Aerospace consistently ranks among the top U.S. export industries. American companies sell about $148 billion worth of commercial airliners, satellites, military aircraft, engines, components, and more to customers abroad. At the same time, aerospace is among the industries most affected by export controls.
While the term “aerospace” means different things to different stakeholders – from airframers to MROs to component makers, trainers, engineering service providers and more – one fact remains constant: Aerospace companies deal with unique export compliance concerns.
At the Export Compliance Training Institute, we understand how frustrating it can seem for aerospace companies to comply with export rules. There are many of them, and they indeed are complex. At times, they even can seem illogical. Yet, with the right export compliance training, aerospace professionals will have the requisite knowledge and resources to ensure successful compliance with U.S. export controls.
In this blog, we provide a basic overview of the export control compliance challenges that aerospace businesses face and offer specific ideas to help you achieve compliance, reduce risk and be more successful.
Executing on an export compliance program takes solid understanding in many areas. U.S. export rules apply to a wide range of day-to-day activities—not just shipments to foreign lands. Still, export compliance matters—a lot. Why?
- U.S. export controls are designed to protect U.S. national security interests.
- Penalties – some in the seven-to-eight-figure range – are possible for companies that violate U.S. export controls.
- Effective export compliance, when established and communicated externally, can give you and your company a competitive advantage in today’s marketplace. Customers and suppliers will find it easier and less risky to work with you if you’ve built and maintain a resilient compliance program. Likewise, prospective customers could find you a desirable business partner knowing that their compliance risks are reduced through association with your company. It’s a win-win all around.
So, what comprises the U.S. export control system? In reality, it’s actually an interrelated series of major export control regulations, augmented by several secondary regulatory tiers. The most prominent of these is the International Traffic in Arms Regulations—most commonly known as the ITAR.
International Traffic in Arms Regulations (ITAR) for Aerospace Companies
The ITAR is the logical starting point to determine if your products, technologies or services fall under its jurisdiction. Essentially, the ITAR is a set of rules which regulates various activities related to defense articles and defense services. Anyone in the U.S. who manufactures, exports or temporarily imports defense articles, or provides defense services, must register with the Department of State’s Directorate of Defense Trade Controls (DDTC) (www.pmddtc.state.gov). Exports, reexports, retransfers, and temporary imports of defense articles, and furnishing defense services, require DDTC authorization, as do manufacturing abroad and arms brokering.
The defense services and defense articles regulated by the ITAR are identified on the U.S. Munitions List (USML), which includes a broad array of items which DDTC has determined provide a critical military or intelligence advantage. The USML itself consists of 21 distinct categories organized around broad platforms or groupings such as aircraft, ground vehicles and firearms. Each of these categories includes tangible items, software, technical data and defense services. Confusion often arises over whether all “defense-related” items are subject to the ITAR. This is not the case, but a careful review of the USML is essential in ascertaining if the ITAR is relevant to your business.
The other prominent export control framework is the Export Administration Regulations, or EAR for short.
Export Administration Regulations (EAR) for Aerospace Companies
Envision a circle that represents the universe of export compliance regulations and controls, then draw a small wedge within it. That wedge, metaphorically, represents items controlled by the ITAR. Of all the export activities and issues people consider, that small wedge garners a great deal of attention because it’s highly regulated and challenging to comply with in many ways.
However, the remainder of the circle – i.e., the large majority – represents items that are subject to the EAR. Indeed, the EAR controls nearly everything under the authority of the U.S. government which is not subject to the ITAR. To be specific, the EAR controls commercial goods, dual-use items and many military items that are not on other export control lists such as the USML. Be aware, though, that some items fall outside the ITAR or EAR’s jurisdiction and are subject to control by other federal agencies.
In terms of the EAR, the controlling agency overseeing it is the Bureau of Industry and Security (BIS) in the Department of Commerce (www.bis.doc.gov).
The EAR requires a license based on the relevant items, end use, parties and countries involved in a potential export. That said, most exports under EAR jurisdiction may be made without a license—the challenge is in correctly identifying the transactions which require a license. If you seek to export, and do so compliantly, the burden of analyzing transactions to determine if a license is required falls on you. In this regard, you must implement procedures for analyzing exports to determine when a license is required.
To determine whether your item is subject to the EAR, and how stringently it is controlled for export, you must carefully review the Commerce Control List (CCL). Within the CCL there are 10 distinct categories, each with five product groups. Each individual entry in the CCL is an Export Control Classification Number (ECCN). Look for the ECCN that matches your item—and if you’re unsure, you should get the right training or consult with an experienced export professional to be absolutely certain.
Related article: The Export Compliance Basics of ITAR and EAR – Understanding Key Terms, Issues, Similarities and Differences
Understanding Aerospace Industry Classifications and Using Them to Plot an Export Compliance Strategy
The term “aerospace” includes a wide range of products and technologies—notably:
- Entire aircraft, satellites and missiles
- Engines and propellants
- Electronic systems and components
- Valves, pumps and actuators
- Aircraft and engine components
- Advanced materials
- Materials processing, machining, forging and casting
- Specialized metals, materials and chemicals
- Service, repair, overhaul, building and modifying
- Navigation, avionics and radar
- Electronic warfare, command, control, communication and intelligence
- Weapons systems, bombs and guns
In fact, a significant portion of the USML and CCL control lists are potentially applicable to the aerospace industry. Therefore, if you seek to export your company’s aerospace items, first try to narrow your focus down to which regulations govern the item or items you seek to export. Start with the ITAR, then go through the USML and if necessary, the CCL. It’s also helpful to understand that most items people consider within the aerospace realm fall into one of four USML categories:
- Category IV – Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs and Mines
- Category VIII – Aircraft and Related Articles
- Category XV – Spacecraft and Related Articles
- Category VIX – Gas Turbine Engines and Associated Equipment
Each of these categories controls primary items as well as related items—e.g., parts and components, technical data and defense services. Keep in mind, while your item or items may live in one of these categories, it could also fall under another one. For example, aerospace companies may manufacture items that aren’t traditional “aerospace” items, so those items would fall under categories outside the four listed here.
Export Control Reform – How It Facilitates Export Control for Aerospace Companies
If all this still seems confusing, there’s some good news: In 2013, the Export Control Reform (ECR) initiative was set in motion to improve the U.S. export control system. It largely concluded earlier this year and succeeded in clarifying many grey areas within export compliance, as well as eliminating redundancies and updating key terms and lists within the export compliance universe. Therefore, for your aerospace company, it is vitally important that you utilize updated and accurate lists as your determine the correct jurisdiction and classification of the items you export. To aid you in this, ECTI has compiled free, downloadable and easily searchable ITAR and EAR export compliance lists. We encourage you to use these as you determine compliance requirements for your items.
One final note: using common sense to determine regulatory requirements is not a substitute for reading the rules and determining a rock-solid path to compliance. U.S. export rules often do not make sense on the surface—nor are they necessarily based on common sense. Yet, they are the rules—and violations carry serious legal, reputational and business risks. No single transaction is worth a violation; beyond penalties, you cannot risk the chance of losing your privilege to export. You are responsible for what you know or suspect, so be proactive in your drive to ensure complete compliance with all applicable U.S. export controls.
We hope this article helps you understand key compliance considerations for aerospace companies. 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 export compliance challenges for your aerospace business? 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 browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You can also call the Export Compliance Training Institute at 540-433-3977 for more information.
Scott Gearity is President of ECTI, Inc.