Coating Technology Restrictions Can Trap U.S. Manufacturers, Engineering Firms, and Machine Shops
January 21, 2016

Many U.S. manufacturers are familiar with the export control restrictions that apply to the products they sell and the similar restrictions that apply to the “technology” (know how) required to develop, produce, and use those products under the Export Administration Regulations (EAR).  For example, many industrial products that could also be used for illicit purposes, such as chemical or biological weapons production, require licenses to be exported from the United States.  The data required to develop, produce, and use that equipment is similarly controlled for export or for release to foreign nationals.

Less well known, and often overlooked, are the technology controls on production processes that are unrelated to sensitive or export-controlled products.  For example, the EAR strictly control the export of data related to coating, spraying, and deposition technologies used to make and repair benign products including steam turbines, food packaging, and semiconductors used in a variety of consumer electronics.  The complex and detailed controls applicable to these technologies are enumerated in Export Control Classification Number (ECCN) 2E003 and its accompanying explanatory tables and notes.  Unlike most other technology controls, 2E003 describes the exact processes subject to control and the types of data that are considered subject to the ECCN, including certain Chemical Vapor Deposition (CVD), Physical Vapor Deposition (PVD),  Pack cementation, plasma spraying, slurry deposition, and ion implantation techniques.  Data that are captured by the ECCN are subject to highly restrictive National Security (NS) controls and require U.S. government authorization (through a license or the use of a valid license exception) to be exported to nearly any country or national of a foreign country.  The release of controlled coating data to foreign nationals is “deemed” to be exported to the individual’s home country and is an “export” subject to the EAR’s licensing requirements.    Note: foreign nationals do not include U.S. citizens, U.S. permanent residents (i.e., holders of “green cards”), or certain politically protected persons.  

2E003 becomes an issue for manufacturers and machine shops that perform industrial coating operations and have foreign nationals working on the production floor, in the engineering team, or within product management in a facility.  Employees in these positions often need access to or may be exposed to data related to the controlled coating techniques.  Releases of 2E003 data to these workers likely requires a specific license from the Commerce Department.  License Exception Strategic Trade Authorization (STA) may also be available for releases of controlled data to nationals of certain countries.  The license exception allows releases of controlled coating technology to certain foreign nationals so long as a non-disclosure agreement and other requirements are appropriately executed. 

Another potential licensing concern arises when an engineering or design firm works with a third party manufacturer to produce products, particularly electronics and electronic components, overseas.  In this case, the U.S. engineering or design firm may consult with contract manufacturers on productions processes, including specifics on coating techniques and parameters that involve controlled 2E003 data.  These types of information exchanges often also require U.S. government authorization. 

The best way to tackle these types of technology access and export issues is to implement a Technology Control Plan or TCP that involves identifying controlled technology within a facility, securing that data against unauthorized release or export, obtaining any required authorizations, and providing regular training to affected employees.  Establishing a TCP requires upfront investment in time and resources, but is the only way to ensure that you comply with the EAR’s requirements.