afforded to state-owned enterprises in the award of government contracts and the prevalence of such enterprises.
 
Logistical Challenge
 
The Indian logistics industry suffers from fragmentation, complex tax laws and insufficient technological aids. In India, around 65% of goods are transported by road. In road transportation vehicle ownership is in the hands of individual truck owners, a large majority of whom have fleets of less than five vehicles. Inventory carrying costs account for approximately 24% of logistics costs, and order processing and administrative costs account for an additional 10%. Stock filing and warehouse management is, in many cases, done manually, which increases administrative costs. The supply chain for fresh foods in India, for example, is currently quite rudimentary, investment in refrigeration has been limited, and there are few large scale food processors.
 
Retailing Challenge
 
Organized retail distribution systems in India reach less than 2% of the market. Almost 600,000 villages of varying sizes scattered all over the country are home to 790 million Indians. It would be uneconomical for durable goods companies to have distribution outlets in every tiny village. Thus, durable goods companies such as LG Electronics tend to focus on larger communities with populations of up to 50,000 and serve these with a network of district offices, stocking points and local dealers.
 
Alternately, some packaged consumer goods companies consider even the remotest regions and the tiniest villages as potential targets and aim to maximize penetration the rural economy serves by 3.5 million retail outlets. For example, Eveready, the market leader in batteries and flashlights, operates a fleet of over a thousand company-owned vans and has over 4,000 distributors to directly service 600,000 retail outlets.
 
A number of large-scale Indian and international retailers are entering India’s retail market. To succeed they are being forced to build their supply chains from scratch and to spur consumer interest in products that are unfamiliar to many Indian shoppers.
 
Competitive Challenge
 
International marketers targeting consumer and business-to-business markets face fierce competition from other international marketers as well as the domestic marketers. The quality of domestic goods is consistently improving as Indian manufacturers upgrade their production for export markets. Competition is also strong because of counterfeit products in multiple industry sectors.
 
Manufacturing Challenges
 
A key challenge in human resource management in Indian factories is the workers and their tendency to strike. Many multinationals are unable to produce here because the labor laws are highly restrictive. Companies have, however, found ways to work around those laws. Companies seek out villagers with limited opportunities. They build temples in their villages and invite their families for company prayers. They coddle them to an extent perhaps unnecessary in less worker-friendly countries.
 
Case in Point: At the Victoria's Secret factory in India, 2,600 workers, mostly women, are picked up near their homes by 78 company buses so they do not have to live in dormitories or commute by foot and public transportation. Other perks for the employees include a day care center, a morning energy drink, an air-conditioned factory floor, and meals tasty enough that the factory boss eats them as well.
 
To sum up, India is a country where cities are unplanned, electricity is spotty, and paved roads are clogged or nonexistent. The logistics system in India is fragmented, laws and governance are arbitrary, counterfeit products compete with branded products, and hundreds of millions of people still live in poverty. Challenges of marketing in this incredible country are enormous. It is important to develop critical success for marketing in India, which I will discuss in my next article.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=380Mon, 19 Apr 2010 00:00:00 GMTChambers of Commerce: Your Local Resource for Certificates of Origin and MoreExporters often think of chambers of commerce only in terms of signing Certificates of Origin. But are there other services and programs that chambers of commerce provide to assist you in your export process? The answer is a big “Yes.” Business savvy managers utilize chambers of commerce routinely to help increase the efficiency and effectiveness of their international business.
 
How did chambers of commerce get started, and why are they relevant to the global scheme of things? The World Chambers Federation (WCF) was established by the International Chamber of Commerce (ICC) in 1951 to be the advocate of its chamber of commerce members worldwide. The WCF is a non-political, non-governmental body representing the interests of all local, national, regional, bilateral and transnational chambers of commerce and industry. The WCF seeks to strengthen and improve performance as well as discover new products and services to offer their members. Because chambers are recognized locally and globally by government agencies and businesses alike, the WCF provides a universal platform and forum to standardize and facilitate international business transactions. Incoterms come to mind as a premier ICC function.
 
Chambers are the recognized source for signing Certificates of Origin (CO). The CO verifies the country in which the goods were manufactured. Some nations restrict imports from certain countries; many countries limit the quantity of goods that are allowed to be imported or give preference to goods manufactured in the United States. The CO requires the authorized signature of the local chamber of commerce secretary and the seal of that organization. Virtually every country in the world considers the origin of imported goods when determining what duty will be assessed on the goods, or in some cases, whether the goods may be legally imported at all. In most countries, chambers of commerce are the key agent in the delivery of certificates of origin.
 
The role of chambers of commerce delivering certificates of origin can be traced back to the 1923 Geneva Convention relating to the Simplification of Customs Formalities. Under the Convention, its signatory governments were obliged to make the process and procedures as simple as possible for companies requiring certificates of origin. Due to the widespread network of the chamber of commerce community in nearly all countries around the world, its facility and ease, and the respected reputation of serving the business community, in most countries chambers of commerce issue certificates of origin.
 
The chamber's goal in international business is to generate job growth and economic development. Chamber international programs seek to promote economic growth by assisting local businesses to expand into international markets. Throughout the year, local chambers present various seminars for businesses to assist with exporting their products. Some of these seminars are country specific while others are industry specific. Other training seminars cover the mechanics of exporting such as financing, locating distributors, methods of payment, export documentation, and transportation.
 
I visited my own local chamber of commerce recently to ascertain their current agenda for assisting exporters. I wanted to know what they offered in addition to authenticating certificates of origin. Rex Hammond, CCE, President & CEO of the Lynchburg Regional Chamber, told me his chamber offers networking events (including a trip to China in October), educational opportunities (including emails, workshops and seminars), and opportunities for increased visibility and business referrals. You may want to check out your chamber of commerce to evaluate their programs and services that can help grow your international business.
 
In a future article I will cover the AmChams (American Chamber of Commerce) located in major cities all over the world. These can be a gold mine of value to the international executive and global marketing and sales managers as they go about market penetration and expanding global business development. Stay tuned.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=379Mon, 12 Apr 2010 00:00:00 GMTExport Transaction ComplianceIn today’s world we must all be extremely diligent in our efforts to ensure that every export transaction is compliant with the applicable regulations, as well as ensure that all parties to an export transaction are aware of the fact that they are bound by United States export laws when exporting merchandise from the U.S.
 
The consequences of being found in non-compliance with your export transactions will have a significant impact on your ability to conduct transactions in the future as you could be subject to a steep monetary penalty and/or imprisonment.
 
Within the past few months, several news reports have surfaced regarding individuals and companies receiving hefty fines for being found in non-compliance of applicable laws and regulations governing the exportation of specific merchandise.
 
Interestingly enough, the most common violation is the exportation or re-exportation of merchandise to the Islamic Republic of Iran by both domestic and foreign companies! Most people should have a good working knowledge of what the do’s and don’ts are when it comes to dealing with Iran; no good will come from such an endeavor as things are right now!
 
In general, unless licensed by the U.S. Department of the Treasury’s Office of Foreign Asset Control (OFAC), nothing may be exported, re-exported, sold or supplied, directly or indirectly, from the U.S. or by a U.S. person, wherever located, to Iran or the Iranian government.
 
Another surprising violation is the exportation or re-exportation of defense articles, along with commerce controlled electronic devices, to the People’s Republic of China. Before conducting any transaction that would involve defense articles or dual-use items, be sure to consult the Bureau of Industry and Security’s EAR and the Department of State’s International Traffic in Arms Regulations (ITAR).
 
It is in your best interest to ensure that all of the applicable licenses have been obtained prior to finalizing the transaction. Doing your homework early will pay off greatly rather than finding out after the fact that you have made a huge mistake.
 
Regardless of who you are conducting business with, it should be your number one priority to ensure that your client is in fact who they say they are. You should obtain a clear understanding of their intended purpose for the merchandise, and you must believe that the intended purpose is legitimate. When working with any client, be sure that they are well aware of their obligations under the EAR and ITAR as their mistake could easily become a huge problem that you have to deal with!
 
Now is not the time to become complacent with regard to conducting an export transaction. The federal government is serious about enforcement; you don’t want to be the next news report about a violation of export laws and regulations!
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=378Mon, 05 Apr 2010 00:00:00 GMTInternational Letters of Credit: Best Practices for Exporters—Part 2An international letter of credit (L/C) is a method of payment that is particularly suited to high value/high risk transactions. Part 1 in this series of two articles on letters of credit gave some background information and introduced the transaction flows involved in letters of credit. In this article I discuss the documents required to successfully execute a letter of credit.
 
Transport Documents
 
The transport document is externally produced by the carrier. This document is often the bane of the exporter. Most mistakes appearing on transport documents are fixable, except for shipment dates. Alteration of shipment dates is fraud, and no self-respecting carrier would do that. In any case, this sort of behaviour would cause them to lose insurance coverage, something they would not be keen to see happening.
 
There are a myriad of reasons for shipments being delayed. It could be due to the exporting firm's inability to fill the order in time and that, in turn, may be due to a supplier's late delivery of raw materials/components. Or it may be due to the ship arriving late because of weather or some other contributing factor. How can late shipment against the L/C be avoided?
 
Best practice tip: Plan early, of course. If you know that you are running very close to the latest shipment date, and there is a chance that you may miss it, seek an amendment asking for an extension of time to ship.
 
Now that the goods are with the carrier, how do you make sure that no errors on the transport documents occur? The carrier will be furnished with instructions—it is the responsibility of the exporter to properly instruct the carrier on how to handle the goods and how to issue the documents.
 
Best practice tip: Automate processes, if possible, and send the instructions electronically to avoid transcription and other human errors.
 
Where the exporter uses an intermediary, such as a freight forwarder, the onus does not shift. It is not a good option to simply give the forwarder a copy of the L/C and, in doing so, naively believe that the documentary risk has magically transferred to the forwarder. In the end, the exporter is the one who may experience payment delays, or no payment at all, if un-rectifiable errors appear on documents. Banks do not care who produces the documents, they just want to see them with the required data contents to satisfy the L/C demands. If errors occur these may be rectified, but usually at a cost, because there is no such thing as a free lunch!
 
Best practice tip: Get the carrier (or whomever else you may use) to send you a copy of the final transport document before it is issued so you can check for compliance against the L/C.
 
Other Externally Produced Documents
 
Other externally produced documents could be anything, such as government permits (e.g. quarantine), private contractors meeting import entry requirements (e.g. fumigation certificates), or chambers of commerce or consular certification of documents (e.g. certificates of origin). The same comments made under transport documents equally apply here. Make sure these documents can be obtained in time for presentation within the allowable period by the L/C.
 
Best practice tip: It is known that delays can occur with the issue of external documents, especially with consular certification. Act early, plan ahead. Find out what the time requirements are for certification and make sure you have adequately considered these. Lodge the documents as soon as possible.
 
Internally Produced Documents
 
Invoice, packing slips/lists, laboratory reports, material safety data sheets, certification of compliance with standards, certificates of insurance, beneficiary's certificates and bills of exchange (drafts) are all examples of documents that an exporter may produce in-house. How do you make sure errors are reduced or eliminated?
 
Best practice tip: Wherever possible, automate the production of documentation, preferably by using a specific export software package that may be able to be integrated with your main IT architecture. Automation should eliminate calculation errors, reduce data entry input time by removing duplicate fields across documents, and eliminate transposition errors. On average, more than 50% of data content is replicated across documents—think about it. Regardless of whether it is an invoice or a packing list, the buyer details will not change any more than the consignee details, or the description of the product. Make sure that another staff member (different from the data entry member) checks the documents before these are lodged with the bank.
 
Internally issued documents are easily fixed and can be resubmitted, but there are two issues to consider: one is the time available to correct and represent, as per the L/C allowable presentation period, and the other is the cost of rectifying errors—again there is no such thing as a free lunch!
 
Best practice tip: Automate your documentation production processes. Changes to documents produced through an automated system flow to all documents concurrently, thereby reducing error correction times and transposition errors.
 
Lodgement of Documents With the Bank
 
One thing needs to be clear for the exporter: the documents are yours until they are accepted by the bank, so you can take them back as many times as you like to correct them/have them corrected, unless these are unsolvable discrepancies, as discussed earlier. There will typically be a presentation period for the lodgement of documents—10 to 15 days seems to be average, but it could be shorter or longer but not exceeding 21 days. The presentation period is usually pegged to the date of shipment—usually the date of the transport document.
 
Best practice tip: The exporter should lodge the documents as quickly as possible after shipment to have the maximum period of time to make any changes, if necessary. Also, where the payment terms are at sight, payable on presentation of the documents at the counter of the exporter's bank, there may be cash flows to be gained by getting it right. The earlier the lodgement, the earlier the payment. Think of this as a reward or a bonus for the exporting firm because of the job well done by the relevant staff.
 
Summary: What Are We Trying to Avoid?
 
In a nutshell, we are trying to avoid errors on documents, which is not easy to do. No one is employed to do one L/C transaction at a time with the luxury of working in a vacuum and isolated from all other activity within the firm.
 
There are many competing factors, work pressures, timelines, and things that go wrong during the ordinary course of a day's work. However, none of these matter to the bank when checking documents for compliance and eventual payment in a L/C transaction.
 
L/C's are a double-edged sword; get the documentation right, and you can be assured of payment without interference from the buyer. But, get the documents wrong and it really is in the hands of the buyer as the bank cannot "buy" the documents from you. They would be in breach of the L/C application, so they will seek a waiver from the buyer and ask them to accept the discrepancies in writing.
 
What will the buyer do? Available estimates tell us that the bad debt rate is quite low on L/C transactions, estimated to be less than half of one percent, but this is cold comfort for the exporter that faces a bad debt. Other studies inform us of the alternative to the bad debt, which is a discount approach. This is where the buyer, sitting in judgement of the documents because they have discrepancies, exerts their "power" in the situation and demands from the exporter (and usually gets) a discount from the agreed price in exchange for accepting the documents. Thus, the exporter gets paid but at a reduced rate.
 
The whole purpose of dealing with a L/C, from the exporter's point of view, is to get paid. What is the point of having the L/C if the exporter cannot get the documentation correct? In failing to meet the L/C requirements, they lose the very thing they sought in the first place.
 
In conclusion, exporting firms are encouraged to adopt a multidisciplinary approach to the negotiation, management and processing of L/C transactions. Wherever possible, automated documentation should be used. Finally, documentation should be promptly produced and checked before lodgement with the bank.
 
In the end it is very simple: you are trying to avoid screwing up the process, so you don't get screwed yourself!
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=377Mon, 29 Mar 2010 00:00:00 GMTIndia: The Big Emerging Market—Part 2India's Unique Value Proposition
 
India, the world's fastest growing free-market democracy, presents lucrative and diverse opportunities for multinationals and smaller manufacturers and marketers with the right products, services, and commitment. India's infrastructure, transportation, energy, environmental, health care, high-tech and defense sector requirements for equipment and services will exceed tens of billions of dollars in the mid-term as the Indian economy globalizes and expands.
 
Despite financial turmoil, India's basic premise remains buoyant, and the country is poised to emerge as one of the largest economies in the world. Signs of improvement in economic fundamentals are already visible as inflation has come down, liquidity conditions are improving and industrial production has gone up. India's value proposition is reflected in its favorable investment policy, banking and financial services infrastructure, extensive pool of qualified engineers and scientists, youthful demographics, affluent and rising middle class, transformation of rural India, and growing demand for consumer goods. In this second in a series of articles I will describe India's unique value proposition. Future articles will describe the challenges and critical success factors for operating in India.
 
Favorable Regulatory Environment
 
Unlike many big emerging markets, India has a sophisticated commercial and legal code. Like the others, India has placed economic progress at the heart of its national policies, and in just the last few years it has succeeded in opening its economy to the rest of the world beyond anything that most observers would have imagined possible in so short a time.
 
India has taken positive steps towards liberalizing and introducing private investment and competition in multiple industry sectors. Its proximity to growing Asian markets makes India an attractive production and distribution destination for companies worldwide. Over the past decade, the evolution of knowledge sectors such as pharmaceuticals, biotech, and information technology (IT) services has led to the creation of patent laws.
 
In February 2009, the government of India announced detailed guidelines on liberal and investor-friendly foreign investment policy. Business entities with less than 50% foreign ownership will be considered domestic and allowed to invest downstream in all sectors, without limitations, seemingly giving foreign investors indirect access even to sensitive sectors such as retailing and insurance.
 
Strong Banking and Financial Infrastructure
 
Already, several major global players such as HSBC, Citibank, Standard Chartered and GE Money have built a presence in the country. A growing trend in recent years has been the signing of partnerships or the creation of joint ventures between foreign institutions in the credit and debit card payment industry and local Indian banks looking to expand their credit and debit cards offerings. In April 2009, the Reserve Bank of India (RBI) lifted restrictions on the activities of foreign banks making it easier for multinational players to open branches and acquire domestic banks.
 
Availability of Knowledge Workers
 
The durability of India's competitive advantage in terms of the size of its skilled workforce is secure because of its favorable demographics and strong tertiary education sector. It has a highly educated workforce with two million college graduates a year all of whom speak English. It has excellent international data communications links and good internet access in the major cities. The Indian Institutes of Technology or IITs, as they are known around the globe, have a long history of turning out top engineers. Thousands of their graduates have flourished in the global technology marketplace, with a good portion landing in California's bay area. Many have also stayed home or returned to India to help fuel the world's fastest-growing tech economy.
 
Companies such as ABB, Honeywell and Siemens in electrical and electronic products; Cummins, DaimlerChrysler and Toyota Motor in auto components and engineering; and Degussa as well as Rohm and Hass in specialty chemicals operate in skill-intensive industries requiring advanced technical expertise, areas in which India is likely to become a primary sourcing and manufacturing base.
 
Favorable Demographics
 
India's population, which until quite recently was seen as a potential liability, is proving to be its greatest asset. The number of Indians in the working-age group of 15-64 years is forecast to rise from 63% of the population in 2006 to 68% by 2026. India will enjoy a growing working-age population at a time when other countries (including China) will face increasing dependency ratios due to aging populations. Already one fifth of the world's population under 24 years old lives in India.
 
The boom in the services sector helped create a relatively affluent middle class, estimated to be 300 million strong. Rising incomes and increased access to credit have led to much higher spending on consumer durables such as cars, phones and other electronic items. About 40% of India's high-income urban population lives in Mumbai, Delhi, Calcutta, Chennai and Bangalore. India's middle class is well educated, world traveled, tech savvy and extremely brand conscious. Price sensitivity is non-existent in this market segment.
 
Transformation of Rural India
 
Large areas of rural India have been transformed into a distinctively "rurban" landscape, where farm, factory and office exist side-by-side. Increased purchasing power means that India's 557,137 villages are a large new market. Approximately 70% of radios, bicycles, mechanical watches, soap and cosmetics are sold and purchased in rural India. Fifty percent of motorcycles, wrist watches, televisions, cassette recorders, bicycles, electric irons and packaged tea are also marketed and purchased in rural India. More than 70 million mobile phone subscribers live in rural areas. The industry anticipates compound average annual growth of 18.4% per year until 2012, by which time there should be over 100 million rural subscribers.
 
According to McKinsey reports, India's growing market for consumer goods could reach $400 billion by 2010, making it one of the five largest in the world. Clothing stores, convenience stores and financial-services retailers are eagerly establishing their base in these metro areas to cater to 20 or 25 of the largest cities with populations greater than a million each.
 
International marketers, however, face multiple challenges when venturing into this land of opportunity, which I will describe in my next article.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=376Mon, 22 Mar 2010 00:00:00 GMTThe Cat and Mouse TrapIt happened again. I was speaking at a public event when a nattily dressed executive raised a hand and asked THE question. You know the question I’m referring to, right? You don’t? Well let me set the stage for you:
ACT I, Scene 1: An over-packed meeting room in an upscale hotel in Your Town, USA. Six-foot conference tables are arranged in classroom style rows with four people shoe-horned behind each table. The smell of fear, boredom and this morning’s scorched coffee permeates the room. A monotone speaker (That’s me!) drones on in front of a series of incoherent PowerPoint slides.
 
John: “Blah blah blah… You must report and correct all errors!...”
 
John: “… Post Entry Amendments, Voluntary Disclosure, Reconciliation…”
 
John: “… FINES & PENALTIES yada yada yada…”
 
John: “Yes sir, you there in the third row. You have a question?”
 
Sartorially resplendent executive: “Assuming you are correct and we are indeed doing things incorrectly within our import program, what is the likelihood of our company actually being caught by the regulators?”
 
John’s jaw drops to the floor.
 
A waiter tips over a tray of coffee cups, the crash interrupting the strained silence.
 
John begins to respond before becoming incoherent.
 
End of scene 1.
Now do you remember the question? Perhaps you have heard it stated differently? It frequently comes in the form of bravado filled statements such as:
  • We never had to do this at the last company I worked for, and we were big importers!

  • We’ve been importing for 40 years, and we never had any problems with Customs until you came along!

  • Import regulations are unfunded government mandates that are putting honest business people like us out of business!

  • Hey, they are the regulators. We are the regulated. It isn’t our place to do their job!
The question and these statements are misguided in so many ways. Firstly, they imply a woeful failing of individual and corporate ethics. Secondly, they demonstrate an ignorance of the law bordering on arrogance. Finally, they presume ignorance of the law as a defense.
 
To be clear, the question asked above and its related statements usually are not made in ignorance. (I have nothing but patience for a business person who is new to the subject matter and naively poses such a question.) No, these statements are made with full knowledge that the business person has been caught up in a doozie of a regulatory error, one that is going to embarrass, cause discomfort, cost the company money and perhaps cost the business person his or her job.
 
Unless, that is, the error can be swept quietly under the rug or conveniently ignored. Better yet, shoot the messenger! After all, what are the chances of U.S. Customs and Border Protection catching up with the company?
 
Well, I’m not going to tell you! Nor will U.S. Customs and Border Protection tell you. You see the question is based on the false premise that Customs is the cat and the importer is the mouse. I refer to this misperception as the “cat and mouse trap.” (For the record CBP does play an enforcement role but this is not their primary method for achieving compliance within the trade.) Customs law refers to a concept called reasonable care, a heightened standard of due diligence that co-opts the importer into self-regulating. Otherwise stated, CBP and the importer are both cats. When importers discover errors they are supposed to make appropriate corrections. Of course CBP reserves for itself the role of top cat.
 
One of the traps within the cat & mouse premise is that it is easy for the importer to rationalize CBP’s failure to enforce as tacit approval of any and all of the importer’s activities. If you see yourself as a mouse, and you survived to see another day, well then, everything you did to survive must have been OK.
 
Another trap is the perception that unintentional mistakes somehow relieve the importing company of any culpability. If the importing company cannot demonstrate that it has a strong, proactive control environment and has implemented policies and procedures for minimizing and dealing with mistakes, well then, it is not exercising reasonable care. Any resulting errors will be deemed to be due to the importer’s negligence. Negligence is regulatory speak for “penalties to follow.”
 
One manager took this idea a step further and stated that if a company could demonstrate “plausible deniability” CBP would forgive any regulatory violations. I believe the synonym for plausible deniability is ignorance combined with a cover-up. Importers have not been able to use ignorance of the regulations as a defense since 1993. Prior to that time claiming ignorance was a desperate and less than effective defense. Covering up a violation has always been fraud. Fraud is regulatory speak for “really big penalties to follow.”
 
I was commiserating with a customs broker on this topic. Without hesitation the broker told me that she throws out the phrase “white collar crime” when she encounters clients that are reluctant to correct errors. She reminds them of the phrase at the bottom of the entry summary that states:
I will immediately furnish to the appropriate CBP officer any information showing a different statement of facts.
If the importer still refuses to make corrections she fires them as a client.
 
It is not my intention to be viewed as completely unsympathetic to the plight of today’s importers. The economic environment is brutal yet Customs laws and regulations have become a complex, convoluted maze, difficult for any single individual to fully master. That acknowledged, we must also recognize that as U.S. importers we have no choice but to play by the rules.
 
One of my clients has made great efforts to avoid the cat and mouse trap. They have recognized that hyper-regulation exists in all aspects of their business, not simply in importing. Instead of avoiding it, or treating the regulator as the cat, they have embraced the challenge. They have come to the realization that ignorance of regulations could hurt their business. In working with them I frequently hear the following questions: “Did we know?”or “Should we have known?”
 
If the answer to either of those questions is yes, they address the issue and ensure they are in compliance. In other words, they have embraced their inner cat.
 
I encourage you to do the same.
 
Meow!
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=375Tue, 16 Mar 2010 00:00:00 GMTIncoterms Plain and SimpleIncoterms enjoy worldwide recognition and, through their universal implementation, accurately reflect the standard for carrying out international trade practices. Incoterms closely correspond to the U. N. Convention on Contracts for the International Sales of Goods. The question and answer format is used for simplicity and ease of understanding.
 
Q: What does the acronym "Incoterms" stand for?
A: The acronym means International commerce terms.
 
Q: What are Incoterms?
A: Incoterms are the official International Chamber of Commerce (ICC) rules for the explanation of trade terms. Incoterms are administered by the ICC in Paris and are adhered to by all major trading nations of the world. Incoterms are the authoritative text for determining how costs and risks are allocated to the parties conducting international transactions.
 
Q: What do Incoterms do?
A: Incoterms facilitate the conduct of international business by defining the responsibilities of the involved participants.
 
Q: Why do people use Incoterms?
A: Incoterms help establish and execute an international transaction by defining distinct obligations and responsibilities between buyers and sellers. The buyer's and seller's agreement to use a particular Incoterm pursuant to the international transaction will by definition have implications for other services needed to perform the transaction such as contracts of carriage, insurance and payment.
 
Q: What is the purpose of Incoterms?
A: Incoterms provide a set of rules for the interpretation of commonly used trade terms in foreign trade. Reference to Incoterms in a sales contract defines clearly the parties' respective obligations and responsibilities thereby reducing the risk of multi-jurisdictional legal complications.
 
Q: Why did Incoterms come about?
A: Differences in trading practices and legal interpretations between traders of different countries necessitated a need for a common set of rules. These rules needed to be easy to understand by all of the participants in order to prevent misunderstandings, disputes and litigation.
 
Q: When were Incoterms created?
A: Incoterms were first created in 1936 and were designated "Incoterms 1936."
 
Q: How have Incoterms evolved?
A: Incoterms have evolved into the codified worldwide contractual standard and are periodically updated with the progressive evolution of international trade. Amendments and additions were made in 1953, 1967, 1976, 1980 and 2000. Presently, Incoterms 2000 governs transactions reflecting the influences of modern electronic processes and computer driven techniques.
 
Q: What revisions were made in Incoterms 2000?
A: Incoterms 2000 take into account the expanded use of customs-free trade zones, the increased use of electronic communications, and modern carriage practices. Incoterms 2000 offer a simpler and clearer presentation of the thirteen definitions, all of which have been revised.
 
Q: How many Incoterms are there?
A: The complete set consists of 13 Incoterms.
 
Q: What responsibilities and obligations of the buyer and seller are listed in the Incoterms?
A: There are obligations and responsibilities for the seller and the buyer defined under each of the Incoterms. When a seller and a buyer agree to employ a particular Incoterm, each accepts the corresponding obligations and responsibilities as clearly set forth and defined under that particular Incoterm.
 
Q: What are the 13 Incoterms 2000?
A: The 13 Incoterms are shown below:
EXW – Ex Works (named place)
FCA – Free Carrier (named place)
FAS – Free Alongside Ship (named loading port)
FOB – Free on Board (named loading port)
CFR – Cost and Freight (named destination port)
CIF – Cost, Insurance and Freight (named destination port)
CPT – Carriage Paid To (Named place of destination)
CIP – Carriage and Insurance Paid (To) (named place of destination)
DAF – Delivered At Frontier (named place)
DES – Delivered Ex Ship (named port)
DEQ – Delivered Ex Quay (named port)
DDU – Delivered Duty Unpaid (named destination place)
DDP – Delivered Duty Paid (named destination place)
Q: How can I find the full text of the Incoterms 2000?
A: The English edition is published by ICC Publishing, Inc., 156 Fifth Avenue, New York, NY 10010.
 
For more information about Incoterms, visit the International Business Training website.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=374Mon, 08 Mar 2010 00:00:00 GMTImporter Security Filing (ISF) "Escalated" Enforcement BeginsOn January 26, 2010, U.S. Customs & Border Protection (CBP) began implementing their strategy of graduated Importer Security Filing (ISF) enforcement. While CBP's plan for ramped-up enforcement will not be made public, we can garner the following details and pertinent information about what lies ahead:
  • CBP will initially focus on those consignments arriving in the U.S. by maritime conveyance with no ISF filed against them. The importers of those shipments can expect a Warning Letter or e-mail from CBP. The first series of stern admonishments for importers who are not filing ISF's at all are due to begin hitting mailboxes soon. Importers with larger volume may also receive a telephone call from CBP Headquarters.

  • CBP does not plan to focus on timeliness or accuracy issues early on for importers who are filing and attempting to meet the spirit of the new requirement. However, while they are not closely monitoring timeliness at this juncture, they did indicate that an ISF one week late would be considered unacceptable. CBP has not yet spelled out the consequences in such cases, however.

  • Beginning in May, CBP will start issuing penalties and liquidated damage claims on shipments arriving without an ISF being filed. A "hold" will also be placed on such consignments effectively making good on CBP's promise to place such shipments in "ISF Jail." Extra scrutiny in the form of an intensive inspection or VACIS exam might also be conducted further adding to delays and expense.

  • By the third quarter of this year CBP plans to begin analyzing the ISF data of compliant filers for accuracy and timeliness issues. CBP will work closely with the trade to continually improve accuracy and timeliness rates.

  • Penalties or other claims for liquidated damages will be exclusively handled by CBP headquarters in Washington for the first year to ensure uniform application.

  • Should a penalty or liquidated damage claim be issued, normal CBP protocols will be used for processing them. Importers who have a history of filing ISF's in 2009 will have an advantage because their early adaptation of an ISF program will be considered as a mitigating factor.

  • Importers who are Tier II or Tier III C-TPAT members will receive an automatic 50% off the amount of an ISF penalty or liquidated damage claim.
CBP has steadfastly maintained that a one-year phase-in period has been generous and more than adequate for the import community to establish and implement the necessary data collection and reporting protocols to satisfy the ISF requirements. Some importers, however, have procrastinated or incorrectly wagered on ISF being repealed. For them the stakes are high, and they are currently in a last-minute scramble to get their programs in place and operating efficiently before CBP moves to the next stage of escalated enforcement.
 
After having presented at and participated in more than 10 ISF Public Outreach sessions since 2005 in and across the U.S. and Europe, I have compiled the following list of recommendations and best practices for ISF:
  • When designing your ISF program, automate data streams whenever feasible.

  • Consider placing your company's ISF data expectations in contractual language and purchase order terms and conditions. Many importers are also including culpability clauses that will require the vendor or service providers to share in the costs of a penalty should one be issued.

  • Importer controlled and direct-filed ISF's is clearly a best practice. Any importer can directly file their ISF's with CBP without the necessity of a license or other permit. Web-based applications like TRG Direct are available, cost effective and highly adaptable. Using all system features and functionality, you can literally file an ISF in a matter of seconds at a savings of up 90% off of standard market rates.

  • File the ISF as soon as you have the 10 data elements and the bill of lading number.

  • Always ask for and obtain the Automated Manifest System (AMS) bill of lading. Without it you will never get a "Bill on File" message from CBP.

  • Only use automated consolidators, freight forwarders or Non-Vessel Operating Common Carriers (NVOCC's). Non-automated providers do not have AMS capabilities and your risk and probability of a "Bill Not on File" message from CBP increases exponentially.

  • If you get a "Bill not on File" message from CBP, first double-check the bill of lading number to ensure it was entered properly. If accurately reported, then wait patiently for a match to occur. CBP will continually try to match the bill of lading every few hours and it is possible that it may take several days for it to match. Do not re-transmit the ISF as this will cause a "Duplicate ISF" rejection and clog the system. If several days pass and you know that the shipment has departed then it is very likely that you do not have the AMS bill of lading and you should immediately contact the overseas shipper, consolidator or NVOCC.

  • If you experience issues, problems or rejections from CBP, carefully document the steps and corrective action you took to assist with mitigation should a penalty be issued.

  • Many importers are considering joining C-TPAT to take advantage of the 50% discount given to members who get an ISF penalty.

  • When possible always use "Compliant Transaction" versus "Flexible Range" or "Flexible Timing" options under the ISF Transaction Type.

  • Frequently review your ISF Performance Report and make necessary corrections to your program. If you have not received your ISF Performance Report you should immediately ask the agent filing your ISF's for a copy. CBP has been very aggressive with customs brokers and forwarders who are not sharing this information with their clients and importers.
Lastly, the entire CBP executive management team, Rich DiNucci (Director of the Secure Freight Initiative) and all members of his team are to be commended not only for the public outreach they have accomplished over the last few years, but more importantly, for their sensible and measured approach to ISF enforcement. As a long-time member of the trade community it is refreshing to see CBP confront such substantive change with logic and an even hand.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=373Mon, 01 Mar 2010 00:00:00 GMTInternational Letters of Credit: Best Practices for Exporters—Part 1Introduction and Transaction Flows
 
An international letter of credit (L/C) is a method of payment that is particularly suited to high value/high risk transactions. It is one of the four traditional methods of payment and is quite complex. In this first article in a two part series on letters of credit, I will give some background information and introduce the transaction flows involved in letters of credit.
 
The decision to trade under L/C terms is usually the result of either a foreign government regulation or a lack of trust between the trading parties. This lack of trust is usually associated with the value of the transaction—the financial risk. As an example, Exporter A and Importer B may be quite happy to trade in consignments worth $30,000 at a time on an open account basis, but if a transaction worth $1 million was contemplated then the payment terms would, rightly so, be subject to review. There is no magic number at which reviews are triggered or payment methods chosen, but the higher the transaction amount involved, the greater the need for a financial safety net to ensure payment is forthcoming as due or to avoid payment being made when the terms of the contract have not been met.
 
At the onset it must be remembered that trading across international borders means trading across different jurisdictions and legal systems, different rules and regulations, and the application, or lack thereof, of international conventions. It is cold comfort to a seller, or a buyer, to be advised that there is a solution to the problem: just sue the other party! International court cases take many years to be resolved and cost a lot of money.
 
In a L/C, the buyer's credit risk is substituted with that of their bank, because it is the bank issuing the L/C that conditionally guarantees payment. The condition is that the exporter (seller/beneficiary) must meet the documentary conditions of the L/C for the payment to be triggered. L/C transactions are subject to a special set of rules, referred to as the UCP 600, administered by the International Chamber of Commerce. The UCP 600 is not a convention, nor a body of law, but a set of rules adhered to by banks worldwide. These rules outline the obligations of the parties involved in L/C transactions, with particular emphasis on banking processes and procedures.
 
Some terminology is useful. The seller is also referred to as the exporter, and as far as the L/C is concerned, the seller is the beneficiary. The buyer is also referred to as the importer, and as far as the L/C is concerned, the buyer is the applicant. The buyer's bank is the issuing bank and the seller's bank is the advising bank.
 
The typical contracts that arise from a L/C transaction are shown at Figure 1. The most important contract is number 3 (shown in blue), which represents the undertaking to pay from the issuing bank to the exporter. Contract number 1 is the underlying contract, that is, the contract from which the L/C is derived. It is extremely important to understand that the L/C is separate from the contract of sale as far as banking operations (and payment) are concerned. Banks must honour their undertaking to pay, but only if there is 100% documentary compliance with the terms of the L/C. It's all about the documents, not the goods! Contract number 2 is the L/C application. It follows logically that the seller and the buyer agree on contract terms, and the L/C should reflect the essence of the contractual agreement. Therefore, it is important that essential issues are considered as part of the negotiations leading up to the contract signing and the issue of the L/C.
 
Figure 1: The 'contracts' arising from a Letter of Credit transaction (Adapted from Bergami, R. 2009, International Trade: a practical approach, Eruditions Publishing, Melbourne, Australia, p. 411)
 

Figure 1
 
The setting of the method of payment is typically done by the export sales staff. This is the first point at which it is appropriate to provide some advice to the exporting firm. Sales staff are the "heroes" of the firm, because after all, they bring the dollars in, right? Well, not entirely. The other heroes of the firm are actually the operations people—the packing, shipping and documentation staff that actually convert the contract on paper (or through an electronic message) into a physical consignment of goods that will be dispatched from origin to destination.
 
So, the first piece of advice to the exporting firm is: follow the Enterprise Risk Management (ERM) principles when dealing with letters of credit. ERM principles necessitate that all key stakeholders in the transaction be involved in the decision making process of choosing the L/C as the method of payment. This requires an inclusive approach to the process to make sure that all risk factors are considered in arriving at the final decision on a particular item, issue or process. This is the opposite of the "compartmentalized approach" to decision making, or as some have described it, a "silo mentality." It can be very easy for this to happen in a larger firm with specialist departments and well delineated lines of responsibility, and probably less likely to happen in smaller firms where people are engaged in a multitude of activities, and their jobs cut across a number of areas.
 
In this context, the ERM approach should be followed and deciding the choice of terms within the L/C should not be limited to sales/marketing, or finance and possibly production, but, importantly, it ought to include the operations people. Advice on issues such as delivery points, frequency of sailings, availability of space on vessels or aircrafts, importing requirements of overseas countries (both in terms of documentation and also regulatory needs, e.g. fumigation certificates) and costs of moving the product are the contributions the operations people can make to the transaction. The decision of which Incoterms 2000 delivery option should be chosen is extremely important in a L/C transaction, as it will directly impact the exporting firm’s obligations in shipment and documentation requirements. As ultimately some of these issues will translate into specific documentary requirements of the L/C, it is important that everyone make a contribution from their area of expertise.
 
A good tip to minimize problems with L/C documentary demands is to develop a template for your buyer. The template is used to signal to your buyer what you, as the exporter (seller/beneficiary), expect to see in terms of documentary demands.
 
Figure 2 shows the typical flows for a L/C transaction; the crucial steps are 5 and 6, and these are shown in blue.
 
Figure 2: Typical Letter of Credit transaction flows (Adapted from Bergami, R. 2009, International Trade: a practical approach, Eruditions Publishing, Melbourne, Australia, p. 438)
Figure 2
Figure 2
 

Legend to Figure 2:

1. Contract of sale between the parties

2. Importer lodges L/C application with   issuing bank

3. Importer’s bank issues L/C to exporter’s bank

4. L/C advised to exporter

5. Goods despatched

6. Required documents lodged by exporter to the bank

7. Documents sent to issuing bank for acceptance

8. Documents released to importer

9. Funds transferred from importer as due

10. Funds transferred from issuing bank

11. Funds transferred to exporter

 
Flows:

L/C Application (2)

L/C Issue and Transfer (3, 4)

Documents (6, 7, 8)

      Funds (9, 10, 11)
 
Once the exporter receives the L/C, they should check it for compliance against the template and make sure that all the terms and conditions of this method of payment are acceptable. If there is anything in the L/C that is either unacceptable or ambiguous, the shipment should not proceed until matters are cleared up. If there is a discrepancy between the contract and the terms of the L/C, this needs to be corrected by a L/C amendment before the goods are dispatched. Likewise, if there is an unclear documentary requirement, it must also be cleared up. A good way to get unclear requirements cleared up is for the exporter to seek a written explanation from their bank about the requirement in question.
 
It is important that any perceived issues are cleared up before shipment, because if documents that contain errors are presented to the bank, the payment security chain is broken. In the context of this article the weakest link is the documentation the exporter lodges with the bank. The reported 70% documentary discrepancy rate on first presentation against L/C business highlights the weakness of documentation.
 
Amendments are not free, so if as an exporter you are seeking a change that cannot be reasonably attributable to the doing of the buyer, be prepared to pay for it—better pay a few dollars and be sure to get paid than save a few dollars and perhaps not get paid at all. To quote an old cliché, that would be a case of being "penny wise and pound foolish."
 
With all due respect to exporters, the problem clearly rests with you; you have to meet the banker's requirements. So check the L/C carefully, and if you are satisfied with what it asks, then and only then go ahead and send the goods.
 
This brings us to step 5 in Figure 2. There are two categories of documents that are produced and issued under a L/C: externally produced documents and internally produced documents. In my next article we will have a look at each.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=371Mon, 22 Feb 2010 00:00:00 GMTMexico: A HarbingerElizabeth Velarde Miranda worked as an in-house customs broker for multinational giant, Siemens, in the Mexican state of Chihuahua. In October 2009, Elizabeth was killed following an El Paso drug seizure from a trailer with merchandise from the plant in which she worked. It is believed that the seizure was the result of information provided by Siemens to U.S. Customs and Border Protection (CBP) as part of their supply chain security protocol. Her supervisor, Jose Javier Rios Lopez, was also fatally shot while driving to work on January 18 of this year. These individuals paid the ultimate price in their country's war against the drug lords.
 
With the expansion of C-TPAT to Mexican truck carriers and manufacturers in recent years, the focus on anti-smuggling tactics and conveyance security has markedly improved within Mexico. Greater partnership between supply chain partners and the authorities have resulted in a significant increase in the seizure of illicit goods and narcotics at the southern border. An assumption can be made that there has been a reduction in the viability of criminal enterprises to use commercial supply chains as a conduit for their nefarious intentions. This improvement in security tactics has unfortunately come at a very high price in some instances, however. While the violence currently being experienced in Mexico may not come as a surprise to anyone who is following President Calderon's war on narco-terrorists, the impact on our brethren in the supply chain community may surprise you.
 
There continues to be a leadership vacuum in the area of domestic cargo security within the United States. Despite noble efforts over the past few years, the government is not adequately focused on the issue and the security profession is not well organized in our approach to the problem. Losses due to cargo theft continue to mount (although attaining accurate statistics is part of the problem). Attempts by groups such as the SC-ISAC (which seeks to share information and statistics) and the recently announced Cargo Net initiative (designed to track and share cargo theft data with law enforcement) do provide rays of hope. The fact remains that our approach to the issue remains fragmented. The good news is that the losses that occur within the border of the U.S. remain largely financial in nature. Our neighbors to the south are experiencing difficulties that are significantly more violent in nature.
 
My friends and colleagues in Mexico simply want their country back. They are also understandably leery about the security programs the U.S. has encouraged including C-TPAT. The security community must be aware of the valid concerns of our Mexican partners and find ways to meet the goals of preventing smuggling and reducing theft while protecting the people within our supply chains.
 
As supply chain professionals we must bring all of our talents and resources to bear in order to find innovative solutions to this grave problem. Innovative approaches to technology, information sharing, conveyance security, and effective workplace violence measures are all required in this effort if Mexico is to live up to its potential as a trading partner and as a peaceful neighbor. The lessons we learn in the process will serve both of our countries and our colleagues throughout the supply chain well in the tough years to come.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=372Mon, 15 Feb 2010 00:00:00 GMTIndia: The Big Emerging Market—Part 1With Gross Domestic Product (GDP) growth more than double that of the United States and the United Kingdom during the past decade, India is one of the most promising and fastest growing economies in the world. Its skilled managerial and technical manpower and its enormous middle class, approximately 300 million strong, offer a value proposition that businesses across the globe find hard to resist. India’s time-tested institutions such as a free and vibrant press, a well established judiciary, a sophisticated accounting and legal system, and a user-friendly intellectual infrastructure offer foreign marketers and investors a transparent environment that is conducive to long-term success if the right business models are developed and implemented.
 
Global players that have successful outcomes have invested time and resources to understand local consumers and business conditions, tailored products to the entire market from the high end to the middle and lower-end segments, reengineered supply chains, and even skipped the joint venture route when necessary. The most successful multinationals in India, however, are those that have designed and tailored products and marketing strategies unique to this country’s diverse population and culture.
 
In this first of a series of articles on India, I will give some background on the country. In future articles, I will discuss India’s value proposition as well as the challenges and critical success factors for successful operations in India.
 
Introducing India
 
The Republic of India (India), the focal point of the global trend toward strategic off-shoring, is a constitutional federal democracy made up of 28 states and seven union territories. Its economy is the 12th-largest in the world measured in nominal U.S. dollars, but rises to fourth-largest when measured at purchasing power parity exchange rates, according to the Economist Intelligent Unit reports. India’s economy is divided between agriculture, which accounts for 25% of the gross national product; manufacturing, constituting another 25%; and the high-tech service sector, which now makes up 50% of the gross national product. India’s economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of support services.
 
The economic reforms that began in 1991 marked a turning point in India’s economic history. Under the program, the country successfully implemented strategies to transform itself from an agrarian, underdeveloped and closed economy into an open and progressive one that encourages foreign investment and draws wealth from services as well as industry. As the World Bank's Country Brief reports, structural reforms and stabilization programs during the 1990s have contributed to India’s sustainable economic growth, which has been relatively strong during past decades, averaging between five and 5.5% a year.
 
The removal of many import restrictions has brought foreign goods within reach of urban India. Business process outsourcing has given the middle class in many parts of India new job opportunities at wages that are significantly better than traditional ones. The largest Indian businesses are becoming world players, putting their capital at risk, forging alliances, finding joint ventures and operating within the disciplines of the marketplace.
 
Over the past decade, the evolution of knowledge sectors such as pharmaceuticals, biotech, and information technology (IT) services in India have been phenomenal. With large amounts of foreign direct investment (FDI) flowing into India, global best practices in various industries have also been imported. The Japanese concepts of just-in-time, kanban, kaizan, and total product maintenance have proved successful in many industry sectors.
 
With an enormous population, a booming economy and increasing integration with the global marketplace, many industry sectors in India seem poised for impressive growth. India, however, has poor infrastructure, low literacy levels for many people, and labor inflexibilities. Hence high-volume manufacturing has not yet taken off significantly in India. Yet businesses are using technology and communication networks to build virtual, interconnected innovation ecosystems to overcome the gaps.
 
In 2007, U.S. exports to India increased by 73.4% over the previous year, according to U.S. government statistics. India is already among the top 20 trading partners of the United States. But the best is yet to come as Indian entrepreneurs unleash their prowess in coming years and decades. Multinationals willing to make the effort to source and manufacture products in India are likely to obtain first-mover advantages such as exclusive relationships with the best suppliers, access to the brightest talent, and government support.
 
World Re-Discovers India
 
Foreign companies have been active in India for decades. For example, DuPont India, a subsidiary of its American parent, began its operations in 1802 when it sent its first shipment of raw materials to DuPont (USA) to produce black powder for explosives. Today, DuPont India markets a wide range of products in varied market segments around the world. DuPont discovered India’s value proposition long before other multinationals discovered the unique powers of India.
 
Since 1991 import restrictions aimed at multinationals have been removed in nearly all sectors. Corporate giants including Sony, Samsung and Kellogg have entered India to take advantage of manufacturing and marketing opportunities. Citigroup, Hindustan Lever (Unilever's Indian arm) and ITC are among the successful multinationals with a long-term presence there. Other multinationals, Hutchison Whampoa, LG Electronics and Samsung, for instance, have built businesses with more than $1 billion in annual revenues in just a few years. Levels of FDI to India rose dramatically since the 1990s, when inflows increased from $2-3 billion a year to an estimated $41 billion in fiscal year 2008-09. India’s major imports included petroleum and petroleum-based products, electronic goods, non-electrical machinery, and gold and silver.
 
Attractive Industry Sectors
 
With a population of 1.148 billion and a gross domestic product of $1,225 billion, India promises a world of opportunities for domestic and international marketers in multiple industry sectors. Little wonder, global brand owners from luxury brands to telecommunications to food processing and infrastructure development have established a significant presence in India.
 
Now more than 500 major international companies have IT operations in Bangalore alone. Among the household names are Hewlett-Packard, Dell, IBM and Accenture. For Intel's John McClure, the company has no choice but to be in India. Intel's Indian development center played a key role in the company's strategy to develop new computer chips for computers with Microsoft's Vista operating system.
 
Toyota was the first automaker, in 2001, to see India as a source of components. The company invested almost $200 million in six joint ventures to help local suppliers develop scale in their manufacturing operations. Toyota also focused on localizing the content of its brands, Qualis and Corolla. Through economies of scale in manufacturing, Toyota then turned India into a regional sourcing hub. It now exports transmission assemblies, one of the most complex parts of any automobile, from India. Toyota has also invested significant amounts to bring Indian suppliers up to its global standards.
 
Of the 50 plus multinational companies with significance presence in India, the nine market leaders, including British American Tobacco, Hyundai Motor, Suzuki Motor and Unilever, have an average return on capital of around 48%. Even the next 26% have an average return on capital of 36%.
 
Shape of Things to Come
 
In the 2005 World Investment Report, India was ranked third after the United States and China as an R&D hot spot, which was defined as a place where companies can tap into existing networks of scientific and technical expertise with good links to academic research facilities and a commercial, pro-innovation environment. There is no doubt India is fast becoming an attractive destination for global R&D investments due to the large pool of qualified scientists and engineers and the excellent educational and R&D infrastructure, coupled with a regulated patent regime. 
 
More than 125 Fortune 500 companies have opted to have their R&D base in India. The R&D scope is moving beyond the pharma and automobile sectors, and a large number of companies engaged in innovation and design work have also begun to move to India. General Electric, Delphi, Eli Lilly, Hewlett Packard, DaimlerChrysler, Microsoft and Oracle among others have already set up their R&D bases in India over the past few years. General Electric, for example, has almost 2,000 employees at its Global Research Center in Bangalore, India, where at least four of the 11 laboratories are engaged in chemical-related work.
 
According to UNCTAD's World Investment Report 2005, more than 50% of the 300 largest R&D spending firms in the world now conduct R&D in India and China. A recent survey of multinational companies by the consulting firm Booz, Allen, Hamilton and the French business school INSEAD indicated that 75% of new R&D sites planned over the next few years will be in these two countries.
 
When it comes to hardware manufacturing, Taiwan and China have been regarded as the top destinations. However, customers are justifiably concerned about single source supply and are beginning to look for alternatives to China and Taiwan. India is well poised to be an alternate hardware manufacturing destination.
 
Although foreign direct investment in India has gone up significantly in the past two decades, it remains well below the rate in China, Southeast Asia or other countries in the immediate neighborhood. The future of India’s economic place under the sun looks bright due to its unique value proposition, which I will discuss in my next article.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=370Mon, 08 Feb 2010 00:00:00 GMTACE in the HoleIn his article, Follow the Money, my business partner and dear friend, Kelby Woodard, succinctly set the stage for this piece with his comments on U.S. Customs & Border Protection’s (CBP) ability (or more appropriately inability) to deliver the Automated Commercial Environment (ACE) on a timely and cost effective basis.
 
As Deputy and Acting Commissioner Jayson Ahern bid his adieu at the 10th annual CBP Trade Symposium in December, I focused intently on his remarks…perhaps too intently. For two compelling reasons, I had very low expectations that this prepared speech would contain any substantive content or major announcements. First, the speech was his farewell address as he officially retired from CBP on December 31, 2009, following more than 30 years of dedicated federal service. Secondly, CBP is still an agency in transition awaiting Senate confirmation hearings for President Obama’s nominee, Alan Bersin.
 
You wouldn’t expect the Acting Commissioner to announce any new strategies or innovative programs while the newly appointed Commissioner is in the wings awaiting confirmation, which is in itself a travesty and a conundrum. We are one full year into this administration and CBP, a mission critical agency in the war on terror and with perpetuating problems like ACE to confront, is still adrift and rudderless. Mr. Bersin was finally nominated in September and as this went to press his confirmation hearings have not been announced or calendared.
 
So, while I wasn’t expecting any major announcements or riveting content in Acting Commissioner Ahern’s remarks at the symposium (and I wasn’t disappointed), I was completely taken aback by what I viewed as an almost cavalier indifference when his oratory turned to CBP budgets and ACE. Frankly, I continue to be nonplussed by CBP’s continued lack of accountability for ACE and their recklessly irresponsible spending.
 
Let’s quickly review the history of the ACE Program. ACE is the replacement for the legacy Automated Commercial System, which has more than outlived its anticipated shelf life. It is coded in COBOL and was once portrayed by CBP as crumbling under the pressures of 1) explosive trade growth, 2) new regulations and bilateral free trade agreements riddled with rules, and 3) exceptions to the rules.
 
In 1998 CBP (then called the U.S. Customs Service) sought Congressional appropriations to build and deploy ACE. The initial price tag was a staggering $1.3 billion in taxpayer dollars. I say staggering because based on my years of experience in the private sector with multi-billion dollar companies, it was unusual to spend more than $200 to $300 million on a system. In fact, to reach that kind of price tag in the corporate world the system would most likely be a behemoth that would touch multiple operating units requiring complicated processing and sophisticated applications. Also, any such initiative requiring that level of funding would be highly illuminated and scrutinized within the organization for progress and tangible on-time deliverables.
 
Furthermore, ACE is not what the private sector would refer to as an integrated all encompassing “enterprise system” that would eventually run every facet of CBP’s business including things like human resources, finance, immigration and passenger processing, targeting, security and fines, penalties and forfeitures. All of those other CBP activities and work functions are processed today in other silos.
 
Simply stated, ACE is a one-dimensional cargo processing system that needs to accept, analyze, process and store a finite amount of data points and attributes relating to a box of cargo or freight. That’s it, nothing more complicated. We’re not trying to land a person on the moon where there are billions of variables and complex processing required. And yet, here we are eight years after funding with very little to show for it. And the price tag? It has now ballooned beyond $3 billion! It’s unconscionable.
 
Is it fair to compare the public sector to the private sector? Perhaps not, but it is the only basis of comparison we can really make. Can you imagine the vice-president of information technology at Wal-Mart (the world’s largest company) asking the board of directors for $3 billion and eight years to build a single task system? After one year (or less at some companies), no results or deliverables generally equals no employment; it's called accountability.
 
When you are given a project and the associated funding for it, there are explicit expectations that you will deliver on-time and on budget. If this isn’t the case, heads roll and/or the initiative is scrapped. In any case, the continued hemorrhaging of huge sums of money for years on end with little or no progress is never be tolerated. Not a single person at CBP has truly been held accountable for the failures of ACE, and, to the best of my knowledge, no one has lost their job for failing to meet objectives or deadlines.
 
The Government Accountability Office (GAO) has previously reviewed ACE and in February of 2003 issued a 60 page report entitled, Automated Commercial Environment Progressing, but Further Acquisition Management Improvements Needed. Then again in March 2005 following another review the GAO issued a 128-page report emblazoned with a title decrying, Customs ACE Program Progressing, but Need for Management Improvements Continues. Do we see a theme here? I can only hope some hard-hitting hearings on Capitol Hill and the leadership of the new Commissioner (once confirmed) can exorcise the demons dwelling within ACE.
 
Among other things, CBP has had it wrong from the start by not adequately leading, monitoring or providing direction to the contractors involved in this project. It’s quite obvious that CBP does not have the skill sets necessary to manage a large, complex project with multiple contractors. In the meantime a small number of private sector contractors have singularly benefited from the CBP Stimulus Package known as ACE development.
 
As this article goes to press there is an announcement of yet another ACE delay. The release that was scheduled for January 17, 2010, is now delayed. This deployment was supposed to include new entry summary, account and revenue (ESAR III) capabilities specific to the filing, processing and case management of antidumping and countervailing duty entries. To credit the Trade Support Network, developers and CBP where credit is due, this particular release is purported to have some “very cool” functionality. The message did not define the cause of the postponement and only stated that a revised scheduled would be announced at a later date.
 
While I depict the ACE system requirements as relatively easy in the overall scheme of computer systems, if it really does cost more than $3 billion and take eight years to build, what a sad commentary that is on the state of our industry. We’ve allowed our Congressional brain trust to render our business so horribly prolix and complex that very few of us, if any, can say with authority that “they know it all.”
 
Has anyone inside the Beltway read the 1993 Modernization Act recently? It was supposed to simplify and make things easier, not create more regulatory labyrinths and landmines for the trade and CBP to interpret and navigate.
 
It is high time that CBP be held responsible for their actions (or lack thereof). The trade community and CBP deserve the modern new platform originally envisioned as ACE. The trade community and CBP need ACE. The trade community has paid for ACE with substantial investments of both time and money. Now it’s time to deliver the goods, and the trade community should demand nothing less than a complete and fully functional system without further delay or cost overrun.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=369Mon, 01 Feb 2010 00:00:00 GMTThe December 23rd Rule: Offsets in Defense TradeIf you are involved in the movement of defense articles, the “December 23rd Rule” will undoubtedly affect your transactions that include an offset agreement.
 
For those who are unfamiliar with an offset agreement, the general idea of an offset agreement is that a foreign company or foreign government may request, as a condition of the transaction, that the U.S. firm provide compensation in the form of co-production, licensed production, subcontractor production, technology transfer, or foreign investment.
 
As a general business practice, any U.S. firm that enters into an export contract for defense articles or defense services that contains an offset agreement must report the offset agreement to the Bureau of Industry and Security (BIS).
 
Typically, the BIS reporting requirement applies to any contract that contains an offset agreement valued at $5 million or more, as well as any offset transactions valued at $250,000 that would be credited toward an offset agreement.
 
In accordance with the amendments made to the Offset Reporting Requirements under the December 23rd Rule, any U.S. firm that enters into a contract for providing defense articles or defense services containing an offset agreement is required to provide the appropriate North American Industry Classification System (NAICS) six digit code, along with the month and year the offset agreement was signed.
 
This amendment to the Offset Reporting Regulations went into effect on Friday, January 22, 2010.
 
Since the federal government views offsets to have a negative effect on the economy, these new reporting requirements will enhance the ability to assess the economic effects in defense trade by obtaining more precise information on the industry sectors affected by offset agreements.
 
Anyone who engages in defense trade is highly encouraged to remain in compliance with these new reporting requirements as the penalty for non-compliance could be a monetary fine of up to $10,000, imprisonment for one year, or both.
 
Offset reports need to be sent in both hardcopy and electronic format. The electronic format should be a spreadsheet or database emailed to OffsetReport@bis.doc.gov. The hardcopy offset report should contain the same information as the electronic copy and be sent to:
Offset Program Manager
U.S. Department of Commerce
Bureau of Industry and Security
Room 3876
14th Street and Constitution Avenue NW
Washington, DC 20230
Questions may be directed to Ron DeMarines, Offset Program Manager, by telephone at either (202) 482-3755 or (202) 482-4506 or by email at rdemarin@bis.doc.gov.
 
You can read the complete regulation change in the Federal Register at the BIS website.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=368Mon, 25 Jan 2010 00:00:00 GMTBlurring the Lines Between Security and Free TradeI am approaching a milestone birthday this year. While that is cause to celebrate, it is also cause to take stock of a disturbing loss of my ocular faculties. I have what my optometrist calls “prepbyopia.” Wikipedia defines this as “old man eyes” or progressively diminished ability to focus on near objects with age. Great! I am now officially an old man, and I have blurred vision!
 
It appears Customs and Border Protection (CBP) is also developing a case of regulatory presbyopia.
 
Since its inception in 2002, CBP has operated under the twin goals of securing our nation’s borders while fostering economic security through lawful trade and travel. It was originally believed that any excessive measure that impeded lawful trade was seen as a victory for the terrorists. In order to win against the extremists, our trade must continue to flow freely. Clearly there were areas in which lawful trade and security could collaborate. Out of this collaboration was born the Customs-Trade Partnership Against Terrorism (C-TPAT) program.
 
Throughout the development of C-TPAT the administration of commercial trade compliance and security remained at arm’s length. Over time, however, the lines have blurred between the two goals.
 
Tom Winkowski, Assistant Commissioner, Office of Field Operations, was quoted at the recent CBP trade symposium as saying; “…the days of security and compliance being separate are long gone.” This came as no surprise to the trade that has been grappling with the implementation of the Importer Security Filing (ISF or 10+2) process.
 
What the trade may not have noticed is another blurring of the lines, this time in the area of regulatory audit. Buried deep on the CBP website under regulatory audit is a reference to a new program known as “Supply Chain Security Observations (SCSO).” Any importer that is undergoing a Focused Assessment (audit) and is not already a C-TPAT participant will be asked to complete a security questionnaire. The regulatory audit team assigned to the importer will also make security observations as it performs its Focused Assessment of the importer.
 
The Questionnaire appears to be a simple 22-question, three-page document that is prefaced with the following statement:
The purpose of the Supply Chain Security Questionnaire is to obtain information regarding the importer’s supply chain security management procedures. For the following questions we ask that you (1) provide the written policy or procedure in which your supply chain security procedures are documented, (2) specifically identify the sections and/or pages that address our questions, and (3) if there is no written policy or procedure, provide a narrative describing the process that is in place.
While it is an apparently simple questionnaire, it will require an importer to expend considerable resources to respond to it. At the end of the SCSO, the audit team will make its report and draw the importer’s attention to any supply chain security risks.
 
CBP claims the reason it is taking this step is because not all companies have joined C-TPAT and, as a result, CBP does not have sufficient knowledge about certain areas of the import supply chain. It also claims that the security teams at CBP are sufficiently busy with those companies that have already joined the C-TPAT program. It is logical, therefore, to use the Regulatory Audit staff to expand CBP’s security bandwidth.
 
This all seems innocuous until we remember that the SCSO is being done within the context of a legally required commercial trade compliance audit. The SCSO and the ISF/10+2 have so blurred the lines between security and trade compliance it is difficult to distinguish one from the other. Importers should question and be concerned if security data will now be used for compliance purposes.
 
Perhaps it is because my vision is blurred, but that’s how I see it.
]]>http://www.ibt-articles.com/absnet/templates/?z=2&a=367Mon, 18 Jan 2010 00:00:00 GMT