EXPORT AND IMPORT PROCEDURES AND DOCUMENTATION docx

Part I Organizing for Export and Import Operations 1 Part II Exporting: Procedures and Documentation 15... com-The special value of this book is that it takes a myriad of increasingly co

EXPORT/IMPORT PROCEDURES

AND DOCUMENTATION

FOURTH EDITION

PROCEDURES

AND DOCUMENTATION

1601 Broadway, New York, NY 10019.

Tel.: 212-903-8316 Fax: 212-903-8083.

Web site: www.amacombooks.org

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Library of Congress Cataloging-in-Publication Data

Johnson, Thomas E., 1948–

Export/import procedures and documentation / Thomas E Johnson — 4th ed.

HF1416.5.J64 2002

䉷 2002 Fourth Edition by Thomas E Johnson Previous editions

䉷 1997, 1994, 1991 AMACOM, a division of American

Management Association.

All rights reserved.

Printed in the United States of America.

This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or

otherwise, without the written permission of AMACOM, a division

of American Management Association, 1601 Broadway, New York,

NY 10019.

Printing number

10 9 8 7 6 5 4 3 2 1

Part I Organizing for Export and Import Operations 1

Part II Exporting: Procedures and Documentation 15

6 Value-Added Taxes 22

vi

N Shipper’s Declarations for Dangerous Goods 169

Part III Importing: Procedures and Documentation 237

viii

B Ongoing Purchase Transactions 286

Appendix C Correct Way to Complete the Shipper’s Export Declaration 417

Appendix I Rules for Constructing Manufacturer/Shipper Identification Code 525

Appendix K List of Export/Import-Related Web Sites 541

xii

List of Figures

2–1 Report of request for restrictive trade practice or boycott—single

2–2 Report of request for restrictive trade practice or boycott—multiple

3–14 Financial comparison of using distributors and sales agents 103

4–13 Standard form for presentation of loss or damage claim 155

5–1 Sample pages from the Commerce Control List (ECCN 2B001) 201

xiv

5–16 Statement by consignee in support of special comprehensive license 228

6–10 Instructions by importer’s bank to correspondent bank in seller’s

8–14 U.S Department of Agriculture Form 368 Notice of Arrival 329

8–20 Courtesy notice of liquidation 336

9–4 Declaration by foreign shipper and importer’s endorsement 3839–5 Foreign repairer’s declaration and importer’s endorsement 384

xvi

Engaging in international trade is a never-ending challenge for a host of reasons:political turmoil in one or another country, protectionist regulations, market uncer-tainties, exchange rate fluctuations, trade organization edicts, compliance require-ments, payment problems, shipping delays, cultural differences, and an awful lot ofchanging procedures and documentation to contend with in every country, includingour own While there is a favorable trend toward harmonization, we’re not there yet

As most experienced international traders will confirm, however, the rewardsoverall are well worth the risks and the difficulties The United States’ volume ofinternational trade now exceeds $2.5 trillion a year in total exports and imports ofgoods and services

While the economic competition in the global marketplace is greater than ever, soare the potential benefits Practical knowledge, training, and persistence by the mem-bers of America’s business community are vital to our future success in the interna-tional arena We need to maintain our efforts to produce high-quality products andservices and to market them aggressively and competitively abroad

At the same time, U.S companies more than ever recognize that to be globallycompetitive in their exports, they also have to look to other countries for needed rawmaterials, components, and final products and compare them with those that are pro-duced in this country That is what the global economy is all about—breaking downinternational barriers and encouraging the free flow of goods, services, technology, andcapital

It is essentially for these reasons that Tom Johnson originally decided to write thisbook It has been my pleasure to have worked with Tom around the country for manyyears conducting training seminars and counseling companies on international trade

We are continually heartened by the ever-expanding interest we see expressed by panies in exporting and importing

com-The special value of this book is that it takes a myriad of increasingly complexforeign trade rules, regulations, procedures, and practices and integrates them into auseful ‘‘how-to’’ volume explaining the export and import process in great detail.While the book covers all the basic export/import procedures and documentation,experienced foreign traders also are likely to find many new nuggets of practical, cost-saving information and advice The learning process never stops Tom and I meet manyexporters and importers each year who are motivated to attend seminars and work-shops because of problems that suddenly surfaced in their trading operations: a ship-

ment delayed, a payment not promptly made, or a penalty imposed because ofincorrect documentation To their chagrin, these exporters and importers quickly dis-cover that they were not as knowledgeable or up-to-date as they thought Advancepreparation and planning invariably would have prevented these problems.

Export/Import Procedures and Documentation serves as a valuable guide to

inter-national trade operations and contains a sample of virtually every relevant documentused in foreign trade Equally important, the reasons for government-imposed docu-mentary and procedural requirements are clearly explained

As in most endeavors, the basic ingredients of enthusiasm, interest, and hard workare important to achieving success in exporting and importing, but they alone are notsufficient The critical additional factors needed are technical knowledge and training,which will lead to success for those who carefully apply what they learn This all-encompassing book makes that learning process orderly and understandable

We hope you enjoy competing in the global market and achieving all the rewards

it can offer you and your business

Eugene J SchreiberManaging DirectorWorld Trade Center of New Orleans

xviii

For the past twenty years, I have been teaching American Management tion seminars on international business About thirteen years ago, I began teaching acourse entitled Export/Import Procedures and Documentation There has been a verystrong interest in this seminar and excellent attendance wherever it has been given invarious cities throughout the United States

Associa-Since the last edition of this book, we have experienced the Asian economic crisisand a strong U.S dollar This has made exporting more difficult but has increased theopportunities for U.S importers Lower prices for imported raw materials and finishedgoods have helped the U.S economy, but increased imports have spawned dumpingcases and import restraints

We have also experienced recession exacerbated by the September 11, 2001 dies in New York and Washington, D.C While these are having a temporary dampeningeffect on world trade, more recently the countries of the world approved a new round

trage-of World Trade Organization negotiations This will further stimulate trade

As an attorney who has concentrated on international business transactions formany years, I have seen firsthand the increasing globalization of markets and interna-tional competition Those U.S companies that do not export, establish name recogni-tion in other markets, import to reduce costs, and learn to compete on a global basiscannot survive long My years living in Japan also convinced me that greater familiar-ity with international trade is essential for U.S businesses to compete on a worldwidebasis

This book focuses on the procedures for exporting and importing and the relevantdocumentation Although the procedures and documents generally arise from legalrequirements in the United States or foreign countries, I have tried to present the infor-mation in a practical, non-technical manner This book may be of help to freight for-warders, customs brokers, transportation carriers, and others, but it is primarilyintended for manufacturers who are exporting their own products or importing rawmaterials or components or for importers of finished goods Since readers of this bookwill have varying levels of expertise, I have tried to discuss the subject at an intermedi-ate level Hopefully, this book will be not only a useful training tool for beginners butalso a reference work for more experienced exporters and importers as new situationsarise

This book tries to answer the questions: What procedures should be followed,and what documentation is utilized in exporting and importing? It is often said that

international sales move on the documents This book attempts to describe the rolesthat various documents play in export and import transactions and to show how well-prepared documents can eliminate problems; it attempts to present alternatives sothat the reader can make his or her own decisions regarding exporting and importingstrategies The actual samples of documents shown should be helpful in understand-ing export and import transactions in general, but they may require modification forparticular transactions.

Both exporting and importing are discussed in this book, and for those engaged inonly one or the other, an attempt has been made to discuss all of the relevant consider-ations in each section, although this has created some redundancy Furthermore, toshorten the book, the forms used in both export and import transactions are includedonly once with a cross-reference

I wish to acknowledge and express my appreciation for the assistance provided

by Donna Bade at Sandler, Travis & Rosenberg, P.A.; Ric Frantz at LR International,Inc.; and Nadia Khalil at Bank One and for the patience of my wife, Norma, and mychildren I also wish to thank my editors, Ray O’Connell and Erika Spelman

The information contained herein is accurate as far as I am aware and is based onsources available to me Nevertheless, it is not legal advice, and specific legal advicebased upon the facts and circumstances of the reader’s own situation should be sought

in making export or import decisions

Any comments or suggestions for the improvement of this book will be gratefullyaccepted

Thomas E JohnsonSandler, Travis & Rosenberg, P.A.Chicago, Illinois

xx

The author gratefully acknowledges the courtesy of the following in authorizinginclusion of their forms in this book:

Apperson Business Forms, Inc

1200 Arlington Heights Road

Itasca, Illinois 60143

The First National Bank of Chicago

One North Dearborn

Chicago, Illinois 60670

Matthew Bender & Company, Inc

11 Penn Plaza

New York, New York 10001

Roanoke Trade Services, Inc

1501 East Woodfield Road

Schaumburg, Illinois 60173

Sea-Land Service, Inc

3501 West Algonquin Road

Rolling Meadows, Illinois 60008

SGS Control Services, Inc

42 Broadway

New York, New York 10004

Tops Business Forms

111 Marquardt Drive

Wheeling, Illinois 60090

United States Council for International Business, Inc

1212 Avenue of the Americas

New York, New York 10036

Unz & Co

190 Baldwin Avenue

Jersey City, New Jersey 07306

Washington International Insurance Company

1930 Thoreau Drive

Schaumburg, Illinois 60173

West Publishing Company

50 West Kellogg Boulevard

St Paul, Minnesota 55164

xxii

Part I

Organizing for Export and Import Operations

Chapter 1

Organizing for Export

and Import Operations

Smooth and efficient (and, therefore, profitable) exporting or importing requirescertain personnel who have specialized knowledge The personnel involved and theirorganization vary from company to company, and sometimes the same personnel haveroles in both exporting and importing In small companies, one person may performall of the relevant functions, and in large companies or companies with a large amount

of exports or imports, the number of personnel may be large In addition, as a companydecides to perform in-house the work that it previously contracted with outside com-panies (such as customs brokers, freight forwarders, packing companies, and others)

to perform, the export/import department may grow As business increases, specialtiesmay develop within the department, and the duties performed by any one person maybecome narrower

A Export Department

For many companies, the exporting department begins in the sales or marketingdepartment As that department develops leads or identifies a customer located inanother country, an order may come in and the salespeople may have to determinewhat additional steps that are different from domestic sales procedures need to betaken in order to fill that export order Often the exporter’s first foreign sales are toCanada or Mexico Because the export order may require special procedures in manu-facturing, credit checking, insuring, packing, shipping, and collection, it is likely that

a number of people within the company will have input on the appropriate way to fillthe order As export orders increase (for example, as a result of an overseas distributorhaving been appointed), the handling of such orders should become more routine andthe assignment of the special procedures related to an export sale should be given tospecific personnel It will be necessary to interface with freight forwarders, banks,packing companies, steamship lines, airlines, translators, government agencies, do-mestic transportation companies, and attorneys Because most manufacturers havepersonnel who must interface with domestic transportation companies (traffic depart-ment), often additional personnel will be assigned to that department to manage ex-

port shipments and interface with other outside services Some of this interface, such

as with packing companies and steamship lines, and possibly governmental agenciesand banks, may be handled by a freight forwarder The number of personnel neededand the assignment of responsibilities depends upon the size of the company and thevolume of exports involved A chart for a company with a large export department isshown in Figure 1–1 The way in which an export order is processed at the time ofquotation, order entry, shipment, and collection is shown in Figures 1–2, 1–3, 1–4,and 1–5, respectively Smaller companies will combine some of these functions intotasks for one or more persons

B Import Department

A manufacturer’s import department often grows out of the purchasing ment, whose personnel have been assigned the responsibility of procuring raw materi-als or components for the manufacturing process For importers or trading companiesthat deal in finished goods, the import department may begin as the result of beingappointed as the U.S distributor for a foreign manufacturer or from purchasing a prod-uct produced by a foreign manufacturer that has U.S sales potential Because foreignmanufacturers often sell their products Ex-Factory or FOB plant, a U.S company in-tending to import such products must familiarize itself with ocean shipping, insur-ance, U.S customs clearance, and other procedural matters Increasingly, a number ofU.S manufacturers are moving their manufacturing operations overseas to cheaperlabor regions and importing products they formerly manufactured in the UnitedStates That activity will also put them in contact with foreign freight forwarders, U.S.customs brokers, banks, the U.S Customs Service, marine insurance companies, andother service companies

depart-C Combined Export and Import Departments

In many companies, some or all of the functions of the export and import ments are combined in some way In smaller companies, where the volume of exports

depart-or impdepart-orts does not justify mdepart-ore personnel, one depart-or two persons may have ity for both export and import procedures and documentation As companies growlarger or the volume of export/import business increases, these functions tend to beseparated more into export departments and import departments However, becauseboth departments may end up being in contact with some of the same outside parties(such as banks, those freight forwarders that are also customs brokers, or domestictransportation companies), some of these activities may be consolidated in specificpersons for both export and import while other personnel will work exclusively onexports or on imports A diagram of the interrelationships between the exportand import personnel in the company and outside service providers is shown inFigure 1–6

responsibil-(Text continues on page 8.)

4

Figure 1–2 Export order processing—quotation.

Customer, Distributor,

or Sales Agent Request for Quotation

Export Department Review

Customer, Distributor,

or Sales Agent Quotation or Pro Forma Invoice

Customer, Distributor,

or Sales Agent Request for Quotation

6

Organizing for Export and Import Operations

Figure 1–3 Export order processing—order entry.

Export Department Verify Match to Quotation Send Acknowledgment

Customer Purchase Order

Transmit Acceptance

to Customer

Manufacturing Production Inventory

Marketing Booking

Engineering

Drawings

Specifications

Figure 1–4 Export order processing—shipment.

Manufacturing Finance

—Check Customer’s L/C Opened

D Manuals of Procedures and Documentation

It is often very helpful for companies to have a manual of procedures and mentation for their export and import departments Such manuals serve as a referencetool for smooth operation and as a training tool for new employees Moreover, sincethe Customs Modernization Act, such manuals are required to establish that the im-porter is using ‘‘reasonable care’’ in its importing operations and they are recom-mended by the Bureau of Export Administration for export operations Such manualsshould be customized to the particular company They should describe the company’sexport process and import process They should contain names, telephone numbers,and contact persons of the freight forwarders and customs brokers, steamship compa-nies, packing companies, and other services that the company has chosen to utilize aswell as government agencies They should contain copies of the forms that the com-pany has developed or chosen to use in export sales and import purchases and trans-portation, identify the internal routing of forms and documentation within thecompany for proper review and authorization, and contain job descriptions for thevarious personnel who are engaged in export/import operations The manuals should

docu-be kept on a word processor and updated from time to time as changes in contact

8

Organizing for Export and Import Operations

Figure 1–5 Export order processing—collection.

Export Department Follow-Up

Marketing Statements Dunning

Finance Receivables Collection

Bank

Customer Payment

persons, telephone numbers, forms, or governmental regulations occur Sample tables

of contents for export and import manuals are shown in Figures 1–7 and 1–8, tively

respec-E Record-Keeping Compliance

Exporters and importers have always had an obligation to maintain records ing to their international trade transactions Recently, however, these obligations haveassumed a place of central importance due to technological advances and related changes

relat-in the law As the volume of export and import commerce has relat-increased, it has becomenecessary to automate such transactions The use of electronic purchase orders, accep-tances, and invoices, and the related need of the governmental agencies to reducetheir own paperwork burden has spurred some governmental initiatives Under theCustoms Modernization Act, the U.S Customs Service agreed to allow electronic filing

(Text continues on page 13.)

Organizing for Export and Import Operations

Figure 1–7 Export manual table of contents.

Figure 1–8 Import manual table of contents.

12

Organizing for Export and Import Operations

of customs entries, and under the Automated Export System the Department of merce and Customs have established a program for the electronic filing of export docu-mentation Under these scenarios, export and import trade will be facilitated;however, the potential for exporters/importers to avoid their legal responsibilities,including filing fraudulent entries with improper values or classifications or evadingtheir responsibilities to obtain export licenses is substantially increased As a result,

Com-in the Customs Modernization Act, new penalties were imposed upon importers andexporters who fail to keep proper documentation, which the Customs Service intends

to audit from time to time to verify that the electronic filings are accurate Now, even

if the electronic filing was accurate, if an importer/exporter fails to provide documentsrequested by Customs, it can be fined up to $100,000 (or 75 percent of the appraisedvalue, whichever is less) if the failure to produce a document is intentional, or $10,000(or 40 percent of the appraised value, whichever is less) if it is negligent or accidental.Other laws, such as the Export Administration Act, the Foreign Trade StatisticsRegulations, and the North American Free Trade Agreement, also impose record-keep-ing requirements on exporters For most companies that engage in both exporting andimporting, it is important to establish a record-keeping compliance program that main-tains the documents required by all the laws regulating international trade In general,U.S export and import laws require that the records be kept for a period of five years(or three years from date of payment on drawback entries) However, other laws, forexample state income tax laws or foreign laws (Canada under NAFTA), may requirelonger periods

The U.S Customs Service has issued a Recordkeeping Compliance Handbook

de-scribing in detail its interpretation of the proper record-keeping responsibilities for

importers This Handbook states that the Customs Service expects each importer to

designate a manager of record-keeping compliance who can act as the point of contactfor all document requests from Customs and who is responsible for managing andadministering the record-keeping compliance within the company The manager, aswell as all employees involved in importing (and exporting), is expected to receiveregular training on compliance with the customs laws and on documentation andrecord-keeping requirements Each company is expected to maintain a proceduresmanual to ensure compliance with all customs laws and record-keeping requirements

In addition, Customs offers a program for voluntary certified record-keepers who ter with the U.S Customs Service and demonstrate their capabilities of compliance

regis-In return for participating in the voluntary record-keeping compliance program, therecord-keeper will not be fined for its first violation of the regulations In return, therecord-keeper has to agree to a number of responsibilities

F Software

Many companies offer software programs for managing the export process, ing order-taking, generation of export documentation, compliance with export controlregulations, calculation of transportation charges and duties, and identification oftrade leads The Department of Commerce, Trade Information Center maintains a list

includ-of sinclud-oftware producers and a description includ-of their products and prices on its Web site at

www.ita.doc.gov/td/tic (select ‘‘Export Resources,’’ then ‘‘Publications and Software,’’

and then ‘‘Export Software’’)

On the import side, a substantial number of companies offer ‘‘supply chainmanagement’’ (SCM) software A good collection can be accessed on the Web

at http://directory.google.com / Top / Business / Business Services / Distribution and

Logistics/Logistics/Software).

G Federal, State, International, and Foreign Law

The Constitution of the United States specifically provides that the U.S Congressshall have power to regulate exports and imports (Art 1, §8) This means that export-ing or importing will be governed primarily by federal law rather than state law Onthe other hand, the law of contracts, which governs the formation of internationalsales and purchase agreements and distributor and sales agent agreements, is almostexclusively governed by state law, which varies from state to state As discussed inChapter 3, Section B.2.m, and Chapter 7, Section B.2.l, a number of countries, includ-ing the United States, have entered into an international treaty that governs the sale ofgoods and will supersede the state law of contracts in certain circumstances Finally,

in many circumstances, the laws of the foreign country will govern at least as to thatportion of the transaction occurring within its borders, and in certain situations, itmay govern the international sales and purchase agreements as well Most of the proce-dures and forms that are used in exporting and importing have been developed tofulfill specific legal requirements, so that an exporter or importer should disregardsuch procedures and forms only after confirming that doing so will not subject thecompany to legal risks or penalties

14

Part II

Exporting: Procedures and Documentation

difficul-A Products

Initially, the exporter should think about certain considerations relating to theproduct it intends to export For example, is the product normally utilized as a compo-nent in a customer’s manufacturing process? Is it sold separately as a spare part? Is theproduct a raw material, commodity, or finished product? Is it sold singly or as part of

a set or system? Does the product need to be modified—such as the size, weight, orcolor—to be saleable in the foreign market? Is the product new or used? (If the product

is used, some countries prohibit importation or require independent appraisals ofvalue, which can delay the sale.) Often the appropriate method of manufacturing, mar-keting, the appropriate documentation, the appropriate procedures for exportation,and the treatment under foreign law, including foreign customs laws, will dependupon these considerations

Some products are subject to special export limitations and procedures In tion to the general export procedures discussed in this Part, exporters of munitions;narcotics and controlled substances; nuclear equipment, materials, and waste; water-craft; natural gas; electric power; hazardous substances; biological products; consumerproducts not conforming to applicable product safety standards, adulterated or mis-branded food, drugs, medical devices, and cosmetics; endangered species; ozone-depleting chemicals; flammable fabrics; precursor chemicals; tobacco seeds andplants; fish and wildlife; crude oil; certain petroleum-based chemicals and products;and pharmaceuticals intended for human or animal use must give notices or apply forspecial licenses, permits, or approvals from the appropriate U.S government agencybefore exporting such products