Export Control Reform – Are you Ready?

By E.K. Koh.

Parts of the US Export Control Reform went into effect on October 15th, 2013.  Are you ready?

The current system has two different control lists administered by two different departments, Commerce and State, and there are three primary export licensing agencies, Commerce, State, and the Treasury.  A multitude of agencies – Commerce, Defense, Homeland Security, Justice, State, and the Treasury – each have authority to investigate and/or enforce some or all of the export controls, each using separate IT systems that do not intercommunicate.

Why reform? There are many reasons. In addition to streamlining the process, it is for economic reasons.  The current export regulations encourage customers to source from non-U.S. suppliers when possible to avoid the U.S. licensing system. This harms U.S. manufacturers, diminishing their sales and driving up costs to the U.S. military for the same items.  According to a Department of Commerce industry survey, U.S. firms estimated that U.S. firms lost in excess of $2.1 billion annually in sales due to export controls and billions more in lost opportunities to even compete for a sale.

The control list-related reforms will move less sensitive items from the US Munitions List (USML) to the Commerce Control List (CCL). The USML will continue to control the export of sensitive military items. However, the following are some changes to expect:

  • Some military items, and most “specially designed” parts and components of items on the USML, will now be controlled under a new 600 series (ECCN) on the Commerce Control List (CCL).  These will generally require a license to any country other than Canada, unless a license exception applies.
  • Certain parts and components, such as tires, lavatories, compasses,  that are not associated with military functions will be classified under a “y” subsection to the relevant ECCN, and will generally be exportable to most countries without a license (exceptions apply).
  • Most fasteners, such as nuts and bolts, will be decontrolled even if specially designed for a particular military application.
  • Systems supporting satellite operations will move to a new 500 series ECCN and be subject to similar restrictions as 600 series ECCNs.

The net result of the reforms will be to improve U.S. interoperability with close allies and partners while enabling the U.S. Government to focus on transactions of concern. Such reforms will also contribute to the health and competitiveness of the defense and manufacturing industrial base, thereby maintaining and expanding U.S. manufacturing jobs.

However, it is clear that reform does not mean release. Many items are still subject to control, whether it is in the USML or CCL and companies still have to comply. The ongoing reforms are forcing companies to re-evaluate how they comply with these regulations. How do you currently control exports of physical goods, digital goods and technical data? Do you rely on painful manual procedures or custom programming? The ongoing export control reform is a good time to pause and re-consider your current approach.

For more information on how export control reform will affect you, join legal expert Gary Stanley for a more in depth discussion on this topic.

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E.K. is the VP of Solution Management at NextLabs. He is responsible for NextLabs’ industry-focused solution offerings and works closely with industry experts and customers to leverage NextLabs products to address problems such as export control compliance and secure supply chain collaboration.

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