In this second of a five-part series on export compliance basics, we take a closer look at two of the most important factors in determining export license requirements – commodity jurisdiction and export classification. In our last blog post, we explained that U.S. exports are subject to U.S. laws and regulations including the Export Administration Regulations (EAR) or the International Traffic In Arms Regulations (ITAR). Your commodities, technology, or software generally fall under the ITAR or EAR, and it is critical to know which because determining the commodity jurisdiction and classification are the first steps in determining export license requirements.
Commodity Jurisdiction determination involves determining whether a specific item or technology falls under the jurisdiction of the U.S. Department of Commerce and the EAR or the U.S. Department of State and the ITAR. Items under the jurisdiction of the Department of State include defense articles and defense services enumerated on the U.S. Munitions List (USML) while items subject to the Department of Commerce include commercial goods and technology which may or may not be enumerated on the Commerce Control List (CCL). Determining commodity jurisdiction may be a no-brainer for some items, for example, a jet fighter aircraft, but what about the thousands of parts and components that go into the aircraft? Some parts may fall under the USML, but many others will fall under the CCL.
To make these determinations, exporters must follow the regulatory order of review. The order of review always starts with a review of the USML and, if the item is not enumerated or described there, moves on to the CCL. The order of review is critical because it determines which agency has jurisdiction over the exported item and what set of export rules to follow – the ITAR or EAR.
U.S. Munitions List (USML):
The USML is divided into 21 categories, each of which contains a broad range of defense articles or defense services commodities, software, and technical data. Defense articles are controlled on the USML because they are either enumerated in a specific category or described in a catch-all paragraph that incorporates the term “specially designed” as a control parameter (more about “specially designed” in a future article). To classify an item on the USML, begin with a review of the general characteristics of the item. This should guide you to the appropriate category, whereupon you should attempt to match the characteristics and functions of the article to a specific entry within that category.
Articles enumerated or described on the USML require U.S. Department of State, Directorate of Defense Trade Controls (DDTC) authorization for export to all countries. Articles not controlled on the USML are generally subject to the EAR, however, certain commodities, for example, nuclear equipment, may be subject to another U.S. Government regulatory agency such as the Nuclear Regulatory Commission (NRC). Exporters may submit a Commodity Jurisdiction (CJ) request to the DDTC if they are unsure whether their items are subject to Department of State jurisdiction and the ITAR.
If you have determined your item is not subject to the Department of State or other agency jurisdiction, you should then review the CCL for the item’s Export Control Classification Number (ECCN).
Commerce Control List (CCL):
The CCL is a comprehensive list of controlled goods, technology, and software subject to Department of Commerce jurisdiction and the EAR. The ECCN is a classification system used by the Department of Commerce, Bureau of Industry and Security (BIS) to identify and control items that may have a military or strategic use, commonly referred to as “dual use” items. Supplement No. 4 to EAR Part 774 defines the CCL Order of Review and the steps to determine where the item is covered on the CCL. Items that do not fall on the CCL are designated as EAR99.
ECCN numbers are broken down into the following 10 categories:
Category 0: Nuclear materials, facilities, and equipment
Category 1: Materials, Chemicals, Microorganisms, and Toxins
Category 2: Materials Processing
Category 3: Electronics
Category 4: Computers
Category 5: Telecommunications
Category 6: Sensors and Lasers
Category 7: Navigation and Avionics
Category 8: Marine
Category 9: Aerospace and Propulsion
Once the potentially applicable CCL categories are identified, determine which of the following product groups is applicable to the item:
A—Equipment, Assemblies and Components
B—Test, Inspection and Production Equipment
C—Materials
D—Software
E—Technology
When classifying items on the CCL, it is necessary to first consider the “600 series” items which describe military items that were once subject to the ITAR. In addition, the 9×515 ECCNs describe “spacecraft,” related items, and some radiation-hardened microelectronic circuits that were once subject to the ITAR. Just as the ITAR effectively trumps the EAR, items described in a 9×515 ECCN or “600 series” ECCN trump other ECCNs on the CCL.
If the items are not enumerated or described in a catch-all paragraph (i.e., using the term “specially designed”), of a “600 series” or 9×515 ECCN, then starting from the beginning of the product group analyze each ECCN to determine whether any other ECCN in that product group describes the item. Be sure to consider the “specially designed” catch-all paragraphs in each ECCN. If the item is not described under any ECCN of any category of the CCL, then the item is designated as EAR99. If, after their order of review, exporters are still unsure of the export classification they may submit a commodity classification request to BIS.
Items controlled under an ECCN may require a license depending on the item’s reason for control and country(ies) of destination. EAR99 items can generally be shipped as No License Required (NLR); however, it is important to note that EAR99 items may require a license if destined for a prohibited or restricted end user, end use or destination (more on that later in this part 5 series).
Conclusion:
Exporters must determine the jurisdiction and export classification for their products prior to any export, including the release of technical data or software to foreign persons in the United States or abroad. Understanding an item’s jurisdiction instructs the exporter what rules they must follow – the ITAR or EAR. The USML Category and ECCN are crucial classifications that determine whether a product requires an export license or not, and failure to obtain the necessary export authorization may result in significant fines and penalties including denial of export privileges and eternal damnation. Okay, perhaps not the latter, but it may feel like it for some who have made that mistake. Please let us know if you have any questions or require assistance in determining the export jurisdiction and classification of your items.
