Routed Export Transactions April 25, 2015

Routed Export Transactions Moderator: Kelly Raia, Vice President Trade Compliance, Apex Logistics Panelists: Omari Wooden, Assistant Division Chief for Trade Regulations and Outreach , International Trade Management Division, Census Bureau Gerry Horner, Director, Office of Technology Evaluation, Bureau of Industry and Security Paulette Kolba, Chair, NCBFAA Export Compliance Sub-Committee

Common Scenarios - Topics that we’ll address Is it a routed export transaction? Who is the U.S. Principal Party in Interest (“USPPI”)? Who is the Exporter under the Export Administration Regulations (“EAR”)? Who is the Foreign Principal Party in Interest (“FPPI”)? Who is the Ultimate Consignee? What role do the INCOTERMS® play in the transaction? What is the forwarder responsibility in the particular transaction? There are many variations of commercial transactions. Routed Export Transactions attempt to address the responsibilities under various types of transactions. We’ll present 4 scenarios and address these questions. We’ll discuss some of the questions and interpretations that we see from exporters. Interactive – ask questions as we go along.

Scenario 1 Smith Tool Supply in Springfield, Ohio sold tools to Omega Manufacturing in Shenzhen, China. INCOTERM® stated on the contract is CFR (Cost and Freight) Shenzhen. Smith Tool Supply has hired ABC Forwarding, Inc. in Columbus, OH to transport the shipment via ocean freight to China. All charges are prepaid – for the account of the shipper. XYZ Forwarding China, Ltd. will handle customs clearance and delivery to Omega Manufacturing’s facility in Shenzhen. You might see CFR, or CPT or CIP (or you may not see INCOTERMs at all). The bottom line here is that the exporter is responsible for arranging the international transportation.

Scenario 1 Sold to / Ship to Freight arranged by USPPI/Shipper

Scenario 1 STANDARD EXPORT TRANSACTION Sold to / Ship to Freight arranged by USPPI/Shipper STANDARD EXPORT TRANSACTION

Scenario 1 Who is the USPPI? Who is the Exporter under the EAR? Who is the FPPI? Who is the Ultimate Consignee? What role do the INCOTERMS® play in the transaction? What is the forwarder responsibility in the particular transaction? Is it a routed export transaction? No. - transportation is arranged by USPPI. Who is the USPPI? Smith Tool Supply, US Who is the Exporter under the EAR? Smith Tool Supply, US Who is the FPPI? Omega Manufacturing, China Who is the Ultimate Consignee? Omega Manufacturing, China What role do the INCOTERMS® play in the transaction? From a regulatory standpoint, none. From a freight terms standpoint, the shipper is responsible for arranging and paying for the transportation. Forwarder Responsibility: If filing EEI, obtain POA from the USPPI Transmit data provided by the USPPI. Screen parties to the transaction

Scenario 2 Smith Tool Supply in Springfield, Ohio sold tools to Omega Manufacturing in Shenzhen, China. INCOTERMS® on contract are EXW (Ex Works). Omega Manufacturing has arranged for the transport through their local forwarding office, XYZ Forwarding in China. All charges are collect – for the account of the Buyer / FPPI. Omega has advised Smith Tool Supply to contact ABC Forwarding in Columbus, Ohio to arrange for pick-up of the cargo. XYZ Forwarding China, Ltd. will handle Customs Clearance and delivery to Omega Manufacturing’s facility in Shenzhen. This is a very common scenario especially in some trade lanes (like US to Latin America)

Scenario 2 Sold to / Ship to Freight arranged by FPPI / Buyer

Scenario 2 ROUTED EXPORT TRANSACTION Sold to / Ship to Freight arranged by FPPI / Buyer ROUTED EXPORT TRANSACTION

Scenario 2 Who is the USPPI? Who is the Exporter under the EAR? Who is the FPPI? Who is the Ultimate Consignee? What role do the INCOTERMS® play in the transaction? What is the forwarder responsibility in the particular transaction? Is it a routed export transaction? Yes – transportation arranged by the FPPI. Who is the USPPI? Smith Tool Supply, US Who is the Exporter under the EAR? Smith Tool Supply, US unless the FPPI signs a writing expressly taking on the role of Exporter (through a U.S. agent). Who is the FPPI? Omega Manufacturing, China Who is the Ultimate Consignee? Omega Manufacturing, China What role do the INCOTERMS® play in the transaction? From a regulatory standpoint, none. To comply with the INCOTERMS®, however, the USPPI may ask the FPPI to sign a writing taking on the role of Exporter under the EAR. What is the forwarder responsibility: If filing EEI, obtain POA from the FPPI (FTR) Transmit data provided by the USPPI Screen parties to the transaction If the FPPI signs a writing, they need an agent to act on their behalf. This may or may not be the forwarding agent. Forwarders must have a policy on whether or not they will agree to act in this role. Classification under the EAR Determine license authority End Use / End User checks

Scenario 3 Smith Tool Supply in Springfield, Ohio sold tools to Omega Manufacturing in Shenzhen, China showing INCOTERMS® on contract as FCA (Free Carrier) Columbus OH. Omega Manufacturing has arranged for the transport through their local forwarding office, XYZ Forwarding China, Ltd. in China. Omega Manufacturing has advised Smith Tool to deliver the cargo to ABC Forwarding in Columbus, Ohio. XYZ Forwarding China will handle Customs Clearance and delivery to Omega Manufacturing’s facility in Shenzhen. .

Scenario 3 Sold to / Ship to Freight arranged by FPPI / Buyer

Scenario 3 ROUTED EXPORT TRANSACTION Sold to / Ship to Freight arranged by FPPI / Buyer ROUTED EXPORT TRANSACTION

Scenario 3 Who is the USPPI? Who is the Exporter under the EAR? Who is the FPPI? Who is the Ultimate Consignee? What role do the INCOTERMS® play in the transaction? What is the forwarder responsibility in the particular transaction? Is it a routed export transaction? Yes – Triangle Trade Who is the USPPI? Smith Tool Supply, US Who is the Exporter under the EAR? Smith Tool Supply, US unless the FPPI signs a writing expressly taking on the role of Exporter. Who is the FPPI? Omega Manufacturing, China Who is the Ultimate Consignee? Prime Manufacturing, Malaysia What role do the INCOTERMS® play in the transaction? From a regulatory standpoint, none. To comply with the INCOTERMS®, however, the USPPI may ask the FPPI to sign a writing taking on the role of Exporter under the EAR. What is the forwarder responsibility: If filing EEI, obtain POA from the FPPI Transmit data provided by the USPPI Screen the parties to the transaction If the FPPI signs a writing, they need an agent to act on their behalf. This may or may not be the forwarding agent. Classification under the EAR Determine license authority End Use / End User checks Some US Exporters do not think that this is a routed export transaction. The USPPI may want to file their own EEI or ask their in house forwarder to do it. That’s OK, but they must be authorized by the FPPI to do so

Scenario 4 Smith Tool Supply in Springfield, Ohio sold tools to Omega Manufacturing in Shenzhen, China under INCOTERMS® EXW. Omega Manufacturing has re-sold the goods to their customer, Prime Manufacturing in Kuala Lumpur, Malaysia. To save transportation cost, Omega Manufacturing has asked their local forwarding office, XYZ Forwarding in China, to arrange transport directly from Smith Tool (US) to Prime Manufacturing (MY) and not to advise Smith Tool because Omega (CN) does not want to disclose their buyer to Smith.

Scenario 4 continued Omega Manufacturing (China) has instructed Smith Tool to contact ABC Forwarding in Columbus to arrange for pick-up. Swift Forwarding Malaysia Pte. Ltd. will handle Customs Clearance and delivery to the Prime Manufacturing’s facility in Kuala Lumpur. Many USPPIs fear that every Routed Export Transaction is being diverted to another party. Why does this happen – usually commercial reasons – to save transportation cost.

Scenario 4 Sold to Ship to TRIANGLE TRADE – aka DROP SHIPMENT

Scenario 4 ROUTED EXPORT TRANSACTION Sold to Ship to TRIANGLE TRADE – aka DROP SHIPMENT ROUTED EXPORT TRANSACTION

Scenario 4 Who is the USPPI? Who is the Exporter under the EAR? Who is the FPPI? Who is the Ultimate Consignee? What role do the INCOTERMS® play in the transaction? What is the forwarder responsibility in the particular transaction? Is it a routed export transaction? Yes – Triangle Trade Who is the USPPI? Smith Tool Supply, US Who is the Exporter under the EAR? Smith Tool Supply, US unless the FPPI signs a writing expressly taking on the role of Exporter. Who is the FPPI? Omega Manufacturing, China Who is the Ultimate Consignee? Prime Manufacturing, Malaysia What role do the INCOTERMS® play in the transaction? From a regulatory standpoint, none. To comply with the INCOTERMS®, however, the USPPI may ask the FPPI to sign a writing taking on the role of Exporter under the EAR. What is the forwarder responsibility: If filing EEI, obtain POA from the FPPI Transmit data provided by the USPPI Screen the parties to the transaction If the FPPI signs a writing, they need an agent to act on their behalf. This may or may not be the forwarding agent. Classification under the EAR Determine license authority End Use / End User checks Whether or not there is a writing, the USPPI is not aware of the actual consignee or country of destination, therefore, if the forwarder agrees to handle the Triangle Trade transaction, they must take on additional responsibilities: Determine license authority based on the ECCN provided by the USPPI. The licensing requirement might be different for a different country. End Use / End User check – (consider obtaining an end user statement)

QUESTIONS ??

Reference Information

Terms 15 CFR 30.1 Definitions U.S. Principal Party in Interest (“USPPI”): The person or legal entity in the United States that receives the primary benefit, monetary or otherwise, from the export transaction. Generally, that person or entity is the U.S. seller, manufacturer, or order party, or the foreign entity while in the United States when purchasing or obtaining the goods for export. Foreign Principal Party in Interest (“FPPI”): The party abroad who purchases the goods for export or to whom final delivery or end-use of the goods will be made. This party may be the Ultimate Consignee. Ultimate consignee. The person, party, or designee that is located abroad and actually receives the export shipment. This party may be the end user or the FPPI.

Terms INCOTERMS 2010® - International Commercial Terms Trade terms that clarify the distribution of functions, costs and risks (responsibilities and liabilities) relating to the transfer of goods from buyer to seller. They do not indicate when ownership is transferred. Incoterms rules state which party to the sale contract has the obligation to make carriage or insurance arrangements, when the seller delivers the goods to the buyer and which costs each party is responsible for. Incoterms are “international” terms and are not specific to compliance requirements of the shipper in any country. They also do not directly impact responsibilities under the FTR or EAR. The regulations are based on definition of the party and responsibilities assigned to that party.

Terms EXW – Ex Works (named place e.g. warehouse): The buyer has the responsibility to contract carriage, arrange for insurance and obtain export and import licenses. FCA – Free Carrier (named place of delivery): The buyer has the responsibility to contract carriage and arrange insurance. The seller is responsible for “export clearance”. CFR – Cost and Freight (named port of destination): Ocean Freight Only - The seller is responsible to contract carriage and to arrange for “export clearance”. The buyer is responsible for insurance. CPT – Carriage Paid To (named place of destination): All modes of transportation - The seller is responsible to contract carriage and to arrange for “export clearance”. The buyer is responsible for insurance.

Foreign Trade Regulations (“FTR”) 15 CFR 30.1 Definitions Routed export transaction. A transaction in which the FPPI authorizes a U.S. agent to facilitate export of items from the United States on its behalf and prepare and file the EEI. 15 CFR 30.3 Filing Requirements / Responsibilities of Parties to the Transaction 30.1(e) Responsibilities of parties in a routed export transaction. The Census Bureau recognizes “routed export transactions” as a subset of export transactions. A routed export transaction is a transaction in which the FPPI authorizes a U.S. agent to facilitate the export of items from the United States and to prepare and file EEI (continued on the next page)

Foreign Trade Regulations (“FTR”) 15 CFR 30.3 Filing Requirements / Responsibilities of Parties to the Transaction 30.3(e)(1) USPPI responsibilities. In a routed export transaction, the FPPI may authorize or agree to allow the USPPI to prepare and file the EEI. If the FPPI agrees to allow the USPPI to file the EEI, the FPPI must provide a written authorization to the USPPI assuming the responsibility for filing. The USPPI may authorize an agent to file the EEI on its behalf. If the USPPI or its agent prepares and files the EEI, it shall retain documentation to support the EEI filed. If the FPPI agrees to allow the USPPI to file EEI, the filing of the export transaction shall be treated as a routed export transaction. If the FPPI authorizes an agent to prepare and file the EEI, the USPPI shall retain documentation to support the information provided to the agent for preparing the EEI as specified in §30.10 and provide the agent with the following information to assist in preparing the EEI… (see link for list)

Foreign Trade Regulations (“FTR”) 15 CFR 30.3 Filing Requirements / Responsibilities of Parties to the Transaction 30.3(e)(2) Authorized agent responsibilities. In a routed export transaction, if an authorized agent is preparing and filing the EEI on behalf of the FPPI, the authorized agent must obtain a power of attorney or written authorization from the FPPI and prepare and file the EEI based on information obtained from the USPPI or other parties involved in the transaction. The authorized agent shall be responsible for filing the EEI accurately and timely in accordance with the FTR. Upon request, the authorized agent will provide the USPPI with a copy of the power of attorney or written authorization from the FPPI. The authorized agent shall also retain documentation to support the EEI reported through the AES. The agents shall upon request, provide the USPPI with the data elements in paragraphs (e)(1)(i) through (xii) of this section as submitted through the AES. The authorized agent shall provide the following export information through the AES… (see link for list).

Export Administration Regulations (“EAR”) 15 CFR 758.3 Responsibilities of the Parties (b) Routed export transactions. All provisions of the EAR, including the end-use and end-user controls found in part 744 of the EAR, and the General Prohibitions found in part 736 of the EAR, apply to routed export transactions. The U.S. principal party in interest is the exporter and must determine licensing authority (License, License Exception, or NLR), and obtain the appropriate license or other authorization, unless the U.S. principal party in interest obtains from the foreign principal party in interest a writing wherein the foreign principal party in interest expressly assumes responsibility for determining licensing requirements and obtaining license authority, making the U.S. agent of the foreign principal party in interest the exporter for EAR purposes. One writing may cover multiple transactions between the same principals. See §748.4(a)(3) of the EAR.