ILMA Compoundings March 2017 - 11

government determination must be received and confirmed
as valid by the exporter prior to the export.
In addition, this same responsibility applies to any
re-export of the U.S. commodity, by anyone, to or through
Hong Kong. In practical terms, the complications involved
with this portion of the rule can become very difficult.
Exporters that police the potential re-export of their products should fare well. However, many exporters (including
companies with offshore-owned or partially owned entities)
do not control their product's destiny at the re-export level.

recognition of the prevalence of transshipments/re-exports
from/through Hong Kong.
In practical terms, the U.S. exporter must request and
receive the supporting documents from the Hong Kong
importer prior to the export. If Hong Kong requires an
import license, the exporter must evaluate the license before
relying on it. Any potential discrepancies or blemishes (such
as expiration prior to the intended export date) must be
identified and remedied before the export. The same is true
if the Hong Kong importer replies that an import license is
not required. That claim must be accompanied by a recently
issued determination letter stating as much from the Hong
Kong government. On this latter point, the exporter's
task can be tricky, in that the validity of the government's
determination will hinge on whether changes have occurred
in the import license requirement since the date that the
determination was issued. But like the import license, this

NEW RISKS
The importance of receiving these supporting documents
and confirming their validity prior to the export cannot be
overstated. Even though the basis for the requirement is the
Hong Kong regulatory posture, this new rule is a U.S. export
control requirement. Exports of these products without
the valid documents in hand prior to export constitutes a
U.S. export control violation. The effect is tantamount to
disqualifying the export for reliance on an otherwise available
license exception. Said another way - if you are exporting
a product while relying on an export license exception, then
not having one of these valid documents in your file prior to
the export would have the effect of canceling your eligibility
for the U.S. license exception. This results in an unlawful
export shipment without a required license.
A second, and more salient, risk created by this new rule
is to those who do not control re-exports. The rule foreshadows consequences to both the violating re-exporter and the
original U.S. exporter for the re-exporters, failure to comply.
This responsibility of the exporter for the infractions of the
re-exporter is not the result of the new rule. It already exists.
However, detection and documentation of the infraction is
easier for shipments that involved the rule. Hong Kong is not
the only high-profile transshipment/re-export gateway. Shippers should expect to see similar rules from BIS concerning
other countries that fit a similar profile.
Eggenschwiler is an international trade attorney and
director of Global Trade for Redstone Group LLC. He can
be reached at 614-923-7472 or jeggenschwiler@
redstonegrp.com.

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ILMA Compoundings March 2017

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