The Regulation of Exports

Chapter 13

The Magnitude of TradeTrade in Goods (Imports, Exports and Trade

Balance) with Advance Technology Products from the Census Bureau at http://www.census.gov/foreign-trade/balance/c0007.html#2009

Note the trend from positive trade in ATP to negative in 2001.

What are the implications of the U.S. goingnegative even in advance technology products?

Most Exports are NOT RegulatedThe Census Bureau and the AES (the Automated Export System): See http://www.census.gov/foreign-trade/ & www.aesdirect.gov

Free Videos are available at http://www.census.gov/foreign-trade/aes/exporttraining/videos/

New Rule Issued:The U.S. Census Bureau (Census Bureau) issues this final rule amending the Foreign Trade Regulations (FTR) to eliminate the requirement to report a Social Security Number (SSN) as an identification number when registering to file and filing electronic export information in the Automated Export System (AES) or AESDirect.

Terms to KnowElectronic Export Information (EEI) ■The electronic export data as filed in the AES. This is the electronic equivalent of the export data formerly collected as Shipper’s Export Declaration (SED) information and now mandated to be filed through the AES or AESDirect.Letter of Intent■The Letter of Intent (LOI) is a written application to participate in AES. It provides basic company profile information and sets forth a commitment to develop, maintain and adhere to U.S. Customs & Border Protection and U.S. Census Bureau performance and operational standards.Shipper's Export Declaration information ■Documentation, required by law in many cases, for merchandise exported from the U.S. and its territories. Old paper reporting methods have been replaced by the Electronic Export Information (EEI).---http://www.census.gov/foreign-trade/aes/gettingstarted/glossary.html#EEI

Why Restrict Exports?There 3 main reasons to restrict exports:1 – To protect national security2 – To implement foreign policy3 – To limit sale of materials in short

supply (occasionally used in the U.S., such as for exports of petroleum, red cedar and live horses).

Plus4 – Other reasons such as protecting

endangered species, antiquities, and dangerous or unsafe products.

Exporting Armaments1.The Arms Export Control Act –

administered iaw ITAR, the International Traffic in Arms Regulations by the Directorate of Defense Trade Controls (part of the State Department).

2.This applies to military use items that are not predominantly for civil applications. Also targets nations that sponsor terrorism or that are subject to U.N. sanctions.

3. Companies that make, import, or export such items must be licensed by the U.S. government.

4. Dual use items (those that have other uses besides military uses) are also regulated with enforcement and licensing handled by the Department of Commerce.

Foreign Policy ReasonsUtilizing the carrot-and-stick approach to:Fight terrorismPunish nations that violate human rightsEnd regional conflictsKeep technologies away from bad regimesFight the war on drugsKeep regions from destabilizingEnd nuclear proliferationPlus other reasons

The Effectiveness of Trade Sanctions?

P. 435 – Sanctions helped get Libya to turn over bomb suspects. See, “The Miracle of Libya: Lockerbie bomber lives on” 28 March 2010 - http://www.neurope.eu/articles/The-Miracle-of-Libya-Lockerbie-bomber-lives-on/99918.php

“If a Scottish doctor gives you three months to live, take the next plane to Libya, because the water there works wonders. Either that or Libya’s dictator leader Moammar Ghadafy is the greatest faith healer since Oral Roberts (who wasn’t good enough to keep himself from dying last year) and can bring you back from the near-dead when he lays hands upon you. Seven months ago, doctors in Scotland gave Abdelbaset Ali Mohamed al-Megrahi, convicted in the mid-flight bombing of Pan Am Flight 103 over Lockerbie in 1988 that killed 270 people, including 11 in the village below, three months to live . . . “

President Carter’s Grain EmbargoIn response to the Soviet invasion of Afghanistan, President Carter in 1979 ordered an embargo of U.S. grain sales to the USSR.He also kept us out of the 1980 Olympics.We didn’t hurt the Soviets, they got their grain from other nations.We did hurt U.S. farmers (for years to come).

From Cold War to Fighting Terrorism1979’s Export Administration ActThe Wassenaar Arrangement (1996) – 40

member nationsThe Australia Group – 41 nationsThe Missile Technology Control Regime – 34

nationsThe Nuclear Suppliers Group – 45 nations

The EARThe Export Administration Regulations were

published pursuant to the Export Administration Act of 1979.

They are the province of the Bureau of Industry and Security (the BIS at http://www.bis.doc.gov/).

The main concerns are dual-use items and illegal boycotts.

Export Administration Act has lapsed, but the regs persist.

EAR cont’d“The Export Administration Act of 1979, as amended, has been in lapse since August 21, 2001. In the absence of an Export Administration Act, the U.S. dual-use export control system continues to be dependent on the President's invocation of emergency powers under the International Emergency Economic Powers Act. As demonstrated by recent events, having a modern, coherent, and effective system of dual-use export controls -- to prevent terrorists, rogue states, and proliferators of weapons of mass destruction from accessing sensitive U.S.-origin goods and technology -- is now more important than ever. The Administration supports legislation to create a streamlined and strengthened export control system that effectively promotes both U.S. national security and U.S. economic interests.” http://www.bis.doc.gov/eaa.html

Do You Need a License?A small percentage of total U.S. exports and

reexports require a license from BIS. License requirements are dependent upon an item’s technical characteristics, the destination, the end-user, and the end-use. You as the exporter must determine whether your export requires a license. When making that determination consider:1. What are you exporting?2. Where are you exporting?3. Who will receive your item?4. What will your item be used for?

http://www.bis.doc.gov/licensing/bis_exports2.pdf

The CCL & The EARSee http://www.bis.doc.gov/licensing/bis_exports2.pdf:

CCL: A key in determining whether an export license is needed from the Department of Commerce is knowing whether the item you are intending to export has a specific Export Control Classification Number (ECCN). The ECCN is an alpha-numeric code, e.g., 3A001, that describes a particular item or type of item, and shows the controls placed on that item. All ECCNs are listed in the Commerce Control List (CCL) (Supplement No. 1 to Part 774 of the EAR) which is available on the Government Printing Offi ce Web site.

EAR99: If your item falls under U.S. Department of Commerce jurisdiction and is not listed on the CCL, it is designated as EAR99. EAR99 items generally consist of low-technology consumer goods and do not require a license in many situations. If your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern or in support of a prohibited end-use, you may be required to obtain a license.

NLR – No License RequiredNLR – (“No License Required”)Most exports from the United States do not require a license, andare therefore exported under the designation “NLR.” Except in thoserelatively few transactions when a license requirement applies becausethe destination is subject to embargo or because of a proliferation enduseor end-user, no license is required when:a. The item to be shipped is not on the CCL (i.e., it’s EAR99); orb. The item is on the CCL but there is no “X” in the box(es) on theCountry Chart under the appropriate reason(s) for control columnon the row for the country of destination. (See the country chartexample)In each of these situations, you would enter “NLR” on your exportdocuments.http://www.bis.doc.gov/licensing/bis_exports2.pdf

Violating the EAR – C. France Case“Cryogenic Submersible Pumps to Iran – On July 17, 2008, C. SAS, formerly known as C. France, was sentenced in the U.S. District for the District of Columbia to a $500,000 criminal fine and two years of probation for its involvement in a conspiracy to illegally export U.S.-origin cryogenic submersible pumps to Iran. On April 10, 2008, C. pled guilty to three felony counts charging one count of Conspiracy, one count of Export Without an Export License, and one count of Attempted Export Without an Export License.”

C. Case cont’d“The conspirators, C.France, E. International Corporation, and another French company, developed a plan to conceal the export of cryogenic pumps to Iran. The plan was that E. would sell and export the pumps to C. France, which would then resell the pumps to another French company, with the ultimate and intended destination being the 9th and 10th Olefin Petrochemical Complexes in Iran. E. and its former president pled guilty and were sentenced in 2004.”

From “Major Cases” at http://www.bis.doc.gov/complianceandenforcement/majorcaselist/mcl102009.pdf

Antiboycott ProvisionsPROHIBITION AGAINST REFUSALS To DO BUSINESSEAR §760.2(a)(1) No United States person may: refuse, knowingly agree to refuse, require any otherperson to refuse, or knowingly agree to requireany other person to refuse, to do business with orin a boycotted country, with any business concernorganized under the laws of a boycotted country,with any national or resident of a boycottedcountry, or with any other person, when suchrefusal is pursuant to an agreement with theboycotting country, or a requirement of theboycotting country, or a request from or onbehalf of the boycotting country.www.access.gpo.gov/bis/ear/txt/760.txt

Antiboycott cont’dSee “Don’t Let This Happen to You” Ch. 10

www.bis.doc.gov/complianceandenforcement/dontletthishappentoyou-2008.pdf :

Objectives: The antiboycott laws were adopted to encourage, and in specified cases, require U.S. persons to refuse to participate in foreign boycotts that the United States does not sanction. They have the effect of preventing U.S. persons from being used to implement foreign policies of other nations which run counter to U.S. policy.

Primary Impact: The Arab League boycott of Israel is the principal foreign economic boycott that U.S. persons must be concerned with today. The antiboycott laws, however, apply to all boycotts of countries that are friendly to the United States imposed by foreign countries.

Deemed Exports‘Under the EAR, the release of technology or source code subject to the EAR to a foreign national in the United States is also “deemed” to be an export to the home country or countries of the foreign national and may require a license under the EAR. Technology can be released through visual inspection, oral exchanges of information, or the application to situations abroad of personal knowledge or technical experience acquired in the United States. For example, if a graduate student who is a foreign national with a valid visa reviews controlled technology pursuant to a grant from a private company, an export license or [sic] may be required because the release of the technology to the student could be considered a “deemed export.”’

http://www.bis.doc.gov/complianceandenforcement/dontletthishappentoyou-2008.pdf

Deemed Export CaseThe Violation: Between 2002 and 2004, ___ Corporation,

of Irvine, California, granted a professor and five students from the People’s Republic of China access to physical layer technology without the required licenses under the Export Administration Regulations. This technology was to be used in wireless LAN integrated circuits. The professor and students were working on behalf of the Beijing University of Aeronautics and Astronautics (BUAA) at the time of the technology release, pursuant to a contract between ___ andBUAA. BUAA is an entity set forth on the EAR’s Entity List, a compilation of end-users that pose a risk of WMD proliferation.

The Penalty: ____ Corporation agreed to pay a $36,000 administrative penalty.

www.bis.doc.gov/complianceandenforcement/dontletthishappentoyou-2008.pdf

Antiboycott Example #1Dresser IncorporatedThe Violation: From January 2001 through

January 2004, Dresser Incorporated (Dresser), located in Texas, failed to report in a timely manner its receipt of nine requests to engage in a restrictive trade practice or boycott relating to Israel.

The Penalty: Dresser agreed to pay a $9,000 administrative penalty.

Mitigating Circumstance: Dresser voluntarily self-disclosed the violation and cooperated fully with the investigation.

“Don’t Let This Happen to You” at page 53

Antiboycott Example #2Johns Hopkins Health System CorporationThe Violation: Johns Hopkins Health System violated the

antiboycott provisions of the EAR when it discriminated against a U.S. person in support of the Arab League boycott of Israel. The person had been seeking a position in the company’s International Services Department, which markets medical services around the world, including the Middle East. The discriminatory conduct, BIS believes, was motivated by the company’s concern about having a Jewish person in that position because of the Arab League boycott of Israel.

The Penalty: Johns Hopkins agreed to pay a $10,000 administrative penalty.

Mitigating Circumstance: Johns Hopkins Health System voluntarily self-disclosed the violation and cooperated fully with the investigation.

The National Emergencies Act (NEA)Passed in 1976, this law tried to clarify the

conditions under which the President could declare a national emergency and the role of Congress to oversee the use of this power.

These are issued by Presidential Executive Orders.

See - http://fpc.state.gov/documents/organization/6216.pdf

CRS Report for Congress: National Emergency Powers“The President of the United States has available certain powers that may be exercised in the event that the nation is threatened by crisis, exigency, or emergency circumstances (other than natural disasters, war, or near-war situations). Such powers may be stated explicitly or implied by the Constitution, assumed by the Chief Executive to be permissible constitutionally, or inferred from or specified by statute. Through legislation, Congress has made a great many delegations of authority in this regard over the past 200 years.”

The International Emergency Economic Powers Act

United States Code Annotated Title 50. War and National Defense

Chapter 35. International Emergency Economic Powers§ 1701. Unusual and extraordinary threat; declaration of

nationalemergency; exercise of Presidential authorities(a) Any authority granted to the President by section 1702 of

thistitle may be exercised to deal with any unusual and

extraordinarythreat, which has its source in whole or substantial part outside

theUnited States, to the national security, foreign policy, or

economy ofthe United States, if the President declares a national

emergency withrespect to such threat.(b) The authorities granted to the President by section 1702 of

thistitle may only be exercised to deal with an unusual and

extraordinarythreat with respect to which a national emergency has been

declaredfor purposes of this chapter and may not be exercised for any

otherpurpose. Any exercise of such authorities to deal with any new

threatshall be based on a new declaration of national emergency

which mustbe with respect to such threat.

Alleged Violations of IEEPAIn 1983, financier Marc Rich was accused of

violating the act by trading in Iranian oil during the Iran hostage crisis. He was one of many people pardoned by President Bill Clinton in his last days in office.

The Department of Justice has brought IEEPA charges against Americans who travelled to Iraq in advance of the 2003 invasion to act as human shields, on the basis that they spent money while in Iraq.

---WikipediaSee also, “The Double Life of Marc Rich”At http://www.msnbc.msn.com/id/3071886

IEEPA Enhancement Act“International Law Advisory - Increase in Fines for

Export/Sanctions Violations: President Bush Signs IEEPA Enhancement Act” October 16, 2007Today, President Bush signed the International Emergency Economic Powers Enhancement Act (IEEPA Enhancement Act), which significantly increases the civil and criminal penalties available under IEEPA. As reported on October 2, 2007, this penalty increase applies to violations under (1) nearly all of the economic sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control (OFAC); and (2) the anti-boycott and export control rules in the Export Administration Regulations (EAR) of the Commerce Department’s Bureau of Industry and Security (BIS).

Steptoe & Johnson LLP at http://www.steptoe.com/publications-4909.html

Enhancement Act cont’dUnder the IEEPA Enhancement Act:

1) civil fines under IEEPA increase from $50,000 to the greater of $250,000 or twice the amount of the transaction at issue; and 2) criminal penalties increase from $50,000 to up to $1,000,000 per violation, with the potential length of imprisonment (up to 20 years per violation) remaining unchanged.

Id.

An IEEPA CaseRiflescopes to Russia - On September 16, 2009, L. S., a resident of Brooklyn, NY, pled guilty in U.S. District Court in the Southern District of New York to violating the International Emergency Economic Powers Act and the Foreign Corrupt Practices Act. S. was arrested in March 2009 for illegally exporting Department of Commerce controlled riflescopes to Russia. (Other Dual Use)

www.bis.doc.gov/complianceandenforcement/majorcaselist/mcl102009.pdf

The Patriot Act (2001)Uniting and Strengthening America by Providing

Appropriate Tools Required to Intercept and Obstruct Terrorism

At http://epic.org/privacy/terrorism/hr3162.html

“The Act increases the ability of law enforcement agencies to search telephone, e-mail communications, medical, financial, and other records; eases restrictions on foreign intelligence gathering within the United States; expands the Secretary of the Treasury’s authority to regulate financial transactions, particularly those involving foreign individuals and entities; and broadens the discretion of law enforcement and immigration authorities in detaining and deporting immigrants suspected of terrorism-related acts. The act also expands the definition of terrorism to include domestic terrorism, thus enlarging the number of activities to which the USA PATRIOT Act’s expanded law enforcement powers can be applied.” - - -Wikipedia

BIS Study ResourcesFree online Webinars athttp://www.bis.doc.gov/seminarsandtraining/webinars.htmThe BIS online training room at http://www.bis.doc.gov/seminarsandtraining/seminar-training.htm

Helpful Hints for Exporters athttp://www.access.gpo.gov/bis/ear/txt/hints.txt Recordkeeping Requirements at http://www.access.gpo.gov/bis/ear/txt/762.txt Don’t Let This Happen to You at www.bis.doc.gov/complianceandenfo rcement/dontletthishappentoyou-2008.pdf

Introduction to Export Controlshttp://www.bis.doc.gov/licensing/bis_exports2.pdf Major Caseswww.bis.doc.gov/complianceandenforcement/majorcaselist/mcl102009.pdf