Which comes first – State or Commerce in an export classification analysis?

I am using this blog to offer practical advice to companies trying to do business globally and to address common problems I see in my import-export practice.  An issue that keeps popping up that makes me crazy is the misinformation out there regarding the export compliance process.  What do you do first?   As I have said it used to be that only the boutique law firms on the coasts had export practices.  Now it seems that many firms have such practices as it is a natural outgrowth of the services firms provide to their business clients.  Business is going overseas so corporate lawyers must follow the business.

However what I can’t stand is when companies get the wrong information because the lawyer either doesn’t really know the substance or doesn’t know how to explain the process.  I was recently at a big corporate conference for in-house lawyers. I was appalled (really) at the export compliance seminar because the material was confusing to the audience and made the export process seem more confusing than it needs to be.

For example, when a company has a product,  technology or software that it wants to export,  what are the first couple questions that you ask?

1.       Is it publically available?  If so, it is not even subject to the Export Administration Regulations.

2.       Is it regulated by another agency?  For example, is it specifically designed developed, configured, adapted or modified for military use?  If so, you must immediately stop what you are doing and go to the State Department International Traffic in Arms Regulations (ITAR).

What do you not do?  You do not classify the product under the export administration regulations.  It is a waste of your time. You do not look at the Commerce licensing requirements or the exceptions nor do you even think about filing for a commodity classification with Commerce.  If you have a product specifically designed developed, configured, adapted or modified for military use you are subject to ITAR.  Do not pass go.  Do not collect $200 at Commerce.  This means even if you have a filter that goes into an air conditioner so you think it has a civilian use but it was designed for a military product in 1963—it is ITAR unless and until you are told that it is not. 

This strategy also applies to other regulatory regimes such as the Office of Foreign Assets Control (OFAC).  If there are sanctions against exporting to your destination country, then it doesn’t matter what your classification at Commerce is.  You simply cannot export.  This is apparently very confusing to companies that do not have a good checklist or export tree diagram.  For example, many lawyers teach and talk about Commerce classification without clarifying that you must first consider if your product, technology or software is subject to the “exclusive” jurisdiction of another agency, like the Department of Energy or Patent and Trademark Office.  If so, that preempts the review.

Make sense?  I hope so and I hope this is helpful.  Export compliance is all about the process.

Have a good day.