Customs Non-compliance in Japanese companies

You may consider Japanese compnanies are honest and reliable, thus most of companies seriously follow customs compliance in Japan. NOT really! The figure shows 69% of Japanese companies are pointed out non-compliance and had penalty by Customs authority, according to the post-audit result published by Japanese Customs in 2007.

It is mostly result of misunderstanding (or lack of knowledge) of customs valuation system. In my view, most of Japanese business people e.g. in marketing, management and even in SCM are just too innocent and non-professional in Customs regulation.

• 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 were approximately JPY155billions (US$1.4billions). The amount of penalty collected for this customs compliance violation was approximately JPY11.1billions (US$100 millions), an increase by 3.2% compared with previous year’s post audit results. This amount is the highest and worst in history of customs compliance violation on import declarations.
  
  
• High rate of non-compliance
  The post-entry audit team investigated a total of 5,548 companies. Of which, 3,836 or 69% of the total companies investigated were found to have failed in making correct import declarations, an increase by 1.7% compared with the previous year.
  
  
• Top five items found out to be short of duty/tax declaration
  Ø Electrical Machinery (Chapter 85)
  Ø Machine and mechanical appliances (Chapter 84)
  Ø Apparel and clothing (Chapter 62)
  Ø Articles of apparel and knitted (Chapter 61)
  Ø Wood and articles of wood (Chapter 44)
  
  
• Sample cases of short-declaration subject to penalties
  Case 1 - A company in Japan imported air conditioners from China. The importer did not include the value of raw materials and mold, which have been paid by the importer to a manufacturer in China.
  
  Case 2 – A company in Japan imported Integrated Circuit Board from Taiwan. The importer did not include the value of raw materials of the board which have been provided free of charge by the importer beforehand. Although the raw materials were given free of charge, the cost of such raw materials must be declared together with the value of the finished goods value.
  
  Case 3 - A company in Japan imported medical materials from Germany. The importer did not include the license fee, which have been paid based on the contract. Such loyalty fee or license fee must be included in the transaction value and must be reflected in the customs declaration.

Japanese customs authority strongly encourages importers to learn and understand the correct customs valuation system. The lack of enough knowledge on customs valuation system and interpretation of customs law may result to additional costs to companies. Non-compliance to customs laws may result to imposition of huge penalties and may damage a company’s brand image and credibility.

EPA Japan-Indonesia effective on July 1

According to the press release of The Ministry of Foreign Affaris of Japan, EPA with Indonesia will enter into force on July 1 (Tue).

(Source: MOFA web http://www.mofa.go.jp/announce/announce/2008/5/1180458_1010.html )

Hault Elimination of First Sale Rule? (US Customs)

In a significant victory for U.S. consumers and businesses, Congress has moved to stop U.S. Customs and Border Protection from revoking the First Sale Rule. CBP proposed to eliminate this favorable import valuation methodology in January, a move that ignores 20 years of federal judicial precedent and could raise import tariffs by as much as 15 percent. CBP has been inundated with opposition from the private sector, including an industry coalition spearheaded by Sandler, Travis & Rosenberg, P.A., but lawmakers concerned about the lack of transparency in the process CBP used to develop this proposal and how it could affect a struggling domestic economy are acting to make sure that CBP does not go ahead with it.

The “First Sale” rule was established by the court in Nissho Iwai American Corp. v. United States, 982F.2d 505 (Fed. Cir. 1992) and set forth in Treasury Decision 96-87 (“T.D. 96-87”).
It applies in instances where merchandise is imported into the United States as a result of “back-to-back” sales. Typically, the first sale is from a foreign manufacturer to a foreign middleman and the second sale is from the foreign middleman to the U.S. importer. Under the “First Sale” rule, an importer can base the transaction value (or the appraised value) of the imported goods on the lower price that the middleman paid to the foreign manufacturer rather than on the higher price that the importer paid to the middleman, if a two-pronged test is met.
The court in the Nissho Iwai case ruled (1) that the goods must be “destined for the U.S. at the time of the first sale” and (2) that the sale represents a “viable transaction value.”
In practice, this meant that if the sale was an arm’s length sale and an importer could produce documentation that the goods were sold to the middleman as a result of a U.S. purchase order, the two-pronged test was met. The use of this rule has become increasingly popular since 1993 and has allowed U.S. importers significant duty savings over the past 15 years.

(Source: http://www.strtrade.com/ and Bryan Cave Publication http://www.bryancave.com/bulletins/ on Jan. 25, 2008 IRN No. 377)

BIS will introduce NEW export license exception "ICT"

According to the BIS, new export license exception Intra-Company Transfers ("ICT") will be introduced hopefully in July 2008. Details are described in below.

In recent weeks, the US Department of Commerce's Bureau of Industry and Security (BIS) has taken long-awaited action to address an area of concern for companies that have an international presence - namely, the need for a license exception to permit intra-company transfers of US-origin software and technology. Under the US Export Administration Regulations (EAR), most cross-border accessing of US-origin software source code or technology is considered to be an export, subject to US regulations and licensing requirements.

In March 2008, BIS Deputy Assistant Secretary Matthew Borman announced BIS's progress on a proposed "intra-company transfer" (ICT) license exception. This license exception would allow companies to share dual-use items and technology with their foreign subsidiaries and foreign nationals without a license. Companies would be required to obtain one-time approval from BIS, which would be based on a company's implementation of a strong internal compliance plan as well as a vetting of foreign end-users and individuals who would be eligible to have access to the technology. An annual audit mechanism would also likely be required. Mr. Borman stated that "if a company meets all the requirements, and that consists of a very tight export control program, then it will be able to transfer within its corporate structure here or abroad a universe of hardware, software and technology." Mr. Borman also indicated that there would be significant flexibility with respect to the types of EAR-controlled items that would be eligible for the license exception.

The proposed intra-company transfer license exception is consistent with the March 2007 recommendations of the Coalition for Security and Competitiveness, which also suggested that BIS use its license exception on encryption (i.e., license exception ENC) as a procedural model. Under the procedure for license exception ENC, a company must first apply to BIS for approval to export the controlled items. If BIS does not make a decision within30 days, the company may proceed with the export under the license exception. It is unknown at this time whether BIS's draft intra-company transfer license exception rule follows this process.

BIS's recent announcement followed on the President's January 2008 statement that his Administration would ensure that dual-use export control policies and practices support the National Security Strategy while facilitating US economic and technological leadership. In connection with increasing US competitiveness, the President highlighted several specific initiatives, including the need to revise controls on intra-company transfers. A license exception for intra-company technology transfers was also recommended in December 2007 by the Deemed Export Advisory Committee (DEAC), which was tasked to advise the US Secretary of Commerce on deemed export policy.

The draft rule relating to license exception ICT has been circulated for interagency feedback, and BIS officials have indicated their intent to publish it for public notice and comment by the end of May 2008. With respect to items that are eligible for license exception ICT, Mr. Borman has said that specific prohibitions on eligible items will not vary from company-to company. However, he has not indicated what will constitute the universe of items that can be freely exchanged among all companies that qualify for this license exception.

Companies that are involved with cross-border transfers of technology and those that seek to centralize multinational business processes and databases will benefit from this new intra-company transfer license exception, as it will make it easier for multinational companies to conduct research and development around the world as well as to facilitate global production and sourcing.

(Source: Client Memorandum by Clifford Chance http://www.cliffordchance.com/ April 2008)

Japan tighten monitoring of hand carry money

Effective on 1st June 2008, Japan will implement new regulation when you bring hand carry money exceeding JPY1 million (approx. US$10,000) or equivalent amount of cash, traveler's check, bond, securities etc. , you need to declare the amount in Customs application form. This is in order to monitor illegal money laundering activity which is regulated world wide.
Both export (bring out) and import (bring in) are subject to this new regulation. In addition, gold ore more than 1 kg is also applicable to this declaration requirement.
Actually this notification requirement have been implemented by FEFTL (Foreign Exchange and Foreign Trade Law) since 1998, now with amending the Customs Law, Japanese Government tighten the monitoring the hand carry more closely.
The application form will be distributed in airport, and you can download from Customs web site. It looks easy and simple to fill in.
http://www.customs.go.jp/kaigairyoko/H20k591_e.pdf

If you fail to declare, the penalty is not more than five years of imprisonment or a fine of not more than five millions yen based on the Customs Law Article 111. Same penalty would be given if you "try" to do so.

(Source: Japan Customs web site http://www.customs.go.jp/kaigairyoko/shiharaishudan.htm )

OFAC is Focusing More on Export Trade Compliance

OFAC, which is part of the Treasury Department, administers and enforces economic and trade (export/import) sanctions based on U.S. foreign policy and national security goals. The Bureau of Industry and Security (BIS), which is part of the Commerce Department, deals with export policy. Sometimes the export jurisdiction of these two agencies appear to overlap. OFAC is concerned with assets/financial transactions in addition to exports/imports, while BIS is more focused on export product classification. Also the primary expertise of OFAC is financial, while BIS has the engineering and product knowledge to make complex export classification determinations.

At the April 2008 National Customs Brokers & Forwarders Association of America's Annual Conference, an Office of Foreign Assets Control (OFAC) official discussed a variety of export-related issues. Highlights of her remarks include the following points:

OFAC Focusing More on Export Trade Compliance
OFAC is now focusing more on the exporting community, and has been conducting more audits of forwarders, carriers, exporters, etc.

Culpability Never Stops
With OFAC, culpability never stops; anyone in the chain of export is susceptible to OFAC regulations. OFAC often learns about potential violations from banks, as they are able to follow the chain of payment and can tip OFAC when potential violations occur.
(Banks are subject to OFAC regulations as they are part of the export chain.)

Personally, this is very interested in and important to note Banks are tipping the violation to OFAC!

(Source: International Trade Today - (Tue 05/20/08) by by Broker Power, Inc.)

Ukraine Joined WTO on May 16

Ukraine joined the WTO on May 16, 2008 as its 152nd member after concluding fourteen years of negotiations. Ukraine has offered extensive market-access liberalization and non-discriminatory treatment in areas including agriculture and industrial goods, service, intellectual property rights and other reforms.

Reference: JTASS web page (Japanese)
http://www.kanzei.or.jp/topic/international/2008/for20080222.htm

Reference: WTO press release (English)
http://www.wto.org/english/news_e/news08_e/acc_ukraine_apr08_e.htm

Source: Bryan Cave LLP bulletin No. 386 (English)
http://www.bryancave.com/bulletins/