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04-25-2008
House Letter Says First Sale Proposal Would Harm Consumers, Exporters, Manufacturers
Over 50 members of the House of Representatives sent a letter to Secretary of Homeland Security Michael Chertoff April 18 asking him to immediately withdraw a Jan. 24 proposal by U.S. Customs and Border Protection to revoke the First Sale Rule. The Senate sent a similar letter to Chertoff a day earlier. The comment period on the proposal closed April 23 and it is now up to CBP to decide what further action to take.

The House letter pointed out that CBP’s proposal would violate a long-standing judicial and administrative interpretation of a U.S. statute in favor of a non-binding commentary from the World Customs Organization. “We hope you concur,” the lawmakers wrote to Chertoff, “that U.S. law trumps a non-binding opinion of an international organization.” Furthermore, the letter argued, an administrative action is the wrong way to go about changing existing policy. The First Sale Rule is based on U.S. law and has been upheld by the courts, the letter said, and it is “an abuse of discretion and contrary to law for an Executive Branch agency to use the administrative rulemaking process to abrogate the judicial interpretation of a U.S. statute.”

Aside from legal considerations, the representatives added, revoking the First Sale Rule would be harmful to U.S. consumers, manufacturers and exporters. For the past 20 years, they said, this methodology has resulted in millions of dollars in savings on virtually every type of product imported from overseas, lowering costs for consumers and helping importers and exporters compete in the global marketplace. Eliminating the rule would force U.S. companies to pay higher import duties, fees and taxes that could be passed on to consumers, “hitting our businesses and families with an increase in the cost of goods they buy at a time when the domestic economy is already struggling.” Exporters could be affected as well if other countries that use the First Sale Rule follow CBP’s lead, which would make U.S. goods more expensive in those markets.

In related news, April 23 was the deadline for public comments on CBP’s proposal, and the large majority of the comments submitted by that date were firmly against it. Expressing their opposition were groups like the American Apparel and Footwear Association, the Customs and International Trade Bar Association, the American Association of Exporters and Importers and the National Retail Federation, as well as various individual companies.


© 2008, Sandler, Travis & Rosenberg, P.A. Originally published in the [date] issue of ST&R’s WorldTradeInteractive. Reprinted by permission.

04-23-2008
New Brazilian Cargo System Implemented for Imports and Exports
Brazil’s new cargo control system, known as Siscargo, was implemented March 31 for imports, exports and cargo movements at all Brazilian seaports. This system aims to reduce customs clearance delays, improve the transparency of the customs process and provide government authorities with more information on import and export shipments. It will also incorporate Mercante, a system developed to control and collect the additional freight fee for renewal of the merchant marine.

Companies involved in the supply chain (e.g., freight forwarders, carriers, consolidators, transportation companies) must electronically submit the appropriate information to the Siscargo system in advance of shipment; no written or paper documentation is allowed. This information will allow authorities to monitor the cargo while it is en route and impose any necessary controls. The required information includes a cargo manifest (master bill of lading) that includes the registration (CNPJ) number or the code (if a foreign company) of the shipping company (shipowner or transporter), the CNPJ number of the shipping company’s representative and data on any empty containers. Also required is a house bill of lading with the net and gross weight of the cargo (in kilograms), the volume of the cargo (in cubic meters), an identification of the exporter or shipper, a description of the goods (including four-digit tariff number), the CNPJ (for companies) or CPF (for individuals) number of the consignee, a list of empty cargo containers, and the country from which the goods were shipped to Brazil.

All required information must be presented to the Brazilian Secretary of Federal Revenue in accordance with the following deadlines (which may be adjusted depending on the route of the vessel).

• Information regarding the vessel and its gross weight: five days before the arrival of the ship at the Brazilian port

• Master or house bill of lading information for export shipments
- five hours before ship departure for bulk shipments
- 18 hours before ship departure for other shipments
- five hours before ship departure for packing note CAB (coastal navigation), BNC (connection transfer of national shiploads) and ITR (interior navigation)

• Master or house bill of lading information for import shipments
- 48 hours before ship arrival for shipments to be unloaded or for the remaining cargo on board

Companies will be subject to penalties of about $3,000 (5,000 Brazilian reals) plus other administrative penalties for submitting incorrect information, failing to meet the appropriate deadline or otherwise not complying with the requirements. However, Brazilian customs authorities are not expected to begin imposing these penalties until Jan. 1, 2009, in order to give both government and business time to adjust to the new requirements.


© 2008, Sandler, Travis & Rosenberg, P.A. Originally published in the [date] issue of ST&R’s WorldTradeInteractive. Reprinted by permission.

04-23-2008
Senators Ask DHS to Withdraw Proposal to Revoke First Sale Rule
A bipartisan group of senators wrote to Homeland Security Secretary Michael Chertoff April 17 urging the withdrawal of a proposal that would substantially increase costs for consumers and businesses that rely on imports. The letter was sent just days before the April 23 deadline for public comment on U.S. Customs and Border Protection’s proposal to revoke the First Sale Rule, which saves U.S. businesses and consumers millions of dollars each year by allowing import duties to be assessed on the value of the first sale when an import transaction involves a series of sales (e.g., from the factory to the middleman and then to the buyer).

The letter argues that eliminating the first sale methodology would unilaterally and arbitrarily reverse a well-settled practice of customs valuation and undermine nearly 20 years of federal court jurisprudence. In addition, the senators said, the proposal would raise consumer prices and could force U.S. companies to restructure and possibly eliminate business units that have been built around this practice, hindering ongoing efforts to provide stimulus to the U.S. economy. The letter concluded that the proposed change is “procedurally and substantively wrong” and called on CBP to consult with Congress and the trade community before taking any further action.


© 2008, Sandler, Travis & Rosenberg, P.A. Originally published in the [date] issue of ST&R’s WorldTradeInteractive. Reprinted by permission.

04-16-2008
BIS Official Outlines How Export Compliance Programs are Evaluated
A Bureau of Industry and Security official recently discussed publicly for the first time the nine principles the agency uses to evaluate export compliance programs in the context of assessing administrative penalties. Assistant Secretary of Commerce for Export Enforcement Darryl Jackson told the BIS Export Control Forum in Newport Beach, Calif., that ensuring compliance with export control laws is “the most significant thing” companies can do to help the federal government protect national security.

With export enforcement activity on the rise, Jackson said, compliance is more important than ever. He pointed out that the International Emergency Economic Powers Enhancement Act signed into law last year increased administrative penalties for violating the Export Administration Regulations from $50,000 to the greater of $250,000 or twice the amount of the transaction. That law also increased the ceiling for criminal penalties from $50,000 and 10 years in prison to $1 million and 20 years. In addition, Jackson said, more criminal prosecutions can be expected given that the Department of Justice is focusing more of its resources on export violations.

Although compliance programs are primarily designed to help exporters avoid violations and enforcement actions, Jackson noted, they also offer significant benefits if violations are discovered. He noted that having an effective compliance program will enable exporters to receive “great weight mitigation” – a 25 percent reduction – in administrative penalty cases if that program was in place before the violation occurred and the exporter has taken steps to address any compliance concerns raised by the violation.

Program Evaluation Principles. According to Jackson, the BIS applies the nine principles listed below in deciding whether a compliance program is effective and entitled to great weight mitigation. Although there is no “one size fits all” compliance program, he said, “to be effective, all export compliance programs, no matter how large or small the company, no matter how simple or complex the business, will evidence” these principles, which must not only appear in the design of the program but must also be actually implemented.

• Whether the company has performed a meaningful risk analysis – Among other things, exporters must consider the types of goods they are exporting and the destinations to which they are bound as well as the likelihood of diversion. It is critical that companies periodically revisit their risk analyses as their business models change over time and become different or more complex.

• The existence of a formal written compliance program – Without a written program there is no baseline from which to measure its effectiveness and no common goals set or communicated to others.

• Whether appropriate senior officials are responsible for overseeing the program – People at a high level of responsibility should be put into oversight positions for all export-related matters. Export compliance should not be left to “some isolated, lower-level person in the company.”

• Whether adequate training is provided to employees – Training must be ongoing and companies must maintain records showing that they provided appropriate training.

• Whether the company adequately screens its customers and transactions – Export compliance programs must have the proper controls in place, including export screening mechanisms. The BIS Web site includes “Know Your Customer” guidance as well as various lists against which export transactions should be screened.

Continued

© 2008, Sandler, Travis & Rosenberg, P.A. Originally published in the [date] issue of ST&R’s WorldTradeInteractive. Reprinted by permission.

04-16-2008
Continued

• Whether the company meets recordkeeping requirements – To properly document the transactions in which they have engaged, exporters should ensure that they meet the recordkeeping requirements in the EAR and maintain the kinds of records commonly expected in their line of business.

• The existence and operation of an internal system for reporting export violations – Systems for reporting suspected violations enable exporters to look into such matters further and take appropriate action, including making voluntary self-disclosures, for which the BIS mitigates administrative penalties by 50 percent.

• The existence and result of internal/external reviews or audits – Exporters must test their compliance programs by running periodic audits of some kind and modify their procedures in light of what those audits show. In addition, Jackson said, it is probably time for exporters to review and revise their programs in light of recent developments in the law, in business and elsewhere.

• Whether remedial activity has been taken in response to export violations – It is important for exporters to take appropriate disciplinary actions against employees who commit violations. “If either the prosecutors or I get to those problems and employees first,” Jackson said, “it will be worse for everyone involved, including your company.”

Burden on Exporters. Jackson emphasized that exporters bear the burden for demonstrating that their compliance programs are effective. “Accordingly,” he said, “everything that you do, including the manner in which you present the papers to us, should be geared toward carrying that burden.” For example, merely sending the BIS a binder of materials or conducting a “document dump” is not likely to be effective. Exporters who have not proven their case should expect the attorneys in the BIS’ Office of Chief Counsel to “push back” and, if necessary, to recommend that the company not be granted great weight mitigation. Even if such mitigation is recommended, Jackson said, exporters should make the OCC attorneys “look good, because the final decision is mine” and “I will not accept their recommendation if I find it is not adequately supported by the evidence you have submitted.”

© 2008, Sandler, Travis & Rosenberg, P.A. Originally published in the [date] issue of ST&R’s WorldTradeInteractive. Reprinted by permission.