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Exportingfrom the United States
presented by Vinita Bahri-Mehra + David Wilson | October 29, 2015
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Strategy for Exports
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Exporting is not an easy, quickly mastered endeavor
Requires a lot of planning and preparation before the first product can be exported to foreign markets
Consider establishment of reliable relationships and the adaptability or strategies to local developments
Strategy for Exports
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Entry Routes
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Direct Salesfrom U.S. using freight forwarder
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Key Considerations1 Use accurate Incoterms 2010 for
international sale
2 Even better, spell out in detail, who is responsible for what
3 Most common terms: EXW, FOB, CIF, DDU, DDP
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Payment TermsNOT Incoterms
Do not confuse liability with responsibility
Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
Usually determined in the purchase contract
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Major Options, Based Upon Increasing Risk
Paid in advance
Letter of credit
Documents against payment
Open account
Interest on import bills
remittance against imports should be completed no later than 6 mos., except for payments withheld for guarantee performance, disputes, etc.)
Allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
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Decide on: Who is the
“importer of record”?
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Exporting can directly suit high value
products or services
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However, winning new customers is likely to
require significant investments in building relations + several visits
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Agency Relationship Creation
Depending upon conduct of the parties, exclusivity can be presumed
Relationship between Agent and Principal is primarily contractual in nature and governed by terms of contract
entered into between them
Agency contract should contain limitations, termination events, territory, products or goods, commission
structure and time of payment
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Distributor/Franchisee Relationship
Restrictive Covenants (i.e. non-compete + non-solicitation) difficult to impose post-termination/
expiration of the agreement
Relationship between Distributor/Franchisee and Principal is contractual in nature and governed by the
terms of the contract
Avoidance of Permanent Establishment (“PE”) status is critical – most countries
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Foreign entities can provide technical know-how and/or license their trademark to foreign
companies against payment of fee and royalty.
Technology Collaborations + Trademark License
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Key ConsiderationsProtection of intellectual property
Registration of trademarks, copyrights + patents
No statutory protection of trade secrets or confidential information
Indian IP laws don’t provide for automatic assignments
Advantage of lower withholding taxes on royalty income stream
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What is an Exportfrom a Compliance
Perspective?
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Shipping OUT of the U.S.
Physical shipments or hand carried
items
Release of technical data or
software in a foreign country
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Releasing information IN the U.S.
Release of technical data to a foreign
national in the U.S.
Release of source code to
a foreign national in the
U.S.
Inspections of U.S. equipment + facilities by a
foreign national
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State DepartmentDirectorate of Defense Trade Controls (DDTC)
Commerce DepartmentBureau of Industry and Security (BIS)
Treasury DepartmentOffice of Foreign Assets Control (OFAC)
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Arms Export Control ActInternational Traffic in Arms Regulations ITAR22 C.F.R. Parts 120-130
Trading with the Enemy Act, Int’l Emergency Economic Powers ArtIraq Sanctions, Terrorism Regulations and Others31 C.F.R. Parts 500-509
Export Administration ActExport Administration Regulations (EAR) 15 C.F.R. Parts 700-709
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CCL – Commerce Control List
List of Specially Designated Nationals + Blocked Persons
UML – U.S. Munitions List
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Why isCompliance Important?
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Criminal Penalties
CivilPenalties
Administrative
Penalties
Loss of Export
Privileges
Risk to Reputation
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+ 20B+ Multinational Corporation+ Global manufacture of paints, coatings and
chemicals+ Operates in over 70 countries+ Failed to detect and resolve certain red flags
that it was supplying items for use in a Pakistan Atomic Energy Commission facility
+ $3.75 million criminal + civil
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+ Less than 5M in annual revenue+ Sells surplus electronics parts+ Less than 20 employees+ In business for 17 years+ Shipped computer goods to Dubai, which
were later sent to Iran+ 5 year prison sentence+ $1 million criminal fine + civil settlements+ Denied export privileges for 10 years
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What is an Export?
ITAR 120.17 - EAR 734.2(b)
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An actual shipment or transmission of “items” subject to the EAR or ITAR (commodity, technical data or software) out of the United States
Releasing (including oral or visual disclosure) “technical data” or software “source code” to a “foreign person,” in the United States (“deemed export”)
Performing technical assistance, training, or other “defense services” for, or on behalf of, a “foreign person,” whether in the United States or abroad
Releasing “technical data” or software “source code” to a “foreign person,” in the United States
What is an Export?
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What is NOT defined as export controlled “technical data” or “software”?
Publicly available technical data and software
Published for sale, in libraries open to the public, or through patents available at any patent office
General scientific, mathematical, or engineering principles commonly taught in colleges + universities
Available through unlimited distribution at a conference, meeting, seminar, trade show, or exhibition
Arises during or results from fundamental research, where no restrictions on publication or access accepted
Non-technical contract or business documents
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How Do I Comply?
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State DepartmentGUIDANCE
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U.S. Department of State (Directorate of Defense Trade Controls) - ITAR
Ongoing program to assist in monitoring defense trade activities + updated manual
a) Draft and update manual clearly articulating company policy related to compliance with defense trade laws and regulations
b) Outline procedures related to licensing and compliance mattersc) Identify empowered and responsible personsd) Specify duties of empowered and responsible personse) Create procedures for record keeping and internal auditing
Controls defense articles, defense services and related technical data, including most space-related articles
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U.S. Department of State (Directorate of Defense Trade Controls) - ITAR
Resourcesa) Dtrade – Directorate of Defense Trade Controls, electronic systemb) Directorate of Defense Trade Controls acronym list may be found
on the DDTC Websitec) Country policies and embargoes may be found on the DDTC
Controls defense articles, defense services and related technical data, including most space-related articles
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Commerce DepartmentGUIDANCE
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U.S. Department of Commerce(Bureau of Industry + Security) - EAR
Export Management + Compliance Program (ECMP)a) Draft written export compliance standards for the Companyb) Commit sufficient resources for the Programc) Ensure senior organizational officials are designated with the overall
responsibility for the Programd) Conduct continuous risk assessment of the Programe) Engage in ongoing systematic compliance training + awareness activities.f) Screen employees, contractors, customers, products, transactions and
implementation of compliance safeguards throughout the export lifecycleg) Conduct internal and external monitoring and audits
Controls “dual-use” items – goods and technology with both civilian and military/strategic uses
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Resourcesa) Commercial Control List (CCL), Supplement No. 1 to Part 774 of
the EAR is available on the Government Printing Office b) Commerce Country Chart, Supplement No. 1 to Part 738 of the
EAR is available on the Government Printing Office Website
U.S. Department of Commerce(Bureau of Industry + Security) - EAR
Controls “dual-use” items – goods and technology with both civilian and military/strategic uses
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Treasury DepartmentGUIDANCE
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Maintain a rigorous risk-based compliance program – Questions to ask:
a) Who are your customers?b) What kinds of business do you do? (shipping, wire transfers,
bank, insurance)
U.S. Department of the Treasury(Office of Foreign Assets Control)Oversees U.S. trade embargoes and Enforces all three programs at U.S. borders through U.S. Customs Service
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Resourcesa) OFAC Starter Kit: Specially Designated Nationals (SDNs) list;
Industry specific informationb) Interdiction software c) OFAC “Regulations by Industry” brochure d) OFAC Exporter assistance Hotline 1-800-540-6322
U.S. Department of the Treasury(Office of Foreign Assets Control)Oversees U.S. trade embargoes and Enforces all three programs at U.S. borders through U.S. Customs Service
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Who Has to Comply?
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U.S. +Foreign Persons
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U.S. person defined as:
A “Lawful Permanent Resident” (8 USC 1101 (a)(20))
U.S. Citizen or National
Legal immigrant with green
card
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U.S. person defined as:
A “Protected Individual” INA (8 USC 1324(b)(3))
Designated an asylee or
refugee
Temporary resident under
amnesty
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U.S. person defined as:
A “Protected Individual” INA (8 USC 1324(b)(3))
Fail to apply for citizenship within 6 months of becoming eligible
Have not been naturalized within 2 years after applying
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U.S. person defined as:
Any entity incorporated to do business in the United States
A “Lawful Permanent Resident” (8 USC 1101 (a)(20))
A “Protected Individual” INA (8 USC 1324(b)(3))
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“Foreign Person” means everyone else
Includes foreign businesses not incorporated in the U.S.EAR does not use the term “foreign person,” instead refers to “foreign national”
Exempting Protected Individuals (See EAR 734.2(b)(ii))
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What Changes May Be Ahead?
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“The current export control system is still based on the geopolitical, economic, and technological realities of the
Cold War era and must be changed to meet 21st
century national security needs.”
- White House Press Release July 2011
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1 Controlled items on a single list
Export Control Reform Initiative (ECR)
4 Key Areas of Reform:
3 Create modern IT system for export controls
4 Export control enforcement
2 Build a single licensing agency
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WHY?Currently there are three different primary licensing agencies, each applying their own policies, and none seeing the others’ licenses, and all operating under unique procedures and definitions.
55% of all licenses currently issued for Category VII (military vehicles) items will be eliminated.
Brake pads for the M1A1 tank are virtually identical to the brake pads for fire trucks and heavy equipment
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Under the current system, “we devote the same resources to protecting the
brake pad as we do to protecting the
M1A1 itself.”
- White House Press Release July 2011
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Export Compliance is
Important
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Other Issues are Equally Important
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7TIPSfor Highly Effective Exports
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Develop a long-term strategic plan
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Focus on due diligence
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Think global, act local
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Pay attention to geographic diversity
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Be patient + commit to long term
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Ensure compliance
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Foreign Corrupt Practices Act
Export Contract Regulations
Office of Foreign Asset Control
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Rely on experienced global advisors
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In many countries, rights and obligations are outlined in their constitution, as well as
laws, decrees, provisional regulations, ordinances and regulations and in territorial
connections and treaties
Summary
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Legal AdviceThis presentation is designed to provide an overview of
a number of legal principles and considerations.
As each legal issue is fact dependent, this presentation should not be used or viewed as legal advice, and your legal counsel should be consulted on the application of
your particular factual situation to the current law.
Copyright: 2015 Kegler, Brown, Hill + Ritter
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Thank You!Vinita Bahri-Mehra, DirectorDirector + Chair, Asia Pacific PracticeKegler Brown Hill + [email protected]/bahrimehra614-255-5508614-464-2634 (fax)
David Wilson, AssociateKegler Brown Hill + [email protected]/wilson614-462-5406614-464-2634 (fax)
