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Just about every product we use today probably has components that were shipped from overseas. Obviously, global trade is bidirectional, and many of the products we design in the West will make their way into overseas markets. Some products that are related to defense, even if only tangentially related, may fall under import and export restrictions. The challenges related to these restrictions have only grown over the past few years as East and West have begun to decouple and companies start to nearshore their production capacity.
If a US company uses a 3PL services provider, it’s important to note that the 3PL may be asked to ship or receive components that fall within import/export restrictions. The main set of regulations that companies and their service providers must follow include:
- Export Administration Regulations (EAR)
- International Trade in Arms Regulations (ITAR)
Multiple products fall under the purview of these two sets of regulations, including a variety of electronic components. Many companies may not realize their procurement and logistics activities might also be subject to these regulations and licensing. In this article, I’ll break down what products are affected, and whether your 3PL provider can help ensure compliance.
What Your 3PL Platform Should Do For Compliance
In the world of procurement compliance for US companies, a 3PL services provider engages in "brokering activities" by acting as middlemen or intermediaries for the transfer of goods. ITAR explicitly defines “brokering” in this way with regard to defense items and entries on the United States Munitions List (USML). EAR as it applies to procurement of electronics does not explicitly define “brokering” but does regulate the same activities defined in ITAR, specifically for dual-use items on the Commerce Control List (CCL).
ITAR Compliance
ITAR governs the export and import of defense-related articles and services on the USML. Any person or company involved in the manufacture, export, temporary import, or brokering of items or services on the USML may have to register with the Directorate of Defense Trade Controls (DDTC) and may require appropriate licensing.
If a company engages with a 3PL to facilitate temporarily import or export items on the USML, then the 3PL could be classified as a broker and will be subject to ITAR, particularly if they are exporting overseas. This includes exporting items like electronic modules, electronic systems, or any other electronic/electrical device specifically designed for use in a military application or conforming to a military standard. The requirements include:
- Registration: If a 3PL is involved in the export of defense articles, they may need to register with the DDTC. This registration doesn't necessarily grant the authority to export but is a prerequisite before applying for export licenses or requesting approvals.
- Licensing: Not all exports of USML items require an export license. However, if an export license from the DDTC is required, the exporter would typically be the entity responsible for obtaining the necessary license. Still, 3PLs must ensure that any vendor from which they facilitate an export is properly licensed and that the 3PL is compliant with ITAR brokering requirements.
- Recordkeeping: A 3PL may have recordkeeping requirements under ITAR even if they are not directly responsible for obtaining export licenses.
EAR Compliance
Import/export licensing falls under the purview of EAR, and it spans beyond items on the USML to include dual-use items. While ITAR covers defense articles and services, EAR covers dual-use items even if they do not appear on the USML. This could include electronic components that could reasonably be used for the primary functionality in an electronic system, even if the components were not intentionally built for this application.
What matters for export control and licensing compliance is the product, end use, end user, and destination. Although a particular electronic component may not be listed on the USML, it could still be covered under EAR as a dual-use product. This typically means that ITAR covers entire systems, while EAR could cover individual components used in ITAR-covered systems. 3PLs that facilitate export of dual-use items have a responsibility to maintain the required licenses for these activities.
The Newest Round of Export Restrictions
Just this year (2023), the United States announced a new set of export restrictions that go beyond the traditional items on the Commerce Control List (CCL), US Munitions List, and dual-use items described above. This new set of restrictions includes the following electronic components:
- Any chips manufactured at the newest technology nodes
- RFICs that could support 5G and 6G infrastructure or handsets
- Any processors and ASICs containing dedicated AI processing
- Any chipsets supporting data transfer at or above 600 Gbps
- Electronic products that include any of the above items
- Manufacturing equipment that could be used to produce any of the above items
- EDA/ECAD software that could be used to design any of the above items
For companies importing/exporting from overseas, the first 5 items in this list are most important as they may demand an export license before they can be legally exported. This adds another dimension to your company’s compliance checklist, but it’s one that an experienced 3PL provider can help navigate.
If you want to reduce your compliance burdens and simplify your procurement processes, you need an ITAR-compliant platform like Cofactr. Electronic design teams and procurement professionals use Cofactr to quote, purchase, manage inventory, and manage logistics for their electronic components. Cofactr also provides warehousing and logistics management services through its online platform.