By Aleda Bourassa, CGBP
Baseball has a rule book, and so does exporting. It’s called the Export Administration Regulations, or the EAR. The EAR is a set of regulations that tells companies how to play the export game so that the “umpires” don’t lay fines on you, or even make you sit out a game. The EAR governs what products are exported under what circumstances— whether an export license will be required. The umpires are from the Bureau of Industry and Security (BIS) (more on this later). Most exporters check their product against EAR99 (no license required or NLR) but stop there. They think it’s home plate. But, the EAR has several sections which you should review, not just settle on the closest sounding description of your product.
Taking the baseball analogy further, think of it this way— your goods, whether an OEM part or a finished piece of equipment, can be described and categorized; they fit certain parameters (dimension, weight, shape) and are made of certain materials and perform specific functions. Like the roster of a baseball team, players might look similar, even act alike, yet they are very different people. But you don’t find that out until you dig into deeper details.
As an example, you have two fluid flow control valves. They look the same, they are essentially the same size, and by definition both valves control fluid flow. But one is made of brass for use in clean water flow, maybe in an industrial plant or a city water system. Or it might be food-grade and used in beverage processing. The other valve is made of Monel (which can be a highly regulated metal alloy).
Many items made with Monel have applications in oil field processing, offshore drilling, marine applications, and aerospace / military. The government controls (permits or prohibits) what and where highly controlled / dual use items are exported.
For discussion purposes, let’s say that both valves seem to you like they fit into a description of valves in EAR99. However, in actuality, the Monel valve is trickier because as mentioned above a product produced with Monel could potentially also be used in chemical plant applications. Even if your customer has declared that is not their particular use. This is where fully consulting the EAR regulations comes into play.
As stated above, the EAR governs what goods are exported under what circumstances. If your product is categorized in the EAR regulations that pertain to dual-use commercial and regulated applications, it is NOT EAR99 and will require a license to many destination countries .
A Home Run: Due Diligence, ECMP
Many companies new to export (as well as experienced exporters) use EAR99 like a catcher’s mitt when reviewing and documenting their goods for export- any baseball will fit in the mitt. However, not so with the EAR and the regulations that govern the legal export of goods from the US to another country! If it is destined to an end-user our government has concerns about, or supports a prohibited use, it may require an export license. Yet many exporters fail to fully review and understand where their product / export transaction fits in the EAR. In short, failing to perform due diligence. If you knowingly or even unknowingly export a product in violation of the EAR your company may be subject to fines in the millions. See Don’t Let This Happen to You below.
BIS recommends exporters answer four basic questions about their export transactions. There is a resource easily accessible called the Consolidated Screening List (CSL) which contains information about denied persons / entities, nonproliferation, and other areas of screening of interest to several government agencies.
What is being exported?
Where is the item being exported to?
Who will receive the item?
How will the item be used?
Furthermore, developing and maintaining an Export Compliance Management Program (ECMP) improves how BIS views your company and considers your actions. For a smaller / new-to-export company, an ECMP may sound daunting, but it does not have to be. There are excellent guidelines and best practices that professionals in the field of trade compliance can help you with. The BIS publishes their guidelines here: https://www.bis.doc.gov/index.php/compliance-a-training/export-management-a-compliance/compliance If you would like help in understanding what to do first we are happy to provide you with beginning steps.
Ready for alphabet soup?
Briefly stated, the Bureau of Industry and Security’s (BIS), Office of Export Enforcement (OEE) is the government agency responsible for monitoring and as warranted assessing fines on companies which are not complying with the EAR. Their agents (remember the umpires) routinely review export transactions. If they see a red flag in a transaction(s) they will contact the company (exporter of record) to investigate further. It may or may not lead to further action. Your chances of avoiding a fine or penalty are greatly improved if you have done your due diligence, have an ECMP and can demonstrate good faith in aiming to follow the rules.
Now the Penalty Play or Don’t Let This Happen to You! A Famously Referenced Book about EAR violations!
Broadly stated, penalties for EAR violations fall into two types, either criminal or civil (administrative). A criminal penalty can mean as much as up to 20 years of imprisonment; up to $1 million in fines per violation; or both. An administrative (monetary) penalty potentially can be up to $300,000 per violation or twice the value of the transaction, whichever the greater. In 2018 BIS investigations resulted in penalties of $618,00,500 for criminal fines and more than $9.6 million in forfeitures. https://www.bis.doc.gov/index.php/documents/enforcement/1005-don-t-let-this-happen-to-you-1/file
How likely is this to happen to you? Probably not very.
Let’s presume that a typical Wisconsin small-medium sized new-to-export manufacturer is probably not aiming for illegal activities. Only some may have products highly regulated and / or dual use factors. Again, to protect your export status every exporter must check the EAR.
In a follow up article, we will go into basic steps on how to read, understand and apply the EAR. It’s a game changer!
ICS can perform a wide range of trade compliance for you, coach your team how-to with higher skills, and help you create an Export / Import Management Compliance Program. BIS views an EMCP is a key best practice. It may be a significant mitigating factor if your company is ever involved in a violation. www.icsbroker.com Ruth Girmscheid, or Aleda Bourassa 262-933-8400.
Key words, Links
EAR: issued by the US Department of Commerce, Bureau of Industry and Security, under laws relating to the control of certain exports, reexports, and activities. Additionally, the EAR implements antiboycott law provisions requiring regulations to prohibit specified conduct by US persons that has the effect of furthering or supporting boycotts fostered or imposed by a country against a country friendly to United States. https://www.trade.gov/eccn-and-export-administration-regulation-ear99
Dual Use: items that have both commercial and military or proliferation applications.
Due Diligence: to examine factors that indicate the legality of a potential export transaction.
Exporter of Record: the person or entity responsible for goods and services shipped between two countries.
Red Flag: abnormal circumstances in a transaction that indicate that the export may be destined for an inappropriate end-use/user, or destination.