International Expansion

In a June 12 post, we told you about U.S. Customs and Border Protection’s (CBP) plan to expand the previously importers only Customs-Trade Partnership Against Terrorism (C-TPAT) certification program to include exporters. As you may recall, C-TPAT certified importers have been enjoying a “lower level of scrutiny” when it comes to reviews of their documentation at the border in addition to other advantages. After a summer spent ironing out the details CBP has released a set of exporter eligibility requirements and is now accepting exporter applications. CBP has released a Fact Sheet for C-TPAT Export Entity hopefuls that can be found here.

It’s important to note that companies involved in international trade are increasing requiring all their foreign partners to satisfy similarly strict security and export compliance standards in order to avoid getting embroiled in trouble with their respective governments or suffering a public relations backlash (think Wal-Mart in Bangladesh or Apple in China). In light of this clear trend, the C-TPAT exporter program offers the opportunity to partner with CBP to get a leg up in ensuring your overall corporate compliance program is up to par and gain some additional benefits in the process, including:

  1. Increased facilitation of exports from foreign partners located in countries that have established Mutual Recognition Arrangements with the United States
  2. The ability to market the fact that C-TPAT certified cargo is secure
  3. Prioritized processing examinations over non-C-TPAT parties, reduced rates and times
  4. Increased coordination with C-TPAT partners during shipping disruptions
  5. Individually-assigned C-TPAT Supply Chain Security Specialist (SCSS) available to assist with supply chain security inquiries
  6. Access to C-TPAT trainings and seminar and various multi-media supply chain materials
  7. Use of C-TPAT common standards and security requirements that facilitate international trade by reducing the duplication of procedures

To be eligible, a company must:

  1. Be an active U.S. exporter (exporting out of the U.S.)
  2. Have a business office staffed in the U.S.
  3. Have an Employer Identification Number or Dun & Bradstreet number
  4. Have a documented export security program and designate an officer or manager as the C-TPAT point of contact and one as an alternate
  5. Commit to maintaining the C-TPAT supply chain security criteria
  6. Create/provide security profile to CBP outlining how applicant will enhance internal policies to satisfy C-TPAT security criteria
  7. Have an acceptable level of compliance for export reporting for the last twelve months and be in good standing with U.S. Federal Government departments

This could be a powerful tool in your efforts to streamline your company’s international transactions and increase profits, not to mention the fact that C-TPAT offers eligible exporters the opportunity to better protect themselves against inadvertent yet costly violations and participate in the greater effort to strengthen global supply chain security by allying themselves with CBP and working with it to strengthen their compliance procedures.


As of today, all you exporters out there following news reports of the ever-evolving U.S. sanctions program related to the situation in Ukraine need to know the following:

The Ukraine-Related Sanctions Regulations currently grant the U.S. Treasury’s Office of Foreign Assets Control the power to single out individuals and entities with whom U.S. persons can’t do business.

Thus, if you have either a longstanding business relationship or are looking to establish new business connections with people or companies that may have ties to Ukraine or Russia you need to use OFAC’s search tool, located here,, to make sure that your potential business partners are not listed as Specially Designated Nationals or Blocked Persons that you consequently can’t do business with.  It’s important to note that although there are roughly 60 individuals and entities listed at this particular time, the U.S. government has confirmed that it is willing to expand the scope of the sanctions program in response to any future actions taken by Russia to destabilize Ukraine.  This means the list could change daily, so check early and check often.

Beyond this check, it is also important to note that both the Commerce Department’s Bureau of Industry and Security and the State Departments Directorate of Defense Controls have begun to deny pending license applications for exports or re-exports to Russia or Crimea.  But if your export does not need a license from either State or Commerce, and your business partner is not on the Specially Designated Nationals or Blocked Persons List, you can still go forward with the transaction.

Again, keep in mind that these sanctions can change at any time in response to changing circumstances in Ukraine, so these considerations reflect the state of the sanctions regime on June 2, 2014 and may change.

Export controls and the International Traffic in Arms Regulations (ITAR) have hit the big leagues.  Even NPR’s Martin Kaste is covering it!  I think such coverage is great because outside of the University research communities not everyone has gotten the memo.

Just because a product can be used on a commercial item doesn’t mean it isn’t controlled for export.  You have to run through a series of questions to determine the answer.

Information you need:

  1. End use
  2. End User
  3. Where it is going
  4. Technical specifications
  5. Design process

Then you perform the catch and release analysis.  If you are grabbing a copy of ITAR or Googling it.  BE CAREFUL.  You must get an up to date copy and the government links are not all up to date.  Recent ITAR changes took place in January so you need a post January 2014 copy of the regulations. For more information on the new catch and release process to determine if a product is controlled see our article on ECR… or our blog on classification and catch and release??  Bottom line. You need to do your homework and train your company to avoid inadvertent error.

The second half of 2013 saw the continued expansion of FCPA enforcement by the DOJ and the SEC.  The decrease in the scope of protections afforded to whistleblowers will lead to an increase in the number of FCPA potential violations reported to the U.S. government.   The increase in  compliance violations reported to the government will likely lead to an increase in export violation prosecutions.  I say this because once an FCPA investigation begins the facts often show weak compliance in other areas such as export control compliance.    And, the penalties are getting crazy.  For example, Avon recently submitted a revised filing estimating that the FCPA-related fines levied against it would amount to $132 million.  I am speechless about this.  Avon isn’t selling missile detection systems.  Cosmetics is obviously a more competitive business than I realized.

Additionally,  it isn’t just the United States government you have to worry about.  If you do any business in the U.K, the U.K. Bribery Act  also applies to you with its strict liability provisions. The U.K. Act, has only one mitigating factor and it’s a robust compliance program meeting the Act’s requirements.   Starting on February 24, the United Kingdom will have the option of using deferred prosecution agreements (or DPAs) to enforce the UK Bribery Act 2010.  DPAs, already in use in the United States, seek to incentivize corporations under investigation by offering a negotiated resolution in return for cooperation with the investigation. They also provide a form of supervision of the remedial measures undertaken by a corporation after a violation occurs: if a company fails to implement the changes it agreed to, the government can revisit the “deferred” criminal case against it. And then there is the “imbedded probation agent” that the government assigns to a corporation which is like having an IRS agent camping out in your internal audit department.

So what is the point?  Don’t limit your focus to your anticorruption program.  An audit of an exporter arising out of a potential FCPA violation may unearth unrelated inconsistencies that lead to additional headaches.  To avoid this slippery slope in the event of an unforeseen FCPA investigation, you must have an up to date export compliance manual and licensing records sufficient to survive a thorough audit of all of the company’s practices, not just those related to bribery.  Can you easily put your hands on your training attendance sheets,  your list of product classifications and your anti-boycott procedures? If not, consider some spring cleaning and reorganization.

As State and Commerce continue to rollout the President’s Export Control Reform Initiative in stages, there is an increased likelihood that inadvertent errors will occur as employees scramble to familiarize themselves with changing regulations during this period of transition. By ensuring that your company implements and maintains up-to-date anticorruption and export compliance programs, you are insuring yourself against the possibility of a minor inadvertent error leading your company down a slippery, costly, and potentially embarrassing slope.

President Obama’s February 19 Executive Order outlines an initiative aimed at reducing supply chain barriers by simplifying filing processes and eliminating duplicative requirements in order to allow companies to concentrate on managing their businesses.

The Order includes two intimately related elements:

  1. The creation of a “single window,” dubbed the International Trade Data System (ITDS), where companies can submit required import and export documentation to the various agencies that play a part in regulating the transfer of goods across U.S. borders.
  2.  Establishment of a Border Interagency Executive Council to continually develop and reassess policies and procedures aimed at further coordinating the agencies involved in trade regulation in order to facilitate the transition to the ITDS.

The goal is to have the ITDS up and running by the end of 2016.  Although it is too soon to make any substantive changes to your company’s procedures you can best prepare your company by learning about the changes and preparing for the transition.  Keep in mind that more significant changes are on the horizon.  Just like the elements of the President’s Export Control Reform Initiative that began rolling out in stages this past October, the ITDS roll out will create a relatively uncertain time of transition during which the danger of inadvertent compliance errors caused by new and unfamiliar procedures will be heightened.

Consequently, you should plan to allocate additional time and resources in 2016 to ensure that the reforms do not catch you off guard and lead to costly penalties imposed by the government for noncompliance. And when the dust settles, the “single window” approach has the potential to greatly improve the ease with which companies satisfy their compliance obligations.

Are you proactively planning your expansion or are you reacting to a business opportunity? If you are reacting to a business opportunity, here is what I suggest you do. Start with doing diligence on your buyer/potential agent or distributor. To me this means:

  1. Screening the party against the government lists for parties with whom you can’t do business;
  2.  Provide the party with an anti-corruption questionnaire and certification; and
  3.  Ensure the company can pay you! One cost effective way to do this is using the U.S. Commercial Service’s International Company Profile. This is a great services. The only concern is you must let the company know you are doing the investigation because company executives will be interviewed.  You will get a report that includes:
  • A detailed credit report on your prospective foreign partner;
  • A listing of the company’s key officers and senior management;
  • Banking and other financial information about the company;
  • Market information, including sales and profit figures, and potential liabilities;
  • An opinion as to the reliability of the overseas partner; and
  • An opinion on the relative strength of that company’s industry sector in your target market.

The cost is lowered to $350 for new exporters using the service for the first time. The regular price ranges from $600-$900 depending on the size of the foreign company and takes about 20 business days to complete.

Then you are ready for a draft contract or more diligence on the party if the first round of vetting resulted in significant red flags.

Here’s a word of caution when dealing with commercial agents based in the EU:  the European Court of Justice (the “ECJ”) has recently ruled that EU Member States can implement mandatory commercial agency rules that will trump any choice of law clauses contained in particular agreements between parties, including arbitration clauses. The ruling stemmed from a case involving a Belgian commercial agent who entered into a commercial agency agreement in order to operate the principal’s container liner shipping service. A disagreement arose when the agent accused the principal of unlawfully terminating the agreement months before the date provided for in the contract. Although the parties’ agency agreement contained an arbitration clause that referred all disputes to the Bulgarian Chamber of Commerce and stipulated that Bulgarian law applies, the Belgian agent brought a claim against the principal in a Belgian court for compensation pursuant to Belgium’s Law on Commercial Agency Agreements. The law provided that “any activity of a commercial agent whose principal place of business is in Belgium shall be governed by Belgian law and shall be subject to the jurisdiction of the Belgian courts.”

Thus, the question was whether the Belgian law granting jurisdiction over the matter to the courts of Belgium and sanctioning the use of Belgian law trumps the choice of law clause in the parties’ agency agreement calling for arbitration of any dispute between the parties in Bulgaria under Bulgarian law.  The ECJ concluded that given the fact that a Member State’s mandatory national laws do not permit the Member State to deviate from such mandatory requirements in order to comply with EU law, a finding that Belgium’s Law on Commercial Agency Agreements imposed “mandatory” obligations on the Member State and the contracting parties would render the  arbitration clause in the agreement unenforceable.

What does this mean for you?

  1.  Simply pasting in a standard form arbitration clause may not be providing you with the protection you think it is.  The case illustrates the fact that your agent’s home country may have statutes that override terms in your agreement.  Thus, you want to perform more due diligence on potential local agents prior to entering into contracts.   You should go beyond merely understanding where the particular branch or office you are contracting with is doing business and find out if the agent is doing business in other countries with laws that could affect your agreement.
  2.  Also it is now even more important to have a basic understanding of what affect the agent’s local law will have on your agreement terms if a dispute should arise. You can then better assess the risk associated with the agreement and either account for that risk in the agreement or attempt to structure the business relationship in a different way in order to avoid exposure to that particular risk altogether.

As the world becomes more global and interconnected, a small business may have the opportunity to grow by exporting its products to foreign markets (or even may find its products are being exported by others). However, achieving success is not as simple as having a strong desire to sell products or services globally. Proper planning and compliance is a must. Here are three tips for a small business to help export confidently and grow its business in a foreign market.

Understand the Market

Understanding whether a particular country is a suitable market is essential to any successful export strategy. Be able to answer the question: “Why this country?” If you are unable to provide an answer, you should not go. To help you determine whether a particular market is suitable for you, ask yourself if there a market for your particular product or service. Also, understand the regulatory environment – are there limitations or restrictions that will impact your ability to sell your product or service in the country? Identify any other barriers to entry. Understand the sales and distribution network for your product or service in that particular country. Learn about your competitors and their products and prices. Understand how cultural differences may impact how you market your product or service.

Identify the Correct Partner

Many small businesses do not have the resources to effectively market and sell their product or service in a particular foreign market all alone. Identifying the right partner to assist you in the foreign market is critical. Do your due diligence when selecting a partner. Is the potential partner who he says he is and can he do what he says he can? Also, consider a company that sells a complementary product or service, that understands how to do business in the market and that has a good distribution network in the country. Determine whether the U.S. considers the potential partner to be a denied person or entity. Will you form a joint venture or engage the local partner as your agent or distributor? Know the repercussions for terminating the partnership before making your decision.

Take Advantage of Free U.S. Government Resources

Remember the U.S. government has agencies available to help a small business to export its product or service, including the United States Commercial Service, the Small Business Administration and the Export-Import Bank of the United States. For example, the United States Commercial Servics can help you with market research and identifying potential partners. The Small Business Administration provides counseling, training and financing to support small business export opportunities. The Ex-Im Bank can help you secure financial support that will enable you to expand your sales to existing markets and to enter new ones and can protect you against the risk of non-payment, enable you to extend credit, access working capital or provide term-financing to buyers. Many state and local governments also offer assistance to small businesses. In addition, retain appropriate advisors, including legal, accounting and a good freight forwarder. These individuals will help you understand regulatory issues, whether your proposed business is permitted, export compliance, and tax and trade treaties that may impact the structure of your export strategy. And last but not least, ensure you understand your obligations as an exporter. You must comply with U.S. export control requirements and sanction requirements.

Happy New Year!  As you plan for 2013, here are several items to think about and to incorporate into your business expansion plans. These actions could have a significant effect on U.S. businesses.

1.  Export Regulations will change – New trade agency to be considered

Our previous post discussed the combined efforts of Department of Commerce’s Bureau of Industry and Security and Department of State’s Directorate of Defense Trade Controls to streamline the export process under the Export Control Reform Act.  But that’s not all.  In 2013, companies can expect the consolidation of several federal agencies creating one department that will carry out the trade related tasks of the:

  • U.S. Department of Commerce
  • Export-Import Bank
  • Overseas Private Investment Corporation (OPIC)
  • Small Business Administration
  • U.S. Trade and Development Agency
  • Office of the U.S. Trade Representative

2.  The U.S. Government will try to expand opportunities for Service Industries

Global negotiations to boost and expand trade will commence in 2013.  This last month, the U.S. Government announced plans for talks with 20 countries regarding a service sector trade agreement.  Countries involved include members of the European Union, Canada, Mexico and Japan.  Notably, China will not be joining the negotiations.  Too bad.  Potentially, the negotiations may open the door for additional free-trade agreements.

What will the global trade agreement mean for your company?

  • Opportunities to expand your footprint within a predictable environment;
  • The removal of trade barriers and regulatory red tape; and
  • Transparency and job creation to support the expansion of

3.  Doing business in Russia?

With Russia’s accession to the World Trade Organization (WTO) last August, the U.S.pushed to normalize U.S./Russian trade relations.  To start, the U.S. repealed the Jackson-Vanik Amendment, an amendment that conditioned “normal trade relations” and Most Favored Nation (MFN) tariff rates on Russia emigration policies.  Under the WTO rules, this type of condition is not allowed.  Keeping the Amendment would of have allowed Russia to implement discriminatory trade measures against the U.S.

Moving quickly, the U.S. Government is already working with Russia to expand the economic potential for both countries.  Many U.S. agencies and offices are working on concrete ways to increase bilateral trade and investment.  Last month Russia and the U.S. agreed to an Intellectual Property Rights (IPR) Action Plan.  This plan will boost protection and enforcement of IPR.  Additionally the United States-Russian Federation Intellectual Property Working Group will continue to work on IPR issues and concerns.

How does this help your company?

  • Russian companies will want U.S. partners;
  • U.S. companies can sell into the Russian market with competitive pricing;
  • Skyrocketing demand for certain U.S.exports.  For example, agricultural products and machinery; and
  • Legal mechanisms and governmental programs will be created to protect and support parties engaged in U.S./Russian trade.

Inevitably, despite all these positive measures, disputes will arise.  This month Russia banned imports of U.S. and Canadian pork treated with certain growth enhancing drugs.  U.S. officials claim that this is a violation of Russia’s WTO commitments.  It seems the honeymoon is already over.

Takeaway: keep an eye out for developments effecting your business – both good and bad.