Exports of machine equipment and parts across many leading industries have experienced significant growth in recent years—and that growth is expected to continue in the months and years ahead. According to the United States International Trade Commission, total U.S. machinery exports reached $137.4 billion in 2019. Machinery is a large category for American exporters, including major subsectors such as semiconductor manufacturing equipment ($19.7 billion) and farm machinery ($9.5 billion). The top destinations for U.S. machinery exports are Canada, China and Mexico. Whatever industry or industries your business serves – from agricultural, aerospace and defense to automotive, construction, energy, mining, technology and more – exporting machine equipment or parts overseas can be a lucrative endeavor. It is essential, then, that as your business pursues export activities, it ensures 100% compliance with all applicable U.S. export controls in the process. Of course, appreciating the importance of compliance is one thing. Achieving it is a very different matter. U.S. export controls and sanctions are voluminous, complex and in some cases, head-scratchingly illogical to many people who try to interpret and apply them. Still, they are the rules, and they must be followed. Consequently, company officials charged with pursuing export compliance often feel overwhelmed by challenges that include:
- Which export controls are necessary to comply with, and which don’t apply in a given business’ particular case?
- When resources are stretched, what controls should be prioritized—and how would a business know that?
- How can a company that provides machine equipment and/or parts be confident that their compliance efforts are comprehensive, accurate and ultimately, successful?
At the Export Compliance Training Institute, we understand how challenging it can be for businesses that produce machine equipment and/or parts to comply with U.S. export rules. That said, compliance is within your grasp. By undertaking the right export compliance training, professionals in your business will have the requisite knowledge and resources to ensure successful compliance with U.S. export controls. Where to start? Well, a brief export control system primer can help you understand the interrelated series of major export control regulations that comprise the U.S. export control system. 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 Machine Equipment and Machine Parts Manufacturers
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 the 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. Fortunately, relatively few types of machinery are subject to the ITAR. The other prominent export control framework is the Export Administration Regulations, or EAR for short.
Export Administration Regulations (EAR) for Machine Equipment and Machine Parts Manufacturers
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. Classification on the CCL for manufacturers of machine equipment and parts can be challenging because of the large number and variety of controls. Some of the most commonly utilized ECCN numbers in this industry are:
- 2B001 – machine tools
- 2B230 – pressure transducers
- 2B350 – fluid handling equipment
- 2B999 – processing equipment
- 3B001 – semiconductor manufacturing equipment
The Bigger Picture – Exploring All the Reasons Why Export Compliance Matters Oftentimes, we at the Export Compliance Training Institute are approached by business professionals to help train them in meeting a specific compliance need. They understand how top-tier export compliance training will help them do that; but they may not initially understand or appreciate the broad benefits of export compliance—to their business, their country and even themselves. So, why exactly is compliance with U.S. export controls important on multiple levels?
- 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. (Read more about costs of non-compliance in our recent blog.)
- 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.
- Finally, prospective customers could find you a desirable business partner knowing that their compliance risks are reduced through association with you and your company. It’s a win-win all around.
We hope this article helps you understand how companies that manufacture machine equipment and/or parts can pursue compliance with U.S. export controls. 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 machinery or industrial 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.