An introduction to the ITAR and EAR
In the United States, the principal export control regimes are bifurcated into two (2) principal sets of regulations promulgated by the United States Department of State’s Directorate of Defense Trade Controls (“DDTC”) and the Commerce Department’s Bureau of Industry and Security (“BIS”) exercising the authority delegated to those departments by the Congress under the auspices of the Arms Export Control Act of 1976 and Export Control Reform Act of 2018, respectively. Known as the International Traffic in Arms Regulations (“ITAR”) and Export Administration Regulations (“EAR”), these regimes place certain restrictions on the export, re-export, and transfer (in-country) of both defense articles contained on the ITAR’s United States Munitions List (“USML”) and so-called “dual-use” items or commodities contained on the EAR’s Commerce Control List (“CCL”).
Generally speaking, given the nature of the items contained on the USML—which are designed principally for export to foreign countries in conjunction with military and aerospace operations—the ITAR is more stringent with respect to both the nature and extent of the controls it imposes on the export of defense articles than the EAR is with respect to dual-use items. Indeed, under the EAR, many low-technology, consumer-oriented items are classified as EAR99—the lowest level of control that exists under the EAR, and may be exported to virtually any location in the world (with the notable exception of sanctioned and embargoed destinations and subject to the EAR’s other applicable General Prohibitions) without an export license or other authorization.
This primer is intended to acquaint its audience with the general principles common to each of the aforementioned regulatory schemes. Because export controls—and trade compliance more generally—is a highly specialized area of legal and compliance practice, however, individuals faced with a jurisdiction or classification issue arising under applicable U.S. export control laws should always confer with competent counsel or trade compliance professionals prior to engaging in any export-related activity.
The ITAR: Control of defense articles, technical data and defense services
As previously mentioned, the ITAR—as promulgated and enforced by DDTC, a component of the U.S. Department of State—regulates and controls the export, re-export, and transfer of all items classified as defense articles (e.g., those items specifically included in the USML’s list of twenty-one separate categories). These items include, but are not limited to, firearms and ammunition, military training equipment, personal protective gear, and electronics, toxicological agents, space launch vehicles, nuclear weapons, and submersible vessels. Importantly, the ITAR controls not only the end-item itself, but also parts, components, accessories, attachments, systems, equipment and technical data (discussed in greater detail below) associated with the end-item in question.
Generally speaking, items designated on the ITAR require either a license or other authorization (in the form of an applicable exemption) for export or re-export to any non-U.S. Person located in a foreign jurisdiction. This applies with equal force to the provision of technical data, defined by ITAR Section 120.10 as any information “required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles” to non-U.S. Persons. Increasingly, the unauthorized transfer of technical data by U.S. Persons to foreign nationals—often unintentional and largely the product of ignorance—is a source of concern for domestic regulators. The emergence (and sheer dominance) of more sophisticated means of electronic communication—whether by email, messaging applications, or otherwise—makes it possible to unwittingly transmit controlled technical data to unauthorized, unlicensed foreign national recipients with relative ease. As a result, organizations engaged in the production, manufacture, sale or distribution of defense articles must adopt sufficient internal controls and implement a program of regular export control training, to mitigate the potential that an ITAR violation will occur should an employee participate in an inadvertent disclosure of controlled technical information.
In addition to regulating the export and re-export of defense articles and technical data, the ITAR expressly requires that all entities and individuals involved in the manufacture, export, or brokering of defense articles and services register with DDTC. While the terms “manufacture” and “export” in conjunction with defense articles are relatively straightforward, the ITAR takes a more nuanced approach to what constitutes both “brokering activities” and “defense services.” As defined by ITAR Section 129, the term “brokering” thus refers to “any action [taken] on behalf of another to facilitate the manufacture, export, permanent import, transfer, reexport, or retransfer of a U.S. or foreign defense article or defense service, regardless of its origin.” This activity includes, but is not limited to, “financing, insuring, transporting, or freight forwarding defense articles and defense services” as well as “soliciting, promoting, negotiating, contracting for, arranging, or otherwise assisting in the purchase, sale, transfer, loan, or lease of a defense article or defense service.”
Similarly, the term “defense service” as defined by ITAR Section 120.32 broadly includes: (a) the furnishing of assistance (including training) to foreign persons, whether in the United States or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing, or use of defense articles; (b) the furnishing to foreign persons of any technical data controlled under this subchapter, whether in the United States or abroad; and (c) the provision of military training to foreign units and forces, regular and irregular, including formal or informal instruction of foreign persons in the United States or abroad or by correspondence courses, technical, educational, or information publications and media of all kinds, training aid, orientation, training exercise, and military advice.
Willful violations of the ITAR can carry severe repercussions, including the imposition of considerable civil monetary penalties and even referral to the Department of Justice for criminal prosecution. Consequently, organizations that learn of any violation of the ITAR by their employees, agents, contractors, or other representatives should promptly disclose the facts and circumstances surrounding the potential violation to DDTC pursuant to ITAR Section 127.12. As expressly provided for in ITAR Section 127.12(a), voluntary disclosure of potential infractions may be considered by DDTC as a major mitigating factor in ascertaining what administrative penalties, if any, to impose on the violator.
The EAR: Control of dual use commodities and technology
In contrast with the ITAR, which exclusively regulates the export of defense articles, the EAR more expansively regulates the export, re-export, and transfer of so-called “dual use” commodities and technologies both specifically enumerated on the CCL, as well as those commodities and technologies that fall within the generic classification of EAR99. Items subject to the EAR generally include: (1) all items physically located in the United States; (2) all items of U.S.-origin wherever located; (3) certain foreign-made commodities that incorporate a de minimis level of U.S.-origin content; (4) foreign-made direct products of U.S origin technology or software; and (5) certain commodities produced by any plant or major component of a plant located outside of the U.S. that is the direct product of U.S.-origin technology or software.
Akin to the ITAR, various provisions of the EAR—including the much-overlooked EAR’s General Prohibitions and classification under the CCL’s ten product categories—control whether a license or other authorization (in the form of an exception in EAR parlance) is required for export, re-export, or transfer activity. Pursuant to EAR Section 734.13, an “export” is broadly defined as either: (1) an actual shipment or transmission out of the U.S. in any manner; (2) a “deemed export,” which is a release or transfer or technology or source code to a foreign person in the United States; or (3) a transfer by a person in the U.S. of registration, control, or ownership of certain spacecraft to persons in, or nationals of, any other country.
While the EAR uses the term “technology” in lieu of the ITAR’s preferred term of “technical data,” the terms are essentially synonymous with each other for the purposes of ascertaining whether certain information or documentation associated with a controlled commodity requires a license for export, re-export, or transfer to a non-U.S. Person. Generally speaking, items that are not enumerated on the CCL and are otherwise treated as EAR99 do not require a license when exported abroad, except when intended for a sanctioned or embargoed destination; a prohibited end-use or a prohibited end-user. Even where the exporter believes that no license may be required, a review of the EAR’s General Prohibitions is essential to making a final determination as to whether BIS authorization is required for the export in question.
Proper classification of an item under the EAR—utilizing the CCL and corresponding Export Control Classification Number (“ECCN”), which describes the item in question and indicates specific licensing requirements—is essential for avoiding a potential violation of the EAR. Items contained on the CCL are controlled for a myriad of purposes, including but not limited to, national security, regional stability, non-proliferation, and anti-terorrism reasons. In the absence of reasonable certainty concerning the proper treatment of a commodity or related technology under the EAR, exporters are advised to seek a formal commodity classification request from BIS pursuant to EAR Section 748.3.
Like the ITAR, violations of the EAR are treated seriously and can subject the violator to a host of civil and administrative penalties—both pecuniary and non-pecuniary—as well as criminal repercussions for the most flagrant and egregious violations. As a result, pursuant to EAR Section 764.5, BIS like DDTC, also encourages and incentivizes voluntary disclosures of potential infractions by organizations and individuals by making such disclosures a mitigating factor in determining what penalties, if any, the violator may be subject to.