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SAP GTS - US Reexport Controls

Introduction: The U.S Department of Commerce regulates exports and re-exports of "dual-use" items through EAR (Export Administrative Regulations). If any controlled product is of U.S origin or in anyway connected with U.S then even if it's shipped anywhere from outside the U.S to any other countries, it should be compliant with EAR and require a license from the U.S BIS (Bureau of Industry and Security). When a foreign-based company imports products or components from the U.S and uses them in its production, and then exports the produced materials to another country, the process is known as U.S. Re-export and is subject to U.S. regulations.  Firstly, we need to determine if any foreign-produced materials that contains the U.S origin components are subject to EAR or exempted based on the de-minimis exception. Here the ultimate destination countries are classified as "Non-Critical / Friendly Countries" and...
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US Export Controls - ITAR vs. EAR

Introduction:

The United States government imposes export control to protect national security interests and to promote foreign policy objectives. 

Export control laws regulates, restrict the release of critical items, technologies, information, and services to any foreign nationals, within and outside of the United States, and in the foreign countries.

Due to constant changes in the export control reforms, it's hard for the business to distinguish between these two regulations and to identify under which regulation their products fall under. 

The US government has two main regulations in place to control the export of any military / defense / dual-use related items. 

  • ITAR  - International Traffic in ARms, This regulation is for regulating the manufacturing & transactions involving the defense-related products.
  • EAR - The Export Administrative Regulations,  This regulation is for regulating the dual-use items which are not covered by ITAR. Dual-use goods are the ones which can be used for both Civilian and Military applications. Therefore some defense-related products are also covered here.
In addition to the above, there is an another export control for nuclear-related items which are covered by the NRC (Nuclear Regulatory Commission) under Department of Energy (DoE). In this blog, we will see about the most commonly used ITAR & EAR regulations in detail and their main differences.

ITAR:

  • The U.S. Department of State (DDTC - Directorate of Defense Trade Controls) governs/regulates the ITAR for the exports, re-exports, temporary exports and temporary imports of defense items, services and data.
  • USML (United States Munitions List) is used to classify the defense related products/services. There are total 21 Category codes covered by USML. 
  • USML number format will be in roman numerals, where the category will be followed by the sub-categories in bracket. For ex: USML for ABC Aerospace Communication Satellite is XV(a). Here this product falls under the USML category - 15 which is for 'Spacecraft and related articles'.
  • For companies/individuals to perform permanent export of unclassified articles, the first step is to register with DDTC and then obtain the DSP-5 license (Department of State Proforma-5). S05 will be the required AES license code to be reported for the US AES filing.
  • DSP-61 is for temporary import of unclassified articles. S61 will be the required AES license code to be reported for the US AES filing.
  • DSP-73 is for temporary export of unclassified articles. S73 will be the required AES license code to be reported for the US AES filing.
  • DSP-85 is for temporary/permanent import/export of classified articles. S85 will be the required AES license code to be reported for the US AES filing.
  • There are two types of agreements that are regulated by the ITAR are Technical Assistance Agreements (TAA) and Manufacturing License Agreement (MLA). 
  • TAA covers the technical assistance agreement between a U.S. entity and a foreign entity which allows the transfer of technical data and assistance in the development and use of the defense/military related items. By this the foreign entity get the necessary support in development or production of the ITAR related items.
  • MLA covers the manufacturing agreement between a U.S entity and a foreign entity which allows the manufacturing of defense/military related items. Companies needs to take prior approval from the U.S. Department of State through a formal request.
  • SAP GTS has the full functionality to support the ITAR compliance check and AES filing with the US Customs.
  • USML numbers, S00/S05/any other ITAR licenses, TAA/MAA agreements can be maintained in SAP GTS to support the compliance check.
  • ITAR exemption items are exported under the license type S00. 
  • The eight main data elements required for US AES filing  for ITAR are 1) DDTC Export License Number, 2) DDTC Exemption Number, 3) DDTC Registration Number, 4) DDTC Significant Military Equipment Indicator, 5) DDTC Eligible Party Certification Indicator, 6) DDTC United States Munitions List (USML) Category Code, 7) DDTC Unit of Measure Code, 8) DDTC Quantity.

  • For companies to be ITAR compliant, even the employees working for ITAR requirement in any company should be noted. There are two employee types to check this. 1) A U.S person (as per EAR Part 772 & ITAR 120.15) 2) Foreign Person (anyone who is not a U.S. person).
  • Companies can employ even foreign persons, provided they are not from the restricted countries and the company should apply for an export license to employ the foreign person to handle the most sensitive ITAR requirements.
  • SAP GTS has in-built functionality to screen the employees against the SPL lists to make sure the employees are not in any denied party lists. 
  • Proper product classification is very crucial to determine whether our commodities fall under ITAR or EAR. So, the right knowledgeable person should involve in the classification process, if there is no automated tool classification / AI integrated classification process available. Other ways to identify the classification number are ask the vendor if its procured externally or through "CCATS" (Commodity Classification Automated Tracking System) / SNAP-R (Simplified Network Application Process - Redesign). 
  • Electronic/Online License application for ITAR can be filed through DECCS (Defense Export Control and Compliance System). 
  • Any Companies/individuals knowingly/unknowingly violating the ITAR compliance would be facing severe Civil / Criminal penalties and losing their export license and trust of their customers. Companies/individuals could be exposed on non-compliance through export screening by CBP, Whistleblowers, Competitors. However, voluntary/self disclosure of any violations by the company will lead only to settlement agreements such as fines/administrative penalties, if it's genuine violations.

EAR:

  • The U.S. Department of Commerce (BIS - Bureau of Industry and Security) governs/regulates the EAR for the export, re-export of all the commercial, Dual-use items and also some of the military items.
  • ECCN (Export Control Classification Number) as provided by the CCL (Commerce Control List) is used for classifying the dual-use products. 
  • ECCN is a 5 Character Alpha-numeric designations that categorizes items based on the nature, type and technical parameters of the item. 
  • There are 10 CCL Categories ( 0  to 9) which are sub-divided into 5 product Groups (A to E).
  • For ex: ECCN for a Laptop - '5A992'; 5 denotes Telecommunication and Information Security-Category, A denotes Systems, Equipment & Components- Product group, 9 denotes the Anti-terrorism/Regional Stability/short supply-Control reason, 9 denotes the unilateral Concern, the last digit 2 is the sequential number.
  • If any products/services/technologies are not listed / controlled under the CCL, then those items can be classified as EAR99. For those items the license is not required from any department for the export. It can be exported with NLR (No License Required) license, which is C33 license exemption code. (AESTIR Appendix F)
  • If any product is controlled and listed in the CCL then the exporter should have an export license from the U.S Department of Commerce (BIS) for the export activities.
  • Even if any product is not controlled and not listed in the CCL, but the shipment is destined to any embargo nation/any restricted parties then the exporter should have an export license from the U.S Department of Commerce (BIS) for the export activities.
  • SAP GTS has the full functionality to support the EAR compliance check and AES filing with the US Customs.
  • ECCN numbers, C30 / C33 / any other licenses types, license depreciation groups for any value / quantity  based license can be maintained in SAP GTS to support the compliance check. 
  • Electronic/Online License application for EAR can be filed through SNAP-R (Simplified Network Application Process - Redesign). 
  • Any Companies/individuals knowingly/unknowingly violating the EAR compliance would be facing Civil / Criminal penalties and losing their export license and trust of their customers. Companies/individuals could be exposed on non-compliance through export screening by CBP, Whistleblowers, Competitors. However, voluntary/self disclosure of any violations by the company will lead only to settlement agreements such as fines/administrative penalties, if it's genuine violations. 
  • More details on how SAP GTS helps for smooth export legal control is briefed in my video.
 
Disclaimer: To be accurate and compliant, always visit the U.S government website (ends with .gov) to know about the current trade / export control laws and regulations and abide only as per the U.S. government instructions in their website. Do not rely on any third-party / blogs / institutions website for any information on export control laws.

For any suggestions/corrections please drop a message. Happy Learning...


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