Newsletter 5
Diamonds and Their Dark Legacy: Unveiling the Kimberley Process
In the late 1990s, the allure of diamonds was overshadowed by a grim reality: these precious stones were fuelling brutal civil wars across Africa. Rebel groups exploited diamond revenues to finance conflicts, leading to widespread human rights abuses and regional instability. In response, the international community established the Kimberley Process Certification Scheme (KPCS) in 2003—a collaborative effort among governments, industry, and civil society aimed at preventing the trade of conflict diamonds.
Today, the Kimberley Process encompasses over 80 countries, representing more than 99% of the global diamond trade. While it has significantly curtailed the flow of conflict diamonds, challenges persist, including criticisms about its scope and enforcement mechanisms. In our latest blog post, we delve into the origins, operations, and ongoing debates surrounding the Kimberley Process, shedding light on its role in promoting ethical practices within the diamond industry.
Read the full story: The Kimberley Process - Understanding the Global Fight Against Conflict Diamonds
From Compliance to Competitive Advantage: Rethinking Trade Classification
In today's complex global trade environment, product classification has evolved beyond a mere compliance requirement. Accurate classification is now pivotal for optimizing operations, ensuring regulatory adherence, and unlocking strategic business opportunities. Missteps in this area can lead to significant financial penalties and operational disruptions.
Our latest blog post delves into how organizations can transform their product classification processes into strategic assets. By implementing robust internal frameworks and leveraging cross-functional collaboration, businesses can navigate the intricate landscape of customs and export controls more effectively. Discover how a proactive approach to trade classification can enhance efficiency, reduce risks, and provide a competitive edge in the global marketplace.
Read full article - From Compliance to Competitive Advantage
Our Latest Posts
28 May 2025 - Investigation on Commercial Aircraft Imports
30 May 2025 - Newsletter 4
3 June 2025 - The Kimberley Process
4 June 2025 - From Compliance to Competitive Advantage
5 June 2025 - Sophisticated arms export scheme exposed
Export Control Decoded: Our series continues ....
Want to see what the most used terms in export control compliance are about ? Have a look on our series on trade compliance terminology !
What you get: Official regulatory definitions, real-world examples, and many more. About dual-use goods, technology transfer, defence articles, license requirements and sanctions.
Missed one ? The latest terms we covered:
2 June 2025 - 27 - Deemed Exports
Contact us:
RespectUs, 1 rue de Turi, L-3378 Livange, G.D. Luxembourg
Tel. +352 27 86 41 23, Email contact@respectus.space, Web www.respectus.tech
From Compliance to Competitive Advantage
Transforming your Portfolio Products into Strategic Assets Through Internal Trade Classification Excellence
By Patrick Goergen, The Export Control Expert & Explainer, Founder & CEO, RespectUs, in cooperation with Me Anissa Elmansouri, Attorney at Law, CustomLex, Luxembourg
Part 1
In an increasingly interconnected global economy, companies face mounting challenges in properly classifying their products for customs and export control purposes. This contribution examines the multifaceted obstacles organizations encounter when dealing with tariff schedules, export control regulations, and dual-use restrictions across multiple jurisdictions. Drawing from real-world implementation experiences and regulatory developments, we present a comprehensive framework for establishing effective classification programs that ensure compliance while optimizing operational efficiency.
1. Introduction: The Growing Complexity of Global Trade Compliance
The modern international trade environment presents companies with an unprecedented web of regulatory requirements that extend far beyond traditional customs duties and tariff classifications. As businesses expand their global footprint and supply chains become increasingly complex, organizations find themselves navigating a labyrinth of regulations that span multiple jurisdictions, each with its own interpretation of product classification requirements.
The legal foundation for this complexity stems from the intersection of national sovereignty over trade policy and the need for international harmonization. The WTO's Technical Barriers to Trade Agreement and the Agreement on Import Licensing Procedures further complicate this landscape by establishing additional layers of regulatory oversight that impact classification decisions.
The convergence of traditional customs requirements with evolving export control measures has created a multidimensional compliance challenge that demands strategic, systematic approaches to product classification. Companies must simultaneously optimize duty payments through accurate customs classification while ensuring compliance with export control regulations designed to protect national security interests. This dual obligation often requires different analytical approaches applied to identical products, creating complexity that can overwhelm traditional compliance frameworks.
Recent enforcement statistics from U.S. Customs and Border Protection show that classification-related penalties have increased over the past five years, with significative individual fines for systematic compliance failures. Similarly, the European Commission's annual enforcement report indicates an exponential increase in classification-related investigations since 2019.
The proliferation of international trade agreements, rapidly changing geopolitical landscapes, and continuous technological advancement have intensified these challenges exponentially. Modern products frequently challenge traditional classification boundaries, with multi-functional devices and emerging technologies straining systems designed for simpler, single-purpose items. Meanwhile, export control regimes have expanded their reach through extraterritorial application and enhanced enforcement mechanisms, requiring companies to track and control not only their own products but also the components and technologies embedded within them.
The recent amendments to the U.S. Export Administration Regulations (EAR) regarding emerging and foundational technologies, particularly the October 2022 semiconductor restrictions and the ongoing expansion of controls on artificial intelligence and quantum computing technologies, exemplify the dynamic nature of this regulatory environment.
The stakes for getting classification wrong have never been higher. Misclassification can result in substantial financial penalties, supply chain disruptions, lost market opportunities, and severe reputational damage. Regulatory authorities worldwide have intensified enforcement efforts, employing sophisticated audit techniques and imposing penalties that can reach millions of dollars for systematic compliance failures. Beyond financial consequences, classification errors can trigger enhanced regulatory scrutiny, damage customer relationships, and undermine competitive positioning in global markets.
2. The Multi-Jurisdictional Challenge Landscape
Understanding Customs Classification Complexities
The foundation of international trade classification rests on the World Customs Organization's Harmonized System, a global framework designed to standardize product classification across borders. However, this seemingly uniform system masks significant complexity in its practical application. While the HS provides common six-digit codes for international trade, countries implement their own extensions and interpretations that can dramatically affect classification outcomes.
The WCO's Harmonized System Committee regularly updates the HS through amendments that reflect technological developments and trade pattern changes. The 2022 amendments, which introduced new classifications for electric vehicles, lithium-ion batteries, and digital storage devices, demonstrate the system's ongoing evolution and the need for continuous monitoring of classification requirements.
The European Union's Combined Nomenclature extends HS codes to eight digits, incorporating specific EU trade policy objectives and regulatory requirements. The United States employs a ten-digit Harmonized Tariff Schedule that reflects American trade priorities and domestic industry protections. Other major trading nations have developed their own extensions, creating a scenario where identical products may require different classification codes depending on the destination market.
To address these divergences, companies should leverage the binding tariff information (BTI) system in the EU and the ruling procedures available through U.S. Customs and Border Protection. These mechanisms provide legal certainty for classification decisions and can serve as valuable precedents for similar products.
These national adaptations reflect more than mere administrative preferences. They embody different approaches to trade policy, industrial protection, and regulatory philosophy. A sophisticated electronic device might be classified as telecommunications equipment under one country's system while being treated as a computer component under another's framework. These differences are not merely academic; they can result in duty rate variations of several percentage points and trigger entirely different regulatory requirements.
The challenge extends beyond static classification differences to encompass varying interpretational approaches across jurisdictions. National customs authorities often interpret identical HS provisions differently, leading to classification disparities that can surprise even experienced trade practitioners. What one authority considers the "principal function" of a multi-purpose device, another might characterize as a secondary feature, leading to entirely different classification outcomes.
Regular updates to national tariff schedules compound these interpretational challenges. The EU revises its Combined Nomenclature annually, incorporating new product categories, eliminating obsolete provisions, and adjusting duty rates based on trade policy developments. Other jurisdictions follow different revision cycles, creating a constantly shifting landscape that requires continuous monitoring and periodic reclassification of existing products.
Modern products increasingly challenge traditional classification frameworks in fundamental ways. The proliferation of smart devices that combine computing, communication, and entertainment functions in single units strains classification systems designed when these functions were typically separated. Internet of Things devices that embed sensors, processors, and communication capabilities into traditional industrial equipment create classification dilemmas that existing regulatory frameworks struggle to address consistently.
The rise of artificial intelligence, machine learning, and advanced materials has introduced entirely new categories of products that lack clear classification precedents. Regulatory authorities are still developing approaches to classify these emerging technologies, creating uncertainty for companies operating at the forefront of innovation. The pace of technological change often outstrips the ability of classification systems to adapt, leaving companies to navigate uncharted regulatory territory with limited guidance.
Companies should establish systematic monitoring procedures for tariff schedule updates and maintain relationships with customs authorities in key markets to stay informed of interpretational changes and emerging classification guidance.
Export Control Regulatory Frameworks
Export controls present challenges that are fundamentally different from those encountered in customs classification, yet they must be addressed simultaneously for any comprehensive compliance program. While customs classification focuses primarily on product function and intended use, export controls emphasize technical specifications, performance characteristics, and potential alternative applications.
The landscape of export control regulations spans multiple overlapping frameworks that companies must navigate concurrently. The European Union's Dual-Use Regulation establishes controls on items that have both civilian and military applications, while maintaining separate controls on specifically military equipment. The United States implements parallel controls through the Export Administration Regulations for dual-use items and the International Traffic in Arms Regulations for defense articles, creating a complex matrix of potentially applicable requirements.
These regulatory frameworks employ different analytical approaches that can yield conflicting results for identical products. Dual-use export controls typically focus on technical parameters and performance thresholds, requiring detailed engineering analysis to determine whether products meet or exceed specified capabilities. Military controls emphasize intended design purposes and potential applications, often requiring subjective judgments about whether civilian products are "specially designed" for military applications.
The technical parameter approach employed by dual-use controls creates particular challenges for companies with diverse product portfolios. Export control lists specify precise performance thresholds for various technologies, requiring companies to obtain detailed technical specifications that may not be readily available in standard commercial documentation. Determining whether a communications system can operate at specified frequencies, whether a computer can perform calculations at controlled speeds, or whether a material exhibits controlled strength characteristics often requires specialized engineering analysis that goes far beyond typical commercial product documentation.
End-use and end-user considerations add another layer of complexity to export control analysis. Unlike customs classification, which focuses solely on product characteristics, export controls require assessment of intended applications and ultimate recipients. Products that would be uncontrolled for civilian applications may require licenses when destined for military end-users or specific geographic regions. This dynamic creates compliance obligations that extend beyond product design into customer due diligence and ongoing transaction monitoring.
Cross-Border Regulatory Coordination Challenges
The extraterritorial application of export control regulations has created unprecedented challenges for companies operating global supply chains. The United States Export Administration Regulations (EAR) assert jurisdiction over foreign-produced items that incorporate more than de minimis amounts of U.S. content, effectively extending American export controls to products manufactured entirely outside U.S. territory. This extraterritorial reach requires companies worldwide to track and control U.S. components throughout their supply chains, regardless of their own nationality or manufacturing locations.
The de minimis calculation process exemplifies the complexity of modern export control compliance. Companies must determine the fair market value of U.S. components incorporated into their products, calculate the percentage of total product value represented by these components, and assess whether resulting percentages exceed country-specific thresholds that trigger U.S. regulatory jurisdiction. This analysis requires detailed bill-of-materials information, current market pricing data, and sophisticated understanding of valuation methodologies that many companies lack.
Recent expansions of the Foreign Direct Product Rule have further complicated the landscape by extending U.S. controls to foreign products based on the use of U.S. technology or equipment in their production. This development means that companies may find their products subject to U.S. export controls even when they contain no U.S. components, simply because they were produced using manufacturing equipment or software of U.S. origin. The implications of this expansion are still being understood by industry and regulatory authorities alike.
Companies should conduct comprehensive supply chain mapping exercises to identify potential FDPR exposure and develop contingency plans for managing compliance obligations that may arise from indirect U.S. technology dependencies.
Conflicting regulatory requirements between different jurisdictions create additional compliance challenges that have no clear resolution. European Union blocking regulations prohibit compliance with certain U.S. extraterritorial measures, creating scenarios where companies face mandatory requirements under one legal system that are explicitly prohibited under another. These conflicts force companies to make difficult choices between different regulatory obligations, often requiring careful legal analysis and strategic decision-making at the highest corporate levels.
3. Operational Challenges in Implementation
Data Quality and Availability Obstacles
The foundation of any effective classification program rests on comprehensive, accurate product information that is often surprisingly difficult to obtain within large organizations. Engineering departments may possess detailed technical specifications but lack understanding of regulatory requirements, while procurement teams have supplier relationship knowledge but limited technical depth. This information fragmentation creates significant challenges in assembling the comprehensive product profiles necessary for accurate classification.
Companies should establish formal data governance frameworks that define roles, responsibilities, and procedures for collecting, validating, and maintaining classification-relevant information. These frameworks should include specific requirements for documentation retention periods as mandated by customs and export control regulations, typically ranging from five to ten years depending on jurisdiction.
Supply chain complexity compounds these information challenges exponentially. Modern manufacturing often involves multiple tiers of suppliers, each contributing components, materials, or services to final products. Obtaining accurate information about component specifications, country of origin, and technical capabilities requires coordination across dozens or hundreds of supplier relationships, many of which may be managed at different organizational levels with varying degrees of centralized oversight.
Supplier engagement represents one of the most significant operational challenges in classification implementation. Many suppliers, particularly smaller organizations, lack sophisticated understanding of classification requirements and may struggle to provide necessary information in usable formats. Cultural and language barriers can complicate communication, while competitive concerns may limit suppliers' willingness to share detailed technical specifications or manufacturing processes.
Legacy data issues create additional obstacles for companies seeking to implement comprehensive classification programs. Historical product records may lack the technical detail necessary for current regulatory requirements, having been created when classification demands were less stringent or when different analytical frameworks were employed. Reconstructing necessary information for mature products can require significant investment in reverse engineering or supplier re-engagement that may not be economically justified for products approaching end-of-life.
Information validation presents ongoing challenges that extend well beyond initial data collection. Supplier-provided specifications must be verified for accuracy and completeness, often requiring technical expertise that companies may not possess internally. Origin determinations require analysis of complex manufacturing processes and substantial transformation criteria that can be difficult to verify without detailed supplier audits. Content calculations demand bill-of-materials analysis and fair market value assessments that require specialized expertise and current market intelligence.
Resource and Expertise Requirements
Effective classification requires interdisciplinary expertise that spans regulatory knowledge, technical understanding, and industry-specific experience. Regulatory expertise alone is insufficient; classification specialists must understand how complex legal requirements apply to specific products and technologies. Similarly, technical knowledge without regulatory context often leads to compliance approaches that are technically accurate but operationally impractical or commercially disadvantageous.
The scale and volume challenges facing large organizations create resource requirements that can be difficult to estimate and manage. Companies with thousands or tens of thousands of distinct products may require substantial teams of classification specialists working continuously to establish and maintain current classifications. Building teams with sufficient expertise to handle these volumes while maintaining quality standards requires significant investment in recruitment, training, and retention programs.
Consistency maintenance across large product portfolios, multiple geographic regions, and extended time periods presents ongoing resource challenges. Different classification specialists may reach different conclusions when analyzing similar products, creating inconsistencies that can trigger regulatory scrutiny and undermine compliance confidence. Establishing and maintaining uniform classification standards requires comprehensive training programs, detailed written procedures, and ongoing oversight mechanisms that demand sustained resource commitment.
Cost management considerations force companies to balance classification accuracy against implementation expenses. While comprehensive classification provides optimal compliance assurance, the resources required for detailed analysis of every product may not be economically justified for items with limited commercial significance. Developing risk-based approaches that allocate resources efficiently while maintaining acceptable compliance standards requires sophisticated program design and ongoing performance monitoring.
Technology and System Integration Challenges
Existing enterprise systems within most organizations were designed before current classification requirements evolved to their present complexity. Enterprise Resource Planning (ERP) systems may lack data fields for export control codes, country of origin information, or technical specifications necessary for regulatory analysis. Customer Relationship Management systems typically focus on commercial relationships rather than regulatory requirements, while Product Lifecycle Management platforms may contain technical information in formats incompatible with classification processes.
Workflow integration represents another significant challenge in classification implementation. Standard business processes for product development, procurement, and commercial operations often fail to incorporate classification requirements at appropriate points in decision-making cycles. Products may be designed, sourced, and marketed without consideration of classification implications, creating scenarios where regulatory requirements constrain commercial options after significant investments have been made.
Data integration across multiple systems and organizational boundaries creates technical challenges that can significantly complicate classification implementation. Classification systems must integrate with customs platforms, trade compliance tools, and supply chain management systems while maintaining data integrity and supporting complex approval workflows. These integration requirements often reveal limitations in existing system architectures that can require substantial technology investments to address effectively.
Automation opportunities in classification processes are often more limited than initially anticipated. While pattern recognition and template application can improve efficiency for routine products, complex or unusual items typically require individual analysis that resists automation. Regulatory interpretation frequently demands human judgment and expertise that cannot be readily replicated through algorithmic approaches. Exception handling for products that do not fit standard classification logic often requires escalation to specialized resources that limit automation benefits.
The integration of artificial intelligence and machine learning technologies into classification processes offers significant potential for improving accuracy and efficiency, but requires careful consideration of algorithm transparency, audit trail requirements, and regulatory acceptance of automated decision-making systems.
Part 2 (to be published on 11 June 2025): Strategic Implementation Framework. Best Practices for Operational Excellence. Regional and Industry-Specific Considerations
Part 3 (to be published on 18 June 2025): Emerging Trends and Future Considerations. Implementation Success Factors. Measuring Return on Investment and Program Value. Outlook and Strategic Recommendations. Conclusion
Part 4 (to be published on 25 June 2025): Case Study - From Challenge Identification to Internal and/or Outsourcing Implementation
About the Authors:
Patrick Goergen has a 20 years long experience in working as a lawyer in European and international law, and serving as an Associate Professor in the MBA program of a U.S. university, teaching “Legal Environment of Business”. He is a book author (on media law), speaker (The Export Control Expert & Explainer, www.patrick-goergen.com) and trainer notably on trade compliance questions. He has founded and acts as CEO of the Luxembourg based start-up RespectUs (www.respectus.tech) which has built a digital one-stop-shop platform for export control compliance. He has provided external export control officer and consulting services for exporting companies and institutions for more than 15 years.
Me Anissa Elmansouri, Attorney at Law, Customs Specialist (www.customlex.eu). International legal education (China, United States, Europe). Specialist in customs law, tariff classification and customs litigation. Advises multinational corporations and SMEs on customs matters and represents clients in customs disputes. Expert in risk anticipation and regulatory compliance implementation.
For more information on export control compliance and best practices, feel free to connect or reach out for detailed discussions.
About Export Control Excellence:
"Export Control Excellence" embodies the commitment to mastering the complex landscape of international trade compliance. The title combines the technical discipline of export controls with the aspiration for excellence, signaling that mere compliance is not enough - we strive for outstanding practice and deep expertise. The series serves as a comprehensive guide for practitioners who face the daily challenges of implementing export control requirements in an evolving global business environment. Through practical insights, detailed analysis, and actionable solutions, these contributions aim to elevate export control from a regulatory obligation to a strategic business enabler. Each article builds upon fundamental knowledge while exploring nuanced aspects of export control, from technical assessments to process optimization, helping professionals navigate complex regulations while maintaining business efficiency. This series is designed for both seasoned practitioners seeking to refine their approach and newcomers aiming to build a strong foundation in export control practice.
#ExportControl #Compliance #InternationalTrade #SupplyChain #RiskManagement
Newsletter 4
Behind Every Diamond: The Global Fight Against Blood Diamonds
In the late 1990s, the world discovered a horrifying truth: some of the sparkling diamonds in engagement rings and luxury jewellery were financing brutal civil wars across Africa. These "blood diamonds" fuelled conflicts in Sierra Leone, Angola, and the Democratic Republic of Congo, resulting in hundreds of thousands of deaths and systematic human rights violations. But what emerged from this crisis was one of the most remarkable examples of international cooperation in modern trade governance.
The Kimberley Process Certification Scheme, established in 2003, brings together over 80 countries representing 99% of global diamond trade in an unprecedented alliance between governments, industry, and civil society. Today, an estimated 99.8% of diamonds come from conflict-free sources, transforming an industry once associated with violence into a force for development. From tamper-resistant certificates to industry self-regulation, discover how this innovative system works, its remarkable achievements, and the ongoing challenges in ensuring that every diamond truly sparkles with ethics, not bloodshed.
Read the full story: The Kimberley Process - Understanding the Global Fight Against Conflict Diamonds
Freight Forwarders: Export Control Compliance Partners
Freight forwarders have evolved from simple logistics facilitators to essential compliance guardians in the export control ecosystem, where violations can result in severe penalties and operational disruptions.
The New Reality
Modern forwarders function as compliance partners with distinct verification responsibilities. While exporters maintain primary responsibility for classification and licensing, forwarders leverage their unique visibility into shipping patterns, documentation, and transaction parties to identify potential violations.
Core Compliance Duties
Documentation & Screening - Forwarders must verify export documentation completeness, screen all transaction parties against denied party lists, and ensure license information matches shipment details.
Red Flag Detection- Forwarders are uniquely positioned to spot unusual shipping routes, inconsistent end-user addresses, suspicious packaging, multiple small shipments suggesting license avoidance, and last-minute destination changes.
Liability Framework- Forwarders are held to a "knowing violation" standard, creating an affirmative duty to conduct reasonable due diligence and halt suspicious transactions.
Building Compliance Programs- Effective programs require a risk-based approach focusing resources on high-risk shipments, automated technology for screening and documentation verification, and comprehensive staff training on red flag identification and escalation procedures.
Strategic Advantage- Export control compliance offers competitive benefits: enhanced client confidence, reduced delays, improved risk management, reputation protection, and potential trusted trader status. As regulatory scrutiny intensifies, forwarders who embrace compliance as a strategic asset will thrive in the evolving trade environment.
Read full article: Understanding the Critical Role of Freight Forwarders in Export Control Compliance
Our Latest Posts
MARCH
APRIL
Understanding the Critical Role of Freight Forwarders in Export Control Compliance
EU Adopts New Framework for Coordinating Dual-Use Export Controls
MAY
EU Recognizes 47 Critical Raw Materials Projects as Strategic Under New Framework
The Power of Corporate Self-Disclosure in Export Control Case /Blog
BIS Issues Critical Warning on Chinese Advanced Computing Chips
Export Control Decoded: Our series continues ....
Want to see what the most used terms in export control compliance are about ? Have a look on our series on trade compliance terminology !
What you get: Official regulatory definitions, real-world examples, and many more. About dual-use goods, technology transfer, defence articles, license requirements and sanctions.
Missed one ? The latest terms we covered:
17 March 2025 - 18 - Technical Assistance. 1 April 2025 - 19 - End-Use. 9 April 2025 - 20 - Torture. 16 April 2025 - 21 - Re-Export. 23 April 2025 - 22 - Country. 7 May 2025 - 23 - Territory. 12 May 2025 - 24 - Wassenaar Arrangement. 22 May 2025 - 25 - Embargo. 26 May 2025 - 26 - ITAR
Contact us:
RespectUs, 1 rue de Turi, L-3378 Livange, G.D. Luxembourg
Tel. +352 27 86 41 23, Email contact@respectus.space, Web www.respectus.tech
DOJ Declines Prosecution of USRA in Export Control Case: A Model for Corporate Self-Disclosure
2 May 2025
In a significant development for corporate compliance and cooperation in national security matters, the U.S. Department of Justice (DOJ) recently declined to prosecute the Universities Space Research Association (USRA) for export control violations committed by a former employee. This case offers valuable insights into how companies can effectively navigate potential criminal exposure through timely self-disclosure, cooperation, and remediation.
The Case Background
According to a declination letter dated April 23, 2025, the DOJ's National Security Division and the U.S. Attorney's Office for the Northern District of California chose not to prosecute USRA despite evidence of criminal wrongdoing by one of its employees, Jonathan Soong.
Soong, a program administrator at USRA, was found to have willfully facilitated the sale and export of flight control and optimization software subject to the Export Administration Regulations (EAR) to Beijing University of Aeronautics and Astronautics (Beihang University) in China between April 2017 and September 2020. Beihang University was on the Commerce Department's Entity List due to its involvement in developing military rocket systems and unmanned air vehicle systems, meaning exports to this institution required a specific license from the Department of Commerce.
In addition to these unauthorized exports, Soong also embezzled approximately $161,000 in software license sales by directing purchasers to make payments to his personal account. When NASA and USRA began investigating sales to Chinese purchasers, Soong initially lied and fabricated evidence suggesting he had conducted proper due diligence.
Soong pleaded guilty to these violations in January 2023 and was sentenced to a term of incarceration in April 2023.
Why the DOJ Declined Prosecution
The DOJ's decision not to prosecute USRA was based on several factors outlined in the National Security Division (NSD) Enforcement Policy for Business Organizations and the Principles of Federal Prosecution of Business Organizations:
Timely and Voluntary Self-Disclosure: USRA disclosed the misconduct to the National Security Division less than three months after retaining outside counsel and within days of Soong's admission of wrongdoing, well before completing their internal investigation.
Exceptional Cooperation: The company disclosed all known relevant facts about the misconduct and individuals involved, preserved and collected relevant documents (including overseas and third-party documents), and provided translations where necessary. This cooperation materially assisted the government's prosecution of Soong.
Nature of the Offense: The DOJ considered that there were only four unlicensed exports of software in violation of the EAR, and the software itself was based on information from a publicly available textbook and classified as EAR99 (the lowest level of export control).
Timely Remediation: USRA terminated Soong and disciplined a supervisory employee who failed to properly supervise him. The company significantly improved its internal controls and compliance program and made restitution by repaying $94,000 of Soong's salary to NASA and compensating the U.S. Treasury for the $161,000 embezzled by Soong.
Corporate Lessons and Takeaways
This case highlights several critical lessons for organizations dealing with potential export control or other regulatory violations:
1. The Value of Prompt Self-Disclosure
USRA's decision to self-disclose the violations promptly after discovery was a crucial factor in the DOJ's declination decision. Rather than waiting until its internal investigation was complete, USRA reported the potential violations within days of learning about them.
2. Thorough and Proactive Cooperation
The company's "exceptional and proactive cooperation" included providing all relevant information about the misconduct, preserving and collecting evidence (including overseas documents and translations), and ongoing cooperation throughout the government's investigation.
3. Effective Remediation
USRA not only terminated the employee responsible but also held supervisors accountable, improved its compliance program, and made financial restitution to affected government agencies.
4. Transparency and Accountability
Throughout the process, USRA maintained transparency with investigators and took responsibility for its role in failing to prevent the violations.
The Broader Impact
This case represents only the second time that the National Security Division has exercised its discretion to decline prosecution of a company under the NSD Enforcement Policy. As noted by Sue J. Bai, head of the Justice Department's National Security Division: "If we stay vigilant, all of us — including our citizens, small businesses, and large corporations — can play a critical role in protecting our country."
The DOJ's approach in this case sends a clear message that companies that discover potential violations and respond with prompt self-disclosure, full cooperation, and appropriate remediation can avoid prosecution. This incentive-based approach seeks to encourage corporate vigilance and partnership with government agencies in protecting national security interests.
Conclusion
The USRA case serves as a valuable blueprint for how companies should respond when they discover potential export control or other regulatory violations. By acting quickly, cooperating fully, and remediating comprehensively, organizations can significantly mitigate their potential criminal exposure while assisting the government in holding individual wrongdoers accountable.
For businesses operating in areas subject to export controls or other sensitive regulatory regimes, this case underscores the importance of robust compliance programs, vigilant oversight, and a culture that encourages the prompt reporting and resolution of potential violations.
Link: U.S. DOJ Press Release, 30 April 2025
Patrick Goergen, Founder & CEO, RespectUs. The Export Control Expert & Explainer.
2 May 2025
Export Control Enforcement Intensifies: ITAR Violations and Supply Chain Security in Focus - The Quadrant Magnetics case
The U.S. Department of Justice has significantly ramped up enforcement actions against export control violations, with recent high-profile cases highlighting the intersection of supply chain vulnerabilities and ITAR (International Traffic in Arms Regulations) compliance failures.
Recent Case Developments
In December 2024, Hang "Cody" Sun, a Chinese national who is also a U.S. legal permanent resident (green card holder), was indicted on multiple serious charges including conspiracy, wire fraud, smuggling, and violating the Arms Export Control Act. The indictment alleges that between 2012 and 2018, Sun participated in a scheme to unlawfully transmit approximately 70 export-controlled technical drawings to a company in China without obtaining the required licenses from the U.S. government.
These technical drawings weren't insignificant - they contained sensitive data related to critical defense applications including aviation systems, submarines, radar technologies, tanks, mortars, missiles, infrared and thermal imaging targeting systems, and fire control systems for the Department of Defense.
The case connects directly to Quadrant Magnetics, a Kentucky-based manufacturer specializing in rare earth magnetics. The indictment alleges that Quadrant imported rare earth magnets that were smelted and magnetized in China, then sold these components to U.S. companies who incorporated them into defense systems including F-16 and F-18 aircraft. This violates the Defense Acquisition Regulations System (DFARS), which mandates that specialty metals sold to the DOD must be produced in the United States or approved countries - a list that explicitly excludes China.
Executive Accountability
In a related development, two senior executives at Quadrant Magnetics, Phil Pascoe and Scott Tubbs, recently pleaded guilty to charges stemming from the unlawful transmission of ITAR-controlled technical data to a Chinese affiliate. Their guilty pleas, entered in February 2025, acknowledge knowing violations of U.S. export control laws, with sentencing scheduled for June 2025.
Rare earth minerals
Understanding ITAR Classification
These cases highlight the critical importance of properly understanding ITAR classification. The International Traffic in Arms Regulations strictly control the export of defense articles, services, and technical data that appear on the United States Munitions List (USML).
The technical data in these cases fell under ITAR jurisdiction because they related to defense articles with military applications. Even seemingly commercial components like rare earth magnets can fall under ITAR when they're designed or modified for military end-use, as was the case with components intended for F-16 and F-18 aircraft.
Supply Chain Vulnerabilities Exposed
These prosecutions expose significant vulnerabilities in defense supply chains:
Opaque Sourcing: Components originating from non-approved countries being integrated into critical defense systems
Technical Data Leakage: Proprietary design specifications flowing to foreign entities without proper controls
Documentation Fraud: Misrepresenting the country of origin for strategic materials
Regulatory Circumvention: Deliberately bypassing DFARS requirements for specialty metals
Compliance Implications for Organizations
For businesses operating in regulated industries with international connections, these cases offer several critical lessons:
Enhanced Due Diligence: Thoroughly vet all supply chain partners and maintain visibility throughout multi-tier supplier networks
Robust Classification Protocols: Implement systematic processes to correctly identify ITAR-controlled technical data and components
Technical Data Controls: Establish rigorous safeguards for sensitive technical information, especially when collaborating with international affiliates
Executive Accountability: Ensure leadership understands their personal liability for compliance failures
Training Programs: Develop comprehensive education for all employees handling potentially controlled materials or information
As geopolitical tensions increase and technological sovereignty becomes a national priority, companies must treat export compliance as a strategic imperative, not merely a regulatory burden. The consequences of failure - as these cases demonstrate - extend far beyond corporate fines to include personal criminal liability for executives.
#ExportCompliance #ITAR #SupplyChainSecurity #InternationalTrade #CorporateCompliance #NationalSecurity #DefenseIndustry #RegulatoryCompliance
Patrick Goergen, Founder & CEO, RespectUs. The Export control Expert & Explainer.
🇪🇺 EU Regulatory Update: EU Common Military List Updated
Marine boat
🇪🇺 EU Regulatory Update: COMMON MILITARY LIST OF THE EUROPEAN UNION Updated
The EU Council adopted on 24 February 2025 the new version (2025) of the EU Common Military List.
This list indicates, in 22 categories, ML1 to ML22, the equipment (hardware, software and technology) covered by Council Common Position 2008/944/CFSP defining common rules governing the control of exports of military technology and equipment.
The list of 25 February 2025 replaces the previous version of 19 February 2024. It will constitute the basis for a new version of the Annex to EU Directive 2009/43 on defence-related products, that will be published in the next 6-9 months.
Link to the new list: https://zurl.co/R7mrt
Understanding the Critical Differences: "EAR99", "ECCN None," and "Not Subject to the EAR"
EAR99. ECCN None. Not subject to EAR.
In the complex world of export compliance, seemingly similar classification terms can have significantly different implications. Three key designations that often cause confusion are EAR99, "ECCN None," and "Not Subject to the EAR." While they might appear interchangeable to the uninitiated, understanding their distinct meanings is crucial for proper export compliance. Let me clarify these important differences.
What is EAR99?
EAR99 is a positive classification category under the Export Administration Regulations (EAR) administered by the U.S. Bureau of Industry and Security (BIS). It serves as a "catch-all" designation for items that:
Are subject to the EAR
Are not listed on the Commerce Control List (CCL)
Have been properly evaluated and classified
EAR99 items generally consist of low-technology consumer goods that do not require a license for many destinations, except to embargoed countries, to denied parties, or for prohibited end-uses.
What is "ECCN None"?
An Export Control Classification Number (ECCN) is a five-character alphanumeric designation used in the Commerce Control List (CCL) to identify dual-use items (items with both commercial and military or proliferation applications) that are subject to U.S. export controls. If a product is not classified as EAR99, it must be assigned a specific ECCN.
ECCNs follow a structured format:
First digit: Category (0-9) 0: Nuclear Materials, Facilities and Equipment 1: Materials, Chemicals, Microorganisms, and Toxins 2: Materials Processing 3: Electronics 4: Computers 5: Telecommunications and Information Security 6: Sensors and Lasers 7: Navigation and Avionics 8: Marine 9: Aerospace and Propulsion
Second character: Product Group (A-E) A: Systems, Equipment and Components B: Test, Inspection and Production Equipment C: Materials D: Software E: Technology
Last three digits: Specific controls within each category and group
For example, an ECCN of 3A001 indicates Electronics (3), Systems, Equipment and Components (A), and the specific control number 001.
"ECCN None" is not an official classification category but rather indicates that:
No Export Control Classification Number has been assigned or determined
The classification process is incomplete or has not been performed
The item's status under the EAR is uncertain or undetermined
"ECCN None" essentially means "not yet classified" or "classification pending" and represents a placeholder rather than a definitive export classification.
What About Items Not Subject to the EAR?
Not all items fall under the jurisdiction of the Export Administration Regulations. When an item is determined to be "Not Subject to the EAR," this is fundamentally different from both EAR99 and "ECCN None" classifications. This determination means:
The item falls outside BIS jurisdiction completely
EAR regulations do not apply to the item
No ECCN or EAR99 classification is applicable
Items might be "Not Subject to the EAR" for several reasons:
Exclusively controlled by another agency: Items exclusively controlled by other U.S. government agencies such as:
Public domain information: Information and software that are published and generally accessible to the public
Foreign-made items with minimal U.S. content: Items made outside the United States that contain less than the de minimis level of U.S.-controlled content
Items with no U.S. connection: Foreign-made items that are not the direct product of U.S. technology or software
It is important to properly document when an item is "Not Subject to the EAR" and the rationale for this determination. This classification should never be used as a default when proper analysis has not been conducted.
Key Differences
The Danger of Confusion
Treating "ECCN None" as equivalent to EAR99 can lead to serious compliance violations. When an exporter indicates "ECCN None," they are essentially stating they have not completed the necessary classification work. This can result in:
Improper license determinations
Potential unlicensed exports of controlled items
Export compliance violations
Significant penalties and fines
Reputational damage
Determining the Correct Classification
When a product is not EAR99, determining the proper ECCN requires careful analysis:
Evaluate product specifications: Review technical parameters, functions, and capabilities
Match to CCL entries: Compare the product characteristics to specific entries in the CCL
Consider the "catch and release" process: Check if the item is caught by a specific ECCN description but released by exceptions or notes
Apply the "specially designed" analysis: Determine if the item meets the criteria for being "specially designed" for particular applications
Consider the most specific applicable ECCN: When multiple ECCNs might apply, use the most specific one.
Remember that "ECCN None" is never an acceptable final classification. Every item subject to the EAR must either have a specific ECCN from the CCL or be properly classified as EAR99.
Best Practices
To ensure proper compliance:
Always complete classification: Never leave an item as "ECCN None" for export purposes
Document your process: Keep records of how you determined an item is EAR99 or assigned a specific ECCN
Regularly review classifications: Technologies and regulations change, requiring updates
When in doubt, seek guidance: Consult with export compliance experts or request a classification ruling from BIS
Implement proper training: Ensure staff understands the classification process and the distinction between these terms
Maintain a classification database: Track all product classifications in a centralized system
The Complete Classification Framework
To properly classify items for export control purposes, organizations should follow this hierarchical process:
Jurisdiction determination: Is the item subject to the EAR or controlled by another agency?
CCL analysis: Does the item match any ECCN description?
License determination: Based on the classification (ECCN or EAR99), destination country, end-user, and end-use, determine if a license is required
This structured approach ensures compliance and proper handling of all items according to their regulatory requirements.
Conclusion
Understanding the differences between EAR99, "ECCN None," and "Not Subject to the EAR" is crucial for export compliance. Each designation has distinct meanings and compliance implications:
EAR99: A positive classification for items subject to the EAR but not on the CCL
"ECCN None": An incomplete classification state that requires resolution
Not Subject to the EAR: A determination that the item falls outside EAR jurisdiction entirely
Export compliance requires precision and attention to detail. Understanding these distinctions is fundamental to building a robust compliance program and avoiding costly mistakes.
Patrick Goergen, Founder & CEO, RespectUs
The Export Control Expert & Explainer, 10 March 2025
Understanding 'Final Destination Country' in Export Control: A Critical Guide for Compliance
Final Destination Country in Export Control
First published on 20 January 2025. By Patrick Goergen, The Export Control Expert & Explainer, CEO of RespectUs.
Export Control Excellence
In today's complex global supply chains, determining the "final destination country" of exported goods has become increasingly challenging yet crucial for export control compliance. With multi-step transactions, intermediate processing, and integrated manufacturing becoming the norm, companies must navigate a complex web of regulations to ensure compliance with export control requirements, particularly under EU Regulation 2021/821 on dual-use items and Directive 2009/43 on defence-related products.
1 - The Challenge
The traditional export process where goods moved directly from manufacturer to end-user has become increasingly rare. Modern supply chains now frequently involve multiple countries and transit points, integration of components into larger systems, re-export scenarios, and complex manufacturing processes within global distribution networks. This complexity creates significant challenges in determining the actual "final destination country" - a critical factor for export control compliance, licensing requirements, and risk assessment.
2 - Three Critical Scenarios
2.1. Direct Re-export Scenario
The first scenario involves goods that are exported to an intermediate country and subsequently re-exported without any modification or processing. While this might appear straightforward, it presents significant compliance challenges under export control regulations.
In this scenario, when a company in a EU country A exports controlled items to their client in Country B, knowing that this client will re-export these items to another entity in Country C without modification, Country C must be considered the final destination country. This determination carries important implications for licensing requirements and risk assessment.
The exporter's obligations extend beyond the initial shipment to Country B. They must assess the entire transaction chain, including the ultimate destination's compliance requirements. Knowledge of intended re-export creates additional due diligence obligations, requiring verification of both the intermediate and final destinations against restricted party lists and embargoed country regulations.
Documentation becomes particularly crucial in these cases. The exporter should maintain records demonstrating their knowledge of the entire transaction chain, including end-use certificates and intended use declarations from both the intermediate and final recipients. This documentation will serve as crucial evidence of compliance in case of regulatory scrutiny.
2.2. Substantial Transformation Scenario
The second scenario involves a more complex determination when goods are exported to an intermediate country where they undergo substantial transformation before being exported as new products to another destination. This transformation process fundamentally alters the compliance obligations.
Consider a controlled machine tool component exported from the EU to Country B, where it undergoes substantial manufacturing processes to become part of a civilian manufacturing system later exported to Country C. The determination of final destination depends on the degree of transformation and integration.
Substantial transformation occurs when the exported item loses its original identity through manufacturing, processing, or assembly operations. This transformation must be fundamental, resulting in a new product with different characteristics and uses. The assessment considers multiple factors: the degree of transformation, value addition percentage (typically requiring more than 45% value addition), changes in tariff classification, and modification of technical characteristics.
For instance, if raw materials or basic components are transformed into a completely different product with new functionalities and characteristics, Country B would typically be considered the final destination country. This determination relies on technical assessments, value calculations, and detailed documentation of the transformation process.
2.3. Partial Integration Scenario
The third and most complex scenario involves partial integration where the exported item maintains its original controlled characteristics despite being incorporated into a larger system. This scenario requires the most nuanced analysis and often presents the greatest compliance challenges.
An example would be a controlled semiconductor being integrated into a larger electronic system while maintaining its original capabilities and characteristics. In this case, even though the item becomes part of a larger system, its essential controlled nature remains unchanged and it could potentially be extracted or continue to provide its original function.
Several key factors must be evaluated: the retention of controlled characteristics, the possibility and economic viability of extraction, the continued functionality within the new system, and the contribution to the end product's capabilities. If the controlled item maintains its essential characteristics and can be extracted or continues to serve its original purpose, the country where the final system will be used should typically be considered the final destination country.
The analysis must consider technical specifications, integration methods, and the relationship between the controlled item and the larger system. Documentation should include detailed technical assessments, integration specifications, and clear explanations of how the controlled characteristics are maintained.
3. Technical Criteria for Transformation Assessment
The determination of substantial transformation requires a systematic technical analysis based on multiple criteria. This assessment is crucial for determining the final destination country and must be documented thoroughly for compliance purposes.
3.1. Physical Transformation Assessment
The physical transformation of the item must be evaluated through several technical parameters. The assessment begins with the physical state of the original controlled item and tracks changes through the manufacturing or integration process. Key physical parameters include molecular or material changes, structural modifications, and physical binding characteristics.
For example, when semiconductor materials are processed into integrated circuits, the physical transformation includes crystal growth, doping processes, and layer deposition, resulting in fundamentally different physical properties.
3.2. Functional Analysis
The functional analysis examines changes in the item's operational capabilities and characteristics. This includes evaluation of primary functions, secondary capabilities, and operational parameters. The assessment must determine whether the original controlled functions remain accessible or have been fundamentally altered.
For instance, when a controlled encryption module is integrated into a larger system, the analysis must determine if its encryption capabilities remain independently functional or have been irreversibly merged into the system's overall functionality.
3.3. Technical Performance Metrics
Specific technical metrics must be evaluated to determine the degree of transformation.
Performance Parameters: Changes in key performance indicators must be quantified. This includes processing speed, power consumption, accuracy rates, and other measurable parameters specific to the item's function.
Technical Specifications: Comparison of original versus transformed specifications, including operating ranges, environmental tolerances, and technical limitations.
Integration Dependencies: Assessment of technical interdependencies created during integration, including power supply requirements, control systems, and operational interfaces.
3.4. Value Engineering Analysis
The technical value analysis must consider several quantifiable factors:
Manufacturing Process Complexity: Assessment of the number and sophistication of manufacturing steps, equipment requirements, and technical expertise needed for the transformation.
Component Relationship Analysis: Evaluation of the technical relationship between the controlled item and other components in the final product, including dependency mapping and functional hierarchy.
Technical Value Addition: Quantification of technical improvements or modifications, including enhanced capabilities, new functionalities, and performance improvements.
3.5. Extraction and Reversibility Assessment
The technical feasibility of extraction must be evaluated through detailed analysis:
Physical Extraction: Technical assessment of the physical possibility of separating the controlled item from the final product without destruction.
Functional Recovery: Evaluation of whether original functions can be recovered after theoretical extraction.
Economic Analysis: Technical cost assessment of extraction processes, including required equipment, expertise, and time.
3.6. Technical Documentation Requirements
The transformation assessment must be supported by comprehensive technical documentation:
Process Documentation: Detailed technical descriptions of each transformation step, including equipment specifications, process parameters, and quality control measures.
Test Results: Documentation of performance tests, functional analyses, and technical comparisons between original and transformed states.
Technical Specifications: Comprehensive documentation of original and final technical characteristics, including detailed engineering drawings, specifications, and performance data.
3.7. Integration Analysis Framework
A systematic framework for assessing technical integration includes:
Interface Analysis: Technical evaluation of all physical and functional interfaces between the controlled item and the larger system.
Dependency Mapping: Documentation of technical dependencies created during integration, including control systems, power supplies, and operational requirements.
System Architecture: Analysis of the controlled item's position and role within the overall system architecture.
4. Regulatory Framework Comparison: EU vs. U.S. Approaches
4.1. European Union Framework
The previous analysis is primarily based on EU Regulation 2021/821 (the EU Dual-Use Regulation) and related guidance. The EU approach focuses on:
The definition of "exporter" in Article 2(3) of Regulation 2021/821, which emphasizes the party who determines the destination of dual-use items.
Article 4 of Regulation 2021/821 provisions regarding end-use controls and technical assistance.
EU customs legislation principles regarding substantial transformation and origin determination.
4.2. United States Framework
Under U.S. export control law, the concept of "final destination country" is addressed through multiple regulatory provisions and Bureau of Industry and Security (BIS) guidance. The legal framework primarily stems from the Export Administration Regulations (EAR) and is supplemented by various interpretative rules and enforcement actions.
The EAR define the final destination as the country where the items being exported will ultimately be used or consumed. However, this seemingly straightforward definition becomes complex through various regulatory provisions:
The determination of final destination requires identification of the "ultimate consignee" - the principal party in interest who receives uses the items abroad. The regulations establish that the ultimate consignee is n ot a forwarding agent or other intermediary, but may be the final end-user (EAR §748.5). The end-user, on the contrary, is the person that receives and ultimately uses the exported or reexported items, and may be the purchaser (who has entered into the transaction into the transaction an item for delivery to the ultimate consignee) or ultimate consignee.
The EAR provide specific guidance for items that undergo processing or incorporation.
In case of direct incorporation, when U.S.-origin items are incorporated into foreign-made products, the the location of the manufacturer performing the incorporation is generally considered the destination (EAR §734.3). The de minimis rules (EAR §734.4) determine whether the resulting foreign-made product remains subject to the EAR. Additional licensing requirements may apply based on end-use and end-user controls.
For items undergoing manufacturing or processing, the substantial transformation test determines whether a new country of origin is established. BIS considers factors such as complexity, degree of processing, and value addition. The cost and sophistication of the processing are relevant factors.
Special rules apply when items are integrated into defense articles. ITAR regulations may then supersede EAR requirements. The "see-through rule" may apply, maintaining U.S. jurisdiction. Defense service considerations may affect destination determination
Special considerations apply for technology exports, temporary exports and cerain distribution scenarios (consignment arrangements, distribution agreements, warehousing arrangements and drop shipment scenarios).
The EAR implement a "know or have reason to know" standard regarding final destination determination. Exporters must exercise due diligence in determining the ultimate destination and resolve red flags before proceeding with the export.
4.3. Practical Implications for Global Companies
Companies dealing with both jurisdictions must maintain parallel compliance processes to satisfy both regulatory frameworks, particularly regarding content calculations, documentation requirements, assessment methodologies and record-keeping systems.
These processes must consider variations in technical assessments (EU focus on functional transformation, U.S. emphasis on content tracking and calculations) and different risk factors under each system (with EU more emphasizing on technical capability and end-use, while the U.S. focusing on content percentages and destination controls).
5. Implementation and Risk Management
Effective implementation of final destination determination requires robust systems and procedures. Companies should establish comprehensive compliance programs that include clear decision-making frameworks, technical assessment capabilities, and strong documentation practices. Regular training ensures that staff understand the complexities of these determinations and their significance for compliance.
Risk management procedures should be thorough and systematic, incorporating regular assessments and reviews. Companies need to maintain detailed records of their decision-making processes, technical assessments, and compliance measures. Communication channels must be established to ensure effective coordination between all parties involved in the export chain.
Conclusion
Determining the final destination country in export control requires sophisticated understanding and careful implementation of compliance measures. Success depends on clear understanding of regulations, robust compliance procedures, comprehensive documentation, regular training, and strong communication channels.
The cost of non-compliance can be significant, but with proper procedures and precautions, companies can navigate these requirements effectively while maintaining efficient operations.
About the Author:
Patrick Goergen has a 20 years long experience in working as a lawyer in European and international law, and serving as an Associate Professor in the MBA program of a U.S. university, teaching “Legal Environment of Business”. He is a book author (on media law), speaker (The Export Control Expert & Explainer, www.patrick-goergen.com) and trainer notably on trade compliance questions. He has founded and acts as CEO of the Luxembourg based start-up RespectUs (www.respectus.space) which has built a digital one-stop-shop platform for export control compliance. He has provided external export control officer and consulting services for exporting companies and institutions for more than 15 years.
For more information on export control compliance and best practices, feel free to connect or reach out for detailed discussions.
About Export Control Excellence:
"Export Control Excellence" embodies the commitment to mastering the complex landscape of international trade compliance. The title combines the technical discipline of export controls with the aspiration for excellence, signaling that mere compliance is not enough - we strive for outstanding practice and deep expertise. The series serves as a comprehensive guide for practitioners who face the daily challenges of implementing export control requirements in an evolving global business environment. Through practical insights, detailed analysis, and actionable solutions, these contributions aim to elevate export control from a regulatory obligation to a strategic business enabler. Each article builds upon fundamental knowledge while exploring nuanced aspects of export control, from technical assessments to process optimization, helping professionals navigate complex regulations while maintaining business efficiency. This series is designed for both seasoned practitioners seeking to refine their approach and newcomers aiming to build a strong foundation in export control practice.
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Newsletter 2 ! With HS Code, Risk Assessment and more.
HS Code & Classification - One takes it all
Everyone knows the HS Code. But are you aware how structured the decision making process is ?
A brief reminder
The Harmonized Commodity Description and Coding System generally referred to as "Harmonized System" or simply "HS" is a multipurpose international product nomenclature developed by the World Customs Organization (WCO).
It is governed by "The International Convention on the Harmonized Commodity Description and Coding System" and amended every 5 years.
The system is used by more than 200 countries and economies as a basis for their Customs tariffs and for the collection of international trade statistics. Over 98 % of the merchandise in international trade is classified in terms of the HS.
The HS comprises over 5,600 separate groups of goods identified by a 6-digit code (“HS Code”).
Among the maintenance of the HS, measures are being taken to secure uniform interpretation of the HS and its periodic updating in light of developments in technology and changes in trade patterns. The WCO manages this process through the Harmonized System Committee (representing the Contracting Parties to the HS Convention), which examines policy matters, takes decisions on classification questions, settles disputes and prepares amendments to the Explanatory Notes.
Harmonized System Committee
One of the HSC’s main roles is to take all measures required to secure uniformity in the interpretation and application of the Harmonized System.
Because the WCO is an intergovernmental organization, classification issues are brought to the attention of the national Customs administration concerned or another intergovernmental organization, which might then ask the WCO Secretariat to place the issue on the agenda of the Harmonized System Committee. The International Chamber of Commerce (ICC) participates as an industry representative and observer in meetings of the Harmonized System Committee.
The measures taken following the examination of a classification question can vary depending on the type of case examined
In cases where classification is already clearly determined by a Harmonized System heading or the text of the Explanatory Notes, and consequently raises no particular problems, the Committee may decide simply to refer to the question in the Report of the session at which the question was examined.
In cases where the question raised is of particular interest, the Committee may decide to issue a Classification Opinion, generally accompanied by a description of the product classified, and of its use. These Opinions may sometimes contain indicative illustrations.
These classification opinions have a great impact on how WCO Member States are classifying products in the HS. And sometimes, they have to amend their own rules if the Harmonized System Committee.
A concrete example: LED strips
In 2013, the European Union (EU) classified an article (so-called ‘LED strip’) comprising light-emitting diodes (LED), transistors, resistors and protection diodes, designed to be used, for example, in furniture as a lighting fitting, under CN code 9405 40 99 as ‘other lighting fittings’.
As the article consisted of a printed circuit assembly, it did not fulfil the conditions for semiconductor devices or a discrete LED within the meaning of heading 8541 , and the article had all the objective characteristics of a lighting fitting of heading 9405 . Consequently, classification under headings 8541 and 8543 were excluded. Given its objective characteristics the article had the essential character of a complete lighting fitting of heading 9405 as to function it only needs to be connected to a power supply.
In September 2022, the Harmonized System Committee (HSC) of the World Customs Organisation (WCO) approved classification opinion 8539.51/1 classifying a product called ‘tape lights’, a flexible indoor LED tape light, 24 V, 1,3 W, cool white. The tape lights are linkable sections of modular lighting products that consist of 18 LEDs aligned along the length of each of the sections and have LEDs connected on a printed circuit board (PCB). It is used, for example, for task and accent lighting in kitchen cabinets, back lighting and hard to reach areas. It was classified in HS subheading 8539.51 and according to its objective characteristics, corresponds to CN Code 8539 51 00 , as light-emitting diode (LED) modules.
Given the identical or very similar characteristics of the product with the LED Strip classified by the EU in 2013, the EU tariff classification was not anymore in accordance with the WCO classification opinion 8539.51/1.
As the EU is a contracting party of the International Convention on the Harmonized Commodity Description and Coding System, classification opinions approved by the HSC are guidance instruments for Union tariff measures.
With a view to securing uniformity in the interpretation and application of the Harmonized System at international level and considering that the decision of the HSC is in conformity with the wording of HS subheading 8539.51, the EU has now decided to apply classification opinion 8539.51/1 and repeal its Implementing Regulation (EU) No 708/2013.
Export Control Strength/Weakness & Risk Assessment Template
Elevate Your Export Control Compliance Program!
After years of working with companies on export control compliance, and particularly in risk assessments, RespectUs are sharing their comprehensive Strength/Weakness Assessment Template.
This powerful tool helps to:
✅ Evaluate 11 critical areas of your export compliance program
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Perfect for Compliance Officers, Export Control Managers, Legal Teams, Risk Management Professionals, and Quality Assurance Teams
The template covers everything from Management Commitment to Technology Controls, including:
📋 Export Authorization
🎯 Screening Procedures
📚 Training & Awareness
🔍 Product Classification
⚠️ Catch-All Controls...and much more!
It also forms the basis of a priority-based action plan.
Do you want a copy of this template? Send an email to RespectUs (details below).
Our Latest Posts
5 Feb 2025 - Just released: The European Commission's 2022 Annual Report on Dual-Use Export Controls
6 Feb 2025 - Important Update: U.S. Department of State Announces Major ITAR Amendments
7 Feb 2025 - Wrapped up a successful 2.5-day export control training for one of our clients this week
Export Control Decoded: Our series continues ....
Want to see what the most used terms in export control compliance are about ? Have a look on our series on trade compliance terminology!
What you get: Official regulatory definitions, real-world examples, and many more. About dual-use goods, technology transfer, defence articles, license requirements and sanctions.
Missed one ? The latest terms we covered:
4 Feb 2025 - 12 - Security
10 Feb 2025 - 13 - Technology
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18 March 2025 - Export Control Workshop: Risk Assessment Framework for Logistics Companies
🗓️ Date: Tuesday, March 18th, 2025
⏰ Time: 9:00 - 16:00
📍 Location: Chamber of Commerce, Kirchberg - Luxembourg
Organized by the Cluster for Logistics Luxembourg.
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