Navigating the US Export Control Reform
Iqubal Pannu, Senior Solutions Consultant, AEB (International) Ltd., looks at the key aspects to consider when navigating the US Export Control Reform.
The objective of the USExport Control Reform (ECR) is to simplify US export controls while enhancing USsecurity. Its ultimate goal is the consolidation of the two primary control lists – the United States Munitions List (USML) and the Commerce Control List (CCL) – into a single control list administered by one single agency using one central computer system.
As part of this, a large number of items previously classified as munitions are currently being transferred from the USML, administered by the Department of State, to the CCL, administered by the Department of Commerce.
This reform involves a significant development for European companies that utilise US-origin goods, software, technology, and related services in different industry sectors, including aerospace, automotive, defence, information technology, telecommunications and software development.
One of the ECR’s objectives is to reduce the license burden on companies that export to allies and partners, and allow for more flexible controls under the EAR. However, the changes also bring about new challenges for EU companies:
Many of the companies affected by ECR changes have previously been focused on dealing with the International Traffic in Arms Regulations (ITAR) that control the export and import of defence-related articles and services on the USML. Now that a large number of items are being transferred to the CCL, these companies need to familiarise themselves with the Export Administration Regulations (EAR), as licenses may now be required from the Department of Commerce.
As the EAR is structured very differently than the ITAR, the ECR requires European companies to understand aspects of the EAR − including its licensing provisions and exceptions, its rules concerning the use of US-origin technology in overseas development and production, and other features that they did not have to consider before.
Basic principles of the EAR
Determining which US federal agency has jurisdiction over products, technical data and services is a key step in identifying US export license requirements under the ECR. EAR and USML jurisdiction can apply merely on the basis that goods, software, or technology are of US-origin or contain US content – there is no need for the product to be located in the United States, and no need for US parties to be involved in the export or re-export transaction.
The USDepartment of State has export control jurisdiction over the export of defence items under the ITAR, while the US Department of Commerce has export control jurisdiction over the export of dual-use items and items that have strictly civilian or commercial uses under the EAR. Notably, a non-US company receiving and re-exporting UScontrolled items is responsible for ensuring the correct jurisdiction and classification of the items, even if this information has been provided to them by their supplier.
Main elements of the US ECR
• Among the most significant changes introduced with the ECR is the addition of the '600 series' to the CCL. The '600 series' is comprised of less sensitive military items that were formerly captured under the USML and hence subject to the ITAR. Moving these items to the CCL allows for more flexible controls under the EAR so they can be exported to NATO countries and other US allies more easily. They do, however, retain their nature as military items, and licenses from Commerce are required to export and re-export them unless an EAR License Exception is available.
• Of additional importance is the revised license exception Strategic Trade Authorization (STA) of the EAR, which is designed to ease trade between the USand its allies and close partners. Some transactions that, prior to the ECR, would have been conducted under a license may now be possible under this exception, reducing the administrative burden on exporters. The STA allows export, re-export, and transfer of certain dual-use and “600 series” items to STA-eligible countries without a transaction-specific license, provided certain conditions are met.
• Screening all parties involved in a transaction is a fundamental part of a company’s US trade controls compliance programme. Under the ECR, the US Government has consolidated nine different screening lists from the Departments of State, Commerce and Treasury that can be used as a single resource for screening. If a party to a transaction is matched against the Consolidated Screening List, additional investigation is required to understand whether the process can continue, if an authorisation is required from the US government, or if other restrictions apply.
• Finally, a new license exemption by the Department of State eliminates the need to obtain prior approval for transfers of unclassified defence articles to dual national or third country national employees of foreign business or government entities, or international organisations that are approved end-users or consignees for such defence articles. This exemption is subject to fulfilling certain screening and recordkeeping requirements.
Compliance through automation
Keeping ongoing changes under the ECR on screen and covering all aspects required to demonstrate export control compliance - including real time visibility, validation, data capture and archiving, and being able to prove compliance during official audits - is very difficult to achieve with manual processes.
Today’s powerful export control solutions help to meet relevant requirements effectively and affordably, referring to and searching through the latest national, EU and USregulations to determine whether a license is required or whether the goods can be shipped without restrictions. Running all export control checks in the background of business transactions, they are designed to manage compliance without interrupting daily operations.
Due to the extraterritorial reach of US export control regulations, it is important that non-US companies are aware of their obligations and seek the relevant authorisations to avoid non-compliance risks - even if they are not directly located in, trade with, or ship to the United States. Violations of US export control regulations may result in severe criminal and/or civil penalties, including fines and even imprisonment for those responsible, such as managing directors or board members. Effective compliance programmes including appropriate tools are essential today to avoid violations and ensure efficient and secure global trade.