C U S T O M S / S E C U R I T Y

CBP Approves Design for ACE Air e-Manifest Capabilities
March 03, 2008

U.S. Customs and Border Protection has approved the design for Automated Commercial Environment air e-manifest capabilities, making way for development to begin. ACE, the new CBP commercial cargo processing system, will modernize air cargo control and release processing by building on current efforts to develop ACE rail and sea e-manifest capabilities.

The combination of rail, sea, air and truck commercial cargo processing into an integrated, ACE multi-modal manifest system will allow CBP to replace the three existing manifest systems that have been in use for the past two decades. Once CBP completes its modernization effort, importers, exporters, customs brokers and transportation providers will use one automated system, ACE, for all of their commercial processing needs. CBP and the trade community will use the multi-modal manifest capability to move foreign imports, U.S. exports and in-bond transportation goods into or through the U.S. by all modes of transportation, including pipelines.

CBP officers will use the ACE Secure Data Portal, a customized computer screen similar to a Web site home page, to obtain faster and easier access to cargo and commercial entry information. ACE will help CBP officers identify shipments that pose a risk by providing screening and targeting results. Furthermore, ACE will allow officers to place holds on suspicious cargo in advance of conveyance arrival and will help protect America's people, agriculture, environment and economy from terrorism or criminal threats. The ready access to and effective use of manifest data and associated entry, entry summary and targeting information will help CBP officers and participating government agency personnel efficiently complete cargo processing and expedite release for legitimate cargo shipments.

For the trade community, ACE air e-manifest capabilities will include a feature known as "broker's download". Originally developed for the rail industry, broker download will allow an air carrier to include a broker filer code within air waybill data that is sent to CBP. The ACE air e-manifest feature will then send a copy of the entire air waybill to the designated customs broker. Providing carrier air waybill information to the broker before arrival of the aircraft promotes "pre-filing" of cargo release data by the broker. This prefiling helps eliminate the misfiling of cargo release data since the bill of lading number and carrier piece count can be extracted from the air waybill and included on the entry or entry summary information that is sent to CBP. The broker download feature will ultimately facilitate the timely processing of cargo by ensuring that consistent information is provided to CBP.

ACE will also improve in-bond cargo processing by enabling movement of in-bond cargo across transportation modes. This feature allows the onward (secondary) carrier to maintain custodial control of and provide electronic event reports on in-bond cargo when it arrives at or is exported from the in-bond port destination.

Air cargo processing in ACE is expected to begin in the summer of 2009 following the deployment of ACE rail and sea manifest capabilities in fall 2008. 

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Trade opposes 'first sale' plan
12 Feb 2008, CSCB

A coalition of nearly 100 trade groups and companies sent a letter to Homeland Security Secretary Michael Chertoff objecting to Customs and Border Protection’s proposal to do away with “first sale” valuation for imported goods.

The group said that reinterpretation of rules of valuation would effectively impose a hidden tax on American consumers that would undercut the economic stimulus package that Congress and the Bush administration are putting together.

First sale methodology allows an importer to use the sale price that a foreign intermediary pays a foreign manufacturer for goods that are intended for export to the U.S. Large companies can save millions in customs duties by setting value by the lower intermediary price.

The letter said the change in interpretation would overturn 20 years of agency practice to implement a non-binding commentary by a World Customs Organization technical committee. The agency also made the decision to propose the reinterpretation without prior consultation when collaboration with the industry has become common. The letter warned that it “presents a disturbing message with regard to that essential partnership.”

On Jan. 24, Customs published the proposed rule reinterpretation for a public comment. Last week the agency extended the comment period until April 23.

Reebok agrees to record fine

The U.S. government has fined athletic shoe and apparel maker Reebok International $1 million for importing and distributing charm bracelets that contained toxic levels of lead.

The Consumer Product Safety Commission said the civil penalty is the largest ever for a violation of the Federal Hazardous Substance Act, which bans dangerous lead levels in children's toys and other products. Enforcement action is possible if lead content exceeds 0.06 percent by weight.

Canton, Mass.-based Reebok recalled the 300,000 bracelets in 2006 after a report that a 4-year-old girl died from lead poisoning associated with swallowing a piece of a bracelet. The bracelets, made in China, were provided as a free gift with the purchase of various styles of children's footwear.

“This civil penalty sends a clear message that the CPSC will not allow companies to put children’s safety at risk,” Acting Chairman Nancy Nord said. “Preventing dangerous metal jewelry from reaching the hands of children is a priority for our agency.”

In agreeing to settle the matter, Reebok denies that it violated federal law.

Last year a string of faulty products, including many toys containing lead paint, from China and other countries were recalled and led the government to implement a safety plan to increase monitoring and inspection of imported products.

American Shipper+ Shippers' NewsWire  3/19/2008

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CBP Officers in Calif. Confiscate Fake Coach, Gucci Bags
Monday, March 17, 2008

Los Angeles — U.S. Customs and Border Protection officers and import specialists intercepted a shipment of counterfeit merchandise with an estimated domestic value of over $500,000 and with a Manufacturers Suggested Retail Price of over $22 million.

CBP officers at the Los Angeles port of entry discovered, upon routine inspection, a container arriving from China containing handbags bearing counterfeit trademarks of Coach, Gucci, Chanel and several other famous brands.

“These counterfeit products violate federal law pertaining to intellectual property rights. CBP maintains an aggressive program to intercept shipments containing commodities which violate any laws of the United States,” said Kevin W. Weeks, CBP director of Field Operations, Los Angeles.

The importation of counterfeit merchandise is illegal; it adversely impacts the American economy and may pose health and safety risks to consumers. Consumers believe they are buying a genuine item, when in reality they are not. The trademark owners’ names are tarnished by counterfeit items which are normally of substandard materials.

Importers violating these laws may be subject to penalties and civil or criminal prosecution. The items seized in this case will be destroyed.

US Expands Box Scanning Trial

The US is preparing to extend its Secure Freight Initiative to four more countries around the world after successful trials in three locations. The long-term goal is to scan all inbound containers by 2012, a mammoth task, and the three ports chosen to kick off this latest security effort handle relatively low volumes of cargo destined for the US.  Every box must pass through a radiation detection device to check for nuclear or radioactive materials.  Eventually, some 700 seaports worldwide that have either direct services to the US or which handle transhipment cargo will have to participate in the scheme in order to comply with US law.  The SFI followed the Container Security Initiative that now covers 58 seaports in 34 countries, and under which US officials are located abroad to work alongside local customs officers on container inspections.  The “10 plus 2” rule-making seeks 10 pieces of information from importers before containers are loaded on to vessels destined for the US, and seeks two additional streams of data from carrier’s data systems, in addition to the information the agency already receives from carriers before vessel loading in foreign ports.  Lloyd’s List, 3/7/2008.

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S H I P P I N G

Regarding Dangerous Imports

CPSC To Announce New Strategies at the Ports

LOS ANGELES, CALIF. - Each year, hundreds of millions of toys, fireworks, cigarette lighters, clothes and other consumer products are imported into the United States. In an effort to address the increase of imports, the U.S. Consumer Product Safety Commission (CPSC) is announcing new import strategies and a greater presence at the ports.

 At a news conference today at the Port of Long Beach, CPSC Acting Chairman Nancy Nord was joined by Customs and Border Protection (CBP) Assistant Commissioner Daniel Baldwin and California Director of Consumer Affairs Carrie Lopez to formally announce the creation of the new Import Surveillance Division at the CPSC. This team, in coordination with the CBP, is tasked with inspecting, detecting and stopping hazardous products from entering into the United States.

"With new strategies and growing resources, I am confident that we can prevent the entry of unsafe products into our country, remove those that do find a way in and punish those who willfully disregard the safety of our consumers," said Acting Chairman Nord.

The Port of Long Beach in California is the first port that will have a permanent CPSC presence and additional staff will be assigned to other busy ports as the division is expanded. Carol Cave, formerly director of Field Operations, is the head of the new office.

In announcing the creation of the new division Acting Chairman Nord also announced that CBP is strengthening its cooperative relationship with CPSC; for those ports of entry where there are permanent CPSC staff assigned, the agency this year will have the ability to identify, stop, examine and either hold or release shipments coming into the United States.

The agency, she said, will test more samples and conduct more port-of-entry surveillance blitzes with assistance from CBP. CBP has already been assisting the agency in doing some product testing at its labs, and CPSC will continue to use this resource to leverage the agency's ability to identify product hazards and violations of the agency's standards.

Working with Customs, CPSC is utilizing the CBP's import tracking system known as ACE. ACE will expose CPSC to many potential problems sooner, and give the agency more time and information to respond before the dangerous product reaches U.S. shores.

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Ship losses up 37%
MARITIME GLOBAL NET

A DRAMATIC increase in the number of ship total and partial losses that took place last year is set to be repeated this year, according to the International Union of Marine Insurance (IUMI).

New statistics from IUMI, which represents marine underwriters worldwide, indicate that the total figure for the 2006 year has jumped from an early estimate of 67 to 92, an increase of 37%.

Reported so far for 2007 are 82 total losses (compared to 67 for 2006 at the same point). If reports increase at the same level as 2006, says IUMI, by March 2009 the total will be 112. The downward trend of total losses over recent years, therefore, will be sharply arrested.

There has been an equally dramatic increase in major serious or partial losses. IUMI states: “727 serious incidents have been reported for 2006, a 6% increase since the last report, and a staggering 914 so far for 2007. This is a 270% increase in one decade, 1998-2008.”

The statistics, relating to the marine and offshore energy markets, collated and analysed by IUMI’s facts and figures, ocean hull and offshore energy committees, are based on information from a number of authoritative sources, including Lloyd’s Marine Intelligence Unit, Clarkson, Rigzone, Willis, and the International Association of Drilling Contractors.

Weather remains the major cause of total losses, says IUMI but collisions have overtaken groundings as the next most common proximate cause. Of the weather losses, a total of 14 general cargo vessels over 25 years old were total losses in 2007.

The 270% increase in major serious losses over the 10-year period is equivalent to 0.64% of the fleet suffering a serious partial loss in 1998 to 1.73% in 2007. Machinery damage continues to be the major cause of serious partial losses, with a frequency of approximately 35% in the past five years.

Deirdre Littlefield, the New York-based president of IUMI, said: “These figures underline the relentless surge in marine claims that has come about due to a number of factors, not least being the shipping boom itself with ships and crews being driven harder than anyone can remember. Further, the figures dramatically demonstrate the volatility of marine risks.

“Regrettably,” she added, “this dangerous spiking of the casualty graph is happening when the worldwide premium base for marine insurers is flat and competition is rife. Underwriters are struggling to obtain realistic increases in their pricing of risks. But they can and must help themselves by showing discipline and practicing responsible underwriting. Risk calculation, not risk taking, must be the underwriter’s primary concern.”

Have you checked your marine insurance coverage lately? M.E. Dey offers full cargo insurance from blanket policies to single shipment coverage. Contact us for pricing.

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No Comeback for Ships Pulled from Pacific

It will be difficult to negotiate for lower ocean rates because the US import growth has slowed down and containers have been repositioned to be used in the busy Asia-Europe trade.

SHIPS withdrawn from the Pacific trades as US import growth vanishes have found work elsewhere and will not be returning in the foreseeable future. That is the opening declaration to shippers as lines and their customers prepare for the annual round of contract negotiations.

Shippers will not be able to badger lines into accepting lower rates on the grounds that there is excess capacity on the Pacific, APL chief executive Ron Widdows warned in no uncertain terms this week.  "The ships that have been pulled off the Pacific are not sitting in a harbour waiting to come back - they are all employed," he said.  Many have been transferred to the sizzling Asia-Europe trades and, contrary to what US importers might think, "will not be yanked back onto the Pacific" unless financial improve dramatically.  "There is no excess capacity waiting to return to the Pacific." Mr Widdows stressed.

Vincent Clerc, vice president of Maersk's Pacific Route Management, had exactly the same message for shippers who still believe that ship supply exceeds demand.  Maersk is about to remove eight mid-size ships from the Pacific as 8,000 teu vessels are introduced through a new vessel sharing agreement with Mediterranean Shipping Co and CMA CGM. All will be redeployed in the Maersk fleet, most likely on trades serving Africa or Latin America that are booming, or slotted into another string where ships have reduced speed to save fuel.  Maersk has axed some 30% of tonnage capacity from the Pacific over the past year as market conditions deteriorated, while other lines have also switched ships to more lucrative routes.

Mr Widdows, who is also chairman of the Transpacific Stabilization Agreement, estimates that member lines have cut transpacific capacity by some 6%,while for the trade overall, the decline is between 10% and 12%.  That has left ship utilization high, and lifted confidence among lines that they will secure higher rates in the forthcoming contract renewal season.  But top priority is to obtain compensation for soaring fuel costs by incorporating a floating bunker adjustment factor into contracts.  In an interview with Lloyd's List during the Trans-Pacific Maritime Conference, Mr Widdows frankly admitted that lines had only themselves to blame for the plight they were now in by wrapping fuel into all-in rates, leaving carriers massively exposed to soaring oil prices.  "That was a major blunder," Mr Widdows told the 1,400 delegates attending the conference.  When 2007-08 contracts were negotiated, "fuel was not such a significant issue."

But as the TSA continues with its initiative, launched last year, of being far more open with customers about industry conditions, and supplying them with ship utilization data and rate information that has never been shared before, so a better understanding is being forged between the two sides about the looming crisis on the Pacific.. With a handful of contacts already sighed, "we are making headway," said Mr Widdows, both on a floating BAF and on ocean rates.  If the lines fail to obtain a better return, then service levels will suffer, he warned.  While ocean carriers have said exactly the same on many occasions in the past as they prepared to enter into contract negotiations, this year they have a new trump card. Most other trade lanes are booming, giving the lines alternatives to the once all-powerful Pacific.

NOL revealed this week that average freight rates in the six weeks to February 8 were 17% up on the year at $2,989 per feu.  Mr Widdows dismissed concerns in some circles about a flattening of rates in the Asia-Europe trades at the start of the year, countering that new contracts with forwarders and direct accounts "had gone quite well". But TSA plans to extend the forthcoming contracts from 12 to 14 months appear to have fizzled out, with shippers resistant to the idea despite the problem for both sides of fixing terms and conditions during the slack season.

Both Mr Widdows and AP Moller-Maersk chief executive Nils Andersen rubbished suggestions that the US could be de-coupled from the global economy.  Speaking at the same venue, Mr Andersen said that while other economies around the world may be getting stronger, the behaviour of the US consumer would still impact on liner shipping. But Mr Andersen also concurred that, with so much cargo demand on trade lanes outside the US, plus slow steaming and port congestion, there was no prospect of capacity over-supply, "at least in 2008".

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Late Documentation Fee for US Port of Loads

Hapag-Lloyd has introduced a Late Documentation Fee, effective January 15, 2008, of $200 for all shipments in which the documents (shipping instructions, shipper export declarations, automated export system citation number, AES ITN, or exemption) are not received by 9:00 a.m. on the third morning after vessel arrival at the US port of load. This charge will be in addition to any penalties or fees assessed to Hapag-Lloyd as a result of late documentation.

All Hapag-Lloyd Booking confirmation contain the Doc Close Out Date. 

U.S. Census Bureau is Close to Issuing Final Rule on
Mandatory Penalties for late AES Filings!

Exporters, freight forwarders, carriers and other parties involved in exportation of goods from the United States should be aware that the long-awaited regulation mandating electronic filing of Shipper’s Export Declarations (SEDs) through the Automated Export System (AES), and increasing penalties for inaccurate export filings, is now being finalized. Reliable sources indicate that the Census Bureau, after more than two years of reviewing public comments and consulting with U.S. Customs and Border Protection (CBP), the Bureau of Industry and Security (BIS) and other government agencies on various points of inter-agency disagreement, expects to publish its final rule in the Federal Register during the coming weeks.  The final rule will completely phase out the paper version of the SED.  AES will change its name to “Electronic Export Information” or EEI.

            The new rule also will raise penalties for inaccurate or late filed EEI from $1,000 to $10,000 per violation. The increased penalties, coupled with the universal requirement for electronic filing, complete the evolution of U.S. export reporting requirements from primarily a statistical tool to a mechanism for enforcement of export controls.

We expect that once the final rule is published, there will be a ninety-day transitional period before the penalty and other aspects of mandatory AES filing will take effect. Thus, now is the time for all affected parties to review and assess their compliance with AES filing and recordkeeping requirements.

Disaster looms for those who ship wine without temperature control

FAR too many wine shippers take unconscionable risks in transporting wine without temperature control, say forwarders who know from experience what such neglect can cost, reports London's Financial Times.  "Most of them take the risk," said Chris Porter of wine forwarder Porter & Laker, a JF Hillebrand unit. "The ambient temperature during most shipments varies enormously as anyone who has taken the trouble to monitor it knows."  The story of how fine wine was poured into San Francisco's sewers, shows what can go wrong to reefer cargo between the US and Asia, reported the FT.  That consignment, said the newspaper, had been shipped from Arizona for an auction. Because the owner knew that the container could encounter temperatures of more than 38 degrees en route, he paid to have the wine shipped in a reefer box.  Trouble was, someone turned the thermostat too low, and the shipment froze, popping corks and rendering the load useless except as evidence for a costly insurance claim.  In 2003, a Hong Kong wine importer also had to claim for an entire container-load of wine from Australia. When it landed at the warehouse it was 34 degrees, and when the surveyor arrived, all the corks had popped.  Mr Porter said it is "surprisingly uncommon" for wine importers to bother with reefers or any temperature-control, adding that his company only received a handful of requests for such treatment even for the most expensive wines.  "It's only those logistics controllers who really want to get to grips with it that take the trouble to install any temperature monitoring. And that's usually driven by a bad experience. They tend to wait until something goes wrong," he said.

Said James Hocking of Sir Peter Michael's Vineyard Cellars, a specialist importer of fine California wine: "I'm fanatical about temperature control and always ship in reefers."

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Exporters must know Your Customer

Certain provisions in the Export Administration Regulations (EAR) require an exporter to submit an individual validated license application if the exporter "knows" that an export that is otherwise exempt from the validated licensing requirements is for end-uses involving nuclear, chemical, and biological weapons (CBW), or related missile delivery systems, in named destinations listed in the regulations.   BIS has issued the following guidance on how individuals and firms should act under this knowledge standard. This guidance does not change or revise the EAR.

Decide whether there are "red flags"

Take into account any abnormal circumstances in a transaction that indicate that the export may be destined for an inappropriate end-use, end-user, or destination. Such circumstances are referred to as "red flags." Included among examples of red flags are orders for items which are inconsistent with the needs of the purchaser, a customer's declining installation and testing when included in the sales price or when normally requested, or requests for equipment configurations which are incompatible with the stated destination (e.g.--120 volts in a country with a standard of 220 volts). Commerce has developed lists of such "red flags" which are not all-inclusive but are intended to illustrate the types of circumstances that should cause reasonable suspicion that a transaction will violate the EAR.

If there are "red flags"

If there are no "red flags" in the information that comes to your firm, you should be able to proceed with a transaction in reliance on information you have received. That is, absent "red flags" (or an express requirement in the EAR), there is no affirmative duty upon exporters to inquire, verify, or otherwise "go behind" the customer's representations. However, when "red flags" are raised in the information that comes to your firm, you have a duty to check out the suspicious circumstances and inquire about the end-use, end-user, or ultimate country of destination.

The duty to check out "red flags" is not confined to the use of general licenses affected by the "know" or "reason to know" language in the EAR. Applicants for validated licenses are required by the EAR to obtain documentary evidence concerning the transaction, and misrepresentation or concealment of material facts is prohibited, both in the licensing process and in all export control documents. You can rely upon representations from your customer and repeat them in the documents you file unless "red flags" oblige you to take verification steps.

Do not self-blind

Do not cut off the flow of information that comes to your firm in the normal course of business. For example, do not instruct the sales force to tell potential customers to refrain from discussing the actual end-use, end-user and ultimate country of destination for the product your firm is seeking to sell. Do not put on blinders that prevent the learning of relevant information. An affirmative policy of steps to avoid "bad" information would not insulate a company from liability, and it would usually be considered an aggravating factor in an enforcement proceeding.

Employees need to know how to handle "red flags." Knowledge possessed by an employee of a company can be imputed to a firm so as to make it liable for a violation. This makes it important for firms to establish clear policies and effective compliance procedures to ensure that such knowledge about transactions can be evaluated by responsible senior officials. Failure to do so could be regarded as a form of self-blinding.

Reevaluate all the information after the inquiry

The purpose of this inquiry and reevaluation is to determine whether the "red flags" can be explained or justified. If they can, you may proceed with the transaction. If the "red flags" cannot be explained or justified and you proceed, you run the risk of having had "knowledge" that would make your action a violation of the EAR.

Refrain from the transaction, disclose the information to BIS and wait

If you continue to have reason for concern after your inquiry, then you should either refrain from the transaction or submit all the relevant information to BIS in the form of an application for a validated license or in such other form as BIS may specify.

Industry has an important role to play in preventing exports and reexports contrary to the national security and foreign policy interests of the United States. BIS will continue to work in partnership with industry to make this front line of defense effective, while minimizing the regulatory burden on exporters. If you have any question about whether you have encountered a "red flag,' you may contact BIS's Office of Export Enforcement or use this Confidential Enforcement Lead/Tip Form to submit a confidential tip.

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Shipper – Exporter Guidance

The Export Administration Regulations (EAR) place legal responsibility on all persons who have information, authority or functions relevant to carrying out export transactions subject to the EAR. Forwarding agents are dependent upon information or instructions given by those who use their services. However, hiring a forwarding or other agent (hereafter “agent”) to perform various tasks does not relieve a Shipper or Exporter of its compliance responsibilities.

Primary responsibility for compliance with the EAR falls on the “principal parties in interest” (PPI) in a transaction.  Usually the PPI is the U.S. seller and the foreign buyer.

Common export shipments start when the PPI authorizes an agent to prepare and file the export declaration on its behalf, the U.S. PPI is the “exporter” under the EAR and is required t, among other things; provide “the agent with the information necessary to complete the SED”

AES Rule

On September 30, 2002, the President signed into law the Foreign Relations Authorization Act. In part, this law requires the electronic filing of Shippers export declaration through the AES system, an electronic method for filing the paper SED information directly with the Bureaus of Census and Customs and Border Protection.  The AES Rule establishes civil and criminal penalties for delayed filings, failures to file and false filing of export information and/or using AES to further illegal activity.  The rule provides for penalties;

• increases the penalties for delayed AES filings from $100 per day to $1,000 per day for each day of delinquency;

• increases the maximum penalty from $1,000 to $10,000 per AES violation;

• imposes a civil penalty not to exceed $10,000 for knowing failures to file/filing false and/or misleading AES information per violation;

• imposes a criminal penalty not to exceed $10,000 for knowing failures to file/filing false and/or misleading AES information per violation; and

• Not more than five years in prison, or both per violation.

Learn about our optional services.  Using the talented staff at M.E.Dey to improve your document accuracy and timeliness is often an overlooked resource.  Contact us for more information. 

Export ABCs: Payment terms
11 Mar 2008, CSCB

The relatively low value of the dollar has encouraged exporters to enter into an increasing number of new relationships. This means establishing appropriate payment terms. The following is a rundown of those commonly used in international trade, proceeding from those with least risk to most risk to the exporter.

Payment With Order: Buyer pays and seller ships. The buyer is actually extending credit to the seller. Despite favorable dollar exchange rates, competition will not permit repeat sales this way to creditworthy buyers in stable countries. It does make sense under the following circumstances:

-- First orders where little is known about the buyer. (Caution: Export control regulations require that sellers have at least minimal information on their foreign customers, if only that they do not appear on any of the government “bad guy” lists);

-- Poor commercial risk: No one else extends credit to this buyer so why should you?

-- Poor country risk: Amazingly, some savvy business people in poor countries find ways to access hard currency for payments;

-- Small order with little prospect of future business: Simply not worth the cost of opening an adequate credit file;

-- Deep discount for advance payment: You are probably giving your profit away and possibly sending a message of desperation to would-be customers. (This term is sometimes called Cash In Advance (which of course should never be abbreviated).

Confirmed Irrevocable Standby Letter Of Credit: Seldom used for actual payment as it requires absolute faith on the buyer's part that the seller won't wrongfully draw. We'll cover standbys in a future column along with demand guarantees, as their rules (called URDG) are changing.

Confirmed Irrevocable Commercial Letter Of Credit: A bank in the buyer's country guarantees payment against presentation of conforming documents that prove specified events have taken place. This guarantee is enhanced by the guarantee of a second bank, usually in the seller's country. Frequent readers are aware that the rules governing letters of credit (UCP 600) were changed, effective July 1, 2007. Problems are that letters of credit can be expensive and the documentary requirements must be strictly observed. Benefits include a guarantee by a bank in the seller's country and a date certain when payments will be made for each compliant presentation.

Unconfirmed Irrevocable Commercial Letter Of Credit: As above except without the guarantee of a second bank. This works fine for trusted banks in stable countries, but provides no protection against country risk or the possibility that the issuing bank may be unable or unwilling to honor its obligation. It also results in slower payment as banks that advise credits without adding their confirmations are not required to pay unless and until the proceeds are received.

Sight Draft, Documents Against Payment (also called Cash Against Documents): The seller ships the goods and sends the controlling documents through his or her bank to a bank in the buyer's country (usually the buyer's bank). The banks are instructed to release the documents only against payment. Here, no banks are guaranteeing payment, only that the seller's instructions will be followed. This is the international equivalent of COD since the idea is that the buyer can't get the goods without first obtaining the documents which the local bank withholds until payment is made. Rules called URC522 apply, but there are several risks. There is no protection against country risk; the buyer could simply walk away from the transaction, and the documentation must be structured so that the carrier will not release the shipment without it.

 Documentary Time Drafts: Work like sight drafts except that instead of paying the buyer signs (accepts) a financial instrument akin to a promissory note for payment at some future time. There are two flavors which address when the clock starts running. Date drafts are due and payable X number of days from the date on the face of the draft. As this is usually the date of main carriage transportation, the seller provides financing X number of days from shipment. Time-sight drafts are payable X number of days from the date the buyer accepts the draft. Most buyers will defer acceptance until the goods arrive, so the seller finances X number of days from arrival. The risks for either are the same as with sight drafts plus the fact that the buyer will have the goods before payment is due, increasing the possibility of non-payment. Country risk may also be greater should conditions worsen from the time the draft is accepted to its maturity.

Clean Drafts: The seller ships, sends the documents directly to the buyer, and a draft (perhaps accompanied by photocopies) is routed through the banks. The only protection resides in the fact that companies tend to behave well at their own banks from which they probably borrow. Risks are the same as with documentary drafts, plus the fact that the buyer has unrestricted access to the goods.

Open Account: The seller ships and sends the documents directly to the buyer without any bank involvement. This is similar to the way most domestic business is done and should provide manageable risk with creditworthy buyers in stable countries.

A note to the new-to-export: Nothing replaces adequate information on your overseas buyers. Even the protection of confirmed irrevocable letters of credit can be put at risk by documentary error, as happens all too frequently. It's then that good people come through for you and snakes strike. Fortunately, most people are good.

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Dept. of Justice Press Release (.pdf)
Minnesota Company Fined $400,000 for Export Violations
March 13, 2008

BIS Establishes Online Export Control Training for Exporters

WASHINGTON – The Commerce Department’s Bureau of Industry and Security (BIS) announced the creation of the BIS Online Training Room, an innovative new resource for companies interested in learning about U.S. dual-use export control regulations.  The Training Room will act as an organized, online repository of training modules and webinars, amplifying and augmenting current BIS exporter outreach programs.

“Active compliance with U.S. dual-use export control regulations is critical to maintaining safe and secure international trade, and it is essential that we support the good-faith efforts of exporters to comply with our regulations,” said Under Secretary of Commerce Mario Mancuso.  “The BIS Online Training Room will be a great help to exporters, particularly small and medium-sized enterprises, by making available a convenient mechanism to learn about our regulations.”

As part of its ongoing efforts to improve outreach, BIS will continue to create and supplement the materials regularly.  The initial launch includes the first half of the Essentials of Export Controls seminar that BIS currently offers around the country, as well as five pre-recorded webinars covering a variety of topics.  The training modules are presented in a video streaming format. The pre-recorded BIS webinars were conducted over the past year and focus on specific export control issues.

The BIS Online Training Room can be found at: http://www.bis.doc.gov/seminarsandtraining/seminar-training.htm 

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From E-CARGONEWS ASIS  WWW.CARONEWSASIA
EXPORT Container shortage?
By Greg Knowler Long Beach

Container shortages are hammering US shippers as exports surge on the back of the falling dollar. US exports grew in 2007 by 16.6 percent year on year, the best since May 2004.

"An exporter cannot get a container in the Midwest, and in Southern California he can't get space on a ship," said Peter Friedmann, executive director of the International Trade Counsel.

Most of the export boxes from the US are stuffed with recyclable goods and agricultural products, and while the increase addresses the record trade surplus, the transpacific route has historically been geared for eastbound trade.

"People are simply not able to export the sort of volumes of which they are capable of," Friedmann said. "Our answer to the trade surplus just can't be delivered."

International Asset Systems (IAS) is an asset management solution provider based in Oakland, and its senior vice-president of US intermodal, Phil Behenna, explained that the box supply pattern was changing in the Midwest.

"For the first time in living memory, there are many new markets for which the shipper cannot find boxes," he said.

Behenna said out of every 100 containers coming into the US, about 50 would go back out empty. Of the remaining 50, most would have to be trucked back to the port empty while exports were found. Only five would get "turned on the street", or filled without having to be taken back to a port empty.

"Usually the depot will send out another container to collect the export cargo, mainly because they have no idea where the empty containers are in time to re-route a truck," he said.

But even if the containers can be found, there is no guarantee that space would be available on ships leaving the port complex of Los Angeles-Long Beach.

Slot space was an issue of pricing, Friedmann said. "The carriers will have to adjust their pricing to guarantee space and their customers will have to understand they will pay more for the space," he said.

"The demand for space by exporters is going to continue, so it will no longer be a surprise for the lines."

Ed Zaninelli, vice-president of the transpacific westbound trade at Orient Overseas Container Lines, said exports may increase by 20 percent this year.

Richard McDuffie is the senior vice-president of global logistics for cotton merchant Dunavant Enterprises. His company exports 15,000 FEUs from the US annually but equipment shortages are creating a tough operating environment.

"Us exporters feel that we are being squeezed pretty hard," he said. "Most of our cotton is from the mid-south areas and there are not a lot of containers sitting around down there."

But McDuffie's problems run a little deeper. The difficulties involved in getting his cotton to overseas markets is making US cotton less competitive.

"The US is shipping more cotton overseas but our market share is declining because it is cheaper to ship from India. We need to sort out the equipment shortages or our margins are going to fall heavily," he said.

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W O R L D   T R A D E 

United States Files WTO Case Against China Over Treatment of U.S. Suppliers of Financial Information Services
03/03/2008

WASHINGTON, D.C. – United States Trade Representative Susan C. Schwab announced today that the United States has requested dispute settlement consultations with China at the World Trade Organization (WTO) regarding China’s treatment of U.S. suppliers of financial information services.

China’s regulatory regime requires foreign financial information suppliers to operate through a government-designated distributor in China and prohibits them from establishing local operations to provide their services.  In addition, the agency designated by China to regulate this financial service appears to have a conflict of interest, since the agency seems to be closely aligned with a Chinese competitor in the supply of these services.  The United States believes that China’s treatment of foreign financial information suppliers is inconsistent with China’s WTO obligations.

“China’s restrictive treatment of outside suppliers of financial information services places U.S. and other foreign suppliers at a serious competitive disadvantage,” Schwab said.  “We have raised this matter with China repeatedly, yet the problem has not been resolved.  We hope the filing of our request for formal WTO consultations will lead to a swift resolution of this matter.”  

“It is not in China’s interest to restrict access to the high-quality, comprehensive financial information provided by foreign service suppliers,” Schwab added.  “Financial market professionals in domestic and foreign banks, investment firms and other businesses in China need real-time access to this information from diverse sources – foreign and domestic – in order to make effective business decisions.”

New Chinese regulations, from 2006, require foreign financial information suppliers to supply their services through an entity designated by China’s regulatory authority.  The regulations prohibit foreign financial information suppliers from directly soliciting customers for their services, requiring efforts to develop new customers to be conducted exclusively through the government-designated entity.  China likewise prohibits users of financial information services in China from directly purchasing services supplied by foreign suppliers.  Furthermore, China prevents foreign financial information suppliers from establishing local operations in China to provide their services.

These new restrictions and requirements imposed by China on foreign financial information suppliers are now even more restrictive than those in place at the time of China’s accession to the WTO.

The European Union has also requested formal WTO consultations with China on this matter today.

Background:

Banks, investment firms, and other businesses involved with financial markets need to keep constantly abreast of national and global developments affecting those markets.  Suppliers of financial information services provide these clients the specialized news, data, analysis, and commentary that they require to make fast and effective business and investment decisions.

In 1996, China attempted to impose restrictions and requirements on foreign financial information suppliers similar to those currently being imposed.  That matter was resolved in 1997 when China agreed to allow foreign financial information suppliers to contract directly with customers in China and to distribute their services directly to these customers.  Ten years later, China’s regulator has again attempted to impose similar restrictions on foreign suppliers.  This is despite China’s strong market opening commitments in the financial information sector in its 2001 WTO accession.

The United States maintains that China’s restrictions and requirements limit the ability of foreign suppliers of financial information services to conduct business in China and place them at a competitive disadvantage in the marketplace.  The apparent conflict of interest of China’s regulatory authority compounds these issues.  As such, China appears to be acting inconsistently with several WTO provisions, including Articles XVI and XVII of the General Agreement on Trade in Services as well as commitments made by China in its WTO accession agreement.

Consultations are the first step in a WTO dispute.  Under WTO rules, if the parties do not resolve an issue through consultations, the complaining party may refer the matter to a WTO dispute settlement panel.

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President Bush signed the IEEPA Enhancement Act

On October 16, 2007, President Bush signed S. 1612, the IEEPA Enhancement Act.  Under the Act, U.S. companies involved in international trade and finance are at risk of substantially greater civil and criminal penalties for violations of U.S. sanctions regulations, even if the violations are inadvertent.

Sanctions promulgated under IEEPA include programs targeting Iran, Sudan, and Burma, as well as entities linked with terrorism, drug trafficking, weapons proliferation, and other national security threats (i.e., entities known as Specially Designated Nationals or “SDNs”).  The Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury administers and enforces these sanctions.

Previously, a violation of an IEEPA-based sanction could result in a civil fine of up to $50,000. In addition, U.S. persons that willfully violated such sanctions faced a criminal fine of up to $50,000, up to twenty years incarceration, or both.  Now, U.S. persons face a potential civil fine of up to $250,000 or twice the value of the transaction at issue, whichever is greater.  Civil penalties can accrue even if a U.S. person has no knowledge of the violation.  The Act also expands IEEPA’s criminal provisions to cover persons who willfully commit, attempt to commit, conspire to commit, or aid or abet in the commission of an IEEPA-related violation.  In addition, U.S. persons that willfully violate sanctions regulations now face potential criminal fines of up to $1 million.  The Act did not change the possible incarceration period, which is a maximum of twenty years.

This hike in IEEPA penalties comes without a right to challenge such penalties before an administrative law judge (“ALJ”) — in contrast with such due process rights granted in 1996 when Congress raised maximum civil penalties to $50,000 for violation of IEEPA’s sister statute, the Trading With the Enemy Act (“TWEA”; TWEA civil penalties have since been raised to $65,000 per violation).  Thus, companies faced with an IEEPA- based enforcement action must depend on their ability to negotiate a reasonable penalty with OFAC, as they will not have the ALJ option and would face the practical disincentives of appealing an OFAC penalty to federal court.

Finally, the Act applies retroactively in some respects.  Heightened civil penalties potentially could attach to enforcement actions that were pending as of October 16, 2007 (in contrast, the increase in criminal penalties attaches only to actions commenced on or after October 16, 2007).  Thus, any voluntary disclosure to OFAC within the past five years possibly could amount to a “pending” enforcement action.  The U.S. Bureau of Industry and Security – whose authority also springs from IEEPA – has clarified circumstances under which the Act’s enhanced penalties might apply retroactively.  It remains to be seen whether OFAC will likewise clarify its position. 

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A S I A  

China Trade Surplus Drops, Exports Fall
10 Mar 2008, CSCB

China's trade surplus shrank in February as sales of goods to the United States fell, the government said Monday, but analysts said exports should bounce back now that winter storms that disrupted the economy have passed.

The 63 percent drop in the trade gap from a year earlier was due partly to a long-term slowdown in export demand, but February was an unusually weak month, analysts said

February's trade surplus was $8.6 billion, down from $23.7 billion in the year-earlier period, according to China's customs bureau.

The data reflected slowing growth in exports to the United States and Europe while China's still-robust economy is driving demand for imported energy, consumer goods and industrial equipment.

China's imports in February surged 35 percent to $78.8 billion from the year-earlier period, according to the customs agency. The rate of export growth, meanwhile, plunged to 6.5 percent from January's 26 percent.

Exports to the United States fell 5 percent in February to $16.4 billion, while imports of American goods jumped 33 percent to $6.1 billion.

Beijing is under pressure from the United States and the European Union to ease trade barriers and currency controls that they say are adding to its swollen trade surplus. Some American lawmakers are calling for punitive action if Beijing fails to act.

Chinese leaders say they are not actively pursuing a large trade surplus. The communist government is prodding China's consumers to spend more in hopes of reducing reliance on exports and industrial investment to drive growth.

The February trade gap was the smallest since March 2007, but that month's $6.9 billion gap was considered abnormally low in a fluke caused by changes in export-tax policy. It has been two years since China regularly posted monthly trade surpluses under $15 billion.

Consumer inflation rose to 7.1 percent in January, its highest level in 11 years, and is expected to surpass that when figures for February are reported Tuesday.

The six-month-old inflation spike has been limited mostly to food, but wholesale price data released Monday showed costs of industrial raw materials up sharply…Wholesale prices rose 6.6 percent in February, the fastest rate in more than three years, the government reported.

Regulators have repealed rebates of taxes on some exported goods and imposed curbs on exports of steel and other goods deemed too dirty or energy-intensive. The government also has restricted grain exports in an effort to rein in a rise in food prices.

The trade surplus with the 27-nation European Union, China's biggest trading partner, narrowed by 15 percent to $10 billion, according to the government data.

Chinese and EU officials are due to meet in April in Beijing to launch a regular high-level dialogue aimed at defusing trade tensions.

China holds similar twice-year meetings with senior American officials.

The U.S., EU and other trading partners are pressing Beijing to ease controls that they say keep its currency, the yuan, undervalued and give Chinese exporters an unfair price advantage…

The yuan has been allowed to rise by about 16 percent against the U.S. dollar since mid-2005, and a faster increase would help to narrow the trade gap by making China's goods more expe