Earlier this year, World Trade Center Utah launched its "10 Tips to Help you Think, Act and Succeed Globally." Since the launch, we have featured corresponding articles in the export toolbox section of our newsletter. We are pleased to revisit these "10 Tips" and dig deeper into topics that will be important as you pursue international business opportunities.
Our fifth tip, "Know the Rules of the Game," made you aware of the different types of laws and regulations involved in exporting. This article will give you a deeper view of some of the domestic regulations that you need to be aware of.
As you may know, foreign governments are not the only entities you have to work with when exporting. The U.S. government is very interested in what you are shipping outside of the country. Specifically, the U.S. government uses product classifications to identify categories of products that could represent potential for national harm, security threats or policy violations.
If your product is classified within certain categories, the U.S. government may require you to have an export license, or may even ban the selling of your product to a specific country or party. Restrictions vary from country to country and from item to item.
Classification. Just as your product will be classified under a specific HS code, your product will also be classified according to its potential threat level. The Export Administration Regulations division (EAR) is in charge of classifying the security threat levels of products exported from the U.S. The classification numbers are referred to as Export Control Classification Numbers (ECCN) and they determine if the product requires a license. The classification numbers can be found on the Commerce Control List (CCL).
If your product is not listed on the CCL then it falls into a general product category that is designated as EAR99. Most commercial products are designated as EAR99 and generally do not require a license to be exported or re-exported. However, if your product is classified other than EAR99, you will need to apply for an export license with the correct U.S. bureau. Export licenses require an application to either the State Department or the Department of Commerce, depending on who has jurisdiction over your type of product, and generally take several months to obtain.
Prohibited Countries/Parties. Even if your product has been classified as an EAR99, you cannot export to certain sanctioned counties or to parties that are of concern to the U.S. government. If you export to these countries or parties, you will be investigated, fined and possibly criminally charged. A list of the prohibited parties can be found here, and the list of prohibited countries can be found here. Many industry professionals use third-party software programs that quickly screen buyers or hire a freight forwarder to take care of this process.
Because different government bureaus implement different sanctions/regulations, you will want to make sure that you thoroughly search the regulations of other departments regarding your product (primarily the Bureau of Industry and Security, the Office of Foreign Assets Control, the U.S. Customs department and the Department of State).
Foreign Corrupt Practices Act. The Foreign Corrupt Practices Act (FCPA) addresses the practice of U.S. companies bribing foreign officials. The FCPA finds that any bribe to a foreign official motivating them to act outside of their routine duties is criminal and can be subject to large financial penalties. Siemens AG, for instance, had to pay a $450 million penalty fine in 2008 for violating the FCPA.
Other Laws. The FCPA highlights the fact that as long as you are basing your international business inside the U.S., you should abide by U.S. business standards and regulations in your international activities. The U.S. government enforces business standards internationally through acts like the FCPA, as well as additional regulations that prevent international antitrust violations or illegal transfer-pricing. It is your duty to be aware of these standards so you do not violate them.