(Article appeared in the 1996 Official Export Guide)
(Article was revised in October 1999)
All Rights Reserved.
I've seen many articles that deal with what you should do in exporting ("the do's in exporting") , but I can't recall seeing any articles that deal with what you shouldn't do in exporting ("the don'ts in exporting"). I don't want to seem like a glass is half empty person, but as an international business lawyer whose practice is limited to international business law, I get many new clients because they've committed a "don't" in exporting and because they need a lawyer to help them sort through the effects of the "don't" they've committed. In sorting through the effects of the "don'ts" that come to my attention, I often think how much time, trouble and expense could have been saved, had the exporter done a little quality control in advance and avoided committing the "don't" altogether.
The purpose of this article is to tell you how you can quality control your export operations. I'll review some of the "don'ts" I've seen and explain why these "don'ts" should be avoided.
Don't assume that the US Export Controls relevant to your product at any one time will remain relevant forever. US Export Controls, which take the form of export prohibitions and various export license requirements, result from Congressional action related to concerns over national security, foreign policy and short supply. Consequently, as Congressional concern over these matters shifts, export controls will likely be subject to change. Violations of US Export Control Laws have many serious repercussions, ranging from denial of export privileges and product seizure through monetary fines to imprisonment.
Don't forget that you as an exporter are responsible for complying with all US Export Control Laws that are relevant to your product. Such responsibility makes you liable for your own actions, as well as for the actions of your agents and customers. Thus, if any US export prohibition or any US export license requirement exists with regard to your product, you are responsible for preventing your agents and customers from re-exporting your products in violation of such prohibition or requirement. The penalties that attach to a violation of US Export Control Law by your agents or customers are the same as the penalties you would incur, had you committed the export control law infraction yourself.
Don't neglect to investigate whether the foreign market into which you are exporting your product has any Import Controls related to the sale of your product. Import Controls breakdown into import prohibitions, import restrictions (quotas) and import licensing requirements. They may be based on country of origin, product type, or product characteristics, such as products produced by convicts and counterfeit products. Imported products which contravene an importing country's import controls are generally refused entry at the importing country's border.
Don't assume that you can sell your products into foreign markets without making any alterations to your products. Many foreign markets attempt to discourage imports by subjecting imported products to various "special requirements". These "special requirements" generally fall into the following categories:
Product specifications, product testing requirements or product certification requirements
Marking requirements dealing with country of origin and the country's unique definition of country of origin
Packaging requirements or
Imported products which do not comply with an importing country's "special requirements" may be refused entry into the importing country, seized at the border, assessed a monetary penalty or subjected to a program of forced compliance.
Don't ignore your responsibilities with regard to the US Export Laws that mandate against certain types of behavior, i.e. the Foreign Corrupt Practices Act and the Anti-boycott Act.
Don't pay, offer to pay or promise to pay any commissions to a foreign official or to relatives or friends of a foreign official for the purpose of closing a deal. This type of activity is contrary to the US government's Foreign Corrupt Practices Act which subjects companies that violate the act to fines and company officials responsible for such violations to prison terms.
Don't knowingly or inadvertently participate in another country's boycott of a country friendly to the US. This type of activity is contrary to the US government's anti-boycott law which subjects companies that violate the act to penalties ranging from denial of export privileges through monetary fines to imprisonment.
Don't neglect to evaluate country risk in addition to buyer risk in selecting the proper payment method for your export transactions. Countries frequently experience political and economic problems so severe that buyers in such countries are precluded from obtaining the necessary foreign currency to pay for their imports. Exporters that ship to such countries without having investigated the country's political and economic situation and without having selected a payment method appropriate in light of such political and economic situation run the risk of not receiving payment for their export sale, regardless of the good intentions evidenced and fiscal responsibility exercised by their foreign buyers.
Don't confuse INCOTERMS with other sales terms formulations, i.e. the Revised American Foreign Trade Definitions, the Uniform Commercial Code or the Warsaw Terms. Although all formulations of sales terms are similar, they are different in that each has its own definition of each individual term. Consequently, it is important to specify which sales terms formulation applies to your transaction. Additionally, it is important to insure that you don't misuse the specific INCOTERM selected and that you understand the costs, responsibilities, rights and obligations that accompany the use of a specific INCOTERM. The misuse of a selected INCOTERM can lead to over or underpayment of costs and to over or under assumption of responsibilities, rights and obligations.
Don't forget to analyze the adequacy of insurance coverage on your export transactions, given the transfer points for title and risk of loss and given the payment method selected. Determine the type and extent of insurance coverage required and assign responsibility for procurement and payment. Exporters that ignore these issues never comprehend the risk they've undertaken until the risk becomes actual and they discover that they are either uninsured or underinsured.
Don't think that your use of a letter of credit is a substitute for a valid, enforceable export sales contract. A letter of credit deals only with payment and the documents required to be presented to obtain payment. It does not deal with many other equally important issues, such as product acceptance, product warranties or dispute resolution procedures. These issues are typically dealt with in an export sales contract. An export sales contract should prescribe and incorporate the selected payment method and deal with any issue deemed significant to the exporter and the importer. Exporters who undertake an export transaction without having entered into an export sales contract are exposed to significant transaction risk over which they are unable to exercise much control.
Don't forget to insure consistency in your export transactions. By reviewing your selection of payment terms and sales terms against the terms of your export sales contract and the instruction letter given to your forwarder, you insure your transactions against problems that result from contradictory, overlapping information. Exporters that fail to perform a consistency check expose themselves to unnecessary errors that quickly and effortlessly unravel even the most soundly structured transaction.
Don't neglect to give a letter of instruction to your freight forwarder and to make sure that your freight forwarder carries errors and omission insurance. Exporters that fail to provide such instructions leave too much to fate and find themselves without recourse when fate works against them and they discover that their forwarder doesn't carry errors and omissions insurance and can't or won't make good on the problem.
Don't randomly assign your product a harmonized code number. Most countries in the world subscribe to the Harmonized Tariff Schedule to classify products for duty purposes. There is, however, often some room to manouver with regard to the applicable harmonized code for a particular product, i.e. there is generally not one absolutely correct product code. Since the choice of a harmonized code impacts the duty rate to be applied to a product and since duty rates vary country by country, it does not make sense to select one harmonized code over another, without also considering the applicable duty rates.
Don't ignore your responsibility to comply with the US Export Laws as they relate to required export documents. Exporters are required to prepare and submit a Shippers Export Declaration (SED) for each export, unless an exemption applies. The SED must list the contents of each shipment, cite the appropriate export license, and identify the final destination, end user and end use. Failure to provide a SED exposes an exporter to civil and or criminal penalties.
Don't make any misrepresentations on your SED. Exporters are responsible for accurate SED's.
Don't under-invoice or over-invoice your products on your SED to help an importing customer avoid tariffs or taxes.
Don't misrepresent place of origin on your SED in order to assist your foreign buyer to gain access to a preferential duty program to which your foreign buyer is not legitimately entitled.
These activities violate US export laws and expose a US exporter to civil and or criminal penalties. In addition, they expose the US exporter to a potential violation of the importing country's tax law under the theory that the exporter aided and abetted the importer in committing tax fraud.
Don't neglect to comply with the record keeping requirements of US Export Law. Exporters must maintain records of all exports for a period of 5 years. Exporters that fail to comply with the record keeping requirements of US Export Law expose themselves to civil and or criminal penalties.
Don't forget to check out the applicability of two US government sponsored cost savings programs available to US exporters, i.e Foreign Sales Corporations (FSC's) and duty drawback.
FSC's offer US exporters the opportunity to reduce federal income taxes on their export
Duty drawback offers US exporters the opportunity to obtain a 99% duty refund on products that they import and subsequently export.
Don't be greedy -- if an export opportunity looks too good to be true, it generally isn't true!