Schedule B, HTS, ECCN, NAICS, SIC - How many numbers do I really need to know??

Schedule B

Schedule B is a 10-digit number used by the Bureau of Census to collect trade data. The first 6 digits of your schedule B number are identical to the first 6 digits of the HTS code used for importing your product into the US. You need to have your schedule B number on all of your export documents.

In April, 2018, you can use: https://uscensus.prod.3ceonline.com/ to help determine your schedule B number (and interestingly enough, the first 6 digits of you HTS code should you want to know that).

Harmonized Tariff Schedule (HTS)

 The Harmonized Tariff Schedule number is a 10-digit number used by customs to determine any tariffs when you import this product into the US. The first 6 digits of the HTS are identical to the first 6 digits of the products schedule B number and determine how the product is classified, but the last 4 digits vary specify the actual tariff associated with this product (unless there are Trade Agreements that reduce or remove the tariff). You need to have the HTS code clearly on all documents used for importing this product into the US.

Export Control Classification Number (ECCN)

Export Control Classification Numbers are five character alpha-numeric designations used by the Department of Commerce on the Commerce Control List (CCL) to identify dual-use items for export control purposes. An ECCN categorizes items based on the nature of the product, i.e. type of commodity, software, or technology and its respective technical parameters. You need to know your ECCN, even if it only to show that your product can ship under an ECCN of EAR99.

NAICS and SIC

The North American Industry Classification System (NAICS) is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. Lots of US marketing data will require the NAICS code to extract information.

Standard Industrial Classification (SIC) System numbers are used by the US Department of Labor and Occupational Safety and Health Administration to classify the type of business and sometimes was used instead of the NAICS, but unfortunately there is no real correlation between the two systems. Some marketing data is searched by SIC code.

About 95% of the world's population, and therefore customers, live outside the United States, so businesses wanting to grow beyond just their local neighborhood market should seriously consider getting involved in International Trade. And even many businesses who don't want to go too far from home could become involved in International Trade because it involves among other things Importing and Exporting products or services and you can make your business as big as you can dream.

Another interesting factor is that people around the world often consider U.S. products and services to be the Gold Standard of innovation, quality and safety, and because "the rising tide lifts all boats", your American products and services are likely to have an initial advantage, and you could reap enormous benefits from the global market.

In a recent book entitled The World Is Flat, Thomas L. Friedman told us that the playing field has been significantly leveled - to the point that he saw the world as flat. In this section we look at what you should be considering and doing in terms of importing and exporting to reach the rest of the world.

Businesses in general do not need a special license to import products, but in some cases many require a license, permit or other registration to possess, transport or sell the product in the United States, in their particular state or in a local jurisdiction.

This section covers how to import products into the United States.

eCommerce is Great! -- Global eCommerce sometimes won't work

Sure, we have all seen how great Amzaon, Alibaba and other eCommerce giants are doing. Lots of small businesses are leveraging them to get their own products sold and delivered around the world. Amazon even has set up operations with warehousing within their different regions to give local, fast, efficient sales, delivery and service.

But eCommerce, as most people envision it, doesn't work with anything that requires an export license and has the additional burden that you legally need to know not just what you sell, but where you sell it, to whom you sell it and what the end user will use if for, BEFORE you transact the sell (more on this in a moment)

I am not crazy - check the shipping documents for DHL, FedEX, and all the rest of the 3rd party shippers and you will probably see an innocuous little check box for you to affirm that the shipment is NLR (No License Required). That means they want you to tell them that no export license is needed. That is important because an export license, if it is granted, can take several weeks to obtain and no shipper is going to hold your product for several weeks waiting for an uncertain license and most customers don't think of eCommerce as taking several weeks to ship (eCommerce being instant gratification after all).

Back to that silly list of things you legally need to know.... It's true in general, but especially true of US exports, that you cannot sell things to the bad guys or bad things to companies or people you haven't checked out. In the US part of that checking out could include an export license and certainly includes some due ciligence checking the right information, lists, etc. (and documenting your due diligence).

In the end you need to know what you are selling and whether or not it needs an export license (and it's not as simple as you hope because many products are "Dual Use" and you need to know whether yours is or not).

Then you need to make sure the country you plan to export to isn't on any prohibited country list (yes, there are a few, mostly well known countries on these lists).

Once you get this far, then you need to check the Denied Persons Lists to make sure the Company, Person(s) or address are not on the list.

And finally, though it will definitely cause some heartburn, you technically need to know what the end user will use your product for... a vegetale store probably shouldn't need biochemical equipment, a clothing business probably shouldn't need super computer parts, so if they order it you need to ask and understand what they will use your product for. Okay, Okay, so there is not way for you to know to whom your distributors will ultimately sell to or for what purpose, BUT you need to do due diligance and at least attempt to determine this and document the distributors reply.

So, yes, eCommerce is a great thing and many businesses will benefit from it, but don't do it blindly without checking the questions above.

Can you get the Export Grandslam?

The bad news is that new exporters do not generally qualify for the export grandslam, but if you are an existing exporter with at least one year of export experience then you could qualify for the Export Grandslam:

First Base: Department of Commerce Gold Key Program to find highly qualified and vetted Distributors or customers in your Target export country.

Second Base: one of at least three Small Business Administration Export Loan Guarantees to capitalize your export business.

Third Base: Export Import Bank‘s Export Credit Insurance to reduce the risk of non-payment by your export customer who required you to extend them credit to do business.

Grandslam Homerun: Center for International Trade Development’s STEP grant, export marketing reimbursement for example to pay for the Gold Key Program.

Yes, it can be a little complex since it deals with four different agencies but we can help you put together this phenomenal play and get an Export Grandslam. Just ask!

If you have never shipped further than your family in Texas or your customer on the other side of the country, it may seem that shipping is pretty straight forward or even simple. But when you start thinking about shipping to one of the hundreds of countries outside of the US, things suddenly become potentially disastrously complex. Suddenly there are multiple governments and their respective laws, regulations and tariffs, people, languages and cultures to make something that should be simple shipping into a potential nightmarish headache.

For example, almost everyone has heard the term FOB, some actually know it means "Free On Board", but most people can't actually tell you what it means about shipping risk and costs. What would happen if this gets translated into the other country's language and they really don't define "On Board" the same way. How would you negotiate a shipping contract?

To avoid this nightmare the International Chamber of Commerce has developed a set of INternational COmmerce (INCO) terms that are defined and accepted globally. When you use the term FOB it means the same thing around the world, thus eliminating translation, cultural and other differences.

So you should definitely include the proper INCO term in all of your shipping documentation. Of course, "proper" is subject to negotiation, but that is one of the advantages of using INCO terms - since every INCO term is accepted worldwide you know exactly what each term means in terms of risk and costs, so you can clearly negotiate with your customer how you both agree to share the risks and costs of shipping.

A number of existing resources can help you find out how much money is being spent on specific market segments in many different countries. They may not address your specific product or service, but they can tell you a lot about that group or market segment of similar things that people are spending money on in specific countries, what percentage of GDP that represents, and so forth.

This list includes Export.gov, US Census, United Nation Internatíonal Trade Association, etc.

Some are free or have a free version:

https://comtrade.un.org/data

https://traademap.org

There are some with paid subscriptions but others like US Census only require registration:

https://usatrade.census.gov/index.php

General information sites include

https://www.export.gov

https://globaledge.msu.edu

And of course you can always get help at your local Small Business Development Center (SBDC) or contact us.

Your may very well love to travel to the area of the world where you want to export to, but really, How will you get accurate marketing research done to know enough about customers, distributors, partners and so forth to be successful in that market?

International Marketing definitely challenges businesses because of things like time differences, cultural differences, language, distances and plain old complexity offered by international commerce. The good news is that there are a number of readily available (but likely not well known) resources to help you export successfully and profitably.

Very detailed, in-depth research and analysis of the Commercial environment, conditions, opportunities, challenges, and so forth in almost any country are available from the US Commercial Service in their Country Commercial Guides.

Somebody Reports to you that the prices for your type of product in Country X are Double what they are in the U.S. - Wow, does that mean you can Radically Increase your Profits? - Not necessarily, and probably not, but it may still be worth it!

Yes, I was one of those people reporting that overseas prices were Really high, so we should be able to export and make a lot more profit - but that is not necessarily the truth! When you add in shipping and handling, insurance, tariffs and duties and taxes, and so on, the sell price in that country will likely be as much as twice the U.S. price, but the anticipated "Profit" definitely starts getting eaten up by all of those extra costs and your profits on each sale is likely to be about the same if not slightly less than your domestic sale!

So why would anyone export if profits aren't going up that much? Remember that 95% of the world's potential customers live outside the US, so exporting does access potentially HUGE new markets and therefore huge revenue growth potential. There definitely can be incremental revenues when you start exporting, and if you manage the process, you can reduce some of those new costs and further improve profits. As your business grows, moving part of your supply chain into the target export country can result in even better profits, too.

A Good friend who travels a lot sees a product similar to yours selling for double the price in Country X and excitedly tells you that you should sell your product there – you could make a killing there by selling at double the price! But should you?

The reasons for considering exports as a way to grow your business are well documented elsewhere (Export.gov, National Export Initiative) and include the fact that 95% of consumers live OUTSIDE OF THE UNITED STATES and therefore can only be reached by exporting.

But realistically you need to know a bit more about the market for your product in Country X before you decide to jump into that market. Most people are surprised to learn that the product sells for that seemingly high price because it MUST in order to cover the additional costs of shipping, duties, tariffs, taxes, and so forth and not because the other company selling the product is greedy and making a lot of profit.

So in this case the reason to export to Country X might be because you can reach another portion of that 95% and significantly increase Revenues (hopefully at an acceptable profit) and not because it seems like you could make a much higher profit on each product unit sold.

We will discuss this further in other articles, but do consider that the decision to export or not while very important to your business, can be complex as there are even more things besides price that you need to consider before making your decision.

Now that you are thinking about exporting, but before you spend a lot of time on that export plan or for that matter a lot of money, you need to find answers to several questions and your answers need to be consistent among themselves.

Well, okay, we should also include the more basic "Why should I export?", but since you already decided you want to consider exporting that should be taken care of (but I like to periodically revisit this question so we make sure everything is still aligning). Here they are:

What should I export (and CAN I export it)?

Where should I export?

How should I export?

Who will sell my export?

Read more: Thinking about Exporting? Here are some Basic Questions to answer Before you Start

Exporting is similar to doing business in the US, but there are some important differences you must be aware of and take steps to deal with.

Okay, so what is an ECCN first and then why should I care?

There are a number of parameters involved in the questions of:

Can you export something?

Do you need an export license?

For the Can you ship this product, service or technology question, you must be able to answer and document the following questions:

What are you shipping?
Where will you ship it?
To Whom will you ship?
What will they use it for?

The What are you shipping requires several different answers (e.g. schedule B or ECCN) on different shipping documents, but in this article we address the ECCN, which will determine whether you need an export license.

Export Control Classification Numbers (ECCNs) are the classification code used to identify the category of your product, service or technology. The ECCN classification code is then used to determine whether or not you need an Export License for each shipment of your item.

The process to use the ECCN to determine whether you need an export license or not is:

1. Determine the Export Control Classification Number (ECCN)
2. Check to see if your ECCN is on the Commerce Control List (CCL)
3. if your ECCN in not on the CCL then go to step 6
4. If your ECCN is on the CCL, then you need to further check for your ECCN on the Commerce Country Chart (CCC);
5. If your ECCN is on the CCC then determine the "ship to country" and "restriction type" - you will need an export license; go to step 7

6. If your ECCN is not on CCL or not on CCC use EAR99

7. Check for your customer on the Consolidated Screening List (CSL)
8. If not on CSL, EAR99 can ship as No License Required (NLR)
9. If your customer is on the CSL you CANNOT ship to them.

Ah, you say but my product is very simple and there is no way I should need an export license to export it. That might seem logical to you, but if your product has a "dual use", which means your product has both commercial and military or proliferation applications, then you need to do some more work before shipping. You need to determine your product's Export Control Classification Number (ECCN), check to see if it is on the Commerce Control List and if so further check the requirements and destination country on the Commerce Country Chart. If you need to get an export license remember that the license only applies to one shipment (transaction), so you need to get another new license for each shipment and licenses typically can take 20-30 days to get (which means that eCommerce won't work smoothly for export products requiring and export license.

Some examples of the not-so-logical nature of export licenses:

Paraffin (you know stuff in candles) can often require an export license depending on the buyer and destination country.

Horses shipped by sea, but not by air or land require an export license

Sony Playstation depending upon to where and to whom you ship can require an export license.

So forget the intuitive feeling that you don't need an export license and check before shipping.

Export Compliance probably has sneaked up on most exporters, and many exporters and potential exporters we talk to don't know what it is, what it means or why it's important. Yes, this is big and messy but also very necessary since 9/11, not only to prevent terrorist activities but also to keep exporters out of trouble.

Simplified bottom line is that exporters must know and carefully document:

What they are selling? (does it require an export license?)

Where they are shipping? (is the buyer or end user location in a prohibited or restricted country?)

To Whom are they shipping? (is the buyer or the end user on a US government Denied Parties List?)

What is the end users intended use for the product? (Probably don't know for sure must do due diligence to confirm use is legitimate).

Okay, many of you use commercial carriers and they do all of the shipping documents as a service, but you must know that they do that to protect themselves and not you. They do keep the archive records as long as they legally need to, but that doesn't necessarily protect you, the exporter, if there is ever a problem, because the shipper doesn't necessarily give you a complete copy of their compliance due diligence AND YOU need to keep a copy for 5 years.

New to Exporting probably means you need to start exporting with personal savings and investments

There really are a number of neat government programs to help you export, but unfortunately most of them require you to have at least one year of exporting experience, so in the beginning you may need to consider starting out by using personal savings and or investments. Or if your business already exists and you have established cash flow you may be able to redirect some the cash flow to invest in your new export program.

Naturally you might be able to get someone to invest in your export program, but in the beginning it may only be friends and family because experienced investors are not overly interested in an unproven business.

And this for SBA International Trade or Export loans:

• Export Express

  Provide exporters and lenders with a streamlined method of obtaining financing for loans and lines of credit up to $500,000. Lenders use their own credit decision process and loan documentation; exporters get access to their funds faster. SBA provides an expedited eligibility review with a response in less than 24 hours.

• Export Working Capital

  Offers loans targeted at businesses that are able to generate export sales but need additional working capital to support these opportunities.

• International Trade Loans

  Gives term loans that are designed for businesses that plan to start/continue exporting or those that that have been adversely affected by competition from imports. The proceeds of the loan must enable the borrower to be in a better position to compete.

So you did all that other stuff and now you are ready to start exporting, but what you really need to do is find some working funds to actually pay for everything until the money starts rolling in -- but how?

There are a number of options and strategies for getting International Trade financed and we will address them in this section:

Personal loans or investments

Investors

Bank loans

SBA loans

OPIC

Export-Import Bank financing (EX-IM Bank)

OPIC is NOT what you thought - (that is OPEC for Oil)

Overseas Private Investment Corporation (OPIC) does, among other things, Investment Project Financing: OPIC enables U.S. businesses to acquire financing for large-scale projects that require large amounts of capital, such as infrastructure, telecommunications, power, water, housing, airports, hotels, high-tech, financial services, and natural resource extraction industries.