U.S. Export Controls

Effects of U.S. Export Controls on the Electronics Industry

What are U.S. export controls?

How do U.S. export controls affect the electronics industry?

  1. Regulations on dual use items
  2. Restriction of international business
  3. Outdated export system acts as a trade deterrent
  4. Foreign companies may design out U.S. made products

NEW! Deemed Exports: View IPC's Page Devoted to Important Export Rules Impacting Electronics Companies

Export Control Reform

U.S. Export Controls

U.S. Export controls include the laws and regulations managing the sale or transfer of sensitive goods and technology, services, and expertise to non-U.S. citizens.  First implemented 60 years ago, U.S. export controls were intended to restrict foreign nations access to technology by limiting U.S. exports. Since its inception, the export controls system has been modified by adding additional regulations which has resulted in a complicated system.

The Department of State Directorate of Defense Controls (DDTC) is responsible for implementing and enforcing International Traffic in Arms Regulations (ITAR). ITAR are the rules that govern the export and import of items, transfer of data, and technical expertise of defense related articles on the United States Munitions List (USML). The goal of ITAR is to safeguard U.S. national security and further U.S. foreign policy objectives.

The Department of Commerce's (DOC) Bureau of Industry and Security (BIS) is responsible for implementing and enforcing the Export Administration Regulations (EAR), which regulate the export and re-export of most commercial items.

Within the EAR are specific Export Control Classification Numbers (ECCN) for exported items that require a license. The ECCN is an alpha-numeric code, e.g., 3A001, that describes a particular item or type of item, and shows the controls placed on that item. All ECCNs are listed in the Commerce Control List (CCL) which is available on the EAR website. The CCL is divided into ten broad categories, and each category is further subdivided into five product groups.

Businesses exporting controlled objects or IP must navigate a complex interagency license application process. BIS and the Department of State are the two lead administrating agencies responsible for reviewing license applications.

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How do export controls affect the electronics industry?

  1. Regulations on dual use items
  2. Restriction of international business
  3. Outdated export system acts as a trade deterrent
  4. Foreign companies may design out U.S. made products
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Regulations on Dual Use Items

U.S. regulations control the export of dual use items, i.e., items that can be used for both commercial and military purposes. Electronics, including certain printed boards and their associated intellectual property (IP) such as chemical formulas, purchase orders containing specifications, and printed board artwork are all examples of regulated dual-use items.

View the Commerce Control List (CCL) for more information on regulated dual-use items

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Restriction of international business

Licensing requirements for companies conducting business in the U.S. to share their developed, owned, or purchased regulated IP with their overseas facilities is counterproductive to successful global commerce. When export controls were first implemented, the majority of U.S. companies conducted manufacturing on U.S. soil. Now however, multinational companies are manufacturing and assembling products at global facilities. For example, a multinational electronics assembly company headquartered in California must obtain a license to share IP with its own facilities in Taiwan.

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Outdated System acts as a trade deterrent

The Cold War ideology of using export controls to restrict foreign nations' access to technology by limiting U.S. exports is now obsolete and often is a trade deterrent. Electronics technology and manufacturing capabilities are now globally available. The National Association of Manufacturers (NAM) recently testified to the U.S. House of Representatives that "Many technologies are so widely available legally today that U.S. unilateral controls have little or no ability to control such technologies."

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Foreign companies may design out U.S. made products

Rather than negotiate cumbersome regulations to purchase products or designs regulated by U.S. export controls, foreign customers can purchase them from a global marketplace. In just one example, a recent study conducted by The American Chamber of Commerce in the People's Republic of China reported that Chinese companies are designing out U.S. made parts, components, and systems because of the burden of obtaining a U.S. export license.

View the American Chamber of Commerce report “In the People's Republic of China

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NEW! Deemed Exports

IPC's Page Devoted to Important Export Rules Impacting Electronics Companies

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Export Control Reform

Information on the government's proposed changes to U.S. Export Controls and how to submit comments can be viewed by visiting www.export.gov/ecr. Please share your thoughts on proposed changes to U.S. export controls by contacting Fern Abrams, IPC director of government relations and environmental policy, at FernAbrams@ipc.org.

The changes in export controls will update and modify export control lists, licensing policies, and export enforcement. The government will apply new criteria for determining what items need to be controlled. According to the administration, the new criteria will split the existing export control lists into three tiers. “Items in the highest tier are those that provide a critical military or intelligence advantage to the U.S. and are available almost exclusively from the U.S., or items that are a weapon of mass destruction. Items in the middle tier are those that provide a substantial military or intelligence advantage to the U.S. and are available almost exclusively from multilateral partners and Allies. Items in the lowest tier are those that provide a significant military or intelligence advantage but are available more broadly.” (Whitehouse.gov)

The changes in export controls will update and modify export control lists, licensing policies, and export enforcement. The government will apply new criteria for determining what items need to be controlled. According to the administration, the new criteria will split the existing export control lists into three tiers. “Items in the highest tier are those that provide a critical military or intelligence advantage to the U.S. and are available almost exclusively from the U.S., or items that are a weapon of mass destruction. Items in the middle tier are those that provide a substantial military or intelligence advantage to the U.S. and are available almost exclusively from multilateral partners and Allies. Items in the lowest tier are those that provide a significant military or intelligence advantage but are available more broadly.” (Whitehouse.gov)

Once a controlled item is placed into a tier then the item will be evaluated by new export licensing policies. The new licensing policies will be stricter for items that have direct warfare applications and looser for less-military sensitive products. “A [export] license will generally be required for items in the highest tier to all destinations.  Many of the items in the second tier will be authorized for export to multilateral partners and Allies under license exemptions or general authorizations. Items in the lowest tier are those that provide a significant military or intelligence advantage but are available more broadly.” (Whitehouse.gov)

It is expected that electronics companies will be impacted by the changes in U.S. Export controls. The government’s preliminary estimate is that about 32 percent of the total items currently controlled by U.S. export controls may be decontrolled altogether.  Electronics companies should pay close attention to changes, particularly in regulations controlling the export of dual use items, i.e. items that can be used for both commercial and military purposes.

In addition, Departments have already consolidated the export screening lists administered by the Departments of State, Commerce and the Treasury into a common electronic format to facilitate the screening of parties to export transactions to ensure compliance with U.S. export control and sanctions regulations.

View the White House Fact Sheet on these ECR Initiatives

View the White House statement on U.S. Export Control Reform

View the November 2010 White House fact sheet on changes to the U.S. export control system with India

UPDATE! On February 8, 2011 IPC submitted comments on printed boards and assemblies for defense use. IPC provided comments to the State Department urging them to regulate printed boards and printed board assemblies specifically designed for USML items.  The USML is a list of articles, services, and related technology designated as defense related regulated by International Traffic in Arms Regulations (ITAR).

In our comments, IPC recommended that all printed boards specifically designed for USML items be regulated under ITAR. Every printed board is specifically designed to enable electronics in USML items to function.  Embedded within this specific design is a roadmap for the function of the USML item for which it is specifically designed.  By controlling printed boards specifically designed for USML items, the State Department will appropriately identify printed boards that need to be controlled for national security purposes.

IPC discussed that printed boards are essential to a significant number of defense applications regulated by ITAR and are specifically designed for specific functionality in each USML item. Each printed board contains a roadmap on the operation of the USML item for which it is specifically designed. We argued that the State Department should control printed boards in USML items because the information contained within these specifically designed printed boards is unique and extremely valuable.

View IPC Comments on Proposed Changes to the USML regarding printed boards and printed board assemblies.

The changes in U.S. export controls are the result of an interagency study of the export control system by the National Economic and Security Council. Secretary of Defense Robert Gates outlined the much-awaited Obama Administration's plans to restructure the nation's system of export controls. Bringing the Cold War-era system of export controls into the modern age is critical to the strength of the industrial base, and a goal of the IPC government relations committee. The Milken Institute found that modernization would increase exports by nearly $60 billion, spurring research and development while simultaneously improving the protection of the most sensitive technologies. Gates' remarks captured, as only deep experience can, the failings of the current system. For more than 60 years, U.S. Export Controls have suffered a patchwork of fixes with new requirements and cumbersome rules resulting in inefficiency, poor security and lost business for American manufacturers.  

The administration plans to replace the current outmoded systems with a single-tiered control list, a single agency to administer controls, a single enforcement agency, and a uniform, multiagency IT structure to streamline licensing approvals. The administration hopes to implement reforms in three phases. Phase I and II reforms will include immediate improvements to the existing system and establish a framework necessary to create the new system by August 2010. Phase III, which Gates hopes to complete by the end of the year, will complete the transition to the new U.S. export control system and likely will require Congressional legislation.

Secretary Gates presented an ambitious agenda for change that will require unprecedented support and coordination from multiple government agencies and Congress.

View the Fact Sheet on the President's Export Control Reform Initiative

Representative Howard Berman, Chairman of the House of Representatives Foreign Affairs Committee, has already begun a congressional review of U.S. export controls and plans to introduce reform legislation.

U.S. House of Representatives Foreign Affairs Committee July 9, 2009 Hearing on Export Controls

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