Did we mention compliance is important?
In March we highlighted the Top 5 Export Markets for U.S. Made Defense, Emergency and Security Vehicles. Despite being a highly specialized segment of the automotive industry, in 2015 we at Crescent Air Freight are experiencing double digit growth in this market as well as in the export of parts and accessories of such vehicles. While there are significant barriers to entry in the way of manufacturing capabilities and intellectual property, the fact is that growth creates opportunities for sales and also for compliance problems. Here are some insights into the compliance requirements faced by exporters of security vehicles and their parts and accessories.
As we have mentioned in earlier posts, the major two sets of regulations governing the export of defense related equipment, including defense vehicles, are International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR). EAR apply to products that are known as “dual use” items. Some examples that come to mind include aircraft radar which can be used for either commercial or military purposes. In the case of vehicles, a more relevant example would be an armored SUV. Such vehicles are often exported to countries around the world, especially to countries where domestic law and order circumstances require such protection. However, so long as such vehicle is not armed and contains no military hardware, it is likely to fall under EAR. “Likely” is the key word here, as there are additional factors that go into considering which regulations apply. While most manufacturers are aware of the applicable regulations, an experienced logistics provider with experience in defense related shipments can assist in making such determinations.
While EAR oversight falls under the Department of Commerce (and specifically the Bureau of Industry and Security) ITAR falls under the purview of the Department of State’s Directorate of Defense Trade Controls. ITAR applies to military goods or articles and is highly relevant to the export sales of U.S. defense contractors. In the security vehicles market ITAR regulations apply directly to exports to U.S. military or other military entities. As with EAR, there are significant variations and clauses in ITAR that must be adhered to in order to maintain compliance. In the case of the armored example mentioned above, ITAR would apply in place of EAR had the vehicle been outfitted with hardware to attach a weapon to it. Here too, however, there are substantial variations to be considered for proper classification and while a manufacturer or distributor of such equipment must have a proper “in house” compliance process, and experienced logistics service provider can offer some guidance in the classification process.
In addition to the classification of the vehicle or equipment, exporters must also be aware of whether or not the destination country falls under any restrictions or bans for defense or security trade, and this may even apply to countries through which the vehicle transits. For example, a client of ours ships parts for MRAP’s and Humvees for the U.S. military in Afghanistan, under an ITAR license. However, their license does not allow their goods to transit through Azerbaijan. This is significant because the most cost effective routing for air freight to Afghanistan is via Baku, Azerbaijan. In order to maintain compliance we devised a new routing for the client that allows their product to travel only through nations that are approved for such goods under ITAR regulations. Regulations also apply to components attached to the vehicle, hence supply chain managers need to be aware of the country of manufacture of parts and accessories that they have sourced for the final product.
Irrespective of which license applies, and the fact that manufacturers and distributors are likely to maintain internal compliance programs, one of the most important steps of the defense export transaction that a logistics provider must demonstrate competence with is the proper filing of the Shipper’s Export Declaration (SED) – now known as the EEI. While the EEI filing is required for all U.S. exports in excess of $2,500.00, there are special classifications for goods shipped to the U.S. military, foreign militaries and foreign governments, all of which are relevant to the export of security vehicles and other defense equipment.
As political events continue to drive demand for U.S. made defense, emergency and security equipment the need for proper compliance is more important than ever before. Crescent Air Freight offers its clients the resources needed to support their export business in defense and commercial trade.