Our company here in [Country A] has sold an item to an international customer. We purchased the items through our vendor also located here in [Country A].
The product was physically located in [the US State of X] however at our vendors manufacturing plant which is where our customers friend forwarder has picked it up as a drop shipment to send it to the customer in [Country B].
So between us, our vendor and the freight forwarded we are not clear on who should be deemed the USPPI on the paperwork as no company in the US benefited from the sale of this in any monetary fashion. All transactions or the sale of these goods originated in [Country A], the product was just simply picked up in [the US State of X].
My customer is in need of this order as it has already been held up for 10 days due to this.
Can you possibly please advise?
Update: Reader’s company and vendor’s headquarters are not in the USA. Only vendor’s manufacturing facility is in the USA.
This is a variation on a Triangular Sale detailed in a prior blog post, the video for which I am including below. Note that I have redacted the locations in the reader’s question to protect their identity, and to better match the video, and I go into further explanation below.
In our current situation, our reader is in Country A, selling to Country B. The difference is that our reader’s vendor has presumably related operations in both Country A and the USA.
The vendor’s manufacturing plant is the USPPI. The vendor’s headquarters may be located in Country A, but I would argue that they truly are two separate legal entities, one incorporated in Country A, the other in the USA. The USA location may be wholly owned by the Country A headquarters, but it is, none the less, a separate company, with a USA tax identity. That USA company (the vendor’s manufacturing facility) has certainly “benefited from the sale”.
The goods will physically ship directly from the USA to Country B, but will be sold:
First, from the vendor’s manufacturing facility in the USA to the vendor’s headquarters in Country A;
Second, from the vendor’s headquarters in Country A to our reader in Country A; and
Third, from our reader in Country A to our reader’s customer in Country B
Thus, with three transactions involving four companies, I suppose we have a Quadrangular Sale, but the principals remain the same.
The export declaration must show the vendor’s USA manufacturing facility as the USPPI, with their federal tax ID. It must show our reader’s customer in Country B as the ultimate consignee (Foreign Principal Party in Interest, or FPPI) as. But importantly, it must show two entities in Country A – the vendor’s headquarters, and our reader’s company – as intermediate consignees (also FPPIs).
Now, if anyone other than the vendor’s USA manufacturing facility is controlling this shipment (which appears to be the case), it is being controlled from outside of the USA and must be reported as a routed export transaction. The freight forwarder, or whoever is filing the export declaration, must obtain their authority from one of the FPPIs. Since our reader indicates that the freight forwarder is nominated by their customer in Country B, that will be the company authorizing the freight forwarder.
I realize that this is complex, so if I can be of further information to our reader, I invite them to contact me directly at firstname.lastname@example.org.
We’ve recently been approached by a potential US customer who is a sales distributor and would like to purchase our ITAR controlled product that they will then forward to a South American country. This US sales distributor is applying for the export license and they asked us for our shipping address so that they can give it to their freight forwarder. When I clarified with them, they said they will have their freight forwarder pick up the items and ship directly to the South American country. We’ve never actually done anything like this before and can’t help but be cautious about what are liability is in this transaction because although they are the exporter, the items will never touch their hands. I would think that the US customer is taking a bigger risk by putting all their faith in their freight forwarder as well as us.
Any words of wisdom would be appreciated! Thank you!
So our reader is selling to a customer in the US, the distributor. That distributor is going to be the exporter, apply for the license and have their freight forwarder move it from our reader’s location directly for export.
Our reader doesn’t have to deliver to the distributor’s location. The goods don’t actually have to touch their hands. That would be impractical, more expensive, and time consuming. The distributor is to be shown as the United States Principal Party in Interest (USPPI) on the Electronic Export Information (EEI). But the freight forwarder still has to know where to pick up the cargo.
But, more importantly, US Census regulations require that the EEI shows the state where the cargo begins its journey, and this may be different from the distributor’s location. This is, at least in part, because the export value that must be declared on the EEI must include the US inland freight and loading on board the exporting carrier. Essentially, regardless of a seller’s terms of sale, Census wants the equivalent of FOB.
Another way to look at it is what’s important to Census and the ITAR is not so much how the cargo moves or if it stops or not at the exporter’s location. What’s important is the financial transaction – who sells to who, and who that who sells to.
Still, I can understand our reader’s concern. So I would suggest that, either in the sales contract, or in a separate certificate, the distributor certify that they will be the USPPI and exporter, and take full responsibility for complying with all export compliance and licensing obligations.
And it very well may be that the distributor is taking a risk by putting their faith in their freight forwarder. But don’t we all anyway? And don’t we strive to use a freight forwarder that knows what they are doing? And if the distributor doesn’t use a good forwarder, it’s the distributor’s problem, especially if our reader has that above certification from them.
We were hired for a show/event in the US recently, for which we rented some material to the US company.
The material was made in China, and directly sent to the US for the show. It now has to come to Switzerland, as this material is ours (we bought it from China).
We are now having problems with export from the US, for which an EEI is required.
The sender in US is not responsible for this shipment, as they are just sending back the material after having rent it.
I guess we need to do a routed transaction, according to what I have been reading. But I don’t know how to proceed with this. Can you please give me your lights ??
Thanks a lot,
It’s not clear from the above just how the goods were originally cleared through US Customs.
If cleared as a normal entry in the name of the US company, and they were the importer of record:
They are the appropriate exporter, or US Principal Party in Interest (USPPI), and they are responsible for filing the Electronic Export Information (EEI), or arranging for their freight forwarding agent to do that for them.
However, if this is a routed export transaction, where you are using your freight forwarder to handle matters, then you are responsible for arranging for your freight forwarder to file the EEI. Note that the US Company must still be shown on the EEI along with their federal tax ID number.
There is a provision for the customs broker that filed the entry to be the USPPI, but this is generally a fallback situation when there is no US entity involved, such as originating in Canada and just passing through the US, and most customs brokers would be reluctant to do this.
If cleared under a carnet, then there is no EEI required, unless the goods require an export license. Not knowing the commodity, I cannot tell if a license is required. If an export license is required, then EEI is required and you will be back up to the above scenarios.
I would think that your contract with the US company would spell out who is responsible. If your customer is responsible, and they don’t cooperate, I would think your recourse would be to sue them for loss.
In general, there are occasionally situations where a US company has export responsibilities, but just does not understand it, and is uncooperative. I would have to know more of the details to provide a more thorough answer.
In particular, see Trusted Trader Program Benefits, pages 28 – 29 of the report, pages 32-33 of the pdf:
…some businesses have described the benefits received by C-TPAT members as inadequate, especially in light of the time and financial investments required to become certified as C-TPAT members.
In the case of land ports, the primary benefit of C-TPAT/FAST membership is access to dedicated lanes where wait times may be shorter and more predictable. However, CBP may have limited capacity to add lanes because many ports are located in urban areas with limited space for expansion. And even if new lanes can be added at the border, carriers may confront ingress and egress bottlenecks that limit the benefits of such investments.
In the case of maritime imports, the primary benefit of CTPAT membership is that low ATS scores reduce the likelihood of an inspection. But with just 4% of all maritime containers selected for secondary inspection, C-TPAT membership may offer little practical advantage in this regard.
All things I have been saying for years. But what really surprised me was how few participants there are:
… only about 6% of all import-related businesses and about 8% of customs brokers have joined the [C-TPAT] program.
(Note that these are percentages of entities, not percentages of cargo volume. Larger importers that are members dramatically increase cargo volume percentages.)
Eric Younger of Adaptive Technologies asks the Geek:
I have a question regarding an ITAR controlled export to Italy. I have just received my export license from the DDTC and will be ready to ship in approximately two weeks give or take. This is my first export experience and not exactly sure which route to take here.
My concern is; I am the manufacturer of rifle stocks and now the exporter, our customer has a long history of importing to the USA their firearms, so I know there is nothing suspicious/malicious going on when they say that they will handle the freight forwarding on their end through their Italian F.F. Now then what would be my best course of action as far as relaying to them the need for me to follow ITAR compliance and to make sure that they follow procedure? They have had a hard time understanding why the licensing process has taken so long and I have required more paperwork and information from them than any other manufacturer that they have dealt with in the past. Am I correct in my interpretation that I am required to use a freight forwarder in the U.S. that is ITAR compliant and that the customer cannot just pick someone on this end randomly to come to our facility, pick up the shipment and deliver it to the port of export from the U.S.? If this is a normal procedure then do I simply send the export license file with the other paper work to the freight forwarder in Italy?
Good question, and good reason to be concerned.
Sometimes a buyer outside of the U.S. wishes to use their own freight forwarder. There’s a reason for this. The buyer usually ends up paying for the freight charges, either directly with FCA, FAS, or FOB Incoterms, or by the seller paying through CTP, CIP, CFR, or CIF Incoterms with the seller adding those costs onto the commercial invoice. Either way, the seller is less motivated to get a good price on the freight, so the buyer wishes to take control by using their own freight forwarder. Often, the Incoterms will be EXW, but they don’t have to be.
This is what is known as a Routed Export Transaction. I prefer to call it a consignee routed export, as opposed to a shipper routed export. It’s confusing to a lot of people, and it doesn’t help that the various US Government agencies involved in export controls are not in full agreement.
It’s important for the US seller to think about their responsibilities and what they may or may not be able to control in a Routed Export.
The Foreign Trade Regulations of the US Census Bureau say in 15 CFR 30.3(e)(1) that, in a Routed Export, the US Principal Party in Interest (USPPI), that’s the US Seller, is responsible for, among other things:
His name, address, and EIN (Federal Tax ID)
The commercial description of the commodities
The Schedule B, or HTSUS number
The Export Control Classification Number (ECCN) or sufficient information to determine
All licensing information necessary to file the EEI for commodities where the Dept. of State, Dept. of Commerce, or other agency issues a license, or the merchandise is being exported under a license exemption or license exception
Any information that it knows will affect the determination of license authorization
And 15 CFR 30.3(e)(2) says that the US agent for the foreign seller (the freight forwarder) is responsible for, among other things:
The ultimate consignee
The intermediate consignee, if applicable
The country of ultimate destination
So, in a Routed Export, those last three are controlled by the freight forwarder, and the freight forwarder is working for the consignee, the buyer.
The Export Administration Regulations (EAR) of the Bureau of Industry and Security (BIS) say in 15 CFR 758.3(b) that, in a Routed Export, the USPPI must obtain a writing from the Foreign Principal Party in Interest (FPPI) wherein the FPPI assumes responsibility for determining the licensing requirements and obtaining the license authority, making the US agent (the freight forwarder) for the FPPI the exporter for EAR purposes.
I have repeatedly had discussions on this with Census and BIS, and the general feeling is that, if the writing above does not exist, then the shipment is not a Routed Export, which would imply that the US seller is fully liable for licensing, even though the freight forwarder is working for the seller. Sounds risky. If that writing does exist, where the FPPI assumes responsibility, the US agent for the FPPI is liable. Presumably that would be the freight forwarder, although I’ve never been able to get BIS to actually say that. What they do say is that everyone that is party to the transaction will bear some responsibility.
So what does the International Traffic in Arms Regulations (ITAR) of the Directorate of Defense Trade Controls (DDTC) say about Routed Exports?
Nowhere in the ITAR does the term Routed Export exist. Apparently, the seller is responsible all the time, regardless of who the freight forwarder is working for.
My advice to US sellers?
Only accept Routed Exports if your goods do not require a license or license exception. Now your ECCN might not require a license where you think it is going. But when the buyer controls the freight forwarder, and can change the destination once it is beyond your control, that new destination may require a license. You have to consider into what potential countries your products might end up. Some US seller will always refuse Routed Exports, requiring all sales to be via their chosen freight forwarder.
If you goods require a BIS license or license exception, or an ITAR license, never accept Routed Exports. Use only your chose freight forwarder so you can control where it’s going and who will receive it.
So, Eric, since your goods are ITAR controlled and require a license, I would strongly encourage you to not accept your buyer’s wish to use their freight forwarder. You should use your preferred freight forwarder, that you control.
Also importantly, whatever freight forwarder used must be shown on the license. If the US forwarder and the Italian forwarder are unrelated and work as contracted agents, then both should be shown on the license.
Also, I believe you were at the recent ITAR Summit in Portland. I addressed this briefly in my talk and here is a video of my talk (representing my day job at Lynden International). I discuss Routed Exports starting about the 5:24 mark, and showing the freight forwarder at the 14:48 mark.
Many exporters wrongly believe that the freight forwarder is supposed to do all of this. But when good freight forwarders even try to explain to their customer what their responsibilities are, it usually results in the customer getting angry, going to another forwarder who doesn’t ask so many questions, which cheats the forwarder that tries to do what’s right, and exposes the exporter to increased risk of export violations. In short, a lose/lose situation.
The NCBFAA says that this document can be shared with everyone. Freight forwarders, give this to your customers. Exporters, follow these guidelines and give your business to freight forwarders that strive to follow the rules.
Here is the document: USPPI-Export-Responsibility-Info It’s a PDF, so Adobe Acrobat or Reader is required. Right click and Save Link As, or Save Target As, to save it to your computer.Update: The NCBFAA has asked me to send you directly to the NCBFAA web site. This will be a living, breathing document that they will update from time to time, so you will alway get the latest and greatest. Go to www.ncbfaa.org.
I have a question about assists. If I send a component from the U.S. to Canada for repair and also send parts to repair the component, are the parts considered assists? The component is owned by the company as are the parts that are sent. The regulation states that these are assists if provided by the buyer, but we are not the buyer of the component, we own it. We also don’t sell the component when it returns. The parts sent to repair the component are not being used in production of merchandise but rather just to repair the component sent. When the component returns to the U.S. I import them under 9802.00.5060 or 4040 and the classification of the component. I’ve not been able to find anyone with a similar situation that can provide assistance.
Interesting question, and I don’t find anything specific on this matter either. The term “buyer” is not actually defined in the Custom Regulations. While our reader may not be “buying” the component, or the parts, that they already own, they are none the less the importer, and it could be argued that they are “buying” the repair service being performed in Canada. So I believe “buyer” and “importer” are synonymous for purposes of this discussion. Hence, our reader is the “buyer”.
Let’s consider the definition of an assist, according to 19 CFR 152.102(a):
Assist. (1) ‘‘Assist’’ means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:
(i) Materials, components, parts, and similar items incorporated in the imported merchandise.
(ii) Tools, dies, molds, and similar items used in the production of the imported merchandise.
(iii) Merchandise consumed in the production of the imported merchandise.
(iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise.
US Customs and Border Protection (CBP) has traditionally viewed the value of an exported defective component as part of the price paid or payable when imported back into the US. That defective component is essentially materials, as defined in (i) above. But any parts, new or used, provided are also essentially materials of that same definition, are the not? Hence, for purposes of this discussion, it is reasonable to say that all materials, failed components and parts, are materials provided. And if provided by the buyer (importer) free of charge, then all failed components and parts should be considered assists.
A question from a reader about informal import of artificial jewelry from GSP country:
I am trying to start a small business where I import and then sell artificial jewelry from India. I live in India and when people come to visit, I have been sending the jewelry back with them as extra pieces of luggage on their flight. I give them an invoice of what is in the box, and they declare the amount of commercial merchandise and what it is to the Customs officer. India is a GSP country and this is supposed to be a duty “free” good. It seems that at each airport these “volunteer carriers” bring the good into it is treated differently. Recently when I carried the goods in myself, I was told we need to be submitting Form 3461 for informal entry. However, in the past I was under the impression that the customs officer filled out any forms necessary for the “informal” import when they are hand carried in from a flight. Could you give me any advice or clarification? Thanks!
There are multiple issues here, and they may be confounding each other.
First of all, assuming your goods are correctly classified under Heading 7117, it will either be unconditionally duty free (7117.90.1000), or eligible for GSP (7117.90.3000), assuming all other qualifications are being met.
Second, to claim GSP, the HTSUS classification must be prefixed by the Special Program Indicator “A” (A7117.90.3000). Whoever is making the claim to the Customs inspector must do this; don’t expect Customs to make that assumption for you.
Third, yes, Customs may very well treat this differently at different airports. In general, Customs is making efforts to standardize things – one face at the border. But the reality is that the number of varying opinions will always approximate the number of human Inspectors that Customs employs.
Finally, you say that these “shipments” are being hand-carried by various people, many of whom are probably not really your employees or your customers’ employees. Commercial imports in someone’s luggage are supposed to be treated very differently from their personal effects. Customs often expects the bearer of a commercial import to be the importer, know what they are doing, and have all of their entry documents prepared (which isn’t easy in our modern electronic filing environment), or else hire a U.S. customs broker who can do this for you. Their attitude is that, if you’re in business, this is the cost of doing business. On the other hand, Customs Inspectors might sympathize with the bearer of the shipment, and simply complete the forms for them and charge them the duty, never caring about GSP qualification.
But more to the point on this final aspect, you say that you were told to submit an informal entry. When claiming GSP, you are not required to produce proof of the GSP eligibility at time of entry, just so long as you are able to produce it when later asked. Such proof includes a GSP Declaration, bill of materials, production records, even a factory profile and payroll information to document labor costs. When you file a formal entry, part of that is to post a bond. The entry will not be liquidated (finalized) for many months, during which time Customs can ask for proof of the GSP eligibility. If satisfactory proof is not provided, Customs can deny the GSP claim, sending you a bill for the additional duties. The bond posted protects Customs financial interests should this occur.
You are eligible to claim GSP on an informal entry, but those entries are liquidated on release, with no bond posted, and Customs will have no recourse to later ask for the proof of GSP eligibility or collect duties. So if your “courier” does not have this proof with them, Customs can deny the GSP claim. And when processing a whole 747 of passengers expeditiously, the reality is that Customs will probably not waste time asking for proof, just assess the duties, and keep the line moving.
I would suggest that you ship your goods as commercial shipments, and employ a U.S. customs broker to perhaps better represent you to U.S. Customs. At the very least, use a customs broker, even if you continue to hand-carry goods into the U.S. With advance coordination, the broker can have the entry prepared and meet the individual at the passenger terminal. The customs broker may charge more for a hand-carry entry than a cargo shipment, but you can weigh that against the cost of shipping as cargo. Yes, that is going to cost you more money, but as mentioned earlier, it’s the cost of doing business.
A general guideline for GSP can be found here. And the wording of a GSP Declaration can be found in the regulations, 19 CFR 10.173, here.
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