Exporters Need to Be Prepared for Upcoming Control Reforms

October 29, 2013
By Mike Frail

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It has been four years since President Obama ordered a review of the export control system, and U.S. companies are finally getting a taste of Washington’s long promised reforms. If you want to continue exporting from the United States, it’s crucial to understand how recent and upcoming changes to the law will affect your business.

Why reform export controls?

These export reforms are a result of President Obama’s 2009 order to review the country’s export control system. The review was undertaken with the intention of strengthening national security and the competitiveness of U.S. businesses in the global marketplace. At the time, U.S. defense manufacturers were losing business to overseas competitors, which could produce the same products without the obligation of working through the complicated U.S. export control process. In addition, redundancies and lack of a centralized IT system increased the burden placed on U.S. exporters.

As a result of the system wide review, the Obama administration announced the Export Control Reform Initiative, designed to protect the country’s most critical military commodities, services, and technical data while allowing U.S. defense manufacturers more leverage in the global market. To accomplish these goals, the initiative called for refining and restructuring the system’s two export control lists‒the U.S. Munitions List (USML) and Commerce Control List (CCL).

Recent/upcoming changes

The first of these changes involved the U.S. Munitions List (USML):

Rule Published: April 2013 in the Federal Register

Effective: 10/15/13

Applies to USML categories:
VIII (Aircraft)
XVII (Classified Articles & Technical Data)
XXI (Miscellaneous Articles)
XIX (Gas Turbine Engines)

What’s changed: This rule created a new set of Export Control Classification Numbers (ECCN’s), commonly referred to as the “600 Series” ECCN’s, and moved a number of articles previously controlled on the U.S. Munitions List (USML) to the Commerce Control List (CCL).

Recommendations: If you’re an exporter with a State Department license, you should review the USML Categories listed above and check if anything has changed in regards to exporting your respective product. It is possible that your licensable product has been moved to the Commerce Control List (CCL). If so, there are additional changes that will affect subsequent exports and licensing.

600 series ECCN’s have reporting requirements in the Automated Export System (AES). 600 series ECCN’s with a .A-.X designation have a mandatory reporting requirement in AES regardless of value or destination. 600 series ECCN’s with a .Y designation don’t require reporting unless they meet the $2500 filing threshold, as these are considered less significant military items. When they do meet the threshold, a new C60 license type and DY6 license number must be used.

If these rules are confusing, well, that’s understandable! As a best practice, you could always file in AES regardless of the ECCN designation for a 600 series number. At least this way you have covered the bases. You are also required to include 600 series ECCN’s on all documentation, including bills of lading and commercial invoices. Mohawk has revised its Shipper’s Letter of Instructions (SLI) form to help exporters be certain they are providing the new information to their respective forwarders. Download our updated SLI form here.

In July, additional changes to the U.S. Munitions List (USML) were announced:

Rule published: July 2013 in the Federal Register

Effective: 1/6/14

Applies to USML Categories:
VI (Vessels of War & Special Naval Equipment)
VII (Tanks & Military Vehicles)
XIII (Auxiliary Military Equipment)
XX (Submarines)

What’s changed: Effective January 6, you can expect an influx of new 600 series ECCN’s, with additional commodities being moved from the U.S. Munitions List to the Commerce Control List. We will learn the exact commodities at that time.

Recommendations: Same as the rule above.

Exporters need to be prepared

Now that export control reform is very much underway, it’s imperative that U.S. exporters be prepared for the changes. When changes to USML and CCL categories are published in the Federal Register, exporters will have only 180 days to adjust before implementation. There will be no grace period for errors either.

Going forward, especially for those of you with ITAR commodities, ensure that you read those Federal Register notices. Eventually the people in charge of making the revisions will get to your respective category. Then you’ll need to determine: Are we still subject to ITAR or have our goods transitioned to EAR? This would be a good time to review classification of your goods. Once the new rules go into effect, you will also need to review your commercial invoices to ensure that they include the “600” ECCN numbers and destination control statement.

As always, regardless of whether you or your forwarder completes the AES filing, you, the exporter, should double check all AES filings. This is especially important for those with routed ex-works transactions, where the overseas buyer’s nominated forwarder files the Electronic Export Information (EEI) in the AES system. When it comes to the new regulations, you need to be certain the buyer’s forwarder understands and files the EEI and transport documents correctly.

These new export control reforms have a learning curve for all of us, exporter and forwarder alike. However, one should never be afraid to ask questions. If something is unclear, contact the Bureau of Industry and Security or State Department. All government agencies want us to get it right. And getting it right keeps us all out of penalties. So, when in doubt‒ASK.

Mike Frail is Export Compliance Manager for Mohawk Global Logistics. He is Certified ITAR Professional and Certified U.S. Export Compliance Officer.