Determining an item’s classification under the Export Administration Regulations (EAR) or the International Traffic in Arms Regulations (ITAR) may be the trickiest aspect of the entire exporting process. It’s also arguably the most important; you can’t determine whether an export license is needed until you’ve properly classified the item.
Here is a high-level overview of that process, plus a few fine points learned through hard-won experience. It’s intended to offer a basic approach to item classification for people who are on a new learning curve in export compliance.
To dig deeper into this process, the ECTI course “The Ultimate Guide to Classification: Basics, New Advancements, and Expert Tips” may be helpful.
Terminology and background
Before digging in, let’s start with a couple of basic definitions:
Even within the field of international trade, the term “classification” can mean different things. When we use it, we’re talking specifically about determining whether an item is on the United States Munitions List (USML), in which case it falls under jurisdiction of the ITAR; or if it’s on the Commerce Control List (CCL) and is therefore under jurisdiction of the EAR.
An item can’t appear on both lists; it’s one or the other. If it is on one of these lists, it will be annotated with the conditions that must be met to export it.
An “item” doesn’t always refer to a physical object. It can be any of these things:
- a component
- a finished product
- software
- a service
- a technology
Item classification matters to anybody in the United States who exports. It’s irrelevant whether an item was made in another country; as soon as it arrives in the United States, it is subject to U.S. export controls.
Further, it applies to anyone outside the United States who reexports or transfers anything that is subject to U.S. jurisdiction – even if it never touches U.S. soil.
What makes this process difficult is that the variety of export items is so broad that no list can cover them all. The EAR doesn’t even make an attempt; its catch-all EAR99 classification is reserved for items that don’t appear anywhere else. So it’s often necessary to figure out how an item ISN’T classified in order to deduce its correct classification.
I like to think about the classification process in five steps.
1. Gather information
A description of the item, how it’s used and who uses it are central to classifying it. Is it an end- item (a system, equipment, or assembled object that is ready for use such as an airplane) or is it used as part of a larger assembly? Is it used in military applications? What type of person or organization buys it, and do they resell it on its own or is it used to make something else?
This kind of information is often found in readily available resources such as websites, marketing brochures and data sheets.
If the item is purchased from a third party, that entity may already know its classification. But it’s important to understand that if you’re exporting an item, you’re on the hook for classifying it accurately and obtaining an export license if needed. So information from the original supplier should be reviewed carefully and with healthy skepticism.
2. Follow the order of review
Both the ITAR and the EAR provide their own recommended processes for classifying items. It always begins with the USML. If an item is listed there, it is subject to the ITAR. You’ll follow the suggested order of review for the ITAR, which can be found in §120.11.
If it’s not on the USML, search the CCL and follow the order of review for the EAR, which is found in Supplement No. 4 to Part 774. The Bureau of Industry and Security (BIS), which administers the EAR, also provides an online decision support tool to help navigate the EAR order of review.
ECTI offers a free downloadable quick reference flow chart about the order of review for both the ITAR and the EAR. [For more information about classification under the EAR, see related blog post: Navigating EAR Export Classification.]
3. Look for complications
After assessing the order of review, there are other considerations in classification. These include:
ITAR see-through rule – also sometimes referred to as “ITAR contamination.” The rule, which can be found in §120.11(c), states that an item on the USML remains subject to the ITAR even if it is incorporated into something else.
The EAR works differently. The EAR seeks to classify assembled items, and it generally doesn’t bother itself with the components that go into those items.
But there are exceptions. For instance, encryption technology that’s built into a product may cause a shift in the product’s classification (and potentially require an export license) even though it’s only one aspect of the product’s functionality. [See related post: License Exception ENC and the Complications Around Encryption.]
Irrelevance of the buyer and end-user: The question of who is receiving an export item is often confused with the question of what it’s being used for. An item’s classification doesn’t generally change based on the identity of buyers and end-users.
The sale of certain items may be restricted depending on the buyer or end-user, but these determinations come after the classification process. [See related posts: Best Practices In Screening for Denied or Restricted Parties; and Understanding the Various Restricted Party Lists.]
Understand the definitions: There are a lot of items in the USML and CCL that are accompanied by notes that use seemingly simple terms that carry specific technical definitions. It’s important to understand these.
For instance, when an item is described in an entry which uses the defined term “specially designed,” it can potentially trigger additional controls. [To learn more about this topic, ECTI offers a short course ITAR/EAR Specially Designed.]
So if you believe you’ve identified the correct specification for an item, be sure to read the notes and understand the specific definition of all the terminology used. In addition, If an item seems to fall under multiple ECCNs or paragraphs, you would usually apply the ECCN or paragraph with the strictest controls. These definitions are provided in EAR §772.1 and in Part 120, Subpart C of the ITAR.
Check for separate restrictions on materials: Both the ITAR and the EAR control specified materials. The material itself – whether in raw form or sometimes in a further processed condition – can trigger controls. This is especially the case for materials that may be hazardous or have applications in sensitive industries – such as chemicals or biological agents. So it’s always wise to check for a classification of the material itself.
4. When in doubt, ask the government
Both the ITAR and the EAR offer processes by which you can ask the government to issue a decision on an item’s classification.
This shouldn’t be the starting point. It’s not mandatory and you’re supposed to make your own determination, using these processes as a last resort.
But if you’ve done your best to classify an item and you’re still unsure, it’s a path to remove uncertainty. It’s also justified if you’ll be exporting an item purchased from another party, and you’re not confident in the classification information that party has provided.
Under the ITAR, it’s called a Commodity Jurisdiction Request. The State Department reviews such requests and publishes some of the results; it’s possible your question may be addressed by a prior case.
If you do file a CJ request, it can take about 90 days to receive a response, which will either affirm that an item is subject to the ITAR or that it isn’t.
If it’s not subject to the ITAR, the State Department sometimes provides the item’s correct classification under the EAR – but you can’t count on that.
If the question is not whether an item is subject to the ITAR, but how it is classified under the EAR, you’ll need to go through a similar process with the EAR, where it’s called a Commodity Classification Request, filed directly through the BIS SNAP-R portal. The regulations say that BIS will answer such requests within 14 days.
5. Document your work
As a civil matter, export control violations come with strict liability. An incorrect classification can be expensive, even if unintentional. Thorough documentation of the classification process is the best way to mitigate that risk.
There is no prescribed method or format for this, but you want to be able to demonstrate the steps you took to reach a conclusion.
You might draft a memo detailing each step of the process, or track it in a spreadsheet with comments, notes and findings.
Helpful information includes the rationale behind each decision; a citation of the relevant rule or paragraph in the regulations; who made the decision and who approved it. If you receive classification information from a third party, get it in writing and add it to the documentation file.
This level of care won’t provide a guarantee against the consequences of an error, but it will demonstrate that you’ve taken reasonable care and can head off escalation of a case by the government.
Do you have questions about item jurisdiction and classification?
Visit dx45.scionmotors.com to learn about our company, our faculty, our staff and our esteemed Export Compliance Professional (ECoP®) certification program. To find upcoming e-seminars, live seminars in the U.S., Europe, and elsewhere, and live webinars and browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You can also call the Export Compliance Training Institute at 540-433-3977 for more information.
Scott Gearity is President of ECTI, Inc.
