EAR99, CCL, CCC, ECCN: Tips and checklists for export controls under US EAR
US law compliance

EAR99, CCL, CCC, ECCN: Tips and checklists for export controls under US EAR

AEB presents a user’s guide to the alphabet soup of EAR99, CCL, CCC, and ECCN – because violations of US export control law can have severe consequences.

When companies are subject to US re-export control law under the EAR (Export Administration Regulations)

The United States claim extraterritorial jurisdiction for its export control law under the EAR – currently the only country in the world to do so. This means that non-US companies are also affected by the provisions of US re-export control law under the EAR – provided there is a link to US law.

Before comprehensive checks against the EAR can begin, the all-important question is: Which business operations, if any, have any link to the EAR? The EAR define two potentially relevant factors:

  1. Item-based applicability of all US items worldwide (§ 734.3&4)
  2. Person-based applicability of US persons (§ 734.5)

EAR: US item subject to the EAR or not?

Under § 743.3&4EAR, all US-origin items are subject to US EAR. “Subject to the EAR” is a term used in the EAR to describe those items and activities over which BIS (Bureau of Industry and Security) exercises regulatory jurisdiction under the EAR. The first step companies must take is to check whether their merchandise includes items subject to the EAR. The products subject to EAR as US items are defined in § 734.3§4 EAR:

  • Under § 734.3(a)1 EAR, US items encompass all items in the United States, including in a US Foreign Trade Zone or moving in transit through the US from one foreign country to another.

Example:

Products manufactured in Germany are shipped through the Port of Miami to Central or South America. In Miami, the products are merely repackaged. The German products are then subject to EAR as US items at the time they are shipped from Miami. Once they leave the US, however, the “US item” attribute goes away again.

  • Under § 734.3(a)(2) EAR, all US-origin items are also considered US products and are always subject to EAR – regardless of where in the world they happen to be. The EAR do not offer any legal definition of the term “US origin,” but based on how the term is used by the Bureau of Industry and Security (BIS) under the de minimis rule, US-origin items encompass everything manufactured, processed, assembled, or enhanced in the United States.

Example:

EAR99 pumps purchased from the United States are shipped from Germany to South Africa and from there to Sudan. Both the shipment from Germany to South Africa and the shipment from South Africa to Sudan are subject to EAR as re-exports.

  • Under § 734.4 EAR, Supplement No. 2 to Part 734, foreign-made items that incorporate controlled US-origin items. The de minimis rule can mean that products manufactured in Germany are subject to EAR as US items.

Before companies begin their de minimis calculations, they should first check whether their US products are exempt from the de minimis calculation. A list of the numerous exceptions can be found in § 734.4(a)(1)–(5). Special terms apply to ECCN 9x515 and the 600 series.

For US items not affected by the above exclusions, the de minimis calculation is required only for “controlled” US origin items. Companies must identify which, if any, of those US-origin items would require a license from BIS if they were to be exported or re-exported (in the form in which you received them) to the foreign-made product’s country of destination. A product manufactured in Germany becomes a US item subject to the EAR only if it incorporates controlled US-origin items above the de minimis threshold – defined as 25% for all countries except Iran, Syria, Cuba, and North Korea, where it is 10%.

Example:

A company purchases non-listed, EAR99-classified standardized pumps from the US. The pumps are installed in machines manufactured in Germany that are to be shipped to customers in South Africa. If the pumps are shipped on their own to a company in South Africa, there is no license required. The pumps are not controlled items when the country of destination is South Africa. So they do not need to be included in the de minimis calculation. This means the machines are non-US products and not subject to the EAR.

  • Under § 734.3(a)(4) EAR certain foreign-made direct products of US-origin technology or software, as described in §736.2(b)(3) are subject to the EAR.

EAR: Are US persons involved?

In addition to those EAR provisions that define applicability by item, there are other provisions that define it by person – specifically, US persons. The second step that companies should take, therefore, is to examine whether any of their transactions or business operations involve a US person. The term “US person” is defined in § 772.1 EAR as

  • any US citizen;
  • any permanent resident (especially Green Card holder), irrespective of where that person currently is;
  • any person of any nationality who resides in the US;
  • any person in the US;
  • any juridical person organized under the laws of the US, including foreign branches in the US.

An important thing to remember here: There is no definition of “US person” that is valid for all US legislation. The definition can vary depending on which US law is applicable. Business transactions with embargoed countries, for example, are governed by the Office of Foreign Assets Control (OFAC), which defines US persons differently than EAR. In each instance, it’s important to check how the applicable law defines US persons. The definition of US persons in the context of business with Iran or Cuba, for example, is defined in 31 CFR 560.215.

I’m affected – now what?

Does a company’s merchandise include US items? Or is trade with a US person involved? If so, its foreign transactions must be screened not only against domestic and EU export control law but also against US re-export control law. Supplement No. 1 to § 732 EAR includes a decision tree (PDF page 14) outlining the series of checks to be carried out under US re-export control law.

EAR compliance check process

The EAR apply to both exports from the US and re-exports worldwide. Under § 734.14 EAR, re-exports are defined as shipments of US items from one non-US country to another. From the US perspective, a shipment from Germany to France is just as much a re-export as a shipment from China to Argentina, so both transactions are subject to US re-export control law. Shipments to the US, on the other hand, are regarded by US authorities as imports, not re-exports – so they’re subject to US import law, not re-export control law.

Companies can cover the key points of a US re-export control check by asking themselves four questions:

  1. What am I shipping?
  2. Where am I shipping to?
  3. Who am I shipping to?
  4. And what will the goods be used for?

OSRAM

Case study: Obvious security

Sanctions list screening, export controls, export licenses: Comprehensive coverage with AEB's Trade Compliance Management solutions in five SAP systems in more than 50 companies of the OSRAM group.

CCL and ECCN: Product lists as traditional tools for checks

The foundation for any export control check is the classification of goods based on the technical descriptions of the product lists used for export controls. Product lists are the traditional tool of export controls in both the EU and the US.

The goods covered by US re-export control law are described in the US Commerce Control List (CCL) with reference to their technical attributes in the Export Control Classification Numbers (ECCN). Like Annex I of the EC Dual-Use Regulation 428/2009, the CCL also includes mostly strategically relevant goods relating back to resolutions of the export control regimes.

The CCL in the US and Annex I of the Dual-Use Regulation in the EU are therefore identical as they relate to the regime goods.

ECCN or EAR99?

Checking the product lists is the first step in establish licensing requirements – and thus the foundation of a reliable corporate export control organization. Does the material master include commodities, software, or technologies with technical attributes matching the ECCN descriptions in the CCL? Every exporter should check for this.

All US items that cannot be assigned to any ECCN based on their technical specifications are classified as EAR99. These EAR99 items are, therefore, unlisted bulk goods. EAR99 items may require a license based on their destination, the end-user screening, or their designated use. The classified US products must now be checked for these three factors.

Destination is critical

Unlike Art. 3 of the EC Dual-Use Regulation, the EAR do not specify a blanket license requirement for the re-export of all listed dual-use goods. What matters under the EAR is the destination of the listed US item. That’s why the CCL is supplemented with a list of countries – the Commerce Country Chart (CCC Supplement No. 1 to Part 738 EAR).

But how to determine whether a specific re-export requires a license under the EAR? Refer to the Reasons for Control defined in the ECCN to check whether the box for the re-export destination country is marked in the Commerce Country Chart. Only when this is the case does the re-export require a license. Companies also need to check whether the specific export transaction qualifies for a license exception under § 740 EAR. Only then can they submit an application for a re-export license from BIS.

If the destination country is Iran, North Korea, Syria, or Cuba, the CCC includes a general reference to the embargo regulations of § 746 EAR. In addition to § 746 EAR, business with embargoed countries is also subject to regulation by OFAC.

Observing country embargoes at all times

Many jurisdictions around the world issue and frequently amend various embargo measures. AEB's Export Controls software runs automated embargo checks for your export transactions to help you prevent violations of worldwide embargoes.

Compliance with embargoes against individuals

The EAR also define restrictions based on the end-user. The presence of the recipient of US items on a US sanctions list may, depending on the list, trigger bans or licensing requirements. By way of comparison: A “match” on Europe’s CFSP list always leads to a comprehensive ban. The BIS manages four lists that are enforced worldwide for US items:

  • Denied Persons List (DPL): The BIS has issued a denial order against the listed persons. The legal consequence of a DPL match is a comprehensive ban on trade with US items.
  • Entity List (EL): US authorities have determined a risk that listed persons are involved in the spread of weapons of mass destruction and missile technology. A match with the Entity List leads to a license requirement for trade with the US items named in the list entry.
  • Unverified List (UL): The US authorities were unable to conduct adequate pre- or post-shipment controls for the persons on the Unverified List. From a US perspective, it is uncertain whether these persons are qualified to receive US items. The UL serves to warn companies to exercise heightened caution when doing business with the listed persons.
  • Military End-Use-List (MEU): The MEUL lists entities from Burma, China, Russia, and Venezuela that are classified by the U.S. Government as military end users as defined in § 744.21(g) of the EAR. A license is required to export, re-export, or transfer (in-country) any item subject to the EAR listed in supplement no. 2 to part 744 with respect to the criteria set forth in Supp. No. 2 to Part 744 EAR.

In addition to these BIS lists, two OFAC lists are also applicable in some instances to non-US persons:

  • Specially Designated Nationals List (SDN): consolidated list of various US sanctions programs. The legal consequence of an SDN List match depends on the affected sanctions program.
  • OFAC Non-SDN List: consolidated list of all OFAC sanctions programs not included in the SDN list. This list is generally relevant only for US persons. The legal consequences in the event of a match are defined in the respective list.

Automatically updated sanctions lists

AEB's Compliance Screening software runs automated business partner screening in the background of your transactions. Optional integration into your ERP/CRM systems such as SAP®, Salesforce, Microsoft Dynamics 365, and more. And with extended content from Dow Jones. 

EAR define many critical designated uses

Compared to EU export control laws, which currently contain four catch-all clauses, § 744 EAR encompasses significantly more controlled designated uses. Companies trading in US items are advised to look at the list of various critical designated uses and comply with all legal requirements.

Checking critical end-use comprehensively

Are your goods destined for military end-uses? Or are they to be used for human rights violations? AEB's Export Controls software checks critical end-use and automatically stops your trade transactions when prohibited actions are identified. 

Accurate master data required

Export controls, whether under EU or US laws, essentially require master data maintenance and comprehensive documentation. The master data must show which products were US items subject to the EAR and how these products are to be classified under the US dual-use list. Only then is an export control check possible.

In addition to the extensive checks required for US re-export control law, it’s important not to overlook EU export controls. Because in the end, all products of all European companies are subject to all the rules and regulations in this jurisdiction. To avoid export control violations, companies are advised to set up an Internal Compliance Program (ICP) for both jurisdictions within their company and make its implementation routine practice.