International Legal Affairs: Volume 1, Number 4


Historically, U.S. export control policy has served to restrict products and technology to potential enemies, to support foreign policy goals, and by limiting exports to countries that support international terrorism.  Through the use of export licenses, technology can be denied to disfavored nations, while rewarding allies with preferential treatment.  While these goals are necessarily a part of national security, the impact of the export restrictions upon industry can sometimes conflict.

U.S. export controls fall into two main categories.  The first category governs the export of arms and related technologies via the International Trade in Arms Regulations (ITAR).  The export of arms and defense services is overseen by the U.S. Department of State.  The second category involves restrictions on dual-use products and technical data.  This category is governed by the Export Administration Act of 1979, which expired in 1994.  The legislation was briefly extended in 2000, and has been kept in force via extraordinary authority of the International Emergency Economic Powers Act allowing the President to extend the legislation through administrative action.

Dual use products are regulated through the Export Administration Regulations (EAR), and overseen by the Department of Commerce.  The Bureau of Industry and Security, (BIS) a bureau within the Department of Commerce, promulgates changes to the EAR, maintains the Commodity Control List, (CCL), and processes export license applications.  The CCL includes approximately 2,400 dual-use items that may require an export license, based upon the dual nature of the listed items.

The CCL is divided into 10 categories, and numbered as follows:

0. Nuclear Materials, Facilities and Equipment and Miscellaneous
1. Materials, Chemicals, “Microorganisms,” and Toxins
2. Materials Processing
3. Electronics
4. Computers
5. Telecommunications and Information Security
6. Lasers and Sensors
7. Navigation and Avionics
8. Marine
9. Propulsion Systems, Space Vehicles and Related Equipment

Within each numbered category, items are arranged by group.  Each numbered category contains five groups identified by the letters A through E, as follows:

A. Equipment, Assemblies and Components
B. Test, Inspection and Production Equipment
C. Materials
D. Software
E. Technology

Controls on dual-use products exports are particularly contentious because the security threat is typically less obvious and the commercial interests more broadly based.  A firearm is a firearm, but what about steel castings suitable for use as a firearm receiver?  What about butterfly valves that may be used for a fire alarm system or a nuclear plant cooling system?  By definition, dual use items are those items that have both commercial and military or proliferation applications.

Traditionally, there was relatively little to separate military technology from civilian technology – a tunic was a tunic, regardless of whether it was used by a farmer or a Roman soldier.  Following World War II, products made by the military industrial complex were easy to identify.  With the advent of the military requirement for commercial off the shelf solutions, an increasing number of consumer products may fall into the dual use category.  By the very definition, “dual use” requires that BIS be able to distinguish products and technologies according to distinct consumer and military applications.  With the added militarization of law enforcement, the distinction may become even more blurred, introducing additional confusion into the matter.

Why is this important to the small arms community?  Often, an export transaction will include items other than firearms.  A contract to outfit a foreign police agency may require that supporting equipment, such as helmets, shields, or batons accompany the firearms being sold.  Unsurprisingly, all three examples – helmets intended for police use, shields, and batons are all listed on the CCL as dual-use items and require export approval from BIS.  As a result, Category “0” should be reviewed and consulted regularly by all U.S. based exporters, due to the miscellaneous nature of Category 0.

While the constraints on the export of dual use items may seem superfluous and unnecessary, be advised that BIS takes the export license requirement seriously.  Remember the butterfly valves mentioned earlier?   Houston-based FMC Technologies recently agreed to pay $610,000 to settle charges that it had exported butterfly valves on 78 occasions without required export licenses.  The value of the exported values totaled $304,141, making the fine more than double the value of the goods exported.  As a good business practice, exporters must ensure that anything sent abroad is properly documented and licensed.

On August 14, 2009, President Obama announced that he would be extending the authority for Department of Commerce-administered export controls.  In addition, the President ordered a review of the export control system, including dual-use and defense trade processes.  According to the White House press release, the aim of the review is to “consider reforms to the system to enhance the national security, foreign policy, and economic security interests of the United States.”

Congressman Howard L. Berman (D-CA), chairman of the House Foreign Affairs Committee, has reportedly requested a congressional review of U.S. export controls on dual-use items, and reports that he will introduce a new Export Administration Act in the Spring of 2010.  With any luck, perhaps the U.S. export landscape will be refined to better classify goods that do not appear to be dangerous or otherwise restricted.

The European Union also recently issued regulations creating an EU-wide framework for export controls on dual-use items, including controls on brokering.  The regulation adopts the international controls required by the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies.  For the uninitiated, the Wassenaar Arrangement is an international group currently made up of forty countries that includes the Russian Federation, but does not include China, India, or Pakistan.  As major manufacturers of military and consumer goods, all three of these manufacturing giants should be included within any political attempt to restrict dual use items.  Nevertheless, the Wassenaar group seeks transparency in export transactions, rather than attempting to act as a control mechanism in preventing goods from flowing to specific countries.  An additional weakness of the Wassenaar Arrangement is that the group does not target any specific named country or group, although all forty members currently ban arms exports to Iran, Libya, Iraq, and North Korea.

Under the new E.U. regulation, export licenses will be required for exports of dual use items out of the European Union, and for certain intra-EU community exports.  Authorities in each nation will be in charge of granting export licenses, which may include “individual” transaction-specific licenses, global licenses, and general licenses.  Under the terms of the regulation, Global licenses are issued to a specific exporter, authorizing the export of one category of items to multiple end-users and/or countries.  General licenses are best defined as license exemptions for specific products being sent to specific destinations and/or end-users.  The E.U. regulation also includes a “Community General Export Authorization” granting blanket authority to export listed items to Australia, Canada, Japan, New Zealand, Norway, Switzerland, and the U.S.

Of particular interest are the brokering provisions within the E.U. regulation.  The regulation provides more expansive control over dual use items than that imposed by the United States.  As one may recall, the U.S. State Department requires all parties that take financial benefit from an export transaction involving defense articles or defense services be registered as a “broker.”  Under the E.U. regulation, the definition for “brokering” is more expansive than the definition of brokering in the U.S.-based International Traffic in Arms Regulations.

The E.U. regulation defines brokering is a purchase and sale, or involvement in the negotiation for purchase and sale of dual use items from one third country to another.  The regulation does not exclude, (as does the U.S. definition) activities performed by employees or other parties not acting as agents.  Under the E.U. regulation, the brokering activity need not result in financial compensation.  Individuals involved in negotiation of transactions involving U.S. or E.U. manufactured goods are advised to seek a determination of whether the activity requires registration and licensing as a broker.

Modern international trade allows products to move around the world at increased speed, makes the world seem smaller, and opens foreign markets to the sale of domestic made goods.  At the same time, the exporter is necessarily forced to deal with a global patchwork of laws and regulations that may conflict between countries and jurisdictions.  As with all transactions, parties involved in foreign trade are advised to seek competent guidance on the laws and regulations that may govern the transaction.