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The Art Of Compliance: Doing What’s Right, Not Just What’s Required

compliance
Archives, Global Trade Daily, News

The Art Of Compliance: Doing What’s Right, Not Just What’s Required

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The rest of society got a taste of what corporate compliance officers go through when the pandemic forced restrictions and requirements on the entire population.

Suddenly, people were told to wear masks, social distance, and wash their hands more regularly and thoroughly than ever before. Plenty of people didn’t like that, trying to dodge the new rules or openly defying them, even as clerks, store managers, police officers, and health professionals firmly reminded them they needed to comply.

In somewhat the same way, compliance officers for a business may appear to act as the resident scolds, reminding people when their plans or actions come into conflict with state or federal rules and regulations that govern their industries.

It doesn’t always go over well.

“People often resist compliance because they don’t like to be told what to do,” says Steve Vincze, president and CEO of Trestle Compliance (www.trestlecompliance.com) and author of the upcoming book Winning with Compliance: Strategies to Make Commercial Compliance Your Competitive Advantage.

“But compliance is about doing what’s right, not just what’s required.”

Companies can face hefty fines when they fail to comply with rules that govern their activities, whether the non-compliance was inadvertent or intentional. A couple of examples: In 2020, Capital One was fined $80 million for a data breach that exposed customers’ personal information the previous year. The Cheesecake Factory came under scrutiny and reached a $125,000 settlement with the U.S. Securities and Exchange Commission over the SEC’s allegation that the company misled investors about the impact of the COVID-19 pandemic on its business.

So, whether you are the CEO of the company or a compliance officer, how do you make sure people are doing what they need to do? Vincze offers a few tips:

Listen. If you want people to listen to you and embrace your advice, you need first to listen to them, to understand their fears, their challenges, and their motivations, Vincze says. “You need to be able to answer the ‘why’ behind the what,’ “ he says. “Why do I need to comply? What’s in it for me if I do?  When it comes to compliance, the key message is that you have to listen well, hear what they are saying, and then mirror back to that person that you understood them.”

Inspire and motivate. Logic alone doesn’t always win out, which may be frustrating for some leaders, but that’s when the art and science of compliance and of leadership must come to the fore, Vincze says. “You need to touch both hearts and minds to inspire and motivate people,” he says. “The trick is to get people to want to comply. Depending on who you are speaking to, you may be able to reach them rationally and sensibly. But sometimes you may need to go deeper and find out what motivates them. For example, if you are dealing with young people fresh out of college, you might show them how compliance connects to a broader purpose, that it’s not just about following some rule but about helping people in some way.”

Be tough. Eventually, though, you may need to get tough. “You have to draw limits,” Vincze says. “You have to discipline people if they don’t comply and put themselves and others in jeopardy. You have to know where to draw the line, but you have to do it consistently and fairly, and you must communicate the limits very clearly.”

“At the end of the day, effective compliance boils down to understanding people as human beings, and using that understanding as an effective leader to inspire the desired behavior,” Vincze says. “You have to connect compliance and each individual’s role to a cause greater than any one person, a cause greater than themselves. Connect with their passion and you will inspire their compliance. Fundamentally, most people are good and want to do what is right. Apply that understanding to win them over to start winning with compliance.”

___________________________________________________________________

Steve Vincze is president and CEO of TRESTLE Compliance, LLC. (www.trestlecompliance.com), a consulting firm that provides compliance, risk and regulatory services. He also is author of the upcoming book Winning with Compliance: Strategies to Make Commercial Compliance Your Competitive Advantage. Vincze has more than 25 years of experience in regulatory compliance matters, from government policy and enforcement to private sector business implementation considerations. Prior to forming TRESTLE, Vincze split his private-sector career between service as an in-house or outsourced senior vice president or vice president chief of compliance and privacy officer for several life science and healthcare companies, and as a consultant, as a senior leader with a Big 4 firm, and forming his own firms. He also served as an officer in the U.S. Marine Corps.

mexico
Archives, Global Trade Daily, International Trade

Post-COVID Resilient Supply Chains in North America: The Role of Mexico

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If we’ve learned anything after surviving 2020, it’s that no industry will return to its affairs as if the pandemic simply did not happen.

Regarding the post-pandemic supply-chain transformation in North America (Mexico, the United States, and Canada), we at Foley & Lardner have received the same message from both the U.S. President[1] and our clients[2]: resilient supply chains are the new name of the game, and they are to be secure, redundant and diverse; also, they will be more transparent regarding purchaser’s needs and the supplier´s ability to fulfill them, will favor provider adaptability over lean inventories, and preapprove alternate purveyors over a race to the bottom.

With the aforementioned in mind, we should begin by laying out the known truths by which Mexico has historically contributed to strengthening the North American supply chains:  (i) the country provides quality manufacturing at the lowest costs in the region, (ii) it benefits from free trade agreement provisions with more than 60% of the world´s Gross Domestic Product (52 countries); (iii) almost all of the favorable factors when considering near-shoring, are present in Mexico, (iv) 25+ years of NAFTA experience created a skilled workforce whose numbers will grow as Mexico´s population ages, (v) intellectual property rights are duly protected, and (vi) trade promotion programs (i.e. IMMEX) are well known and have been running smoothly for years.

Said truths, however, could be hampered by a number of matters that we should keep a close eye upon, namely:

I. COVID-19 Vaccination

Both the Mexican federal government and individual States have concurrent jurisdiction regarding mandatory health measures, including vaccinations.

In December 2020, the federal government´s National Vaccination Policy set the goal to immunize the entire population within 18 months, firstly with frontline health care workers, followed by those 60 and older, those in their 50s, 40s, and lastly, 18 and older. Largely to scarce vaccine supplies and a rocky organizational start, progress to date casts doubt upon whether the 18-months goal is achievable.

In January 2021, the Mexican Ministry of Health issued high-level guidelines for individual Mexican states and private entities to acquire and administer vaccines, as long as they follow the National Vaccination Policy; operational details are still needed.

Furthermore, compliance with fluid COVID-related health and labor regulations in manufacturing facilities is still a major issue, both in terms of being able to continue production, as well as preventing lawsuits due to real or imaginary risk of exposure.

II. Outsourcing & Insourcing Ban

Due to his Political Party´s (MORENA) control of both Houses of the Mexican Congress, the President´s initiative to ban the current practice of outsourcing and insourcing will likely enter into effect on May 2021 (with an apparent 3-month vacatio legis).

But for “specialized services”, meaning those that are not part of the economic activity of the intended beneficiary, all workers will have to be in the payroll of the employer, which will entitle them to profit sharing provisions.  Simulating receiving specialized services would constitute elements of proof towards the commission of criminal tax fraud.

Since most manufacturing operations in Mexico currently rely on outsourcing operations, incoming law will force reassessing and restructuring a number of labor, corporate and tax present-day structures.

III. VAT-Certified IMMEX Benefits Diluted

Mexican IMMEX (aka Maquila) companies operate under a governmental authorization that includes preferential conditions, both operational and fiscal.

The highest degree of preferential treatment conditions is granted to companies that are VAT (Value Added Tax)-certified, which allows them to avoid paying otherwise applicable VAT upon the importation of goods used in their manufacturing operations.

Such preferential treatment will automatically be diminished as soon as each VAT certification is renewed by individual IMMEX companies, which should occur every one to three years depending on their current authorization.

Upon VAT certification renewal, companies will, most importantly: (i) operate under a reduced time frame to utilize most temporarily imported goods (from 36 months to 18 months), although longer periods apply to products such as containers, machinery and equipment; (ii) no longer will be automatically enrolled in Sectorial import programs which allow for reduced duty imports on steel, textiles, others; (iii) have to file weekly import documents, instead of monthly; (iv) will not be able to temporarily import products without declaring serial numbers; (v) and will no longer have the ability to obtain expedited 16% VAT refunds on their operational balance (capacity to continue temporarily importing without paying VAT remains, however).

IV. Mandatory Technical Standards (NOMs) No Longer to be Exempted

Prior to October 2020, importation of certain materials, i.e. those to be utilized in production processes, were permitted to enter Mexico under “exemption letters” that would allow them to be imported without proof of NOMs compliance (note that not all imports are subject to NOM compliance, in accordance to their relevant Harmonized Tariff Schedule classification).

Even though little is still known in the importing community, importers are no longer allowed to use such exemption letters and, upon bringing goods into the country, are obliged to demonstrate compliance with relevant NOMs, either prior to the importation process or afterward.

In addition to evolving administrative application criteria, a number of procedural rules must be pursued for each of the aforementioned venues.

V. Labor Enforcement of USMCA (United States-Mexico-Canada Agreement) Obligations

As was required in USMCA, Mexico has already amended its labor laws to guarantee the basic rights of freedom of association and collective bargaining (with the non-stated objective of increasing wages in the country).

In accordance with such amendments, (i) effective immediately, existing collective labor contracts shall be free of “interference” from employers (this is, under their dominance or control), and (ii) in the medium term, labor contracts need to be “legitimized” by May 1, 2023 at the latest, in accordance with the July 2019 process issued by the Mexican Labor Secretary.

Due to the foregoing, there will be real, working unions, and current collective contracts signed with employer-friendly unions (commonly known as “protection” contracts or contracts with “white unions”) will soon be eliminated; it is probable that this will bring new leadership and more than one union to a company.

As per USMCA, determination of denial of freedom of association and collective bargaining rights may be made by a Facility-Specific Rapid Response Labor Mechanism; if such a determination is made, the covered facility´s goods or services could face a suspension of preferential tariff treatment or the imposition of penalties.

One thing is certain: labor relations in Mexico are changing rapidly, and now is the time for employers to preventively look into these issues.

VI. Tax Rules Regarding Permanent Establishment

Recent tax reforms have expanded the scope of permanent establishment rules in Mexico. As it is known, if a foreign company is deemed to have a permanent establishment for tax purposes in the country, it shall be subject to levies with respect to the relevant revenue of said establishment.

Thus, companies already doing business, or that are considering setting up operations in the country, should evaluate these recent changes to assess potential risks of being considered to have a local taxable presence.

_________________________________________________________________

Alejandro Nemo Gomez Strozzi, a partner at Foley & Larder, focuses his practice on providing advisory and consulting services related to international trade compliance, antidumping, customs, foreign trade and Mexican administrative law. As a top international trade lawyer, he has advised major multinational companies in the automotive, steel and consumer products sectors.

Fernando Camarena Cardona, a partner at Foley & Lardner, is a senior business and legal advisor on international and domestic tax issues in Mexico, providing both tax counseling and assistance with litigation. He represents small companies to Fortune 500, FTSE 100 and other global and brand name corporations in the energy, manufacturing, nutritional supplement, insurance and other industries. 

Marco Najera Martinez, a partner at Foley & Lardner, is a recognized go-to transactional and regulatory lawyer representing global companies doing business in Mexico. With particular experience in the Mexico antitrust laws, he represents Fortune 500 corporations, as well as Mexico companies, in this highly specialized area. 

sourcing
Archives, Global Trade Daily, International Trade

Exclusive White Paper: Sourcing Globally – Senior Managements Guide to “Thirteen Key Practices”

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Sourcing globally will continue to grow and expand into new markets as we enter the third decade of the new millennium.

Multinational companies down to smaller family-owned organizations are learning the critical importance of developing multiple and varied sources of raw materials, components, and finished products.

Traditional foreign sourcing options, such as China are being challenged aggressively for the first time in its 40-year tenure as the fastest and expansively growing foreign source of manufactured goods.

Tied into this are the 301 Tariffs under the Trump Administration, that our newly elected President Biden is likely to continue on with for at least the balance of 2021. Which have increased “landed costs” by as much as 25%.

Senior management is best guided by setting up policies, protocols, and SOP’s in how their management teams and staff operate in their global sourcing opportunities and initiatives.

The goal should always be to reduce the risk and cost of goods sourced globally.

In public companies, these guidelines would help meet Sarbanes- Oxley regulations and in private companies … “Best Practices”. The SOP’s create a standard with the following benefits:

-Documented and written commitment to follow government regulations

-Consistent approach to regulatory adherence

-Foundation and resource for all global supply chain personnel to follow

-Creates training module to make sure everyone knows how to operate in their companies following all necessary regulations.

Having said all of that …. The following Best Practices outlined in Thirteen Steps offer the international executive a blueprint for either new or matured global sourcing initiatives:

1. Learn how to navigate the opportunities offered through the numerous Free Trade Agreements that can be leveraged for economic advantage in the global sourcing arena

Utilizing FTA’s lower lands costs by reducing or eliminating duties and taxes.

2. Diversify sourcing into multiple countries so dependence on single sourcing is not relevant

This becomes a risk management concept in spreading the sourcing exposure over Variable options.

3. Learn the culture of the countries you source from. This will maximize your opportunity to negotiate better deals and build stronger relationships.

Keep in mind in overseas markets … “relationship” drives the success of the business deal and the long-term partnership with the vendor/supplier.

4. Utilize specialized professional attorneys who can guide you through the maze of foreign regulations, laws and policies that will influence sourcing options, agreements and contracts.

Legal expertise can be expensive, but it is a necessary expenditure that can help avoid pitfalls, mistakes, and serious financial consequences.

Laws vary greatly in foreign countries and companies that learn how to proactively avoid litigation and other legal issues will always minimize risk and maximize opportunity.

Purchase Orders (PO’s) also have different legal consequences in various countries, that need to be reconfigured to work better.

5. Develop sourcing reach into Mexico where maquiladora programs and near sourcing initiatives can prove to be a valuable option as a sourcing alternative.

Near sourcing can prove to significantly lower landed costs, reduce risk and enhance demand planning sand lead time reductions.

6. Utilize the service of specialized freight forwarders who can provide local support in the sourcing countries in arranging local freight needs, outbound logistics requirements, handle export specifics and the inbound process into the United States.

The freight forwarder or Customhouse broker can be a valuable partner in impacting risk and cost along with huge benefits in managing inbound supply chain needs.

7. Tread cautiously through all Intellectual Property Exposures (IPR) that can happen once you start to trade in foreign markets, share business models. Trade secrets and confidential manufacturing data.

Managing IPR issues needs to always be addressed proactively when forming relationships in global sourcing models. The headaches and costs in chasing and dealing with IPR breaches can be costly, aggravating and a waste of time and effort. And litigation in markets such as China typically create less them robust results … leaving both parties dissatisfied and filled with angst.

Managing IPR issues needs to always be addressed proactively when forming relationships in global sourcing models. The headaches and costs in chasing and dealing with IPR breaches can be costly, aggravating and a waste of time and effort. And litigation in markets such as China typically create less them robust results … leaving both parties dissatisfied and filled with angst.

8. Pay close attention to the choice of INCO Term (International Commercial Term of Purchase or Sale). The choice impacts risk and cost between the supplier and the buyer.

There are 11 INCO term options in the revised 2020 Edition: Ex Works, FAS, FCA. FOB, CIF, CIP, CPT, CFR, DAP, DPU and DDP.

Importers need to choose a term where they typically control the international freight inbound, the customers clearance process and delivery to the ultimate consigned.

This helps reduce both cost and risk and typically will offer better options and performance on the inbound logistics.

9. Make sure you:

-Understand all the regulatory issues with Customs and other regulatory agencies.

-Make sure you have a “point person” who takes ownership of regulatory concerns … typically referred to as the “trade compliance manager”.

-Develop SOP’s to integrate into the sourcing business model.

-Train all stakeholders in the global supply chain on all the aspects of regulatory controls and just how it is related to their specific responsibilities.

10. Always make sure you have supported your sourcing decision by working up “landed cost modeling” to affirm the purchasing decision utilizing specific metrics.

Landed cost modeling creates a metric to do comparison shopping and to evaluate options or choices by adding up all the direct, indirect and ancillary costs added to the origin purchase or acquisition cost.

Landed cost modeling creates a comprehensive formula to measure the method and process in making a sourcing decision on foreign shores.

11. Document these protocols in written SOP’s to evidence adherence to government regulations and best practices. This provides clear and concise senior management influence on managing with good intent, behavior, due diligence and reasonable care.

12. Create internal training programs for your management teams and your operating staff in all these guidelines and best practices. Solid training initiatives are an excellent and proven method to make sure everyone has comprehensive information flow, know what is expected and how best to execute.

13. Combine the utilization of Bonded Warehouses and Foreign Trade Zones, with various sourcing options, that can leverage risk and spend to your favor. This would include inventory, distribution, manufacturing and assembly operations in a secure FTZ, that could significantly lower landed costs to the USA based importer.

The role of Senior Management is to lead. Following these thoughts and turning them into effective actions within your business models is the best way to assure the opportunities to minimize risks and maximize profits within your global sourcing business models.

Senior management is best off by leading their teams into best practices and always exercising due diligence in their business behavior patterns. Any short-term costs and inconvenience will be outweighed by long-term benefits to any organization.

Benefits will include: reduction in risk and cost, business process improvement, more efficient operations, sustainability and significant growth potentials.

_______________________________________________________________

Thomas A. Cook is a 30 year seasoned veteran of global trade and Managing Director of Blue Tiger International, based in New York, LA and West Palm Beach, Florida.

The author of 19 books on international business, two best business sellers. Graduate of NYS Maritime Academy with an undergraduate and graduate degree in marine transportation and business management.

Tom has a worldwide presence through over 300 agents in every major city along with an array of transportation providers and solutions.

Tom works with a number of Associations providing “value add” to their membership services and enhancing their overall reach into global sourcing and in export sales management.

He can be reach at tomcook@bluetigerintl.com or 516-359-6232

freight
Archives, Global Logistics, Global Trade Daily, International Trade

EXCLUSIVE WHITE PAPER: International Freight and Trade Compliance Key Management Considerations for 2021

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Overview:

Manufacturers, Dealers and Distributors that are engaged in global trade… Importing, Exporting, Buying, Selling and distributing various products worldwide.

The ability to move goods in the international arena will make or break sales or even maintain a client relationship.

The ability to deliver products on a timely and loss-free basis is a critical component to the companies operating with a global footprint.

This “white paper” created for the readers of Global Trade Magazine addresses “Six Steps” to follow to help reduce risk and cost in the area of international shipping, freight and logistics.

Supply Chain Spend in 2021

We should all keep in mind that the Covid-19 Pandemic of 2020, brought significant increases in logistics costs and supply chain spend, along with limitations on service both domestically and internationally.

This is likely to continue heavily into the 2Q, second quarter of 2021 with a residual impact lasting till December 2021.

Those engaged in budgeting supply chain costs should plan for increases in excess of 25%, as much as 50% and continued delays to midyear 2021.

Demand, capacity, pandemic disruptions fears along with greed will continue to be driving factors.

Warehousing, distribution and all related costs have and will continue to escalate, with limitations on space and capacity.

The Six Steps

The following six steps originate from the authors 35 – year experience in moving freight all around the world and in assisting corporations with global logistics that are cost-effective and reduce risk to themselves and their clients’.

1. Chose the Best INCO Term

2. Insure the Shipment

3. Chose the Right Freight Forwarder and Carrier

4. Track all Shipments Proactively

5. Understand the Total “Landed Costs”

6. Be Trade Compliant!

Choose the Best INCO Term

The INCO Term, established by the International Commerce Commission is followed by all countries belonging to the United Nations for goods that pass through international borders.

INCO Terms typically get updated every ten years as was demonstrated this January 2020.

There are 11 Options in the 2020 Edition.

The seven Incoterms® 2020 rules for any mode(s) of transport are: 

EXW – Ex Works (insert place of delivery)

FCA  – Free Carrier (Insert named place of delivery)

CPT  – Carriage Paid to (insert place of destination)

CIP –  Carriage and Insurance Paid To (insert place of destination)

DAP – Delivered at Place (insert named place of destination)

DPU – Delivered at Place Unloaded (insert of place of destination)

DDP – Delivered Duty Paid (Insert place of destination).

Note: the DPU Incoterms replaces the old DAT, with additional requirement for the seller to unload the goods from the arriving means of transport.

The four Incoterms® 2020 rules for Sea and Inland Waterway Transport are: 

FAS – Free Alongside Ship (insert name of port of loading)

FOB – Free on Board (insert named port of loading)

CFR – Cost and Freight (insert named port of destination)

CIF –  Cost Insurance and Freight (insert named port of destination)

The INCO Term is a term of sale between a seller and a buyer that picks a point in time in the transaction where risk and cost is transferred from one party to the other.

It does not address other contractual concerns, such as payment method, title and details of marine insurance.

What it really does is advise an exporter till what time and place in a transaction is it responsible for cost and risk to …. And conversely where the importer picks up on.

Depending upon the INCO Term utilized … the risks and costs could be dramatically impactful for either the seller or the buyer.

We recommend that all operations, purchasing and sales personnel for the readers of Global Trade Magazie learn at a very detailed level all they can about INCO Terms and more specifically how to best leverage the term to reduce risk and cost in their transaction.

The author is available to the readers of Global Trade Magazine with any questions. (tomcook@bluetigerintl.com)

Insure the Shipment

The typical importer and exporter never worry about loss or damage until it occurs.

And at that point, everyone from the forwarder to the carrier is blamed for the occurrence.

Freight will always get lost or damaged at some point in time, when you ship frequently and all over the world.

It is very important to make sure that you first identify through the purchase or sales contract who has risk of loss or damage. What INCO Term is being utilized? How payment is being made?

Once the risk is understood … then marine cargo insurance should be acquired … on an “All Risk”, Warehouse to Warehouse” basis with a reputable international cargo insurance underwriting company.

Additionally, some loss control elements need to be considered to mirror the insurance policy that considers:

-That the freight is packed, marked and labeled well

-A responsible forwarder and carrier is utilized

-Freight needs to pass through the system quickly … delays at border pints open the door for loss and damage

-Freight needs to clear customs … thoroughly, legally, following all import regulations and timely … all that will mitigate the potential for loss and damage

Chose the Right Freight Forwarder and Carrier

As an extension of your shipping personnel the Forwarder and Carrier take responsibility to move your freight through the global system.

They need to do this:

-Timely

-Safely

-Cost-Effectively

Choosing the right company who is qualified, experts in pet products distribution becomes some very important criteria to make sure the shipment, the freight and the logistics moves your package to your customer’s satisfaction.

Blue Tiger International with over 35 years’ experience has developed some very key relationships with an array of freight forwarders and carriers and can assist you in making sure you have all the necessary information to make the best choices.

Other organizations like the NCBFAA, AFA and TIA … all freight trade associations can produce members who specialize in the Global Trade Magazine Industry Vertical.

Track all Shipments Proactively

Making sure the shipments arrive on time and in workable condition is the guarantee of customer satisfaction, long term relationships, less headaches and greater margins.

This can be a service your freight forwarder or carrier provides, but it needs to be clearly identified in that vein and it must be done proactively … through every step of an international shipment.

Depending upon distances involved, countries of export and import, choices of mode and carrier … some freight can travel 12,000 miles, through 4-5 carrier handoffs, via several customs authorities and in several modes of transit.

All these convolutions can create exposure to loss, damage or delay. All three concerns we want to avoid. They lead to loss of revenue, customer dissatisfaction and lots of stress within your organization.

To mitigate this concern you need to structure a proactive system to “track and trace” all your international shipments through all the convolutions, hand-offs and modes of transit.

Many “track and trace” systems can be electronic and advise you through web portals, emails and other electronic means on all your shipping activity.

The benefits of proactively in lieu of a “reactionary” mindset will pay off in spades over the course of time and client relationships.

Understand the Total “Landed Costs”

Landed Costs are the total of all the accumulated expenses attached to a shipment moving internationally.

Many of these costs are outlined as follows:

-International Freight

-Duties, Taxes and Fees

-License Charges

-Handling Charges

-Domestic Freight

-Clearance and Handling Charges

-ISF Fees

-Carrier Surcharges

-Demurrage

-Storage and Warehousing

Sometimes the landed costs can exceed the value of the actual shipment.

In order to protect margins and profits … it is critical to make sure “transactional” that you completely understand what the “landed costs” are for your shipment … then you can make sure these costs are covered in the eventual client invoicing that will follow.

Remember no one likes surprises … particularly those that have an additional price tag attached to them.

Be Trade Compliant!

It is imperative that both pet product importers and exporters operate their global supply chains trade compliantly.

This is following procedures and operational practice that accomplishes:

-Due diligence

-Reasonable Care

-Supervision and Control

-Engagement

This includes …

-Understanding the regulations

-Building internal SOP’s to comply with the regulations

-Train personnel on how to interpret and practice the SOP’s and in a regulatory manner

-Engaged in government programs that provide evidence of managing secure and compliant global supply chains, such as C-TPAT, Customs-Trade Partnership Against Terrorism

C-TPAT is a voluntary program of security created for importers into the United States managed by CBP, Customs Border and Protection … now open to include exporters from the USA.

Areas also included in trade compliance have to do with … documentation, classification (HTSUS/Schedule B Number(s), Valuation, Record Keeping, Export License Requirements, Denied Party Listing … to name a few of the operational concerns.

The penalties for non-compliance are fines, penalties and potential loss of import or export privileges. More serious areas can include criminal prosecutions.

Summary

Importing and exporting products successfully, means paying attention to detail. These six areas outlined above are a good foundation for creating a detailed and comprehensive approach to managing global supply chain responsibilities.

Our 35 years plus of global supply chain experience has demonstrated that those companies that are diligent about how they manage the freight, logistics and distribution of pet products will create the best opportunity to:

-Protect margins and grow profits

-Increase customer satisfaction

-Decrease stress and problem areas in global markets

-Better the reputation, which converts to client retention and expansion

______________________________________________________________

Thomas A. Cook is a 30 year seasoned veteran of global trade and Managing Director of Blue Tiger International, based in New York, LA and West Palm Beach, Florida.

The author of 19 books on international business, two best business sellers. Graduate of NYS Maritime Academy with an undergraduate and graduate degree in marine transportation and business management.

Tom has a worldwide presence through over 300 agents in every major city along with an array of transportation providers and solutions.

Tom works with a number of Associations providing “value add” to their membership services and enhancing their overall reach into global sourcing and in export sales management.

He can be reach at tomcook@bluetigerintl.com or 516-359-6232

export controls
Archives, Global Trade Daily, International Trade

UNPACKING US-CHINA SANCTIONS AND EXPORT CONTROL REGULATIONS: PRACTICAL COMPLIANCE STRATEGIES

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This is the fourth in a series of articles by Eversheds Sutherland partners Jeff Bialos and Ginger Faulk explaining the legal and regulatory impacts of certain recent US sanctions and export control actions targeting various Chinese entities. Each article explains the regulatory context of the recent rules.

Our previous articles have discussed recent developments in US sanctions and export controls affecting trade with China, including US export controls on software and semiconductor technology, the Department of Defense list of Chinese military companies, the Commerce Department’s “Military End User” rule, and the use of the US “Entity List” to target various concerns from export control to human rights to Iran sanctions. The last month has also seen efforts to restrict foreign investments in publicly traded securities of companies associated with the Chinese military.

The purpose of this article is to provide a framework and practical guidance for complying with existing and emerging US-China export controls and sanctions. In other words, how does a company establish an effective compliance program that appropriately manages risk, limits potential liability exposure, and, at the same time, if things go wrong, confirms to regulators and prosecutors that the company took compliance seriously, thereby mitigating penalties and avoiding a criminal referral?

The best approach to trade compliance is a multidisciplinary approach

As a starting point, if recent developments in US-China trade policies have taught us anything, it’s that US trade restrictions can apply to everything from technical exchanges (internal and external) and product shipments to intracompany shipments and financial transactions and investments. As such, a company’s approach to compliance with US-China trade rules and well as the broader range of other sanctions regimes should be multidisciplinary and capable of responding to emerging requirements in any and all of these areas.

Recent US-China trade policies have targeted certain products, technology, and software; third parties; financial flows and financial institutions; inbound foreign investment; imports and tariffs; and even access to capital market financing. As a result, in considering your multinational company’s compliance obligations and risk exposure, you should consider the implications across business units and functions, including:

-Research and Development

-Sales and Marketing

-Procurement

-Shipping and Logistics

-Finance and Accounting

-Banking and Insurance

-Customer Service

-IT Systems, and others.

These rules can apply to intra-company, as well as external, activities. Even if one segment of your business has a particular type of heightened risk exposure, it does not mean that is the only segment of your business that may be exposed.

Ensure accountability and support for trade compliance

Overall, an effective compliance program requires a number of core elements: 1) leadership commitment and the allocation of resources to the compliance function; 2) robust procedures and processes integrated into the company’s business; 3) internal controls that can test the efficacy of the procedures on an ongoing basis; and 4) training that ensures that the company’s personnel understand their compliance obligations and internalize them in their work routines.

US regulatory agencies expect a company to assign responsibility to a person or function within a company for ensuring trade compliance and to provide that function sufficient access to, and support from, senior management. Often, this means designating a compliance officer who reports to the board of directors. Regulators will look not only at a company’s “culture of compliance,” but also assess whether the company provided adequate compliance resources commensurate with the size and nature of its operations. Recognizing that a corporate parent may be held liable for its subsidiaries’ trade control violations resulting from inadequate supervision, companies are advised to establish centralized policies and procedures for ensuring and monitoring compliance by each of their subsidiaries. Compliance integration under these policies should be part of every post-acquisition integration effort.

Know Thyself: Assessing your own business risks

A centerpiece of modern regulatory compliance is prudent risk management. In many regulatory areas, including sanctions, it is challenging for firms to achieve 100% compliance at all times.  Rather, the goal is to establish a program to appropriately manage and mitigate compliance risk.

US foreign trade and investment regulatory and enforcement agencies emphasize the importance of conducting a risk assessment in order to identify compliance risks that are particular to your business. OFAC’s Framework for Compliance Commitments advises companies in developing compliance measures to consider the risk profiles of the company’s “customers, supply chain, intermediaries, and counter-parties; (ii) the products and services it offers, including how and where such items fit into other financial or commercial products, services, networks, or systems; and (iii) the geographic locations of the organization, as well as its customers, supply chain, intermediaries, and counter-parties.” [1]

You should also understand how sanctions laws may apply in the context of your company’s multinational structure and operations. It is a mistake to believe that companies operating outside of the US cannot be touched by US sanctions and export controls. Many times violations arise from US person “facilitation” of sanctioned activities and interactions by non-US companies with the US financial system, e.g., through US dollar-denominated financial transactions. For this reason, some US-based multinationals have elected to apply sanctions and export control compliance throughout not only their US, but also foreign, operations – even in areas where the controls are not fully extraterritorial. The application of corporate liability rules in a multinational enterprise where US persons have some level of involvement around the globe otherwise makes compliance more challenging than it needs to be.

In assessing its exposure to US trade controls, a company must look not only at the location of management and administrative support personnel, but also the geographic footprint of its entire product and R&D supply chains, i.e., the location of internal technology and software development and the location of manufacturing of products, parts, components and materials and the development of software and technology on which they are based. Consider not only software and technology shared with third parties but also internal (intracompany) cross-border or domestic transfers of software and technology and establish effective internal controls.

Implement a program to manage identified risks effectively, including Know Your Counterparty (KYC) controls

As impressive as a compliance program may appear on paper, the only worthwhile compliance program is one that is effective. To be effective, a compliance program should work with company’s existing structures and information flows and be integrated with day to day internal work instructions. It needs to be able to incorporate and screen in real-time existing third-party information and implement stop-hold procedures for transactions that trigger risk. This usually calls for a customized screening and software solution.

In developing a trade compliance program, US regulators and enforcement agencies encourage companies to build around certain basic core elements. 

Management Commitment – As discussed above, demonstrate and document senior management approval of the compliance program and foster a “culture of compliance” with a positive “tone from the top.”

(2) Risk Assessment – Again, a compliance program must be responsive to identified risks, and there is no “one-size-fits-all” approach.

(3) Internal Controls – Per OFAC, this refers to “policies and procedures, in order to identify, interdict, escalate, report (as appropriate), and keep records pertaining to activity that may be prohibited by the regulations and laws.” These internal policies should be clearly set out in writing and consistently implemented and enforced. Heightened review is recommended for transfers of dual-use and military items and dealings with high-risk destinations or counter-parties.

Beyond day-to-day KYC screening, numerous companies have recognized that their foreign collaborative engagements can involve significant risk, which can vary depending on the country, industry, and the particular party involved. Thus, firms often establish a special committee to vet engagements with third parties, whether agents, distributors, or joint venture partners. Individual business units may propose these engagements, and the company will evaluate them on an enterprise-wide basis after due diligence and the assessment of risks, advising also on the structuring of legal arrangements to mitigate such risks.

(4) Testing and Auditing – Regular monitoring of trade compliance is encouraged and, in some cases, expected. Regular auditing can occur at a global level or may rotate to focus on certain business units, functions, or procedures. Testing and auditing may be conducted by internal audit or external subject matter experts.

(5) Compliance training – Much of trade compliance depends on employees knowing how to spot and address “red flags” of sanctions and export control issues. Compliance training should provide information that is readily useable and easily accessible, risk-focused, and tailored to the duties and responsibilities of the participants.

To summarize, in today’s global business, complying with US-China trade policies requires a holistic review of a company’s external and internal operations. The best compliance programs are developed on the basis of a realistic review of a company’s compliance risk exposure; designed to be able to respond to ever-changing targets and regulations; and implemented effectively to work with a company’s existing systems and structures.

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Ginger T. Faulk, partner at Eversheds Sutherland, represents multinational companies in matters involving US government regulation of foreign trade and investment. She has extensive experience advising and representing global companies, counseling clients in matters arising under US sanctions, export controls, import and other national security and foreign policy trade-related regulations.

Jeffrey P.  Bialos, partner at Eversheds Sutherland, assists clients in making multi-faceted business decisions, structuring transactions and complying with complex regulatory requirements. A former Deputy Under Secretary of Defense for Industrial Affairs, he brings deep experience in defense, homeland security and national security matters, including antitrust, export controls, foreign investment, industrial security, the Foreign Corrupt Practices Act, and mergers and acquisitions, and procurement.

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[1] OFAC Framework for Compliance Commitments, at https://home.treasury.gov/system/files/126/framework_ofac_cc.pdf; see also BIS Elements of an Effective Compliance Program, available at at https://www.bis.doc.gov/index.php/documents/pdfs/1641-ecp/file; see also US Department of Justice, National Security Division, “Export Control and Sanctions Enforcement Policy for Business Organizations,” Dec. 14, 2019, available at https://us.eversheds-sutherland.com/portalresource/ces_vsd_policy_2019.pdf.

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Archives, Global Trade Daily, News

EU Releases New Complaint System to Address Trade Deal Violations and Market Barriers

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On November 16, 2020, the European Commission (“EC”) debuted their new complaints system for stakeholders to report harmful trade barriers and violations to European Union (“EU”) trade agreements. The “Single Entry Point” complaints system allows member states, companies, trade associations, civil society groups and EU citizens to report any market access barriers and non-compliance of Trade and Sustainable Development (“TSD”) commitments which are part of EU trade agreements or under the Generalised Scheme of Preferences (“GSP”).

Executive Vice-President and Commissioner for Trade Valdis Dombrovskis said that the EC “has made enforcement a top priority” and that, notably, under the new system, complaints related to “sustainable development commitments” will receive the same level of attention as complaints related to market access barriers.

As outlined in the published operating guidelines, received complaints will be prioritized based on three criteria:

1. The likelihood of success for resolving the issue;

2. The legal basis for the complaint;

3. The seriousness or degree of economic/systemic impact of the alleged market access barriers or violations of TSD/GSP commitments.

The new system has two separate complaint forms, one for market access barriers and another for non-compliance with TSD/GSP commitments. Both of the forms require that the complainant provide the legal basis and a full description of the issue being reported. Additionally, if the commission finds that enforcement action is necessary, they will inform the complainant and issue an enforcement action plan tailored to the specific violation or trade barrier.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

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Archives, EU Trade, Global Logistics, Global Trade Daily

How to Mitigate the Burden of Brexit Disruption

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It’s difficult to believe, but after nearly six years of debate and disruption, the end of the Brexit saga is close at hand. There are less than two months left until the official departure of the UK from the EU, and with each passing day the possibility of a mutually agreeable free trade arrangement between the two parties becomes less likely.

For businesses engaged in trade across the English Channel and the Irish Sea, this is likely to mean significant disorder in the form of long queues at customs checkpoints, a deluge of new documentation with which to reckon and the expense of new taxes and tariffs. Just as an example, the total volume of customs declarations is due to rise by 20% after Brexit Day.

For their part, the governments in London and Brussels are doing what they can to provide relief to those businesses that will inevitably experience adversity with the onset of Brexit. As part of this, the British government has introduced a new process called Entry in Declarants Records or EIDR. It is being made available only to those businesses that do not trade in controlled goods, such as food, chemicals, medicines, etc.

Why It Matters to Trading Businesses

As noted above, businesses engaged in trade will face a series of setbacks as the UK and EU part ways, the foremost of which will be border delays. The EIDR allows businesses to import goods into the UK without providing a full or even partial customs declaration at the point of import. That means quicker and easier release of shipments and, in turn, shorter delays. It also allows for the deferral of Value-Added Taxes (VATs) using the introduction of Postponed Accounting for VAT (PVA) and duties, as well as the deferral of supplementary declarations for individual or bulk shipments. This not only provides financial relief in the short term, but also a smoother transition into the customs regime.

What’s the Catch?

It’s not so much that there’s a catch, but there are limitations and requirements. EIDR allows traders to obtain the release of goods from a third country to a customs procedure and can be used to enter goods into:

-Free circulation;

-Customs warehousing;

-Processing;

-Specific use or;

-For export/re-export purposes

However, in order to import goods through EIDR, businesses are required to use the Customs Freight Simplified Procedure (CFSP) to complete the reporting process through the submission of a supplementary declaration. EIDR will be accessible to traders without the need for authorization until June 30, 2021.

A supplementary declaration must be completed up to six months after the date the goods were imported. If a Trader elects to use EIDR after this date, an application to HM Revenue and Customs (HMRC) will be required.

If those last two paragraphs left you shaking your head and craving alphabet soup, the good news is EIDR doesn’t require the documentation to be submitted directly by the importer, so trading businesses can lean on their customs brokers for the heavy lifting on documentation and process.

What are the Limitations?

Goods that cannot be declared using EIDR includes but is not limited to:

-Items on the Controlled Goods List – which also includes but is not limited to Excise goods, Fisheries, Endangered species, Anti-dumping duty and countervailing duties.

-ATA Carnet

-Personal Effects

-Special procedures e.g. Inwards Processing (IP) by import declaration.

What are an Importer’s Responsibilities?

Like all other documentation and duty deferral programs around the world, the EIDR will require importers to apply diligent record-keeping to ensure they are able to document their transactions and keep logs of relevant information in the event they are audited or a miscalculation occurs.

All businesses using EIDR to trade goods must:

-Maintain records for no less than 4 years.

-Ensure records are backed up and kept secure.

-Obtain the use of a CSFP software package or the services of a CFSP authorized customs agent.

-Maintain a clear audit trail of temporary imported goods.

Although EIDR will allow faster release of goods, use of simpler customs declarations and provide potential cashflow benefits to traders; these benefits could be outweighed by fees and software costs.

Make it a Supply Chain Conversation

Businesses would be well served to discuss with their trade partners and supply chain vendors precisely how they intend to operate in the post-Brexit period. In addition, they should work with their vendors, including freight forwarders, customs and freight brokers and trade consultants to conduct a thorough cost analysis to enable an informed decision on the process to be used.

Doing this today has the potential to mitigate border disruption, reduce landed costs and lessen the burden of documentation requirements, allowing businesses to focus more on what they do best and less on the minutiae of customs processes.

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David Merritt is a director in the Global Trade Consulting division of trade services firm Livingston International. He can be reached at dmerritt@livingstonintl.com.

Export Control Law
Archives, Global Trade Daily, Imports/Exports, International Trade

How China’s New Export Control Law May Impact Your Business

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On October 17, the Standing Committee of the 13th National People’s Congress of the People’s Republic of China adopted the Export Control Law of the People’s Republic of China (Export Control Law). The new law becomes effective on December 1, 2020. The Export Control Law comprises 5 chapters and 49 articles. It creates a comprehensive and unified export control regime that regulates the export of goods, technologies, and services that impact China’s national security.

Scope of Applicability and Targeted Parties

The Export Control Law applies to the export of dual-use items, military products, nuclear materials, and other goods, technologies, services, and items that are related to the protection of national security and performance of international obligations. (Controlled Items). Under the new law, the Chinese government will take prohibitive or restrictive measures on the transfer of Controlled Items from the territory of the People’s Republic of China to overseas, and on the provision of controlled items by any citizen or incorporated or non-incorporated organization of the People’s Republic of China to any foreign organization or individual. Furthermore, the Export Control Law will apply to the transit, transshipment, through transportation or re-export of controlled items, or the export of controlled items from any bonded areas, export processing zones or other special customs supervision zones or export supervised warehouses, bonded logistics centers or other bonded supervision premises to overseas.

China will apply the Export Control Law extraterritorially which means that the law will impact any person or entity, in or outside the normal territorial boundaries of China, dealing with the Controlled Items. Furthermore, the Export Control Law specifically prohibits any person or entity from providing any agency, freight, delivery, customs clearance, third-party e-commerce trading platform, financial or other services to any exporter engaged in any violation of export control regulations.

Export Control Measures and Licensing

The Export Control Law authorizes the State Council and the Central Military Commission (Authorities) to take measures and to enforce the new law. The key measures promulgated by the Export Control Law include:

-Export Control Lists. The Authorities shall establish and publish export control lists for the export of Controlled Items (Export Control Lists). Meanwhile, the Authorities are allowed to designate any goods, technologies, or services outside the Export Control Lists as temporarily controlled items (Temporarily Controlled Items) for up to two years.

-Under Article 11 of the Export Control Law, exporters in the business of exporting Controlled Items shall apply for special business qualification.

-Under Article 12 of the Export Control Law, in order to export any Controlled Item on an Export Control List or any Temporarily Controlled Items, exporters shall apply to the Authorities for a license. Furthermore, any exporter who knows or should know, or is notified by the Authorities that any goods, technologies, and services 1) endanger national security and interests; 2) may be used to design, develop, produce or utilize any weapon of mass destruction or its delivery vehicle; or 3) may potentially be used for terrorist purposes must apply for a license even if such goods, technologies, and services are not Controlled Items or Temporarily Controlled Items. The Authorities will approve or reject the issuance of license based on the following considerations: national security and interest; international obligations and commitments to foreign parties; type of export; the degree of sensitivity of the controlled item; export destination country or region; the end-user and end-use; relevant credit records of the exporter; and other factors as prescribed in laws or administrative regulations.

-End-User and End-Use Control. Articles 16 and 17 of the Export Control Law stipulate that exporters shall submit relevant documents and information proving the end-user and end-use to the Authorities and the Authorities shall establish a risk management system for end-users and end uses of Controlled Items.

-Under Article 18 of the Export Control Law, the Authorities shall establish controlled party lists (Blacklists) including importers and end-users that: 1) breach the law and regulations in connection with end-users or end uses; 2) endanger the national security; or 3) use any Controlled Items for any terrorist purpose. Once importers and end-users are included in the Blacklists, exporters are prohibited from transacting business with such importers and end-users. An importer or end-user on the Blacklists may apply with the Authorities to be delisted from the Blacklists if any of the circumstances described above no longer exist.

-The Authorities may restrict or prohibit the export of any Controlled Item to any specified destination country or region or to any specified organization or individual.

Penalties

Any person or entity violating the Export Control Law will be subject to administrative penalties and criminal penalties, including but not limited to warning, confiscation of products, fines, cancellation of an export license and imprisonment.

Impact on U.S. Companies

Due to the extraterritorial character of the new law, the Export Control Law will impact not only Chinese domestic companies in China but also foreign businesses located outside of China. However, like other Chinese laws, one notable characteristic of the Export Control Law is the vagueness inherent in the wording. For example, the new law does not clearly define what constitutes the provision of controlled items (commonly known as deemed exports). We expect that more specific implementing regulations and interpretations in connection with the Export Control Law will be published by the Authorities in the near future. Nevertheless, any U.S. business dealing with China should establish an internal trade compliance program to comply with China’s new export control regulations.

We have identified the following steps as critical and essential for an effective trade compliance program under the Export Control Law. These steps provide a basis and foundation for the compliance program but do not constitute an exhaustive list.

-Companies should utilize tools and services to constantly screen their goods, services and technologies coming from China, as well as their business partners, suppliers, customers, agents, end-users and other business counterparties (Chinese or non-Chinese) in order to make sure that such entities or persons are not subject to any trade sanction or restriction in China.

-A key in determining whether an export license is needed from the Authorities is finding out if any good, service or technology that companies intend to export falls under any existing Export Control Lists or the category of Temporarily Controlled Items published by the Authorities. Companies should hire qualified international trade attorneys with knowledge of Chinese export control regulations to have technical understandings of the items they import from China; to be familiar with the structures and contents of the Export Control Lists and Temporarily Controlled Items published by the Authorities; and to determine whether or not any authorization is required to export from China. Companies should closely monitor the Export Control Lists, Blacklists and other sanction lists published and updated by the Chinese authorities.

-Companies should design training programs together with international trade attorneys with knowledge of Chinese export control regulations and provide such training to their employees. A good training program should provide job-specific knowledge and communicate the responsibility of each employee dealing with Chinese business.

-Risk Management. Companies should hire qualified international trade attorneys with knowledge of Chinese export control regulations to identify the risks early on in order to assist companies in finding solutions to mitigate such risks. Furthermore, due to the rapid development of Chinese export control and trade sanction regime, companies should work closely with the attorneys to make proper adjustments and prepare for the new changes.

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Frank Xue, John Scannapieco and Alan Enslen are attorneys at Baker Donelson and members of the firm’s Global Business Team.

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Archives, Commentary, Global Logistics, Global Trade Daily, International Trade

The Future of International Trade: Is Globalization Dead?

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In this exclusive Q&A, Global Trade Mag hears from Ted Murphy, partner with global law firm Sidley Austin, LLP, on how the international trade and globalization landscapes have changed and what companies can predict as we approach 2021. 

1. What are some of the most significant changes in the global trade landscape? 

The most significant change over the past few years has been the decline of globalization. Up until recently, much of the world was pursuing policies aimed at increasing globalization. This meant that year-after-year it was getting easier and cheaper to move goods, people and data across international borders. While globalization is not dead, the last few years has seen a rise of economic nationalism in places where it had not been prevalent previously — like the United States and the UK. Combined with the economic nationalism that has always been present in places like China, it means that globalization has been in retreat for the past several years. We see that trend continuing, at least for the short-to-medium term (i.e., walls are more likely to go up, then come down, in the short-to-medium term).

2. How can global trade players navigate the new landscape? 

The first thing global trade players need to do is recognize that the paradigm has shifted. Hoping that the past comes back is not productive. Instead, you need to embrace the flux and move forward. No one knows what the future will look like. That said, we know it won’t look like it did 4 years ago. As a result, global trade players need to embrace the uncertainty (it is a reality), throw out the old plans and create new ones – recognizing that they may need to be amended on the fly.

3. What role will technology play in international trade relationships?

This is one of the fundamental trade questions that will get answered over the next couple of years. Will we have one interconnected world, or separate spheres each with its own technology?

4. What are some tips for compliance efforts moving forward?

Trade facilitation/trade compliance will continue to have increasingly important roles within companies going forward. The last few years have shown that trade really matters to most companies and that those that ignore things like trade risk, responsible sourcing, technology transfers and other trade-related issues do so at their peril. For example, as companies realign their supply chains, it is important to understand the trade risk profile of the alternative source – e.g., is the new source country likely to find itself on the wrong end of a U.S. Section 301 investigation for currency undervaluation; is forced labor enforcement a risk; the trade sanction risks; etc. Just looking for the lowest cost supplier is not the answer.

5. How can trade players prepare now for the future? 

In the past, it was relatively smooth sailing from a trade perspective as globalization increased. Expect the future to be bumpier. I am not saying that is necessarily a bad thing – uncertainty often brings opportunity. In order to be best able to take advantage of that type of opportunity, one needs to be well-informed and a bit bold.

This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and the receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. The content therein does not reflect the views of the firm.

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Ted Murphy is a partner with global law firm Sidley Austin, LLP where he counsels companies on international trade and customs law and serves on the firm’s COVID-19 Task Force. He advises clients on international trade, trade policy and customs compliance issues, including actions brought under Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974, as well as the administration of international agreements. Mr. Murphy also represents clients before the U.S. Court of International Trade, the U.S. Court of Appeals for the Federal Circuit, U.S. Customs and Border Protection, the Office of the United States Trade Representative and the U.S. International Trade Commission. Prior to joining Sidley, he was appointed by the Secretary of Commerce and the United States Trade Representative to serve on the Industry Trade Advisory Committee on Customs Matters and Trade Facilitation (ITAC 14) for the 2010–2014 and 2014–2018 terms.

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Customs Announces Extension of Deadline to File Post Summary Correction (PSC)

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Customs has posted CSMS #43528998 (July 31, 2020) reminding the trade community that as per the modification to the Post Summary Correction (“PSC”) procedure announced in the Federal Register on August 14, 2019 (84 FR 40430), the deadline for filing a PSC has been extended in cases where an importer requests and is granted an extension of liquidation pursuant to 19 CFR 159.12.

Under this modified procedure, after an importer is granted an extension of liquidation, a PSC may be transmitted to CBP up to 15 days prior to the scheduled liquidation date as per the liquidation extension.  Accordingly, under the modified procedure a PSC must be transmitted to CBP within 300 days after the date of entry or up to 15 days prior to the scheduled liquidation date, whichever is earlier, except in situations involving an extension of liquidation, in which case a PSC must be transmitted to CBP up to 15 days prior to the scheduled extended liquidation date.

This change was made to increase the amount of time a filer has to submit a PSC in situations involving trade requested extensions of liquidation. Significantly, it may have particular applicability in situations where an importer receives an extension of liquidation in order to preserve its right to a refund in the event that the importer requests an extension of liquidation to accommodate a Section 301 duty exclusion or duty exclusion extension request.

In those instances, if the duty exclusion request or the exclusion extension request is granted, then if liquidation of the entry has also been granted, the importer would have additional time to submit the PSC to Customs and obtain a duty refund. Of course, if the importer misses the time period for submitting a PSC in order to obtain a refund then it is also possible that the refund could still be obtained by filing a protest within 180 days of the date of liquidation.

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Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.