Common Pitfalls in International Trade

1. Common Pitfalls in International Trade Janie Tuchon Senior Export Consultant Hewlett Packard Company

2. Pitfall #1 – Customs • Need to develop and maintain a good business relationship with Customs • Never assume that you know more than they do Pitfall #2 – Change – (Your cheese has moved ) • Expect it, changes in national security, foreign policy and short supply spark changes in the regulations, “subject to change” • Violations can have serious consequences, fines, imprisonment, and seizure of goods.

3. Pitfall #3 – Agents (Freight Forwarders and Customs Brokers) • You are responsible for compliance with all US import and export laws including violations that your agents commit while carrying out import and export operations on your behalf. • Entrustment of goods to unscrupulous/local freight forwarders, i.e., customer designated freight forwarders (routed export transactions 15 CFR Part 758.3(b)) or trade show designated freight forwarders.

4. Pitfall #4 – Unintentional violation of Foreign Corrupt Practice Act • U.S. firms seeking to do business in foreign markets must be familiar with the FCPA. • The FCPA prohibits American companies from making corrupt payments to foreign officials for the purpose of obtaining or keeping business. • The FCPA's antibribery provisions basically cover two types of behavior. The fundamental prohibition is against making bribes directly; a second prohibition covers the responsibility of a domestic concern and its officials for bribes paid by intermediaries. • More information at: http://www.usdoj.gov/criminal/fraud/fcpa.html

5. Pitfall #5 – Ensnarement by local Boycott laws which are in conflict with U.S. Antiboycott Laws • Under U.S. "antiboycott laws" it is unlawful for any U.S. person to participate in another nation's boycotts or embargoes of third countries. • The definition of "boycott" is very broad and can consist of such seemingly unsuspecting activity as furnishing information about the nationality of past or present business partners to an inquiring government. • Examples of boycott request: • A certificate of origin must be provided stating the products contain no {boycotted country} origin product. • A certificate must be provided stating that YOUR COMPANY does not have facilities in a {boycotted country} • A declaration by YOUR COMPANY that goods will not go via {boycotted country} flagged vessel or {boycotted country} owned airline. More information can be found in 15 CFR 760 Restrictive Trade Practices or Boycotts or http://www.bxa.doc.gov/AntiboycottCompliance/OACRequirements.html

6. Pitfall #6 – Attempted import of “banned or prohibitive articles and materials” • Be educated on Import restrictions or controls on your product, i.e., quotas, visas, import licensing requirements, encrypted software, clothing, food products, chemicals • Prohibited goods, i.e., liquor, x-rated reading material, certain prescription medicine, endanger animal articles, food products… Know before you go.. http://www.customs.ustreas.gov/xp/cgov/travel/leavingarrivinginUS/vacation/know_brochure// • Resulting in victimization by harsh and punitive Foreign Customs Seizures Laws

7. Pitfall #7 – Failure to conform to Foreign Packaging, Labeling, and “Localization” Laws Verify with your customer and/or your freight forwarder of any special requirements listed below for the country of you are shipping to: • Marking requirements; • Labeling requirements; • Product specifications, product testing requirements required to accompany shipment; • Packaging requirements; • Trade documentation requirements • Foreign authentications and certification laws/regulations

8. Pitfall # 8 –Failure to properly classify the product – one classification does not fit all products Classification determines how the regulations treats your product so do it right. • Export - determination of Export Control Classification Number (ECCN) • Guidelines for Requesting an Export Commodity Classification athttp://www.bxa.doc.gov/licensing/cclrequestguidance.html • Import – HTS impacts the duty rate that will be applied against the product • Template for Electronic Request for Import Binding Ruling ("eRuling") athttp://www.cbp.gov/ImageCache/cgov/content/laws/legal_5fprecedent_5fretrieval_5fsystem/eruling_2edoc/v1/eruling.doc

9. Pitfall # 9 – Failure to “Screen” Foreign parties to ensure not in conflict with U.S. Export Prohibitions (15 CFR 736) • Know your Customer - “end – user” & “end – use” • http://w3.access.gpo.gov/bis/ear/pdf/732.pdf • Proliferation Screening • Sanctioned Parties (Denied Parties, Special Designated Nationals, etc) • Diversion Risk • Embargoed Countries Results in the failure to obtain required U.S. Export or re-export authorizations

10. Pit # 10 – Misuse or Misinterpretation ofIncoterms • Fully understand the costs, responsibilities, obligations that accompany the use of a specific Incoterm • Could leads to over or underpayment, over or under customs declarations possible legal ramifications… • Note - Refrain from under-invoicing request from customers on an Export • Reporting incorrect export value on SED or AES is a violation of the US export • Importing countries – the under-valued goods may be seized, perhaps causing your company to be put on the bad boys list in the importing country • Many importing countries have import law prohibiting, you become a co-conspirator subjecting you to fines and possible imprisonment, if the country can exercise jurisdiction over you. • Insurance is based on the invoice value, if lost or damaged, claim will be based on the low value shown

11. Pitfall # 11 – Contractual Language • Language designated as the definitive and official version of the agreement • Choice of law provision – different laws in different countries could be very different to how the law would be applied in a western legal system. • Dispute settlement provisions • Product related issues – description, price, currency, validity period of the purchase price • Procedural issues – inspections, payment method, documentation requirements, risk of loss, responsibility of transportation and insurance cost, and delivery terms • Legal issues – non-performance under the agreement, excuses, results, and amendments • Intellectual Property Protection Issues

12. Pitfall # 12 – Running afoul of Foreign “Commercial Disparagement” Laws • Mostly in Europe, no similar laws here in the US, dealing with selection of local partners, agents Pitfall #13 –Flawed and Unenforceable (uncollectible) Letters of Credit • The letter of credit deals with the payment and the documents that must be presented to obtain payment – • Many contain built in discrepancies, contradictions or terms that can not be met, i.e. presentation of documents in 5 days after on board, contradiction in preparation of documents or revocable, or payable in another foreign country.

13. Pitfall # 14 – Record Retention Requirements • All records required to be kept by the EAR must be retained for five years from the latest of the four following times:(1) financing, transporting, or other service(2) reexport, transshipment or diversion(3) termination of the transaction whether in writing or by any other means(4) for restrictive trade practices or boycotts,  the date the regulated person receives the boycott-related request or requirement However, should any government agency makes a formal or informal request for a certain record or records, the record or record can not be destroyed without written authorization by the BIS or other government agency.  Additionally, this applies to voluntary disclosures to the BIS or other government agency in accordance with 765.5(c)(4)(ii) and other records, even if these records have been retained for longer than the five years.