By Christos Linardakis, Of Counsel, Braumiller Law Group
Once again, we are reaching that point in the calendar whereby many of us reflect over the past year on all that has transpired. I know of no one, who could have imagined how this year would have changed the professional and personal lives of nearly everyone we know. Yet, even in the chaos of a pandemic, “the show must go on”, and indeed, the regulators in Washington D.C. did just that—in the form of far reaching and noteworthy changes in re-export restrictions to China and companies like Huawei. Restrictions that also applied to Critical Technology changes in ECCNs, Department of State changes in firearms and respective products, and finally (although no surprise), the Department of Defense cybersecurity controls on CMMC and NIST800-171.
Although the pandemic was in the forefront in the news and in our lives, I many times thought how the wheels of both the government and industry continued to move forward, even in the most difficult of times, and in all the regulatory changes noted above, to address issues facing companies today as well as National Security risks to our country. I first realized this when a client approached me on the production of firearms and related articles. The impact of Department of State’s rules on USML I, II & III, in late January, and the subsequent March 2020 rule by BIS, resulted in many of my client’s products no longer being subject to the ITAR. In fact, given the potential for export sales, we took the prudent and conservative approach of filing for a CCATS, just to confirm what we already knew—their products were now under the EAR. In that case, it worked in favor of my client, by opening more opportunities in foreign sales, given the less restrictive export controls.
Yet, we all recall the flurry of changes which impacted telecom companies throughout the U.S., and world, when it came to the Huawei restrictions—even if you had no interest in export controls, these regulatory changes made their way to both national and international nightly news channels! In those changes, not only were U.S. domestic companies impacted, but due to the “foreign direct product rule”, non-U.S. suppliers were now subject to these new export controls. It was inevitable that we received calls by clients looking for guidance on what was permissible under these new restrictions—nearly in every case, it was due to supply-chain issues their company faced, given the “surprise” regulations, which leads me to my next point.
You must, and I repeat must, always be intimately aware of the regulatory landscape facing your industry and company, and this due diligence must include your supply chain. It should not have come to anyone’s surprise that the current administration was looking into additional export controls when it came to Huawei—in fact, several foreign governments were performing the same exercise. So, if you were aware of the potential for new export restrictions, you would have advised your operations, including purchasing, supply-chain and manufacturing, in order to have contingency plans in place to address any disruptions these new regulations posed to your company.
I recall facing a similar issue nearly 10 years ago, as in-house trade compliance, when I was monitoring an EU Court of Justice (ECJ) case on certain Customs/HS classifications—the party who had filed and appealed to the ECJ was in the same industry we were in—if they lost the case, the domino effect across the industry in Europe would be felt by all of us (and our sub-contractors). You want to guess what happened? They DID lose the case, which resulted in a one-way ticket for me to Brussels, Germany and the Netherlands, in order to address the impact to our operations (if you’re ever in Belgium, visit Ghent—absolutely gorgeous; trade compliance folks do have fun once in a while!). However, unlike our competitors we had contingency plans in place in the event the plaintiff was to lose, or win the case, and we quickly re-strategized from a compliance and operational basis, which resulted in minimal impact, compared to our competitors.
What does this all mean? Few of us could have anticipated the pandemic earlier this year, but many of us do have the ability to keep our thumbs on the pulse of the regulatory landscape, which we are faced with whether it be changes in critical technology controls or the Department of Defense’s cybersecurity regulations impacting both dual-use and ITAR technology. Being prepared for these changes should be taken as seriously as someone who’s prepared for a hurricane or tornado—I don’t think in either case, you’d let your guard down if you knew the impact to you and your family.
In the area of regulatory compliance, your “family” is the company you work for and as such, you owe it to them, as much as to yourself, to ensure there are no surprises when it comes to providing advice to your operations, management, and peers. If you have operations in China, well you should by now be aware of the export regulations being discussed for 2021 by the Chinese government; the same applies to any changes anticipated by the U.S. or other jurisdictions you operate in—the point is, these changes are seldom written overnight, yet they seem to always take someone by surprise.
I’d like to close with special thanks to Bob, our marketing and editorial guru, who over the past year, has helped all of us counselors at Braumiller Law Group stay our course in both producing articles and webinars—if it wasn’t for his persistence, many of us would likely have taken the easy road and let our readers drive in the dark, when it came to cutting edge regulatory news, and for that, I thank you Bob!