ECCN: What is it? Why and when is one needed? Why is it important?
ECCN. In a world of acronyms this is one whose purpose is often misunderstood by the less experienced exporter and even by more experienced exporters hearing the term for the first time. However, it is also a process and procedure if not followed and applied correctly can lead to significant challenges and costs, as well as potentially severe government penalties for the exporter.
We often get calls asking, “Do you know what an ECCN is and do I need one?”, or, “I’ve got a truckload of 10, 000 balls of string to send to Thailand and I’m told I can’t ship until I get an ECCN…help!”. Well, we’ll try to demystify ECCN’s and hopefully provide at least an understanding of what they are and why and when they’re needed.
Export Control Classification Numbers, ECCN’s, are alpha-numeric classifications used to identify certain commodities, technologies and software that may fall under U.S. export control. These classifications are also used to determine the applicable level of control whenever an item is exported or re-exported and are an integral part of the process in determining whether an export license is needed. (Note: In the context of the ECCN whenever the words ‘item’ or ‘items’ is used it is referring individually and/ or collectively to the above mentioned “commodities, technologies and software”.)
ECCN’s provide varying levels of control based on the country of end-use, the end-use of the item, as well as the end-user themselves. This is an important distinction so we’ll repeat it; export control is based on the country of end-use, not only the country of import, and takes into consideration the end-use of the item and the end-user as well. So, even if it’s determined an export license is not required based on the country of end-use, or an export license is required but a license exception would generally apply, the exporter may still need to apply for a license because of the end-use or end-user. Nevertheless, in all cases the importing country must also be approved to receive such items even though the end use country may be different.
The Bureau of Industry and Security (BIS), a branch of the U.S. Department of Commerce, holds licensing authority over the export or re-export of dual-use items. Dual-use items are those that generally have both commercial and military applications, but not necessarily only where the primary use is weapons or military, and are controlled to further the national security, foreign policy, and nonproliferation interests of the United States. Items that could be considered having a “Dual-use” could include hardware, materials and associated production, development or use technologies.
However, export controls are not the sole dominion of the Department of Commerce as other departments are also involved depending on the item being exported and level of control. In some cases multiple departments are involved with a single item depending on the classification. These other departments include;
• Department of State’s Directorate of Defense Trade Control (DDTC) who has oversight over ITAR controls.
• Department of the Treasury’s Office of Foreign Asset Control (OFAC).
• Department of Energy (DOE).
• Nuclear Regulatory Commission (NRC).
• Department of the Interior (DOI).
• Food and Drug Administration (FDA).
• Department of Homeland Security (DHS).
• Besides BIS, other departments of Commerce play their role too. For example; Patent & Trademark and the Office and Bureau of Census.
Additionally there are a number of other export control regimes, both unilateral and multilateral, that guide exporters and re-exporters in reaching an ultimate decision about whether their particular item needs an export license or if the export of the item is permitted at all. These regimes are;
• The Wassenaar Arrangment (Supplement 1 to Part 743). This regime contributes to regional and international security and stability by advocating transparency and greater responsibility in transfers of conventional arms, dual-use goods and technologies to prevent destabilizing stockpiling of those items.
• Missile Technology Control Regime (MTCR) (Supplement 1 to Part 740 (Country Group A:2). MTCR’s goal is to limit the proliferation of missiles with the capability to deliver weapons of mass destruction. The U.S. has been a member of this group since its origin in 1987. Initially there were only 7 members of this regime and as of August 2012, the MTCR has grown to 34 member countries.
• Australia Group (AG) (Supplement 1 to Part 740 (Country Group A:3); prompted by the use of chemical weapons during the Iran-Iraq War (1980-1988) this group was formed in 1985. As membership grew its focus expanded to include chemical production equipment, technologies and measures to prevent the proliferation of biological weapons. As of June 2012 the AG is composed of 41 member countries.
• Nuclear Suppliers Group (NSG) (Supplement 1 to Part 740 (Country Group A:4); focuses on stemming the proliferation of nuclear weapons. As of June 2012 there are 46 member nations.
• Technical Advisory Committees (TACs) advise the Department of Commerce on the technical parameters for export controls applicable to dual-use commodities and technology and on the administration of those controls. There are a number of these TACs, 8 currently, who rely on the expertise of representatives from industry and Government to represent diverse points of view on the concerns of the exporting community.
Before learning about ECCN’s we first need to understand how exports, re-exports, dual-use, and deemed export items are defined and what “subject to the EAR” means.
• An export is any item subject to Export Administration Regulations (EAR) that is sent (transported) from the United States to a foreign destination.
• Re-exports are any item subject to the EAR sent from one foreign country outside the U.S. to another foreign country.
• Dual-use items are those that generally have both commercial and military applications, but not necessarily only where the primary use is weapons or military.
• A “Deemed export” is an export of technology or source code (except encryption source code) that is “deemed” to take place when it is released to a foreign national within the U.S. Such a release is deemed to be an export to the home country or countries of the foreign national and can occur by granting access to, or use of technologies or source codes in research, training, visual inspection, by email, or an oral exchange of information. The deemed export rule does not apply to persons lawfully admitted for permanent residence in the U.S. and does not apply to persons who are protected individuals under the Immigration and Naturalization Act (8 U.S.C. 1324b(a)(3)).
• In the context of ECCN’s, “Subject to the EAR” is a term used to describe those items and activities over which BIS exercises regulatory jurisdiction under the EAR. Conversely, items and activities that are not subject to the EAR are outside the regulatory jurisdiction of the EAR and are not affected by these regulations. The items and activities subject to the EAR are described in 15CFR734.2 through §734.5. Even though with the proper licenses in place a U.S. origin item “Subject to the EAR” can be shipped from the U.S., it remains under the export control of the U.S. indefinitely.
Each ECCN consists of five alpha-numeric characters and a complete number identifies the technology level and capabilities of an item. When used together with the country of end use, customer (end-user), and the planned application of the item (end-use) it can be determined whether an export license is required or if the item can be exported without a license. For each item that may have an export control, the ECCN must be identified before the item can be shipped as this is the only way to be ensure the export is in compliance with current export regulations.
How does an exporter determine the ECCN of their item? In several ways;
• Ask the manufacturer or designer of the item. If it’s been exported before they may already know the ECCN, what countries require a license, and whether a license exception may be used.
• Self classify the item. (Note: More about this option in our companion article)
• Submit a request to BIS for an official classification. This can be done on-line through the Simplified Network Application Process Redesign (SNAP-R)
To obtain information on the application process see 15CFR748; “Applications (Classification, Advisory, and License) and Documentation”.
For instructions on obtaining access to SNAP-R go to http://www.bis.doc.gov/snap/pinsnapr.htm.
Instructions and additional guidance on submitting a classification request is available at http://www.bis.doc.gov/licensing/cclrequestguidance.html & http://www.bis.doc.gov/licensing/bis_eccn.pdf.
Submissions to BIS can take a while to process so the exporter should review the application procedure and submit their requests and required documents, etc. as early as possible.
When it comes to determining licensing requirements for either exports or re-exports it doesn’t matter what the mode of transport may be; air, ocean, truck, rail, a deemed export, email, hand carrying an item onto a conveyance or sending it by postal mail, all are seen equally when considering whether a license is needed for an export or re-export.
For U.S. manufacturers and/ or distributors wishing to export products (items) that are subject to the EAR, federal regulations specify which of those products would require an export license. In order to determine whether an export license is needed, and to remain compliant with federal export regulations, exporters must first determine if their product fits within the description of an ECCN.
Even items of foreign manufacture could possibly require a U.S. export license for re-export if the item contains more than a specified percentage value of U.S. origin controlled content. The re-exporter must take into consideration that when the item was originally shipped from the U.S. and the controlled content would have required an export license, then when the item is re-exported as separate parts or components to the country of ultimate destination (country of end-use) the U.S. content would still be subject to the EAR and U.S. export control. This is called the de minimis rule and based on the country of end-use and the resulting de minimis value will decide whether a license is required.
There are other considerations relative to the de minimus rule when U.S. origin software is incorporated into foreign software, or when foreign technology is combined with or taken from U.S. origin technology. Moreover with these types of shipments there is a one-time report that must be filed with BIS which must include the percentage of U.S. content by value, description of the calculations and relevant values used, assumptions made, and the basis or methodologies for making the percentage calculation. The three most important criteria when BIS reviews the report will be the export price of the U.S. content, assumptions regarding future sales of software, and the choice of the scope of foreign technology.
It is important to note the de minimis exception can only be used for items that are alike; hardware into hardware or software into software. The de minimis exception cannot be used when incorporating software into hardware or vice versa. More information about the de minimus rule can be found at 15CFR734.1 and Supplement 2 to part 734 of the EAR, and much more information concerning the one time reporting requirement can be located in §734.4 and Supplement 2 to part 734 of the EAR.
While the freight forwarder can assist with helping the exporter get through the classification process, they cannot offer an opinion, much less a binding opinion, on any classification. Proper classification takes certain technological knowledge of the item which forwarders do not possess. Their expertise is in moving your item from origin to destination, not in knowing what, “A saturation magnetostriction of more than 5×104 “ is, or what “A magnetomechanical coupling factor (k) of more than 0.8”, or “An electrical resistivity of 2×104 ohm cm or more”, means. Work with your freight forwarder to determine which method of classification is best for you.
It is important to note that regardless of the source of the classification the exporter is still the party ultimately responsible for making sure the item is correctly classified. Even with a BIS classification the exporter is responsible because BIS’ classification is based on the information submitted by the exporter, so if any aspect or parameter of the item shipped is different than that submitted for BIS review the classification itself could potentially be different too. Any differences between two or more criteria could result in a non-compliant shipment.
If you’d like to know more about the process of how to self classify your item please see our companion article, “ECCN- Self-classifying our item for export.
A guide through the looking glass.”
Another way to learn about export compliance for controlled items; throughout the year BIS puts on export control seminars in various cities. If you’d like to attend an export seminar in your area please visit http://www.bis.doc.gov/seminarsandtraining/index.htm to find one that fits your schedule.
Hopefully we’ve been able to impart at least an idea of what an ECCN is, why and when one is needed and why it’s important to make sure your export is fully compliant. In these times it’s important to take the necessary steps to insure that controlled items, be they a physical commodity, or a technology or software, that they are kept away from those who shouldn’t have them or mean us harm.
Acknowledgements: While for the most part this is an original article, for clarity and to represent regulations as clearly and correctly as possible certain text in whole or part, graphics, BIS charts and lists herein regarding rules, regulations and procedures were sourced from various U.S. government websites.
Vice-President – Exports