{"id":174,"date":"2016-06-21T17:38:48","date_gmt":"2016-06-21T17:38:48","guid":{"rendered":"http:\/\/exportcompliancesolutions.com\/blog\/?p=174"},"modified":"2016-06-21T17:38:48","modified_gmt":"2016-06-21T17:38:48","slug":"export-compliance-11-words-part-4-12","status":"publish","type":"post","link":"https:\/\/exportcompliancesolutions.com\/blog\/2016\/06\/21\/export-compliance-11-words-part-4-12\/","title":{"rendered":"EXPORT COMPLIANCE IN 11 WORDS (Part 4 of 12)"},"content":{"rendered":"

EXPORT COMPLIANCE IN 11 WORDS (Part 4 of 12):
\n<\/strong>A Series on Export Compliance Essentials<\/strong><\/h2>\n

CLASSIFY!<\/strong><\/h2>\n

Sound policies and consistent procedures for classifying your products
\nwill reduce the risk of export control violations<\/em><\/strong><\/p>\n

Export compliance managers must be thoroughly familiar with their company\u2019s products, services, and technical data, and they must know which export control requirements apply to each category.<\/p>\n

Determining the correct export jurisdiction for your products\u2014State\/DDTC, Commerce\/BIS, or, in rare instances, another Federal agency\u2014and classifying them accurately according to the U.S. Munitions List (USML) or Commerce Control List (CCL) is a critical element of your corporate export control process, particularly in light of the recent Export Control Reform, which has brought about the migration of many former USML items to the CCL. Solid compliance demands accurate classification.<\/p>\n

Even a small mistake in classification can cause big problems. Multiple export control violations resulting from a misclassification may result in wasted time, unhappy customers, heavy fines and penalties, long and costly litigation, a tarnished business reputation, and a record with the regulatory agencies that will be taken into account in any future export enforcement proceedings.<\/p>\n

How to Avoid Errors in Product Classification<\/strong><\/h3>\n

1. Keep calm and follow the process.<\/strong><\/p>\n

The web-based Decision Tree Tools<\/em> on the DDTC and BIS sites, especially the USML Order of Review and Specially Designed tools<\/a> and the CCL Order of Review and Specially Designed tools<\/a>, are invaluable resources, if used properly. Together they provide a sure roadmap that will guide you through the process of reviewing the USML and CCL in order to classify each of your items correctly, with\u00a0references to the relevant sections of the ITAR and EAR for you to consult at each step along the way. When you classify your products, make it your policy to follow the statutory Order of Review consistently. Stick to the path, and resist the temptation to take shortcuts!<\/p>\n

2. Classify your products in advance to reduce risk<\/strong>.<\/strong><\/p>\n

A policy of classifying your products and services transaction-by-transaction, as needed, upon receipt of an RFQ or order from a foreign customer, puts your company at high risk of double-barreled disaster. What are the risks? For one thing, informing a customer when you\u2019re about to ship his order that you\u2019ve just realized you\u2019ll have to apply for an export license, so it\u2019ll be a while before he sees his goods, is a less-than-optimal practice if repeat business and customer retention are desired. For another thing, allowing shipping deadlines to influence jurisdictional determinations and classification decisions is a tried-and-true recipe for accumulating multiple export control violations and incurring heavy fines and other penalties. \u201cCompany discovers potential compliance problem with profitable overseas order, but decides to go ahead and ship anyway because they\u2019re so hot for the sale\u201d is one of the most common export violation scenarios.<\/p>\n

A much safer practice is to do your homework in advance by classifying your whole product line and compiling the classifications (USML Category and Subcategory, or ECCN, or classification as \u201cEAR99\u201d) into a Product (<\/em>or Technology) Classification Matrix<\/em>, which can then be conveniently maintained in spreadsheet format. If you do this, be sure you include a concise explanation of the rationale for each classification, referencing any associated notes or documentation.<\/p>\n

3. Stay connected and current<\/strong>.<\/strong><\/p>\n

The USML Categories and ECCNs you\u2019ve determined for your products and services may not remain valid and accurate forever. Your company\u2019s product specifications may change over time. Changing export laws, regulations, and definitions may also require you to re-classify. Make sure you subscribe to news and updates from all the relevant U.S. Government regulatory agencies, read them carefully as they are published, and put in place timely follow-up procedures for updating your Product Classification Matrix, internal control processes, compliance manual, and employee training, as required.<\/p>\n

4. Document everything.<\/em><\/strong><\/p>\n

Inadequate recordkeeping is a very common cause of export control violations. If you self-determine the export classifications of your products, your classification procedures and process must generate and maintain documentation to show how and why you came to your conclusions. If you submitted a Commodity Jurisdiction (CJ) Request to State\/DDTC or a Commodity Classification Request (CCATS) to the Commerce Department, you need to keep copies of the official rulings they issued, along with the product descriptions and supporting documentation you submitted to them, as well as any related correspondence or notes on conversations with U.S. Government agents. Even for items that you shipped under the NLR designation, you should always keep records justifying your NLR determination, as well as the other details of the export classification, for at least five years.<\/p>\n

5. Disabuse yourself of common myths and misconceptions.<\/strong><\/p>\n

\u201cIt\u2019s a commercial off-the-shelf item, so it can\u2019t be export-controlled.\u201d<\/em><\/strong> \u00a0FALSE. Everything in the U.S. (except public domain information) is subject to U.S. export controls. A great many COTS items are highly<\/em> controlled for export. Full-rate thermal cameras, precision gyroscopes, and CubeSat kits are just a few examples.<\/p>\n

\u201cIf I take it with me in my carry-on luggage, I won\u2019t have to worry about export controls.\u201d <\/em><\/strong>\u00a0FALSE. Anything that leaves the U.S. is being exported. There are some exemptions and exceptions for commercial items carried out of the country temporarily for use as \u201ctools of trade\u201d and a few other reasons, but their use requires documentation, and by no means do these exceptions cover everything.<\/p>\n

\u201cI work at a university, so what I do is classified as \u2018fundamental research,\u2019 making it automatically exempt from export controls.\u201d<\/em><\/strong> \u00a0FALSE. By no means is it safe to assume that all work carried on at a university is fundamental research, or that technical data and information associated with university work is not export-controlled. University research will usually not<\/em> be considered \u201cfundamental research\u201d if the university or its researchers accept restrictions on the publication of scientific and technical information resulting from the activity, or if the research is funded by the U.S. Government and specific access and dissemination controls protect information resulting from the activity. Even when the activity itself does qualify as \u201cfundamental research,\u201d export control regulations may still impose restrictions on certain equipment or software used in the course of the research, and on the provision of technical data and training to foreign persons in relation to that hardware or software. Several major U.S. export enforcement actions recently have involved universities and university professors.<\/p>\n

\u201cOne reason we ship everything through a freight forwarder is so we won\u2019t have to worry about the export classifications of our products. Our shipping agent is responsible for classifying our exports and obtaining licenses, not us.\u201d <\/em><\/strong>\u00a0FALSE. Your freight forwarder\u2019s job is to move your freight, not to analyze and classify your products and technologies. Even if a freight forwarder or courier is involved in the export transaction, as long as you are the U.S. Principal Party in Interest (USPPI) on the AES record, the ultimate responsibility for determining the proper jurisdiction and classification, obtaining a license, and ensuring compliance with licensing requirements and provisos is still yours. If the freight forwarder makes a mistake in classifying products on your behalf, you will be liable for any export violations that may occur.<\/p>\n

\u201cWhy, we\u2019ve been making this product for at least 30 years, and this can\u2019t be the first time we\u2019ve exported it, so it must be okay. It couldn\u2019t possibly be export-controlled.\u201d \u00a0<\/em><\/strong>FALSE. It doesn\u2019t matter how long you\u2019ve been making it \u2014if it needs a license and you export it without one, that\u2019s an export violation. Even if you exported it in the past, the ITAR or EAR requirements might have changed since then. And if nobody ever thought to check on the product\u2019s export classification until now, you may well find that you need to file a Voluntary Disclosure.<\/p>\n

\u201cAll our company\u2019s products are classified EAR99. In other words, they\u2019re all NLR \u2013 No License Required. So we don\u2019t need to worry about export licenses.\u201d \u00a0<\/em><\/strong>FALSE. \u201cEAR99\u201d is not<\/em> a synonym for \u201cNLR.\u201d EAR99 is a classification that applies to items that fall under the jurisdiction of the Commerce Department, but are not listed on the Commerce Control List. While it is true that such items can be exported without a license in many cases, whether or not you will need a license to export an item depends on the details of the transaction. You will<\/em> need a license for an EAR99 item\u2014or your export might even be denied authorization\u2014if you are shipping the item to an embargoed or sanctioned destination, or to a denied party or end-user of concern, or if you have knowledge that the export is in support of a prohibited end-use designated in Part 744 of the EAR, or if any of the Ten General Prohibitions in Part 736 apply to the transaction.<\/p>\n

Lest you think the possibility of a license requirement for an EAR99 item is merely theoretical, note that in 2009 a very small New York company agreed to pay $70,000 to settle charges that it shipped $95,335 worth of scrap metal, classified EAR99, without a license to a company in Pakistan that (unbeknownst to the exporter) was on the BIS\u2019s Entity List. According to the BIS, a request for a license to export EAR99 scrap metal to that Pakistani customer would have been routinely approved, but since the exporter shipped without applying for one, they were guilty of an export violation.<\/p>\n

6. Don\u2019t try to go it alone.<\/strong><\/p>\n

Product classification is a very serious matter. Yet the U.S. export laws and regulations are fraught with complications, and it\u2019s easy to make mistakes. Read the business section of any newspaper regularly and you\u2019ll see that export violations occur all the time, a great many of them related to products that were classified wrongly.<\/p>\n

If you lack the expertise to classify products, or if you are not comfortable reading and interpreting the regulations and the technical specifications of products, or if you lack the time to do those things, then find the best outside experts you can as soon as you can and seek their advice. Export compliance consultants can often help at lesser cost than lawyers. And don\u2019t be afraid to ask the consultants tough questions; after all, that\u2019s what experts are for.<\/p>\n

You also need to invest internally in training one or more of your people to handle your company\u2019s product classification process. One strategy is to identify someone already working for you who is not afraid of reading and explaining regulations,\u00a0such as the quality assurance or safety control or security manager. Then send him or her to export compliance classes and seminars that include hands-on workshops and practical training scenarios in product classification. If none of your current employees looks like the right person for this responsibility, then ask your outside consultant to help you find, hire, and train a qualified new person.<\/p>\n

Finally, when necessary, don\u2019t hesitate to seek professional legal advice from a law firm that specializes in international trade and export controls as its primary practice area. It\u2019s true that lawyers can be expensive and legal fees are generally not a cost that any company likes to pay. But it can be a fatal mistake to put off calling a lawyer when you find yourself facing complicated legal questions, contractual issues, potential litigation, mergers and acquisitions, or key strategic decisions, such as voluntary disclosures when dealing with a 126.1 Prohibited Destination. Classifying your products for export control purposes certainly does not normally require the services of a lawyer. In certain cases, however, experienced legal professionals, working in conjunction with technical experts, can provide indispensable assistance in reviewing complex products and radically new technologies, or sorting out ambiguous intellectual property questions, to ascertain the appropriate regulatory jurisdiction and export classification. In dealing with such thorny matters, they can help keep you out of hot water, and the earlier in the process you bring them in, the more they can help.<\/p>\n

Product classification is a vast topic. We\u2019ll share some further thoughts with you about how to set up effective classification processes and procedures at your company in future blog posts. <\/em><\/strong><\/p>\n

Meanwhile, in the next post of this series on export compliance essentials, \u201cSECURE!\u201d we\u2019ll discuss how you can <\/em><\/strong>protect your company\u2019s controlled technical data and information against access by unauthorized persons, both on the ground and in the cloud.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

EXPORT COMPLIANCE IN 11 WORDS (Part 4 of 12): A Series on Export Compliance Essentials CLASSIFY! Sound policies and consistent procedures for classifying your products will reduce the risk of export control violations Export compliance managers must be thoroughly familiar with their company\u2019s products, services, and technical data, and they must know which export control […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[7,3],"tags":[],"class_list":["post-174","post","type-post","status-publish","format-standard","hentry","category-all","category-compliance"],"yoast_head":"\nEXPORT COMPLIANCE IN 11 WORDS (Part 4 of 12) - Export Compliance Solutions<\/title>\n<meta name=\"description\" content=\"Here's how exporters can avoid common errors in classifying products under the ITAR & EAR to reduce the risk of fines & penalties for export violations\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exportcompliancesolutions.com\/blog\/2016\/06\/21\/export-compliance-11-words-part-4-12\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"EXPORT COMPLIANCE IN 11 WORDS (Part 4 of 12) - 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