Incoterms Expert John Vogt on Staying One Step Ahead of Export Controls
John Vogt, former Halliburton vice president of global logistics and a visiting professor at the University of Houston-Downtown, presents the latest in his series on Incoterms, the internationally recognized set of trade rules that sellers and buyers must follow when devising a contract for the shipment of goods. This week, John explains why ECCN codes and licenses matter more than you think when exporting certain goods.
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The commercial invoice (CI) has three parts to it. The header is the broad detail of who is sending the product, where the product is actually to be sent (and used) and who is paying for the product.
We have looked at the customs classification and the country of origin for the determination of the rate for import tariffs for an item in the CI. The remaining detailed section for the item is the export permission or licensing information. The CI works for the export and the import of the goods, as the information should not change between an export and then subsequent import into another country.
As for the correct duty rates, ignorance is not bliss. Equally, the implications of sending items out of the country that require prior approval for export (a license) can be severe. For exports, the ECCN (Export Control Classification Number) that is assigned to this item leads to the reason and type of license which is required for these goods for export to a particular country.
For many countries that utilize the ECCN, this facilitates what is restricted for movement and requires licenses. Beware of the obvious trap of thinking your item is commonly available and cannot have a need for a license. Many common items have a need for a license when sent to a particular country.
The Composition of the ECCN
This is a five alpha-numeric character combination which has the format of a number, an alpha character and then three subsequent numbers with the following meanings:
– Numerical: Broad category of the item (nuclear, electronics, etc.)
– Alpha: Product group within the category (equipment, software, etc.)
– Numerical (three digits): Gives specific sub-categories of the item's characteristics and the reasons for export control.
The ECCN is administered by the Bureau of Industry and Security (BIS), which is part of the Department of Commerce and NOT the Customs and Border Security, as many expect. They have a great interactive lookup for your items, which will give you the appropriate ECCN number.
Once you have an ECCN number, you can start to explore the need for a license. The ECCN number will have details of the type of license which is required in broad control categories. The item categories and the country to which it is to be exported determine which license is needed. This may sound problematic and difficult — it is really not!
– Every item has an ECCN number.
– Based on the ECCN number there are restrictions (or not) published.
– Use these restrictions or types of license(s) to check whether you need a license(s) for the country you are exporting to.
There is a Bureau of Industry table of the country to which an item is to be exported, and the various categories of controls against each country in the world. This matrix allows each ECCN to be clear on the license and the reason for the license. The type of license will also indicate to which of the many organizations the application for the license must be submitted.
Let’s look at the different headings of the controls which are applicable and the reasons for these controls with an example of the US table below:
– Chemical & Biological Weapons
– Nuclear Non-proliferation
– National security
– Missile technology
– Regional stability
– Firearms
– Crime control
– Anti-terrorism
Your biggest nightmare is to think your item doesn’t need a license as you believe the item you are exporting is innocuous. Let’s take one simple example and hopefully scare all of the readers just a little.
You’re planning to export wetsuits made in the U.S. Wetsuits are available all over the world, so the thought could be these do not require a license or special attention for export. The wetsuit has a particular ECCN of 8A992 and is classified with AT Controls. Now, depending on the use and country to which the 8A992 item is exported, a license might be required. This is the first part of the table. Then comes a whole host of other requirements as is shown in the following.
This all boils down to the fact that wetsuits may well need a license if sent to Russia for certain purposes!
License Authorities in the US
It becomes very apparent that the eight columns of the country table are licensed by different entities, from the Department of Commerce. For example, the Department of State in the form of the Directorate of Defense Trade Controls (DDTC) regulates firearms and defense articles under the Arms Export Control Act, International Traffic in Arms Regulations (ITAR) and U.S. Munitions List (USML). The licenses for columns such as military use, anti-terrorist use, national security and so on would fall under these organizations.
Licenses cost money. Incorrect license submissions will attract additional fees, so the data and the submission must be correct. If your company is doing exports, the ECCN and required license(s) need to be determined for the items to be exported.
To be efficient, this means your company should create a database which has these for all exports so there are no delays, and it needs continuous updates as the country controls chart alters to match current realities. Software which taps into the updates automatically really helps.
Understand the Risk
You need to remember your company is liable for any wrong information as you provide the data. If you outsource this, you remain responsible even if you can subsequently claim from the outsourced company that you contracted. That means that the correct license is important, and that you need a working knowledge of the different licenses. Above all, you want your goods to flow, not to be in “discussion” with the customs authorities.
Read more: Choosing the Right Rule to Avoid Risk