You all know about the three academic R’s, of Reading wRiting and aRithmetic. But are you familiar with the three R's of export compliance: the FTR, the EAR and the ITAR?
I am a relative newcomer to exporting having jumped into the fray a mere 25+ years ago. I came to exporting after becoming a customhouse broker and working in commercial import departments.
“How different could it be?” I reasoned. “Exporting is just the opposite of importing, right? Everything I know about importing should apply to exporting but in reverse.”
Naively my new employer agreed with me and hired me as the import/export manager for a small trading company.
Then reality struck! I was right. Exporting and importing are indeed opposites, polar opposites. To be certain there are some disciplines that cross over between the two including the concepts of product classification, Incoterms 2020, and the reality that vessels can sink regardless of the direction they are sailing.
Complex Export Regulations
What I was least prepared for was the complexity of the export regulations. Now, I don’t want to get in a shooting match over which regulations are more onerous or difficult. Let’s agree that both the import and the export regulations are burdensomely complex.
Coming from an importing background, however, I was used to there being a primary point of contact for all imports, that being Customs and Border Protection (CBP). This is the case even when one of a myriad of other U.S. government agencies regulates the import supply chain. Customs plays the lead role in enforcing those regulations too.
It was counter-intuitive, therefore, to discover that U.S. exporting is controlled by more than one set of regulations and more than one primary regulator. It seems everyone wants to get their fingers into the pie. With so many cooks in the kitchen it is no wonder exporters can get confused.
It eventually became clear that just as students must go to school to learn the three academic R’s, exporters also need to be schooled in the three R’s of export compliance.
The FTR, formerly known as the Foreign Trade Statistics Regulations, are administered by the Foreign Trade Division of the U.S. Census Bureau. The FTR have a dual purpose. They allow for the collection of statistical trade data, and they also provide the tactical information required by the Bureau of Industry and Security and CBP to perform their export oversight roles.
The FTR are, therefore, primarily concerned with the reporting of an export shipment. It is within these regulations that the exporter will find the details about the Automated Export System (AES) reporting requirements and exemptions. The FTR define valuation, export powers of attorney, and record keeping requirements. They also address the ever-vexing questions about the responsibilities of parties when the foreign buyer routes the cargo and selects the international transportation.
Referenced within the FTR is the Schedule B. This statistical classification system is also administered by the Census Bureau and can be found at its website.
At first blush one would think these regulations would have something to do with promoting better listening skills. One would be wrong.
While the FTR deal with statistical reporting of the shipment, the EAR address U.S. export control policy as administered by the Bureau of Industry and Security (BIS). The EAR control the export of so-called dual use goods and goods that are not controlled by other regulations.
Dual use refers to the idea that the product has a commercial function, but it also may be used in applications or destinations the U.S. would prefer it not be used. Most commercial shipments are subject to the EAR.
The EAR are organized under 10 general prohibitions that ask the questions:
- What is the product?
- What is the destination?
- Who is the end user?
- What is the end use?
- If any of the above is restricted or controlled, will the U.S. government permit the export from the U.S. under license or a license exemption?
Product controls are enumerated within the Commerce Control List of the EAR. These regulations are intertwined with end user, end use and destination controls. End user controls are complex, partially controlled by BIS under the entity, denied party, and other lists and supplemented by lists controlled by the Treasury Department’s Office of Foreign Assets Control (OFAC) and the State Department’s Directorate of Defense Trade Controls.
The EAR include additional special controls for embargoed destinations such as Iran, North Korea and Syria. In addition to goods, the EAR also control the export of certain software, technological know-how and even certain business practices such as contracting, financing and shipping.
Inexperienced exporters commonly assume that their everyday goods and business practices are not subject to the EAR or any of its restrictions. This is a risky assumption.
For the longest time I thought “I-TAR” is what you said when resurfacing an asphalt driveway. I seem to have been mistaken.
The U.S. State Department’s Directorate of Defense Trade Controls (DDTC) regulates the export of defense articles under the Arms Export Control Act (AECA). The details of this act are found primarily within the ITAR. Goods regulated by the ITAR are detailed within the munitions list and are subject to an export licensing requirement by the State Department. Logically this list includes weaponry and military equipment.
A brief review of the munitions list would imply that it is a simple matter to determine if exports are subject to ITAR. For companies supplying components to the defense industry, however, it may not be as clear. Companies engaged at any level within the defense industry are cautioned about outsourcing production to other countries or exporting any of their goods before reviewing the ITAR.
The ITAR include an expanded list of embargoed destinations that goes beyond the embargoes listed within the EAR. The ITAR also allows for a process of statutory debarment. This is administered by the DDTC through the debarred parties list, one of the primary export restricted parties lists.
Like the EAR, the ITAR are concerned about unlawful distribution of technology or software related to the specifications of defense goods, their operation or their production.
With multiple regulators involved it is inevitable that exporters might get confused about which regulations apply to their goods. Sometimes the regulations reference one another and exporters can make this determination on their own. Both the BIS and DDTC have procedures for issuing commodity jurisdiction rulings to exporters clarifying which regulations apply.
The Three R’s Are Just the Beginning
There is more to an academic education than reading, writing and arithmetic. Mastery of these fundamentals, however, provides a strong foundation for further learning.
Likewise, there is much more to U.S. export regulations than the FTR, the EAR, and the ITAR. Check out the article, A Summary of Government Agencies That Regulate U.S. Exports. However, understanding the three exporting R’s is the foundation of a strong export compliance plan.
This article was first published in November 2009 and has been updated to include current information, links and formatting.