For New Exporters: How ITAR/EAR Could Impact Your Business
Published:20 May 2015 01:05:39 PST
This is the 4th in an ongoing series of articles for SMEs interested in exporting their products.
If you export technology, or in some cases even chemical or biological products, you need to understand just how ITAR (International Traffic in Arms Regulations) or EAR (Export Administration Regulations) could impact your business.
The aim of this legislation is to help control information leaving the United States so to prevent sensitive information ending up in the hands of a foreign power. All exporters, manufacturers and brokers of defense materials and related data are required to be ITAR compliant by the U.S. government. No matter how small your company it is or how long you've been trading, your business is not exempt from ITAR. Even if you have been producing since before ITAR came into existence, you still need to register or face possible penalties when exporting your product.
The rub for any company exporting technology, and in some cases even sharing data, is the possibility that your product or service might be deemed "dual use," which can lead to significant complications when preparing for export. "Dual use" technologies are regulated under EAR, and therefore not the Defense Department, but it is certainly worth considering whether your product might qualify at all. As an example, consider that protective gloves and shoes can be regulated under ITAR if it is deemed that they could protect against chemical or biological agents!
ITAR became especially problematic to non-defense exporters in 1999, when it began to regulate satellite components and certain types of engines. When the government acknowledged the loss in U.S. competitiveness in the market for these components, the regulations were finally lifted, effective October 15, 2013.
As mentioned above, some chemical agents fall under these regulations, as do even medical technologies. For example, systems for aerosolizing medications can be considered delivery systems for biological weapons. Your asthma inhaler probably doesn't qualify, but more sophisticated delivery systems might.
A good starting point for determining potential impacts is the decision tree maintained by Stanford University - academic research has long been a target of investigations relating to ITAR compliance, and the free resources maintained by many universities are an invaluable resource, drawn from many years of experience.
And non-U.S. manufacturers of technology components or chemcial agents should also be aware that export controls on dual-use items don't just apply to the United States - there are a number of international non-proliferation organizations seeking to harmonize these types of regulations globally. The European Commission has regulations on exporting protective gloves and shoes, just like the U.S.
Becoming ITAR compliant
For your small business to become ITAR compliant, you must first register with the State Department's DDTC (Directorate of Defense Trade Controls). Any company manufacturing, importing or exporting defense articles or providing defense services must be registered, including brokers. To submit for ITAR compliance you must complete the DS-2032 Statement of Registration along with any necessary supporting documents. There is a three-tier fee system and new applicants must pay an annual flat fee of $2,250.
While the annual fees for ITAR registration may feel quite high to a small business, the cost of not being registered is huge: fines and legal costs could very well destroy both the finances and reputation of a small business. Consider as well that you could face a loss of competitiveness by not registering for ITAR. Companies are increasingly making it a requirement for their partners to be ITAR compliant if there is any chance they need to be. Being registered can therefore substantially speed your ability to close new business. If you are in any field where ITAR may be an issue it is likely that potential clients and partners will look unfavorably on a company that is not already compliant. (You can use PIERS export data to verify that a company is a regular exporter - though be aware that in many cases, the names of producers of defense-related items are restricted by U.S. customs and not released in public data.)
How ITAR could impact your business in the future
ITAR is not just something you can register for and forget. Procedures need to be establish internally to your business to check compliance and regulations on a regular basis. Many small businesses register for ITAR thinking that just registering has satisfied any obligation. Unfortunately there are still many procedures you need to adhere to to remain compliant as well as the need to register future products as your business evolves. Recordkeeping is essential: if officials decide they want to check your compliance, you should be able to prove that you have followed procedure every single step of the way. The best way to do this is to make understanding and applying the ITAR compliance procedures part of one of your employee's regular job duties. While the cost of the registration plus the employee time needed to keep on top of it can be high for a small business, always keep in mind that ITAR compliance may be fundamental to your ability to continue growing your markets overseas.
Read more about export-related topics in our new FREE eBook, "Selling Your Product Overseas: A Beginner's Guide"