Caveat exporter!

A conversation with Larry Christensen, Vice President, International Trade Content, Vastera

By Toby B Gooley -- Logistics Management, 1/1/1998

In 1996, rhe Bureau of Export Administration (BXA) rolled out the most comprehensive rewrite of export licensing regulations in 40 years. Larry Christensen, former director of BXA's Regulatory Policy Division, oversaw these and other changes, which simplified licensing requirements and shifted more responsibility onto the exporter. Now vice president, international trade content for Vastera, a developer of export-compliance software, Christensen says that--even with simplified regulations--U.S. exporters still have a lot to learn.Q How would you assess the level of knowledge about and compliance with export regulations among U.S. exporters?

A At large high-tech companies, compliance is quite good. The major multinationals also do a good job. But in other industry sectors, it's not so good. A lot of firms are rolling the dice with their eyes closed.

Many exporters rely on freight forwarders [to handle export licensing], assuming freight forwarders will do all the right things....I think only about 50 percent of freight forwarders are fully conversant with the export regulations.

A good example of a company that works with its forwarders to ensure compliance is GE. It does a good job screening forwarders, it has contracts with those it uses, and it makes clear everyone's responsibilities. Doing that is not terribly time-consuming, but it's surprising how many companies, both big and small, have no contract or even power-of-attorney with their forwarders. Those are mistakes, and if they result in non-compliance, the government will say it's not excusable.

Q How could the level of knowledge and compliance be improved?

A The government has to continue to put high priority on its outreach program, which includes about 100 events per year. Also, publicity about regulations in books and magazines is helpful.

My personal view is that effective enforcement will actually improve compliance, because it provides executives with an incentive to learn the rules. Far too many executives in the United States think export controls are only a challenge for high-tech companies, and that's simply not true.

On the import side, the issues are different, but importers are better at compliance. [That's because] each liquidation of an entry is in effect the filing of a tax return and probably ought to be viewed that way. With Customs audits, importers have to be organized so they can find and produce all import records. If they can't, they may have to pay a fine, plus a penalty, and then pay duty again. If you're an importer and you want [tariff reductions], you won't get it until you prove it, document it, and it stands up to an audit.

Q What are the most common licensing errors or violations that exporters make?

A Faulty Shippers Export Declarations--SEDs--are the most common. People don't realize that these are more than just documents, they are promises to the government. It's estimated anecdotally that somewhere between 15 and 40 percent of SEDs are inaccurate. If that's true, the question becomes, are we underreporting exports so much that it results in a large variation in the actual trade deficit? Some academics believe that in reality, there is no trade deficit. That also means that our trade policy could possibly be based on bad numbers.

Certificate-of-origin management also is becoming more important...and classification problems are common. And a lot of companies don't know what their product's classification is--that's true of both new and established firms.

Q What are the essential elements or structure of a compliance program?

A There has to be a "top-to-bottom" corporate commitment to do it and to provide the necessary resources. You also need to have systems in place to handle documents--to collect, track, and output them. ... Automation can help standardize procedures.

Training is important. It's an obligation the company has. You can't expect the rank and file to follow rules if they don't know what the rules are. Once they know the rules, they need to have information available, like customer details and product/country matrices, that will help them comply. ... Classification accuracy also is vital. It's important to get input from product engineering on classification.

Exporters need to realize that compliance involves more than just the BXA's regulations. There are separate requirements for munitions exports, for compliance with the Foreign Corrupt Practices Act, and for anti-boycott issues.

I recommend that exporters read the "Export Management System" guide to setting up a compliance program in the front of the Export Administration Regulations (EAR). BXA recently published a revised guide, and it's extremely helpful.

Q How has the BXA made it easier for exporters to apply for and obtain licenses?

A Electronic filing and tracking of applications through programs called STELA and ERIC have been a big help. They will be improved when those programs become available on the Internet. You also can electronically make classification requests, but the tradeoff there is that you can't just send a letter anymore. You have to use a certain form.

In 1996, BXA implemented the largest rewrite of export regulations in 40 years. We simplified and streamlined the regulations to make them easier to understand....But complex policies are going to result in complex rules. BXA even hired writing experts [to ensure the regulations were clear].

We also reduced the number of products that require licenses. Five years ago, the BXA was receiving 140,000 export license applications per year. That's now down to about 8,000. But in return for that reduction in the licensing process, the burden [of compliance] has shifted from the government to the exporter....Industry executives must carefully self-police their export practices to ensure they do not sell materials that could be used to make weapons of mass destruction.

During the Cold War, export control was simpler. You just assumed that, once a controlled commodity crossed the border into the Soviet Union, it would be used for untoward purposes. Now it's more complicated--even friendly nations like India are developing these weapons.

The new regulations put the burden on the exporter to avoid sales knowing the end use is related to nuclear weapons, missiles, or chemical and biological weapons. But people said the government should tell us who not to sell to, because that kind of intelligence is available only to the government. So industry [leaders] asked the government to publish a list of banned companies. And the first one on the list was Ben Gurion University in Israel!

It's important that exporters be vigilant. An example of what can happen when they're not is a Dutch company that sold [U.S.-made] night-vision goggles to Iraq before Operation Desert Storm. That had an incredible impact [on the conduct of the war].

Q What are the consequences of non-compliance?

A The U.S. government holds the exporter and its freight forwarder responsible for violations of the international trade regulations....The penalties for violations are significant--they can be five times the value of the goods. A company can even be ordered to stop selling internationally.

There is risk in doing international trade the wrong way. There is personal liability--senior management can go to jail. There will be monetary fines....Exporters also should consider the fact that they can face criminal prosecution under the Foreign Corrupt Practices Act. Perhaps the most devastating penalty is the adverse publicity a company can receive for violations of international trade regulations.