More and more New England businesses are exporting to increase revenues, expand customer bases, and keep pace with today's global economy. However, not unlike much of contemporary American business activity, exporting is subject to a comprehensive and somewhat complex set of federal regulations — in fact, several of them. Managing the balance between trade and homeland security has never been more difficult. At the same time, American businesses, including many in New England, continue to rely on highly-skilled foreign nationals that may present additional regulatory huddles that must be managed. And, in the end, the ultimate responsibility for compliance — where the potential sanctions for failing to pay attention and follow the rules can be severe fines and even the loss of export privileges — rests with the exporter.
Given the potential sanctions and increasing government vigilance and enforcement, advance planning and staff training is a must if your business intends to export. Sometimes the challenge is simply recognizing when an export has occurred. On the one hand, everyone can easily recognize an "export" in its simplest terms — the actual shipment or transmission of an item out of the United States. But did you know that sharing technology subject to export controls with foreign nationals, such as employees, potential customers, consultants, student interns or members of research teams, might also be deemed an export?
Avoiding problems requires awareness and understanding of applicable federal regulations. The two main regulatory schemes are the US Department of State's International Traffic in Arms Regulations (ITAR) and the US Department of Commerce's Export Administration Regulations (EAR). Broadly speaking, ITAR governs military items on the United States Munitions List and any other exported item specifically designed or modified for military use as well as related technical data. It also covers export of "defense services" such as assistance with manufacture, design, engineering, testing, repair and maintenance of such items. EAR governs other controlled exports, including so-called "dual use" items that are designed for civilian use but have military applications. Determining which set of regulations applies to what items is often difficult. Under both ITAR and EAR it is the exporter's responsibility to identify whether a proposed export requires a license, or is eligible for a license exception, depending on the item's EAR classification or ITAR listing, the export's destination and, sometimes, the end user.
While the details vary, both EAR and ITAR incorporate the "deemed export" concept into their definitions of "export". Under EAR an export occurs when controlled "technology" or source code subject to EAR is "released" to a "foreign national" even if the transfer occurs inside the United States (encryption items are subject to special rules and are treated differently). Similarly, in ITAR terms an export occurs with a "disclosure" or "transfer" of "technical data" to a "foreign person" whether that foreign person is located in the United States or not. The potentially far-reaching nature of these requirements becomes apparent upon review of several key terms.
"Technology" under EAR includes the specific information necessary for the development, production or use of a controlled item. This information may be in the form of "technical data" or "technical assistance". "Technical data" may include blueprints, forms, diagrams, models, formulae, tables, engineering designs and specifications, manuals and written or recorded instructions. "Technical assistance" can include instruction, skills training, working knowledge and consulting services. The ITAR definition of "technical data" is equally broad. A "release of technology" or "disclosing technical data" can occur through visual inspection of technical data or even visual inspection of US-origin equipment or facilities or through oral exchanges of information. Accordingly, "technology" may be "released" or "technical data" disclosed or transferred via email, Internet access, fax, telephone, IT system access to online technical data, lectures, training or a simple site visit.
A "foreign national" or "foreign person" is a person other than a US citizen, a US permanent resident, i.e., a "green card" holder, or a "protected individual" under 8 USC 1324b(a)(3) (e.g., certain political refugees and political asylum holders). In other words, the "foreign national" or "foreign person" could be the person with the H-1B visa working on your engineering or IT team, an attendee at a company training class, the graduate student interning from the local university, the professor participating in a collaborative proprietary research project, or a potential customer on a site visit seeking technical or engineering specifications. In each instance, if the technology released to the foreign national or foreign person relates to a controlled item, then either an applicable exception must be identified (and all exception requirements met) or an applicable EAR license obtained prior to the release of the technology or technical data. For the "deemed export" rule under the EAR, the export destination would be determined based on the foreign national's country of most recent permanent residence (or citizenship obtained). Thus, a release of technology to a Chinese national visiting the US whose most recent lawful permanent residence is the United Kingdom would constitute an export to the United Kingdom and licensing requirements would be determined accordingly. In contrast, ITAR would consider the export destination to be both the "foreign person's" country of citizenship and country of permanent residence. In this example, the licensing requirements for an ITAR export to China would govern since ITAR licensing requirements for China are more restrictive those established for the United Kingdom.
While somewhat bewildering at first, the "deemed export" rule need not be a bar to employing foreign nationals or collaborating with other businesses and universities where foreign nationals may be participating in the collaboration. In many cases under EAR exceptions to licensing will apply; ITAR exceptions, however, are very limited. Avoiding violations of federal law for unlicensed exports under EAR and ITAR "deemed export" rules will require, at a minimum, a clear and comprehensive understanding of the items and related technology available for export, including their classification of under EAR, and, if applicable, ITAR. Also required will be knowledge of the countries for which export licensing is mandatory as well as knowledge of which foreign national employees or consultants have access to what technology and technical data for its controlled exports. Strongly recommended are formal internal review procedures and policies to ensure that controlled technology and software is not released to foreign nationals employed by the company or otherwise working on company projects prior to obtaining any required export license. Yet, these policies and procedures need to be developed and implemented in a manner to assure adherence to federal laws that prohibit discrimination based on national origin. With proper preparation, management and supervision exporting can be part of every company's plan for a successful future.
This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice. Your receipt of Good Company or any of its individual articles does not create an attorney-client relationship between you and Sheehan Phinney Bass + Green or the Sheehan Phinney Capitol Group. The opinions expressed in Good Company are those of the authors of the specific articles.
|
