Hynix Semiconductor Inc. A Basic Guide To U.S. Export...

Tuttle Law (c) 2008 1

A Basic Guide To U.S. Export Controls

ByGeorge R. Tuttle, III

George R Tuttle Law OfficesOne Embarcadero Center Suite 730

San Francisco, CA 94111Tel. (415) 986-8780

[email protected]


Overview Of U.S. Export Controls

The U.S. maintains controls on the export of goods and technology from The United States

The U.S. also maintains controls onthe re-export of U.S. origin goods from third countries and

foreign produced products that contain U.S. origin products in excess of certain specified values



Agencies Responsible For Export ControlsDepartment of Commerce, Bureau Industry & Security is the primary government agency responsible for U.S. export controls on civil and dual end use productswww.bis.doc.gov

http://www.bis.doc.gov/





Other U.S. government agencies that control the export of goods and technology include:

Department of Treasury, Office of Foreign Asset Controls (exports to specific countries, such as Iran, Iraq, Cuba, Burma, North Korea, Syria, Sudan)

Department of State, Directorate of Defense Trade Controls (Goods and technology that are designed or used for military applications)





Jurisdiction Issues

Who has control over the export?State or Commence

Dept. Of State (office of Defense Trade Controls) controls the export of goods and technology that are identified on the “munitions control list” and certain commercial “space related articles.”

Department of Commerce (BIS) controls the export of goods and technology that are identified on the Commerce Control List (CCL).


Jurisdiction IssuesITAR controls trumps BIS EAR regulations if article can be classified under both

22 CFR Sec. 120.4 Relation to Department of Commerce regulations.

If an article or service is placed on the United States Munitions List, its export is regulated exclusively by the Department of State.

Exports which are not subject to the controls of [22 CFR] are generally under the regulatory jurisdiction of the Department ofCommerce


Jurisdiction Issues: ITAR coverage

ITAR controls “defense articles”An article is a “defense article” (22 CFR 120.3) if it is:

Specifically designed, developed, configured, adapted or modified for a military application

Does not have a predominant civil application

Does not have performance equivalent (defined by form fit or function) to those articles used in civil applications

Intended end use (civil or military) after export is not relevant in determining whether item is subject to ITAR controls



Jurisdiction Issues: ITAR Coverage

Term “defense articles” includes (22 CFR 120.6) Technical data stored or recorded in an physical form, including:

Models

Mock-ups

Other items that reveal technical data directly relating to items on munitions list

Does not include basic marketing information on functions, purpose, or general systems descriptions


Jurisdiction Issues: The CJ Process

The commodity jurisdiction (“CJ”) procedure is used if doubt exists as to whether an article or service is covered by the U.S. Munitions List.

The determination involves consultation among the Departments of State, Defense, Commerce and other U.S. Government agencies and in appropriate cases, industry.

CJ Requests should identify the article or service, and includea history of the product's design, development and use. Brochures, specifications and any other documentation related to the article


Jurisdiction Issues: The CJ ProcessDetermination is made by Department of State whether

An article or service has a predominant civil application or

has the performance equivalent, defined by form, fit and function, to those used for civil applications

Takes into account: (i) The number, variety and predominance of civil applications;

(ii) The nature, function and capability of the civil applications; and

(iii) The nature, function and capability of the military applications.

Instructions for preparing CJ’s are provided at: http://www.pmddtc.state.gov/revised_cjguidelines.htm

http://www.pmddtc.state.gov/revised_cjguidelines.htm





Items Subject To The EARPart 734.3 EAR

All items located in the United States, unless subject to the exclusive control of another U.S. agency

All U.S. origin items where ever located

U.S. origin parts, components, and materials incorporated into foreign made end products exceeding de minimus quantities

U.S. Origin parts controlled to new country that exceeds 10% of value of end item when 3rd country is an embargoed destination

U.S. Origin parts controlled to new country that exceeds 25 % of value of end item when 3rd country is not embargoed by U.S.

Certain foreign made direct products of U.S. origin technology


Definition of Export & Reexport

Definition of export. 15 CFR 734.2(b)“Export” means an actual shipment or transmission of items subject to the EAR out of the United States, or Release of technology or software subject to the EAR to a foreign national in the United States

Definition of reexport“Reexport” means an actual shipment or transmission of items subject to the EAR from one foreign country to another foreign country; orRelease of technology or software subject to the EAR to a foreign national outside the United States,


What is Technology?

“Technology.” Specific information necessary for the “development”, “production”, or “use” of a product. The information takes the form of “technical data” or “technical assistance”.

Technical Assistance--May take forms such as instruction, skills training, working knowledge, consulting services.

“Technical data”.--May take forms such as blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, manuals and instructions written or recorded on other media or devices such as disk, tape, read-only memories.


Definition of “release” of technology or software (734.2 EAR)

Technology or software is “released” for export through:

Visual inspection by foreign nationals of U.S.-origin equipment and facilities;

Oral exchanges of information in the United States or abroad; or

The application to situations abroad of personal knowledge or technical experience acquired in the United States.

Such release is deemed to be an export to the home country or countries of the foreign national.


Export Administration Regulations Basics

Under The EAR, commodities and technology fall into two categories

License requiredNo license required (“NLR”)

What is an Export license?A specific written authorization from the US Government that authorizes the transfer of goods or technology to:

A recipient in another country or

A recipient in the same foreign country

To a Foreign National that is located in the U.S.


How Do I Know if I Need An Export License?

Some goods and technology require a license under some circumstances but may be exempt from that requirement by a license exemption if:

Shipment is of low value (exception LVS)

Shipment is of replacement articles (RPL)

Shipment is to certain designated countries or end-users (for example: GBS or CIV)

On the other hand, goods or technology that normally do not require an export license may, depending on:

the country of ultimate destination (example China or Syria), or

the end user or end use (Entity on the entities list or a “restricted party”)


When Is A License Needed?

Three step process:

Is the Good or technology listed on the Commerce Control List [Supplement 1, Part 774] ?

Based on the CCL classification, does the country of ultimate destination require a license [Supplement 1, Part 738]?

Is the end-user or end use restricted or prohibited ?


Commerce Control List(Part 738 and Part 774, Supplement No. 1)

Categories Of the CCL

0. Nuclear Materials, Facilities & Equipment and Miscellaneous

1. Materials, Chemicals, Microorganisms & Toxins

2. Materials Processing

3. Electronics, Design, Development and Production

4. Computers

e.g.: 3A001


Commerce Control List(Part 738 and Part 774, Supplement No. 1)

5. Telecommunications & Information Security

6. Sensors and Lasers

7. Navigation and Avionics

8. Marine

9. Propulsion Systems, Space Vehicles and Related Equipment

e.g.: 5A001


The Commerce Control List “CCL”

Each Category is separated into five sections:

Sec. A Systems, Equipment and components

Sec. B Test, Inspection and Production equipment for Systems, Equipment and components

Sec. C Materials

Sec. D Software for use, production or testing

Sec. E Technology related to the design, development or use of systems, equipment and components, or test, inspection and production equipment


ECCN Structure (Sec. 738.2)

3A001Category

Product Group

Reason for Control

SequentialNumbering


ECCN Structure Product Groups

5A101 5B101 5C101

5D101 5E101

Equipment, assemblies and components

Test, inspection and production equipment

Software Technology

Materials


How to Read an ECCN Entry(Section 738.2)

ECCN and General Item Description

LICENSE REQUIREMENTSReason for ControlControl(s) Country ChartLICENSE EXCEPTIONSLIST OF ITEMS CONTROLLED



ECCN and General Item Description

LICENSE REQUIREMENTSReason for ControlControl(s) Country ChartLICENSE EXCEPTIONSLIST OF ITEMS CONTROLLED



DETAILED LIST OF ITEMS CONTROLLED UNDER ECCN


Finding Your ECCNCheck the Commerce Control List (CCL) alphabetic or numeric index

Review general characteristics of item to arrive at Category and Product Group

Match characteristics of item with ECCN and subparagraph CCL CCL

emacfarlane

Rectangle

emacfarlane

Rectangle


Finding Your ECCN

Work with company technology engineer

Check with Manufacturer

When in doubt, submit formal SNAP-R classification request to BIS

emacfarlane

Rectangle


“EAR 99” Products

If the article or technology is not described under any CCL entry, it is still subject to EAR Jurisdiction but it is classified as “EAR 99”

EAR 99 products do not require an export license to most countries, unless:

The country subject to a trade embargo, or

The entity receiving the goods or technology is a restricted or prohibited party


EAR99 EXAMPLES

blank cd’sAutomobile

User’s Manual


Requesting Classification Opinions

Section 748.3you may ask BIS to provide you with the correct Export Control Classification Number (ECCN) to the paragraph (or subparagraph if appropriate)BXA will advise you whether or not your item is subject to the EAR and, if applicable, the appropriate ECCN Effective Oct 20, 2008, You must submit your Classification Request using BIS Electronic filing system “Simplified Network Application Process” (SNAP-R) system. 08/21/08 73 FR 49323Classification requests must be supported by any descriptive literature, brochures, precise technical specifications or papers that describe the items in sufficient technical detail to enable classification by BIS.


Classification Requests (Section 748.3)

BIS-748PPaper form (no longer valid as of October 20, 2008)SNAP-R

Product brochuresInclude detailed technical specifications

Identify specific items of concern

Maximum of SIX items per request


The Commerce Country Chart (Part 738, Supplement No. 1)

Once you know the ECCN and Subparagraph number you are halfway there!

ECCN and Subparagraph number give you the “Reason for Control”

Commerce Country ChartContains licensing requirements based on destination and “reason for control”

Used with the CCL to determine if you need a license


The Commerce Country Chart

Determine if the Goods or Technology to be exported require a license to the particular destination

The Commerce Country Chart lists each country (15 C.F.R. Sec. 738)

For each country there is a series of boxes

Each box corresponds to a “reason for control”, such as: national security, nuclear nonproliferation, missile technology and anti-terrorism

If there is a “X” in the box, then the goods and technology controlled for that reason (refer to the relevant ECCN) require a license to that country, unless a specific license exception applies

If there is no “X” in the box, the article will not require a validated license to that country


Reasons for Control

AT = Anti-Terrorism

CB = Chemical & Biological Weapons

CC = Crime Control

CW = Chemical Weapons Convention

EI = Encryption Item

FC = Firearms Control

MT = Missile Technology

NP = Nuclear Nonproliferation

NS = National Security

RS = Regional Stability

SI = Significant Item

SL = Surreptitious Listening

SS = Short Supply

UN = United Nations

Reasons for Control


Using the Commerce Control List with the Country Chart

Determine ECCNCheck reasons for controlMatch specific controls to country chart columnIs there an “X” in the box?


Using the Commerce Control List with the Country Chart

Exporting an IC to China



“Other” ECCN controls






Flow Chart/Decision Tree

Is your item classified under

an ECCN onthe CCL?

NoEAR99

Is there a License

Exception that might apply?

Yes

Does the CountryChart indicate that

a License is required?

No

Yes

Shipment is “NLR”


License ExceptionsPart 740

What are they?An authorization that allows you to export or reexport, under stated conditions, items that would otherwise require a license to that destination.

Each license exception bears a three letter symbol used for export clearance purposes.


License Exceptions

There are about 15 different License exceptions (See Part 740 EAR)Commonly used license exceptions include:

LVS Shipments of limited value

GBS Shipments to Countries in Group “B” (see List of countries on supplement 1 to Part 740 EAR (does not include China and EasternEuropean Countries)

CIV Shipments to Civil End Users located in countries in Group D:1, except N. Korea (includes China and Eastern European Countries)

CTP Authorizes shipments of computers to various countries w/out alicense depending on the performance level of the computer

GTDR Authorizes exports and reexport of technology to Countries in Group “B”


License ExceptionsPart 740

LVS Shipments of limited value

GBS Shipments to destinations in country Group B

CIV Shipments to Civil End Users

TSR Technology and Software restricted

APP Computers

TMP Temporary Imports, Exports and reexports

RPL Service and replacement parts

GOV Shipments to Foreign Governments and Int’l Originations

TSU Technology and Software unrestricted

ENC Encryption Commodities and software


License Exceptions

Each ECCN has a list of items available for License Exceptions



COUNTRY GROUPS(Part 740, Supplement No. 1)

A – Nuclear Regime members (Israel is not a Group A country)

B - Less restricted countries(China is not a Group B Country)

C - Reserved

D - Countries of concern

E – Embargoed/ Terrorist Countries(Cuba, Iran, N. Korea, Sudan, Syria)

emacfarlane

Rectangle


* Not a complete List


Country List D


EAR List: Embargoed Countries


Limited Value Shipments: LVS(Section 740.3)

Available for destinations in Country Group B only

Identified by “LVS: $(value)” on the CCL

e.g.: LVS: $5000

Orders may not be split to qualify

Orders must be legitimate

Limit on use per year

Reporting requirement for specified items


Group B Shipments: GBS(Section 740.4)

Available for destinations in Country Group Bonly

Identified by “GBS: Yes” on the CCL

Commodities where country chart indicates a license requirement to the ultimate destination for NS reasons only

Reporting requirement for specified items


Civil End-Users: CIV(Section 740.5)

Available for Country Group D:1 only, except North Korea

Identified by “CIV: Yes” on the CCL

Commodities where country chart indicates a license requirement to ultimate destination for NS reasons only

Civil end-users/uses only

Sec 743.1 Reporting requirement for specified items



Restricted Technology and Software: TSR(Section 740.6)

Available for Country Group B only

Identified by “TSR: Yes” on the CCL

Technology and software where country chart indicates a license requirement to the ultimate destination for NS reasons only

Written assurance (review section 740.6(a)(1-3))

Sec 743.1 Reporting requirements for specified technology and software


Computers: APP(Section 740.7)

Eligible ECCNs: 4A003, 4D001 and4E001

4A003 commodities

Tier 1 destinations. All computers, including electronic assemblies and specially designed components therefor, subject to the access restrictions in 740.7(b).

List of Tier 1 destinations in 740.7(c)(1)

Tier 3 destinations. None.Afghanistan, Albania, Algeria, Andorra, Angola, Armenia, Azerbaijan, Bahrain, Belarus, Bosnia & Herzegovina, Cambodia, China (People's Republic of), Comoros, Croatia, Djibouti, Egypt, Georgia, India, Iraq, Israel,Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Lebanon, Libya, Macau, Macedonia (The Former Yugoslav Republic of), Mauritania, Moldova, Mongolia, Montenegro, Morocco, Oman, Pakistan, Qatar, Russia, Saudi Arabia, Serbia, Tajikistan, Tunisia, Turkmenistan, Ukraine, United Arab Emirates, Uzbekistan, Vanuatu, Vietnam, and Yemen.

Sec 743.1 Reporting requirements apply for exports


Temporary Imports, Exports and Reexports: TMP

(Section 740.9)

Temporary Exports and Reexports tools of tradekits with replacement partsexhibition and demoinspection and calibrationassembly in Mexicoto U.S. subsidiary, affiliate or facility in Country Group B

Must be Returned to US within 1 yearEligible countries– all other than E:2 and Sudan


Servicing & Replacement of Parts & Equipment: RPLSection 740.10)

One-for-one Replacement of PartsReturn of Commodities and Software

Sent to US or foreign party for servicing

Replacements for defective or unacceptable US-origin items

Special requirements to Country Group B and D:1 destinations

Items being replaced must be destroyed or returned

Replacement product may not improve on original

Replacements to D:1 destinations (other than PRC) must be done within warranty period or 12 months from date of original shipment.


Encryption Commodities and Software: ENC (Section 740.17)

Applies to encryption commodities and software described in 5A002 and 5D002 --

One-time technical review of products required prior to export

Must answer questions on Supp. 5 and 6 to part 742 (Encryption check lists)

Post-export reporting usually required

Country Group E:1 not eligible (Cuba, Iran, N. Korea, Sudan, Syria)

Some encryption commodities and software may receive “mass market”treatment and be classified 5A992 or 5D992


Encryption Commodities and Software: ENC (Section 740.17)

U.S. SubsidiariesAny encryption item, including technologyExport immediately without review

Countries listed in Supplement No. 3 to Part 740Any encryption item (except cryptanalytic products to governmentend-users)Export immediately upon registration of complete review request

Countries not listed on Supplement No. 3 to Part 740Wait 30 days after registration of complete review request

Commodities and software to non-government end-users (740.17(b)(2) - restricted) (network infrastructure products)

Commodities, software and components to government and non-government end-users (740.17(b)(3) - unrestricted)


“NLR” Shipments

“NLR” = used when no license is required

items subject to EAR but not on CCL (“EAR 99”)

item is on CCL but does not require a license to destination on country chart and country is not subject to an embargo

The recipient is not subject to a denial order or the entities list (Suppl. 4 to part 744)(i.e., Bharat Electronics, India).


EAR General Prohibitions

EAR list Of 10 General Prohibitions

One. Export or re-export of controlled items to a country listed on the Country Chart.

Two. Reexport or export from abroad a foreign made item incorporating more than a de minimis amount of controlled U.S. content.

Three. Reexport or export from abroad a foreign produced “direct product” of U.S. technology or software (NS controlled) to Cuba or a D:1 country


EAR General Prohibitions

Four – Engaged in any action prohibited by a denial order (including exporting a denied party or providing or facilitating an export by a denied party)

Five -- Export or reexport to prohibited end-uses or end-usersYou may not, without a license, knowingly export or reexport to an end-user or end-use that is prohibited by part 744 of the EAR.

Sections 744.2, 744.3, 744.4 and 744.5 prohibit exports and reexports of items subject to the EAR to defined nuclear, missile, chemical and biological activities or end-uses

The “entities” list– Supp 4 to 744List of specially designated terroristsEntities and individuals subject to General Orders


More Prohibitions of Part 744 EAR

Six – Prohibits exports or reexports to an embargoed destinations

Seven – Provide support for Proliferation Activities (financing, contracting, services, support, transportation, freight forwarding etc.,)

Eight - - Prohibits in-transit shipments through Albania, Armenia, Azerbaijan,Belarus, Cambodia, Cuba, Georgia, Kazakhstan,Kyrgyzstan, Laos, Mongolia, North Korea, Russia,Tajikistan, Turkmenistan, Ukraine, Uzbekistan, or Vietnam.

Nine– Activity contrary to any order, terms, or license conditionsIncludes “General Orders 2 and 3”


General Orders 2 and 3 [Supp. 1 to 736]

General Order No. 2 Prohibits exports to Syria of all items on the CCL and all products of the United States other than food and medicine, including Syrian nationals in the U.S. or abroad.

General Order No. 3Requires license for all exports of items subject to EAR to Mayrow Trading and 25 other named parties in Dubai, UAE, Germany, Iran, Syria, Hong Kong, Malaysia [These parties on not named on any other list.]


EAR General Prohibition Ten

(10) General Prohibition Ten — Proceeding with transactions with knowledge that a violation has occurred or is about to occur (Knowledge Violation to Occur).

You may not sell, transfer, export, reexport, finance . . . transfer, transport, forward, or otherwise service --

any item subject to the EAR and exported or to be exported

with knowledge that a violation of the EAR or any order, license, License Exception, or other authorization issued there under has

occurred,

is about to occur, or

is intended to occur


Doing Your Part-- BIS Red Flags

BIS Red Flag list [Suppl 3 to 732]

Taking reasonable steps to inform yourself about your customer and the transaction can avoid or reduce liability if an unintended violation occurs

Commerce list of red flags are not all- inclusive but are intended to illustrate the types of circumstances that should cause reasonable suspicion that a transaction will violate the EAR

Presence of Red flags can lead OEE to conclude that a “reason to know” was present but ignored.



Possible indicators that an unlawful use or diversion may occurThe customer or purchaser is reluctant to offer information about the intended end-use of a product.

Product's capabilities do not fit the buyer's line of businessProduct ordered is incompatible with the technical level of the country to which the product is being shipped.Customer has little or or apparently no business backgroundCustomer is willing to pay cash for a very expensive item when the terms of the sale call for financing.



The customer is unfamiliar with the product's performance characteristics but still wants the product. Routine installation, training or maintenance services are declined. Delivery dates are vague, or deliveries are planned for out-of-the-way destinations. A freight forwarding firm is listed as the product's final destination. The shipping route is abnormal for the product and destination. Packaging is inconsistent with the stated method of shipment or destination.When questioned, the buyer is evasive or unclear about whether the purchased product is for domestic use, export or reexport.


Doing Your Part-- BIS Red FlagsIf there are "red flags", inquire.

If there are no "red flags" you should be able to proceed with atransaction in reliance on information you have received.

absent "red flags" there is no affirmative duty upon exporters to inquire, verify, or otherwise "go behind" the customer's representations.

When "red flags" are raised you have a duty to check out the suspicious circumstances and inquire about the end-use, end- user, or ultimate country of destination.



Do not self-blind.

Knowledge possessed by any one employee can be imputed to a firm so as to make it liable for a violation.

Do not restrict the flow of information that comes to your firm in the normal course of business.

Do not instruct the sales force to tell potential customers to refrain from discussing the actual end-use, end- user, or ultimate country of destination for the product.



If there are any red flags, seek further clarification

Reevaluate the information after the inquiry.

can the "red flags" be reasonable explained or justified. If they can, you may proceed with the transaction.

If the "red flags" can not be resolved elevate the matter to senior management for further action or resolution

Terminate the transaction or seek advice and guidance from BIS


Special Restrictions And Controls

Countries Subject to Embargos and Special restrictions:All items (including EAR 99) on the CCL require a license to Cuba, Iran, Burma, North Korea, Syria, Sudan

Transactions involving Persons Subject to a Denial of Export Privileges (See Supplement 2 to Part 764, EAR)

Restrictions on Special Entities (See Part 744)There are special restrictions on certain government and private entities in Russia, India, and Pakistan There are special restrictions on specially designated terroristsThere are special restrictions on exports of goods where the exporter knowsor has reason to know the items will be used for a prohibited nuclear end use, missile end uses, or chemical or Biological weapons end uses.






emacfarlane

Rectangle






Export Documentation Requirements

Records of export transactions and related documentation are required by US government to ensure there is a means to verify compliance with requirements and restrictions

It is just as important for exporters to maintain these records as proof of compliance with government requirements and restrictions

emacfarlane

Rectangle


Export Documentation & Licensing

The failure to file the proper export documentation, or to have the proper export license or license exemption can result in the assessment of:

Monetary FinesLoss of export privileges

emacfarlane

Rectangle


Destination Control StatementsDestination Control Statements

A Destination Control Statement must be on all bills of lading, air waybill and commercial invoice:

Applies to exports under validated licenses and license exceptions LST, RPL, TMP and EAR99

Text:These commodities, technology or software were exported

from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. Law

Prohibited


What Records Must to be Retained?

BIS EAR Section 762.2The records required to be retained include the following:

(1) Export control documents, as defined in EAR 772 (2) Memo(3) Notes(4) Correspondence(5) Contracts(6) Invitations to bid(7) Books of account (8) Financial records(9) Restrictive trade practice or boycott documents

emacfarlane

Rectangle

emacfarlane

Rectangle


EAR Record-Keeping

‘Export control documents’ defined in part 772 of the EAR include:AES/SED record of transaction

loading document (e.g., cargo declaration, manifest, bill of lading, (master) air waybill)

Export license

License application and all documents submitted in accordance with the requirements of the EAR in support of, or in relation to, a license application

Application for International Import Certificate

Delivery Verification Certificate


What Records Must to be Retained?Other “export related documents”

Commercial or export invoicePacking list and other commercial documents associated with the shipmentCustomer purchase order/ contract/ Invitations to bidCorrespondence from and to customer and or purchaser; Company e-mails, memoranda and notes relating to transaction, including

Records of screening or red flag indicators, Analysis of ECCN classification or license exception eligibility

Books of account and financial records, including payment recordsDescriptive literature regarding product


Export Documentation

Other common documentsCCAT decisions and classification application forms with attachmentsCorrespondence and e-mails with BISSpecial reports regarding shipments (e.g., License exception ENCsemiannual reports)

Records For Routed Export TransactionsWriting by Customer accepting responsibility for transactionEvidence of ex-works transactionUSPPI Information provided to ForwarderSED or AES record not required for Routed Export


EAR Recordkeeping Period

EAR requires that all required records be retained for five years from:

The export of the item involved in the transaction to which the records pertain

Any known reexport, transshipment, or diversion of such item;

Termination of the transaction, whether formally in writing or by any other means

Date post:	27-May-2018
Category:	Documents
Upload:	dinhkiet
View:	234 times
Download:	1 times

Hynix Semiconductor Inc. A Basic Guide To U.S. Export...

Documents