International trade is swiftly changing. Technology, globalization, and political considerations are reshaping trade patterns so quickly that even the most agile companies are hard-pressed to keep on top of developments.

One area that is experiencing significant change is export regulation. Exporters have long been legally obliged to comply with export control laws and licensing regulations, which are designed to prevent the sale of sensitive commodities and data that could be used against the United States and its allies. But in the last year, there have been several significant changes in export regulations. And as a result of the terrorist attacks on Sept. 11, say experts, many more changes are likely. It's never been more important, therefore, that businesses know the score when it comes to export regulations.

One of the most important changes that took effect during the past year concerns the definition of the party who is legally responsible for compliance with export regulations.

Under the rules change, the term "Exporter" on the Shippers Export Declaration (SED), a document required by the U.S. Census Bureau, was replaced with "U.S. Principal Party in Interest" (USPPI). This change acknowledged that the U.S. manufacturer or seller was not always the actual exporter. An example would be a "routed transaction," when the foreign buyer has legal responsibility for the export of goods under the contractual terms of sale and appoints a freight forwarder to manage the shipment. In such cases, title to the goods usually passes to the foreign buyer or its agent at the manufacturer's shipping dock or the freight forwarder's premises.

Previously, the U.S. manufacturer or seller could consider such a sale to be a domestic transaction and could pass off responsibility for export compliance to the buyer. Now, as the USPPI, it must share that responsibility with the buyer and its freight forwarder. Furthermore, the buyer's freight forwarder may prepare the SED for a routed transaction only if it has written authorization from the foreign buyer. Otherwise, preparing the SED remains the USPPI's responsibility.

In a routed transaction, the USPPI is required to provide the buyer's freight forwarder with 10 data elements relating to its own business, information that could affect licensing of the commodity for foreign sale, and the commodity description and classification. That's as it should be, says Ashok Sadhwani, a Los Angeles-based trade compliance consultant. "After all," he says, "the manufacturer knows the products best, and many companies would therefore want the manufacturer to assist in the license application and classification process."

The buyer's freight forwarder must fill in 16 data elements on the SED, most of which relate to transportation, the foreign consignee, and the export license, if one is required. The SED has been redesigned to include that information as well as additional details that relate to the planned automation of such transactions as duty drawback claims, says Sadhwani. (A complete list of the required elements can be found in the Export Administration Regulations, available from the Bureau of Export Administration (BXA) at www.bxa.doc.gov or from the Census Bureau at www.census.gov/foreign-trade.)

Although its intentions were good, the USPPI rule has created some confusion, says Roger Majak, former U.S. assistant secretary of commerce for export administration and now an adviser to software provider Open Harbor (formerly MyCustoms). "We wanted to give exporters more flexibility," he says. "I think some of the confusion comes from the fact that the U.S. manufacturer is never really off the hook for the liability, especially if the manufacturer does not provide accurate information."

Larry Christensen, vice president for international trade content at software provider Vastera and former director of the Bureau of Export Administration's Policy Division, says the rule represents a fundamental change in the way exporters do business. It also imposes some obligations on U.S. exporters that are inconsistent with the Incoterms, the internationally accepted terms of sale. Nevertheless, he says, the USPPI rule is important because it will help to correct the flawed trade data on which U.S. economic policy has often been based.

Another initiative that has changed the export compliance landscape over the last year is the federal government's push toward increased automation. That effort is designed to increase data accuracy and improve risk assessment for exports. Filing documents via automated systems like the Census Bureau's Automated Export System (AES) and BXA's Simplified Network Application Process (SNAP) creates efficiencies, improves accuracy, and cuts costs for both government and businesses. There are so many benefits to be gained, says Majak, that the automated filing of SEDs and export license applications will likely become mandatory in the future.

The United States has lightened up on sanctions against some countries, such as North Korea, India, and Pakistan, and has liberalized rules concerning the hiring of foreign nationals in sensitive industries and for the export of data-encryption technology. But in some cases, those changes have proven to be problematic. The new encryption technology rules, for example, were supposed to reduce regulatory burdens and make it easier for U.S. exporters to compete with European vendors. But the language is so confusing and the rules so complicated that even Christensen, who used to write export regulations for BXA, finds them virtually incomprehensible.

Increased enforcement was high on the government's agenda even before the attacks on Sept. 11. U.S. Customs, which collects SEDs on behalf of the Census Bureau, had already begun assessing fines against late filers. In Congress, legislation that has passed the Senate (but not the House) would increase penalties for civil violations of export control laws by individuals to $250,000 from $10,000, increase penalties for general export violations to $1 million from $10,000, and increase corporate penalties to $10 million or 10 times the value of the exports (whichever is greater), up from $1 million or five times the export's value. In the last two years, moreover, courts have slapped multimillion dollar criminal fines on U.S. companies for illegal exports, and Christensen sees a growing trend toward criminal prosecutions of company officers for export violations.

It seems inevitable that the terrorist attacks of Sept. 11 will significantly change export controls. What can exporters expect in the coming months?

Donald Weadon, a Washington, D.C.-based lawyer who specializes in export regulations, says exporters' license applications may well come under greater scrutiny and that there are likely to be more on-site inspections of companies that submit insufficient or inaccurate data. Now is the time for every exporter to assess the adequacy of its export sales and order screening processes, including a stringent review of export activities by overseas subsidiaries and branches, he urged in a recent letter to clients. "Few, if any, actions will bring more adverse action and damaging publicity to a company's doorstep than to be found to have sold or transacted business with a denied/designated person or entity in the coming weeks and months ... even if they have no rational relationship with the current tragedy or its perpetrators," he wrote.

Majak predicts that more so-called "domestic" transactions, in which manufacturers sell to U.S. agents of foreign buyers, will come under close government scrutiny. He recommends that sellers screen these transactions for potential violations just as they do for direct foreign sales. He also foresees increased regulation of areas such as transportation, software, and chemical and biological substances that recently have been liberalized. "Our international agreements on chemical and biological agents don't cover transportation," he says. "My guess is that there will be a lot more attention paid to that in the future." Furthermore, he warns, exporters may not get the kind of advance notice of rule changes they are accustomed to receiving. "Prior to Sept. 11," he says, "if we were planning on new sanctions, we usually had the opportunity to alert the business community and we would go through sometimes lengthy procedures [before implementation], but now changes may have to be made on very short notice."

Christensen says that some long-standing restrictions will be relaxed as a quid pro quo to encourage countries to join the U.S. fight against terrorism; one example is the Oct. 1 partial suspension of rules against licensing of nuclear materials and some missile technology for India and Pakistan. He also forecasts that regulatory programs, which have focused mainly on military and government end users, will make hunting down terrorist organizations a priority. "There has been considerable discussion of multilateral export control groups' adding counterterrorism as a goal ... I think that's a void that needs to be filled," he says. There are now more than 850 names and aliases of individuals and companies with terrorist connections on the federal export "blacklist," and more are being added almost daily, he notes. "The placement of a name on that list obligates an exporter not to deal with them," he reports, "but you also are obligated to block their assets ... including physical assets and contracts. Most people aren't aware ... that they have a broad obligation to report the existence of assets belonging to those parties."

The most dramatic change for exporters worldwide could stem from United Nations Security Council Resolution 1373, which passed in late September. The resolution requires all U.N. member states to prevent and suppress the financing of terrorists; deny them assistance in facilitating or planning criminal activities; and deny them arms, communications equipment, and weapons of mass destruction in accordance with existing export control regimes. Each country, moreover, must report back to the Security Council within 90 days on steps it has taken to implement the resolution. Christensen says this has extraordinary implications. "That resolution reads that all member states shall do the following—they're not asking for support or saying 'should' or that it's 'advisable.' ... I have never seen the U.N. go quite this far." Many countries are unlikely to fall into line, he adds, but even if half of the member states comply, it would be a remarkable achievement. Exporters, he adds, should watch this development closely because it undoubtedly will lead to greater scrutiny and stricter controls over the movement of both goods and payments worldwide.