PROTECTING AGAINST RISKS AND MAKING THE
MOST OF OPPORTUNITIES WITHIN THE CUSTOMS
SUPPLY CHAIN
10th Annual Forum on Global Customs Compliance
Brussels – May 27th 2015
Charles Barber – Kuehne + Nagel
Bruno Fransman – Avnet Europe Comm. V.A.
21/05/2015 Page 1
Incoterm / Contract - Content / Trade Compliance addressed
Boycott
Sanctions
Restricted Party Screening
Export Control Status
AEO / Supply Chain Security
Classification
Origin
Valuation
FTA
Documentation
Exclusion Clauses
……………….
Strategic: Supply Chain
Scope
Contract
SOP
Liabilities Defined
Destination Work
Gaps – Seller / Buyer
Client - Owner of Trade Compliance
Competent...
Who are we seeing...
Reality
What does Client do
Does it reflect contract
Relationship with Freight Agent / TC Provider
FF/Client – recognition of who does what, where
and why - liabilities owned / assumed
Client value perceptions – is it valued
or simply “hand-holding “
Client / Parties Engaged
What do they want / need
What is their import plan
Has it been shared
Client - Owner of Trade Compliance
Competent...
Who are we seeing...
p. 3
Translation
Operations: Supply Chain Can it go – Sanctions / End use / User
Pre-Plan / Inspections / Authorisations / RPS / Boycott
Customs / FTA
Incoterms / Contract
Export Licence
Pre-Advice
Sanctions
Country of Destination
RPS
Document Plan - Customs Clearance, Import Licence, Export
controlled inbound, Docs; originals – who / where
Payment delay – L/C / other
Docs in place / Customs Broker
Challenge / Import Licence
Duty / Taxes / Other Duties
IOR / Tax ID
Delivery
Customs Process
FTA/Pref.
Data Accuracy – Customs Classification, Valuation, Origin, export control status
Factors that Impact your Supply Chain
Who is Involved in Trade Compliance
TRADE COMPLIANCE
PURCHASING AND
PLANNING …. SALES
AND MARKETIN
G
CUSTOMER CARE
LEGAL
FINANCE &
ADMINISTRATION
TAX
MANUFACTURING
ENGINEERING
LOGISTICS INCL.
DISTRIBUTION
CUSTOMERS
SUB-CONTRAC
TORS
SUPPLIERS
TAX and OTHER REGULATORARY
AUTHORITIES
….
FREIGHT FORWARDES
CARRIERS
BROKERS
Don’t forget third parties - they also impose Trade Compliance Requirements
Risk / Awareness Subject Areas
Main high level risks:
No policies, no support from Sr., Management (Culture)
No clarity of departmental roles and responsibilities
No in-house experience / knowledge
Imposition of trade compliance into existing roles with no training
No cross-functional training/exchange of knowledge
No clear view of the end-to-end supply chain
Not capturing/identifying the risks
Failure to communicate the trade compliance requirement
Not closing corrective actions / seeking improvement
Fear of decision making / “ownership” / accountability
5
Risk / Awareness Subject Areas
Trade Compliance Requirements in Functional Roles Functions – All
Incoterms Functions – Engineering, Product Mgrs, Purchasing, Sales, Contracts, Operations, Supply Chain, Logistics, Legal
Value Added Tax (Sales Tax)
Functions – Sales, Sourcing, Finance, Tax, Contracts, Operations, Supply Chain, Logistics, Legal
Import / Export Classification
Functions – Engineering, Product Mgrs, Purchasing, Sales, Contracts, Operations, Supply Chain, Logistics,
Customs Valuation Functions – Purchasing, Contracts, Operations, Supply Chain, Logistics
Country of Origin and Origin Marking for Customs Functions – Engineering, Product Mgrs, Purchasing, Sales, Contracts, Operations, Supply Chain, Logistics,
End-Use & End-User Identification Functions – Purchasing, Sakes, Contracts, Operations, Legal
Restricted Party Screening Functions – Purchasing, Sales, Contracts, Operations, Supply Chain, Logistics, Finance, HR, Legal
Sanctions & Embargoes Functions – All
Restrictive Trade Practices or Boycotts Functions – Purchasing, Sales, Contracts, Operations, Supply Chain, Logistics, Finance, Legal
International Trade Transaction Recordkeeping Functions – Purchasing, Sales, Contracts, Operations, Supply Chain, Logistics, Finance, Legal
6
Ex Co., UK
10% Time Spent
10000 Transactions
Risk Score
Duty Spend $256k
No
1
Related Role
Additional
resources
Re Exported 38%
65% Routed
Exp Cont’d
items <1%
32 ERP items
growth per
week
$? K Duty Saved
ERP
IBS
HTS
ECCN
Origin
Export 69%
EU 15%
Domestic 16%
Sales $55,440,772
Import 25%
EU 1%
Domestic 74%
Purchases $23,888,169
Imports
Exports
Restricted Party Screening
Completed / When / Who
End Use / End User
Verified / Contractual Protection
Desk-Level Procedures
Trade Program
Policy, Assessment, Training
GSP imports
Bi-lateral FTA
Import from Export to
Qatar
Actual
84% Potential
60%
Hong Kong
Kuwait
Perceptions on Trade Compliance
• Trade compliance is a cost center with no financial benefit to the company, (we are
fee eaters not fee earners)
• Trade compliance slows down our supply chain, (but when something goes wrong it
is always customs)
• Trade compliance is “operational compliance” like completing and stamping docs
• Classification is easy; we only import components they are all “parts of”
• We sell to customers in the EU, no need for export control procedures or ECCNs
• Origin management is easy; we know where our vendors are located
• Our customs brokers/freight forwarders do everything for us, it isn’t our responsibility
• We have an export compliance team, so it is not our responsibility. They will see it
when we ship.
• Our competitors do it; if we don’t we lose sales & anyway I agreed to it in the contract
• We have done this for more then 20 years and never had problems with export
control authorities
• AEO is voluntary, but everything in it is a trade responsibility
• We sell everything Ex-works, so we don’t export and it is not our responsibility Should we be bothered – Maybe we should…
Exercise
Break into Groups
Consider your Information
Take your time
And....
9
Case 1
One of your sales people contacts you with the following request:
• He has a re-seller who wants to do business in Russia. He needs to be
supplied with highly encrypted security servers which are integrated by your
US contract manufacturer in Europe. The re-seller wants door-to-door delivery.
• And the sales person asks you if he can do the business. What do you do?
21/05/2015 Page 10
Case 1 – continued…
After discussing with him you get a detailed overview of the intended flows:
• Your company buys all the components from vendors that are considered to be US
companies, these components are delivered from multiple locations (within and outside
the EU). The ship from locations bill you for the delivery of the components. All
components are directly sent to the Irish branch of your US Contractor where they will be
integrating all components to finished servers and ship it to your Warehouse in Belgium.
The Irish branch will bill you for the integration service.
• The servers are considered to be dual-use items.
• You sell through your re-seller located in Germany. The finished servers are shipped
door-to-door, directly from your warehouse to two different Russian end-customers. The
re-seller wants to have full landed cost services.
• Define all potential risks. Explain why?
• Do you have all facts needed. If not, what more do you need?
• Are there any suggestions that need to be made, if so please make these
21/05/2015 Page 11
D2D contracts often have complex trade
situations; potential for errors…
Example – Complex transactions
Contract A Belgian Company sources components that are send to a integrator in
the EU (Ireland)
The integrator sends an invoice for the assembly
The integrator sends the finished product to the WH in Belgium of Company A
Company A sells the finished product to a DE re-seller who sells to a customer In Russia
Company A agrees to do full landed cost service and local tax management, i.e. door to door delivery
Goods are directly exported from the WH to the end-customer in Russia
Servers are highly encrypted
Customers in Russia are National Police in Moscow and a company active in the oil and gas industry
Risks IOR in Ireland
VAT on import in Ireland
Trade data (HTS, origin and ECCN) of components
Trade Data of finished d products
EOR in Belgium
Proof of export out of the EU
IOR in Russia
EU and US (Re-)Export license for export out of Belgium
EU and US sanctions against Russia
Certifications (FSB) needed for integrated systems
IATA lithium battery requirements
Opportunities customs arrangements such as Processing under customs control, IPR ?
Wrong flows & missing data can result in blocked shipments, increased costs, penalties and missed opportunities
Vendors
Non-EU
Vendors
EU
EU
Integrator
Company A
BE
Company A
WH
DE Re-seller Russian
customer
Inv components Inv Goods
Flow components Flow Goods
Inv Integration
What could have happened
Example – Complex transactions
Assembly in by Integrator Integrator acts as IOR and pays import duties and import VAT
Integrator issues an invoice for the assembly charging local VAT
Delivery by Company A to end-customers in Russia - Export
Company A acts as exporter of record for customs purposes
Company A applies for the export license as they are the exporter for customs
Goods are exported with Company A’s sales invoice, which is added to the shipment
Company A raises an invoice for the supply of goods to DE exempt as an intra-community shipment
Company A has a global export license for Russia and ships goods under its global export license:
End-customer is National Policy => not Military End-customer is Oil and Gaz industry => HTS does not fall under the prohibited list
No IATA reporting has been done
Delivery by Company A to end-customer in Russia – Import
Company A appoints a broker with IOR services
Goods are imported in the name of the Russian end-customer based on our sales invoice
Due to full landed cost services all costs, customs handling fees, import duties and import VAT are re-charged to Company A
Wrong flows & missing data can result in blocked shipments, increased costs, penalties and missed opportunities
Vendors
Non-EU
Vendors
EU
EU
Integrator
Company A
BE
Company A
WH
DE Re-seller Russian
customer
Inv components Inv Goods
Flow components Flow Goods
Inv Integration
How to avoid mistakes & reduce risks
Get full end-to-end picture: Ask questions over and over again
Cut transaction into pieces and Identify who should be involved
Vendors
Non-EU
EU
Integrator
X BE
X BE
WH
Vendors
EU
EU
Integrator
X BE
EU
Integrator
X BE
X BE
WH
X BE
X BE
WH
DE Re-seller Russian
Customers DDP
DDP
How to avoid mistakes & reduce risks
When the analysis is finished, risks defined, corrective actions
fixed & a maintenance plan is in place:
Use cases as examples for newsletters
Train, Train and keep Training
Agree on how to work across functions
Create cross functional tailor made procedures & guidelines
Define rules dealing with how to avoid future risks/errors & identify who should
be doing what, owners & accountability
See if IT improvements can help
Follow-up: audit, maintain & continuous improvements
Authorized Economic Operator (AEO)
AEO legislation – Voluntary – 2007 / 2008
In simple terms required that:
Traders evidenced compliance with existing EU Customs legislation, and
Across their supply chains...; for security all parties in the supply chain must be secure
Generally through written procedures addressing specific questions
Evidencing compliance with mandatory, existing EU Customs legislation
Customs Assumption – Traders already complying with existing laws
All that is required is to write that down / No more work really...
Raised the standard for demonstrable compliance (and real compliance practice)
Customs auditing / verification is simpler
Union Customs Code (1st May, 2016):
Numerous changes
AEO – Mandatory guarantee requirement for all non AEO traders wishing to use customs
processes such as PCC, IPR, Customs Warehousing, etc.
– Guarantee level for non AEO’s not yet determined...
– AEO – exempt...
HMRC already requesting AEO (c) Standard for applications/renewals
16
UCC – Regulation Change
Main Changes in the Union Customs Code (1st May, 2016):
• BTI validity reduced to three years from six
• AEO – Introduction of self assessment procedure; a simplified regime allowing AEO traders to make
import and export entries in their records instead of submitting full declarations
• AEO – Introduction of a centralized clearance system for AEO traders allowing payment of customs
duties in their location irrespective of actual entry point to the EU
Requires sophisticated IT system particularly in respect of VAT and Excise
Implementation 2020...
• AEO – Potential for AEO traders to enjoy lower guarantee levels under the customs debt/duty
deferment scheme requirements (levels subject to UCCIP)
• AEO – Mandatory guarantee requirement for all non AEO traders wishing to use customs processes
such as PCC, IPR, Customs Warehousing
Guarantee level for non AEO’s not yet determined...
AEO – exempt...
HMRC already requesting AEO (c) Standard for renewals....
UCC, will bring further evolution, for example;
• Royalties, will the scope be extended....
• First Sale – currently will not survive...
17
Export Compliance
18
Company Amount ($) Note
BNP Paris Bas (June 2014) Sanction control 8,800,000,000
Weatherford (FCPA, Export Control , Sanction control) (2014)253,000,000
BAE Systems (2011) 79,000,000
Blackwater (2010) 42,000,000
Balli Group PLC & Balli Aviation Ltd (UK) (2010) 17,000,000 Five-year corporate period of probation
Chitron Electronics, Inc. (2011) 15,500,000 One Manager put in Jail for 3 years
PPG Paints Trading (Shanghai) Co., Ltd (2011) 3,750,000
TW Metals (2011) 575,000 With Prior Disclosure
Trek Lether(2011) 534,000
Applied Tech Inc. CEO (2011) 340,000 100 hrs community service, 2 yr probation
Arvin Meritor (2011) 100,000 With Prior Disclosure
USA Global Trade Related Penalties
19
Applicability of export
compliance rules
Who must comply with these regulations:
EU law:
• European entities and individuals
• Foreign entities undertaking activities in/from the EU: e.g., U.S. entity registered in the EU and acting as exporter of record.
• Not really extraterritorial application: except brokering can be and certain restrictions/sanctions/prohibitions
US law (fully extraterritorial):
• U.S. citizens or permanent residents
• U.S. companies/branches
• Foreign subsidiaries
• Dealing in U.S.- origin products/certain foreign-made products
• Owned/controlled by U.S. persons/firms
• Foreign persons dealing in/using “US” products
• U.S. persons “controlling” or “facilitating” transaction
• Any person located in the U.S.
Four Basic Questions
What is your item used
for?
End-Use
Restricted and prohibited
end-use Export Control Basics
Who you are
exporting to?
Denied Parties?
Restricted Parties?
What are you
exporting?
Controlled Items?
Where are you
Exporting to?
Embargo
Countries?
Export compliance is applicable to:
What am I selling – Products, software or technology:
• Export control does not apply only to goods and services but technology can also be
controlled
What will the Product be used for – Although products are not controlled a
license requirement, restriction, prohibition or embargo can exist depending on
the end-use, destination or party involved in the transaction.
Who is involved? Parties (businesses and individuals): some parties/individuals
are banned; you cannot do business. Nationality of a person can also result in a
restriction/prohibition.
Which countries are involved: some countries are fully banned or do need
special attention (financial sanctions, Arms-embargo, etc.)
Applicability of export
compliance rules
Restricted / Denied Party
Screening
23
Restricted / Denied Party Screening
Screening is critical to compliance – Denied /Restricted Party Lists change everyday
Legal prohibitions differ for each list
Legal prohibitions apply differently depending on facts of a specific transaction
Remember your company’s reputation and public policy concerns!
24
Why Screen
Screening is a risk management
process that prevents a company
from doing business with prohibited
and restricted entities, governments,
companies or persons
25
Who to screen – Almost Everyone
Customers, Suppliers, Contractors & Business Partners
Visitors, Contracted Employees, Potential New Employees
End Destination Countries
All parties to the supply chain - Banks, Freight Forwarders, Agents, Distributors, Resellers, etc.
26
What do I do with a “Match or Partial Match”?
Resolve false hits
• Using available information, follow your site procedure, with Sr., Management to determine if a true match
• Is listed entity the same entity that we want to do business with?
• If not a match, document as a false hit, and proceed
Real?
• Do not Proceed
• Discuss with Legal
27
Sanctions & Embargoes
28
What Are Sanctions & Embargoes?
We operate in a Global Political Environment and must recognize that certain
Countries do not consider other Countries as lawful trading partners.
Sanctions and Embargoes are a tool of Foreign Policy; they are fluid and can change
rapidly and are recognized as:
• Legal measures
• Taken by a nation (or group of nations, the United Nations, the European Union, etc.)
• That restrict or prohibit trade and financial transactions with a specified target(s)
• For the purpose of changing the behavior of the target(s)
Targets can be nations, entities, individuals, or a combination of these
Most common prohibitions on direct or indirect transactions are for: • Cuba, Syria, North Sudan, North Korea, Iran, Russia
Depending on the political situation, other countries may be added or removed from this list
• For example; Myanmar…
29
What is Facilitation – US persons must not “facilitate” any transaction with
certain sanctioned or embargoed countries
Furthering a Transaction
Approvals to proceed
Discussions about transaction details
Discussions on how a transaction should proceed, or payment
Altering Procedures
Altering operating procedures to
permit a transaction to happen
Referrals
Referring business that we could not take to any other
company or person
30
Sanctions – Liability
Whether Directly or Indirectly:
• Prohibits sales of products or services, investment, and all types of transactions with any listed
country, entity, or individual
• Requires diligence during business formation, order entry, shipment, and payment phases of
transactions
• Sales must conduct RPL screening during the marketing phase of a transaction
E.g. Exports, re-exports, and imports of goods or services:
• “Facilitation” of non-U.S. persons’ activities in embargoed countries
• Transactions involving embargoed country assets or property
• Transactions with “specially-designated” persons or entities
• New investment in embargoed country
• Referring prohibited business
• Structuring transactions purposely to avoid export control rules
Knowing and Knowingly
Knowing or knowingly – Directly and Indirectly
Supply of software to a Turkish Telecom operator to allow them to provide
cloud computing services to their customers from their HQ in Turkey
The e-mail chain mentioned that they also installed the full telecom network in the
Middle East region including Syria (confirmed by Google search as well)
Knowing or knowingly – Directly and Indirectly
Supply of an export controlled chip to a Spanish re-seller:
Re-seller sells to Spanish manufacturer for equipment to be used for “Satellites”
End-use is in China
Knowing or knowingly – Directly and Indirectly
Supply of equipment to a French customer:
• The equipment was initially sourced from a US company
• Goods are shipped to Panama
• The Customer’s website states that Cuba is part of their distribution region
Export Control Regimes
Australia Group –
www.australiagroup.net
Wassenaar Arrangement –
www.wassenaar.org/
Nuclear Suppliers Group –
www.nuclearsuppliersgroup.org/
Missile Technology Control Regime –
www.mtcr.info/english/index.html
p. 35
ECCN – What is it?
Last 3 digits not harmonized – e.g. 500, 600 and 900 US series AND differences between countries/regions due to late implementation of Wassenaar updates =
different ECCN for same products (ERP trade date maintenance)
Controlled Technology
What is “technology” and how can it be transferred
“Technology” means specific information necessary for the “development”, “production” or “use” of goods. This
information takes the form of ‘technical data’ or ‘technical assistance’.
NB 1: ‘Technical assistance’ may take forms such as instructions, skills, training, working knowledge and consulting
services and may involve the transfer of ‘technical data’.
NB 2: ‘Technical data’ may take forms such as blueprints, plans, diagrams, models, formulae, tables, engineering
designs and specifications, manuals and instructions written or recorded on other media or devices such as disk, tape,
read-only memories.
When is it subject to control
The export of ‘technology’ which is ‘required’ for the ‘development’, ‘production’ or ‘use’ of goods controlled in
Categories 0 to 9, is controlled according to the provisions of Categories 0 to 9.
‘Technology’ ‘required’ for the ‘development’, ‘production’ or ‘use’ of goods under control remains under control even
when applicable to non-controlled goods.
Controls do not apply to that ‘technology’ which is the minimum necessary for the installation, operation, maintenance
(checking) and repair of those goods which are not controlled or whose export has been authorized.
Controls on ‘technology’ transfer do not apply to information ‘in the public domain’, to ‘basic scientific research’ or to
the minimum necessary information for patent applications.
21/05/2015 Page 37
Example – Providing Training
Training can be controlled when it meets the definition of technology
transfer (depends on the content of the training)
Even when training is non-controlled risks can still exist:
Export compliance restrictions can be an issue, e.g. Denied parties,
embargoed customers/countries
Giving training to a Nuclear Plant customer
Example – Controlled “Technology”
The Integration centre gets a project to assemble controlled servers for the account
of a customer (contract manufacturing)
The integration centre uses a sub-contractor for installation of the encryption
software, testing of the finished products and review of the assembly process
To that purpose technical specifications (not publicly available) are provided by the
customer and will be provided by the Company to the sub-contractor.
After finishing, the full installation is sent to the customer’s premises where the
servers are integrated within the customer’s system and programming of the
encryption software takes place.
Nationality of integrators, engineers, programmers can be important
EU – exporter under export control
Dual-use (goods)
Exporter (article 2): On whose behalf an export declaration is made, that is to say the person
who, at the time when the declaration is accepted, holds the contract with the consignee in the
third country and has the power for determining the sending of the item out of the customs
territory of the Community. If no export contract has been concluded or if the holder of the
contract does not act on its own behalf, the exporter shall mean the person who has the power
for determining the sending of the item out of the customs territory of the Community
Cooperation (article 11.1): If the dual-use items in respect of which an application has been
made for an individual export authorization to a destination not listed in Annex II., a or to any
destination in the case of dual-use items listed in Annex IV are or will be located in one or more
Member States other than the one where the application has been made, that fact shall be
indicated in the application. The competent authorities of the Member State to which the
application for authorization has been made shall immediately consult the competent authorities
of the Member State or States in question and provide the relevant information. The Member
State or States consulted shall make known within 10 working days any objections it or they
may have to the granting of such an authorization, which shall bind the Member State in which
the application has been made.
Exporter of Record for customs ≠ as exporter for export control ≠ as exporter for VAT
EU – exporter under export control
Dual-Use:
Where the benefit of a right to dispose of the dual-use item belongs to a
person established outside the Community pursuant to the contract on
which the export is based, the exporter shall be considered to be the
contracting party established in the Community
EU – exporter under export control
Software/licenses shipped electronically
Dual-Use:
Which decides to transmit or make available software or technology by
electronic media including by fax, telephone, electronic mail or by any
other electronic means to a destination outside the Community.
EU export license – where to apply:
• For all other exports for which an authorization is required under this
Regulation, such authorization shall be granted by the competent
authorities of the Member State where the exporter is established.
Where to Apply
OEM
South -
Africa
Company
A BE Vendor EU
PO flow
SO/Invoice flow
Goods flow
PO 1 PO 2
INV 1 INV 2
Shipment 1
Shipment 2
Company
A WH
Dual-Use: Exporter of Record
Dual-Use: Exporter of Record
DE re-
seller
Company
A BE Vendor EU
PO flow
SO/Invoice flow
Goods flow
PO 1 PO 3
INV 1 INV 2
Shipment 1
Shipment 2
Company
A WH
OEM
South -
Africa
PO 2
INV 2
Dual-Use: Exporter of Record
OEM
South -
Africa
Company
A BE
Vendor
EU
PO flow
SO/Invoice flow
Goods flow
PO 1 PO 2
INV 1 INV 2
Dual-Use: Exporter of Record
OEM
South -
Africa
Company
A BE
Vendor
EU
PO flow
SO/Invoice flow
Goods flow
PO 1 PO 2
INV 1 INV 2
UK re-
seller
PO 2
INV 3
Boycotts (U.S.)
48
• Businesses in, or trading with, these countries or organizations may request
boycott language against Israel
Algeria
Bahrain
Comoros
Djibouti
Egypt
Gulf Coop. Council
Iraq
Jordan
Kuwait
Lebanon
Libya
Mauritania
Morocco
Oman
Palestinian Auth.
Qatar
Saudi
Arabia
Somalia
Sudan *
Syria *
Tunisia
U.A.E.
Yemen
Arab League Boycott of Israel
49
Boycott Requests
Must be identified – review instructions, requests, etc., and consider does this need to be here. How does it impact the transaction/Client if removed. Who is the Client – is there any US involvement / why does this make a difference… Can be… Verbal Email Purchase order Letter of credit Contract language Request for proposal, bids, quotes Documentation
Some boycott requests are obvious; some requests may be obscured in the paperwork….
50
Boycott Request – Example
Dear --------,
As part of the documentation required for Letter of Credit from the customer, we
are required to furnish a certificate confirming that the goods are neither of Israeli
origin nor do they contain Israel materials. Please confirm that you will be in a
position to issue such a certificate.
Regards,
51
Boycott Request – Example
Supplier shall not, and shall prevent its Sub-suppliers from, importing or
using: goods or services from any country with which Saudi Arabia does not
maintain diplomatic relations; goods produced or services provided by any
Persons organized under the laws of any country with which Saudi Arabia
does not maintain diplomatic relations; or goods or services provided by any
Person who is a national or resident of any country with which Saudi Arabia
does not maintain diplomatic relations.
52
U.S. Anti-boycott laws
Prevent U.S. citizens and companies from being used by foreign
governments to promote their agenda
Application
Arab League Boycott of Israel
India & Pakistan
Cost of Non-compliance - U.S. export penalties apply
Civil monetary penalties
Criminal penalties for knowing or willful violations
Sanctions (e.g. denial export privileges)
U.S. Anti-boycott Laws
53
How do you control internal and external risk…
You need to gain control of:
The end to end supply chain, and
The planning and engagement stage
They (internal and external parties) are all Clients…
Summary
21/05/2015 Page 54
Compliance = Protecting
against Risks
Trade Compliance” Risks Violations
• Consider an Authority perspective of some risks.
• Company “failure” to:
• Know the customer and end use(r) of product
• Know the ship from, ship to and end-destination of the products
• Comply with limitations and provisions
• Have the necessary knowledge (in-house)
• Properly classify products for export/import
• Conduct Restricted Party Screening
• Have process in place to avoid violations
• Work across departments
• Just a few examples…
• Is it just an Authority that should see risk in this way…
• Feet from sourcing and
sales walk us to new places
all the time
Who we all should become
• Head from a lawyer
• Body from ISC team
• Work hand in hand with Sourcing, Security, HR, Finance, legal, tax, CP/S, warehousing, supply chain, engineering, etc
• A heart that we have defined for ourselves
• Multilingual
This is valid for all functions: Be a specialist become a generalist
What is my position
within the Organization
• Describe Trade Compliance Activity:
• Have clear Policy on Trade Compliance
• Define clearly what is in-scope and what is out of scope for your function
• Examine activities being performed by trade resources to determine what is in
scope/out of scope
• Set expectations around support needed from and for Trade functions
• Understand how you impact others and how others impact you
• Understand key objectives of your Organization and other Departments
• Develop metrics for understanding whether objectives are met and use them for
internal marketing
• Calibrate resourcing to those objectives
• Determine best location for resources to be placed to accomplish those objectives
57
Example – What we might not do
Responsibility Content Who
Product requirements conformity declaration/attestation, hazardous materials, REACH,
ROHS, WEEE, product qualification requirements (e.g. CE labeling,
radio frequency, voltage restrictions), consumer protection
requirements, etc
Part creation team
Intrastat VAT reporting of movements within the EU Finance/transportatio
n
Coding of
transport/broker
invoices
Allocation the proper cost centre to the transport/broker invoices.
Review of customs handling fees
Finance
Document retention:
archiving
Keep complete set of import and/or export records (invoice, customs
declaration, transport document, preferential certificates of origin
Finance/Partly Trade
Compliance
Foreign Corruption FCPA/Anti-Bribery Legal Council
Invoicing Creating correct invoices Customer Care
Sales and Purchase
orders
Entering, changing and maintaining all data elements of a PO/SO, e.g.
ship to, sold to, built to, etc.
Sales and Trade Compliance
Communication and Integrated Processes Are Key to Success
Sales Activity Requirement Trade Impact
New customer set-up • Communication of export and documentation requirements
• Review any trade data compliance clauses in sales contract
• Review any terms of delivery clauses in sales contract
• Screen against Denied Party Lists
• Transport mode
• Red flags
•Customer type, e.g. re-seller, governmental, military, etc
• Duty consequences
• Preferential origin impact
• Admissibility issues
• Clearance cycle time
• Correct application of import of record in
country of destination
• Incoterms
• Export Control
New sales contract • Communication of export and documentation requirements
• Review any trade data compliance clauses in sales contract, e.g.
export control responsibilities
• Review any terms of delivery clauses in sales contract
• Duty consequences
• Preferential origin impact
• Admissibility issues, Export Control
• Clearance cycle time
• Correct application of exporter and importer
of record
• Incoterms
• Set of export documents
Drop shipments sales • Communication to trade compliance on drop shipment mode
• Review by trade Compliance to ensure adherence to export and
import regulations
• Export Control, e.g. who is responsible to apply for export license
• Duty consequences
• Trade impact: document requirements
• Correct application of exporter and importer
of record and correct set off documents to be
used for import and export
• Export Control
Complex transactions • Communicate to trade compliance team of any complex
transactions/contract: multiple parties involved, multiple locations
involved with sub-assembly and further assembly, sensitive
countries, etc
•Duty consequences
• Trade impact: document requirements
• Correct application of exporter and importer
of record and correct set off documents to be
used for import and export
• Tax registration impact
Finance and Trade Compliance
Communication and Integrated Processes Are Key to Success
Finance Activity Requirement Trade Impact
Transfer Pricing • Review transfer pricing set-up for intercompany sales
• Review transfer pricing set-up for free of charge shipments
• Duty consequences
• Valuation risk exposure: correct customs
value declared at import
Royalty and license
contracts
• Communicate any existing or new Royalty and license contract
•Review any new Royalty and license contract with trade
compliance team
• Duty consequences
• Valuation risk exposure: potentially to be
added to the customs value of imported
goods
Assists: free of charge
or at a reduced price
• Communicate any assist provided to the manufacturer (tools,
drawings, know how, tools, moulds, etc) free of charge or at a
reduced price
• Review with Trade compliance team on potential inclusion in the
customs value of imported goods
• Duty consequences
• Valuation risk exposure: potentially to be
added to the customs value of imported
goods
Any other, such as
R&D, sales
commissions, works
of art, proceeds, cost
for testing, etc
• Communicate any similar cost items that do related to goods
being imported
• Review with Trade compliance team on potential inclusion in the
customs value of imported goods
•Duty consequences
• Valuation risk exposure: potentially to be
added to the customs value of imported
goods
Incoterms, drop
shipments, complex
transactions
• Review complex transactions with agreed incoterms, who is
doing what in the transaction chain
• Correct application of VAT exemptions
• Risk of VAT registration
A Clear Trade Compliance Program
• Define Service Offerings:
• Trade Knowledge Centre
• Legal advice, training, procedures, guidelines, complex transactions, contract
reviews, etc.
• Risk avoidance, Continuous Improvements, Cost savings & Increased sales
• Self-assessment, internal operational audits
• Customs Broker Management
• AEO-certification
• Duty Minimization Program
• Export Control Compliance Program
• Internal Marketing
• Management Reporting = Metrics Reporting
• Volumes and values
• Duty spend and duty saved
• Sales realized under duty program
• Sales realized under Export Control Compliance
Conclusion
Trade Compliance is not a stand alone organization, but is cross
functional:
• Everyone impacts trade compliance
• Trade compliance impacts all other functions
Trade Compliance is complex and errors can easily be made
Trade compliance offers more than “just” importing and exporting goods
• Protects the Company against any potential liability
• Helps to reduce costs, makes savings and facilitates trade in some markets
And Consider…
When a mistake happens (however that happens)
Can you demonstrate it is only a mistake
Within a demonstrable process flow that demonstrates due
diligence for compliance
If not, expect the Authorities to examine at a detail level
because the mistake may simply be one of many.
Perfection is not a requirement
Demonstrable due diligence is…
p. 63
Any Questions
We’ll always try to support the business need but
often the answer requires additional input from others
Back up
65
Incoterms
Means international commercial terms
For international contracts for the sale of goods
ICC standard (current version 2010)
Can be varied by contract
Internationally recognised terms
66
Incoterms
Traditionally considered as Four Groups
E = Departure
F = Main Carriage Unpaid
C = Main Carriage Paid
D = Arrival
67
Incoterms EX Works
Ex - Works – (…named place…)
Seller places the goods at buyers disposal at the named place of delivery,
not loaded and not cleared for export. Risk of loss/damage passes to
buyer at delivery. Buyer must arrange loading, collection, export licenses,
export customs and documentation, freight, destination customs
clearance, import licenses, final delivery and payment of any customs
duties and taxes. Can be used for all modes of transport
Ex-works can be used for any mode of transport
Recommendation: to be used for domestic sales only
Same risk for: FCA WH and self-collect
68
Take Care when trading on this term
Incoterms FCA
FCA – Free Carrier (... named place)
Seller delivers goods, cleared for export, to buyer’s carrier at the named
place. Delivery is completed when goods are loaded onto carrier's means
of transport, if named place is seller's premises, otherwise when goods
are placed at carrier's disposal on seller's means of transport not
unloaded. Risk of loss/damage passes to buyer at delivery. Can be used
for all modes of transport.
FCA can be used for any mode of transport
69
Incoterms FOB [& FCA]
FOB – Free On Board ( ... named port of shipment)
Seller delivers, and risk of loss/damage passes to buyer, when goods
pass ship's rail at named port of shipment. Seller clears goods for
export. Only used for sea or inland waterway transport
FOB should only be used for
Sea and Inland Waterway Transport
70
Incoterms – CIF & CIP
CIF – Cost, Insurance & Freight (…named port of destination)
Seller delivers, and risk of loss/damage passes to buyer, when goods pass ship's
rail at named port of shipment. Seller clears goods for export and must arrange
contract of carriage and insurance to named port of destination. Only used for sea
or inland waterway transport.
CIP – Cost & Insurance Paid to (…named place of destination)
Seller delivers goods to seller’s carrier, clears goods for export and must arrange
contract of carriage and insurance to named place of destination. Risk of
loss/damage passes to buyer at delivery. Can be used for all modes of transport.
CIP can be used for any mode of transport
71
Incoterms – DAP
DAP – Delivered At Place (…named place of destination)
Seller delivers goods to buyer at named place of destination not
cleared for import and not unloaded. Risk of loss/damage passes to
buyer at delivery. Buyer must arrange customs clearance and payment
of any customs duties and taxes. Can be used for all modes of
transport.
DAP can be used for any mode of transport
72
Incoterms – DDP
DDP – Delivered Duty Paid (…named place of destination)
Seller delivers goods to buyer at named place of destination
cleared for import and not unloaded. Risk of loss/damage passes
to buyer at delivery. Seller must arrange customs clearance and
payment of any customs duties and taxes. Can be used for all
modes of transport. Should not be used where the seller cannot
obtain an import license.
Take care when trading on this term
73
Comparison between purchase on FCA & DDP
Do you know what it really costs
74
Purchasing FCA or DDP?
Unit Cost
• FCA (Origin) $100.00
• Sales Taxes 5% $ 5.00
• Freight Costs 10% $ 10.00
• Insurance 1% $ 1.00
• Duty 5% $ 5.80
• Tax 20% $ 24.36
• Total $146.16 DDP Unit
Incoterms 2010 –
EXW (FCA WH or self-collect), and
DDP in sales
Examples follow
EXW: Ex works:
Seller must make the goods available at Seller’s premises. Risk of loss transfers at Seller’s premises.
EXW: Ex-Works
Seller Pro’s:
Only responsible to have goods packaged, ready for transport at seller’s
named facility;
Not responsible for loading/pre-carriage/export clearance in origin country;
Can be used for small package international courier shipments or
domestic small package shipments.
EXW: Ex-Works
Seller Con’s:
No control over goods’ destination:
goods could be diverted to domestic markets;
Invoices can be swapped / replaced – this conflicts with -
• Exportation needs to be done based on documentation provided by the seller (invoices,
delivery note)
No control over the export clearance:
Inability to retrieve key documentation for duty drawback claims in origin country;
Inability to retrieve key documentation for proof of export, needed for exempted VAT sale
• No receipt of validated and certified export message out of the electronic customs system
High Risk for export of controlled goods
Seller’s responsibility: export based on Seller’s export authorization/license
Specific export control mentions need to be added on the export declaration (prepared by buyer)
Could be caught in risky “no-man’s land” – buyer in over his head, asks for
assistance in loading/pre-carriage/export clearance despite Incoterms.
• High risk of wrong export clearance, export documentation prepared wrongly by the buyer
EXW: Ex-Works
Buyer Pro’s:
Complete visibility and control over shipment from outset to make
booking/loading changes as needed.
Ability to receive necessary shipment pre-alert information for security and
customs clearance activity;
Assurance that all links in supply chain are secure;
Access to documentation needed for Drawback claim in destination
country;
Mandates cooperation from Seller to ensure documentary/customs
compliance.
EXW: Ex-Works
Buyer Con’s:
Shipper not even responsible to load conveyance for transport – could
lead to messy claims issues;
Buyer responsible for pre-carriage and export clearance in unfamiliar
country;
VAT or other domestic tax exemption – importer has shipment
documentation but does not have representation in origin country to
provide proof of export to supplier: VAT can be re-charged by supplier to
customer.
Bottom Line: EXW generally not recommended by Incoterms
Committee for international transactions
Intention during Incoterms 2010 negotiations: only to accept EXW for
quotation discussions.
EXW - cases
BE Company selling to French customer and French customer selling to Indian end-customer
Goods need to be shipped from Belgium to India. French customer MUST organize transport
from Belgium to India. In case Indian customer organizes the transport first sale will be a local
sale (with EXW we do not control this)
>
VAT exempt
Customer responsible for export operations. However
Export Customs declaration needs to be completed in name of BE Company. Issue with EXW is
that we do not control that goods will properly be exported by our customer. If we do not get the
proof of export we face VAT that will have to be paid and is non-recoverable.
Export license (depending on the country):
• Customer in its capacity of exporter under Dual-Use (Entity that holds the contract with the first
entity outside the EU);
BE Company Customer
FR EXW
Indian end- Customer
CIP
EXW - cases
DE Company selling to UK customer and UK customer selling to Indian end-
customer
Goods need to be shipped from Germany to India. Indian end-customer
organizing transport from Germany to India
>
+ VAT: DE Company needs to charge German VAT on its sale
UK Customer can exempt it’s sale but potentially need to register for VAT in Germany
UK Customer responsible for export operations
Export Customs declaration need to be completed in name of Customer
Export license need to be obtained by the customer
DE Company UK Customer + VAT
Indian end- Customer
EXW
DDP – Delivered Duty Paid Seller Pro’s:
Creates freight “critical mass” for ideal carriage contracts
Controls destination of freight for export compliance;
Maintains export documentation for Duty Drawback/VAT exemption;
May be used in domestic trade and in cases where Seller has strong,
established presence in destination country (to be used with caution);
Legal entity of seller must often be ”tax”, “VAT” and “Customs” registered in
country of import
Mandates cooperation from Buyer to ensure documentary/customs
compliance.
DDP – Delivered Duty Paid (cont.)
Seller Con’s:
Responsible for cargo delivery and customs clearance in unfamiliar
country;
Seller might be responsible to register for tax purposes
Seller might be performing local sales after import (tax impact)
Many countries do not allow non-resident to be Importer of Record or
where possible may result in additional legal requirements
Can result in compulsory tax registration, e.g. for VAT
Can result in compulsory recognition as importer for customs purposes
Can result in setting up a legal entity in order to be able to act as importer;
Seller could be required to obtain import licenses in country of destination
May be responsible for meeting advanced security filing rules
Probability for confusion in responsibilities at destination is extremely high;
May cause payment delays if terms are somehow tied to Incoterms rules.
DDP – Delivered Duty Paid (cont.) Buyer Pro’s:
Acceptable for small importers with no “critical mass” freight contracts;
Seller responsible for export clearance/license requirements;
May delay payment to Seller if somehow tied to Incoterms;
May be used in conjunction with “Vendor Managed Inventory” projects to
delay inventory liability for tax purposes;
Mandates cooperation from Seller to ensure documentary/customs
compliance.
DDP – Delivered Duty Paid (cont.)
Buyer Con’s:
No visibility to freight for ISF/import customs compliance purposes;
Lose “critical mass” for ideal freight contracts;
Will need to obtain international freight/insurance costs for countries with
CIF-based declared value requirements;
No access to documentation for Duty Drawback claim in destination
country;
Seller often in over his head in destination country, requiring intervention
by Buyer.
Often applied wrongly: seller need to clear for import, however in practice
buyer performs import clearance: tax risk
Buyer is buying after import is performed in country of destination
(potential tax impact)
Bottom Line: Similar to EXW, this INCOTERMS rule is not recommended for
international transactions
DE Company selling to UK customer and UK customer selling to Japanese end-customer
DE Company delivers from its WH in Germany To the end-customer in Japan
Goods need to be shipped to Japan. DE Company organizing transport from Germany to Japan
>
+ VAT exempt
DE Company responsible for export operations
Export Customs declaration need to be completed in name of DE Company
Export license
• UK Customer in its capacity of contracting party with customer outside the EU
DE Company responsible for import clearance in Japan
Potentially mandatory registration for TAX/VAT and customs purposes
Potentially responsible for any import license or other obligations
Potentially need to raise a local VAT sales invoice after import subject to Japanese VAT
UK Customer « buying » after import done by DE Company in Japan
Potentially facing tax risks as well
DE Company UK Customer + VAT exempt
Japanese end-
Customer
DDP
Contact Details
Charles Barber
Director - Trade Compliance
Advisory Services
Kuehne + Nagel Ltd
Mob: + 44 (0) 7815 709546
Bruno Fransman
Regional Director
Global Trade Compliance Assurance
Avnet Europe Comm., VA
Office: +32 2 709 93 15
Mob: +32 470 927 106
www.avnet.com
21/05/2015 Page 88
