12/17/2011
| Export control agencies have continuously intensified their focus on pump, valve and other fluid handling equipment companies. In particular, there has been a great deal of enforcement emphasis on the broad, expanding export controls in the U.S. Export Administration Regulations (EAR) under Export Control Classification Number (ECCN) 2B350, which covers pumps, valves, pipes, storage tanks, heat exchangers and other equipment that can be used for chemical processing. |
| The ECCN 2B350 controls specifically require export licenses from the U.S. Department of Commerce's Bureau of Industry and Security (BIS) for multiple seal and seal-less (e.g., mag drive and canned drive) pumps and essentially all valves more than 1 cm that are made of certain chemically resistant materials on their wetted surfaces, as well as certain pump and valve parts. |
| Since 2005, export licenses have been required for shipments of these products to approximately 150 countries-a significant bump from the previous list of 37 controlled destinations. Numerous other controls apply directly to other types of pumps, valves and the technology needed to make those products. |
| In October 2007, civil penalties increased to $250,000 per violating shipment (or twice the value of the shipment-whichever is higher). In the last few months, a valve company in Houston received an $800,000 penalty under these export rules. In addition, in October 2008 the United States implemented $10,000 civil fines for faulty export paperwork (e.g., products identified with incorrect export classification numbers). Most concerning is the increase in criminal prosecutions of individuals and companies in the fluid handling equipment industry for export violations, particularly for diversion of products to countries subject to economic sanctions, like Iran. |
| The increase in prosecutions is the direct result of the creation of an export control task force at the Department of Justice, the accompanying training of federal prosecutors and their focus on the proliferation of weapons of mass destruction (WMD), including chemical weapons. One of the primary soft targets in the battle against WMD proliferation are U.S. exporters of equipment that can be used to handle dangerous chemicals, whether the equipment was designed for that purpose or not. |
| With "material creep" such as the increasing use of controlled fluoropolymers, high nickel content alloys, ceramics, glass, graphite, titanium and other higher-end materials that add to the useful life of products, more and more fluid handling equipment falls into an export-controlled category. |
| In addition to these export controls, a number of other product categories should be reviewed by export specialists, engineers and managers in the fluid handling equipment industry before products are exported. Those other controls, which can be traps for the unwary, are the focus of this article. |
Specific Product Categories and Situations to Note When Exporting |
| "Non-Core" |
| To start, many in the industry are not aware of a series of export controls on machine tools and other production and auxiliary measurement and test equipment in the U.S. export regulations. While most companies are not in the business of exporting machine tools, such exports do occasionally occur. |
| A potential export compliance trap can occur when a company establishes a new production facility offshore and ships a production line to that new facility-or sells off used equipment to an unrelated overseas customer. Such exports may not be handled using standard export shipping processes, so they may not come to the attention of export compliance specialists, which increases the risk of a violation. |
| To prevent issues with such "non-core" exports, companies should identify all products that they own or control that may be subject to export controls. Such control can be long-term, such as machine tool ownership, or short-term, such as through the purchase and resale of auxiliary products or component parts. |
| One effective initial strategy to identify non-core export controlled items is to have an in-house export compliance specialist or outside export compliance counsel meet with one or more engineers or others in the company familiar with the entire scope of the company's manufacturing process to review the controlled classifications with them and to draft a product classification matrix or table for core and non-standard exported items and related technologies and technical assistance offerings. A great place to start this review is with the alphabetical index to the EAR, which can be found at http://www.access.gpo.gov/bis/ear/txt/indexccl.txt. This site lists many controlled items and technologies and cross references ECCN categories that can be examined in detail to assign accurate classifications. |
Vibration, Marine and Nuclear End Uses |
| Because vibration is such a key issue in the industry, it is wise to be aware of the controls on certain vibration equipment covered by ECCN 2B116 and 9B006. Producers who sell for naval and marine end uses should be aware of the multiple controls in Commerce Control List (CCL) Category 8, which covers a variety of submersible and marine equipment. Any company selling to the nuclear industry should review the controls in CCL categories 0 and 1. |
Pressure Transducers/Skid Packages |
| Another category that has given a number of manufacturers trouble recently is ECCN 2B230, which covers certain pressure transducers. A company may not make these products, but export compliance for items that are purchased in the U.S. and exported by a company as the U.S. Principal Party in Interest (USPPI) (formerly Exporter of Record) is the exporting company's responsibility, not the manufacturer's. |
| A number of companies buy pressure transducers for inclusion on skid packages. Exports and reexports of skid packages present a number of potentially complex export and reexport control issues. (Pump companies should be particularly watchful for controlled valves, pipe, storage tanks and heat exchangers on skid packages.) On the reexport side, skid packages also raise issues of potentially required de minimis (or minimal U.S. value) analyses under the EAR's 25 percent and 10 percent de minimis levels (and the U.S. Treasury Department's 10 percent de minimis U.S. content level for countries subject to U.S. economic sanctions). |
| This analysis is required when either controlled or non-controlled U.S. content is included in a product manufactured abroad and then reexported to a third country. For example, if a U.S. pump manufacturer forwarded a high-nickel content alloy impeller to a European subsidiary, the finished pump including that impeller could require a U.S. reexport license if the impeller made up more than 25 percent of the value of the finished item, which would not be unusual. |
Vacuum Pumps |
| In addition to controls on certain vacuum pumps in ECCN 2B350, there is a separate ECCN covering other vacuum pumps in ECCN 2B231. |
Encryption
| Companies that export should watch out for encryption, which can sneak into products without detection. Pump and valve producers are increasingly using controllers and other electronic items that include software or electronic hardware with encryption. Software suppliers do not often tell their customers that the software being supplied includes encryption that could be controlled for export. |
| The encryption controls in the EAR are unusually complex. Most computer server products that would communicate with deployed control valves using encryption must undergo a required encryption classification review by BIS and the National Security Agency before export from the United States. A rule published on October 8, 2008, however, may permit some industrial equipment (which should include control valves and some pumps with electronic control panels) with "ancillary cryptography" to be self-classified by companies. There are risks and benefits to encryption self-classification that should be carefully considered before going this route. |
Additional Considerations |
| The categories listed above do not cover all the classification issues that need to be tracked. We have not touched on Nuclear Regulatory Commission (NRC) nuclear controls or Department of State Directorate of Defense Trade Controls (DDTC) classification issues relating to military items. There are also several other critical ECCN categories that companies need to evaluate. |
The cited ECCN categories are simply examples of some of the "non-core" product classification issues that a number of companies in the industry face. Companies conducting or renewing export classifications of these non-core products should also carefully consider the separate software and technology controls, which are not well understood in the industry.
Pumps & Systems, August 2009