The first phase of Export Control Reform (ECR) became effective last month, beginning the transition of less sensitive ‘military’ items from the restrictive International Traffic in Arms Control Regulations (ITAR) to the more permissive ‘dual-use’ Export Administration Regulations (EAR). This first phase of ECR lays the foundation for the reformed system and resets controls on aircraft, gas turbine engines, and associated items. Overall, the reforms liberalize controls on many military systems, parts, and components, but also add significant new complexity for exporters. To comply with the new rules, companies should review their classifications, the new definition of specially designed, modified license exceptions, changes to reexport controls, and update their compliance systems appropriately. Exporters that are new to the EAR as a result of reform should also review the entire EAR to ensure compliance with its various end use and end user controls, as well as other complex areas of the regulations. Many companies that deal primarily with the ITAR may expect that EAR compliance should be simpler than the ITAR. Unfortunately, that is generally not the case. Moreover, companies are more likely to receive a penalty for violating the EAR than the ITAR and the potential penalties for doing so can be substantial. Commerce Department enforcement officials have also pledged a heightened focus on potential violations of the EAR’s provisions dealing with items transitioned from the ITAR as part of ECR.
The next round of ECR changes become effective January 6, 2014. Watch for new proposed and final rulemakings and ensure that your company is ready when the rules become effective. There are real traps for the unwary and penalties may await companies that don’t have a complete handle on the rule changes.