Export Controls

One of the key responsibilities of a freight forwarder is to manage and navigate the export control process for his/her clients. Export controls are federal regulations that regulate and sometimes restrict the export of critical goods, technologies and software that may be controlled in the interest of national security and/or economic interests. There are three primary areas of export control regulation that include:

1) the Export Administration Regulations (EAR)
2) the International Traffic in Arms Regulations (ITAR)
3) the Office of Foreign Assets Control (OFAC) regulations, which fall under the Department of the Treasury.

A freight forwarder must become intimately familiar with these three sources of regulation while keeping an eye on US involvement abroad, such as embargoes or sanctions that may be in place or planned. The most important of the three regulations and most widely referenced is the Export Administration Regulation or EAR, 15 Code of Federal Regulations (CFR), Parts 730 to 774. The EAR is administered by the US Department of Commerce, Bureau of Industry and Security (BIS). The BIS enforces the EAR, and under its internal Export Administration (EA), it reviews license applications for exports and adjudicates on all manners of export issues that arise. Then, within the EA, there is the Office of Technology Evaluation (OTE) which drives most decision making through analyzing all manner of export data and trends in export data. The analyses are public data that are maintained on a data portal.

For defense items, the US Department of State’s Directorate of Defense Trade Controls (DDTC) has authority over defense articles and services. As mentioned, OFAC is a part of the US Treasury and is largely concerned with enforcing economic and trade sanctions that are being implemented as a result of US foreign policy. Enough stove piping? Amazingly, these descriptions barely scratch the surface of government agencies involved in the export control process. Some of the other federal agencies involved in export control include but not limited to: the Nuclear Regulatory Commission, the Defense Technology Security Administration, the Department of the Interior, US Fish and Wildlife Service, the Food and Drug Administration, the Environmental Protection Agency and even the Drug Enforcement Agency to name a few. It is important for freight forwarders to understand the role that all of these agencies play in controlling the export process, this will help them with the regulatory classification for their product and help them navigate the labyrinth of regulations that are in place.

Once a freight forwarder has determined that their shipment falls under the authority of the BIS and regulation by the EAR, for instance, the next step should be to determine the Export Control Classification Number (ECCN). The ECCN is a five digit alphanumeric identifier used by the federal government to classify products based on control regulation categories. This is where the research begins, especially if the shipment contains highly specialized electronic parts or undetermined sensitive items. There are 10 general categories for classification and five broader product group letters to begin the analysis. Guide to Export Control Classification Numbers (ECCNs) (mit.edu), 2017 It’s implied that the forwarder will have to obtain detailed product specifications from the client or manufacturer as soon as possible. If the specs are not available then the forwarder is allowed to request assistance from the BIS, but understand that this may result in delays. The ECCN can be obtained through the Electronic Request for Item Classification (ERIC) for faster return. Lastly, a forwarder may self-classify by thoroughly reviewing the Commerce Control List (CCL) and finding the category that most closely fits the product. Speed and accuracy are important as the ECCN will determine all of the forwarder’s export obligations and give them an idea of how much time and resources will be needed. For instance, if a product falls into a highly regulated category, it is likely that a license will be needed.

There are four factors that determine whether or not a license is needed for a product:

1) technical specifications,
2) destination,
3) the end user, and
4) the purpose for use of the product.

Once an ECCN has been determined, the BIS will provide an ECCN listing which will define the product category and list the license requirements, if needed. The controls will be displayed in a short code that the forwarder will use on the Commerce Country Chart (CCC) to determine the precise classification and export requirements based on the country being exported to. If we follow the ECCN example provided, 9E003, this ECCN is for a specially designed assembly, component incorporating any of the technologies involving gas turbine engines…The controls are codes: NS and AT, specifically NS column 2 and AT column 1; NS2, AT1. If we further identify Armenia as our country of export for this notional exercise, we can see that this product will require a license for export under control NS2 even though control AT1 has no license requirement. As you can see from the Commerce Country Chart, there are a lot of “X’s” indicating that a license is required, but a good freight forwarder will know how to dig for exceptions. A license exception can be granted in many circumstances that would grant an export without a license even though the Commerce Country Chart indicates that a license is required. License exceptions are outlined in 15CFR, part 740. Exceptions are defined by a three-letter abbreviation such as LVS or GBS, which are the most common exceptions. LVS or limited value shipments are any shipment that altogether total less than $5,000. Note: split shipments totaling more than $5,000 do not qualify to meet the LVS exception – nice try… GBS exceptions authorize exports to country group “B” except Sudan and Ukraine when marked as a license requirement on the Commerce Country Chart. The CCL will have these two license exceptions automatically listed and they must be indicated as authorized by either a “yes” or numeric value of $5,000 next to the LVS abbreviation. If no exceptions are available, then a license application will have to be submitted using the BIS web portal called SNAP-R.

As previously stated, the freight forwarder will need to provide the four primary data sets

1) technical specs,
2) destination,
3) end user,
4) purpose for use in order to initiate the application.

The BIS does a pretty good job and is able to process most requests within 30 days of submission. If no license is required due to product or destination, the freight forwarder still has to do his/her research of the end user to ensure that there are no restrictions in place. Individuals or companies may have restrictions placed on them that are subject to the EAR, they are tracked in a federal data base called the consolidated screening list, csl search (trade.gov). If a freight forwarder’s customer appears on the list, that doesn’t mean that they cannot do business with them, but simply that a license for export will now be required even though there are no other license requirements in place. End use is also a consideration, if the end use of a product is to support nuclear or chemical and biological weapon activities, a license will certainly be required and may be denied altogether. Probably should have been discussed earlier, but some products may not fall into a definitive category of the Commerce Control List (CCL). These items may not appear anywhere and little to no guidance is provided in 15CFR. That does not mean that they are not subject to the EAR, so the BIS has designated these products to fall into a general category known as EAR99. EAR99 items have no obvious license requirement and cannot be tracked on the Commerce Country Chart but once again, this does not imply express permission for export. If an EAR99 product is being exported to a terrorist supporting country such as Iran or N. Korea there will certainly be license requirements or a denied export.

Finally, the exporter should be mindful of “red flags” that may put their shipment and possibly even their career at risk. If any of these red flags appear, the exporter would be advised to seek more information and consider dissolving a transactional relationship. Serious violations should be reported to the Department of Commerce 24 hour hotline number: 1-800-424-2980. From the BIS FAQ: Red Flag Indicators (doc.gov):

• The customer or its address is similar to one of the parties found on the Commerce Department’s [BIS’] list of denied persons.

• The customer or purchasing agent is reluctant to offer information about the end-use of the item.

• The product’s capabilities do not fit the buyer’s line of business, such as an order for sophisticated computers for a small bakery.

• The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.

• The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing.

• The customer has little or no business background.

• The customer is unfamiliar with the product’s performance characteristics but still wants the product.

• Routine installation, training, or maintenance services are declined by the customer.

• Delivery dates are vague, or deliveries are planned for out of the way destinations.

• A freight forwarding firm is listed as the product’s final destination.

• The shipping route is abnormal for the product and destination.

• Packaging is inconsistent with the stated method of shipment or destination.

• When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for reexport.

The BIS website is highly detailed and user friendly for novice exporters. A noteworthy application on the BIS website is the suite of decision tree tools that guide the exporter through the classification process. My favorite and likely the most widely used is the Commerce Control List order of review. The specially designed decision tool is particularly useful for working through the definition of products that are obscure. It kind of bridges design intent with policy objectives and regulatory guidance. Other decision tree tools include the Strategic Trade Authorization tool and the De minimis & Direct Product rules which help exporters determine if a non US made product is subject to the EAR. The intent of this overview was to provide a better understanding of one of the primary responsibilities of freight forwarders.

There are a myriad of adjacent tasks and responsibilities that freight forwarders are responsible for but fortunately there is significant detailed guidance in all areas needed by freight forwarders. While multiple commercial entities will attempt to sell easy knowledge and expedited processing assistance, the best methodology is to always follow the US Department of Commerce guidance.  Please reach out for specific questions or assistance with any freight forwarding actions.