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What Every Exporter Must Know About ECCNs.

October 15, 2014

Assigning the wrong Export Control Classification Number (ECCN) can be a costly mistake

by John F. O’Rourke

* This article first appeared in Inside Counsel Magazine

Exporters face big challenges when it comes to designating the correct Export Control Classification Number (ECCN) to their goods, but every effort must be made to avoid mistakes. A slight difference in classification can mean a huge difference in the duties that must be paid, and it can also subject the exporter to an administrative penalty of up to $250,000, or twice the amount of the transaction that is the basis of the violation!

An ECCN is a 5-character alphanumeric code found on the Commerce Control List (CCL) that categorizes an export based on the nature of the item and its respective technical parameters. For example, if the ECCN is 3B001, the first character refers to the Category Group (3 = Electronics), the second character refers to the Product Group (B = Production Equipment), and the last three digits refer to the Type of Controls (001 = National Security).

Once the ECCN has been identified, an exporter can determine the reasons for control of the item and which transactions may require an export license based on the country of destination. This is accomplished by comparing the ECCN with the Commerce Country Chart.

However, this task is made more difficult where one ships a wide variety of goods and where one is constantly adding new items to one’s inventory of exports. Each of these commodities will need to be classified according to the numerous categories and subcategories of the CCL. Further, ECCNs are subject to change, so an ECCN designation that was used in the past may no longer be valid.

ECCNs are established by the Bureau of Industry and Security (BIS), an agency under the Department of Commerce. BIS implements and enforces the Export Administration Regulations (EAR) which govern the export and re-export of most commercial goods. Defense related items, on the other hand, are subject to the licensing requirements of the Directorate of Defense Trade Controls at the Department of State in accordance with the International Traffic in Arms Regulations (ITAR). And the Treasury Department’s Office of Foreign Assets Controls (OFAC) administers and enforces economic and trade sanctions against targeted countries, terrorism sponsoring organizations, drug traffickers, etc.

Many items that BIS regulates are referred to as “dual-use” because they may have both commercial and military or nuclear proliferation applications. Most consumer products are subject to the EAR but are not listed on the CCL. Such items are classified as EAR99, which means they do not require an export license unless they are being shipped to an embargoed country, an end-user of concern (i.e., someone on the Denied Person’s List), or for a prohibited end-use.

Items that are classified as EAR99 will generally be shipped under the designation “NLR” which stands for “No License Required”. Exporters will use EAR99 as the ECCN, and then select license type “C33” on the Automated Export System (AES) record. By clicking on C33 one is certifying that the item is eligible for NLR status.

Some goods that cannot be designated as NLR may nevertheless be eligible for a license exception, thereby allowing for the export of that item under certain, stated conditions. Importantly, the same license requirements apply regardless of the value of the good, and regardless of whether the item is being given away or sold. However, one may be able to use the license exception “GFT” for a gift.

Generally, there are three viable means for an exporter to obtain an ECCN: contact the manufacturer, self-classify or submit a Classification Request to BIS.

  1. Contact the supplier: A manufacturer, producer or developer may have previously determined an item’s ECCN designation. However, a manufacturer’s classification should be verified for accuracy because the ECCN, as noted above, may have changed. Companies should maintain as many internal controls as possible in order to make sure that the inadvertent violations of the EAR do not occur.
  2. Self-classify: Determining the correct ECCN can be accomplished by the exporter, but self-classifying requires a thorough understanding of the item’s technological parameters as well as a strong familiarity with the Commerce Control List. Remember, even inadvertent violations may bring a substantial fine.
  3. Submit a Classification Request to BIS: An official request can be sent electronically to BIS to classify an item using SNAP-R. There is no fee for such a request, but you must first obtain a Personal Identification Number (PIN) and a Company Identification Number (CIN) to access the system. Each request is limited to five items and it may take three to four weeks to get a response. It is therefore recommended that such a request be submitted as early as possible.

Although many different entities may be involved in the manufacture and distribution an item, it is the exporter who is considered the U.S. Principal Party in Interest (USPPI). As the USPPI, the exporter is ultimately responsible for ensuring that all applicable control requirements have been met. Given the complexities of the Commerce Control List — and the substantial penalties for inadvertent violations — it would behoove a potential exporter to work with an attorney who is competent with export regulations.