Brief Introduction to Export Licensing Controls on goods, technology and software

The UK has more than the average number of high-tech businesses and companies supplying military designed goods both within the UK and outside.  This brings with it a number of compliance issues and, though the UK Government, UKTI and the Chamber network, do their very best in providing support in these specially controlled areas, some businesses still don’t know that they come under specific regulations – especially if shipping goods, software and/ or technology outside the UK.  Unfortunately, they don’t know until there goods are stopped by customs at export or they get a visit from HM Revenue & Customs.  The penalties are not to be ignored:

- Strict liability offence, eg export or attempted export of controlled goods/technology without a licence

  • Goods liable to seizure
  • Penalty of up to 3x the value of the goods/technology
  • With knowledge of WMD end-use, up to 2years imprisonment
    - Deliberate act with intent to evade controls
  • Magistrates court - £5,000 or 3x value of the goods (whichever greater) and/or 6 months imprisonment
  • Crown Court – 10 years imprisonment and/ or unlimited fine

Sounds scary – but only around 5% of UK exports come under these controls.  As an exporter you legally have to know if and when these controls affect you.

There are two level s of export licensing controls

1.      Goods and technology specifically designed for military use and high grade/ high technology products which, though not designed for military use, could be used in that area.  These are known as strategic goods. 

2.      In addition, exporters must also be aware of current embargoes and sanctions levied by a number of bodies and authorities including UK, EU, USA, UN and OSCE and the “Catch-All” controls that relate to goods/technology that may be used in any nuclear explosive activity or unsafeguarded nuclear fuel cycle.  

If you are asked to specially design, develop, adapt, configure or re-configure goods or technology for a military end-use then you will come under the Military List controls and an export licence will be required before you can supply the technology or goods outside the UK. 

It you don’t specially design for military end-use you can still be caught under the regulations if the inherent capabilities of your products mean they would be “useful” in such an environment without modification.  This can include the fact that goods have a high level of encryption built-in.  These are called dual-use goods – a very misunderstood phrase. Firstly, dual-use does not mean something used by both military and civil end-users it comes down to its technical capabilities. 

Some examples of products/ technology defined as dual-use include (but not exclusive to):

1.      The inherent capabilities can be the materials they are made of eg withstanding very high or low temperatures like some o-rings, seals made of specific types of fluorinated compounds

2.      Materials, metals or semi-produced items, eg nickel tubes/ pipes specially designed for named products, eg heat exchangers

3.      Equipment used to manufacture or test high tech items, eg lathes

4.      Chemicals and related items, eg glass flask that can withstand very high/low temperatures without breaking

5.      Para-military items, including security and surveillance equipment

6.      Electronics (eg microprocessors), computer and telecommunications equipment dependent on their technical capabilities

7.      Encryption levels in goods (eg servers, routers) and software

8.      Cutting-edge technology in the field, eg laser technology

9.      Some aerospace, marine and satellite goods 

The full UK Strategic Export Controls Lists can be found at www.gov.uk

The levels of technology on which the dual-use regulations are set, are based on a multi-country agreement called the Wassenaar Arrangement.  Full member countries include all EU member states plus Australia, Japan, Norway, Switzerland, New Zealand, Canada and the USA, there are also other observer countries.  Each country then sets out its own dual-use controls based on the Wassenaar Arrangement.  In the USA dual-use regulations are within the Export Administration Regulations (EAR) and products are either EAR99 (below the level of control) or given a specific category number called an Export Classification Code Number or ECCN, eg 5A001. The UK has a common Dual-Use List within the EU, but this doesn’t mean you can just move items caught under these controls around without doing anything – you must maintain a register and made statement to the fact they are controlled on invoices and other commercial paperwork.

The good news is that if you are caught under these export control regulations the UK has a wonderful system of General Authorisation which take some of the administrative burden away.  But, unfortunately, as always, ignorance is not a defence.

If you are concerned that you may be exporting products that come under dual-use or military design controls you can get more information from the www.gov.uk website in particular

www.gov.uk/controls-on-dual-use-goods

www.gov.uk/faqs-licensing-of-controlled-goods-faqs

www.gov.uk/electronic-transfer-abroad-of-controlled-military-technology-and-software

Also, you may like to consider registering for updates on the Export Control Organisation (ECO) website http://blogs.bis.gov.uk/exportcontrol/ and/or for the electronic system of rating products/ technology and licence applications called SPIRE at www.spire.bis.gov.uk

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Written 4th July 2013 by Sandra Strong FIEX (CITA) Managing Partner Strong & Herd LLP

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