Exporters have their head in the sand
UK Companies are unaware that the New Export Control Act introduced on the 1st May 2004 affects them. Penalties for non-compliance have been increased to unlimited fines and a maximum prison sentence of 10 years!
Export controls relate to the following:
- Business travel (hand-carried tooling, spare parts, lap-tops, technology)
- Transmitting technology by email or fax
- Some telephone conversations
- Movements between overseas companies
- UAVs and components
- Long-range missiles and components
- Embargoed destinations
- Promotional services
- UK people anywhere in the world
Most Companies know that to move a piece of military equipment from the UK would require an export licence from the DTI Export Control Organisation but, how many companies consider that when they relocate their manufacturing facility to China, any machinery, tooling, raw materials, designs and drawings could also require an export licence?
Following the Scott Report a few years ago, the UK have finally updated the controls relating to the export of strategic goods. The previous legislation was introduced in 1939 at the beginning of World War II to prevent arms and ammunition being supplied to the enemy. The development of missile technology by the German Scientists changed the face of future conflicts and, the ‘world wide web’ has now revolutionised business practices. The challenge of the new legislation has been to encompass all of the old threats with the advances of the modern terrorist, who is seeking to obtain materials and technologies in their pursuit of weapons of mass destruction.
Although Industry was invited to participate in the review of the new Act, only high-profile companies did so. Most Companies have limited understanding of the controls and no resource available to be fully compliant.
Export control is a complex subject and although the control lists are based on international agreements, all countries may impose their own additional controls if they so wish. This creates a minefield for Industry in a world of international trade and partnerships. It is normal practice for many companies to have branches or subsidiaries in other countries, each of which may have a slightly different approach to the controls.
The key to implementing these controls is classification of products and activities, awareness training across the company, planning at the beginning of a project and written procedures for staff.
The items subject to control are split into two distinct sections. The first covers military and paramilitary equipment, the second ‘dual-use’ items i.e. items that were designed for commercial or industrial purposes but could be used for a different purpose i.e. in a military context or in connection with weapons of mass destruction.
The Military List
The basic definition for a military piece of equipment is “ specially designed or modified for military use “. This is part of the key to classification because it means that not every movement to a military customer requires an export licence however, military list items require an export licence to all destinations even to other members of the European Union.
• Case Study 1- SME Component Manufacturer
The CN235 aircraft was originally designed by CASA Spain and IPTN Indonesia for the Spanish Air Force. The aircraft was designed for military purposes; however, the manufacturers decided to use an existing commercial CT7 aero-engine.
An SME manufactures components for this aircraft; the components are specially designed for a purpose and are not sold for any other use. One component fits the airframe and one fits the engine. The component that fits the airframe was specially designed for military use and requires an export licence to all destinations whilst the component that fits the engine only requires an export licence in certain circumstances (if destined for a military operator in an embargoed destination or a commercial operator in Iran or Iraq).
• Case Study 2 – Repair & Overhaul Station
As part of your engineering package, you offer a technical assistance help-line to approved operators. You receive a call from the RAF stationed in Iraq who have a problem with one of your military units. In order to rectify the situation you arrange a conference call with a group of engineers.
Does this type of technical assistance require an export licence?
Consider the following:
- the UK definition of ‘technology’ -specific information necessary for the development, production or use of goods or software
- telephone conversations outside the UK are only controlled for UK military technology if the content of a controlled document is read out loud.
- normal conversations using the knowledge someone has retained in their memory is not subject to UK licensing unless it is in connection with WMD and is for use outside the EU
- all conversations relating to US product are controlled
- the nationality of anyone involved in an overseas conversation is not subject to UK controls
- if a ‘foreign national’ will be party to a conversation relating to US product then, the US consider that a ‘deemed export’ will take place. A US licence should be in place for an export to the country in question.
Therefore, if the conference call only transfers UK information, that is in the memories of the Engineers, then no licence will be required. If subsequently, documentation is emailed or faxed then, this type of transmission would require an export licence.
In addition to military items, a range of commercial items are also subject to regulation because they may be used in a different application to their original design i.e. in connection with chemical, biological or nuclear weapons or missiles systems to deliver them.
The list of goods includes machine tools, testing equipment, metals and alloys, electronics, telecommunications, sensors and lasers, navigation and avionics, marine, propulsion systems, nuclear materials, chemicals, micro-organisms and toxins.
The aerospace industry is not exempt from these controls. Aircraft parts including seals, gaskets, bearings, navigation units, engine testing equipment and certain metals require a licence if exported outside the European Community. Commercial aircraft and components are also subject to control if destined for a military operator in an embargoed destination or to a commercial operator in Iran or Iraq. (Written as per legislation in 2005. In 2012 this only relates to Iran)
• Case Study 3
An Authorised Maintenance Centre in the UK receives a civil aero-engine from Belgium. The commercial instructions request that the engine be overhauled and returned to Belgium however, the logbook reveals that the last registered owner was the Air Force of the Democratic Republic of the Congo.
How should the AMC proceed?
Although Belgium is a member of the European Union and the commercial aero-engine does not appear on the list of controlled items, this shipment is subject to the ‘Military End-Use Control’ imposed by the UK Government. This control prevents the military in embargoed destinations from obtaining any equipment that might be used for military purposes.
In order to regulate the movement of military equipment around the world and to identify illicit trade, new controls have been introduced on the trade in these commodities. Many legitimate businesses are now caught by these controls but the purpose of the legislation is to catch the’ bad guys’ who are profiting from human suffering.
Trade Controls relate to arranging the movement of military list goods between other countries (not from the UK). For example, an Arms Dealer in the UK arranging to move military goods from Norway to Iran.
- The Trade Controls fall into three categories: (amended to reflect 2012 legislation)a. cluster munitions, torture equipment, MANPADSb. small arms & ammunition, long range missiles with a range of 300 km or more , UAVsc. other military list items not falling under A or B
- Embargoed destinations
Ancillary services are also subject to control for goods falling into Category A; this includes transport, financing, insurance and promotion services. UK haulage companies who offer services to embargoed destinations are now liable to prosecution if they are found to be carrying military list goods.
• Case Study 4
– UAV Manufacturer exhibiting at Farnborough Air Show
Is a trade licence required?
UAVs with a range of more than 300km are regulated by Trade Controls.
Since the US Company is offering to sell their goods from their facilities in the US then, any contacts signed or agreements made whilst in the UK, that involve movement of their goods from the US to any country except the UK, would require a UK Trade Licence prior to entering into a commitment.
A Trade Licence should be available before the exhibition in anticipation of any arrangements being made. In the event that some destinations are refused then, negotiations for these countries cannot be entered into whilst in the UK.
US Re-export Controls
The US legislation is also based on the same international agreements as the UK however, the US have made their own interpretations. In addition, the US exercises extra territorial controls on all US persons and all products that leave the US. This includes US origin product and also any other product that is transhipped through the US. These extra territorial controls follow the person or product for all of its life!
• Case Study 5
– UK Authorised Maintenance Centre (US Product)
Imagine that the Cuban Air Force operates a C130 Hercules and they send you a component for repair.
As far as UK legislation is concerned, there is an OGEL (Open General Export Licence) Export After Repair / replacement under warranty: Military Goods available that would cover this transaction.
You simple register to use the licence, check that the component is not excluded (it’s not), check that the country is not excluded (it’s not), quote the licence on the C88 and commercial paperwork and keep a record for four years to show to the ECO auditors.
However, since you are dealing with an item on the US Munitions List, you should also apply for a US Re-export Licence (and there’s not much chance that you would get one so, who’s going to know?)
When the US discovers that the Cuban’s are again flying, they will find you out! The penalties for US non-compliance are:
- large fines e.g. $1m per violation
- loss of AMC status
- being placed on the DPL – Denied Parties List (no US Supplier being allowed to trade with you)
- denied travel to US
- arrested on entry to US
These controls are very complex for anyone to understand including Government Officials. These early months have been fairly relaxed whilst everyone involved ‘finds their feet’ however, the honeymoon period is now over and Exporters can look forward to a New Year of enforcement by H.M. Customs & Excise.
First published January 2005, Aerospace International.
For more information contact Elizabeth Carter.