Department of Commerce and Economic Opportunity

Q: Do I need a license to export?
A: Only a limited number of products or destinations require an exporter to get a written or validated license from the Bureau of Industry and Security, an agency of the U.S. Federal Government. This agency used to be known as the Bureau of Export Administration (BXA), but the name change was felt to more accurately reflect its role. Most goods can be exported by simply entering "NLR" (no license required) on the Shipper's Export Declaration. A validated license is necessary when exporting high technology, software with encryption capabilities, defense-related, or dual-use (both military and civilian) products or when exporting to countries under a US trade embargo or other trade restrictions (e.g., Libya or Cuba). The regulations may require one type of license to ship a product to Country A, but a different license to ship the same product to Country B. More information on export licenses is available from the Bureau of Industry and Security. The State of Illinois does not require a special permit or license to establish an import/export business.

Q: What special forms are needed to export?
A: The seller in an export transaction is responsible for several documents. Some freight forwarders will do much of the paperwork for a customer, but the shipper is ultimately responsible for making sure the documents are correct. The forms most commonly needed for an export shipment include:

The Shipper's Export Declaration (SED), Commerce Form 7525-V, is used for compiling the official U.S. export statistics and for export control purposes. It must be prepared and submitted to a customs agent for shipments by mail valued at more than $500 and all other shipments by any other means valued at more than $2,500. The form documents who is exporting the product, to whom it is being shipped, what is being shipped, and its value. The SED can be completed electronically by the exporter. More information is available at www.customs.ustreas.gov/AES. The SED can also be completed by a freight forwarder for the exporter. Blank hardcopy SEDs may be also purchased from the Government Printing Office, (202) 512-1800, local Customs District Directors, or can be privately printed. Privately printed SEDs must conform in every respect to the official form. The SED can also be downloaded from the U.S. Census Bureau and printed on buff (yellow) or goldenrod colored paper. Customs will not accept SEDs on white paper.

The bill of lading is a contract between the owner of the goods and the carrier. There are two types: a straight bill of lading, which is non-negotiable, and the negotiable/shipper’s order bill of lading, which can be bought, sold, or traded while goods are in transit and is used for letter-of-credit transactions. The customer usually needs a copy as proof of ownership to take possession of the goods.

A certificate of origin is a document signed by the exporter and witnessed by a semi-official agency, like a Chamber of Commerce. It indicates that the goods were truly produced in the country claimed by the exporter. There is no worldwide rule as to when a certificate of origin is required or what it must contain. Each country sets its own rules. Proof of origin is critically important when countries have reciprocal trade agreements that grant lower tariff rates to products coming from certain locations. Canada, Mexico, and the United States have agreed upon a common form and set of rules for a NAFTA Certificate of Origin (see NAFTA Certificate of Origin).

As in a domestic transaction, the commercial invoice is a bill for the goods issued by the seller. A commercial invoice should include a description of the goods, addresses of the shipper and seller, and the delivery and payment terms. The buyer needs the invoice to prove ownership and arrange payment. Some government agencies use the invoice to assess customs duties.

An export packing list itemizes the material in each individual package, and shows the individual net, legal, tare and gross weights in U.S. and metric values. Package markings should be shown along with the shipper’s and buyer’s references. The packing list is attached to the outside of the package in a clearly marked waterproof envelope. The list can be used to determine the total shipment weight and whether the correct cargo is being shipped. Customs officials may use it to check the cargo at inspection points.

Some countries require a consular invoice to identify and track goods shipped to their country. The invoice is purchased from the consulate of the country into which the goods are being shipped and must be prepared in the language of that country. Your freight forwarder should be able to tell you which countries require consular invoices.

Some purchasers and countries may require a certificate of inspection attesting to the specifications of the goods shipped, usually performed by a third party and obtained from independent testing organizations. Some countries may also require a phytosanitary inspection certificate that shows that a shipment meets plant health and quarantine regulations.

If the seller provides insurance, the insurance certificate states the type and amount of coverage.

Q: What is a "Certificate of Free Sale" and how do I get one:
A: A "Certificate of Free Sale" is a document that says a product can be sold in the country from which it is being exported. Some countries require them as a way of preventing a firm from dumping product abroad that has been ruled unsellable on the domestic market. These certificates have typically been required of medical or food products.

The U.S. Foods and Drug Administration (FDA) will issue "Certificates to Foreign Governments" that serve this function, but only for products that it directly regulates. If your product is regulated by the FDA you can follow this link to get the instructions for requesting a certificate.

Q: What is a "Destination Control Statement?"
A: This statement appears on the commercial invoice, ocean or airway bill of lading, and SED to notify the carrier and all foreign parties that the item may be exported only to certain destinations and not ultimately end up in a restricted country. The standard language for this statement is "These commodities licensed by the United States for ultimate destination (country) . Diversion contrary to U.S. law is prohibited."

Q: What are Harmonized System (HS) codes and Schedule B numbers?
A: The Harmonized System is an international method of classifying products for trading purposes. This classification is used by customs officials around the world to determine the duties, taxes and regulations that apply to the product. A six-digit number is assigned to each product. The description that corresponds to this number should mean the same thing in different countries. Some products that have multiple uses or can be described in different ways may have several possible HS codes. For others there may be only one. The material from which a product is made frequently determines the appropriate code number. Each country may further expand the Harmonized System by adding additional digits to describe a product in yet further detail. Schedule B is the U.S. adaptation of the Harmonized System. It adds four additional digits to a product description number for a total of 10 digits. The first six will still mean the same thing in all the countries using the Harmonized System. To find the HS or Schedule B number for your product, you can go to the Census Bureau website.

Q: When should a North American Free Trade Agreement (NAFTA) certificate of origin be completed?
A: A NAFTA Certificate of Origin should only be completed for products that meet the NAFTA rules of origin. The NAFTA Certificate of Origin is only for products being traded among Canada, the U.S. and Mexico. Generally speaking, under NAFTA, products that qualify under the rules of origin will have zero duties when traded between the U.S. and Canada, and will have low or zero duties when traded between the U.S. and Mexico. In some instances the duties may be zero regardless of country of origin. Often times a NAFTA Certificate of Origin is requested if it is a component for further production or assembly even when there are no duties or it is not being shipped to Canada or Mexico by the producer. For information and a sample of the NAFTA Certificate of Origin, go to www.bradley.edu/turnercenter/interdocs.html

Q: How do you determine if a product qualifies for preferential tariff treatment under NAFTA?
A: NAFTA has complex rules of origin to determine which products will qualify for preferential and eventually duty-free access. A product does not automatically qualify for NAFTA tariff treatment just because the product was manufactured in the United States or was purchased from a U.S. company. Natural resources or crops and animals raised in one of the NAFTA countries will qualify. Products that are assembled from components that are not in the same HS category as the finished product often can qualify, even if some of those components are imported from a non-NAFTA country. In some cases, even if no change in tariff classification occurs, but the goods have at least 50 percent value added in one of the three countries, NAFTA preferential treatment may apply. The applicable rules can differ depending upon the HS category of the product. The NAFTA Rules of Origin (Annex 401) are located on the NAFTA Customs website.

Assistance with the NAFTA Certificate of Origin is provided by the two NAFTA Opportunity Centers located in Illinois. For Northern Illinois, NORBIC provides assistance at www. norbic.org or telephone 773/594-9518. For Central and Southern Illinois, please contact Bradley University at www.bradley.edu/turnercenter/itcnoc.html or by calling 309/677-3075.

Q: What are Incoterms?
A: The International Chamber of Commerce (ICC), headquartered in Paris, created a set of 13 terms (e.g. EXW, FOB, CIF) to create international agreement on the rights and responsibilities of buyers and sellers related to the movement of goods. When a seller and buyer agree to use one of the terms they determine which party will be responsible for arranging and paying for different aspects of the shipping process. The ICC periodically updates the Incoterms to reflect changes in shipping technology. The current set of terms is referred to as Incoterms 2000. Because these terms are specifically designed to cover international transactions, the meanings may be different from similar three-letter codes used to describe domestic shipments. More information on incoterms can be found at the ICC website.

Q: What is the Foreign Corrupt Practices Act (FCPA) and how does it affect my business?
A: The FCPA was enacted in 1977 and amended in 1988 by the United States Congress. This Act makes it a crime for U. S. individuals and companies, including their subsidiaries, branches or affiliates, to knowingly offer payment or promises of payment of money or anything else of value to foreign government officials to secure business. It does not apply to bribes offered to non-government officials, although there may be local laws that could result in prosecution. In recent years other countries have adopted their own regulations, but the rules and applications can vary from country to country. The rules set forth in the FCPA only apply to U.S. firms. It is important that U.S. exporters dealing with foreign government officials fully understand the requirements of this Act because violations could result in a fine of up to U.S. $2,000,000.00 for corporations, U.S. $100,000.00 for individuals, imprisonment of up to 5 years, or a combination of a fine and imprisonment. A "layman's guide" to the FCPA is available on the U.S. Department of Justice's website.

Q: How can I find out if there is a tariff, tax, or other charge on my product in country X?
A: Every country sets its own tariffs or taxes on imports. Some countries depend on tariffs for revenue and others use them as a tool to protect or foster certain sectors of their economies. Most countries use the Harmonized System (HS) to classify products for tariff assessments. If you know the HS code for your product you can view the tariff rates for over 70 countries at a U.S. Department of Commerce International Trade Administration website. Many countries have been lowering their tariffs in recent years, but there may still be other taxes or charges that can be levied on products in other countries. The Value Added Tax (VAT) in many countries is higher than any tariff, but is usually applied to local competitors as well.

Q: What are the most common mistakes made by exporters?
A: The reasons some firms fail at international business usually have nothing to do with the international aspects of the business. Rather, the failures have the same causes as domestic problems such as under-capitalization, lack of commitment from senior management, or short-term focus rather than implementing a strategic plan. The international issues that most frequently trip up exporters include:

Selection of overseas representatives without thorough investigation.
Chasing orders around the world instead of targeting markets.
Neglect of new export customers when domestic markets are booming.
Failure to treat international and domestic representatives on an equal basis.
Refusal to modify products to meet foreign regulations and local preferences.
Lack of sales, service and warranty messages in local languages.
Refusal to use export management companies (EMC) in less promising markets.
Failure to consider licensing or joint venture agreements in more restrictive markets.

Q: How can I find out if my product will sell in other countries?
A: Prior to starting an export operation, you can do a little market research. Through the Target programs, the Office of Trade and Investment can provide market research that answers many of the following questions:

Q: How do I locate potential agents or distributors in overseas markets?
A: The Office of Trade and Investment (ITO) provides a variety of export assistance programs designed to help Illinois companies locate distribution channels for their products and services in foreign markets. Established in Africa, Asia, Canada, Central America/Caribbean, Europe, Mexico and South America, Target is a highly-individualized export program that provides your company with:

To further assist your company with international market information, the ITO, in conjunction with the International Trade Centers (ITC’s) and NAFTA Opportunity Centers (NOC’s), will sponsor a series of educational and training seminars throughout the state. Additionally, the ITO identifies key domestic trade shows throughout the year and organizes in-bound foreign buyer delegations that travel to Illinois to engage in matchmaking meetings with Illinois firms. Click here for additional information on ITO programs.

Q: How do you choose a good freight forwarder?
A: A freight forwarder is one of your most important allies in your international sales efforts. Fast and efficient delivery can set you apart from the competition. Evaluate several freight forwarders before you choose the one that provides the best combination of service and price. Make sure the forwarder has a local office and their hours correspond to yours.

It is also important that the forwarder have its own branches or partners in the markets to which you ship. Some forwarders may hand your shipments off to local delivery firms who may not be as dependable. Using the same firm from pick-up through delivery will make tracking a shipment much easier. Also, if a firm has infrequent service to one of your customer's locations there may be delivery delays.

Because a freight forwarder can act as your agent with power of attorney to prepare, examine, and distribute your shipping documents, including submitting them directly to your bank for collection and deposit to your account, you need to be confident in their record keeping methods and staff training methods. While a freight forwarder may prepare documents, the exporter is ultimately responsible for the accuracy of those documents.

Some forwarders may provide better service or better rates in different markets. Depending upon your customer base it may make sense to negotiate with multiple freight forwarders. Perhaps one for Asia and another for Europe and Latin America. At least once a year you should review any contracts or shipping arrangements you have.

Contact the Office of Trade and Investment for a list of air or ocean freight forwarders at 312/814-2828.

Q: How can I obtain information on export financing options?
A: Your bank is a first contact for information on export finance options and tools. Many banks with international divisions will also offer export finance seminars for their clients. If your bank does not handle international transactions, please contact the Office of Trade and Investment at 312/814-2828 for a list of international banks in Illinois. The U.S. Small Business Administration (SBA) has a variety of export finance programs and guides to help small businesses, such as the Export Working Capital Program, SBA Export Express, and the International Trade Loan Program. (www.sba.gov/oit) The Export-Import Bank also has a number of programs to assist exporters, including loans, guarantees and insurance. (www.exim.gov). Illinois is a part of Ex-Im Bank’s City/State program. Ex-Im Bank trains the staff of its City/State partners to market Ex-Im’s products to local businesses and commercial banks, teach seminars, counsel exporters and banks and package transactions. To receive additional information on types of export finance assistance available, please contact Tess Morrison, Director of the International Trade Center at University of Illinois, at [email protected] or (217) 244-1585.

Q: Should advertising and promotional materials be translated into the local language?
A: If your customers cannot understand your product's benefits or attributes the likelihood of them making a purchase is significantly lowered. While many people around the world speak some English, many more do not. Translations should be done by professionals who know the jargon of the industry or sector in which your product will be sold. Your agent, distributor, or other contacts in the market should be called upon to proof any promotional material. Translations can be expensive and you would not want to let typos or inappropriate word choice ruin your message. You must also consider in what countries your material will appear or be heard. Just as there are differences between British and American English, there are also differences in Spanish, French, Arabic, Chinese, and other languages that are used in multiple countries and regions.

Q: How do I take my professional equipment or promotional materials overseas?
A: The U.S. Government typically does not restrict travelers from taking laptops out of the country for personal business use. However, some equipment, including some high-speed or encrypted laptop computers, do require an export license from the Department of Commerce's Bureau of Export Administration (BXA). Also, some technical materials, sophisticated equipment, and goods taken to certain countries will need a license.

Most importing countries exempt goods from import duties and taxes if they are entering that country only temporarily. Fifty nations currently accept a document known as the ATA Carnet. The ATA Carnet is essentially a passport for your goods. If the good can be described as a "tool of the trade", then, upon presentation of the ATA Carnet, the good may be exempt from duties and taxes. "Tools of the trade" are items such as commercial samples, professional equipment and items used for trade shows or exhibitions. Some ordinary goods such as computers (including laptops) or industrial equipment will also qualify as "tools of the trade". Carnets do not cover consumable goods, disposable items or postal traffic. The ATA Carnet can be ordered by contacting the United States Council for International Business (1-800-5-DUTYFREE or http://www.uscib.org). It usually takes five working days to process the document, and the Carnet must accompany the good into the country. Processing fees will vary according to the declared value of the item being sent.

Countries that do not accept the ATA Carnet may have another type of temporary import procedure exempting goods from the normal application of import duties and taxes. Some countries require that the importer pay a temporary import bond that is reimbursable if the product leaves the country within a specified period of time (usually one year from the date of importation).

Finally, before you leave for your trip, we advise you to check the U.S. Customs Service web site for any questions regarding items that will be coming back into the U.S. (http://www.customs.ustreas.gov).

Q: How can I get information on importing?
A: The U.S. Customs Service is the government agency that regulates importation of foreign products into the United States. The Customs website provides information on tariffs, quotas, and other issues affecting imports.

The Office of Trade and Investment does not regularly assist firms seeking to import products into the United States. For such assistance we suggest you contact the consulates and trade commissions that represent foreign governments and business groups. Most of the United States' major trading partners have such offices in Chicago. The Consular Corps of Chicago provides contact information for foreign government offices and links to other resources.

Compiled with the assistance of the Wisconsin Department of Commerce and other sources.