What Is Export License?
An export license is a major document for exporting or sending goods to another country. This license’s prime purpose is to permit the export of certain tangible products that are otherwise restricted.
The authorized licensing agency can only issue it with no export license cost. Therefore, it enables the exporter to transport and display their goods in the international market. In addition, it allows them to export restricted products without any hurdles. However, the export license procedure might be lengthy and time-consuming.
Table of contents
- The export license is a mandatory document required by the exporters while shipping restricted goods to another country. It helps maintain national security and legal compliance.
- The Bureau of Industry and Security (BIS) authorizes these licenses. Likewise, the exporters must comply with the Export Administration Regulations (EAR).
- According to BIS, 95 % of U.S. exports do not need a license. However, nuclear materials, military components, sensors, lasers, and software require it.
- Its type includes individual, temporary, global, encryption, permanent, and broker licenses.
Export License Explained
An export license is a gateway for exporters to export or transport their products in the global market. In the United States, most goods do not require a license. However, the Federal government does demand a license for some restricted goods. Therefore, obtaining a license from an authorized licensing agency becomes mandatory.
Before exporting, the exporter must get this document from the U.S. Department of Commerce. The Bureau of Industry and Security (BIS) handles export license control. The USCBP (U.S. Customs and Border Protection) holds the restricted items. Thus, the exporter must file for the license with the authorized agency. These agencies include the U.S. Department of State’s Directorate of Defense Trade Controls and BIS.
Most American export deals do not need explicit authorization in the form of this document. Government. The U.S. government only needs to grant licenses for a small portion of all export deals. The exporter must ascertain whether the goods need a license, investigate their intended use, or carry out “due diligence” on the transaction. To determine whether a license is necessary, exporters should determine which federal department or agency has authority over the product they intend to export.
Also, the exporters must check their goods with the counterfeit item list. It includes nuclear materials, chemicals, restricted electronics, and sensors. Besides that, laser controls, avionics, marine, aerospace, and re-export items also need this document. So, if they fall into this category, they must fill out the export license application with the licensing agency. Thus, the exporters must follow the regulations of the Export Administration. As a result, it will help reduce illegal and criminal activities within the country. Also, national security will be safe.
Now you can Master Financial Modeling with Wallstreetmojo’s premium courses at special prices
Best Financial Modeling Courses by Wallstreetmojo
Financial Modeling Course
* 12+ Hours of Video
Financial Modeling & Valuation
* 25+ Hours of Video
* Certificate of Completion
* 12+ Hours of Video
Every country has a different set of licenses required for the trade. So, let us look at the types of export licenses that are necessary for the following section:
#1 – Individual Dual-Use Licenses
This license is majorly used by exporters when an end user is usually a single person or individual. Besides, many items are included in this license. Thus, it becomes easy for exporters to transport their items to other people. For example, John sends goods from the United States to Lisa (end-user) in England.
#2 – Temporary License
Such licenses are only valid for less than four years. The exporter will mainly use this license for transporting defense materials. The exporter must present this license to the Port Director of U.S. Customs and Border Protection.
#3 – Global (Dual-Use) Licenses
The global dual-use license allows exporters to transport items to more than one item in many countries. This license is popular in European countries as they are a part of the European Union. However, in the United States, it differs.
#4 – Brokering Activities Licenses
The exporters residing in the European nations and dealing in the supply of military parts must get the brokering license if the exporters fail to obtain a license, a penalty of $4870 or imprisonment of six months.
#5 – Encryption Technology and Security Code
This license becomes necessary for deemed exports and re-exports. It ensures that the items exported are in encryption for security purposes. For example, exporters use encryption technology to export technology or software parts to other nations.
After carefully reviewing the information about the specific export transaction, the relevant licensing body issues an export license. Here are some requirements for the export license procedure:
#1 – Determining Whether The Export Needs A License
To determine an item’s eligibility for a license, the exporter must check its status. In other words, 95% of the goods do not need a license. However, the additional 5% must have it. Thus, it becomes necessary to cross-check with the commodity control list. These items mostly include software, technology, and military components. Exceptions include gifts, parcels, humanitarian donations, and baggage.
#2 – File For Export License Application
If the goods fall under the restricted items, they must file for the license depending on the above status. Likewise, the BIS will issue an Export Control Classification Number (ECCN). Under the Export Administration Regulations (EAR), this number will help identify and track the particular item. However, EAR99 is an exception as it does not need a license. In addition, there is no export license cost added as it is free.
#3 – Submit The License To The Licensing Authority
The last requirement of the export license is to submit it online to the BIS through SNAP-R. Once submitted, the exporter can ship the items through the cargo. The exporter will then get a company identification number (CIN). However, the businesses can also assign the task to a third-party administrator that will work on their behalf.
Management And Compliance
One can set up an Export Compliance Program to ensure EAR compliance and manage export-related decisions and transactions (ECP). An ECP enables you to organize and integrate the information you evaluate into a cohesive system. The fundamental components of an efficient ECP are described on the BIS website. Take note of the EAR’s need for adequate record keeping.
Consider drafting a compliance plan in writing. The person overseeing your company’s plan should consider attending particular EAR and export-control seminars and studying online BIS videos and publications. Visit the “Compliance and Training” link on the BIS website. Additionally, one may contact BIS for advice on creating the strategy and looking through the finished product.
Let us look at the example of export license control to comprehend the concept better:
On October 7, 2022, the federal government assigned a new set of rules and regulations on U.S. exports to China. The Bureau of Industry and Security (BIS) proposed a list of restricted items that exporters cannot export to China. It includes integrated circuits, computer equipment having these circuits, and semiconductor manufacturing goods. As a result, the exporters wishing to ship these products must get a license from their licensing agency.
Frequently Asked Questions (FAQs)
If an exporter files for the license correctly, it takes 30 to 60 days for the export control officer to authorize and assign it. However, some agencies might take 20 days to issue the license depending on the time and documents involved.
An export license exception is a rule where a person can ship goods that would otherwise need a license. Usually, it bears a 3-digit number used during the export clearance purpose.
Every license issued by the BIS has an expiry of 4 years. Thus, the exporter must apply again for license approval after four years.
Whenever an exporter applies for the license, BIS issues an ECCN to them. It is usually a 5-digit number where each digit has a different status. For example, in ECCN 4A622, four refers to the category of goods, A is the product group, and the last three digits are the control reason.
This has been a guide to what is Export License. Here, we explain its types, requirements, management & compliance, and an example. You can learn more about it from the following articles –