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GETTING STUFF FROM HERE TO THERE

MANAGING THE WORLD OF EXPORTS

Presented by:

James R. Loux, President

January 2010

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OVERVIEW

of the

U.S. DEPARTMENT OF STATE

EXPORT REGULATIONS

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Discussion Agenda

• ITAR Trade Terms• Regulatory Oversight & Reasons for Control• Key Terms/Definitions• Warning Flags• Primary ITAR Differences/The ITAR• Exportation: AES• INCOTERMS/Valuation of Exports

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U.S. Government Policy

• “It is the policy of the United States Government to control the import and export of arms, ammunition and implements of war”– (1976 AECA 22 USC 2778)

• It is unlawful to attempt to export any defense article, defense service or technical data without a license

• It is unlawful to import any defense article without a license

• It is unlawful to violate the terms or conditions of a license (e.g. provisos)

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Reasons for Export Compliance

• Protect U.S. National Security– Safeguarding American

technology (defense & dual-use articles)

• Comply with regulations and prevent ITAR and EAR violations– To continue to conduct

business in the USA• Advance National

Objectives & Foreign Policy Goals– Through defense trade

controls and policies

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Export Control• Why U.S. Has Export

Controls– To protect its technological

advantage– To protect against revelation

of and providing the means to exploit its technologies

• To protect short supply interests

• To prevent proliferation of Toxins & WMD

• Key Technologies to Protect– Unmanned Aerial Vehicles– Night Vision– Precision Guided Munitions– Stealth & Advanced

Composites– Missile Technologies– Networked Centric Warfare– Space Capabilities

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Export License Application Review Process

STATE DEPARTMENTDirectorate of Defense Trade Controls

(Munitions)

DEFENSE DEPARTMENT Defense Technology Security Administration

Technology Security Directorate

COMMERCE DEPARTMENTBureau of Industry & Security

(Dual-Use)

DEFENSE AGENCIESJOINT STAFF &

MILITARY SERVICES

APPLICANT

OTHERGOVERNMENT

AGENCIES

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Exporting articles from the U.S.A is a PRIVILEGE, not a RIGHT.

Premise: All exports are controlled. The Government tells you what is NOT controlled! (Changes due to world events)

FAILURE TO COMPLY with the regulations can be cause for suspension or outright denial of YOUR PRIVILEGES

U.S. Export Compliance Awareness

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• The U.S. Government is here to help you manage the world of international trade with the following regulations:

– 19 CFR Parts 1-199 (Customs)– 15 CFR Parts 730-774 (BIS - EAR) – 22 CFR Parts 120-130 (State - ITAR) – 15 CFR Part 30 (Census - AES/SED)– 27 CFR Part 447 (ATF&E – USMIL)

U.S. Export Compliance Awareness

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Differences: ITAR & EAR

ITAR:• Covers military items (munitions/defense

articles)• Includes most space related technologies due

to application to missile technology• Includes technical data related to defense

articles and services (furnishing technical assistance including design, engineering and use of defense articles)

• Very strict, not much latitude, few exemptions

Differences: ITAR & EAR

• EAR:• Regulates “dual use” items = 10 CCL

categories of different technologies (equipment, tests, materials, software and technology)

• Regulates items designed for commercial purposes but that can have military applications (computers, pathogens, civilian aircraft, etc.)

• Covers goods, test equipment, materials and the technology (technical data and technical assistance) and software

• Covers “re-export” of foreign commodities incorporating U.S. origin controlled items outside the U.S.

• DOC easier to work with—more exemptions available

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Warning Flags

• US export control laws require documentary evidence concerning the transaction. The misrepresentation or concealment of material facts is prohibited, both in the licensing process and in all export control documents. – State Department/Commerce have developed a

series of warning flags for suspicious activities• Customer, end-user, and shipment flags

– If these flags appear, personnel should be especially cautious in verifying end-user and end-use information

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Warning Flags

• End-User “Red Flags”– Requested equipment does not match the known

requirements or inventory of foreign end-user– Requests for spare parts exceed projected needs or are for

systems not in the foreign end-user’s inventory– End-use involves private use of significant amounts or types

of military hardware– Performance/design requirements are incompatible with the

foreign end-user’s resources or environment, of with the foreign consignee’s line of business

– Stated end-use is incompatible with the customary or known applications for the articles being purchased

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Warning Flags

• Customer “Red Flags”– Customer or purchasing agent is reluctant to provide foreign

end-use/end-user information– Customer is willing to pay cash for article/item– Little or no customer business background is available– Customer appears to lack familiarity with the article’s

performance and design characteristics or uses– Customer or purchasing agent refuses installation or service

contracts that are normally accepted in similar transactions

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International Traffic in Arms Regulations

• 22 CFR Parts 120-130– Provides purpose and concise definitions: hardware,

technical data, etc– Identifies articles controlled via the U.S. Munitions List– Commodity Jurisdiction– Requires registration and certification of US company

and certain staff – Identifies license, agreements, off-shore procurement,

and defense service requirements for hardware and technical data: DSP5, DSP73, Technical Assistance Agreement

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• Administered by the U.S. Department of State and indirectly by the DOD Defense Technology Security Administration (“DTSA”)

• Applies to exports of arms, ammunition, and implements of war on USML (hardware, technical data, and services)

• Enforced by the U.S. Customs Service, U.S. Postal Service, and Treasury Department

• Controls foreign reexports of the following:– All U.S. origin products and technical data– All U.S. origin parts and components incorporated into foreign

materials– Foreign manufactured products using US origin technology

International Traffic in Arms Regulations

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ITAR Denial/Embargoed Countriesas of 03/25/09

ITAR 126.1 denial list includes Belarus, Cuba, Iran, North Korea, Syria, Venezuela and Vietnam, and imposes embargoes with Burma, China, Liberia, Somalia and Sudan, Sri Lanka, Afghanistan, Cote d’Ivoire, Cyprus, Dem. Republic of Congo, Iraq, Lebanon, Libya, Haiti, Eritrea, Sierra Leone, Yemen, Zimbabwe

The EAR identifies countries in Part 746 – different structure from the ITAR 126.1

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NON-DIVERSION STATEMENTS

• In order to protect an exporter from penalties due to shipment diversion to restricted destinations, all export invoices, bills of lading and packing lists are to incorporate a non-diversion statement.

• There are two different statements depending upon which Department (State or Commerce) controls the export.

• 15 CFR Part 758.6 of the EAR (the Commerce version) states:– “These commodities, technology or software were exported

from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. Law prohibited”

• Exporter may add additional language – this is a minimum guideline

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Non-Diversion Statements

• Per 22 CFR 123.9(b), the ITAR (State Department version) states: – “These commodities are authorized by the U.S. Government

for export only to (country of ultimate destination) for use by (end user). They may not be transferred, transshipped on a non-continuous voyage, or otherwise be disposed of in any other country,either in their original form or after being incorporated into other end-items, without the prior written approval of the U.S.Department of State.”

• Exporter may add additional language – this is a minimum guideline

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EXPORT DECLARATION

• As of 9/29/08, all exports from the US must be filed via the AES or Automated Export System EDI. As of this date, all paper export filings (SEDs) are forbidden.

• Each accepted AES transaction file will have an ITN or International Transaction Number assigned to it which must be placed on the commercial invoice and bill of lading of the shipment being exported.

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Automated Export System (AES) Facts**

• U.S. Census Bureau/Customs & Border Protection (“CBP”) computerized system for tracking and controlling cargo export information (replacing Shipper’s Export Declaration-SED)

• AES interfaces with other federal agencies• Allows CBP to monitor and enforce compliance

with export laws and regulations• Currently all exports must be filed through AES• USML and CCL articles submitted through AES

regardless of dollar value

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Export Clearance Transport Cutoff Times*: Mode &

JurisdictionMode USML CCL

Truck 8 Hours 1 Hour

Rail 24 Hours 2 Hours

Air 8 Hours 2 Hours

Vessel 24 Hours 24 Hours

*

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DISCUSSION ISSUES

• RECORDKEEPING, DUE DILIGENCE• DENIED PARTY SCREENING• COMPLIANCE POLICY/PROCEDURES• CORPORATE POLICY STATEMENT• VISITOR CONTROL • COMMUNICATIONS CONTROL• ORDER PROCESSING PROCEDURE• SCHEDULE B

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DISCUSSION ISSUES

• CONSCIOUS OVERSIGHTWEBSITES:• US CUSTOMS & BORDER PROTECTION:

www.cbp.gov• COMMERCE/BUREAU OF INDUSTRY AND

SECURITY: www.bis.doc.gov• STATE/DIRECTORATE OF DEFENSE

TRADE CONTROLS: www.pmddtc.state.gov

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Thank you for your attention!

This presentation copyrighted by Allegheny Brokerage Co. January 2009. All rights reserved.