Shipping Internationally: Do You Need an Export License?

Believe it or not, most exports from the United States do not require an export license to ship internationally.  (Ninety-five percent, according to the Department of Commerce.)

This is great news for most companies, but what if your item or technology falls in the other five percent?

Let’s go through some of the considerations and information required to make an export license determination.  To begin the license requirements, all exporters must know the answers to these questions for each shipment.  (You’d be surprised how many companies don’t know the answers to these simple who/what/where questions!)

• What is the item (hardware, software and/or technology) that is being exported?
• Where is it going?
• Who is the end user?
• What is the end use of the item? (What are they going to do with it?)

In this blog, let’s use a crayon as an example of an item to export.

What is an export license?

Certain types of shipments require an export license from appropriate licensing agency of the U.S. Government prior to exporting.

An export license is a government document that authorizes permission to perform a specific export transaction (note that this includes not only hardware, but also software and technology).

Export licenses are required for various reasons such as national security and foreign policy.  It’s important to remember – You as the exporter do not come up with the “reasons” an export license is (or is not) required.

The government has already done this for you.  (Thank you, Uncle Sam!)

The first question is: Do you even have an export?  For example, sending a crayon from New York to California is a shipment; not an export.

However, shipping that same crayon from California to Canada is an export (because it has left the United States).

In this example, an analysis of technical data needs to be made on whether an export license is required for this transaction.

How do I know if I need an export license?

Step 1: Item Classification

Understanding the item being exported is key to starting the process of classifying your item to determine the jurisdiction of the product.

Items exported fall either under the Export Administration Regulations (U.S. Department of Commerce, Bureau of Industry and Security) or the International Traffic in Arms Regulations (U.S. Department of State, Directorate of Defense Trade Controls).

The Export Administration Regulations (EAR) regulate dual-use items which means that they have both commercial and military or proliferation applications whereas the International Traffic in Arms Regulations (ITAR) regulates defense articles and services.

Each of these regulations, EAR and ITAR, have specific categories that your item could fall under.  Knowing which agency has jurisdiction of the item is required as part of the export license determination process.

The only way to know the jurisdiction and subsequent item classification is to know the product and a careful review of the regulations to see where it falls.

So, what about my crayon?  In looking at both the ITAR and EAR, we can confidently say there is not a category that describes a typical crayon.  For this example, let’s assume our crayon doesn’t have an explosive tip, or use advanced semiconductors … or incorporate any of the hundreds of other controlled hardware or technologies you find in the ITAR and EAR.

It’s just a simple, ordinary, everyday crayon.

In that case, the crayon is classified as EAR99.  This is a favorable classification code because this category generally consists of small percentage of less sensitive consumer products and usually an export license is not required for export transactions.

However, sometimes even EAR99 items require an export license depending on other factors (who are you exporting to, what is the end use, where is it going).

Step 2:  Where are you exporting to?

It is impossible to know export license applicability without knowing all the facts, with the country of ultimate destination being a key factor.  The U.S. Government has identified certain countries that are embargoed destinations that have been designated as supporting terrorist activities (Cuba, Iran, North Korea, Sudan and Syria).

Exporting to any of these destinations is prohibited without prior approval by licensing agencies within the federal department of government.

It is also important to note that there are specific requirements to ship to some countries, such as Russia, due to controls imposed by the Office of Foreign Assets Control (OFAC) under the Treasury Department.

Under the EAR, exports require certain countries require certain situations for an export license depending on the classification of the product.  This means you may have an item that requires a license to one country, but that same item may not require a license to another country.

Typically, this is dependent on countries that are known to be hostile to the United States, have unstable governments or have a record of human rights abuses that have resulted in strict export regulations.

In the case of our EAR99 crayon, even though the item is benign, if it’s being exported to any of the embargoed countries listed above, an export license would be required.  This means Russians and North Koreans (among others) are not allowed to receive U.S.-origin crayons!  Remember: these trade restrictions may vary from country to country.

Step 3:  Who is the end user?

There are many companies, individuals, government agencies other countries, entities etc. that cannot receive ANY U.S. origin goods or goods that transit through the US.

The government has several lists for exporters to check to ensure that the party they are exporting to or involved in their transaction is not listed.

These lists include, but are not limited to, the Entity List (EAR), the Specially Designated Nationals and Blocked Persons List (OFAC), the Unverified List (BIS) and the Denied Persons List (BIS).

Exporters are required to screen all parties to the transaction against all lists to ensure compliance.

Let’s take another look at our EAR99 crayon going to Canada. So far, this example would be No License Required (NLR) unless the end user is restricted.  For example, if you’re planning to export the crayon to the Benevolence International Fund in Canada, then you’re going to need prior approval from the U.S. government.

Why?

Because this entity is listed as a Specially Designated National and Blocked Person under OFAC for working with al Qaida to purchase rockets, mortars, rifles and defensive bombs.  (In other words, no crayons for you!)

Step 4:  What is the end use of the item?

All exporters have the responsibility of doing due diligence and knowing the end use of their product to ensure it is not a prohibited end use that would trigger the requirement to have an export license obtained in advance of shipment.

There are several restricted end uses, with the proliferation of weapons of mass destruction (nuclear, biological, chemical) as one of them.

It is important to remember that even an EAR99 product, shipping to a No License Required country and to an entity not on any restricted lists would still require the export license requirements and prior U.S. Government authorization if the end use were prohibited.

Scenarios:  The Export Journey of Our Crayon

Let’s roleplay some scenarios based loosely on questions we get asked almost every day.

Here’s the first one:

What if I shipped my crayon from the United States to Canada where it sat on a shelf for two years, and now I need to ship it to North Korea.  Is that okay?

No.  Items never lose their U.S. status or origin, regardless of how long a U.S. origin item has been sitting on the shelf in a foreign country.

Because the crayon is still U.S. origin, an export license determination must be made for all future re-exports.

In this example, re-exporting from Canada to North Korea is not permitted without an export license regardless of how much time the import license has passed.

Here’s the next scenario, which I will call:  “But it’s a cheap crayon!”

It’s only a crayon!  The value is less than $1.  The United States doesn’t have time for this, so I’m good to go; right?

No.  The value of certain goods in the shipment is not an indicator of whether the export regulations apply.

Whether the given export transaction is for 1 crayon for $1, or a million crayons for a million dollars, it is a requirement to have an export compliance program in place that addresses all the “W’s” (what is the classification, where is it going, who is it going to and what is the end use).

Remember – all items are subject to export control laws and regulations.

Or this one:

But my competitor sends crayons to North Korea all the time, and they never have a problem!  So why can’t I?

Does your competitor also ignore traffic laws?  Do they cheat on their taxes and refuse to pay overtime?  Do they lie under oath?

Simply put, just because one company engages in a prohibited activity does not make it legal for your company to do the same.

Eventually, someone will get caught … and you don’t want it to be you!  (Also, if your competitor really is shipping crayons to North Korea and “getting away with it” … you might want to anonymously report them to the authorities.)

Okay, I could understand if I was exporting weapons.  But crayons?  They’re harmless.  The government really doesn’t care about this.  Every country has crayons!

As the exporter, it is not your responsibility to decide what the U.S. government does (or does not) care about.

Put another way, you do not have the authority (or the right) to make this decision.  The U.S. government has already determined what it wants to control, how to do so, and what steps must be done for compliance.

Your job is to simply follow those steps.  Just because a policy or decision doesn’t seem to make sense to you, does not give you the right to make your own decision about exporting.

Our last scenario comes to us courtesy of Your Sales Department:

If we don’t make this shipment, we’ll lose the business!  Are you willing to walk away from the multi-million-dollar crayon order we worked so hard to win?

Yes, we are willing to walk away from this order, if proceeding with it would violate U.S. export regulations.

Why?

Because the penalty for noncompliance is very high.

Fines can reach up to $1 million per violation.  On top of this, your company could be debarred from exporting, see bad publicity and individuals could even be pressed with criminal charges (including prison).

None of that is worth the risk, no matter how big the order might be.

Conclusion:  Exports are Easy (if you follow the steps)   

As you can see from our examples, there are some important questions to answer, and steps to follow, with every export transaction.

The first time going through this might seem daunting, but with some training and processes in place, it can really be integrated into your company’s daily operations and become second nature.

Need help?  Our team of experts can guide you through every step of this process, evaluate your transactions and give advice, and help make sure your company is exporting the right way.  Schedule a no-charge consultation with our team today.