Expeditors International of Washington, Inc. (EXPD) Earnings Call Transcript & Summary

Good morning, good afternoon, depending on where you're located. My name is Nicole Gallanis. I am the Marketing Manager for the Americas. Today, we are going to be hosting an export compliance determining an ECCN webinar, hosted kindly by our friends at Tradewind. So we have about 45, 50 minutes of content and then 15 minutes of Q&A at the end of the session. [Operator Instructions] We have Sila with us, who might be typing out some responses to you, or will be go ahead and announce those at the end of the session verbally with the Q&A session with Norm. So that brings me to introduce our speaker today. We have Norman Lubeck. He's the Senior Manager for Global Trade Advisory Services at Tradewind. Upon completion of the webinar, I just want to note, we will be sending out a survey. After the webinar, you'll be receiving that per my e-mail address. Upon completion of the survey, you're going to be receiving a summary of ECCN resource links that will help you with any processes that we're going to go over in today's session. So you will receive that as well as a [ credit ] code that you can apply for credit if you need to the additional training hours. So with that, I will pass it over to Norm to get us started.

Hello. Thanks for joining today. My name is Norm Lubeck. I'm one of the senior managers here at Tradewind. I'm actually based in Boston and with the company about 12 years now, but I spent a lot of time before that, many years before that as an importer and as an exporter. So I've got some practical experience of doing this sort of stuff. Like we said, we treat these pretty casually if you have questions throughout the presentation, feel free to throw them in the in the Q&A box. We'll get to as many as we can in the time. If there are some that hang out and we don't get to live, we'll try to put together some responses and send them to you as well. So with that, I was going to shut my camera off because I don't want to mess up the presentation piece. So let's get into it. I just want to show you here's sort of the agenda for today. You'll notice that one of the things in the export world is we don't actually use words, we use lots of abbreviations. So DOC, Department of Commerce, within the Department of Commerce, there is the Bureau of Industry and Security, well you just call them BIS. The BIS writes the Export Administration Regulations, the EAR. Within the EAR, there is the Commerce Control List, that is CCL. And within the CCL, there are 10 categories, there are a variety of what we call Export Control Classification Numbers, or ECCNs. Part of this presentation, we're going to go through a couple of examples of how you actually come up with the number. And then what do you do with it? So that's what the practice piece is. And then the last part of the export process is really making your shipment. So we're going to talk about Electronic Export Information, or EEI, that is submitted through the Automated Export System, or the AES. You know that you have successfully submitted the information to the Census Bureau through AES when you get back an Internal Transaction Number, or an ITN, and that code needs to be placed on some documentation later. And then, of course, at the very end, we're going to have a test, everyone will be scored. So first thing we need to talk about whose rules do I need to follow? The question is, under what jurisdiction am I exporting my good? So whose rules do I need to follow? Under the Export Administration Regulations, we have some dual-use items, some things that have civilian and military application. And we'll talk about how those are specifically identified. But generally, if it's a military item, like a missile or a tank or a submarine, those kinds of goods are controlled by the State Department. The State Department publishes what are called the International Traffic and Arms Regulations, or the ITAR. And in the ITAR, again, with abbreviations, there's the USML, the United States Munitions List. And that list has implements of war basically on missiles, submarines, tanks, guns, software, the controls, battle field conditions, things like that. We're not going to talk about that today. That's a whole another gig. We're really focusing on the Commerce Department [ things ]. So within, like I said, the Commerce Department, we have these dual-use items. So they have commercial applications and some things have military applications, but they're not as tightly controlled as they are by the State Department. There was a program a number of years ago where State and Commerce got together and had a hard look at what are we actually controlling here? And some things State said, we're not that worried about these items. We're going to still have them control, but under the Commerce Department. And it's -- I don't want to say it's not control, but it's a lighter level of control. So that's how we see some military items on the Commerce Control List. So BIS actually writes the Export Administration Regulations. They are updated constantly. The nice thing about the EAR is that they are available online. So you can get the latest version. I mean I know a lot of folks like to have the book, which I like to have too because I can highlight stuff and put posted notes and whatnot. But I always check the online version to see that I have the latest iteration of the regs. Now laying over all of this stuff, whether it's a military item, whether it's a State Department, Commerce, it doesn't matter. There's the Treasury Department. And the Treasury Department has within it the OFAC, the Office of Foreign Assets Control. Those are the folks that write the rules around sanctions and embargoes. So once you've gone through the analysis of what is my ECCN, where is it going to, whether I need a license or not, you need to also check the destination country and the destination, the end user through the OFAC list to make sure that you're not shipping to someone who's a denied party from the State Department, so things like shipments to North Korea and Cuba, those things are controlled by OFAC. So what is an actual ECCN? So ECCN stands for, like I said, Export Control Classification Number. It's very different than a Harmonized Code. It's very different than a Schedule B number. And it's written in terms of descriptions, features and characteristics of the thing that wants to be controlled. It is a 5-digit code. And that code tells you something about the thing that is being exported. So we're going to look in the Commerce Control List to find an ECCN that describes the thing that we're exporting. So you need to look at the features and characteristics of the item. Very often, you're going to want to get some help on this from an engineer or a chemist or somebody who is more technically savvy about the goods. Typically, compliance folks don't know everything there is about the machinery and equipment and chemicals and materials that they're exporting. You very often need to get some outside help. And you need to make friends with an engineer or somebody who can interpret this stuff for you. But like I said, all of the ECCNs are listed in the Commerce Control List. So this is the Commerce Control List. There's 10 categories. It's not the greatest list for figuring out where your things fall. For instance, Category 0, it's called nuclear and miscellaneous. And people are like, oh, I don't ship any nuclear stuff, I don't need to worry about it. You should really go look through Category 0 because it has in addition to nuclear items, it also has other stuff that is controlled. So for instance, police batons are controlled under Category 0. Depending on where you're going, you might need to get a license. The zip strips, the things that you use to bundle cables and you tie that thing around zip, it tightens it up, depending on the size of those zip strips, they might be controlled. They might have their own ECCN number because they can be used as handcuffs. So go through each one of these categories to see if your things are hidden in there somewhere. Like I said, it's not the easiest look. You've got electronics and computers. Well, aren't computers electronics? Yes, they are, but there's a separate heading for electronic. So you really need to kind of look through the different categories and see what kind of stuff did Commerce put in these different categories. And interestingly, so when we're looking at the ECCN numbers, the first digit of an ECCN number comes from here. So the first digit of your ECCN is 1, then you know it's going to be within that category of chemicals and toxins and that sort of stuff. The next breakout is the different groupings of goods within a category. So you have Category 1 in the CCL. Within Category 1, there are these 5 groups of things. So we've got systems, equipment and components; test, inspection and production equipment, materials, so things that are being made into something else; and then software and technology. So very often, when you're looking at the ECCN for your item, you should probably see if there's a comparable ECCN in the technology area that's related to that item. So the know-how that's went into making the thing that you're exporting that might be considered technology. And since we've got these 5 groupings, the second digit of the ECCN number comes from here. So just you can -- again, you can start to see how you can work backwards to identify where your thing gets classified. The third digit within the ECCN identifies the reason that this particular item is being controlled. There are -- again, you can see the number of different reasons. The ones that are most commonly come up are the national security, chemical and biological, sometimes missile tech for things that fly. And then there's that sort of catch-all reason 9, which covers a variety of different things to be concerned about, things that we're nervous about. We want to control this because it has the capability to be used by a police force or the military to keep down the population, to do crowd control and things like that. So there might be other reasons for control besides the national security or the missile tech. And interestingly, this is now the third digit of the 5-digit ECCN. After that, you've got 2 more digits. And that's because these things are listed within the Commerce Control List in numerical order. But again, be careful here. The watch out is that as things were added to the Commerce Control List, they were put on because at the time they were added there was a concern about where those goods might end up because of their features, because of their sophistication, because of their ability to be used for nefarious purposes. But over time, things change, where something that we use to control for export from the U.S. becomes available from lots of other places. So if it's available from some other place, there's no need for us to control it anymore. So those things get removed from the Commerce Controls. But once something gets removed, they don't re-number. So you'll see like here's the last 2 digits, the fourth and fifth digit. But sometimes, you'll have a jump. So we had a change from 7A006, there was at one time a 7A007, it got dropped because whatever it was, we're not concerned about anymore. They didn't re-number it. So as you're going through the different ECCNs, we need to keep track of the bold ECCN numbers that are identified on the documentation. So keep an eye out and don't be thrown if they say, I can't find 007. We look hard, make sure it's not there. And if it's not there, then it's not there, but don't get thrown by the gaps, by the missing pieces. So here's what -- here's an ECCN, 1C351. Using what we just talked about, we can work backwards and say, hey, all right, well, sort of what is this? I can kind of get a sense of what this is based on the ECCN number. So one, the category, right? Category 1 is materials, chemicals and toxins. The next one is the group. So group C. So this is a material, that means this is a thing that's going to be used to make something else. The reason for control is because of chemical and biological weapons purposes. So that's the 3. So now I've got a sense of, okay, I've got some sort of a chemical that could be used to make something, that it could be a microorganism, could be a toxin. That's where your tech is going to help you. And then the last 2 to just kind of tell you where does this thing fall within that Category 1. So this is what a snap of a page of an -- of the Commerce Control List looks like. Unfortunately, if they don't remember old phone books, right? So at the top of the page, there used to be where at the beginning and end or like a dictionary, here's the first word and the last word. They don't do that in the Commerce Control List. In fact, stuff can be buried in there. So like this one, it's 1C351. It's just buried in the paragraph. And it's -- again, it's 2 columns on the page, you've got to read down, then you got to go up to the top of the next page or the next column and then read down and you go through. You just need to be careful as you're reading it, make sure you don't miss something. And very often, just seeing that description against the ECCN, there's more to know, there's more to look at because they're going to have other details very often within the body of that ECCN. So for instance, on this one, it says human and animal pathogens and toxins as follows. And it says, go see the list of items controlled. So you're going to need to go further through the Commerce Control List for this particular heading to see okay, what kinds of things are they talking about here? So if we take a look at 1C351, like human animal pathogens, see the list of items control, you're going to find it. It's quite long. Let's just go back a section here. I want you to just pay attention to it. So we have the ECCN, the general description of what's in there, and then there's some other stuff in here. So I just want to highlight that for a second. Here's the other stuff. So I'm under this ECCN, 1C351. The things I want to make note of, and again, you just jot it on a piece of paper because it's going to come back and be used later. What are the reasons for control here? CB, CW, AT. So CB, chemical and biological controls; CW, chemical weapons; AT, antiterrorism. And then you have this little box that says look at the country chart. So when I say, all right, the reason for control is CB, they're telling me. And when I decide where it's going to go, I need to go look at the Commerce Country Chart and look in the column that's identified as CB Column 1 because what I'm looking for is a nexus between the country I'm going to, the column that's of concern and is there an X in that box? I'm going to show you that in just a second. Same thing for AT. AT applies to everything that's described in that ECCN. I'm going to look AT Column 1 against the country that I'm going to. And then you'll have some of these funky little detailing piece, they'll say, chemical weapons only applies to this particular ECCN, 1C351.d.11. And they'll say, a license is required for all these nations, including Canada, and then it gets into, again, more detail about the specific article, the specific item that is going to be exported. So you got some sort of general information here, like just looking at a particular column, and sometimes you have very specific information that's relevant only if your [ thing falls ] into that particular description. And like you said, we have a lot of different reasons for control, right, nuclear, prime control, surreptitious listening, which is you don't see that very often, but it's in there. We abide by any of the agreements we have with the UN on arms shipments to certain places. So there could be a lot of different reasons for control. So taking that reason for control and the column that's mentioned within the ECCN listing, you then turn to the Commerce Country Chart. This is basically what it is. So you have all the countries listed along the left-hand side of this chart, goes on for a number of pages. And then you have the different reasons for control along the top. And when our thing says, the reason for control is CB1, you see the column for CB1. If I'm shipping that material to any of these countries, the X of the box tells me, I need to get a license. And you can stop at that point and apply for a license and you'll be fine. Very often, crunch time comes in and you're like, well, it says I need a license, but this has to go out like tonight. We promised it. Is there any way around this? We're going to talk about how to take advantage of exceptions when need be. Generally, the ECCN will tell you when these 3 types of exceptions come into play. These are the most commonly used what we call list-based exceptions, LVS, which stands for limited value shipment, and it would have a dollar figure in there if this was available to you. GBS, meaning the goods can go to a Group B country, or CIV meaning the goods can be exported -- if the goods are being exported to a nonmilitary, non-police entity, then you might be able to take advantage of the CIV exception. However, and here's the thing about exceptions. All exceptions have contingencies. They all have elements that must be fulfilled in order for you to take an exception. And that's true for any regulatory piece. Anytime there's an exception to the rules, there are going to be conditions attached. And you need to be able to fulfill all the elements of those conditions. Otherwise, you cannot legitimately use that exception. So in the Commerce world, if it says LVS $3,000, don't jump on and say, oh, my shipments only $2,500, I could ship it. No. There are other criteria you need to meet in order to take advantage of that LVS exception, legitimately, okay? So exceptions exist, use them carefully, but they do come in handy from time to time when you need to make that shipment and you can't wait the 30 to 45 days, it might take to get a license, okay? The other piece I want to point out when that ECCN said, see list of items controlled. This is the beginning of the list. This thing -- this is the -- under the chemical piece. This goes on for pages, and it's very specifically identifies certain items that they intended to be covered by this particular ECCN. So again, if your thing is not on here, well, then you have to go look at another ECCN to see if it's on there. You keep on doing this until you find either an ECCN that matches the features and characteristics of the thing that you're exporting or you don't find it. If you don't find it, every category within the Commerce Control List ends with this statement. Items that are not specifically listed on the Commerce Control List are designated EAR99. Now I am sure almost all of you export goods under EAR99, and you're probably wondering how did you get there? Well, years ago, somebody in your company made an export shipment and they got the shipper's letter of instruction form from a freight forwarder and they filled it out and they got to that ECCN section like, I don't know what that is, they left it blank. So they send the SLI to the freight forwarder and the forwarders get ready to make the shipment, and they go through and they say, oh, you left the ECCN field blank. What's supposed to go in there? And the person at the company is like, they hesitate, like, I don't know. And the forwarder says, is it EAR99? And you shipper says, yes, yes, that's what it is. That's what it is. So that's why you're shipping stuff under EAR99 for the last 25 years. That's not the way you get the EAR99. The way you get it is you disqualify yourself from all of the other potential ECCNs. EAR99 is the last one you come to. You do not start there. You end up there. So what is -- what goes into EAR99? Low-risk stuff, commonly available things. They're not military items, but they're still controlled by the Department of Commerce, but they don't have a particular ECCN. So it gets that designation of the EAR99. But that doesn't mean you could just ship it wherever you want. You might have an EAR99 item that's going to somebody who's on a denied parties list. You might have an EAR99, who's going to an end user who's going to use that generally available thing for some bad purpose. Well, within the Commerce Regulations, you're not allowed to ship goods, sort of like proliferators, nuclear weapon proliferators or arms dealers, things like it, just because it's -- we don't want to deal with that stuff. So even if you have an EAR99 item, you still need to go through the other levels of review for your commodity. So if you truly have an EAR99 item, that is it's not identified anywhere else on the Commerce Control List, it's not a military item, it's not controlled by the Nuclear Regulatory Commission, it's a commerce item, then you may be able to ship the thing as No License Required. That is you have a commodity, it's not found on the Commerce Control List, it's an EAR designation, and you're shipping it to some place where there are no other reasons why you can't ship it to them, you can identify that as No License Required. Likewise, even if you have an item that has an ECCN, but there is no X in the box on that Commerce Control List or Commerce Country Chart, then you might be able to ship that as no less as required as well. So either way, No License Required as a designation is possible. So this is the way I think about it. It's a process of elimination. You don't actually want to find your thing. You want it to be EAR99. You're hoping that it's not going to show up. But if it is, if it's not on the list, then you're EAR99, and this is what people think, you can ship it anywhere you want. That is not true. Just because it's the EAR99 item, it doesn't mean you can ship it wherever you feel like. Let me show you an example of a company who got into some trouble here. This is from the Commerce Department's pamphlet. It used to be a pamphlet, now it's more of a book. It's called don't let this happen to you, and it lists different folks who have gotten into trouble for different reasons, and it gives you some background of things to watch out for in your own company. So this company got an order to ship some stuff to a company in Pakistan. And when they looked at the Commerce Control List, they identified, they said, no, there are no ECCNs applied to this thing. It's an EAR99 item. So they then went and shipped this entity called SUPARCO. Unfortunately, SUPARCO is on a denied parties list. So there is a consolidated screening list that everyone should have access to. When you do, it's free, go online and get it. You can search this list for bad actors, people who have been convicted of export control violations or end users of concern. They're all on this consolidated screen list. You need to check it, because had this company checks the list and typed in SUPARCO or Space and Upper Atmosphere, they would have found that SUPARCO is listed as a denied party. So the problem was this company, they did all the work, they screened the different people, but they never screened the company. They ended up shipping the stuff to the company under No License Required, and they got a $90,000 fine from Commerce. So if you take anything away from today, it is always check the denied parties list regardless of your ECCN determination. Always, always check denied parties list. Commerce comes down on you very hard for this because it is freely available, you can get it on your phone and do a denied party screening. So there's no reason, there's no excuse to not do it. Okay. So let's walk through an example. Here's my thing. I had this turbo-diesel engine. And what you want to do when you're trying to classify something is get all the information about it, get a spec sheet, get a drawing, get a brochure, get an example, something you can hold, get some way to write up a memo of what this thing does or what it's used for, what it goes in, get as much info as you can because that's all going to be used to make the ECCN determination. So here, I've got a 6, yes, right, 6-cylinder, 3-liter turbo-diesel, it pairs up with a 10-speed transmission. It's got that annoying, put your foot on the brake, it turns off kind of a thing. It gets up to 282 horsepower, develops a lot of torque and you get good mileage on it. All right. So here I am, I've got this diesel engine, where am I going to start? The first thing I do is I go look in the index to the Commerce Control List. This is part of the online regs and it looks cool as you can do the control F thing and search for some key words. So when you look at what this thing is, let's say, right, it's a diesel, it's an engine, you can type in horsepower, you can search for lots of different ways. And you should do that, search a bunch of different ways and make a note of the different suggestions that the index give you. So here I just did a search on diesel, something like this, diesel engines not elsewhere specified, says go take a look at 9A990. Now this is important, too. The indexes to all regulations never give you the answer. They only suggest where you should go look to see if your thing fits the features and characteristics of what they are suggesting. So -- and that -- it doesn't matter what the regulations are. They all have indexes. They all make suggestions. They are never the answer. They're not just say, oh, it's 9A990 and proceed. No. Go look at 9A990 and see what it says. So here we go. This is the relevant snippets from 9A990, you see that the general description is diesel engines, not elsewhere specified, and tractors and specialty design parts there for not elsewhere specified. Make a note that the reason for control is antiterrorism. Further make a note that 9A990.a, you're going to be looking at that Commerce Country Chart in column. If you have 9A990.0 -- or .O, sorry, then you're going to be looking AT Column 2 in that Commerce Country Chart. You'll see that there are no license exemptions available for this thing. So if you determine that you need a license, you're going to have to get a license. And then look at the list of items controlled. It says diesel engines for trucks of a continuous brake horsepower of 400 or greater, some other SAE language that your engineers are going to know, off-highway wheel tractors, and that's not our thing, on-highway tractors, that's not our thing. Our thing is diesel engines for trucks, tractors and automotive application of continuous brake horsepower of 400. Our engine is 282-horsepower. So it is not of 400-horsepower or greater. Where am I going to -- what is my ECCN going to be for this diesel engine? Assuming I don't find this 282-horsepower engine anywhere else in the Commerce Control List, my ECCN, it's going to be EAR99. So if I can't -- if my thing does not meet the features and characteristics described in the ECCN listing, then I move on. I cross this one off. And that's why it's helpful to sit with an engineer and go through some of these because they're the ones who look at this and say, we never export anything like that. Our things are always 5 inches wide and this has got to be less than 2. You can go through and disqualify yourself from a lot of stuff. You may look at Category 9 and say, I don't ship anything in here, good, then you never have to look at Category 9, yes. But you want to, like I said, disqualify yourself from these different things. All right. That is the methodology. So let's walk through one that has a little more oomph to it. Here's my item. It is a 3-axis digital compass integrated circuit. Here are the features and characteristics. And again, I'm not a tech guy, I'm an English major, so I look for keywords. Surface-mount, multi-chip module, low field magnetic sensing, unit includes internal tilt and roll axes, goes into a flight control navigation system, accurate to less than 0.25 degrees root mean squared. So my questions are, what is my category? That's the first digit. What is my product group? What's the second digit? And then let's see if we can come up with the actual ECCN. So the first thing I'm going to look at is right, this is some sort of a compass, it's some sort of helps with navigation. So which ECCN category might I be in when you talk about -- it's for telling you where you are, right, basically navigation. So I'm thinking, I just -- again, I make a note, say, all right, possibly Category 7, let's just put that to the side, all right? When it comes to the product group, where do you think this might fall? Well, I can right away say, well, it's not software, and it's not technology because it's a thing, right? Is it a material? It goes into something, but is there maybe a better category to think that? When I look at it, I'd say, all right, it appears to be some sort of a component that's going to go on a printed circuit board. So I'm going to, again, pencil in 7A right. So just keep that to the side. And then think about, all right, well, why might something that's in 7A that helps with avionics and navigation? Why might something like that be controlled? All right. Well, antiterrorism is always a concern, always is. National security, maybe, probably not chemical, biological, probably not nuclear. But it could come in really handy if you're building yourself a missile. So you may say, all right, my possible ECCN could be 7A1. Now, I need to figure out, all right, well, what's the rest of it? Do that in a couple of different ways. You can go into the Commerce Control List and go to 7A1 and look through all the stuff there, or you can go in the index and search for what this thing is. So you say, all right, well, it's an integrated circuit, helps with navigation. Some of the key words that you're going to go search on, you go to look in the index and just to control F, one of the things I mentioned was it's a compass of sorts. All right. Well, I just search on compass, I got a few hits. The first one says my possible ECCNs [ 8A689 ] 9A6 or 7A004 or 7A104. Okay. So now I've got a few places that are like, I can go look in any of these and see if I can find something that meets the features and characteristics of the thing that I'm trying to share, all right? So since I kind of preliminary thought, okay, 7A looks pretty good. I'm going to start with 7A. So going to Category 7, and I start reading through 7A001, 7A002, here they are. I kind of work all my way through 7A104, 105, 107, there's a skip there, 115, there's another skip. Look at the different things that are described here. So like the gyro-astro compasses and other devices other than those controlled by such and such for satellites [indiscernible] not receiving equipment for GPS or GNSS. No, that's not what this thing is. It's a circuit. 3-axis magnetic heading sensors having all of the following. My thing has 3 axes. So I might want to go to a deeper dive into this one. All right. Well, let's go take a look at it and see what 7A107 says. 7A107, 3-axis magnetic heading sensors, having all of the following characteristics. So the words matter here. Sometimes, it will say having any of the following characteristics. So if my thing is going to be here, it's going to have to have all of the features and characteristics, not just some of them, look at the license requirements in a second. Let's go down to the list of items control and see if my thing actually falls here. So it's going to have all 3, A, B and C. So A, internal tilt compensation, tilt and roll, yes, my thing does tilt at the moment, azimuthal accuracy better than 0.5 degrees, remember, this thing was 0.25 degrees in terms of accuracy, designed or modified to be integrated with flight control navigation, while that's exactly what this thing is for. So it appears that all 3 of the criteria in this ECCN match up to my thing. So I could legitimately say, all right, well, this thing gets an ECCN number of 7A107. All right. Great. Now what do I do? Well, I've got my ECCN number. The next question is, where is it going? So I have an order here. I have an order from a company in Egypt. Right now, I know where it's going. So I got 7A107. I know it's going to Egypt. The question becomes, do I need a license for it? All right, so I got my ECCN. Back in my ECCN remember it had my reasons for control. Those reasons for control were missile tech, and it tells me to look in Column 1 on that Commerce Country Chart or antiterrorism. You'll look in Column 1 on that Commerce Country Chart for AT. So now I need to go over to my Commerce Country Chart. Here's the Commerce Country Chart. And I flip down the side and I say, all right, there's Egypt. I need to go look -- and sorry, I completely forgot because it's a minute ago, AT1 MT1. So I'm going to Egypt. I'm going to go find MT1, well, there's only MT1, there's only one. MT1 is up there. And is there an X in the box? Yes, there is. There's an X in the box. I could stop right there and say, go get a license. But let's be through. Let's go all the way through. There was a second reason for control, it is antiterrorism and it's if you look AT Column 1, no X in that box. Well, if there's an X in any of the boxes against any of the reasons for control, then you can stop and get a license. Just because there's no X in the AT1 doesn't mean you don't need a license. Since there is an X in MT1, you need to go apply for a license. So the question is, I've got 7A107, it's going to in Egypt. Do you need a license? Yes, yes, you do because remember, there were no license exceptions available for this thing either. Now let's take a look at exceptions because you're going to be asked, can we ship this anyway? Go take a look to see if there are any license exceptions available. So of the 3 that are most commonly used, we didn't have a choice there. But there are a bunch of other license exceptions. These are just some of the strategic trade authorization one if its technology and software, if it's intercompany, if it's baggage. There are a bunch of different license exceptions that might be available. But like I said, they all have conditions. So if you look at LVS, for instance, LVS says, it's going to meet the dollar amount that's described in the ECCN. It's got to be going to a Group B country. So that means you're going to need to look at the back of the regs and find the different country groups. You also need to say, well, for sure, it can't go over the value that's listed in the ECCN. But you also have to determine have I used this before? Have I used this exception anytime during the last 12 months? And if you have, then you need to make sure that you've not exceeded the total value allowance. So you need to do some math. And you can't split a shipment to take advantage of it. So it has to be a 1 order, 1 shipment. You can't split the order to make 2 shipments that fall below that dollar threshold. So even with that LVS exception, there are some conditions you need to fulfill. Same for GBS, the Group B country question. Yes, go look in the commerce -- go look in the country groupings, see that your destination is a Group B country, but there's another condition here. You can only take advantage of GBS, shipping to a Group B country, if the only reason for control is national security. Then you may think, our little chip wasn't control for national security, it's controlled for missile tech. So even if Egypt is a Group B country, I couldn't take advantage of GBS because it had a different reason for control besides national security. And then finally, the CIV, it's got to be going to a Group B country, which are a little more countries of more concern. It has to be going to somebody other than the army, the police or some spy organization. And again, the only reason, only reason for control is national security. So even if, it is eligible to go to Group B, Egypt is not. But even if it were, the only reason for control for this thing is missile tech. So none of these exceptions would have been applicable here. But I show you this because I want you to realize while the exceptions are great and the sales folks think you should use whenever you can, make sure that you meet all the conditions, all the criteria for that particular exception. So all right. So I've got my thing. I need to go get a license. And the way I do that is through this system. It's called SNAP-R. They come up with great acronyms for everything. What we recommend is that you set yourselves up with SNAP-R now, go in and create an account, didn't cost anything. You have one person as an administrator, you can add other people in the company to be users of it. SNAP-R is great for applying for a license. It's also good when you're not sure about the ECCN, so you can submit a classification request to the Department of Commerce through SNAP-R. Now again, a little bit of a watch out. You need to first be sure that your jurisdiction is the Commerce Department. You don't have a military item. The way you make sure about that is you apply for what's called a commodity jurisdiction request, or a CJ, and that commodity jurisdiction request goes to the State Department. State looks at the thing that you're trying to export, and they decide whether they want to exert control over it. They check with the Pentagon, they go on all the different branches in military and say, anybody have a concern about this. They'll say, no, it's not that's a civilian item, we don't care. It comes over to the Commerce Department and then you ask Commerce to give you an ECCN. Give them everything you can, including who the manufacturer is because what the Commerce Department folks will do is, they will reach out to the manufacturer of the item, and they'll go through, okay, what are the features and characteristics, the specs, the schematics, and they will make a determination of the ECCN that you're to use. That's like bulletproof. If you get Commerce to give you an ECCN, all you need to do after that is say, all right, well, do I need the license based on the destination, the end use and the end user of this particular thing. So it's -- it takes, I don't know, it might take a few weeks for the answer to come back from Commerce. But again, once you have it, it's ironclad, it's bulletproof. All right. So now you've got your ECCN you know whether you need a license or not. You've applied for your license, you have it, now you're getting ready to ship. The next thing you have to do is report this transaction through the automated export system. Now AES is basically run by the Census Bureau. They're the ones who collect all the information about what comes in and what goes out in the country. So this is just a screenshot from within the AES portal of where you go to report and exports. You see some of the information that needs to be provided to them. There is a field within the AES transmission for an ECCN number. So this would be where you put your ECCN or you would put EAR99. It's also where you put in your HS code, your Schedule B, the quantities, the value, stuff like that. So once you've submitted this AES, you will get back what's called an ITN, the Internal Transaction Number. This is what it looks like. If you run an AES report for the export side of the portal, you'll see that the ITNs are listed there. So the ITNs are typically the date of the shipment, plus some check digits at the end. That ITN number must be placed on the WayBill, that's a company and the goods on the way out, and what that does is it tells customs, who's checking everything goes in and out, customs checks what leaves. It will tell customs that an AES transmission has been filed for this particular item. Now you may be taking advantage of one of those exceptions that says, I don't have to file AES and there are a few, right? There's shipments to Canada, there's low value less than $2,500 shipments. You don't have to file AES. If you have a license for the item, you must file AES, regardless of the value. But if you get -- if you can take advantage of one of the exceptions, you need to put the reason why there's no ITN on the paperwork. And the reason is no AES, Section 30. whatever it might be, 30.39 low-value shipment to Canada. You need to put something on the export paperwork that tells customs, the AES situation has been resolved either by a filing or taking advantage of an exception so that you don't have to file, okay? So that's kind of what I had. I did want to just confirm that folks who attend this will get credit for it. And I would say let's open it up to questions if we need to.

Oh boy, do we have some questions?

Okay. Fire away.

Oh, my video doesn't seem to be working. So sorry about that, everyone. No, I'm just talking background. Anyway, I'm going to go ahead and corral. Thank you guys all so much for all the questions you've been sending to us in the chat. It's extremely helpful to have these. I'm going to try to corral as many of these as possible, and we'll get through as many as possible, but we may not be able to get through the entire list just as an FYI. So if we aren't able to, we should be able to try to follow up with you on your question after the fact. So Norm, while I'm kind of queuing up the first question, I was wondering if maybe you could jump back to your slide with the engine. Someone had a question specifically regarding if you only see a generic reason for control. So for example, if you just only see AT in an ECCN listing, would you consider both commodity -- excuse me, would you consider both columns, so AT Column 1 and Column 2, for example? Or would you just look at 1?

It's going to tell you specifically which column to look at within the ECCN. If it says AT for the reason for control, you have up in here it says reason to control AT. It's going to tell you which column to look in on the Commerce Country Chart. So the general reason for control is anti-terrorism, but the specific reason of control is going to be identified within the ECCN. So it will say AT1, AT2 for you.

Perfect. All right. Thanks for clarifying that. And then a couple of questions around what if you are just the reseller of an item that has an ECCN? So maybe you're sourcing items that are controlled from another vendor, and they do happen to have an ECCN. Can you comment at all on what steps a reseller might need to take when they're selling those controlled items and which regulations they need to abide by and keep in step with?

Sure. Okay. So I'm assuming the resellers in the U.S. and they're going to export something that they bought from somebody in the U.S. and their supplier says, hey, here's the ECCN for this particular thing. On the one, thanks to them for giving you that number because of at least it lets you go do a reality check. So you can say, all right. Well, here's the ECCN that they gave me, go look it up and see if it makes sense, that it actually fits. And while you're looking it up, look at the reasons for control and whether there are any exceptions available because you're now the exporter. You're going to have to do the whole due diligence that we just described. So you're going to screen your end customer, you're going to determine whether you need a license for it or not, and then you're going to do the reporting. If it needs a license, then you, the exporter, reseller need to apply for the license. There are a bunch of software companies that have published their ECCNs because a lot of their stuff has encryption and that's a really hard thing to know without expertise. I think you're pretty well protected if you say, such and such software company has published this ECCN, and that's what I used in good faith. But I wouldn't just blindly use it. I would take what they're referencing, check to see if it makes sense and then go ahead and use it.

Great. Thank you. We also have a couple of questions, and I don't know how much time we'll have to get into any kind of detail on this, given the nature. But I was wondering if you could speak at a high level about controlled items that perhaps get incorporated into a different finished product and how the level of control might follow those items or perhaps apply to the finished product itself?