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Classifying an Export

Introduction to classifying an export

Before participating in an export transaction, there are four questions that need to be answered to determine if an export license is required:

• What is the item? – The nature of what is being exported determines whether it is regulated by the EAR or ITAR. Classifying the export under the right regulation is the first step in determining whether an export license is necessary and if so, which one
• Where is it going? – The country of ultimate destination for an export or re-export also impacts licensing requirements.
• Who will receive it? – As you'll learn later, certain individuals are prohibited from receiving US exports and may only receive goods if they have been licensed. There are lists of such individuals, and the ultimate end user of the export cannot be someone on one of those lists.
• What will they do with it? – Some end uses are prohibited, and others require a license. For example, you may not export an item that you know will be used for a nuclear weapon.

The first thing to do is determine whether the export falls under the EAR or ITAR. In general, ITAR regulates items – hardware, technical data, or defense services – that were designed, modified, or configured for military or space application. The EAR, on the other hand, regulates dual-use items – that is, items designed for commercial use that also have the potential for military application.

Classification under ITAR

Determining whether ITAR applies to an exporting transaction is done with reference to the United States Munitions List, known as the USML. This list is published in Part 121 of the ITAR. It classifies items, products, or services into 21 different categories.

Basically, an export transaction falls under the jurisdiction of ITAR if the answer to any of three questions is yes. First, is the export identified on the USML? Second, is any technical data or software on the USML being transferred to foreign persons? And third, is the exporting company performing any services related to USML items for foreign persons in the United States or abroad?

The first category of the USML controls firearms, close assault weapons, and combat shotguns. It includes, for example, non-automatic and semiautomatic firearms up to 50 caliber, silencers, and components of such items. Notice that this covers items that could be considered civil, such as hunting rifles. Category XI controls electronic equipment specifically designed, modified, or configured for military application. It includes, for example, radar systems with capabilities such as search, tracking, and moving target indication, and radios specifically designed or modified to interfere with other communication devices or transmissions, such as cell phone jammers.

Determining whether something falls under ITAR is heavily weighted by questions of original design. Was the item specifically created for military or intelligence application? What was the intent? If it was developed under a Department of Defense contract, there is little doubt. But if, for example, some electronic equipment coincidentally meets a military specification without being designed for a military purpose, then it is not a defense article.

To get a better idea of the importance of purpose, consider these examples. Suppose a US manufacturer of automotive fasteners is asked by a defense contractor to produce a run of bolts with a special thread- locking chemical pre-applied for use in the assembly of military aircraft. Because the bolts will be altered for military purposes, exporting them would be controlled by ITAR. Or take a communications equipment manufacturer. If a defense contractor requests two-way radios that are specially painted in camouflage, then technically the radios will have been militarized. Therefore, their export would be controlled by ITAR.

Manufacturers may be able to self-classify their exports by reviewing ITAR and the USML. But suppose that after reviewing the USML and the other relevant parts of ITAR, it's still not clear whether the product or service is under the licensing jurisdiction of ITAR. In that case, the company may choose to submit a Commodity Jurisdiction Request to the Department of State.

Classification under the EAR

If the product or service a company plans to export does not appear on the USML, then it's probably not a defense article within the definition of ITAR. But that doesn't mean the export is not controlled. The export could be considered "dual-use" – meaning that it has a primarily civilian use but may also have military applications – and therefore regulated by the EAR. An example would be an aircraft part that is used in commercial jets and military aircraft.

Not every dual-use item requires an export license from the BIS. However, licenses are required for certain exports, such as those involving national security, foreign policy, missile technology, crime control, and terrorist concerns. Because the license requirements depend first of all on the precise nature of the item, classification is very important.

If it is determined an item may fall within the jurisdiction of EAR, the next step is to identify the item's specific Export Control Classification Number, or ECCN. The ECCN is an alphanumeric code to identify items for export control purposes. All ECCNs have five characters, such as 1A001 or 4B255. The ECCN appears on the Commerce Control List, known as the CCL.

The CCL is organized by the categories, and also by five product groups. Group A is systems, equipment, and components. Group B is test, inspection, and production equipment. Group C is material, Group D is software, and Group E is technology.

If an item is not described under any ECCN, and is not classifiable under the USMIL, then it may be classified as EAR99. EAR99 means that the item is subject to the EAR but not listed in the CCL. It's possible that such an item may require a license if, for example, its destination is a terrorist-supporting country. But if after reviewing ITAR and the EAR, it is not clear which regulations apply to the export, the exporting company can submit a Commodity Jurisdiction Request to the Department of State.

It is vital for your company to know whether its exports fall under the jurisdiction of the EAR or ITAR. An understanding of how exports are classified under these regulations will help your organization know when export licenses are required.