From Unmanned Systems Magazine: UNMANNED SYSTEMS AND EXPORT CONTROLS: WHAT YOUR COMPANY NEEDS TO KNOW
Companies that export unmanned systems or related components to customers abroad; who collaborate with overseas companies in the development or production process; or who share technical data with foreign nationals in the United States need to be aware of the potential impact of export control laws and regulations.
Export controls restrict the cross-border flow of strategic technologies and can even restrict the release of certain technical information within the United States. These restrictions can apply to unmanned systems and their related components and technical data.
This article provides an overview of U.S. commercial and military export controls, assesses how export controls apply to unmanned systems and provides compliance tips.
The United States has enacted export control regulations in order to further its national security and foreign policy interests. Such interests include preventing the diversion of strategic items to bad actors, countering weapons proliferation, combating terrorism, and restricting trade with embargoed countries and state sponsors of terrorism.
U.S. export control laws fall into two categories: dual-use (that is, civilian or commercial) and military. Given the national security concerns at stake, both sets of regulations provide for significant civil and criminal penalties for noncompliance.
U.S. export controls over commercial items are set out in the Export Administration Regulations (EAR). The EAR regulates dual-use items, which have a potential military or civilian application. The following items are subject to control by the EAR:
• All items in the United States
• U.S.-origin items, wherever located
• Non-U.S.-origin items that incorporate more than a “de minimis” level of controlled U.S. content (25 percent in most cases; 10 percent in certain other cases)
• Certain non-U.S.-origin items that are the “direct product” of U.S. technology or produced by plant equipment that is the direct product of U.S. technology.
EAR restrictions apply to all persons worldwide that export or re-export an item subject to the EAR, regardless of that person’s nationality. EAR restrictions are administered by the U.S. Department of Commerce, Bureau of Industry and Security.
So how do the EAR control exports? Technically, even a pencil can be a dual-use item, and in certain cases (such as an export to Cuba) the export of a pencil actually requires a license from BIS. For higher-tech items, however, the inquiry focuses on whether the item is listed on the Commerce Control List (CCL).
The CCL is a detailed list of dual-use items divided into 10 categories. For example, category 6 controls sensors and lasers, while category 9 controls aviation items. Each category includes numerous Export Control Classification Numbers (ECCNs) that set out specific technical details and performance characteristics for controlled items. For example, ECCN 9A120 controls certain unmanned aircraft incorporating an aerosol dispensing mechanism with a capacity of greater than 20 liters. Notably, each CCL category lists end items and related components; test equipment; materials; software; and technology, such as technical data for the development, production, or use of controlled equipment or software.
Each ECCN provides for a “reason for control” that determines whether a license is required to export the item to a particular destination, which one can assess by consulting the BIS Country Chart. For example, where an ECCN states that that an item is controlled for antiterrorism purposes, a license is required to export the item to Cuba, Iran, North Korea, Sudan, Syria, or the Crimea region. However, as another example, where an item is controlled for national security purposes, an export license is required for a broader range of countries, such as China and Russia. Finally, items not listed on the CCL are designated as EAR99, and are controlled only for Cuba, North Korea, Syria, and Crimea.
Companies involved in product development should pay particular attention to the “deemed export” rule in the EAR. That rule provides that the release of technical data to a foreign national in the United States is considered to be an export to that person’s country of nationality. For example, where a U.S. company wishes to provide technical drawings to a Chinese national employee, a BIS license is required to release the drawings to the employee if a license would be required to export the drawings to China. Notably, this rule can extend even to “deemed re-exports,” where a U.S. company exports technical data to a company outside the United States, which then provides the data to its employees of various nationalities (such as a French company sharing U.S. technical data with a non-French national employee).
Finally, the EAR rules also impose restrictions on exports for certain end uses (such as military end uses) and certain end users (such as military end users and persons designated for export restrictions by BIS).
U.S. military export controls are set out in the International Traffic in Arms Regulations (ITAR), administered by the U.S. Department of State, Directorate of Defense Trade Controls, or DDTC. ITAR regulations control the export, re-export, transfer and temporary import of defense articles, and the furnishing of defense services to foreign persons. All U.S.-based manufacturers, exporters, and brokers of defense articles, as well as any U.S. person that furnishes defense services, are required to register with DDTC.
Defense articles are listed on the U.S. Munitions List. USML-listed defense articles are items that provide a critical military or intelligence advantage, or which have been specially designed for a military purpose. The USML consists of 21 categories, with each category setting out detailed technical parameters for listed items. For example, Category VII controls ground vehicles, while Category VIII controls aircraft. Each USML category also controls related components and technical data.
ITAR licensing requirements are more straightforward and strict than their EAR counterparts: All ITAR-controlled hardware, software, and technical data require a license for export, unless an exemption applies. Notably, the ITAR also are stricter than the EAR regarding U.S. content incorporated into non-U.S. items. Under the ITAR “see-through” rule, a U.S.-origin defense article incorporated into a non-U.S. item remains subject to ITAR control, regardless of the value (such as 0.1 percent) of the incorporated U.S. content as a percentage of the value of the end item.
It should be noted that the deemed export and re-export rules apply in the ITAR context.
Both the EAR and ITAR control a range of unmanned systems and related components and technical data. EAR- controlled items include:
• UAS capable of exceeding certain endurance thresholds
• UAS incorporating an aerosol dispensing mechanism with a capacity of greater than 20 liters
• Certain types of unmanned submersible vehicles
• Avionics and navigation equipment
• Certain types of optical sensors, cameras, laser equipment, radar equipment, and lidar equipment
• Certain read-out integrated circuits
• Robots specially designed for underwater use, explosives handling, or certain production processes
• Components, software, and technical data related to the items above
ITAR-controlled items include:
• UAS specially designed to incorporate defense articles
• UAS airborne launching systems
• UAS flight control systems with swarming capability
• Control and monitoring systems for certain autonomous unmanned vessels
• Kits designed to convert certain ITAR-controlled vehicles to unmanned vehicles
• Components, software, and technical data related to the items above.
Moreover, unmanned aircraft capable of achieving a range of 300 kilometers or more, or of delivering a payload of 500 kilograms or more to a range of at least 300 kilometers, are subject to enhanced controls under the Missile Technology Control Regime Annex to the USML (currently the subject of a reform effort by the Trump Administration).
While the EAR and ITAR can be maddening in their complexity, there are certain basic compliance steps a company can take to mitigate risk.
• Is your company engaged in export activity? This is the key threshold question. Some activity clearly is an export — like shipping a complete UAS overseas. However, there is more to it than that. Are you part of the UAV supply chain? Are you collaborating with people overseas and sending them technical data? Are you sharing technical data with foreign nationals in the United States? All issues to consider.
• Assess the jurisdiction and classification of your item. If you are contemplating engaging in an export, it is essential to assess whether your end item, component, software, or technical data is subject to the ITAR or EAR, and further to assess its export classification — that is, its USML category (ITAR) or ECCN (EAR).
• Determine whether an export license is required — or if a license exception or exemption applies. Based on the jurisdiction and classification assessment, you should be able to determine whether a license is required. Here, there is some good news. Even if a license is required, you may be able to take advantage of certain license exceptions (EAR) or exemptions (ITAR).
• Implement a compliance policy. Depending on the extent of a company’s export activity and its overall export compliance demands, it may be prudent to establish an export compliance policy. The policy can articulate the company’s commitment to compliance, define its legal obligations, and set out detailed compliance procedures for employees to follow.
Anthony Rapa is of counsel at Steptoe & Johnson, an international law firm based in Washington, D.C. His practice focuses on international regulatory compliance, including export controls and economic sanctions issues.
Below: Export example: General Atomics Aeronautical Systems’ Predator XP is version of the Predator UAS that has been licensed by the U.S. government for sale to a broader customer base, including the Middle East, North African, and South American regions. Photo: GA-ASI.