Managing Export Compliance with Trade Management IT Systems

By Soujanya Madhurapantula.

Let’s start with what a trade management system is, what it does, and what are some of its shortcomings.

What is a Trade Management System

Export control can get pretty messy, especially when you consider how a typical company will be operating according to the rules of multiple jurisdictions at any given time.  Businesses that must comply with Export Control regulations like ITAR often maintain license and distribution information in a central Trade Management System (TMS).  These systems allow organizations to manage license information, approved distribution lists, embargo checks, national jurisdictions, and other information as well as automate checks against these records when exports are attempted.

The good news is that SAP GTS is one of the most common solutions that can handle all of this, and Entry Point does a great job of saying why here.   You determine whether or not you have a product that’s under the scope of the regulation, and if it is under the scope, the system determines for you what legal basis you should ship under in order to be compliant with the law because it supports the trade and product regulations of every country and governmental agency.

To control our scope, we’ll look just at the International Traffic in Arms Regulations (ITAR) of the United States of America, keeping in mind that a lot of what we talk about will be applicable to other regulations

What does a TMS like SAP GTS actually do

SAP GTS exists to ensure the legal movement of

  • any export from the US,
  • any transfers within the US to a foreign person (this refers specifically to technical data, as information doesn’t have to cross a border under ITAR to constitute a true export)
  • any re-transfers outside the US – so this would be any time the end-user or destination that wasn’t on the original license was modified.

It does this by supporting the export classification of products down to the lowest sub-category of the US Munitions list, including with the Significant Military Equipment indicator.

  • It can control a shipment either as a commercial product (using an ECCN) or as a ITAR military product
  • It captures any audit support information you need
  • It also coexists with any non-US export control numbers

In addition to every other thing GTS does, the most important thing to focus on is its shipment prevention.  It prevents you from making illegal shipments or shipments that aren’t properly documented from going out of your company location saving you from monetary damage and shame.  What it will do is match the physical export of your goods against agreements/licenses you possess to make an allow/deny decision.

Why is Export Management so difficult?

Before we go further, let’s first establish why this is such a nightmare.  Remember, every national jurisdiction has its own slightly different version of these regulations

There is a list of Prescribed Countries

  • These are your ITAR prescribed countries, meaning those countries that you cannot do business with.  This list is pretty extensive and it’s found in different areas of the regulations.

There are different categories of license authorities

  • The first is an individual license: it’s referred to as a DSP license, and it could be for permanent or temporary export, it could be for classified or unclassified products.
  • With the use of NLR (no license required), we also have the capability to handle what appears to be an export because it crosses the border, but from an ITAR perspective, it truly isn’t because it goes to a US territory (like Guam or the Mariana Islands).
  • The next major category is exemptions: these are some very detailed and specific (e.g. product-specific, order-specific, etc.) exemptions, exceptions or reasons for not having to apply for or use a license.  These could be low-value transactions, repairs, spare parts, trade shows, things like this.  Also these are specific to certain countries and GTS can do this for you.
  • The last category is an agreement (and this is very important when referring to technical data as we will do later).  The three kinds are essentially the Manufacturing Licensing Agreement (MLA), the Technical Assistance Agreement (TAA), and the Warehouse and Distribution Agreement (WDS).

Where does the functionality leave us wanting more?

Because this task is so all-encompassing, most EMS have limitations that make them inadequate for today’s export requirements.

One limitation is the kind of data for which licenses and other records are maintained.  For instance, SAP GTS only manages licenses for physical goods, but ITAR and other regulations also require organizations to prevent the unauthorized access to technical data.

Technical Data Export Events

A second common limitation typical of EMS is that they can only generate records for export events that occur in one application or system.  Because export regulations apply to technical data as well as physical goods, organizations now have to worry about how data travels across systems, moving outside line-of-business applications and beyond the scope controlled by a single EMS.

In a later blog post, I’ll show you what the implications are of these limitations in a real-world example.

Soujanya is the Product Manager for the Entitlement Manager for Enterprise Applications at NextLabs. She works with the Solutions Management team to devise best practices for securing and controlling data in order to develop solutions for Global 5000 business around partner collaboration, export regulations, IP and Data security.

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