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Powering Trade Responsibility

July 17, 2006
Basically, I need people in Rolls-Royce to know that there are regulations, says Colin Donahue, export control specialist. "Everybody knows there are

Basically, I need people in Rolls-Royce to know that there are regulations, says Colin Donahue, export control specialist. "Everybody knows there are regulations," he comments, but they don't know how it's going to affect them. So, my job is to let them know how it's going to affect them so that they can put proper plans in place for sourcing and global collaboration."

Donahue explains that with a heavy focus on cost controls, procurement professionals for defense and aerospace contractors like Rolls-Royce have their hands full finding an inexpensive vendor that can still handle the technology. In their global search, meeting the U.S. regulations has to be part of the plan from the beginning, and that's where training comes into play.

From procurement, supply chain and product managers to marketing managers, everyone needs to know there are regulations to be met and that Rolls-Royce has people who can help them, Donahue continues. "We do general training," he explains, but they also handle specialized training in some of the military and critical technology sections. Handling defense contracts and dual-use technology, there are areas of Rolls-Royce's business that demand more than a passing knowledge of export rules. Donahue's department monitors various government restrictions like the " denied party" list and countries that have been put on a State Department watch list. He sends updates throughout the organization.

Every new customer and every new export authorization and new business venture is run through the denied parties list. Those lists are updated frequently, and, says Donahue, there are services available that will pass along the updates. He says Rolls-Royce is looking at an information technology (IT) solution that will automatically check its entire customer base against the denied party list. In some instances, keeping up with changes involving existing customers is more difficult. As Donahue describes it, having an export authorization in place for an existing customer, it would be easy to miss the fact the customer subsequently lands on the denied party list. In that case, he says, he receives a letter from the Department of Commerce (DOC) telling Rolls-Royce to cease and desist. Even tougher are those cases of customers and products where no export license is required. Then, it's up to the Rolls-Royce department dealing with them to ensure it is in compliance with the regulations — and that's where awareness training pays off.

What happens where subcontractors or suppliers are involved? "We pass down requirements to our sub-tiers or to whomever we sell to," says Donahue. It's rare that Rolls-Royce will have a problem with any of those customers re-exporting goods or violating any regulations, but where they do, the company will stop the practice. Customer service and field service representatives are educated in exports and pass on the requirements, he points out.

Another consideration for subcontractors is that Rolls-Royce must ensure that if they further sub-contract work that any of these regulatory requirements are passed down to their sub-contractors as well. "We pass down requirements to our supplier, and part of the supplier agreement is that they must pass it down to their supplier."

Donahue goes the extra distance to provide training as needed because, he observes, some suppliers are smaller companies and don't have the resources. He also performs his own audits of suppliers, visiting their operations and checking compliance.

Being a global supplier as well as sourcing globally, Donahue often deals with goods moving entirely outside the U.S. Suppliers and their parent companies may have operations or headquarters outside the U.S. and could be serving non-U.S. markets or non-U.S. operations of Rolls-Royce. Donahue offers the example of a colleague who, at the time of the interview, was working in France and the Czech Republic. He notes that various specialists are familiar with the regulations of other countries. "If we want to do business on a global collaboration, then we need to know, or at least have a good awareness, of what their regulations are. If you can understand the U.S. rules, you can understand most countries, says Donahue. That said, he points out some have "a few odd customs regulations."

With regulations constantly changing, one of the best ways to stay compliant is to be active in industry groups, points out Donahue. "We glean best practices from our competitors and from suppliers and try to institute those into our own best practices. And the same goes for their getting best practices from us." Some of the groups may be small or very vertical by industry. Donahue is active in a number of defense-related organizations. But training and other opportunities are also available through government and export-oriented groups.

Regulatory compliance is a critical factor for global companies and extended, international supply chains. Often, the risk of prosecution or actual jail time isn't the prime motivator. As Donahue points out, given the size of some of the contracts, the financial implications of losing business can be devastating. Further, being constrained from operating in a global marketplace or sourcing globally can seriously impair a company's competitiveness.

Knowledge is the key, says Donahue. Knowing the regulations and requirements is paramount. But given the interdependency within supply chains, even smaller players can tap the resources of their supply chain partners to ensure compliance. As Donahue demonstrates, the entire supply chain has a stake in the performance of each member of the supply chain.

More Resources for Exporters

The list of debarred persons is available through: http://www.pmdtc.org/debar059.htm

Export document requirements can be found at the U.S. Department of Homeland Security's Customs and Border Protection Web site: http://www.cbp.gov/xp/cgov/export/export_docs/

Information on the Customs-Trade Partnership Against Terrorism (C-TPAT), including instructions for joining the program, are at: http://www.cbp.gov/xp/cgov/import/commercial_enforcement/ctpat/

The U.S. Treasury Department's Office of Foreign Asset Control maintains lists of trade sanctions and other restrictions on exports at: http://www.treas.gov/offices/enforcement/ofac/

Export Controls

With offshore sourcing receiving so much attention, it's easy to overlook the fact that the U.S. is still a major exporter. Through April 2006, U.S. trade in goods reached $910 billion — just over one-third of that was exported goods.

April 2006 was a record month for services exports. The monthly combined total of $115.7 billion in goods and services exports was the second highest figure (the highest exports occurred in March 2006).

Rolls engines power today's air fleet.