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Optimism for Growth in 2021 is Uneven in the USMCA Region

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Archives, Banking on Global Trade, Foreign Trade Zones, International Trade

Optimism for Growth in 2021 is Uneven in the USMCA Region

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The past year and the ensuing Covid-19 recession has created a time of uncertainty and instability for economies throughout the world, and especially in the USMCA region, according to a recent Payment Practices Barometer survey from trade credit insurer Atradius.

The most telling data gathered in the region concerns business confidence, where survey results were drastically different in Mexico, Canada and the U.S. The majority of survey respondents in Mexico expect to see an improvement in business performance over the coming months, while in Canada, this picture is reversed with only a minority expressing optimism. The U.S. falls somewhere in the middle.

More than half of all sales transacted on credit

Of the total value of all B2B sales in the USMCA region, 53% were made using trade credit last year. This represents growth, as 44% of businesses told us that they increased the use of trade credit in the months following the pandemic.

Temporary fiscal packages in the U.S. and Canada have helped struggling businesses in the short term. As these are withdrawn in the coming months, we are likely to see a rise in insolvencies.

In this environment of heightened risk, it is important that businesses continually monitor the financial health of their customers and note any early warning signs of insolvency. Some of those signs may include slower payments or late payments. However, it should be taken into consideration that the pandemic has presented additional strain on the supply chain that is often out of any one company’s control, leading to slower payments.

Credit management costs rise sharply

Businesses throughout the USMCA region have reported a rise in the cost of managing their accounts receivable in the months following the Covid-19 outbreak. The sharpest rises were reported by businesses that managed credit and collections in-house.

In part, this rise can be attributed to an increase in the percentage of sales made on credit; simply a greater number of credit sales requires more resources to manage them. However, this may also be an indicator of a deteriorating risk environment, as the longer an invoice remains unpaid, the more resources it takes to collect on it.

For businesses that do not use trade credit insurance or an invoice collection service such as factoring, rising payment delays equate to rising costs. Businesses that do outsource credit management to such services enjoy the certainty that their invoice will be paid and that management costs will not escalate.

Businesses favor domestic markets for credit sales

The USMCA region saw many more domestic credit sales than foreign credit sales in the year following the outbreak of the pandemic, with a 60/40 split in favor of domestic customers. This could have been caused by the supply chain challenges that followed the Covid-19 pandemic, leading to concerns over offering credit to foreign customers.

Businesses outside of the USMCA region should approach trade in the region with optimism. While it is clear that the Covid-19 pandemic is not over, the region is rebounding as expected. If there’s one thing that businesses around the world have learned is that offering more flexibility within their supply chains can help tremendously in the face of unexpected events like the Suez Canal blockage, where its effects were compounded by the pandemic’s supply chain disruptions. Companies that diversify their customer base will be better prepared to capitalize on opportunities should their competitors face unexpected disruptions to their supply chain.

Uneven outlooks for growth

On average, most businesses across the region are positive in their outlook and expect to see improvement in the second half of 2021. Upon a closer examination, a country-by-country comparison reveals a vastly different picture. In Mexico, 81% of businesses surveyed anticipate growth, while 36% of businesses in Canada hold the same view. Businesses in the U.S. fall about halfway between these poles. However, it should be taken into consideration that each country in the USMCA all started from very different places before the pandemic, making their perceptions of recovery different.

Businesses in Mexico were experiencing a recession long before the COVID-19 pandemic and received limited financial support from their government over the past year and a half. In contrast, both the U.S. and Canada started from a stronger economic position going into the pandemic and have received substantial financial help from their governments to stay afloat.

Businesses in both Canada and the U.S. may be bracing themselves for the removal of government fiscal support as well, which will have a much greater impact on their business than those in Mexico who are used to the lack of government support and ready for a rebound.

Post-recession growth is predicted for all of the countries in the USMCA region. It will be interesting to see which businesses thrive and grow during this period and whether the optimism and pessimism expressed by the survey respondents comes to pass over the next year.

______________________________________________________________________

Aaron Rutstein is the Vice President – Regional Director, Risk Services – Americas at Atradius

burma
Archives, Global Trade Daily, News

US Government Adds 4 Military-Connected Entities in Burma to Entity List and Sanctions 22 Burmese Individuals

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As part of the U.S. Government’s ongoing response to the military coup in Burma (Myanmar), the Department of Commerce’s Bureau of Industry and Security (“BIS”) added four entities to the Entity List effective July 6, 2021 and the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) added twenty-two individuals to the Specially Designated Nationals & Blocked Persons List (“SDN List”) effective July 2, 2021.

Commerce Secretary Gina M. Raimondo noted that the four entities include a satellite communications services provider to the Burmese military and three entities that have revenue-sharing agreements with Myanmar Economic Holdings Limited (“MEHL”), an entity that generates revenue for the Burmese military and which was previously added to the Entity List. As a result of the additions, licenses are required for exports, reexports, and in-country transfers of all items “subject to the EAR” to the four entities and BIS will employ a presumption of denial license review policy. The entities are:

-King Royal Technologies Co., Ltd.;

-Myanmar Wanbao Mining Copper, Ltd.;

-Myanmar Yang Tse Copper, Ltd.; and

-Wanbao Mining, Ltd.

The twenty-two individuals added to the SDN List under Executive Order 14014 include two members of the State Administrative Council currently participating in governance of Burma and the Ministers of Information; Investment and Foreign Economic Relations; Labor, Immigration, and Population; and Social Welfare, Relief, and Resettlement. Fifteen of the twenty-two added to the SDN List were added because of being either spouses or adult children of persons on the SDN List.

As a result of the SDN designations, all property and interests in property of these persons in the US or controlled by US persons must be blocked and reported to OFAC. US persons are prohibited from sending or receiving any provision of funds, goods, or services to/from these newly designated SDNs. According to OFAC’s “50% Ownership Rule,” these sanctions also extend to any subsidiaries in which these SDNs directly or indirectly hold, either individually or in the aggregate with other SDNs, an ownership interest of 50% or more.

_______________________________________________________________

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

climate change
Archives, Global Trade Daily, International Trade

Climate Change Plans and the Impact on Global Trade

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Changes in our planet’s climate are the most significant threat to almost any business. Climate change directly affects companies’ costs, as eco norms require many firms to look for environmentally friendly materials and processes.

The resilience of companies to new climate changes depends on a risk management process, a ready-made business plan, and a laid-out governance structure. Alas, many companies don’t have access to relevant climate information, so they don’t plan for or mitigate physical risk.

Facilities, supply chains, working networks, customers, and markets are the first targets that suffer from physical climate risk. For example, supply chains “break down” when natural disasters are affected by a rapidly changing climate.

How does climate affect production?

Climate change significantly increases the price of any production, reducing the speed with which supplies can be delivered. The quality of the goods and services produced also suffers.

Also, production and deliveries are entirely “broken” in timing due to minor delays in components and goods. Companies need to best manage the uncertainty associated with possible significant disruptions occurring in supply chains.

Assessing supply chain risks

Many companies are accustomed to assessing their supply chains from factors related to policy, regulatory, market, and technological nuances. Any unforeseen change in any of these areas puts the supply chain at significant risk, threatening companies’ ability to operate.

Weather is similarly considered in short- and medium-term supply chains. This data helps companies search for other suppliers and enter new financial markets. Proactive forecasting activities allow for short-term changes in supply chain decisions. Alas, this activity is considered inefficient, ad hoc, and short-sighted.

Annual adjustments with supply chain investments that lack long-term understandings of weather and climate trends will become highly problematic. This approach should be bypassed these days. Companies better start understanding the medium- and long-term physical risks in the climate environment.

Instead of planning a year, companies would do well to look a couple of years ahead and invest in those sources at the least risk from the climate.

Decarbonizing Supply Chains

While supply chain decarbonization processes are complex, many firms can capitalize on multiple climate issues by implementing such methods.

Companies in sectors that are most user-driven have higher per-chain emissions than direct emissions. By encouraging suppliers to create zero-emission supply chains, companies can increase their climate footprint to ensure that emissions in the sectors where the situation is most problematic are reduced to accelerate steps to combat climate change.

It’s no secret to world leaders that decarbonizing supply chains look very difficult in practice. Even the leading companies have difficulty with the necessary data and setting goals and standards that their suppliers adhere to.

Involving the entire (fragmented) supplier landscape can be an almost impossible task. The situation looks complicated if the emissions are at the beginning of the chain and collective action is needed to eliminate them.

More than half of the world’s greenhouse gas emissions come from food, construction, clothing, consumer goods, electronics, automotive, trucking, and more. Indirectly, the share is often controlled by a few companies. End-consumer spending will not be able to increase spending in supply chains with zero.

Remarkably, about 40% of each of these supply chain emissions can be reduced by taking advantage of cyclicality, efficiency, and renewable energy sources that will have minimal impact on the price of all products. With zero emissions in the supply chain at the end-user, costs would increase to a maximum of 4%.

Supply chain decarbonization problems are solvable with many steps for each company:

-Create a comprehensive baseline emissions plan that will be gradually filled with actual supplier information;

-Setting ambitious with comprehensive emission reduction goals;

-A complete review of product design options;

-Revision of geographic supply strategy;

-Setting ambitious purchasing standards;

-Working together with suppliers to co-finance emission reduction levers;

-Working together with peers to agree on sectoral goals that increase impact with leveling the playing field;

-Leveraging economies of scale by increasing demand to lower the price of green solutions;

-Developing internal governance mechanisms where emission reduction will be a guiding mechanism.

Preparing supply chains for climate change

Supply chain management needs to be directed toward preparing for the unknown to ensure greater competitiveness and relevance in an ever-changing industrial landscape.

Many companies are now implementing solutions that address the industry’s role in mitigating supply chain risks due to climate change.

There are ways to protect supply chains from physical climate risk. Since most of the population lives near the coast, there is a risk that sea levels will rise, there will be more storms, flooding, and hurricanes, which only exacerbates the growing dangers.

Buying/building a property in a coastal area that lacks coastal flood risk mitigation infrastructure will not be the best idea to implement.

The electric commerce industry uses more materials in packaging that are suitable for recycling or biodegradability – an encouraging sign that consumers are concerned about climate change.

As the dialogue on climate change occurs among consumers and businesses, it is becoming increasingly clear that addressing climate change is already necessary.

Smart contracts and Global Trade: future effect on climate change plans

In recent times, bitcoin and the rest of the blockchain network have triggered the sustainable development of many industries in Global Trade. Smart contracts that run on blockchain will provide the world with just the right new ways to combat climate change and its effects.

However, many companies have missed the potential of smart contracts that are fully trackable, transparent, and irreversible in self-executing contracts that only work on blockchain to combat climate change.

It is no secret that blockchain companies are in no way affected by what happens in the environment. For example, day trading altcoins consistently break records among enticed traders. Smart contracts can help create globally accessible and automated reward systems that directly reward companies for engaging in sustainable practices (regenerative agriculture, carbon offsets, and so on).

The fight against climate change needs a more considerable change in habitual global consumption, and smart contracts could be just the right tool to encourage participation in areas of global “green” direction.

tariffs
Archives, Global Trade Daily, International Trade

How Will the Biden Administration Enforce Tariffs?

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It was no secret that the Trump administration had an aggressive trade policy with higher tariffs on China, tariffs on steel and aluminum products, new trade agreements, and pulling out of others. Customs duty revenue increased drastically under the Trump administration from $34.6 billion in 2017 to $74.4 billion in 2020. This major increase in revenue for the federal government has left many asking what the priorities will be for the Biden administration when it comes to U.S. trade deals.

Most experts do not expect any drastic changes in the early months of the Biden administration. Biden himself has stated that he will not make any immediate moves on tariffs with China. Some think he will stay tough on trade with China but may ease tariffs with allied countries. It is also presumed that he will make certain exceptions to the Section 232 tariffs on steel and aluminum for imports from certain allies.

These duties and tariffs have not been popular among many importers and foreign exporters. Some of these companies have resorted to fraud to avoid paying what they owe. As a result, the federal government has renewed a commitment to take enforcement action against companies who evade duties owed on imported goods.

Customs duties are implemented in order to level the playing field for U.S. manufacturers. In addition, the money the government collects from these duties goes directly to paying for programs such as veterans’ benefits, education, and infrastructure. When companies scheme to avoid paying the proper duties, they obtain an unfair advantage in the U.S. markets and cheat the federal government and taxpayers. Many companies have found schemes to avoid duties that are easy to pull off and give them a significant advantage over competing manufacturers and importers.

U.S. Customs and Border Protection is responsible for enforcing trade laws, including import compliance and revenue collection. However, CBP has limited resources and can’t possibly check every shipment for compliance. With millions of containers entering the U.S. each day, CBP tries to best allocate its resources to detect the imports at the highest risk of violation, making it easy for many fraudulent schemes to slip through the cracks. Some companies see the low risk of detection as an opportunity to save money by lying on import declarations to avoid paying higher duties.

Importers must declare the value of goods, country of origin, classification of goods, and amount of duties owed. Essentially, the process works on an honor system in which the importer is responsible for making sure the information declared is accurate. However, foreign exporters and U.S. importers have found ways to cheat the system by not accurately reporting information on their customs import declarations. Below are some of the common schemes used to avoid customs duties:

1, Undervaluing goods – Import duties are based on the value of goods as declared by the importer. By undervaluing the price of goods on declarations, importers wrongfully avoid paying the appropriate duties.

2. Misrepresenting country of origin – Shipments imported into the U.S. must be marked with the country of origin. Tariff rates vary by country of origin and certain countries are subject to anti-dumping tariffs and countervailing duties. By disguising the country of origin, importers avoid paying certain tariffs and duties. Most commonly, transshipping is a scheme used to misrepresent the country of origin. Transshipping involves shipping goods to another destination prior to reaching the final point of entry and relabeling to conceal the true country of origin.

3. Misclassifying goods – Import duties are also determined by the classification or category of goods being imported. Importers avoid paying the full amount of customs duties by falsely declaring goods under a different category that is subject to a lower duty.

Since these acts are so easily committed and concealed, customs fraud is often difficult to detect. The federal government relies heavily on whistleblowers to come forward and aid in the undercovering and prosecuting of customs violations. Insiders and competitors are typically in the best position to uncover and report customs fraud.

The False Claims Act (FCA) authorizes individuals to bring a lawsuit on behalf of the federal government and share in the monetary recovery from that lawsuit. Whistleblowers who have evidence of customs fraud may bring a lawsuit under the FCA.

Many people are concerned about reporting their employers or others for committing fraud because they fear retaliation. The FCA ensures whistleblowers are protected from retaliation, such as being fired, demoted, or denied benefits. A whistleblower attorney can help ensure these protections.

Maintaining the integrity of U.S. trade policies is critical to the nation’s economic stability and security. The revenue collected from customs duties belongs to the American people. The federal government, taxpayers, and other U.S. businesses get cheated when dishonest companies scam their way out of paying tariffs and duties. Rooting out these fraudsters is made easier when brave and honest individuals come forward to do what’s right.

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About Andrew Miller

Andrew Miller is a shareholder at Baron & Budd where he represents whistleblowers in qui tam cases. To learn more about whistleblower protections, go to www.becomeawhistleblower.com.

sorghum
Archives, Global Trade Daily, News

Global Sorghum Production is Booming Due to Strong Demand in China

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IndexBox has just published a new report: ‘World – Sorghum – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

In 2021, global sorghum production will grow by 5%, boosted by growing supplies to China. Sorghum imports to the country are expected to rise by 28% compared to the previous year, driven by the increasing demand for animal feed. Prices will continue to rise in line with other cereals, following accelerated food inflation. The advantage of sorghum as a more drought-tolerant crop will allow this product to compete seriously with corn and will further stimulate market expansion.

Key Trends and Insights

In 2021, global sorghum production is expected to increase by 5% y-o-y to 61.2M tonnes, thanks to the expansion of cropland and expected favorable weather conditions. The largest crop gains are expected in Argentina (+30% y-o-y), where the crop area increased by 27% y-o-y, as well as in the U.S. (+14% y-o-y) and Mexico (+17%), which expanded sorghum fields by +14% y-o-yand 4% respectively.

Global sorghum exports are expected to grow by 23% y-o-y, primarily driven by China’s continued massive grain purchases for animal feed. According to USDA forecasts, imports to China will increase by 28% y-o-y by the end of 2021 due to the increased demand for animal feed.

In the context of strong demand, prices for sorghum are expected to rise alongside other rising grains. Global food inflation is accelerating due to rising demand for food and animal feed, as well as the increased ethanol and renewable fuel production. In the U.S., a leading producer country that supplies 74% of sorghum to the global export market, the season-average farm price per product increased from $103 per tonne in September 2020 to $155 per tonne in April 2021.

According to forecasts by IndexBox, the sorghum market will continue to grow during the next decade, primarily due to the growing demand for livestock feed worldwide. An increase in demand for gluten-free products in a growing population may be an additional stimulus for market development since sorghum is the main component in such products. Sorghum can compete with corn as an alternative and more drought-resistant crop, which in the context of global climate change is also becoming a stimulus for the development of the sorghum market.

Global Sorghum Production

Global sorghum production stood at 58M tonnes in 2020, therefore, remained relatively stable against 2019. In value terms, sorghum production skyrocketed to $30.5B in 2020 estimated in export prices.

The countries with the highest volumes of sorghum production in 2020 were the U.S. (8.4M tonnes), Nigeria (6.5M tonnes) and Ethiopia (5.6M tonnes), together comprising 35% of global production. From 2012 to 2020, the biggest increases were in Ethiopia, while sorghum production for the other global leaders experienced more modest paces of growth.

Global Sorghum Imports

In 2020, purchases abroad of sorghum increased by 22% to 6.6M tonnes, rising for the second consecutive year after six years of decline. In value terms, sorghum imports skyrocketed to $1.6B (IndexBox estimates) in 2020.

China dominates sorghum import structure, reaching 4.8M tonnes, which was approx. 73% of total imports in 2020. It was distantly followed by Japan (382K tonnes), making up a 5.8% share of total imports. Mexico (232K tonnes) followed a long way behind the leaders.

In value terms, China ($1.2B) constitutes the largest market for imported sorghum worldwide, comprising 71% of global imports. The second position in the ranking was occupied by Japan ($85M), with a 5.2% share of global imports. It was followed by Mexico, with a 4.4% share.

In 2020, the average sorghum import price amounted to $249 per tonne, approximately mirroring the previous year. Prices varied noticeably by the country of destination; the country with the highest price was Mexico ($313 per tonne), while Spain ($205 per tonne) was amongst the lowest.

Source: IndexBox Platform

israel
Archives, Global Trade Daily, Imports/Exports

Israel: Transport Costs and Customs Duty – It’s On You

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In the past year, sea freight prices have risen sharply, an increase that has not been remembered for many years.

Thus, according to various publications, about a year ago, renting a container for sea transportation from China to Israel, costs about $2,000, and today, the same transportation costs about $15,000.

According to publications, the reasons for this significant increase are due to the COVID-19 crisis, global shortages of ships, declining competition in the field, and containers of contagious demand. In addition, there is a “Made of Israel” reason, due to the congestion at ports in Israel, there are ships that prefer not to dock in Israel, and the number of ships that can dock in Israel is even smaller[1].

Apart from the increase in transportation costs, which is expected to lead to a wave of price increases in the sale of products in Israel, there is another parameter that is slightly pushed to the margins. That is the increase in the value of goods for customs purposes, due to rising transportation prices. This increase in prices leads to further collection of customs duties, purchase tax, and import taxes, due to the increase in value.

As I will present in this review, in my opinion – Israeli law already allows the state to facilitate importers at this point – and similar other facilitations have been made in the past. All that is required is the flexibility and activation of goodwill on the part of the state when interpreting the law.

How is the value of the goods determined for customs and import taxes in the State of Israel?

Section 132 (a) of the Israeli Customs Ordinance [new version], stipulates that the value of the transaction is: “the price paid or to be paid for the goods, when sold for export to Israel … plus the expenses and amounts specified in section 133 …”.

Section 133 of the Ordinance, which refers to “assists” to the transaction price for customs purposes, enumerates a large number of examples, one of which, relevant to its case, relates to transportation costs, and subscribes to section 133 (a)(5)(a) of the Ordinance, which relates to:

“The following costs involved in bringing the goods to the port of import or place of import – (a) The cost of transporting the goods to the port of import or place of import, excluding such costs incurred due to special circumstances beyond the control of the importer and the Director determining not to include them in the transaction; This includes types of goods, types of transportation and other services”.

And subsection 133 (a)(5)(c) – “The cost of insurance“.

That is, if we try to compare this to the terms of sale of Incoterms, it seems that the State of Israel has determined that the customs duty will be levied on the value of CIF (cost, insurance & freight), i.e. the value of the goods including transport and insurance.

How is the value determined for customs, worldwide?

It should be noted that there is no uniform rule in this matter.

Most countries in the world are members of the World Trade Organization (WTO) and the World Customs Organization (WCO), and by virtue of their membership, have signed an international agreement on the valuation of goods for customs purposes[2].

The agreement sets out a number of rules regarding the way goods are valued for customs purposes, but it does not stipulate any binding rules regarding transportation.

There are countries where the value on which the customs duty is imposed is FOB (free on board), that is, without the sea transport, and there are countries where the value on which the customs duty is imposed is CIF, including the transport.

For comparison, in the United States, a different method is used than in the State of Israel, and in the United States, customs duties are imposed on the value without sea transportation. Thus, the corresponding section in American law to section 132 of the Customs Ordinance in Israel, which deals with the “transaction price”, states in US law that[3]:

“The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States ..”

As for transportation costs, American law goes on to state that the value to customs will not include them:

“(3) The transaction value of imported merchandise does not include any of the following if identified separately from the price actually paid or payable and from any cost or other item referred to in paragraph (1): (A) Any reasonable cost or charge that is incurred for—

 (ii) the transportation of the merchandise after such importation. “

Hence, it seems that in the US, an increase in freight rates does not increase the value of the goods for customs purposes.

In Israel, on the other hand, any increase in freight also embodies the increase in value to customs, and, accordingly, increases the customs burden imposed on the importer.

That is, if we assume for the purpose of the example, that a spare part for a car is subject to a purchase tax of about 20% of the value to customs, then any increase of $1,000 in transportation prices embodies an additional purchase tax of 200$ by the State of Israel. Since this is an indirect tax, it will, by its very nature, ultimately be passed on to the entire public, in the form of rising prices.

 How has the State of Israel dealt with such similar situations in the past?

Price increases in the field of transportation can be caused by a wide variety of reasons. Among other things, wars, closures, sanctions, strikes, and a host of other reasons may increase transportation prices.

In this regard, section 133 (a)(5) of the Customs Ordinance stipulates that in exceptional situations, the director of customs may not include in the value of customs certain transportation costs. The law calls them:

“such costs incurred due to special circumstances over which the importer has no control and the manager has determined that they should not be included in the value of the transaction”

These are, in fact, transportation costs that are a kind of “force majeure” that the importer did not have the ability to prevent.

It should be noted that the Customs Authority exercised this authority, and sometimes exempted transport costs, due to certain circumstances.

On April 24th, 2006, Customs ruled that transportation costs due to the Second Lebanon War would not be included in the customs entry:

“In accordance with my authority under section 133 (a) (5) (a) of the Customs Ordinance, I stipulate that war levies and additional transportation costs incurred by importers due to the security incidents in the north of the country, should not be included in the value of the transaction for the purpose of calculating the import taxes. It is clarified that these are additional transportation, unloading and loading costs listed in the cargo account that were caused due to the security incidents.”

On June 6th, 2008, the Customs ruled that the container demurrage fee beyond the agreed, will not be included in the customs entry:

“..The demurrage fee in the importing country, which is charged for the use of the container beyond the agreed period between the ship’s agent and the importer, will not be included for import taxes.”

On September 7th, 2008, Customs exempted certain transportation costs in respect of strikes from being included in the customs entry, stating:

“In accordance with my authority under section 133 (a) (5) (a) of the Customs Ordinance, I provide that additional transportation costs incurred by importers due to sanctions in the ports of Israel, will not be considered for the transaction value for the purpose of calculating import taxes. It is clarified that these are additional transportation, unloading and loading costs listed in the cargo account, which were caused due to the sanctions and the importer has no control over them. The importer must prove the existence of such additional costs.”

Can the state of Israel also help in the current situation?

According to the publications, the Israeli Chamber of Commerce recently appealed to the director of customs to exercise his authority, and set a type of ceiling on which customs would be imposed, even if in practice transport costs are currently more expensive, and this application was denied by customs[4].

Customs stated that this was a request to reduce the actual cost of transport – something that is not possible, noting that when it came to a request to reduce additions to the value of transport, such as vessels that declared “end of journey” in Cyprus and refrained from entering Israel due to the COVID-19 crisis. Customs further stated that it has not been proven that the increase in transportation prices is due to the COVID-19 or an unforeseen situation, therefore no reduction can be made under the exception in section 133 (a)(5) of the Customs Ordinance, and even claimed that if the State of Israel accepts the claim, this will be a breach of the International Agreement on the Valuation of Goods

**So the question is basically: can in the present case, transportation costs raised by tens or hundreds of percent, due to global COVID-19 crisis, shortage of ships, heavy loads in Israeli ports, shortage of containers, constitute “special circumstances beyond the importer’s control”?

** With all due respect, in my opinion, this point deserves further thought and discussion**

In my opinion, if the Second Lebanon War is an unforeseen event over which the importer has no control, as well as sanctions or strikes, then the interpretation of the law could be a little more flexible, and determined that a global COVID-19 crisis, shortage of ships, containers, To be considered as special circumstances over which the importer has no control.

In this regard, I would like to bring to the readers’ attention a ruling given in the Israeli court on another issue, but it was stated in it, in relation to the Corona crisis, that it is certainly an unexpected event[5]:

“It is hard to believe that the reasonable person could or should have expected the full far-reaching consequences of the Corona epidemic, including on the economy and commercial life, in Israel and around the world. We are dealing with an unparalleled epidemic which has no precedent in the last hundred years (at least since the Spanish Flu epidemic which caused many deaths around the world between the years 1918 – 1920)”.

** These right things, can and should be applied, in my opinion – also in the field of international trade and customs valuation.

Does anyone in the Customs Authority believe that the simple, lone importer, even if it is a wealthy business company, has any control over the changes in world freight rates? Could any importer have anticipated the corona crisis?

**In the end, if my opinion will be adopted, the legal solution is to relieve the importers of the customs duty imposed on the transport that has become more expensive – it already exists. The “invention of the wheel” is not required here.

Now only goodwill is required, and little flexibility in interpreting the law.

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[1] https://www.ynet.co.il/economy/article/rJrNcwAcd

[2] Customs Valuation Agreement (Implementation of Article VII of the GATT) https://www.wto.org/english/res_e/publications_e/ai17_e/cusval_e.htm

[3] Tariff act of 1930, 19. U.S.C. §1401 a(b)(1),(3)

[4] https://www.chamber.org.il/foreigntrade/1109/1111/116962/

[5] Hdlt (Tel-Aviv) 26076-02-20 Adv. Israel Bachar vs. comfortability systems (2007) Ltd. (July 8th, 2020);

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.

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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

regulations
Archives, Global Trade Daily, International Trade

UNPACKING US-CHINA SANCTIONS AND EXPORT CONTROL REGULATIONS: OUTLOOK FOR 2021

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This is the fifth 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 and intends to be explanatory in nature.

During a seemingly interminable and challenging transition period, the Trump administration has layered on an array of additional China sanctions. What are the impacts of these actions? What approach is the Biden administration likely to adopt and what changes can we expect? These are the topics that are addressed in this article, the last in this five-part series.

China-related Sanctions since November 6, 2020

Specifically, since November 6, 2020, the Trump administration has:

1. issued an Executive Order banning US persons from trading in the publicly traded securities of more than 35 “Communist Chinese Military Companies;”

2. named no less than 60 Chinese entities to the US Commerce Department Entity List, which establishes a license requirement for nearly all exports to such firms and general presumption of denial for such exports;

3. designated 58 entities as China “Military End Users” under the Export Administration Regulations (EAR), which also results in restrictions on a wide range of high-tech exports; and

4. removed Hong Kong as a separate destination from China under the Export Administration Regulations, which removes its preferential treatment for export licensing.

Moreover, during the same period, President Trump signed an executive order blocking transactions with companies that “develop or control” certain Chinese connected mobile and desktop applications and related software – namely Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office. At the same time, earlier executive orders banning transactions with the owners of TikTok and WeChat were halted by federal courts and the effective date of these orders has been suspended pending the outcome of ongoing litigation.

In particular, compliance with the recent securities trading ban has proven challenging for the financial community, forcing banks and investment companies to divest or restructure hundreds of products containing publicly traded securities of the named “Communist Chinese Military Companies” and other companies whose names “closely match” the names of the listed companies. The term “securities” is broadly defined under US law, and OFAC has interpreted the ban to apply to any security that “designed to provide investment exposure” to the securities of a named entity. Thus, the ban includes, for example, a mutual fund which includes in its portfolio one or more of the subject securities or an insurance policy that has a mutual fund option for insureds holding the securities of such named entities. The ban also applies to securities held on a US or foreign exchange if the investor is a US person. The NYSE has announced the delisting of these companies, and both the NASDAQ and MCSI have announced they will remove the listed companies from their indices.

In short, while other lame duck presidents have taken actions that make things easier for their successors, the Trump administration has taken the opposite tack in an apparent effort to lock in a hard-line China policy. It will be more challenging for the Biden administration to easily unwind. In response, China has adopted its own regulations prohibiting Chinese companies and individuals from complying with “punitive measures mandated by foreign governments.”

Outlook under President Biden 

Whether and to what degree the Biden administration will implement, unwind or limit the scope or applicability of these and other pre-existing Trump administration restrictions against China remain to be seen. As a threshold matter, we expect an initial waiting period as the Biden administration gets its new team in place, evaluates its overall strategic approach toward China, and considers these particular restrictive measures in the context of its overall strategy.

Generally, based on public statements to date, we believe that the Biden administration will in all probability share the basic view that China is a strategic competitor and potential adversary. However, how to deal with China, a major power whose cooperation the United States needs on some important issues, is another matter – there are a range of possible approaches. In this regard, at this early juncture, we believe that US policy toward China under President Biden is likely to reflect a number of elements:

-selective disengagement with China in certain areas viewed as more central to national security and cooperative in other areas where national security risks are considered less significant;

-more cooperation with allies to shape shared approaches to addressing areas of concern with respect to China;

-stronger views on human rights violations by China; and

-more direct engagement with China on areas of concern with a view toward seeking sensible solutions.

It is within this overall policy framework that the Biden administration will evaluate and approach the new and existing China restrictions imposed by the Trump administration. Certainly, the Biden administration has the legal authority to undo or roll back nearly all of the Trump Administration’s actions.

At the same time, the new administration undoubtedly will recognize that any major actions to roll back China sanctions will be controversial and raise questions among policy hard-liners who believe stringent dual-use export control sanctions are strongly justified in light of China’s “military-civil fusion” strategy (i.e., whereby any dual-use exports to commercial firms could wind up in China’s military sector).  Indeed, even small actions to curtail or limit China sanctions (e.g., removing companies from lists, creating new licenses or issuing new interpretations) will send political signals both at home and abroad. Meanwhile, the business community will monitor and interpret such measures in Talmudic fashion to divine if there is a new wind blowing in this area.

For these and other reasons, we do not foresee an imminent reversal of most of the Trump administration’s actions. Rather, we expect a more balanced and incremental approach than we have seen in the last four years, with more careful sculpting of existing sanctions to ameliorate the effects (with FAQs, licenses and the like) while taking a strong line against China in other areas in coordination with close allies.

Previous installments can be found here.

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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.

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.

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Archives, Global Logistics, Global Shippers 101, Global Trade Daily

2021 Logistics & Transportation Forecast: Here’s What to Prepare for in the New Year

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The US-China trade war, COVID-19, regulations and compliance, economic disruptions, and more all contributed to a hectic year for players in the global logistics and transportation arenas. It’s safe to say that 2021 will inevitably require a new level of innovation and predictions compared to how operations used to be. Sophisticated forecasting and agility take on a new meaning for proactive measures to prove successful in the new normal. With the hope of 2021 on the horizon, Deepak Chhugani, founder and CEO of Nuvocargo, the first digital freight forwarder and customs broker for US/Mexico trade, lists what he considers to be some of the most significant events to prepare for in 2021 and how shippers, manufacturers, and other industry players can prepare.

-Mexico is now the USA’s #1 trade partner, according to the US Census Bureau’s 2019 report. The China-US trade war, as well as the COVID-19 pandemic, are driving more US companies to establish new supply chains and we anticipate explosive growth as Mexico becomes the new China. Companies are nearshoring and moving their US supply chains closer to home in favor of Latin America and more specifically Mexico. The automakers especially should continue to see a big boom and reliance on Mexico as it favors homegrown manufacturing. The auto industry will continue to see a shift, in particular the Bajio region of Mexico, which is flush with trucking capacity.

-Digitization, software, and giving shippers and carriers efficient tech tools are critical as technology continues to disrupt this industry. COVID-19 has forced the traditional and analog logistics industry to adopt technology as its primary way of doing business. Everyone is working from home, switching in-person and paper processes with digital transactions and signatures. Digital freight forwarding technology can help businesses ease this transition from offline to online and empower them with tools to smoothly transition towards more digital and modern ways of managing their cargo and supply chains.

-Changes to the global logistics industry (trucking, maritime, and others) that inherently impact the cross-border world is mainly the result of the United States-Mexico-Canada Agreement (USMCA) and tariff schedules. The expectation was that the USMCA would increase annual US exports to Canada and Mexico significantly.  As exports increase, that results in more cross-border truckloads between the US and Mexico which will lead to more capacity crunches as several trucking players have exited the marketplace in recent years and volumes will only increase. This should also increase reliance on cross-docking shipments to leverage trucking capacity on both sides of the US/Mexico borders.

-Politics will also play a role in 2021 as we can anticipate a Biden administration will bring more stability and predictability to trade relationships, especially after the recent signing of the new North American Free Trade Agreement USMCA. An expected increase in US government spending and a policy refocus on middle and lower classes could also prove beneficial to Mexico’s production capabilities, as additional consumption incentives are created. Finally, with the tight grip on China not likely to loosen in the near future, both countries (US/Mexico) could benefit from embracing the shift of global supply chains to bring more manufacturing to North America.

-Transportation of COVID-19 vaccinations will create more demand and we’ll see an increase in shipping, especially refrigerated cargoes and cold-chain solutions. The U.S. Department of Transportation just announced that “all of its necessary regulatory measures have been taken for the safe, rapid transportation of the coronavirus disease (COVID-19) vaccine by land and air.” As a result, there will be additional safeguards and support in place for the trucking industry. Also, the importance of freight forwarders is likely to increase as the complexity of vaccine distribution reaches never-before-seen levels. Freight forwarders’ role as the “connective tissue” of logistics will be key and will take the pressure of managing the logistics of pharmaceutical companies. On the flip side, prioritizing vaccines means that some non-essential cargo will get bumped, increasing rates and affecting businesses that are not properly prepared for this unprecedented time.

-COVID-19 and border restrictions continue to impact customer’s exporting needs as they move their freight into the US. Since most of the available equipment is retained at the border and looking to move southbound from Laredo, the export/import ratio of 8:1 continues to impact the overall capacity into specific areas such as Guadalajara, Bajio, and Mexico City which creates challenges. Companies will have to be nimble and diligent as they navigate and comply with their customer’s requirements.

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.

________________________________________________________________________

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.

___________________________________________________________________________

[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.