1. IBT - Export Control IBT - Export Control Victor H. Bouganim WCL, American University

2. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 2 Licensing Exports from the U.S. ATMs to China Problem 8.1, p. 615 F Your client is ATM, Inc. (ATMI), a Delaware corp. manufacturing ATMs internationally with a subsidiary in France F ATMI contracted with China’s Ministry of Trade to ship the central computer circuit boards of its most advanced ATM to China where it would be assembled with additional Chinese parts

3. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 3 Class Discussion F Can ATMI freely export the circuit-boards to China or should it obtain an export license? F Who is responsible for obtaining an export license? F What are the relevant rules for determining that an export license is required?

4. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 4 Export and Licensing F “Export” – the process of transferring a product or service from one country to another F “License” – a revocable permission to commit some act that would otherwise be unlawful, and the certificate or document evidencing such permission F Source: Black’s Law Dictionary, 1996

5. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 5 U.S. Export Law Regulation Summary F Export Administration Act of 1979 (EAA), 50 U.S.C.A. App. § 2401 et seq. [Doc. 36] –Export Administration Regulations [Doc. 37] F Arms Export Control Act (AECA), 22 U.S.C.A. App. § 2778 et seq. F International Emergency Economic Powers Act (IEEPA), 50 U.S.C.A. App. § 1701 et seq. F Trading with the Enemy Act (TWEA), 50 U.S.C.A. App. § 1 et seq.

6. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 6 Export Control Objectives F Short supply control –protecting domestic economy from shortage of key materials necessary for domestic production F Foreign policy and national security control –achieving policy goals established by government F Non-proliferation control –limiting the distribution of products and technology associated with weapons of mass destruction Are there any other objectives?

7. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 7 Export Administration Act 50 App. U.S.C. § 2402 F “It is the policy of the U.S. to minimize uncertainties in export control policy and to encourage trade with all countries with which the U.S. has diplomatic or trading relations…” F “to restrict the export of goods and technology which would make a significant contribution to the military potential of any other country or combination of countries which would prove detrimental to the national security of the U.S.”

8. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 8 Export Administration Regulations (EAR) F Covers “Dual Use” products –items that can be used both in military and other strategic uses and commercial application. –EAR §730.3 F Coverage of more than exports (EAR §730.5) –Re-exports –Foreign products –Scope of “exports” –U.S. person activities

9. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 9 EAR - Export Administration Regulations F Product restrictions –EAR §738.2 –Commerce Control List (CCL) F Country restrictions –EAR §738.3 F When is licensing required? –EAR §738.4

10. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 10 Product Restrictions Commerce Control List (CCL) F Categories 0 - Nuclear materials, facilities and equipment 1 - Material, chemicals, “microorganisms,” and toxins 2 - Materials processing 3 - Electronics 4 - Computers 5 - Telecommunications and information security 6 - Lasers and sensors 7 - Navigation and avionics 8 - Marine 9 - Propulsion systems, space vehicles and related equipment

11. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 11 CCL Groups and Classification F Groups A - Equipment, assemblies and components B - Test, inspection and production equipment C - Materials 7 - Software 8 - Technology F Classification –Category of the item –Within each category, items are arranged by groups. –Items are listed in ECNN - Export Control Classification Number

12. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 12 Required Export License F The entry for each ECCN on the Control List details the basic technical characteristics and the risks associated with transferring an item to particular destinations F If a license is required, the exporter must submit a formal application and receive government approval prior to exporting the products or technology

13. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 13 Country Restrictions F EAR Part 742.4(a) – Control Policy – CCL based controls –“it is the policy of the United States to restrict the export and re-export of items the would make a significant contribution to the military potential of any other country or combination of countries that would prove detrimental to the national security of the U.S.”

14. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 14 Licensing Policy F Each licensing application is reviewed in light of the following aspects u An analysis of the kinds and quantities of items to be shipped u Their military or civilian uses u The unrestricted availability abroad of the same or comparable items u The country of destination u The ultimate end-users in the country of destination u The intended end-use F EAR Part 742.4(b)(3)

15. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 15 Export Responsibilities F There is a distinction between responsibility for preparation and performance F Preparation of Documents –Certificate of Origin –Export License –Export Declaration –Other Governmental F Performance of Services and Events –Custom Clearance –Payment of Duties

16. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 16 Export Documents - 1 F Certificate of origin –Certifies that the goods originated in the territory of one or more of the parties –Complies with the origin requirements for those goods –Certifies that there has been no other operation out the territories of the parties –Responsibility of the seller to prepare

17. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 17 F Export License –general license: a broad grant of authority, or an umbrella license, issued for certain types of products to particular destinations. There is no application to complete and no document is issued. –validated license: a specific grant of authority, issued on a case-by-case basis. These licenses explicitly permit the export or re-export of particular goods or technology, from one party to another for a particular end use. –Primarily the responsibility of the seller to prepare Export Documents - 2

18. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 18 Export Documents - 3 F Export Declaration document usually prepared by the seller requiring exportation information, including: –Exporter name –Exporting Carrier –U.S. Port of Export –Foreign Port of Unloading –Country of Ultimate Destination –Country of Origin –Commodity Description –Value of goods –Signature of exporter or authorized agent certifying the truth and accuracy of the information [ Source: U.S. Customs]

19. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 19 Export Events F Customs Clearance –Event where the goods are permitted to enter the country –Primarily the responsibility of the buyer F Payment of Duties –fees that must be paid to the government of the country that the goods are destined for –in most cases fees are paid by the buyer

20. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 20 INCOTERM - Responsibilities FOB F Seller responsibility –Export License –Certificate of origin –Other governmental F Buyer Responsibility –Custom Clearance –Payment of Duties EXW F Seller responsibilities –Certificate of Origin F Buyer Responsibilities –Export License –Export Declaration –Other governmental –Custom Clearance –Payment of duties

21. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 21 ATMs to China - The Setting - 1 F ATMI is in terrible financial condition and needs this large Chinese order to avoid bankruptcy F Contract –ATMI delivers 12,000 ATM central computer circuit boards, 1,000 per month –Delivery subject to obtaining necessary U.S. export licenses and any conditions there within –Delivery would begin June, 1997 –Sale price was $24 mil

22. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 22 ATMs to China - The Setting - 2 F The Dept. of Commerce issued the license on May, 1997 F Conditions –Circuit boards were to be used only in ATMs –Circuit boards were to be used in China only –Export of 12,000 boards from 6/1/97 to 5/31/98 was licensed –Circuit boards could not be used in conjunction with any military or intelligence gathering purposes –China signed a declaration not to use the boards for military purposes

23. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 23 ATMs to China - Export License F Circuit boards are “dual use products” because they can be used in ATM machines, but also for military and strategic purposes. F Therefore, these circuit boards are subject to an export license.

24. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 24 ATMs to China - The Setting - 3 F Chinese renewed the contract the following year and The U.S. Dept. of Commerce renewed the license F Chinese renewed the contract a third time F ATMI applied for a third license on April 10, 1999

25. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 25 Legal Advice – 1 F Problem #1 –U.S. Department of Commerce has not yet issued a license for the third contract –Chinese would like an opinion letter from ATMI stating u The ongoing deliveries are permissible u Deliveries are not in violation of U.S. law u ATMI will not be subject to any major penalties

26. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 26 Legal Advice – 2 F Legal Questions –Should counsel for ATMI sign the opinion letter that the Chinese request? –If any penalties do apply, are they small, so that executives of ATMI might accept them as a “business risk”? –How should the opinion letter be worded?

27. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 27 Legal Advice – 3 F Problem #2 –ATMI learned on April 1999 that the Chinese were using half of the circuit boards for development of a satellite system for both military and civilian use in violation of their declaration not to use the circuit boards for any military or strategic use –ATMI learned about this after submitting a truthful application to the U.S.Department of Commerce –ATMI prefers not to disclose this information to the U.S. Department of Commerce because the license may not be issued for the third contract –Chinese prefer not to have the information disclosed because it would complicate trade relations with Germany

28. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 28 Legal Advice – 4 F Legal Questions –Should ATMI inform the U.S. Department of Commerce about the non- conforming use by the Chinese? –Are there any penalties attached to either the delay in disclosure or to the non- disclosure?