Revisions to INCOTERMS

MANAGING IMPORTS & EXPORTS

SEPTEMBER 2010 www.compliancemaven.com

ISSUE 01-18 WWW.COMPLIANCEMAVEN.COM SEPTEMBER 2010

ALSO IN THIS ISSUE....

CBP Request for Information Compliance Management...................................................................2Revisions to INCOTERMS continued.......................3Ask The Experts.............................................................4Webinar Schedule..........................................................5Down Payments: Solving a Huge Impedimentto Trade............................................................................6Website Feature of the Month.....................................7Securing the Air Cargo Supply Chain and Expediting the Flow of Commerce: A Collaborative Approach.................................8, 9, 10Import-Export Managers’ Calendar..........................11Upcoming Educational Seminars..............................11

Revisions to INCOTERMS

By: Joe Grignoli

The International Chamber of Commerce (ICC) introduced the first version of Incoterms, short for “International Commercial Terms” in 1936. Today, there are 13 Incoterms currently in use. Incoterms are revised every ten years in order to reflect inter-national trade developments. Incoterms 2010 will be announced in September 2010 and will go into effect in January 2011.

Incoterms rules explain standard terms that are used in contracts for the sale of goods. They are es-sential tools in international trade that help traders avoid misunderstandings by clarifying the costs, risks, and responsibilities of both the buyers and sellers. Because the rules are developed by experts and practitioners brought together by ICC, they are globally accepted and have become the standard in the setting of international business rules.

The ICC has announced the launch of new rule changes to Incoterms in 2010 and they will intro-duce these new revisions and definitions during their conference being held in Paris from Septem-ber 27-29. The 2010 terms will officially be voted on September 17. The implementation of the new rules are scheduled to go into effect on January 1, 2011.

These revisions, ICC’s first since 2000, will aim to adapt changes that have occurred in global trade over the past ten years. According to the ICC web-site, the reason for the changes include, “the impor-

tance of cargo security, the resulting new obligation on traders, developments in container transport and the 2004 revisions of the United States Uniform Com-mercial Code , which resulted in a deletion of the former US shipment and delivery terms.”

The ICC recently published the new listing of terms, which hints at some of the significant changes ahead in the new publication.

CONTINUED ON PAGE 3



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CBP Request for Information Compliance Management

By: Rennie Alston CBP is actively continuing their focus on post entry reviews as demonstrated in the current issuances of CF28 Request for Information inquiries. The entry declaration process affords importers the opportu-nity to declare full and complete information at the time of entry. In the instances in which CBP deter-mines that there is additional information necessary to satisfy their liquidation parameters , CBP will issue a CF28 for the entry and itemize their request for information to compliment the original declara-tion information.

It is very important as a compliance management practice that importers monitor the information that is returned to CBP as a response to the CF28 inquiry. It is a common practice for brokers to assist import-ers with a response for the request. This common practice can easily result in a non-compliant sub-mission of erroneous information with the appear-ance of a resolution submission. Many details in the content of the request go much further than the information found on the commercial invoice. In many cases , access to the import purchase order, sales commission agreement, contract of sale, proof of payment and tier two supplier affirmation is nec-essary to adequately provide a response to CBP. This information is not normally available to the customs brokerage provider and must be obtained by a dedi-cated effort of the import compliance designee.

A company’s ability to receive CBP request for infor-mation, process the internal research for information and respond timely is a legal responsibility. Many importers have adopted world class compliance practices including a time process log matrix that monitors the receipt, internal review, draft response and final submission for timeliness and accuracy of data. Time sensitive request for information must meet time parameters and comprehensive content. Incomplete responses may lead to CBP Notice of Action and increased duties, fines and penalties. The appearance of non-compliance is often represented

by vague responses and incomplete descriptions of financial and accounting practices of an international trade transaction.

World class compliance standards include written standard operating procedures on effective CF28 management process. It is a compliant practice to amend your importing process to ensure that a com-pliant amendment to the import process is imple-mented and maintained, if an unforeseen compliance issue arises from the receipt of a CF28 Request for Information and subsequent CF29 Notice of Action. There exist many CF28 requests that are issued in which the importer was correct in their entry declara-tion submission, and all information can be sub-stantiated in the response. These cases do not result in any increased funds owed CBP and the entry is liquidated as entered due to the fact that the details are all defendable.

Manage your CBP communications with a clear and concise operational procedure that is known through corporate boundaries and business units such as the mail room, receptionist, finance, purchasing, materi-als sourcing, logistics and compliance. Connectivity is your best internal asset to manage your compli-ance capabilities.


SEPTEMBER 2010 www.compliancemaven.com 3

Editorial Advisory Board

Marilyn-Joy Cerney, Esq. Gerry Doyle Robert Core Marie Cabral Attorney Attorney Foreign Trade Zone Mgr Imp/Exp Compliance Dir Cerney Associates, PC Doyle & Doyle L’Oreal USA America II Electronics, Inc. Kay Georgi Thomas A. Cook Karen West Lydia Moya-Kiste International Trade Attorney Managing Director CEO Imp/Exp Compliance Mgr Washington, DC Office American River Int’l Earth Customs Inc. Unipart Services America (Export Controls/Trade Remedies) Earth Cargo Inc. Partner, Arent Fox PLLC Jerina Barutis Customs Attorney

There will be fewer terms with the elimination of four Incoterms.

The proposed Incoterms that will be dropped are:

• DDU Delivered Duty Unpaid• DEQ Delivered Ex Quay• DES Delivered Ex Ship• DAF Delivered at Frontier

Two new rules will be introduced. The two new proposed Incoterms for 2010 are:

• DAT Delivered at Terminal• DAP Delivered at Place

The Incoterms 2010 will be divided into two sec-tions. One set of rules governs any mode of trans-portation and the second set includes rules for sea and inland waterway transport.

Any Mode of Transport

• CIP Carriage and Insurance Paid• CPT Carriage Paid To• DAP Delivered At Place• DAT Delivered at Terminal• DDP Delivered Duty Paid• EXW Ex Works• FCA Free Carrier

Sea and Inland Waterway Transport Only

• CFR Cost and Freight• CIF Cost, Insurance and Freight• FAS Free Alongside Ship• FOB Free On Board

In addition to these rules, Incoterms 2010 will include:

• Extensive guidance notes and illustrative graphics to help users efficiently choose the right rule for each transaction• New classification to help choosing the most suitable rule in relation to the mode of trans-port• Advice for the use of electronic procedures• Information on security – related clearances for shipment• Advice for the use of Incoterms 2010 in domestic trade

Incoterms 2010 will result in a more user-friendly set of terms reflecting up-to-date trade practices.Starting in late September and running throughout the balance of 2010 and into 2011, several training organizations will hold Incoterms 2010 seminars. Some of these organizations are:

The World Academy (see page 7)www.theworldacademy.com

Frank Reynoldswww.iccincoterms2010.com

Unz & Co www.unzco.com

Incoterms 2010 ICC Official Rules of the Interpre-tation of Trade Terms can be ordered directly by visiting the iccbooksusa.com website.

Revisions to INCOTERMScontinued…



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MIE’s ‘Ask the Experts’ team -- Kelly Raia, Vice President & Senior Consultant, Randi Keenan, Assistant Vice President and Senior Consultant, Bill Laraque, Senior Consulting Associate, and Jim Wickstead, Senior Consulting Associate, all from The World Academy -- answer readers’ import or export related questions. Readers may submit questions to [email protected] - This month’s column is by Jim Wickstead.

Question: How can I make sure my product is classified correctly and the right duty rate is used?

Answer: There are rules and regulations requiring importers to classify their products. By not having a process in place exposes the importer to penalties with Customs. Reasonable care was defined in the U.S. Mod-ernization Act of 1993 requiring importers to take correct steps in assuring that their products are accurately clas-sified, amongst many other things. Learning how to classify or hiring experienced staff to classify goods, audit entries and make corrections to entries is one way. Hiring an expert to classify your products is another path to show reasonable care. Either way, the importer has an obligation to the U.S. government to assure all is correct in the entry and by classifying goods before they are imported is the best route to take.

There is a rainbow in the storm for some importers. Recently, the President signed the United States Manufac-turing Act of 2010, which reduced duty rates for hundreds of products. Although the pages have not been printed updating Chapter 99 of the Harmonized Tariff Schedules (HTS), legislation has been released to the public. Listed goods entered or withdrawn from warehouse for consumption, on or after August 26, 2010 are afforded the duty suspensions listed in the Act. There is no certificate of origin management needed. Basically, if you have the product and it is on the list, you can claim duty free entry.

Over the years I have found that it is not only wise to peruse Chapter 99, but is beneficial for importers. Most computerized entry systems that are utilized by customs brokers do not perform a search through Chapter 99. So, in those cases where their product is temporarily reduced in duty, the claim fails to be made.

One importer had undergone compliance training and learned the proper steps to classify their products. The class not only explained the chapter, heading, sub heading and statistical level, general rules and notes, it also included a review through Chapter 99 of the HTS. Oddly enough, one student mentioned that his product was listed there.

Later on, a review of their product database was made. They discovered that many of their products were eligible for the reduced duty claim. While corrective action procedures were put in place to correct what was wrong, cor-recting entries brought the company a windfall of over $1.5M in overpayment of duty.

Not only is it wise to manage your product database, classification procedures and customs brokers, it is well worth your efforts to make sure that any and all benefits that can be claimed are done so. Doing it yourself, or hiring experts to do it can reap many benefits.

Ask The Experts



Publisher: Rennie Alston ~ Editoral Staff: Randi Keenan, Kelly Raia ~ Managing Editor: Tracy Lenok

Managing Imports & Exports (ISSN 1553-0752) is published monthly for $437 per year by the PACMAN Association, 614 Progress Street, Elizabeth, NJ 07201. © 2009. PACMAN Association All rights reserved. A one-year subscription includes 12 monthly issues plus regular fax and e-mail transmissions of news and updates. Copyright and licensing information: It is a violation of federal copyright law to reproduce all or part of this publication or its content by any means. The Copyright Act imposes liability of up to $150,000 per issue for such infringement. Information concerning illicit duplication will be gratefully received. To ensure compliance with all copyright regulations or to acquire a license for multi-sub-scriber distribution within a company or for permission to republish, please contact PACMAN’s corporate licensing department at 877-PACMAN8, or email [email protected]. Periodicals postage paid at Elizabeth, NJ and additional mailing offices. POSTMASTER: Send address changes to PACMAN Association, 614 Progress Street, Elizabeth, NJ 07201, 877-PACMAN8 or e-mail [email protected]

Webinar Schedule

September 13 – Managing Forwarders & Brokers

Brokers and forwarders are an instrumental part of your company’s international supply chain. This webinar will focus on supervising these supply chain partners and making the best of that relationship, as well as how to ensure your supply chain partners are responsibly managing compliance within their own supply chains and how this benefits your company.

October 22 – Shipping Lithium Batteries

Learn how to navigate the regulatory requirements for shipping lithium batteries. This webinar will focus on the regulations covering the different modes of transportation, as well as developing resources and staying current on these evolving regulations.

November 9 – Should Your Company Consider Becoming Part of CCSP (Certified Cargo Screening Program)?

100% cargo screening went into effect in August, 2010. The TSA has made a program available to shippers to screen their own cargo. Find out if becoming a CCSF is a viable option for your company and what’s involved in becoming a CCSF.

December 7 - ECCN Classification

Learn how to utilize the Commerce Control List and determine whether your product is controlled for export as a dual-use item. This webinar will focus on understanding License Exceptions and the Commerce Country Chart, as well as how to apply for an export license.

**PLEASE VISIT OUR WEBSITE FOR COMPLETE DETAILS**

Contact:www.theworldacademy.com

Email: [email protected]



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Down Payments: Solving a HugeImpediment to Trade

By: William A. Laraque

Recently, a potential U.S. exporter approached me with a problem common to many U.S. companies that have cutting edge technology that is in great demand globally. The company’s foreign buyer wants to order $100 million of the U.S. company’s product and has been asked by the would-be U.S. exporter to make a 30% down-payment.

Now, the foreign buyer is willing to make a $30 million down-payment and additional progress payments to enable the purchase of this valued U.S. made equipment. In the words of the buyer to the seller however: “how do I know that you and your wife will not take my down-payment and catch the next plane to Brazil?” There is a so-lution for this imbroglio in international business and it is called a counter-guaranty.

The foreign buyer asks for a guaranty from the buyer with respect to the down-payment. The amount of the requested counter-guaranty is normally 5-10% of the down-payment or prog-ress payment amount. The guaranty takes the form of a standby letter of credit whose effect is to guaranty the foreign buyer that his/her down-payment will be used to manufacture or obtain the goods for export.

Many SMEs (small and medium-sized enter-prises) cannot afford the cash collateral that their banks routinely request in order to issue a stand-by letter of credit. In addition, the 100% cash collateral that banks require in order to issue a standby letter of credit ( l/c), restricts the amount of cash available to a company for its working capital, capital it desperately needs to source ma-terials and manufacture the goods.

This dilemma can be solved with a Working Capital Guaranty from the U.S. Ex-Im Bank. The Working Capital Guaranty provides a guaranty to

a lender and the wherewithal for the U.S. exporter to borrow at an advance rate of 75% against the inven-tory designated for export, including work in pro-cess, and to borrow at an advance rate of 90% against the foreign receivable, once the goods are shipped.

While Working Capital Guaranties generate con-siderable cash flow, the need to cash-collateralize counter-guaranties can easily wipe out the working capital of a firm. The solution to this dilemma lies within the structure of a Working Capital Guaranty facility wherein a sub-limit can be established for the issuance of standby l/cs for this purpose. The Ex-Im Bank guarantied lender’s collateral require-ment under a Working Capital Guarantied facility is reduced to 25% of the amount of the guarantee. The 25% is negotiable. The difference in availability of working capital to the U.S. exporter, using our ex-ample and 10% of the amount of the down-payment, at 25% collateralization, in this case, is $2,250,000.

The cost of a WCG facility includes a facility fee of 1.5% and a bank interest rate that is negotiable and reasonable because the lender receives the full faith and obligation of the United States in the form of the Ex-Im Bank guaranty.

In summary, Working Capital Guaranties are an effective means of obtaining significant down pay-ments and counter-guaranteeing such down-pay-ments while retaining sufficient working capital to fulfill the project.



Website Feature of the Month

http://www.google.com/landing/exporttool/

The Google Export Tool was created to provide access to the 1.2 billion global Internet users. These are po-tential consumers of U.S. product and service exports and this tool should be added to the arsenal of devices available to the U.S. exporter. The website describes in some detail the various features of this important en-abler to U.S. exports and has been featured in the “Exports Live” tour of the U.S. by the U.S. Ex-Im Bank and Google.

Don’t miss out on this important class

on the new INCOTERMS 2010

To register, please visit www.theworldacademy.com

or call 877-265-0070



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Securing the Air Cargo Supply Chain and Expediting the Flow of Commerce:

A Collaborative Approach

By:

Jack Muckstadt, PhD; Cornell University, Cayuga Partners, Sean Conlin, Deloitte Consulting, Walt Beadling, Cargo Security Alliance, Cayuga Partners

Congress’s 100% air cargo screening mandate took full effect on August 1, 2010. So far imple-mentation has gone smoothly, but as shipping volumes recover to pre-recession levels, it has the potential to disrupt the air cargo supply chain with delays in processing. Further, air carriers and freight forwarders are now charg-ing fees in the range of $.10 to $.12 per kilo to process unscreened cargo, which can increase logistics costs significantly for some shippers. Implementation of the TSA’s Certified Cargo Screening Program (CCSP) promises a solution to these problems if shippers and the air cargo industry work together.

TSA’s “supply chain” solution

The TSA’s “supply chain” approach, the volun-tary Certified Cargo Screening Program (CCSP), considers both security requirements and spe-cialized industry needs for screening cargo, and is open to shippers, freight forwarders, IAC’s, and Independent Cargo Screening Facilities (ICSF). By varying nodes and screening meth-ods, there are options to give more control over cargo flows and logistics costs, and allow for unique circumstances and requirements.

Securing the Air Cargo Supply Chain

The enemy of speed and security is uncertainty. High velocity and high security supply chains have much in common; both depend on visibility to mini-mize uncertainty: knowing where things are, when, and where they are going next. It’s said “cargo at rest is cargo at risk”. High velocity supply chains are based on repeatable, consistent processes to eliminate uncertainty, increase efficiency and speed. Secure chains of custody are based upon repeatable, consistent processes to ensure end-to-end traceabil-ity and readily detectable, verifiable cargo integrity. Close collaboration among supply chain partners minimizes uncertainty by anticipating demand and mitigating security exposures. Collaborators with integrated systems and processes enjoy efficient, secure supply chain performance.

The “Laws of Supply Chain Physics” Muckstadt’s 1st Law of Supply Chain Physics is “Lo-cal Optimization = Global Disharmony”. Supply chain partners acting in their own self-interest de-stabilize and slow the supply chain, increasing costs and vulnerability. Lack of standards and clumsy hand-offs expose the supply chain to threats; global coordination expedites the flow of commerce and maintains cargo integrity. The 2nd Law of Supply Chain Physics is Little’s Law, (L = λ W): “The average amount of inventory in a system is equal to the product of the demand rate and the average time a unit is in the system”. CCSP cost estimates focus on facilities, operations and screening technology; hidden costs of screening air cargo without an efficient, collaborative supply chain are far greater, sluggishness raises inventories and lowers customer service levels. Supply chain performance and security go hand-in-hand. We



propose a corollary to Little’s Law: “The longer inventory is held in the system, the more vulner-able it is to tampering, contamination, terrorism and theft”.

Muckstadt’s 5th Law of Supply Chain Physics is “Collaboration and efficient supply chain de-sign reduce uncertainty, increase velocity [and security], and improve operational and financial performance”; res ipsa loquitur.

Principles of Secure Supply Design and Opera-tion

Five Guiding Principles provide the essential foundation for securing the air cargo supply chain while expediting the flow of commerce:

1. Know the Customer. Security and logistics requirements vary by shipper, cargo, origin and destination; they call for the devel-opment and use of unique procedures, security protocols, sealing and identification technolo-gies and transportation strategies. It is therefore imperative that the air cargo community work closely with TSA to establish practical standards as quickly as possible to meet the impending deadline.

2. Adopt Lean, Secure Operating Philoso-phies. For maximum supply chain efficiency, trading partners must align, synchronize and ex-ecute operations; response times must be short, predictable and repeatable. Lean, secure supply chains are systems that respond quickly and predictably to changes in demand and capacity.

3. Create a Secure Supply Chain Infor-mation Infrastructure. Trading and logistics partners must share demand information, ship-ment status and location, screening and logistics requirements and up-to-the-minute air carrier schedules. A secure air cargo supply chain information infrastructure responds effectively to frequent changes in demand and logistics requirements.

4. Integrate Business Processes. Business processes must be established both intra- and inter-organizationally; together with informa-tion infrastructure, they enable efficient flow of cargo through the supply chain.

5. Unify Decision Support Systems. Ad-vanced, collaborative scheduling systems provide substantial time and cost savings, reduce airport congestion, cut waiting times and guarantee on-time arrival. Less time in transit minimizes oppor-tunities for tampering, theft and sabotage.

“Security is Free”

Through collaboration and better use of informa-tion, the CCSP can meet the objectives of enhanc-ing security while maintaining and accelerating cargo flow by eliminating inefficiencies in the current system.

Analogies may be drawn with manufacturing qual-ity programs in the 1970’s and 80’s that improved U.S. competitiveness with low-cost, high qual-ity products from Japan. American manufactur-ers were reluctant to embrace quality programs, seen as costly and burdensome. Phillip Crosby's prescription for improvement, “Quality is Free”, became a rallying cry for the manufacturing qual-ity movement. Likewise, those who implement CCSP with collaborative supply chain manage-ment techniques will find its benefits outweigh the costs. Given this, the mantra of the CCSP may soon become “Security is Free”.

The Shipper’s Dilemma: “to screen or not to screen”



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For shippers, the decision to participate in the CCSP and screen goods “in-house” versus out-sourcing screening to an intermediary or an air carrier involves many variables; among them facil-ity set-up and operating costs, inventory policies and customer service concerns. To help shippers decide, the TSA provides a self-assessment tool that explains the CCSP and criteria for evaluating the options:

An interactive version can be found at: http://www.securecargo.org/ccsp_questionnaire

If a company already participates in programs such as C-TPAT, TAPA’s FSR/TSR Standards or cGMP, it’s likely that joining the CCSP will be relatively easy and make good business sense.

A Call to Action The Congressional mandate for 100% screening took effect on August 1, 2010; it is now the law of the land. The air cargo system obeys the Laws of Supply Chain Physics; speedy, efficient operations and security are complementary. Adherence to the

5 Principles can help shippers, the air cargo community and carriers develop collaborative management sys-tems to secure the supply chain and expedite the flow of commerce. The CCSP’s flexible framework enables these systems.

Shippers must become aware and knowledgeable of the CCSP to make informed business decisions about how to best participate in it. Working together with indus-try associations and the air cargo community, shippers can – and must - develop the procedures and business processes needed to implement the required security protocols while minimizing the impact on operations, customer service and logistics costs.

**PLEASE SEE PAGE 11 FOR A CERTIFIED CARGO SCREENING PROGRAM (CCSP)

CLASS BEING OFFERED BY THE WORLD ACADEMY ON NOVEMBER 18, 2010,

IN NEWARK, NJ**



Contact:www.theworldacademy.com

Email: [email protected]

Advanced Import/Export Operations, Documentation & Compliance ManagementSeptember 20-21, Newark, NJ October 25-26, Los Angeles, CA December 13-14, Ft. Lauderdale, FL

Certified Cargo Screening Program (CCSP)November 18, 2010, Newark, NJ

C-TPAT Certification Training WorkshopSeptember 23, Newark, NJOctober 28, Los Angeles, CA December 16, Ft. Lauderdale, FL

Drawback WorkshopSeptember 21, Newark, NJ December 16, Ft. Lauderdale, FL

Establishing Import/Export Compliance ProceduresOctober 13-14, Chicago

Hazardous Materials TrainingSeptember 7-8, Buffalo, NY

2010 INCOTERMS and Related Global Trade Issues September 24, Newark, NJ November 2, Newark, NJOctober 15, Chicago, IL November 17, San Jose, CA October 29, Los Angeles, CA December 8, Newark, NJ December 17, Ft. Lauderdale, FLLetters of CreditOctober, 20, Newark, NJ

Managing HTS (Harmonized Tariff Schedule)September 22, Newark, NJ October 27, Los Angeles, CA December 15, Ft. Lauderdale, FL

PACMAN - Import/Export Compliance Certification Workshop & ExamNovember 15-16, San Jose, CA

IMPORT-EXPORT MANAGERS’ CALENDAR

Bureau of Industry and Security (BIS): www.bis.doc.gov

September 14-15 Complying with U.S. Export Controls Birmingham, ALSeptember 16 Complying with the ITAR Birmingham, AL September 22-23 Complying with U.S. Export Ctonrols Salt Lake City, UTSeptember 29-30 How to Develop an Export Management and Compliance Program Santa Clara, CA

American Management Association (AMA): www.amanet.orgOctober 4-6 Import/Export Procedures & Documentation Atlanta, GA

Upcoming Educational Seminars --



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Documents

Revisions to INCOTERMS