Exporting to the European Union

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Exporting to the European Union An Overview
July 24, 2008
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ABOUT THE EU
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The EU 27 Countries, One Common Market
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The EU and the United States
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Euro Zone 15 Countries, 1 Currency

• Lowers transactional costs by avoiding exchange
  into multiple currencies.
• Stable, set pricing.

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Top Kentucky Export Destinations 2007
Source U.S. Census Bureau, http//www.census.gov/
foreign-trade/statistics/state/data/ky.html
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Growth in US Exports to EU, 2000-2007
Source USITC Dataweb
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The European Idea of a Common Market
Single European Market
stands for 'free movement within the Common
Market of
Capital
Goods
People
Services
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The European Idea of a Common Market

• Goods Customs union covers trade in all goods
  and sets tariff rates with Non-Member States.
• People Any citizen of an EU Member-State may
  settle and work in any other EU State.
• Services Any EU Member-State national may
  provide services in another EU State.
• Capital Prohibits barriers to capital movements
  within the EU and between Member States and third
  countries.

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European and National Law

• The EU is more than just a confederation of
  countries, but a supranational union
• Member States are sovereign countries, each with
  its own national legal system.
• EU has power to make laws binding on Member
  States.
• In these areas, Member States must harmonize
  their code with EU law.
• In other areas, Member States are free to enact
  their own laws.
• Companies face not only European but also
  national regulations of the respective Member
  State.

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Advantages of Exporting to the EU

• One Common Market no boundaries to movement of
  people, goods and services.
• EU is Americas largest trading and investment
  partner.
• Considerable growth potential in new and
  potential Member States.
• U.S. products prized for their quality and
  performance.
• Weak dollar stimulates U.S. exports (record 24B
  to EU in May 2008).
• Compliance with higher EU standards translates
  into compliance in other regions of the globe.

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Legal Advantages of Exporting to the EU

• Product liability laws exist, but awards are
  generally lower.
• No punitive damages no contingency fees less
  impetus to sue.
• Legal fees usually lower.
• Recovery of cost from opposite party if you win
  your case.
• The above points are generalities and vary from
  country to country within the EU.

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Things to Consider When Exporting Goods

• Contract Documentation.
• Pricing, quotation, and terms of shipment
• Payment and exchange controls
• Inspection, testing and quality control
• Licensing, technical assistance and other
  intellectual property issues
• Warranties and indemnities
• Territories
• Force majeure, insurance and other management
  provisions
• Language
• Dispute resolution, forum and jurisdiction
• Termination

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Things to Consider When Exporting Goods

• What are the Added Export Costs?
• Tariffs
• Import tax
• Customs handling fee
• Sales tax (VAT)
• Freight
• Insurance
• Packing
• Importing documentation

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Things to Consider When Exporting Goods

• Common Required Import Documentation.
• Commercial invoice
• Packing list
• Certificate of origin
• Bill of lading
• Import license
• Other foreign required license/certificates (CE
  Marking, WEEE Marking, Other labels and
  identification)

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Export Licenses

• BIS has the responsibility of enforcing Export
  Administration Regulations (EAR).
• BIS defines export as any item sent from the U.S.
  to a foreign destination.
• Very few U.S. exports require a license.

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Export Licenses

• Department of State Requirements - International
  Trade in Arms Regulation
• The U.S. Munitions List is provided in ITAR.
• It includes all defense-related services, goods
  and technology.
• All exports of USML must be licensed through the
  Department of States Office of Defense Trade
  Controls unless an exemption exists.

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Questions to Ask to Determine if a License is
Needed

• What are you exporting?
• Where are you exporting?
• Who will receive your item?
• What will your item be used for?
• Be aware of
• Entity List
• Treasury Department Specially Designated
  Nationals and Blocked Persons List
• The Unverified List
• Denied Persons
• Debarred List

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Market Characteristics

• Despite common market, consumption patterns vary
  between member states.
• 23 languages spoken across 27 Member States.

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Free Circulation of Goods

• Upon payment of customs duties, imported goods
  are free to circulate within the European Union
  under Article 23 of the EC Treaty.

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TARIFFS AND QUOTAS
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Relations with the U.S.

• Many Member States already has trade agreements
  in place with the U.S. prior to the last EU
  agreement.
• The Member States may continue to honor these
  bilateral agreements as long as they do not
  contradict other EU policies.
• As a result, many EU Member States keep their own
  list of goods subject to import licensing and
  tariffs (e.g. rice, cereal, etc).

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Import Documentation

• The official model for written declarations to
  customs is the Single Administrative Document
  (SAD).
• The person bringing in the goods or assuming
  responsibility for the entry of the goods must
  make the summary declaration.
• Customs must classify Non-EU goods for entry into
  the European Union.

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Common Customs Tariff (CCT)

• The CCT applies to goods imported into the EU.
• The EU hopes to even the playing field for
  domestic producers competing with external
  producers.
• Tariff common to all EU members but rates of duty
  differ from one kind of import to another
  depending on
• What they are
• Where they come from
• The economic sensitivity of products

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TARIC Online Customs Tariff Database

• Similar to the Harmonized Tariff Schedule.
• TARIC online system notes if a license is
  required for a particular product, and calculates
  all additional costs based on tariff, commercial
  and agricultural legislation.
• Covers tariffs, quotas, anti-dumping measures.
• TARIC does not contain information relating to
  specific Member State taxes.
• Each EU Member State also maintains a separate
  list of goods subject to licensing.

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Combined Nomenclature (CN)

• Imported goods must be declared using the
  subheadings listed.
• This determines
• Which rate of customs duty applies
• How the goods are treated for statistical
  purposes
• Based on the Harmonized System run by the World
  Customers Organization (WCO).
• U.S. participates in the same Harmonized System

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Binding Tariff Information (BTI)

• The BTI system is a tool to assist companies to
  obtain the correct tariff classification for
  goods they intend to import or export.
• Valid throughout the community regardless of the
  issuing Member State
• It provides legal certainty with regard to tariff
  classification.
• Generally valid for six years
• New classification regulations, a change in the
  nomenclature at the international level or any
  other international changes can change this
• EBTI-database is online.

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Duty Relief

• Occurs in very limited circumstances.
• Only happens when the usual need to protect the
  economy no longer exists.
• Personal property from resident of another
  country
• Personal property brought into the EU
• as a result of marriage or inheritance
• Very specific farming equipment
• Specific scientific equipment
• Items for charitable organizations

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Suspensions

• Industrial Suspensions - enables EU businesses to
  use raw materials, semi-finished goods or
  components otherwise not available.
• Airworthiness Suspensions (since 2002) for
  import of goods used for planes.
• Military Suspensions (since 2003) certain
  military weapons and equipment may be imported
  free of import duties.
• Outermost Regions (on-going) regards the import
  of goods to outlying regions like the Canary
  Islands, Madeira, the Azores and other French
  overseas departments.

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Tariff Quotas

• For some goods, a pre-determined amount from some
  countries will not require tariffs.
• These quotas stimulate the economy of Member
  States improving capacity, creating employment,
  modernizing structures, etc.
• Generally restricted to raw materials,
  semi-finished goods, components or some
  agriculture products.

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VALUE ADDED TAX (VAT)
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What is Value Added Tax?

• The Value Added Tax, or VAT, is a general
  consumption tax assessed on the value added to
  goods and services (including imports).
• Charged as a percentage of price.
• Under EU Law, standard VAT rate no less than
  15. Reduced rate on certain items at least 5
  (varies by country).
• It is not charged on businesses but passed on to
  the consumer and paid at point of entry no VAT
  charges once goods pass into free circulation.

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How is VAT Calculated?

• Example Consider a 10 VAT
• Woody sells 100 of wood to Carpenter. Woody
  collects 10 in VAT
• Carpenter uses wood to make a table
• Carpenter sells table to John for 1000
• 100 total is required for VAT but since 10 has
  already been paid, Carpenter only collects 90
  VAT from John

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VAT on Imports to EU

• All vendors, including local EU business, pay the
  VAT.
• To level the playing field, importers generally
  pay the VAT the minute their goods hit the
  market.
• If you buy items from Europe, check for VAT and
  the possibility of recovery of the tax (usually
  requires local counsel or accountants to obtain
  correct forms to claim VAT back).

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CE MARKING
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CE Conformite Europenne

• Certifies that a product has met EU health,
  safety and environmental requirements.
• The manufacturer has the responsibility to
  determine if a product requires CE marking.
• No comprehensive list.
• Certification performed by Conformity Assessment
  Bodies (CABs)
• List available from the National Institute of
  Standards and Technology (NIST).
• Self-certification allowed in certain cases.

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CE Testing - Example

• The following list demonstrates the numerous
  criteria and categories that are included in the
  EN 71 European safety standard for toys alone
• EN 71 Part 1 Mechanical and physical properties
• EN 71 Part 2 Flammability
• EN 71 Part 3 Migration of certain elements
• EN 71 Part 4 Experimental sets for chemical and
  related activities
• EN 71 Part 5 Chemical toys (sets) other than
  experimental sets
• EN 71 Part 6 Graphical symbol for age warning
  label
• EN 71 Part 7 Finger paints requirements and
  test methods
• EN 71 Part 8 Swings, slides and similar activity
  toys for indoor and outdoor family domestic use
• EN 71 Parts 911 Organic chemical compounds in
  toys
• Tests as per EN 71 Mechanical/physical tests,
  flammability, chemical analysis

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Consequences of NOT Complying with CE Marking

• European national agencies including Customs
  and/or the Department of Health, Industry and
  Labor conduct market surveillance which
• Visit commercial, industrial and storage premises
  on a regular basis
• Visit work places and other premises where
  products are put into service and used
• Organize random checks
• Takes samples of products for examination and
  testing
• Penalties, including imprisonment, are determined
  by national law

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CE Marketing Countries

• Austria, Belgium, Bulgaria, Cyprus, Czech
  Republic, Denmark, Estonia, Finland, France,
  Germany, Greece, Hungary, Iceland, Ireland,
  Italy, Latvia, Liechtenstein, Luxembourg, Malta,
  Netherlands, Norway, Poland, Portugal, Romania,
  Slovakia, Slovenia, Spain, Sweden, Switzerland,
  Turkey, United Kingdom

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LABELING AND PACKAGING
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Types of Marks and Labels

• Mandatory Marks and Labels
• Textiles, cosmetics, dangerous substances,
  explosive atmosphere, electrical electronic
  equipment, household appliances, pricing,
  recycling separate collection, footwear, units
  of measurement, automotive, maritime, materials
  in contact with food, noise emission
• Voluntary Marks and Labels
• Cup/fork symbol
• Eco-label
• Green Dot
• Energy Star
• e mark
• Recycling mark
• Requirements and labels can vary between Member
  States

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WEEE (Waste Electrical Electronic Equipment)
Directive

• Aimed at counteracting flow of discarded
  electronics into landfills.
• Must be displayed on all products to indicate
  that item must not be disposed with normal
  household waste, including
• Household Appliances
• Lighting
• IT and Telecommunications Equipment
• Electrical and Electronic Tools

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Consequences for Not Complying with WEEE?

• WEEE regulations are put into national law at the
  national level.
• As a result, the penalties vary but typically
  involve fines or possibly suspension of license.
• Examples Italy fines the producer between
  30,000 euro to 100,000 euro for not registering
  Germany fines producer 50,000 euro for the same
  violation, failure to collect WEEE or present and
  adequate guarantee of collection could lead to a
  prohibition on sales.

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RoHS Restriction of Hazardous Substances

• Voluntary mark placed on products to represent
  absence of six restricted substances in
  electronic equipment
• Lead
• Mercury
• Cadmium
• Hexavelant Chromium
• Polybrominated Biphenyls
• Polybrominated Diphenyl Ethers

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Other Notes on Packaging and Labeling

• Barcodes not legislated by the European Union but
  regulated rather by voluntary industry
  agreements.
• All labels will exclusively require metric units
  by end of 2009.
• The label must also show the selling price and
  the price per unit of measurement on all products.

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Who is Responsible for Packaging and Labeling?

• The importer is generally responsible for meeting
  the recycling and packaging requirements of the
  country.
• Foreign buyers, however, will take into account
  the type of packaging used for international
  shipment.
• U.S. companies could face a disadvantage,
  therefore, for not meeting their buyers domestic
  standards.

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REACH
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What is REACH?

• REACH stands for Registration, Evaluation,
  Authorization and Restriction of Chemicals.
• Makes industry bear most responsibilities to
  manage the risks posed by chemicals and provide
  safety information to users.
• European Community Regulation on Chemicals and
  Their Safe Use (EC 1907/2006) which entered into
  force on June 1, 2007.

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Which Products are Covered?

• Chemical substances (e.g. base chemicals,
  specialty chemicals, metals, natural substances
  if they are chemically modified)
• Mixtures (preparations) of chemical substances
  (e.g. cleaning products, formulated process
  chemicals, paints, motor oils)
• Substances or preparations in containers (e.g.
  printer cartridge)
• Articles containing substances which are
  intentionally released during their use (e.g.
  fragrance in a scented candle)
• Articles containing substances which are
  considered substances of very high concern

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Complying with REACH

• REACH requires all chemicals imported into the EU
  in volumes of 1 metric tonne per year to be
  registered with European Chemicals Agency (ECHA).
• All manufacturers and importers of chemicals must
  identify and manage risks linked to the substance
  they manufacture and market and are required to
  gather information on the properties of their
  chemical substances (incl. metals), and to
  register the information with the European
  Chemicals Agency (ECHA).

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Pre-registration

• Most chemicals currently imported into the EU are
  eligible for pre-registration, which allow for
  continued import until a later deadline.
• Phase-in period will expire December 1, 2008.

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Internet Resources

• Kentucky World Trade Center www.kwtc.org
• U.S. Commercial Service - http//www.buyusa.gov/ho
  me/
• Export.gov www.export.gov
• Bureau of Industry and Security
  www.bis.doc.gov/index.htm
• European Commission Taxation and Customs Website-
  http//ec.europa.eu/taxation_customs/common/about/
  welcome/index_en.htm

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Contact Us
Jan de Beer Senior Associate 250 West Main
Street Suite 2800 Lexington, KY 40507 T
859.244.3247 F 859.231.0011 jdebeer_at_fbtlaw.com
Kai BitterSenior Associate 2200 PNC Center201
East Fifth StreetCincinnati, OH 45202T
513.369.4809 F 513.651.6981kbitter_at_fbtlaw.com
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