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Greetings!
Happy New Year and welcome to the January 2008 addition of Global Trade Expertise's newsletter, the Global Trader. Highlights from this month's news include: Customs' issuance of two Federal Register notices -- one on the proposed "10+2" rule and one proposing to eliminate the use of "first sale" valuation. In addition, the U.S. General Accounting Office issued 2 reports -- one critizing the DDTC's processing times and another critical of Customs' Container Security Initiative (CSI). In addition, President Bush issued export control directives directed at both the Commerce and State Departments. Finally, we give a short recap of some interesting issues presented at AAEI's recent 2008 Winter Conference. As always, we would appreciate any comments or suggestions you may have to improve this newsletter either by email to info@globaltradeexpertise or via our feedback survey link in our left column. Thank you for reading! Jennifer Kessinger & Tammie Goldstein Krauskopf
globaltradeexpertise
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President Bush Issues Directives to Modernize Export Controls
Eleven Changes are directed to the State Department (6) and Commerce Department (5)
 On January 22, 2008, President Bush announced presidential directives aimed at modernizing export controls under both the ITAR and the EAR. In a brief statement, the White House said the package of directives would promote a "more efficient and transparent export licensing process."
With regard to the State Department, President Bush recommended:
More Effective U.S. Export Licensing
· Additional financial resources and intelligence support will be made available for the timely adjudication of defense trade licenses.
· Guidelines will be issued that require a decision by the U.S. Government on defense trade export license applications within 60 days, absent a strong reason for additional time, such as a requirement for Congressional notification. Initial efforts in this regard have resulted in a nearly 50 percent reduction since April 2007 in the number of export license applications pending with the Department of State.
· The electronic licensing system will be upgraded to permit the submission of all types of defense trade licenses and to enable all agencies to access the same electronic information.
· The Secretary of State will update U.S. controls on exports involving dual and third country nationals from NATO and other allied countries.
A More Efficient Dispute Resolution Mechanism
· A formal interagency dispute mechanism will be created to allow for timely resolution of licensing jurisdiction issues involving the Departments of State and Commerce under the Commodity Jurisdiction (CJ) process. The National Security Council will also undertake a review to make sure the CJ process is efficient and timely.
Enhanced Enforcement
· A multi-agency working group will be established to improve procedures for conducting export enforcement investigations.
With regard to the Commerce Department, the Presidential directive recommended:
· Maintaining a Validated End User program to ease exports to "reliable foreign companies," while imposing additional scrutiny on exports to less favored foreign buyers.
· Conducting regular updates of the export controls on dual-use items.
· Revising rules on intra-company transfers of sensitive items.
· Revising rules restricting the export of encryption products.
· Reviewing re-export controls.
· Increasing transparency by publishing advisory opinions on the Internet and listing foreign parties that warrant higher scrutiny. |
BIS Fines Northrop Grumman $400,000 for Illegal Exports of Navigational Equipment
Northrop Grumman Voluntarily Disclosed the Violations
 On January 25, 2008, the Commerce Department's Bureau of Industry & Security (BIS) announced that Northrop Grumman agreed to pay a $400,000 civil penalty to settle allegations that it committed 131 violations of the Export Administration Regulations (EAR), both in its own capacity and as successor to Litton Industries, Inc., which it acquired in April 2001.
BIS states, "The allegations primarily involved unlicensed exports of specially designed components for navigation equipment and module manufacturing data that were to destinations in the Philippines, Singapore, Malaysia, Italy, and the United Kingdom between January 1998 and September 2002." Northrop Grumman made a voluntary self disclosure of these violations and cooperated fully in the investigation per BIS.
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GAO Report Criticizes DDTC License Processing Times
GAO Recommends that State Department Conduct Assessments to Identify and Address Inefficiencies
 On January 3, 2008, the U.S. Government Accounting Office (GAO) released a report (dated November 2007) entitled, "State Department Needs to Conduct Assessments to Identify and Address Inefficiencies and Challenges in the Arms Export Process." In 2005, GAO reported that processing times for arms export cases had increased despite State Department efforts to streamline its process. GAO was asked to (1) describe recent trends in the processing of arms export cases and (2) identify factors that have contributed to these trends. A summary of the report can be found here and highlights of the report can be found here.
For this report, GAO analyzed State arms export case data for fiscal year 2003 through April 30, 2007; reviewed relevant laws, regulations, and guidelines, Directorate of Defense Trade Controls (DDTC) funding and staffing information, and interviewed State and Department of Defense officials and selected arms exporters.
GAO found three key trends that indicate that DDTC's licensing process is under stress. First, the number of cases processed by DDTC increased 20% between fiscal years 2003 and 2006. Second, during the same period, median processing times almost doubled. Third, the number of open arms export cases increased 50% from about 5,000 in October 2002 to about 7,500 in April 2007, with a high of more than 10,000 cases in September 2006.
GAO is recommending that State conduct systematic analyses to help achieve efficiencies in the processing of arms export cases. State concurred with GAO's recommendations.
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Customs Proposes Eliminating "First Sale" Valuation
Proposed Change May Substantially Increase Duties and Fees for Importers
 On January 24, 2008, U.S. Customs and Border Protection (CBP) published a notice in the Federal Register proposing to change its practices with regard to the proper customs valuation of imported products in multi-sale transactions.
Specifically, CBP is proposing rejecting the use of "first sale" valuation and instead requiring the use of the "last sale," i.e., the price paid in the last sale occurring prior to the introduction of the goods into the U.S., as the basis of transaction value for such products.
Under current conditions, importers may value imported products in situations involving multiple sales (e.g., those involving a sale from the manufacturer to a middleman overseas and a sale from the middleman to the buyer in the U.S.), at the "first sale" price between the manufacturer and the overseas middleman if certain conditions are met. Specifically, the first sale must be an arm's length sale and the goods must be clearly destined for export to the U.S.
CBP proposes changing its interpretation of the meaning of "sold for export to the United States" when determining the acceptability of transaction value in multi-sale transactions by accepting only the last sale to the U.S. in meeting this requirement of transaction value. CBP states this change is based on a report to the World Customs Organization (WCO) by the Technical Committee on Customs Valuation adopted in April 2007 -- Commentary 22.1, entitled, "Meaning of the Expression 'Sold for Exportation to the Country of Importation' in a Series of Sales" -- and would align CBP's treatment of such sales with most other World Trade Organization (WTO) members.
CBP's proposed action would overturn nearly 20 years of legal and administrative precedent and would cause importers to reevaluate their current customs valuations and abandon any current use of "first sale" valuations, resulting in the potential payment of additional duties and fees.
This notice comes as great surprise to importers and the trade who believed that this issue was well-settled law. See, McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988); Nissho Iwai America Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992); Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993).
For importers who have obtained rulings and/or have structured their import transactions around this rule, it is critical that they respond to CBP with their comments. However, "first sale" valuation has never been embraced by CBP and it seems unlikely that CBP will back off from this position now that they appear to have support from the WCO. Based on informal conversations with CBP, they appear ready to contest the issue in court. However, it also appears unlikely that the Federal Court of Appeals will reverse itself.
Is this the first of many value issues that are being reviewed internally by CBP? See our article in this newsletter regarding comments at the AAEI conference last week by the head of the Value Branch, Office of Regulations and Rulings, on transfer pricing. It is our understanding that another Federal Register Notice will be coming out soon regarding this issue.
CBP is accepting comments on the proposed interpretation eliminating the use of "first sale" valuation until March 24, 2008. Global Trade Expertise is prepared to assist clients with filing comments on your behalf, please contact either Jennifer Kessinger at (925) 876-1381 or by email at jk@globaltradeexpertise.com or Tammie Krauskopf at (708) 707-4087 or tk@globaltradeexpertise.com.
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Customs Publishes Proposed "10+2" Rule
Proposed rule would place new liabilities on importers shipping via ocean carriers
 On January 2, 2008, U.S. Customs and Border Protection (CBP) published a proposed rule regarding importer security filing and additional carrier requirements, also known as the "10+2" rule. The proposed rule will require that importers and carriers to submit additional information regarding cargo before the cargo is brought into the U.S. by vessel. The information must be provided by way of a CBP-approved electronic data interchange system and is intended to allow CBP to identify high-risk shipments to prevent smuggling and ensure cargo safety and security. The proposed regulations originate from the Security and Accountability for Every (SAFE) Port Act of 2006 and the Trade Act of 2002. CBP issued a news release about the rule here.
The "10+2" name for the proposed rule refers to the 10 additional pieces of information the importer is required to provide to CBP as an "Importer Security Filing" plus 2 data elements to be provided to CBP by carriers/vessel operators 24 hours prior to loading the cargo: (1) a vessel stow plan used to transmit information about the physical location of cargo loaded aboard a vessel bound for the U.S. ; and (2) container status messages, which report container movements and changes in status (e.g., empty or full).
The 10 additional data elements required to reported by importers are:
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· Manufacturer (or supplier) name and address
· Seller (or owner) name and address
· Buyer (or owner) name and address
· Ship-to name and address
· Container stuffing location
· Consolidator (stuffer) name and address
· Importer of record number/foreign trade zone applicant identification number
· Consignee number(s)
· Country of origin, and
· Commodity Harmonized Tariff Schedule number
The 10+2 elements must be transmitted to CBP via an approved electronic data interchange system (EDI) - currently the Automated Manifest System (AMS) or via the Automated Broker Interface (ABI). In the future, CBP may approve other EDI systems and will publish any such systems in the Federal Register.
If the 10+2 filing is not correct, penalties may be issued to the importer and shipments will not be allowed to load. However, importers do not always have access or control of the information to be reported.
Written comments to CBP on the proposed rule will be accepted until March 3, 2008. Please contact Global Trade Expertise at info@globaltradeexpertise.com if you would like assistance with filing comments on your company's behalf.
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New Supply Chain Security Programs
New European Program Launched January 1, 2008
Most U.S. importers are familiar with the Customs-Trade Partnership Against Terrorism (C-TPAT). However, several other countries have recently implemented their own versions of C-TPAT.
 Authorised Economic Operator ("AEO"): On January 1, 2008, the European Union's ("EU") version of C-TPAT, AEO entered into force. This program is the EU's response to the terrorist attacks in New York, London and Madrid and its adaptation of C-TPAT. AEO's stated purpose is to provide businesses with an internationally recognized quality mark which will indicate that their role in the international supply chain is secure and their customs controls and procedures are efficient and compliant. Benefits of AEO include less physical inspections and reduced documentary requirements. Although there is no current reciprocal treatment by U.S. CBP, as the program evolves, mutual recognition should be in the future. Certainly, CBP will regard AEO-certified shipments from the EU more favorably. It should also be noted that on January 7, 2009, it will become mandatory for importers to provide customs authorities with advance information on goods brought into, or out of the customs territory of the EU. Failure to comply with this requirement will mean goods cannot be boarded on ships bound for the EU. For more information regarding AEO, see here.
 Secure Trade Partnership Program ("STP"): STP was launched on May 25, 2007 by Singapore Customs. This program also focuses on strengthening and safeguarding the security of supply chain operations and seeks to maintain Singapore as a trusted trade hub. The STP is a voluntary certification program administered by Singapore Customs. According to Singapore Customs, the STP certification will serve as a testimony that companies have adequate internal security policies, processes and procedures to keep their supply chains secure. For more information on STP, see here.
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AAEI 2008 Winter Regional Conference & Expo Recap
"Reaching Optimum Balance - A Return to Trade Facilitation"
 The American Association of Exporters and Importers (AAEI) held it's 2008 Winter Regional Conference and Expo in Newport Beach, California on January 20-22, 2008. The conference was entitled, "Reaching Optimum Balance - A Return to Trade Facilitation" and focused largely on security issues.
Global Trade Expertise attended the conference and will give recap some of the most interesting issues that were brought up (in our opinion).
Trouble for Transfer Pricing?
Monika Brenner, Chief, Valuation and Special Programs Branch, Customs and Border Protection, gave a presentation entitled, "Determining Transaction Value in Related Party Transactions" as part of a panel presentation called, "Walking the Transfer Pricing Tight Rope." In her presentation, Ms. Brenner set out the differences between Customs and tax laws in determining an arm's length price and stated that an "APA or Transfer Pricing Study by itselfis not sufficient to show that a related party transaction value is acceptable for Customs purposes." This information should not be news to importers.
However, Ms. Brenner went on to discuss the effect of post-importation adjustments on the application of transaction value for transfer prices. Ms. Brenner stated that compensating adjustments to transfer prices that occur post-importation may have the effect of making the transfer price unacceptable as transaction value. She stated that for a price to be acceptable as transaction value, the price would need to be either: (1) fixed prior to importation or (2) set by an "objective formula."
Although the requirement of an "objective formula" is not found in the Customs regulations or the valuation statute, CBP has implemented the requirement in their rulings. Ms. Brenner set forth the definition of an "objective formula" in her presentation as follows:
Under CBP's current policies as reflected in rulings, it is necessary for the formula to be fixed so that the final sales price can be determined at a later time on the basis of some event or occurrence over which neither the seller nor the buyer has any control.
Ms. Brenner stated that a Federal Register notice modifying some existing rulings will likely be issued in February that will set forth further guidance or "tests" to determine whether an "objective formula" exists. She stated that the tests will likely include factors such as: whether the formula is in writing and signed by both parties, whether the post-importation (or compensating) adjustments are clearly set forth in writing and the written formula was actually used.
Ms. Brenner stated in her presentation that the Reconciliation program "is simply a process for reporting certain information to CBP after importation. It does not cure impediments that relate tot he application of transaction value." Privately, we have heard that CBP auditors believe importers have been abusing the Reconciliation program by making large compensating adjustments to transfer prices. Finally, Ms. Brenner's presentation states, "Stay tuned for further information about possible changes to the treatment of certain post-importation adjustments."
OFAC Enforcement/Audits
As part of a new push for outreach to the international trade community, Jessica Brinkmann, Compliance Officer/International Trade Outreach, Treasury Department, stated that she asked to present at the AAEI Conference this year. In her presentation, she outlined who is OFAC, the legal authority for U.S. sanctions, described the sanction programs generally, OFAC licnensing, penalties and consequences, and discussed effective compliance strategies.
Finally, and of most interest to the audience was Ms. Brinkman's discussion about OFAC compliance audits. She stated that OFAC has recently started conducting compliance audits of companies, giving selected companies prior warning of the audit of as little as 1 hour or as much as a couple of weeks. In response to questions, Ms. Brinkman stated that she selects companies for compliance audits based on internet searches of companies that do business in sensitive areas of the world such as the Middle East or Latin America. She stated that companies are not necessarily selected based on prior problems or identified OFAC issues. Instead, she stated that she will often select a company that is in the general area where she is visiting for speaking engagements, etc.
To prepare for such a surprise visit by OFAC, companies should have written OFAC procedures and policies in place that have been actually implemented.
The Proposed "10+2" Rule
Much discussion was had regarding the proposed "10+2" rule. Richard DiNucci, CBP's point of contact for the "10+2" rule, gave a presentation on the new rule and stated that CBP is awaiting comments from the trade. Mr. DiNucci stated that CBP has received about 6 comments so far and look forward to received more. The deadline for comments is March 3, 2008.
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GAO Issues Report Critical of CBP's Container Security Initiative (CSI)
GAO finds improved data collection and performance measures are needed
 On January 25, 2008, the U.S. Government Accounting Office (GAO) issued a report entitled, "Supply Chain Security: Examinations of High-Risk Cargo at Foreign Seaports Have Increased, but Improved Data Collection and Performance Measures Are Needed." A summary of the report can be found here and a GAO's highlights document can be found here.
U.S. Customs and Border Protection (CBP) has implemented the Container Security Initiative (CSI) to examine cargo it deems to be high risk U.S.-bound cargo at foreign seaports. GAO issued reports on CSI in 2003 and 2005 finding that CSI helped enhance homeland security and recommended actions to strengthen the program. This report updates the information and assesses how CBP has (1) contributed to strategic planning for supply chain security, (2) strengthened CSI operations, and (3) evaluated CSI operations.
GAO recommends that CBP enhance data collected on CSI team performance, host government examinations, and related performance measures. CBP concurred with the recommendation to enhance data team performance and partially concurred with the need to enhance data on host examinations, stating that it already conducts actions to improve
such data. However, GAO states that these actions do not systematically collect data on people, processes, or technology used by host-governments to examine U.S.-bound containers. CBP partially concurred with the need to enhance performance measures, but stated it already captures core program functions. GAO still sees room for improvement.
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Who's Hiring?
A Summary of Current Trade Job Opportunities
 As a service to the international trade community, Global Trade Expertise compiles links to trade job opportunities from many different sources. New trade job listings are posted frequently at on our website.
Companies with new listings this month include:
Deloitte - San Francisco, CA
General Dynamics - San Jose, CA
DHL - Bloomington, IL
Invensys - Foxboro, MA
BAE Systems - Ft. Walton Beach, FL/Santa Clara, CA/
NEC - Rancho Dominguez, CA & Compton, CA
Brunswick Corporation - Franklin Park, IL
ATK - Alliant Techsystems - Dallas/Ft. Worth, TX
Boeing Company - Mesa, AZ & Arlington, VA
Force Protection Industries, Inc. - Charleston, SC
Polycom, Inc. - Pleasanton, CA
Curtiss-Wright Controls - Charleston, NC
Varian Medical Systems - Palo Alto, CA
Ernst & Young - San Francisco, CA
United Stationers - Deerfield, IL
KPMG - Minneapolis, MN
GE Infrastructure, Energy - Schenectady/New York City, NY
M/A-COM, Inc. - Hunt Valley, MD & San Jose, CA
Corning - Hickory, NC
The Design Tex Group - New York, NY
Raytheon - Arlington, VA
Sony Electronics - San Diego, CA
To sort the job opportunities by region, fields, or levels, click on the appropriate category or tag in the right column on our Trade Jobs webpage. |
Calendar of Events
Upcoming Industry Events & Seminars
 Our website has a comprehensive listing of import and export conferences held throughout the country, as well as Customs training, EAR training, ITAR training, and other training. Below is a small sampling of what's available in February 2008:
Complying with Export Controls - Bureau of Industry and Security (BIS)
February 4-5, 2008 - La Jolla, CA - $350
Women in International Trade - Northern California (WIT-NC) - Focus on China: Foreign Corrupt Practices Act (FCPA), Validated End User (VEU) & Hot Topics
February 6, 2008, 5:30pm-8pm, Palo Alto, CA
5th Annual Western Canada Conference - Globally Competitive: Developments in Customs and Trade - Canada Association of Importers and Exporters
February 11 - 12, 2008 - Calgary, Canada - $595/$895
How to Develop an Export Management and Compliance Program (EMCP) - Bureau of Industry and Security (BIS)
February 26-27, 2008 - Hawthorne/Manhattan Beach, CA - $325
7th Annual "Partnering for Compliance" Conference - Partnerships International, Inc.
February 27-29, 2008 - Orlando, FL - $450 Non-Government (if paid before 2/1/08)/$150 Government (if paid before 2/1/08) - After 2/1/08, $495/$190
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Thanks again for your interest in our newsletter!
Sincerely,
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Jennifer Kessinger & Tammie Krauskopf
Attorneys & Consultants
jk@globaltradeexpertise.com
Tel. 925.876.1381 (Jennifer Kessinger)
tk@globaltradeexpertise.com
Tel. 708.707.4087 (Tammie Krauskopf)
www.globaltradeexpertise.com
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