Japan introduce new bulk export license for intercompany transaction

On November 20, 2009, Japanese Ministry of Economy, Trade and Industry (“METI”) announced to introduce new type of bulk export license of inter-company transaction for Japanese companies to export items to its overseas subsidiaries. Bulk export license allows an exporter make multiple exports of certain controlled items regulated by international regimes such as Nuclear Suppliers Group, Australia Group, Missile Technology Control Regime and Wassenaar Arrangement, to certain destinations without obtaining individual license by METI. This new type of bulk license system is effective on same day as of the announcement.

The new bulk export license is called as “Special Subsidiary Bulk License”, covers both goods and technology and its validity is three years. This bulk license is limited for exporting to specific Japanese subsidiary overseas, which is owned and controlled by Japanese company, and the parent company in Japan supervise, advise its export compliance, and conduct audit in its overseas subsidiary. Internal Compliance program (“ICP”) implementation of its parent company is compulsory. In this bulk license scheme, there are two types of license. Type A license is for a subsidiary as an end-user of items, while Type B license is for a subsidiary as an importer or a re-exporter which is typically considered as child company of Japanese trading house. Therefore, type B is required to have an end-user of Type A license holder.

In the past, there are three kinds of bulk export license in Japan, which are General Bulk Export License, Special Bulk Export License, and Special Bulk Export License for Repair or Replacement. The goods and technologies covered depend on the sensitivity of items and destination country and the matrix of items/destination country provide the validity of each bulk license. General Bulk Export License is for non-sensitive items in Category 2 to 14 to non-sensitive countries. Special Bulk Export License can be used for more sensitive and specific items in Category 2 to 14 to specific end-user in more broad destinations. For example, to export radiation hardened computer (or ECCN: 4A001.a.2) from Japan to Singapore, Special Bulk License is valid, while General Bulk License is not valid. Special Bulk Export License for Repair or Replacement is used only for arms and related items return (Category 1) to the original exporter in white countries.
The new license, Special Subsidiary Company Bulk License covers same goods and technologies as Special Bulk Export License and the end-user is limited for designated Japanese company’s subsidiary. Both special bulk licenses are not valid for export or transit to Iran, Iraq, North Korea, or Libya. The difference with current Special Bulk License is that the current special bulk license requires certain result of past shipments to get license application status, the export items must be decided in license application beforehand, and it is required to submit a written pledge by the end-user to METI. Instead, Special Subsidiary Company Bulk License has no such limitations, but an audit is required by parent company, and shipment results need to be reported to METI once a year. Also a big difference is that Special Subsidiary Company Bulk License does NOT include “design and manufacturing” technology in its coverage, although Special Bulk Export License allows it to be included. Therefore, as for technology export, Special Subsidiary Company Bulk License only covers the technology for “use”.

At the time of introducing this new bulk export license, the validity period of existing bulk export license is extended. As for Special Bulk Export License and Special Bulk Export License for Repair or Replacement, the validity period was two years, then both are extended to three years. With this period extension, all bulk export license are same validity period of three years.

With this new type of bulk license introduction, subsidiaries of Japanese companies in Asia may be required to set up more solid export compliance operation and accept internal audit by the initiative of its parent companies in Japan. While overall export control regulation tend to be enhanced and tightened to prevent illicit trade, good traders with excellent compliance record can get more privilege in trade. Traders are encouraged to make use of such privilege, and at the same time, can minimize the risk of violation. 　

(Source: http://www.meti.go.jp/policy/anpo/kanri/091120%20sekou/091120%20kogaisya.html )

Korea abolish reporting requirement of Strategic Goods

On October 23, 2009, the amendment of export control law in Korea took place and a reporting requirement of Strategic Goods (NSG, AG, MTCR and Wassenaar controlled goods) was abolished according to the newsletter from Korean law firm in November.

The reporting requirement of Strategic Goods in Korea was to report to relevant government authority on manufacturing or on importation of the goods (not on every transaction, but on initial release of the goods) within 30 days. This requirement was introduced in April 2007 and was very unique system. Although this reporting requirement looks contributing to solid export compliance, it is no doubt the operational burden to traders are significant. So, abolished in 2 years and half.

As another new requirement in Korea export control, an approval of transit and of trans-shipment of Strategic goods are implemented. Prior to the amendment, the Korean government could only issue an order to stop the movement of Strategic Goods. A consignee or a career is responsible for obtaining this approval. This new requirement will certainly contribute to diversion risk to North Korea where many countries have trade sanction programs.

Hong Kongs amend export control list

Hong Kong will amend their export (also import) control list shortly, and the amended list and its notice was disclosed in TID web site.
http://www.stc.tid.gov.hk/english/circular_pub/2009_stc16.html

This is to reflect the amendment of list of international regimes such as Wassenaar, NSG, AG, and MTCR. Hong Kong's list will reflect these agreements as of end of 2008.
As far as I know, US, Singapore and Japan don't reflect this list change yet. Therefore, this Hong Kong's list change is useful to know the future list of other countries.
In addition, Hong Kong require import license also for these controlled items, this list change will affect exporter to Hong Kong, too.

When?: The Order was gazetted today (i.e. 13 November 2009) and will be tabled at the Legislative Council on 18 November 09. Once the legal procedure is completed, the Order will come into effect on a day to be appointed by the Director-General of Trade and Industry by a notice published in the Gazette

What change?: Notable changes for computer/semiconductor industries are as follows. These are only some examples. For details, please see http://www.gld.gov.hk/cgi-bin/gld/egazette/gazettefiles.cgi?lang=e&year=2009&month=11&day=13&vol=13&no=46&gn=226&header=1&part=0&df=1&nt=s2&newfile=1&acurrentpage=12&agree=1&gaz_type=ls2

3A001.a.7 the removal of control over certain field programmable logic devices (including certain high-technology integrated circuits with memory function).

4D001.b.1/4E001.b.1 “Software” and “Technology” specially designed or modified for the “development” or “production” of “Digital computers” having an ”Adjusted Peak Performance” (“APP”) exceeding 0.04 Weighted TeraFLOPS (WT), to relaxation of control to 0.1APP

5A002. the relaxation of control over certain wireless personal area network equipment devices with published or commercial cryptographic standard (including certain wireless routers and wireless printers, etc.) Following exemptions notes are added.

(h) Equipment specially designed for the servicing of portable or mobile radiotelephones and similar client wireless devices that meet all the provisions of the Cryptography Note (Note 3 in Category 5, Part 2), where the servicing equipment meets all of the following:
1. The cryptographic functionality of the servicing equipment cannot easily be changed by the user of the equipment;
2. The servicing equipment is designed for installation without further substantial support by the supplier; and
3. The servicing equipment cannot change the cryptographic functionality of the device being serviced;

(i) Wireless "personal area network" equipment that implement only published or commercial cryptographic standards and where the cryptographic capability is limited to a nominal operating range not exceeding 30 metres according to the manufacturer’s specifications.

MOF Japan extend temporary duty rate of Tobacco and Alcohol

According to the Ministry of Finance ("MOF") web site on Nov. 06, 2009, MOF drafted the plan to extend temporary customs zero duty rate of Tobacco and Alcohol products in next fiscal year.

Cigarettes (2402.20) and many of Alcohols (2208) products such as whisky, brandy, vodka, and liquors have general tariff with ad-valorem or non-ad valorem duties, but currently the MNF tariff rate is Free. For example, for cigarettes (2402.20), the general tariff is 8.5% plus 290.7 yen / 1,000 pcs., and the WTO bound rate is also same rate. However, the temporary duty rate is zero percent and the duty free rate is applied as MFN based on Act on Temporary Measures concerning Customs.
This Act is basically "temporary", therefore re-newed every year. Current one is from April 01, 2009 to March 31, 2010. It may be sound strange, however, this temporary rate for tobacco has been extended every year till now from 1987 due to Japan-US Tobacco Agreement.
For temporary tariff for Alcohol is also extended annually same manner from 1998 due to WTO recommendation.

Normal procedure would be that MOF will submit amendment of the Act in February next year, and then the Diet will approve it by end of March. The new tariff (if approved, the rate as Free) will be applied from April 01, 2010.

In September this year, Japanese government political power changed from LDP (Liberal Democratic Party of Japan) to DPJ (Democratic Party of Japan) and currently actively discussed the increase of tobacco tax for compensating budget deficit, such points may make the "annual established custom"somewhat cloudy. But this temporary zero percent tariff for tobacco and Alcohol is decided not by domestic reason but by foreign external pressure, I bet free "temporary" tariff rate will be applied next year again as usual.

(Source: http://www.mof.go.jp/jouhou/kanzei/h22kaisei/zaimu/h22zaimu.htm )

Japan-Vietnam EPA supplemental information

The bilateral EPA with Japan and Vietnam ("JVEPA") was entry into force on October 01, 2009.
According to the web site of Ministry of Economy, Trade and Industry ("METI") of Japan on November 05, the practical operational procedure regarding JVEPA was notified by Vietnam government as follows. This information is largely for Certificate of Origin ("CO") in importing the goods into Vietnam.

1) In case the CO of JVEPA is not available on hand in declaring import into Vietnam, according to MOF Notification No. 45 (on May 07, 2007), the importer should pay the customs duty of MFN rate with notifying to Customs on document that the CO will be submitted later.
Then, within 30 days, by the importer submitting CO (Form VJ) to Customs, the duty amount difference between MFN and EPA preferential tariff shall be reimbursed.

2) Even if the further late submission of CO more than 30 days since import declaration, the importer still can be reimbursed the duty amount as long as the CO is valid (One year since issuing date). However, please be noted such late submission is subject to administration penalty of late submission based on MOF Notification No. 45 (on May 07, 2007).

3) The goods exported from Japan before October 01, 2009 can also be treated same manner as above 1) and 2) regardless of the arriving date of Vietnam.

(Source: http://www.meti.go.jp/policy/trade_policy/epa/html2/091105JVEPA_kanzeikanpu_oshirase.pdf )

Seminar for export control in Japan Tariff Assciation

Today on October 16, I successfully completed the export control presentation to various trade professional audience, arranged by Japan Tariff Association.

The number of audience was approx. 30 and the session was 1 hour presentation.

The subject is US and Asia's export control.

As the time is limited as 1 hour, the topics are relatively general and basic one, including WW regimes, US export control basics, Case study of violation and Singapore/Hong Kong's export control briefing.

I made the presentation in Japanese, and prepared the presentation material also in Japanese.

(Sorry for those who not understanding Japanese.)

My presentation today will be published as one of the articles of Monthly Trade Magazine ("Boeki Jitsumu Digest") issued by Japan Trade Association December edition.

Expect to have another seminar in the future!

Customs Published Results of Post-Entry Audit; Findings Show Highest Non-Compliance amount in History

In an effort to ensure compliance with Customs laws, particularly with regard to making correct import declarations and paying the correct taxes and duties, Japan Customs under the Ministry of Finance (“MOF”) conducts post-entry audit every year. The post-entry audit is conducted to review the import declarations of importing companies and determine if correct duties and taxes have been paid. On October 09, 2009, the Customs Authority published on their website the results of the post-entry audit conducted between the period from July 2009 to June 2009. During this period, the Customs team conducted post-audits on a total of 6,080 companies. The post-entry audit team’s findings are summarized as below:

Amount of penalty collected on incorrect import declarations is the highest based on historical records
The total non-declared and short-declared value of all investigated companies was approximately JPY198 billion (approximately US$2.2 billion). The amount of penalty collected for such customs violations was approximately JPY12.9 billion (US$144 million), an increase of 15.4% compared with previous year’s post audit results. This amount is the highest and worst in the history of customs valuation relating to import declarations.

Increased Number of Non-Compliance Companies
The post-entry audit team investigated a total of 6,080 companies. Of these, 4,188 or 68.9% of companies investigated were found to have failed to make correct import declarations, the numbers of non-compliant companies increased 2.2% compared with last year. The average penalty amount per company was JPY3.1 millions (US$34,400).

The top 5 product categories and its short duty/tax declarations amount are as follows. These top 5 categories show 50.6% of short duty/tax amount.
- Electrical Machinery (Chapter 85) JPY2,264,900,000
- Machine and Mechanical appliances (Chapter 84) JPY1,327,590,000
- Ore (Chapter 26) JPY945,340,000
- Mineral fuels (Chapter 27) JPY894,500,000
- Organic chemicals (Chapter 29) JPY708,070,000

Sample cases of Short-Declaration Subject to Penalties
Case 1 – Short declaration of expense of R&D cost
A company in Japan imported engine of vehicle from Italy. The importer did not include the expense of R&D cost in import declaration, but the cost was relating to the imported engines and paid separately to manufacturer. The expense of R&D cost must have been included in the amount of import declaration. The non-declared duty/tax amount was JPY1.29 billions and the penalty amount was JPY69 millions.

Case 2 – Short declaration of cost for product development
A company in Japan imported packaging cases for imaging equipment from China. The importer did not include the cost of metal mold which was given free of charge by the importer to the manufacture in China. The cost of such metal mold must have been included in the amount of import declaration. The non-declared duty/tax amount was JPY702 millions and the penalty amount was JPY38 millions.

Case 3 – False application of GSP preferential tariff
A company in Japan imported copper cables from China, and applied GSP preferential tariff in customs declaration. The manufacturer in China imported raw material of the copper cables from Indonesia, and the product was actually not qualified the country of origin in China, according to GSP preferential tariff rule. The penalty amount was JPY14 millions.

Japan Customs strongly encourages importers to learn and understand the customs valuation system. The lack of knowledge about customs valuation and interpretation of customs law may result in additional costs to companies. Non-compliance with customs laws may result in imposition of huge penalties and may damage a company’s brand image and credibility.