Thursday, May 22, 2008

Goodbye SED, Hello AES

The final rule implementing mandatory use of the Census Department’s Automated Export System (AES) will be published soon in the Federal Register. Some industry analysts are forecasting publication of the final rule during the second quarter of 2008. Under AES, required electronic submission of export declarations known as Electronic Export Information (EEI) will do away with the paper Shipper Export Declaration (SED).

Although the proposed rule mandating AES was published in 2005, differences among federal agencies postponed implementation of the final rule. However, the Census Department recently indicated that a compromise has been reached with the Department of Homeland Security (DHS). DHS had initially blocked mandatory AES after failing to gain approval to share export data with foreign governments as part of antiterrorism cooperation. (U.S. exporters opposed this data sharing fearing that their competitors might gain access to proprietary information.) Additionally, DHS had objected to Census continuing to allow post-departure filing of export documents by approved companies.

Post-departure filing, also known as Option 4, is a coup for exporters who are able to secure it. The approximate 2,300 approved exporters and freight forwarders can make export declarations up to 10 calendar days after departure of the goods. Exporters like post-departure filing because their shipments aren’t delayed when information needed for declaration is unavailable at departure. Missing data may include the exact final price of the goods, inventory the items were taken from, the country of origin of components, etc. However, even if a company is approved for post-departure filing, certain countries and commodities still require pre-departure filing.

Census has a current freeze on accepting new applicants to post-departure filing that will remain in effect until publication of the final rule. There is some concern among exporters that, under the final rule, post-departure filing will be abolished or severely restricted requiring formerly approved companies to re-apply. At the winter conference of the American Association of Exporters and Importers, a trade ombudsman from the Census Department’s Foreign Trade Division suggested that today’s high-tech communication between shippers and freight forwarders may alleviate the need for post-departure filing. However, he advised not to be concerned that post-departure filing will go away. The final rule is expected to closely resemble the proposed rule published in 2005.

Under the new AES rule, exporters must file electronic declarations within a certain timeframe prior to departure depending on the mode of transportation. The timeframes are: 24 hours prior to lading for vessel shipments, 4 hours prior to wheels up for air shipments (excluding nearby countries), 2 hours for rail, 1 hour for truck, or 30 minutes for pre-certified secure carriers.

Four alternatives are available for electronic filing of EEI under the new rule. First, shippers can use AESDirect, a free service offered by Census. Second, shippers can purchase AES filing software from certified vendors. Third, shippers can develop software using the Automated Export System Trade Interface Requirements (AESTIR). And, last, shippers can use an authorized agent (such as a freight forwarder) who may charge a fee for filing AES data on an exporter’s behalf. An authorized agent must be certified as a filing agent with a properly executed power of attorney or written authorization from the U.S. Principal Party in Interest (USPPI). Responsibilities of the filing agent can be found in the Code of Federal Regulations (15 CFR 30.4).

A significant impact of the new rule is that penalties for inaccurate or late filed EEI will increase to $1,000 to $10,000 per violation. Both exporters and freight forwarders may be held liable for inaccurately filed EEI. As a result of the final rule, carriers will be required to show proof of filing and/or an exemption legend. Proof of filing can be a citation to an Internal Transaction Number (ITN) or an ITN assigned in the AES filing process. The ITN or legend must appear on the bill of lading, air waybill, or other shipping document attached to the manifest.

Federal agencies view AES as a valuable tool for export compliance. Customs uses AES to target unauthorized parties, unauthorized destinations, and/or banned exports before goods leave the country. The new AES regulation will provide for enforcement of the penalty provisions by three federal agencies: Customs and Border Patrol (CBP), U.S. Immigration and Customs Enforcement (a sister agency to CBP within the Department of Homeland Security), and the Office of Export Enforcement under the Bureau of Industry and Security (BIS) within the Department of Commerce.

Benefits of AES to exporters include: 1) improved export compliance, 2) correction of errors as they occur, 3) decreased costs, and 4) elimination of paper review of licenses against shipments. AES contains an editing system to recognize errors that occur during electronic declaration. Exporters are able to correct errors early to avoid delay or penalties. AES also helps exporters avoid duplicate reporting to correct errors. The system returns an Internal Transaction Number (ITN) as confirmation that an exporter has successfully filed. Additionally, interface of AES to the Department of Commerce BIS electronically validates data on export shipments against previously approved licenses and transmits the transaction to the appropriate agency.

Although the precise date for publication is unclear, the final rule will be effective 30 days after publication in the Federal Register and must be implemented by exporters within 90 days. Once the final rule is published, the Census Department will make an announcement on its web site. Now is the time to consult with experienced legal counsel and plan your company’s transition to mandatory AES filing of export declarations.

[Thanks to Rosa Dunnegan for her assistance in preparing this article.]

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