Shipping

The Census Bureau is requesting comments by March 26 on their new proposed revisions to the Automated Export Systems record. Mainly the revisions entail changes that will reflect the following enhancements which have been made by the Census and US Customs and Border Protection:

• Edits for rough diamond shipments under the Kimberley Process
• E-mail messaging
• Created the validated end-user license code
• Automated carrier code updates
• Developed background Standard Carrier Alpha Code update process
• Developed SCAC maintenance log list
• Developed consignee screens
• Allowed Option 4 vessel shipments to proscribed countries
• Developed method of transportation maintenance screens
• Developed edit value type screens

If the proposed revisions are put into place the Census will be able to use the above collection of information to more accurately track what is being exported, how much and even how the goods are exported, who is exporting the goods, and even the date and place of the goods destination. With so much information the Census states that they will be able to detect and even prevent the export of certain items by unauthorized parties or destinations.

The information collected by the AES record will also be used by Federal agencies to plan and examine export promotion programs and development and assistance programs and aid in trade negotiations. The information will also be used by port authorities, airlines, steamship lines and many others to measure the volume of exports and any needs they may have for additional or new types of facilities.

On December 14, 2007, Minister Maxime Bernier, Minister of Foreign Affairs, announced that Canada’s economic sanctions against Burma entered into force on December 13, 2007. Read More

According to www.exportblog.com (October 9, 2006; ed.: R. Clifton Burns), shippers and freight-forwarders could be paying some very high prices if they are not certain of the export status of what they are shipping or forwarding. UTi Worldwide, a global logistics company, paid over $109,000 in fines and penalties recently learning this lesson.

The trouble for UTi started in February, 2002 when they served as the freight forwarder for a shipment of a telecommunications switch from Extreme Networks, Inc. Extreme Networks was charged with export violations for this transaction because they did not have the necessary licenses to ship to BeiHang University, the destination of the shipment. In May, 2006, Extreme Networks was fined, and paid, $35,000 to settle BIS’s charges.

As the freight-forwarder, UTi was subsequently delivered a BIS letter charging them with aiding and abetting Extreme Network’s export violations. One of the charges was that UTi made a false statement on the SED by stating that the switch was EAR99. It seems likely that UTi was provided this classification from Extreme Networks and it makes you wonder what they could have done to protect themselves in this type of situation. Should they have opened the package and attempted to classify the item themselves after inspecting it?

It is possible that what really caused the problems for UTi was the third charge against them. This was that UTi exported an item from Hong Kong to China (which are still two separate countries for BIS purposes). This should have been recognized as a red flag by UTi causing them to investigate further.

UTi’s troubles didn’t end with the Extreme Network problem. It has since settled a separate charge for 34 other exports to the tune of $76 500. Thirty-three of these were for providing false EIN’s for the exporter. This brings up the same dilemma of what is a shipper or freight-forwarder to do to protect itself from these large fines and penalties? Can they not take the exporters word as to the EIN? I suppose requiring a document from the IRS attesting to the accuracy of the EIN would serve as the only truly safe course. The impracticality and inefficiency of that (for everyone involved) makes it an unlikely solution.

Ordinarily we strive to bring you only the most original reporting, thinly-supported gossip, and contemptible fear-mongering. But once in a blue moon someone beats us to the punch, as Carlos Rodriguez of the partially-eponymous law firm Rodriguez O’Donnell Ross Fuerst Gonzalez & Williams did in a recent dispatch. Excerpts are below, from the firm’s website.

…[A]s a result of an abrupt change of policy, the U.S. State Department’s Directorate of Defense Trade Controls (DDTC) will no longer approve export licenses for freight forwarders that have traditionally managed international shipments for American shippers of military technology.

…DDTC’s policy will only allow shippers to obtain export licenses for their own shipments regulated under the U.S. International Traffic in Arms Regulations (ITAR).

According to a recent letter from the DDTC, an applicant “must be the entity who is selling the defense article to the designated recipient foreign company, thus making an ‘export’ as defined by ITAR, Section 120.17.” This section of ITAR merely defines the term ‘export.’ It says nothing concerning the identity of the entity which can ‘make’ the export.

This sudden policy shift taken by DDTC will now probably force the previously reluctant U.S. suppliers to ship pursuant to their own licenses, and to change the terms of sale from “ex works” to whatever.

Also, these U.S. suppliers will now shift the logistics/forwarding function to their own forwarders/logistics companies. In short the policy shift has dictated the commercial structure of the transaction.

We think this governmental interference has no compensating regulatory benefit.

We would be interested in hearing from clients or others who can confirm this ostensible policy shift.

The Census Bureau unofficially announced that it will publish the proposed rule requiring the mandatory use of the Automated Export System (and the elimination of paper Shipper’s Export Declarations) in the Federal Register in June 2004. There will be a 60 day public comment period for the proposed rule. Census hopes to publish the final rule in early Fall 2004, with a January 2005 effective date.

Aren’t you glad you have already started using AES (or PC Link)?

Last month Directorate for Defense Trade Controls (DTC) published a notice on its web site requiring electronic filing of Shipper’s Export Declarations (SEDs) using the electronic AES system for all items controlled by the International Traffic in Arms Regulations (ITAR). On October 27, 2003, DTC amended the ITAR to officially require the same. The new ITAR requires that you electronically report all ITAR exports to the US Government, except for exports of technical data under exemptions (not including the exemption for agreement). Generally speaking, for hardware exports you report electronically using AES and for technical data exports you report directly to DTC.

Note to Companies outside of the United States: If you are transferring items between non-US locations, no AES or ITAR reporting is required but you may want to share the information below with the US-based business who export to you to help them get their exports to you cleared properly.

The primary ITAR revisions come in the new ITAR section 123.22 - Filing, retention, and return of export licenses and filing of export information. ITAR 123.22 requires electronic export reporting for all ITAR exports, either via AES for hardware or via a new system for direct reporting to DTC (the latter system currently is a paper reporting system). These are the new ITAR 123.22 procedures for exports.

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In the October 22, 2003 Federal Register the Census Bureau announced that it will eventually publish a proposed rule that would require AES reporting for all exports from the United States (with certain exemptions). Currently, the AES requirement does not apply to items classified as EAR99 in the Commerce Control List. You currently may use paper Shipper’s Export Declarations to report exports of items classified as EAR99. Census gave no official prediction as to when it might publish the proposed rule. Best guesses are pointing toward late Spring as the likely timing.

In the October 22, 2003 Federal Register the Census Bureau published a notice requiring AES reporting for rough diamonds. The United States is doing this as part of the international effort to combat rough-cut diamonds being used to finance military conflicts in Africa.

Now you must use AES to report your exports of items controlled by the International Traffic in Arms Regulations (ITAR).

DTC recently published guidance on their website on AES shipments. Some key points include:

• As of October 18, all exported items on the Munitions List (hardware and tangible software and tangible tech data) must be declared in AES prior to departure—8 hours for vehicle or air, and 24 hours for vessel or rail.
• In case of an emergency, you may file 1 hour in advance for vehicle or air exports, and 2 hours for vessel or rail. This shorter filing time can be revoked at the discretion of Customs and Border Protection or DTC if they feel it is being abused.
• Until December 18th, a paper SED must also be filed for the same transaction.
• The exporter must complete the new ITAR data fields, as described in last month’s issue.

For more information, see: www.pmddtc.state.gov/aes.htm 

Buried in the DTC web page guidance on AES, DTC published some interesting and painful clarifications on how you should export technical data under a license and report it to DTC, as is required by ITAR Part. Interesting, mostly for a few die-hard ITAR freaks, painful for all exporters of ITAR-controlled tech data.

Many defense exporters have argued, with reason, that the first shipments of technical data under a TAA or MLA does not need to be reported. They argue that the actual ITAR 123.22(d) and 123.24 language only requires reporting of the first shipment under a license, not an agreement because those ITAR paragraphs are in the ITAR Part 123, which has the title “Licenses for the Export of Defense Articles” and agreements are not licenses. Exporters also cite Part 124 “Agreements..” as the ITAR Part to look to for requirements for exporting tech data under agreements.

(John Black here. For the record, I am starting to wonder what relevance logic and using dictionary definitions of words has to understanding the ITAR. For example, since Part 125 is “Licenses for the Export of Technical Data,” that would seem to be the logical place to find the requirements for exports of tech data under licenses. Instead of reading the ITAR you just ought to know what it says. This approach of not basing the meaning of the ITAR on the words of the ITAR and requiring exporters to just know what the ITAR says is irresponsible government. If it is important to the security of our country that we apply the ITAR like the State Department interprets it, the State Department is putting the country at risk by not writing the ITAR to say what the State Department wants it to say because some exporters are not plugged into the State Department and might just read the ITAR.)

Reading the guidance, it’s clear DTC disagrees. “[T]he initial export of technical data and defense services using an agreement will be by letter,” the guidance reads. “For ease in handling these requests, the letter should have an attention line reading “ATTN: Initial Export Notification for Agreement [insert agreement number].”

For shipments of technical data under a license, the guidance states you should notify State of the first shipment of technical data by decrementing the license and returning it to DDTC. If you need to ship technical data thereafter, State says to use an exemption in “124.5.” Presumably they are they are referring to exemption regarding copies of technical data previously authorized exemption in 125.4(b)(4).

(Sorry, John Black here again. Gee whiz, what is going on here? So, I get a DSP-5 for offshore
procurement, export data once, and then use the copy of tech data exemption for the next 50 for the offshore procurement? If what I export is not a copy of what was previously exported, but it falls within the description on my DSP-5, can I use the copy exemption for my non-copy. Interesting use of the English language. In the ITAR the word “copy” includes things that are not copies. I sure wish DTC would revise the ITAR to reflect this. I don’t know about you, but I might forget this sometime over the next couple of years and make the mistake of reading the ITAR and thinking “copy” does not include “non-copies.” Back to you Maarten.)

Finally, State reaffirmed that technical data hand carries under a license still require an SED. You should present a copy of an SED to US Customs “upon request” and one copy should be immediately sent to DTC. The guidance appears to indicate that you don’t have to specifically hunt down a Customs officer to submit an SED, as US Customs would never request an SED for technical data unless the traveler brought it to their attention.

The good news is that all these paper technical data notifications should disappear in January 2004. At that time, State hopes to have in place a system whereby all AES entries for shipments of technical data are automatically routed to State. For more information, see: www.pmddtc.state.gov/aes.htm

(I apologize for interrupting Maarten’s analysis of the new AES requirements with my editorial comments. Sometimes I just can’t keep my mouth shut. –John Black)

Hurray! The final Automated Export System (AES) regulation is finally out. Now it’s time to crack open a cold one and celebrate. Let’s also celebrate, shall we, by drinking down the six-pack of essential bullet point elements of the July 17 Census Federal Register Notice:

• An AES SED filing is required for all ITAR shipments regardless of value, license or exemption, unless specifically exempted by the ITAR. (30 CFR 30.60)
• An AES SED is required for EAR shipments valued at $2,500 or more and classified in an ECCN: other than EAR99. (15 CFR 30.1(b), 30.60)
• Proof of AES filing must be made at the time the cargo is tendered to the exporting carrier. (15 CFR 30.12(d))
• SEDs for EAR99 shipments valued at $2,500 or more may be submitted via AES or in the old paper format. (15 CFR 30.1(b))
• Paper SEDs must be filed at the time the cargo is tendered to the exporting carrier. (15 CFR 30.12)

The rule is effective August 18, 2003, and will be mandatory October 18, 2003.

The rule advises ITAR exporters to look to the ITAR for pre-departure filing requirements. The party has yet to start over at DDTC, as the ITAR, of course, has not been amended yet to describe these or other related AES requirements. So at this time it’s anybody’s guess as to when you should file your AES SED for ITAR shipments. ITAR AES amendments were supposed to be released by August 24, but the latest estimate is now September or October.

(Editor’s Note: What’s the Schedule B Number for that six-pack?)

We have been talking about the new Census rules that will require mandatory filing of SED’s through AES for years now. So it should sound repetitive (but, by now, perhaps not surprising that we are still waiting. But the Census folks now seem pretty confident that the rule will actually out soon, as in a matter of days or weeks rather than months. Once this rule is published, it will go into effect 30 days after publication, followed by a 90 day transition period where either a paper filing or an AES filing will still be accepted. After that, all filing will need to be electronic.

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Have you ever asked an ODTC official a compliance question? Chances are you’ll get one of three responses:

1. no answer
2. a sarcastic comment about your compliance program or
3. the phrase “read the ITAR.”

Unfortunately, reading the ITAR will only get you so far–the ITAR is fraught with contradictions. One of my favorites is the 124.3(a) Shippers Export Declaration (SED) certification requirement for exports of technical data in furtherance of an agreement.

For such technical data exports, 124.3(a) states that the “US party to the agreement must certify on the Shippers Export Declaration that the export does not exceed the scope of the agreement and any limitation imposed pursuant to this part.” A conscientious ITAR reader would read this clause to mean that an SED is required for exports of technical data pursuant an agreement.

Reading the actual exemption for exporting technical data in furtherance of an agreement would further your belief. That 125.4(b)(2) exemption states you may export such technical data only if you met the requirements, including the SED requirement, of 124.3(a). Okay, so we need an SED — or don’t we?

125.6 to the rescue! 125.6 might as well say “forget what we just told you.” When using any exemption in 125.4, including the 125.4(b)(2) technical data in furtherance of an agreement exemption, “a Shippers Export Declaration is not required for exports of unclassified technical data.” 123.22(d) affirms the negation: “a Shipper’s Export Declaration is not required for exports of unclassified technical data.”

So which set of provisions do we follow? The lazy choice is not to prepare an SED. I’d like to characterize it instead as the democratic choice. The ITAR says in two places that an SED is not required, and in only one place says it is. So that’s two votes against and one for. The nays carry the day.

In the January 9, 2002 Federal Register, the Office of Defense Trade Controls (ODTC) amended the International Traffic in Arms Regulations by removing Tajikistan and the Federal Republic of Yugoslavia (Serbia and Montenegro) from the list of proscribed countries in section 126.1 of the ITAR. This means it is no longer ODTC policy to deny licenses and agreements for these two countries and you may use license exemptions for these two countries. It also means that you no longer need ODTC approval for sending proposals (unless, of course, the proposals contain controlled technical data or the proposals are the type that require prior approval or notice for non-proscribed countries). ODTC also amended the ITAR to change the proscribed country “Zaire” to “the Democratic Republic of the Congo (formerly Zaire)”.

The proscribed countries are: Afghanistan, Armenia, Azerbaijan, Belarus, Cuba, Iran, Iraq, Libya, North Korea, Syria, Vietnam, Burma, China, Haiti, Liberia, Rwanda, Somalia, Sudan and Democratic Republic of the Congo.

You are a defense company that primarily supplies US armed forces, and the bulk of your deliveries are to locations within the United States. As such, you rarely have a need to get an export license under the International Traffic in Arms Regulations (ITAR). But in a recent deployment, the Marines took all your equipment with them. You now get a call from the US military to deliver spare parts to US forces in some country ending in “stan.” “We need this now,” barks the Marine officer over the phone. What do you do?

Flipping through the ITAR, you find surprisingly few exemptions available for shipments to our armed forces overseas.

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