U.S. Senate Passes Bill Extending GSP Program and Raising MPF on Imports

The U.S. Senate last night passed H.R. 2832, legislation that will renew the expired Generalized System of Preference (GSP) program and extend the program until July 31, 2013. Because the Senate version included an amendment to extend the Trade Adjustment Assistance program, the House will have to vote on the Senate version of the bill before it is sent to President Obama for signature. Nevertheless, the bill should be enacted into law soon.

Importantly, the legislation provides that the GSP program will be renewed retroactively for all GSP eligible entries made after December 31, 2010. Once the bill has been signed into law CBP will issue instructions on how to obtain refunds for all GSP eligible imports entered during the past year.

When the GSP program expired in the past U.S. Customs and Border Protection (CBP) automatically liquidated or reliquidated items flagged in the ABI system with the GSP Special Program Indicator (SPI) "A" as duty-free and issued refunds to importers without the need to submit individual claims.

Nevertheless, U.S. importers should ensure that their customs brokers continue to use the GSP Special Program Indicator for eligible entries and to monitor their post December 31, 2010 GSP entries to ensure that the correct refunds are received. The bill provides that any unflagged GSP eligible entries must be submitted to CBP within 180 days after the enactment of this bill.

U.S. importers should also aware that the GSP renewal bill contains an increase in the Merchandise Processing Fee (MPF) on ALL applicable U.S. imports starting on October 1, 2011. The MPF will increase from 0.21% ad valorem to 0.3464% ad valorem. However, the MPF paid on a single entry will still be capped at $485.

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Registration for U.S.-China High Technology Working Group Program on September 26th Ends Tomorrow

Tomorrow is the last day to register for the third annual U.S.-China High Technology Working Group  (HTWG) Public-Private Sector Dialogue that will be held in Washington, DC on Monday, September 26, 2011.

The HTWG was established for the U.S. and China to provide an update on their export control policies and practices, to offer an opportunity for U.S. and Chinese companies to interact directly on these issues, and to learn from individual U.S. and Chinese exporters about the ways in which the two governments can support high technology trade for civilian end-uses.

The program, which is being presented in partnership with the National Association of Manufacturers (NAM), includes an excellent line-up of speakers, including high-level U.S. and Chinese officials from the U.S. Department of Commerce's Bureau of Industry and Security (BIS) and China's Ministry of Commerce (MOFCOM), as well as industry panels addressing the semiconductor industry, aerospace/aviation issues and export compliance practices.

The current agenda and registration information can be found here.

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Guest Post on Census Blog Serves as Important Reminder on Certificate of Origin Accuracy

There was an important guest post for exporters published today on Global Reach, the blog of the U.S. Census Bureau's Foreign Trade Division.

The post by Chris Mead, Senior Vice President of the American Chamber of Commerce Executives, dealt with the accuracy of certificates of origin provided by U.S. companies to overseas customers.

The post notes that:

Certificates of origin are used to determine where products were made and thus can affect how much duty is levied on imports, whether imports are exceeding quotas or not, and whether the imports comply with local health and product safety regulations. The simple documents, usually just a page in length, can also affect the price of imports: many people overseas will pay more for items they think are made in the United States.

So the stakes are high on these seemingly innocuous documents. Around the world, they are treated with care. In the United States, people frequently handle outgoing certificates of origin with little attention and varying standards, even though U.S. Customs monitors incoming certificates of origin with vigilance.

Customers in foreign countries often request certificates of origin, which are intended to provide the "country of origin" of goods, be completed by local chambers of commerce in the U.S. Like all international trade-related documents, certificates of origin, which are typically based on a rule of origin involving the "substantial transformation" standard and are different than certificates of origin associated with Free Trade Agreements such as NAFTA, must be completed accurately.

As this post points out though, many persons and companies in the U.S. do not take the issuance of such documents seriously which casts doubt on the credibility of the documents and the underlying transaction.

This post serves as a useful reminder that U.S. exporters and their agents should take steps to ensure that all international trade-related documents presented to overseas customers and customs authorities are correct and accurate. This includes Certificates of Origin prepared for "origin's sake"; Certificates of Origin prepared for Free Trade Agreement purposes, such as NAFTA Certificates of Origin; Commercial Invoices (values and descriptions) and other related documents.

As this post correctly states, "the world’s importers should have confidence in the certificates issued in the United States. Let’s not let them down."

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U.S. Lifts Most Financial Sanctions on Libyan Government

Yesterday, the United States Government lifted most of the financial sanctions on Libya that were imposed on February 25, 2011 by Executive Order 13566. These actions were taken after the United Nations Security Council last Friday approved Resolution S/Res/2009 (2011) which lifted most multilateral sanctions on the Libyan Government.

The Office of Foreign Assets Control (OFAC) implemented the U.N. resolution via two additional General Licenses, General Licenses 7A and 8.

General License 7A allows all new transactions with Libya’s National Oil Company (NOC) and the affiliated companies named in the amended General License. In addition, General License 7A unblocks all previously blocked property owned or controlled by NOC and the named affiliates. General License 7A requires financial institutions to file an email report with OFAC within 10 business days of the release of any blocked funds, including cash and securities, to the email address included in the general license.

General License 8 authorizes new transactions with the Government of Libya, its agencies, instrumentalities, and controlled entities, as long as they are not included on the list of 19 persons named on the GL (and are included on OFAC’s SDN List with the [LIBYA2] designation. However, General License 8 does not allow payment of previously blocked transactions and thus any prior transactions that were blocked cannot be paid until OFAC issues a specific or general license authorizing prior transactions.

While business activities involving Libya are not likely to normalize for some time, these new general licenses will make it easier for U.S. companies and financial institutions to resume their business activities in Libya as long as they are aware of the constraints that still exist, including that a large number of transactions and funds remain blocked. Blocked transactions may not be paid or finalized until a specific license is issued by OFAC.

Libya still remains subject to export controls administered by the Department of Commerce's Bureau of Industry and Security (BIS) and all export licenses remain suspended until further notice .

In addition, exports to Libya remain subject to restrictions imposed by the Directorate of Defense Trade Controls, which includes the suspension of all export licenses for defense articles and technical data that have been issued under the ITAR. In addition, no ITAR exemptions may be utilized to export items subject to the ITAR to Libya.

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State Department Finally Publishes Notice Regarding Iran Sanctions Announced in May and Admits Sanctioning Wrong Entity

The State Department will finally publish in tomorrow’s Federal Register a formal notice regarding the sanctions imposed on seven non-U.S. companies announced on May 24, 2011 for engaging in activity that violated the Iran Sanctions Act of 1996 (ISA), as amended by the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA).

The sanctioned companies included in the May 24, 2011 announcement were: Associated Shipbroking, Petróleos de Venezuela S.A. (PDVSA); Petrochemical Commercial Company International (PCCI), Royal Oyster Group, Speedy Ship FZC, Tanker Pacific Management (Singapore) Pte. Ltd. and Ofer Brothers Group.

This Notice provides a list of the specific sanctions imposed on each of the named companies. In addition, the Notice specifies, in relation to each sanctioned entity, whether the penalties apply "with respect to [the named company] and not to any subsidiary, affiliate, or shareholder thereof unless separately identified", or alternatively specify that the penalties "also apply with respect to any person in which [the named company] has an interest of fifty percent or more." The two prior Federal Register notices announcing ISA sanctions did not contain this language. This new language is useful to clear up confusion among commercial counterparties, and especially among financial institutions, dealing with affiliates of designated persons.

An important aspect of the formal notice is that the State Department eliminated the sanctions on Israel’s Ofer Brothers Group and replaced them with Allvale Maritime Inc. (based in Liberia) and Société Anonyme Monégasque D’Administration Maritime Et Aérienne (SAMAMA) (based in Monaco), companies that are owned by the Ofer Brothers Group.

A State Department official today admitted that it sanctioned the wrong entity in its May 24th announcement, stating:

"In issuing this clarification, our intent was to sanction the specific entities in the Sammy Ofer shipping organization that were responsible for providing a tanker to Iran. The use of the name ‘Ofer Brothers Group,’ a commonly used trade name, caused confusion for some banks and companies that were trying to comply with U.S. sanctions. The complex nature of the conglomerate's business structure necessitated that we take the time to look closely at these companies in order to ensure that we were identifying the precise legal names of the entities directly responsible for the sanctionable transaction."

The sanctions imposed on PDVSA, Associated Shipbroking, PCCI, Royal Oyster Group, Speedy Ship FZC, and Tanker Pacific Management (Singapore) Pte. Ltd. remain unchanged from the original notice.

Depending on the sanctioned company, these sanctions include a prohibition on: U.S. financial institutions from making loans or providing credits totaling more than $10 million in any 12-month period, obtaining U.S. government contracts, from receiving financing from the Export-Import Bank of the U.S. and from being a part to U.S. export licenses. Crude oil exports from PDVSA to the U.S. are not affected by these sanctions.

To date, the Treasury Department's Office of Foreign Assets Control (OFAC) has not yet provided guidance to financial institutions on how to interpret and apply the prohibition on loans or credits over $10 million in any 12-month period, which has been imposed on five different sanctioned companies since October 2010.

In addition, the Commerce Department's Bureau of Industry and Security (BIS) has not made any public statement on how it intends to implement the export sanctions on PDVSA and other companies. Under ISA export sanctions, the U.S. Government may not issue any specific license and shall not grant any other specific permission or authority to export any goods or technology to the sanctioned companies.

In another interesting development, Tanker Pacific Management (Singapore) Pte. Ltd. (TPM) today issued a press release stating that the ISA sanctions were a result of PM’s role in managing the 2010 sale of the tanker Raffles Park to Coral Light Asset Corp (Panama), an company nominated by the buyers. The statement indicates that due diligence carried out by TPM at the time of the sale included checking OFAC’s SDN List and the buyers did not appear on the list and the company’s due diligence uncovered no evidence that the buyers had any links to Iran. TPM noted that it was later informed by the U.S. Government that the buyers acted as front companies for the Islamic Republic of Iran Shipping Lines (IRISL). The statement also indicates that had TPM been aware that “the buyers were acting on behalf of Iranian interests, this sale would never have gone ahead.”

To address this issue and improve the company’s internal compliance procedures, TPM announced that it has implemented the following enhanced due diligence measures:

• comprehensive risk assessment: we will continue our ongoing comprehensive risk assessment to identify and mitigate areas of potential risk;
• enhanced counterparty screening procedures: we have instituted new procedures including additional pre-transaction due diligence and independent third party screening to assess the profile of potential counterparties more effectively;
• compliance manager: we have recruited a dedicated compliance manager;
• mandatory training programs: we are putting in place robust training programs for all relevant personnel;
• regular compliance procedure reviews: we will conduct ongoing compliance reviews to update our procedures, reflecting changing business operations and evolving legal requirements.

These additional measures serve as a useful guide to other companies on the need to performing additional due diligence on prospective buyers and helping to ensure compliance with ISA/CISADA and other U.S. sanctions programs.

The last page of the Federal Register notice contains a complete list of companies that have been sanctioned under the Iran Sanctions Act. The complete list is as follows:

• Allvale Maritime Inc.
• Associated Shipbroking (a.k.a. SAM)
• Belarusneft (see 76 Fed. Reg. 18821, April 5, 2011);
• Naftiran Intertrade Company (see 75 Fed. Reg. 62916, Oct. 13, 2010).
• Petrochemical Commercial Company International (a.k.a. PCCI)
• Petróleos de Venezuela S.A.
• Royal Oyster Group
• Société Anonyme Monégasque D’Administration Maritime Et Aérienne (a.k.a. S.A.M.A.M.A., a.k.a. SAMAMA)
• Speedy Ship (a.k.a. SPD)
• Tanker Pacific Management (Singapore) Pte. Ltd.

 More information on the Iran Sanctions Act sanctions announced on  May 24, 2011 can be found here.

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OFAC Issues Additional Syria and Libya Sanctions General Licenses

On September 9, 2011, the Treasury Department's Office of Foreign Assets Control (OFAC) issued several general licenses relating to the U.S. sanctions programs on Syria and Libya. The following is an overview of these general licenses:

Libya General License

In the biggest change involving the current round of sanctions imposed by Executive Order 13566 on Libya on February 25, 2011, OFAC issued General License No. 7 which authorizes U.S. persons and companies to engage in transactions involving the following 16 subsidiaries of the Libyan National Oil Corporation located in Libya, Germany, Netherlands and other countries without having to obtain a specific license from OFAC:

• Arabian Gulf Oil Company
• Azzawiya Oil Refining Company
• Brega Petroleum Marketing Company
• Harouge Oil Operations
• Jamahiriya Oil Well Fluids and Equipment
• Libya Oil
• Mediterranean Oil Services Company
• Mediterranean Oil Services GmbH
• National Oil Fields and Terminals Catering Company
• North African Geophysical Exploration Company
• National Oil Wells Drilling and Workover Company
• Oilinvest Netherlands B.V.
• Ras Lanuf Oil and Gas Processing Company
• Sirte Oil Company for Production of Manufacturing of Oil and Gas
• Tamoil Group
• Waha Oil Company

It is important to note that General License No. 7 does not authorize transactions with the Libyan National Oil Corporation, Zueitina Oil Company or any other persons whose property and interests in property remain blocked pursuant to Executive Order 13566.

While OFAC has issued several other Libya general licenses, including General License No. 6 on August 19, 2011 that authorizes transactions with the Transitional National Council of Libya (formally known as the National Transitional Council), a large number of companies and entities in Libya remain blocked.

A summary of Executive Order 13566 and the current sanctions on Libya can be found here.

Because of the fast moving events in Libya U.S. persons and companies should proceed with caution before engaging in any business or financial transactions with Libya.

Syria General Licenses

OFAC issued the following four narrowly tailored general licenses with respect to the U.S. sanctions imposed on Syria on August 17, 2011 under Executive Order 13582:

General License 7​ - Authorizes transactions until November 25, 2011 that are incident and necessary to wind down contracts involving the Government of Syria. Also authorizes the divestiture to foreign persons of a U.S. person's investments in Syria.

General License 8 ​ - Authorizes U.S. persons to engage in transactions and activities in Syria associated with the United Nations and related programs and funds, including the World Health Organization, IMF, UNICEF, etc. Note 1 to the General License contains a reminder on the need to comply with other U.S. legal requirements, such as the Export Administration Regulations.
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General License 9 - Authorizes U.S. persons residing in Syria ​to pay to the Government of Syria personal expenses, such as housing, utilities, goods and services, taxes and fees.

General License 10​ - Authorizes U.S. financial institutions to operate accounts for non-blocked individuals in Syria as long as the transactions are for non-commercial purposes and do not involve transfers to Syria or for the benefit of persons residing in Syria.

A summary of Executive Order 13582 and the current sanctions on Syria can be found here.

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BIS Publishes New Best Practices for Preventing Unlawful Diversion of Dual-Use Items Subject to the Export Administration Regulations

The U.S. Department of Commerce's Bureau of Industry and Security today published on its website a series of new "Best Practices for Preventing Unlawful Diversion of U.S. Dual-Use Items Subject to the Export Administration Regulations, Particularly through Transshipment Trade."

These seven new best practices are being issued by BIS following last year's publication in the Federal Register of a notice of inquiry requesting public comments on a draft version of the first update to best practices on transit, transshipment and reexport of dual-use items since 2003.

In response to the notice of inquiry, BIS received written comments from industry and many additional comments through meetings with trade associations, exporters, freight forwarders, carriers, software vendors, advisory committees and other government agencies. As a result of this input, BIS substantially modified several of the proposed best practices in the final version, including combining two of the proposed best practices into one and adding a new best practice (No. 7) regarding the use of information technology.

In publishing these seven industry best practices BIS noted that, while this guidance  practices as it applies to items and transactions that are subject to the EAR, it has broader potential applications. BIS indicated that it envisions this guidance as a step toward a strengthened dialogue with all members of the export logistics supply chain industry, other agencies that administer export controls, and foreign governments in a manner that may make the guidance pertinent beyond its application to the EAR.

Best practice No. 4 is particularly noteworthy, and is likely to generate the most interest among exporters and freight forwarders, since it recommends that companies "avoid routed export transactions when exporting and facilitating the movement of dual-use items unless" there is a "long standing and trustworthy relationship" between the exporter, foreign buyer and the foreign buyer's freight forwarders. A "routed export transaction is defined in Census' Foreign Trade Regulations (15 CFR Part 30) is when a Foreign Principal Party in Interest (e.g., a non-U.S. buyer) authorizes a freight forwarder or other agent in the U.S. to facilitate export of items from the United States on its behalf and prepare and file the Electronic Export Information (EEI). Many exporters of controlled items, whether they are subject to the EAR or ITAR, already prohibit routed export transactions unless they are confident that the buyer of the goods will comply with any restrictions on the diversion or transfer of the exported products. On the other hand, many non-U.S. customers prefer to hire their own freight forwarder in the U.S., particularly when they want to consolidate shipments in the U.S. prior to being exported.

It is important to note that these best practices are recommendations only. While exporters and freight forwarders are recommended to implement these best practices, to the extent possible, there is no legal obligation to comply with these best practices, absent a legal requirement that is set forth elsewhere in the Export Administration Regulations (EAR). In addition, compliance with these best practices creates no defense to liability for the violation of export control laws. However, BIS has indicated that demonstrated compliance with these best practices by a company will be considered an "important mitigating factor in administrative prosecutions arising out of violations of provisions of the EAR that apply to transit, transshipment or reexport transactions."

While these best practices are issued by BIS and are intended for exports of dual-use items subject to the EAR, many of the same principles are applicable to exporters that export defense articles subject to the jurisdiction of the ITAR.

2011 Best Practices for Preventing Unlawful Diversion of U.S. Dual-Use Items Subject to the Export Administration Regulations, Particularly through Transshipment Trade

The following reflect new best practices that guard against diversion risk, particularly through transshipment trade.

Best Practice No. 1 – Companies should pay heightened attention to the Red Flag Indicators on the BIS Website and communicate any red flags to all divisions, branches, etc., particularly when an exporter denies a buyer’s order or a freight forwarder declines to provide export services for dual-use items.

Best Practice No. 2 - Exporters/Re-exporters should seek to utilize only those Trade Facilitators/Freight Forwarders that administer sound export management and compliance programs which include best practices for transshipment.

Best Practice No. 3 - Companies should “Know” their foreign customers by obtaining detailed information on the bona fides (credentials) of their customer to measure the risk of diversion. Specifically, companies should obtain information about their customers that enables them to protect dual-use items from diversion, especially when the foreign customer is a broker, trading company or distribution center.

Best Practice No. 4 - Companies should avoid routed export transactions when exporting and facilitating the movement of dual-use items unless a long standing and trustworthy relationship has been built among the exporter, the foreign principal party in interest (FPPI), and the FPPI’s U.S. agent.

Best Practice No. 5 - When the Destination Control Statement (DCS) is required, the Exporter should provide the appropriate Export Control Classification Number (ECCN) and the final destination where the item(s) are intended to be used, for each export to the end-user and, where relevant, to the ultimate consignee. For exports that do not require the DCS, other classification information (EAR99) and the final destination should be communicated on bills of lading, air waybills, buyer/seller contracts and other commercial documentation. For re-exports of controlled and uncontrolled items, the same classification and destination specific information should be communicated on export documentation as well.

Best Practice No. 6 - An Exporter/Re-exporter should provide the ECCN or the EAR99 classification to freight forwarders, and should report in AES the ECCN or the EAR99 classifications for all export transactions, including “No License Required” designation certifying that no license is required.

Best Practice No. 7 - Companies should use information technology to the maximum extent feasible to augment "know your customer" and other due-diligence measures in combating the threats of diversion and increase confidence that shipments will reach authorized end-users for authorized end-uses.

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