November 15, 2004

This is in response to many requests for advice on the responsibilities of parties in an export transaction when the foreign buyer purchases goods on an "ex works" basis.

1. Use Of The Term "Ex Works" By Parties In International Contracts And Purchase Agreements

"Ex works" is more than a shipping term. Use of the term in a contract for the sale of goods contractually defines the roles and responsibilities of the parties. According to "Incoterms 2000," the term "ex works" means that the seller's responsibility for the goods ends when the goods are placed at the disposal of the buyer at the named place of delivery on the date or within the period agreed to.

By agreeing to purchase ex works, the buyer is obligated to obtain any export license or other official authorization to carry out the export of the goods, although the seller is required to render, at the buyer's request, any assistance necessary to obtain any export license or other official authorization to carry out the export of the goods.

2. Routed Export Transactions Under The July 10, 2000, Federal Register Notice

Prior to July 10, 2000, there was sometimes a lack of understanding with respect to the legal responsibilities of parties to an export transaction. In a joint Federal Register publication, the United States Department of Commerce and the Bureaus of Census and the former Bureau of Export Administration (now "BIS") clarified these roles and responsibilities.

In its final rule, BIS defines new terms, including "principal parties in interest" and "routed export transaction", and clarifies existing ones (notably the definition of "exporter"). BIS and the Census Bureau recognize "routed export transactions" as a subset of export transactions. A routed export transaction is where the foreign principal party in interest authorizes a U.S. forwarding agent to facilitate the export of items from the United States. With respect to routed export transactions, the rule states:

In a "routed export transaction," the foreign principal party in interest agrees to terms of sale that may include assuming responsibility for export licensing. This rule provides that when the foreign principal party expressly assumes responsibility in writing for determining license requirements and obtaining necessary authorization, that foreign party must have a U.S. agent who becomes the "exporter" for export control purposes. Without such a written undertaking by the foreign principal, the U.S. principal is the exporter, with all attendant responsibilities.

According to Section 758.3 of the Export Administration Regulations:

The U.S. principal party in interest is the exporter, except in certain routed transactions. The exporter must determine licensing authority (License, License Exception, or NLR), and obtain the appropriate license or other authorization.

With respect to "routed transactions", however, the rules states:

(b) Routed export transactions. All provisions of the EAR, including the end-use and end-user controls found in part 744 of the EAR, and the General Prohibitions found in part 736 of the EAR, apply to routed export transactions. The U.S. principal party in interest is the exporter and must determine licensing authority (License, License Exception, or NLR), and obtain the appropriate license or other authorization, unless the U.S. principal party in interest obtains from the foreign principal party in interest a writing wherein the foreign principal party in interest expressly assumes responsibility for determining licensing requirements and obtaining license authority, making the U.S. agent of the foreign principal party in interest the exporter for EAR purposes.

BIS adopted a requirement of obtaining a separate writing to confirm that the foreign buyer has, in fact, accepted responsibility for the export clearance of the goods in a routed transaction, stating:

This [writing] is similar to the language that describes the buyer's responsibility for export licenses in the Incoterms 2000 publication. BIS's sample writing would be signed by the foreign principal party in interest, and reads, "I undertake to determine any export license requirements, to obtain any export license or other official authorization, and to carry out any customs formalities for the export of the goods."

Therefore, by contractual agreement, if a foreign customer has agreed to an Ex Works transaction, it has agreed to accept responsibility to obtain any export license or other official authorization to carry out the export of the goods. Thus, the foreign customer is contractually required to provide the U.S. party with the required writing, and relieve the U.S. party of the legal requirements otherwise imposed upon it to act as exporter for the shipment.

3. Responsibilities of Parties in a Routed Export Transaction

Assuming the foreign customer follows through with its obligation to accept responsibility to export the goods, and issues the U.S. party the appropriate writing, what must be done next?

According to both the EAR and the FTSR, in a routed export transaction:

. . . where the foreign principal party in interest assumes responsibility for determining and obtaining licensing authority, the U.S. principal party in interest must, upon request, provide the foreign principal party in interest and its forwarding or other agent with the correct Export Control Classification Number (ECCN), or with sufficient technical information to determine classification.

At this point a distinction is drawn between the EAR and the Bureau of Census, Foreign Trade Statistical Regulations (FTSR). For purposes of preparing the SED the "exporter" will always be the U.S. principal party in interest, whether it is a routed transaction or not. This does not mean, however, that the U.S. principal party in interest is responsible for the SED.

According to Section 30.4 of the FTSR, the responsibilities of the parties in a routed export transaction are as follows:

In a routed export transaction where the foreign principal party in interest authorizes a U.S. forwarding or other agent to prepare and file the SED or AES record, the exporter (U.S. principal party in interest) must . . . provide such forwarding or other agent with the following information to assist in preparing the SED or AES record:

1. Name and address of the U.S. principal party in interest;
   
   
2. U.S. principal party in interests, IRS, EIN;
   
   
3. Point of origin (State or FTZ);
   
   
4. Schedule B description of commodities;
   
   
5. Domestic (D), foreign (F), or FMS (M) code;
   
   
6. Schedule B Number;
   
   
7. Quantity/unit of measure;
   
   
8. Value;
   
   
9. Upon request from the foreign principal party in interest or its agent, the Export Control Classification Number (ECCN) or sufficient technical information to determine the ECCN.

In a routed export transaction, the forwarding agent is responsible for:

1. Obtaining a power of attorney or written authorization from the foreign principal party in interest to prepare and file the SED or AES record on its behalf;
   
   
2. Preparing, signing, and filing the SED or AES record based on information obtained from the exporter (U.S. principal party in interest) or other parties involved in the transaction;
   
   
3. Maintaining documentation to support the information reported on the SED or AES record, and
   
   
4. Upon request by the exporter (USPPI), provide appropriate documentation to the exporter (USPPI) verifying that the information provided by the exporter (USPPI) was accurately reported on the SED or AES record.  

It is important to understand that while the U.S. seller must always be listed as the USPPI on the SED or AES record in a routed export transaction, it is not authorizing the forwarder to act on its behalf for the shipment. Rather, the forwarder's authority to prepare, sign, and file the SED or AES record is derived from the power of attorney or written authorization from the foreign principal party in interest to the forwarder.  

Please feel free to contact us if you would like to know more about routed export transaction or the U.S. Export Administration Regulations.

If you have questions on any of the issues raised in this newsletter, please contact George R. Tuttle, III at (415) 288-0428 or via email at geo@tuttlelaw.com.

George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in San Francisco. The information in this article is general in nature and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright © 2005 by Tuttle Law Offices. 

All rights reserved.  Information has been obtained from sources believed to be reliable.  However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

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