CATHERINE THORNBERRY
Manufacturers in the United States are authorized by law to make exports of their products and technology to other countries. However, this authority is considered a privilege, not a right. Misuse of the export authority can result in revocation of the export privilege; serious violation of the export regulations can result in fines and imprisonment. The revised Export Administration Regulations—which went into effect April 24, 1996—become mandatory as of December 31, 1996, making it even more important for exporting companies to ensure that their export transactions are in compliance with the law.
As with the current regulations, there are still three basic steps you must take to ensure compliance—you must determine which export controls apply to your particular export transactions, you must devise a recordkeeping system for documenting the transactions, and you must implement and maintain this export-management system. Export controls are applied to the product itself, its destination, and its intended use. The new regulations update the controls, particularly for those exports that might be contrary to US national security and foreign policy interests. The regulations also require some procedural changes, such as maintaining export documents for five years, instead of three.
Determining applicable controls
Compliance starts with the determination of the control status of your product. Most products fall under one of the three primary export control lists—the Commerce Control List (CCL), the US Munitions List (USML), and the Nuclear Regulatory Commission (NRC) List. The CCL, governed by the US Export Administration Regulations (EAR), gives technical parameters for items designed and developed for commercial end-use, but with potential national-security, proliferation, or short-supply implications. The USML, which adheres to International Traffic In Arms Regulations (ITAR), covers items that are considered munitions and defense articles. The NRC list covers items controlled by the Nuclear Regulatory Commission. The lists are readily available, as is a copy of the new export regulations and answers to export questions.
You should be able to determine which list applies to your product once you have described its technical parameters. For example, if your product is "specifically designed, developed, configured, adapted, or modified for a military application," then it would clearly be defense-related as defined by ITAR Part 120.3 and would fall under the USML. But not all products fit so neatly into a category. Upon request, the Department of State will help you determine a commodity jurisdiction for your product.
If the application of your product is not military or nuclear, review the technical parameters of the items on the CCL to determine whether the product falls under its control, and if so, in which category. A product that is not controlled by an entry on the list is given the general classification EAR99. And so on. Careful determination of the control category for your product is the first step in meeting export regulations.
Destination controls
US products cannot be exported to countries under trade embargo by the US government. Currently these countries include Iran, Iraq, Cuba, Libya, and North Korea. Products for export to Sudan and Syria are also tightly controlled. USML items are controlled to Afghanistan, UNITA (Angola), Armenia, Azerbaijan, Belarus, Burma, China, Cuba, Georgia, Haiti, Iran, Iraq, Kazakhstan, Kyrgyzstan, Liberia, Libya, Moldova, Mongolia, North Korea, Russia, Rwanda, Somalia, Sudan, Syria, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Vietnam, Federal Republic of Yugoslavia (Serbia and Montenegro), and Zaire.
There have been examples in which US firms have exported products to a European country with the full knowledge that the products would be re-exported to Libya. This activity is illegal. An audit of company documents would most likely verify prior knowledge of the re-export. Should a US subsidiary wish to make a re-export to an embargoed destination, approval would have to be requested from the US Department of Treasury.
Another area of destination concern is the list of entities who cannot receive exported products. Exports cannot go to anyone named on the Commerce Department's Denied Persons List or the Treasury Department's Specially Designated Nationals List. Items controlled by the USML cannot be exported to anyone on the US State Department Debarment List. These so-called denial lists are published in the Federal Register. The first two are also available through the FedWorld Home Page on the World Wide Web (http://www.fedworld.gov).
End-use controls
The third area of export control is end use. Following the Gulf War, a Presidential Directive—the Enhanced Proliferation Concern Initiative (EPCI)—was issued. Under EPCI, US companies are not permitted to export products that could be used directly in the proliferation of weapons of mass destruction. These end uses include chemical/biological weapons, nuclear weapons, and missile technology.
Although this directive sounds reasonable to the average individual, companies implementing it have found it extremely burdensome. This rule applies to all products "directly used" whether or not they are on the primary control lists. Countries that have not signed the Nuclear Non-Proliferation Treaty have unsafeguarded facilities and, therefore, exports to nuclear facilities in those countries are problematic. These countries include Israel, India, Pakistan, and Taiwan.
Licensing under new regulations
Much has been written to suggest that, under the new export regulations, export licenses are no longer required. That is not strictly so. Under the old regulations exports were made under general license or validated export license. An export that required specific authorization or approval from the US government was given a validated export license.
Under the new regulations, however, exports fall into one of three export authorization categories—NLR (No License Required), export license, or license exception. The new regulations recognize that "general license" was a difficult concept to understand in that no approval was obtained; thus the term has been dropped and exports with that designation have been reclassified as either NLR or license exception. A word of caution: when a US exporter completes the Shipper's Export Declaration, he or she is certifying that the correct export authorization has been entered on the declaration form. Just renaming an export license as an export authorization does not reduce the level of liability for illegal export for that US company.
If an export is classified EAR99, its destination is not controlled, and its end use is not controlled, it can be shipped under NLR. If, however, the export is controlled in any of these ways—product classification, destination, or end use—an application for an export license must be made and approval must be obtained from the US government before the product can be exported.
The third category of export authorization is a license exception. License exceptions allow otherwise-controlled transactions to occur without a license. A partial list of the exceptions—spelled out in detail in the new regulations—includes shipments to free-world destinations, low-value shipments, and operating and sales technical data.
Exporters are responsible for knowing their customers—that is, taking into account any abnormal circumstances in a transaction that indicate that an export may be destined for an inappropriate end-use, end-user, or ultimate destination. Such circumstances are referred to as "red flags" and must be investigated before an export license can be issued.
Recordkeeping
The new US Export Administration Regulations extend from three to five years the period during which export documents and records of export transactions must be kept. These documents include, at a minimum, the Purchase Order, the Bill of Lading or Air Waybill, Commercial Invoice, Shipper's Export Declaration (if required), and export licenses (if required). An efficient way to record export transactions is to develop a matrix that lists the products to be exported, potential destinations, and the export authorizations required to make each export. The matrix becomes the core of an export-management system used to track implementation of export controls. Typically, export controls are implemented at the points of quote, order entry, shipment, and new-customer review. At the point of order entry, it is necessary to review the denial lists (see above) and to determine the proper export authorization.
Compliance with the new regulations is facilitated by a corporate export policy statement declaring that all employees are required to comply with export regulations and that falsification of documents will not be tolerated. The policy statement will protect your company from liability if, for example, an employee with ties to an embargoed country processes an export transaction to that country without the company's knowledge.
The corporate policy statement also protects employees because it clearly states the goals of the company. A directive regarding compliance with regulations lifts the burden from the individual employee regarding what is expected of him or her.
Once you have set up an export-management system, you will want to train your employees, especially those in international sales, order fulfillment, and shipping, how to cope with the fine points of the export regulations. Training will create an awareness regarding red flags and other situations that require further investigation. One area where awareness is necessary is the US Antiboycott Laws. These laws were adopted to encourage or require US firms to refuse to participate in foreign boycotts, such as the Arab League Boycott of Israel, that the USA does not sanction. They have the effect of preventing US firms from being used to implement foreign policies of other nations that run counter to US policy.
The Export Administration Act requires US persons to report quarterly any requests they have received to take any action to comply with, further, or support an unsanctioned boycott. Merely failing to report such requests can result in civil penalties of up to $10,000 per occurrence. Violations can result in denial or suspension of export privileges. Criminal penalties can be fines up to $50,000 and/or five years in prison.
The last word
Compliance with the new US Export Administration Regulations is mandatory as of December 31, 1996. If your export documents are not in compliance, they give a clear message to US Customs officials that your company is not maintaining export-control awareness, and as the exporter of record, your company is liable should the export be made in violation of the regulations. Thus, to protect your employees and your company's export privileges, it is incumbent upon you to be knowledgeable of the export regulations and take all necessary steps to comply with them.