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Many countries around the world have implemented export control regulations that regulate the export, transhipment, transit, brokerage, and/or re-export of dual use commercial items. Dual use items are products that have both military and commercial use. In some instances, even items that have no military use will be subjected to some form of export control.
What kinds of products are affected by export controls?
Export control regulations usually cover all forms of dual use commodity, technology or know-how transfer to foreign countries or foreign nationals regardless of which country they are in. For example, they could cover the export of carbon fibre materials from Country A to Country B or they could cover the release of product blueprints by Country A to a citizen of Country B while he is in Country A. The latter is known as a deemed export. These regulations also usually apply to all kinds of shipments including hand carry, sea, road, rail, ocean or express courier. The intangible transfer of technology is almost always covered. Temporary exports or exports for repair purposes, demonstrations and exhibitions are also covered. Some export control laws are extraterritorial, which means when dealing with that country’s products and technology the export control laws exist even if the specific transaction does not involve that country.
The intangible transfer of technology is almost always covered by export control laws around the world.
How to determine if a product needs an export control license?
Although the laws in scope of export control are in most countries far reaching and of very wide scope, in reality only a small percentage of products would ever need an export control or strategic goods licence. Determining the export control classification number (or its equivalent depending on the country) would be the first step to allow the exporter to know if any license is required.
Ultimately, in most countries, whether a license is required is dependent on:
- Technical specifications of the product
- End user’s intentions
- End user
It is the exporter’s responsibility to exercise extreme due diligence to ensure that he/she meets all export control or strategic control requirements of the exporting country and/or any transhipping country. This can cover legislature in many countries.
It is the exporter’s responsibility to exercise extreme due diligence.
Let’s use a scenario to illustrate this:
- Trader A based in Country A is brokering a deal between Manufacturer B in Country B and Customer C in Country C.
- Shipment will be exported from Country B and transit at Country D before proceeding to Country C.
In this case:
- Trader A must meet the export control regulations of Country A with regards to brokering the deal
- Manufacturer B must meet the export control regulations with regards to exporting the product
- Manufacturer B or Trader B must ensure that any export control regulations pertaining to transit of dual use goods is met in Country D
- Customer C must provide documents such as end-use statements and proof of business operations to both Trader A and Manufacturer B so that they may seek appropriate licences from authorities in respective countries.
What is an Export Control Classification Number?
In order to meet regulations of all impacted countries, the exporter must identify the export control or strategic goods number that applies to the product under the export control (or similar) regulations in each country.
In the United States, the ECCN is the number used to identify the nature of the commodity being exported. After the ECCN is determined, the exporter can check against the Commerce Country Chart to determine whether a license is required for the export. The structure of the ECCN is alpha-numeric and requires the classification of the item into 1 of 10 categories, then into 1 of 5 groups within that category. Technical knowledge of the product like voltage thresholds for switches, tensile strength of materials, or other measurements may be necessary in order to determine the correct ECCN. The trader should never make guesses and risk classifying the product inaccurately.
Technical knowledge of the product may be necessary in order to determine the correct ECCN
The export control number can be self-determined, or an application can be made to the competent authority in respective countries. Once it is determined that an export control or strategic goods licence may be required, the responsible entity must apply for the licence or seek licence exemption before shipping the goods.
What are denied parties and entity lists?
Export control regulations also typically prohibit or restrict exports to specific entities that are believed to be engaged in activities related to the proliferation of weapons of mass destruction or to terrorist activities. Various versions of these lists are published by governments throughout the world. It is highly recommended that exporters use a reputable screening platform to check customer and end-user information prior to shipping. If the entity they intend to do business with appears on a denied party or entity list, the trader should reach out to authorities in respective countries to confirm if they can proceed to do business with them.
Important Note: Wilful Blindness is Not Excuse
In the course of doing business a trader may come across a highly dubious customer that sets off all sorts of red flags, yet they may pass all screenings and not appear on any entity or denied party lists.
Traders should be aware that almost all countries have various catch-all clauses inserted into Customs laws, and laws relating to export controls. They have to exercise extreme due diligence in this regard. If red flags are present traders should report these orders to relevant authorities without delay.
Some red flags:
- Customer is willing to pay an unreasonably high price for the shipment
- Customer requests for shipment to be routed via unusual routes
- Customer insists on cash only transactions through an intermediary
- Customer’s business address cannot be verified
- Customer has limited business presence, i.e. no website, no business registration information, no account on professional or social media
- Customer has no land-line contact number
- Customer can obviously get the same products cheaper from a closer source yet insists on purchasing from source located further away for a higher price
The complexity of export compliance
Not all countries around the world have export control laws. Even among the countries that do have these laws, the controls and administrative procedures can be vastly different. Unlike HS classification, export control or strategic control identifiers are not globally harmonized at any level. All countries also refer to different versions of entity and denied party lists. Moreover, these lists are constantly being updated. Hence, traders have to invest some resources to set-up processes to deal with export control requirements in all countries they do business in/with and keep themselves updated of changing laws at all times.
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