When it comes to exporting products overseas, companies have to weigh a wide-ranging number of regulatory considerations when managing their overseas relationships. These include the International Traffic and Arms Regulation (ITAR), which the State Department administers, and the Export Administration Regulations (EAR), which is overseen by the Commerce Department. The ITAR focuses on the export of the most sensitive defense-related items and services covered on the U.S. Munitions List (USML). The EAR, on the other hand, applies to a much broader range of items that the Commerce Control List (CCL) describes. Export control reforms over the past decade have also moved many less-sensitive military items, spacecraft, and firearms into the EAR’s jurisdiction.
Each set of regulations involves complex classification questions and compliance issues that, if improperly addressed, could lead to severe civil and criminal sanctions. Companies can avoid the numerous common mistakes that often plague organizations adapting to export compliance by asking the right questions and creating proactive solutions. In this manner, companies can turn their attention to global expansion and profits without stressing over attendant export technicalities.
Here are some of the questions companies building up their export programs should review as they get acquainted with ITAR and EAR, and how they can avoid common issues associated with these rules:
1. Does the ITAR or the EAR even apply to my products and services?
At ECTI, we have found that the biggest early-stage mistake companies make is that they assume their products, technologies, software, or services are necessarily subject to the ITAR or the EAR off the bat. This is an all-too-common misconception. Failing to conduct initial due diligence about your regulatory obligations could unnecessarily subject your company to added compliance burdens, especially under the ITAR. With the ITAR, companies will face added record-keeping, registration, and overhead requirements compared to the EAR. To confirm whether your organization will need to acquire an export license, you must confirm whether your items and services actually fall within the purview of either regulation.
Action Step: Review the USML first to assess whether something is subject to the ITAR. Even if your item is not explicitly identified the USML, be sure to additionally review USML paragraphs which use the phrase “specially designed” to bring additional items under ITAR control. If the USML does not describe the item, proceed to run through a similar process with EAR by reviewing the CCL to assess whether your items falls within any of the list’s Export Control Classification Numbers (ECCNs).
2. Do my company’s activities raise licensing requirements?
Under both ITAR and EAR, you do not need to ship a physical item internationally to engage in what either law considers “exporting.” Under ITAR, for example, simply negotiating and sharing information related to a simple deal in your home office could be classified as “exporting,” even if you do so on American soil (it might even be considered arms brokering). Even under the generally less restrictive EAR, conducting mundane business with an entity on a restricted parties list can trigger an export license requirement. Therefore, companies must conduct their due diligence to assess whether the ways they conduct business would necessitate a license—especially since neither set of regulations typically requires evidence of requisite intent to establish liability.
Action Step: Convene with your in-house counsel and stakeholders to map out the processes your company typically takes when conducting business, shipping tangible products, and sharing intangible information and technical data. Afterward, work with your in-house export professionals and counsel to assess whether any of your activities could amount to exporting activities under ITAR and EAR’s respective definitions.
3. How should I classify my items?
Properly classifying your items can be key for helping your company avoid serious sanctions. In 2021, Photonics Industries International learned this the hard way after exporting a shipment of laser systems that it self-classified as EAR99, a common classification which rarely triggers a license requirement. At the time Photonics shipped these lasers, the BIS classified those products in ECCN 6A005 items and controlled them for anti-terrorism (AT) and national security (NS) reasons. As a result, Photonics entered into a $350,000 settlement with the BIS for its failure to obtain a license to export those lasers. Simply put, improper item classifications can subject your company to costly fines, settlements, consent agreements with relevant regulatory agencies, and other damaging costs.
Action Step: ECTI offers numerous course bundles and on-demand webinars featuring classification experts who can walk you through common issues when classifying your products. You can also always request an official agency classification opinion by filing for commodity jurisdiction (CJ) with the State Department or filing a classification request through the Commerce Department’s SNAP-R portal.
4. Should I apply for a license, or does an exemption/exception apply?
In the end, based on your research and due diligence, you may need to apply for a license. As you do so, you should look to the rules to assess whether you may qualify for an exemption or exception. ECTI’s course bundles for ITAR and EAR can also offer helpful tips in this area
Action Step (for EAR): If your items are subject to EAR, there are a number of fairly broad license exceptions which authorize many export transactions without need for a license. If it is a close case, it may behoove you to apply for a license anyway and provide all the available information about your items, transactional partners, and possible end uses. By filing a license application in this manner, you will shift the burden to the BIS for determining whether export licenses for your items is necessary.
Resources Companies Can Review to Master EAR and ITAR Basics
Fortunately, there are valuable resources companies can consult to assess whether their compliance efforts are heading in the right direction. Some worthwhile publications that compliance teams can look into include:
- The Commerce and State Department’s compliance program guidelines and websites, which cover helpful FAQs, instructions, and guidance documents.
- The Code of Federal Regulations (CFR) and Federal Register Notices, which lay out the regulatory standards and related amendments.
- Dicta and preambles of relevant CFR provisions, which can offer helpful illustrations and examples to inform your compliance strategies.
- Established compliance frameworks, including the Nunn-Wolfowitz Report. The Nunn-Wolfowitz Report outlines export-minded best practices that continue today, especially for ITAR compliance.
- BIS online decision trees, which offer automated tools for determining ECCN classification issues.
- Copies of recent consent orders and oversight agreements, which can highlight lessons from both the State Department and the Commerce Department on what not to do.
We hope this article helps you understand how to get started with EAR and ITAR basics the right way, and how these steps and considerations could apply to your company. As we said earlier, export compliance is a complex and detailed undertaking. Your company’s investments rely on achieving 100% compliance with all applicable export regulations and controls. That said, it is absolutely achievable—you can do it, provided you take the necessary time up front to align with an established and widely acclaimed export compliance training partner who can guide you step by step toward compliance success.
Do you have questions about getting started with ITAR or EAR, or other export compliance challenges for your company? Visit www.learnexportcompliance.com to learn about our company, our faculty, our staff and our esteemed Export Compliance Professional (ECoP®) certification program. To find upcoming e-seminars, live seminars and live webinars, and to browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You also can call the Export Compliance Training Institute at 540-433-3977 for more information.
Scott Gearity is President of ECTI, Inc.