Export controls define the rules surrounding the release of certain types of data, information, products, technology, services and funds from a country. Export control regulations are written to prevent the proliferation of nuclear, chemical and biological weapons. These controls can cover military use items and items that have civilian uses as well. Arguably, the United States of America has the most comprehensive set of export controls as compared to any other country.

What kinds of activities are regulated by export controls?

Export control laws in the US can require businesses to acquire a license for transactions such as the below:

  1. Exporting physical product from the US
  2. Sharing certain information, technology or information to foreign nationals within the US (a deemed export)
  3. Sharing certain information, technology or information to foreign nationals outside the US

It is important to note that the scenarios where an export control license may be required are far more than the 3 described above. Also, not all transactions of the 3 types above will require a license.

Understanding export controls has gained importance throughout the world due to several reasons:

  1. More countries are implementing export controls regulations and continue to do so
  2. Export control regimes in countries are always changing
  3. When cargo is moved through several countries, the seller may need to meet export control regulations present in all countries
  4. Different countries implement export control regulations very differently. For example an export control expert in Singapore will have very limited transferable knowledge to export controls from US
  5. Penalties and fines attached to export control violations are very severe and often include jail time
  6. Breaching export control requirements can result in sellers not getting paid as banks will not honor documentary edits for sales made to denied parties

The challenges posed by export controls:

  1. The list of parties on denied lists are updated regularly
  2. Companies that work through distributors need to do due diligence to check on end user status
  3. The items, technology, software and information affected by export controls is not intuitive, especially dual-use items
  4. Extensive information must be submitted to authorities when an export control license is actually required and the turn around time for license issuance is usually not quick
  5. Documentation record keeping responsibilities are onerous for sellers
  6. Export control laws can be confusing to understanding and it may be difficult to get clarification from authorities quickly

What are ECCNs?

Export Control Classification Numbers or ECCNs form a big part of US export controls. Most countries have some equivalent nomenclature to this. It must be noted that HS classification numbers cannot be converted to ECCNs. Determining the correct ECCN is the first step towards identifying the appropriate license controls and limitations for a shipment. However, just like HS classification – the ECCN determination process is sometimes very challenging. Sellers may need to hire professionals to assist them with determining the correct ECCN classifications for their products. Alternatively, they may need to reach out to Customs authorities for help.

A final word…

Export controls are here to stay and will almost definitely become used more pervasively across the world in future. Sellers have to account for this as they grow and start to explore business opportunities in new countries. It must be noted that Incoterms do not in anyway absolve the seller from Export Control liabilities. For example, a seller may sell on EXWs to a local buyer in the US, but some level of due diligence must still be taken to ensure that the end use or end user of the product does not require licensing.

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