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Export Control Classification – Some Pitfalls By: David Hayes
An earlier article on export control classification addressed the issue of its importance as the foundation of an effective compliance programme. At the same time, it was pointed out that there are some pitfalls to export control classification, especially in a US/EU context.
Export control classification,in the UK more usually referred to as ‘rating’,is the process whereby compliance personnel, in government or in industry, determine whether or not an item is subject to export controls and, if so, under which control entry in which list (or lists, not forgetting that a single act of export may be subject to more than one set of controls, e.g. the export of a military aircraft from the UK to France is subject to UK export controls but may require US approval too if the aircraft has content which is subject to US jurisdiction).
What are these lists? In a US/EU context,they are the Commerce Control List (CCL) under the Export Administration Regulations (EAR); the United States Munitions List (USML) under the International Traffic in Arms Regulations (ITAR), the EC Dual-Use List (Currently EC Regulation 1167/2008) and the relevant national military list of the EU Member State concerned, each of the 27 member states having competence over military exports.
Export control classification would not be easy,but it would be easier,if these lists were the same across nations, e.g. if the CCL and the EC Dual-Use List were the same. Of course, politics and bureaucracy being what they are, this is not the case. In fact the lists are what might be referred to as “similar enough to be dangerous”, from a compliance perspective.
The similarity arises because the lists themselves originate in international export control regimes, e.g. the Wassenaar Arrangement, Australia Group, Nuclear Suppliers’ Group and the Missile Technology Control Regime (MTCR). The differences have a number of origins, including the political structure of the export control apparatus in a given country, the policy flowing from that apparatus and the impact of that policy on how items are controlled.
Are the differences important? This varies according to several factors,including which industry is concerned. For example, most people are aware that, in export control classification terms, the US treats most space related items as being military, whilst the EU treats the same items as being dual-use. The underlying importance of the differences in export control classification is that an incorrect classification will very probably result in breaches of export control laws, exposing the exporter to civil and/or criminal sanctions.
Another area of significant difference is in relation to components for military equipment of various types. The UK, for example, operates export control classification on the basis that components may be controlled under military export controls either if they are “specially designed or modified” or, in other cases, only if they are “specially designed”. Contrast this with the approach to export control classification under ITAR which describes the policy for determining “defense articles”, inter alia, as:
•Items and services specifically designed, developed,configured,adapted,or modified for a military application that
•Do not have predominant civil applications, and
•Do not have performance equivalent (defined by form, fit and function) to those of an article or service used for civil applications (emphasis added).
It can be seen that the US policy in this area is significantly broader than that of the UK and, in fact, in export control classification terms there are at least eight categories of the USML where this mismatch in relation to components occurs. The scope for mistakes in export control classification in a transatlantic context is therefore significant. In some cases it is possible for the same item to be classified by the US as being military and controlled on the USML and by the UK as being “No Licence Required” (NLR).
There are risks associated with export control classification but these are minor when compared to the risks either of not carrying out classification or of carrying it out inadequately.
The company was established to provide rapid, professional advice and assistance to companies currently affected by export controls or who are considering entering the market place but are unsure of the commercial and regulatory implications.For further information regarding export control classification, please visit our website at http://www.davidhayes-exportcontrols.com.
Export control classification,in the UK more usually referred to as ‘rating’,is the process whereby compliance personnel, in government or in industry, determine whether or not an item is subject to export controls and, if so, under which control entry in which list (or lists, not forgetting that a single act of export may be subject to more than one set of controls, e.g. the export of a military aircraft from the UK to France is subject to UK export controls but may require US approval too if the aircraft has content which is subject to US jurisdiction).
What are these lists? In a US/EU context,they are the Commerce Control List (CCL) under the Export Administration Regulations (EAR); the United States Munitions List (USML) under the International Traffic in Arms Regulations (ITAR), the EC Dual-Use List (Currently EC Regulation 1167/2008) and the relevant national military list of the EU Member State concerned, each of the 27 member states having competence over military exports.
Export control classification would not be easy,but it would be easier,if these lists were the same across nations, e.g. if the CCL and the EC Dual-Use List were the same. Of course, politics and bureaucracy being what they are, this is not the case. In fact the lists are what might be referred to as “similar enough to be dangerous”, from a compliance perspective.
The similarity arises because the lists themselves originate in international export control regimes, e.g. the Wassenaar Arrangement, Australia Group, Nuclear Suppliers’ Group and the Missile Technology Control Regime (MTCR). The differences have a number of origins, including the political structure of the export control apparatus in a given country, the policy flowing from that apparatus and the impact of that policy on how items are controlled.
Are the differences important? This varies according to several factors,including which industry is concerned. For example, most people are aware that, in export control classification terms, the US treats most space related items as being military, whilst the EU treats the same items as being dual-use. The underlying importance of the differences in export control classification is that an incorrect classification will very probably result in breaches of export control laws, exposing the exporter to civil and/or criminal sanctions.
Another area of significant difference is in relation to components for military equipment of various types. The UK, for example, operates export control classification on the basis that components may be controlled under military export controls either if they are “specially designed or modified” or, in other cases, only if they are “specially designed”. Contrast this with the approach to export control classification under ITAR which describes the policy for determining “defense articles”, inter alia, as:
•Items and services specifically designed, developed,configured,adapted,or modified for a military application that
•Do not have predominant civil applications, and
•Do not have performance equivalent (defined by form, fit and function) to those of an article or service used for civil applications (emphasis added).
It can be seen that the US policy in this area is significantly broader than that of the UK and, in fact, in export control classification terms there are at least eight categories of the USML where this mismatch in relation to components occurs. The scope for mistakes in export control classification in a transatlantic context is therefore significant. In some cases it is possible for the same item to be classified by the US as being military and controlled on the USML and by the UK as being “No Licence Required” (NLR).
There are risks associated with export control classification but these are minor when compared to the risks either of not carrying out classification or of carrying it out inadequately.
The company was established to provide rapid, professional advice and assistance to companies currently affected by export controls or who are considering entering the market place but are unsure of the commercial and regulatory implications.For further information regarding export control classification, please visit our website at http://www.davidhayes-exportcontrols.com.
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