Export Montana

Shippers Export Declaration

July 24, 2000

MEMO: Cover Story

New rules for exports
By David Biederman

You're a shipper exporting machine parts from Peoria to Pakistan. Your buyer hires a forwarder in the United States to pick up the goods from you and arrange their shipment overseas. It's simple - when you turn the goods over to the forwarder, your work is done. Right?

Wrong. Now, if you're the party in the U.S. that is making the money from the deal, you have new responsibilities. You have to supply information about the shipment to the forwarder so it can fill out the shipper's export declaration, and you can't avoid some responsibility complying with export control laws. However, according to government officials, the new rules protect you from unknowingly violating export control laws.

On July 10, after more than two years in development, final rules were issued to clarify the responsibilities of exporters and forwarders in completing the SED and complying with export rules. The rules take effect immediately, though exporters, forwarders and foreign buyers have a 90-day grace period - until Oct. 10 - before the rules will be enforced by the Bureau of Export Administration and the Census Bureau.

How will the new rules affect parties in international transactions? The important thing to remember is that there are two sets of rules: Census rules specifying who must supply information for SEDs, and BXA rules on who is responsible for obtaining an export license for "routed" transactions, in which a foreign buyer appoints its own U.S. forwarder to arrange transportation out of the United States.

The agencies have different reasons for wanting more accurate information on shipper's export declarations. Census says inaccurate data have led to artificially low export statistics. The BXA wants to make sure that it can control exports of restricted goods, such as those that could be made into weapons.

Both sets of regulations focus on which party is considered the "U.S. principal party in interest," a new term that has replaced "exporter" in box 1A on the SED. The principal party of interest is the party that receives the primary monetary benefit from the export transaction, such as the manufacturer or distributor. That party, which in the past was often uninvolved in routed transactions, now has responsibilities both for supplying SED data and for export licensing.

The principal party in interest is generally the seller but it can also be the "order party" - the party that arranges for the sale or export of merchandise to a foreign buyer. The foreign buyer or the foreign buyer's forwarder can be the order party, and thus the principal party in interest, as long as that party is in the U.S. when the SED is signed and filed.

All parties to international transactions - sellers, buyers and forwarders - will be affected by the change from "exporter" to "U.S. principal party in interest" on the SED.

EX-WORKS SALES. Amanda DeBusk, assistant secretary for export enforcement with the BXA, said the primary reason for the change from "exporter" to principal party in interest on the SED was to take into account transactions conducted under ex-works, a type of routed transaction under which a foreign buyer has responsibility for shipping and export clearance.

Some U.S. exporters complained about being considered a primary participant in the export transaction - with all the inherent liability - when it was the foreign buyer's forwarder who was responsible for clearing and shipping the goods. How could the exporter be sure that the forwarders were not diverting the goods to prohibited end users or were providing accurate data for which the exporter could be held liable?

The new rules detail the roles and responsibilities of all parties when it comes to completing the SED under those and other circumstances. A new subset of export transactions, routed export transactions, has been created for situations in which a foreign buyer authorizes a freight forwarder to facilitate the export of items from the U.S. and to prepare and file the SED.

Under the new rules, in routed export transactions, the U.S. principal party in interest must provide the buyer's forwarder with 10 specific data elements about the goods being exported, such as the export control classification number (ECCN), the exporter's federal employee identification number (EIN) and any information that could affect the export licensing designation.

That requirement add-resses forwarder's concerns that exporters sometimes have withheld data that is crucial for completing the SED. Forwarders, in turn, are responsible for 16 data elements on the SED and must verify that the information provided by the principal party of interest was accurately recorded on the SED.

The BXA's DeBusk said the latter requirement addresses exporter's concerns that forwarders in some cases were recording inaccurate data on SEDs.

To prepare and file the SED in a routed export transaction, the forwarder must receive power of attorney or written authorization from the foreign buyer. In such cases the forwarder can be considered the exporter for compliance purposes but can be listed as the principal party in interest on the SED only if he or she is also the order party.

In instances where the foreign buyer assumes responsibility for export clearance, such as ex-works transactions and/or routed export transactions, the buyer must notify the principal party in interest in writing. Under the new rules, foreign buyers can ass-ume responsibility for export transactions through a formal contract or e-mail message, as long as their intentions are clear. DeBusk said the BXA website will offer examples of acceptable language.

"The reason we require that from an enforcement angle is that we need to be sure that the buck stops somewhere," said DeBusk, "and that somewhere in the transaction the parties think about whether a license is needed. We decided not to impose regulatory language but to provide samples of language that will work."

AUTHORIZATION. In situations other than routed export transactions, if the principal party in interest authorizes its own forwarder to prepare and file the SED, the principal must provide the forwarder with power of attorney or written authorization, and must provide the information necessary to complete the SED. The forwarder in turn must keep records of the in-formation provided and must supply the principal party in interest with a copy of the completed SED upon re-quest. Primary responsibility for compliance rests squarely with the principal party in interest except in routed export transactions, where the forwarder or other buyer's agent is responsible. But if the transaction is found to violate export regulations and a BXA investigation ensues, all parties will be questioned and will be responsible for the truth, accuracy and completeness of the information they provided for the SED.

"From an enforcement perspective we will approach cases as we always do," said DeBusk. "We look at every step of a transaction and why and where it went astray."

The new rules are more accurately described as a clarification instead of a new regulatory scheme, said Lorie Whitaker, a former attorney with the BXA's Office of the Chief Counsel who is now in the private sector.

ELIMINATING GRAY AREAS. Whitaker is a member of the BXA Exporter of Record Working Group, which spent over two years drafting the changes. She said that both the BXA and Census thought the term "exporter" was too ambiguous to be used in connection with the SED. She said that "U.S. principal party in interest" clearly identifies the party who receives the primary monetary benefit from the export transaction.

From the BXA's perspective, the old system had too many gray areas in terms of export enforcement. For Census, which relies on the SED for accurate trade data, as many as half of all SEDs were inaccurate or incomplete.

"The regulations were so confusing for people that both agencies recognized that they had to clarify the responsibility of parties, especially in routed export transactions, where the foreign buyer has hired a forwarding agent to move goods out of the country," Whitaker said.

FORWARDERS LIKE CHANGES. Bill Maron, recently retired vice president of A.N. Deringer Inc. and vice chairman of the National Customs Brokers and Forwarders Association of America committee that studied the issue, said forwarders welcome the clarification.

The new rules don't change the fundamental business relationship between forwarders and exporters, he said, and in fact promote communication between all parties to international transactions. That was needed, Maron said, because some companies refused to share export data, making it extremely difficult for forwarders to complete the SED.

"We used to have to pull teeth to get export data from certain companies, which had strict policies against giving out any information at all except to their in-house forwarders," he said. "Now they are required by law to share it in routed export transactions."

"The rules promote communication and make it clear who is responsible for what," Whitaker said, "while still allowing people to structure their transactions the way they want."