Deloitte ConferenceCasi pratici di classificazioni di prodotti e di riesportazioni di prodotti europei con

componenti americani

Milan, November 23rd, 2017

Maurizio Castello Global Trade Compliance Organization | EMEA Regional Trade Compliance Manager

ST Microelectronics S.r.l.

Cristian BattistelloDirector – Deloitte Financial Adsvisory S.r.l.

Who We Are 2

• Approximately 43,500 employees worldwide

• Approximately 7,500 people working in R&D

• 11 manufacturing sites

• Over 75 sales & marketing offices

• A global semiconductor leader

• 2016 revenues of $6.97B

• Listed: NYSE, Euronext Paris and

Borsa Italiana, Milan

Front-End

Back-End

Research & Development

Main Sales & Marketing

As of December 31, 2016

~ 2600 Dual Use products (9%)

ST Production Cycle (simplified) 7

Product Classification

4

What

are we exporting?

Methodology approach• An efficient and effective Internal Compliance Program (“ICP”) should consider different elements starting from the

Company’s Export Control risk analysis.

• Processes and procedures must be set up and deployed in the organization in order to assure the Company to abide by the Regulations from the different jurisdictions that could apply to the company business model (i.e. EU Dual Use Regulation & US Export Administration Regulation – “EAR”).

• A careful classification process is needed when dealing with goods ( tangible & intangible) developed/produced/purchased in different countries and a specific training program to the classificators is required internally.

• Main risks related to the item’ classifications are:

• Non-classification of known Dual-Use Products, Goods & Technologies

• Incorrect classification of Products, Goods & Technology

• Timeliness to adopt changes in National & International Regulations

• Classification NOT carried out by technical experts ( classification is a job for Engineers!)

5

Internal Compliance ProgramOverview of the Program

6

CUSTOMSSYSTEMS & TOOLS

• SAP GTSCoreExtended Features

• Customs System / I/F

• Customs Handbook

• Central Data Repositories

• GTCO Website

EDUCATION& TRAINING

• General Awareness

• Dedicated Workshops

• New Hire Orientation

• Train-the-trainers

• Training MaterialsDevelopment

• e-Learning

• Training & Records

CUSTOMS & AUTHORITIES

• Rapport with Authorities

• Promote Company Presence

• Trade Agreement Updates

• Reporting & Disclosures

• Customs valuations

• FTZ Regime Agreements

GOVERNANCE

• Company Policy Guidance• Risk Assessment

• Internal Program Mgnt

• Stakeholders Focus

• Management Reporting

• SOPs & Specifications

• Compliance Audit Program

• GTCO Performance KPIs

ENABLERS

PROCESSES

COMPLIANCE MGNT

• Export Regulations & MgntInternal Classifications

• Procedures Adherence

• Technology Control Plan

• Supply Chain Model Flows

• C-TPAT/AEO Certification

• Declarations - COO, PCD,

• Compliance Statements

• Data Accuracy/ Integrity

ADMINISTRATION

•Central Data Management

•Publications & Bulletins

•Records, Archives & Document Management

•FTZ Reconciliations

•Audit Preparations

•Key GTCO Processes

•Help Desk support

LICENSING MGNT

•Tracking Controlled Product/Goods Genealogy

• Inform Stakeholder of Licensing Requirements

•Licenses Management

Applications

License Expiry

Reporting Usage

DUE DILIGENCE

• Deploy Sanctioned & Denied Parties Controls

• Customer Screening

• Supplier Screening

• Employee Screening

• Diversion Risk Prevention

• Violations & Alerts Mgnt

• Formalise Export ControlAgreements /Contracts

• Orders & Shipments Screening

TRADE COMPLIANCE PROGRAM & GOVERNANCEINTERNAL

COMPLIANCE PROGRAMS

TRADE COMPLIANCE REALISATION

GTCO = Global Trade Compliance Organization

COO = Country of Origin

PCD = Product Classification Declaration

The different jurisdictions that could apply

The „globalization impact“ on company compliance

If a Company is active in different countries, different level of export control regulations will

apply (severe regulations in some countries, soft in others):

• The embargo regulation (UN resolutions)

• Applicable European Regulations

• National Regulatory statutes

• The laws of the respective countries of suppliers & subcontractors

• The laws of the country of the client.

• US Re-Export Regulation (extended jurisdiction).

7

Multi-layered set of regulations:

The level of export controls between and among

countries in USA, Europe, Asia differs.

Completely legal exports by a subsidiary

in a country with low level controls will have a huge impact

on the mother Company.

Classification Determination 8

Source : Reg.UE 428/2009

Chapter 1 : Subject and Definitions

‘exporter’ shall mean any natural or legal person or partnership:

(i) on whose behalf an export declaration is made, that is to

say the person who, at the time when the declaration is

accepted, holds the contract with the consignee in the third

country and has the power for determining the sending of

the item out of the customs territory of the Community.

(ii) If no export contract has been concluded or if the holder of

the contract does not act on its own behalf, the exporter

shall mean the person who has the power for determining

the sending of the item out of the customs territory of the

Community;

Ownerships (Legally)

Classification ownership for the ECCN is the responsibility of the

manufacturer who knows & has control of the technical

specifications of the Goods.

The Company will be responsible to classify accurately

its products & goods in accordance with the appropriate

regulations for ECCN. It is also the responsibility of ST to

make available to its business partners such information & to

enable the correct adherence to the import & export

regulations.

Suppliers will be responsible to Classify accurately the

materials, goods and services they supply to ST & must

make available to ST such information to enable ST to also

comply fully with the import & export regulations.

Ownerships (in the company)

Classification in the context of trade & customs compliance it is a job for engineers!

Classification : To assign the correct Export Control Classification Number (ECCN) in accordance to the

appropriate export control regulations.

Export Control Responsibilities Matrix in the ICP Company Stakeholders for Items’ classification

9

PRODUCTS

CLASSIFICATION

{ HTS & ECCN}

& GENEALOGY

MAINTENANCE (SOP

6.5.1)

BUSINESS

MODEL,

BIZ PARTNER

CREATION

& RISK

ASSESSMENT

DUE DILIGENCE

FORMALISED

EXPORT CONTROL

IN CONTRACTS &

AGREEMENTS

COMPLIANCE

PROCESSES

& CONTROLS

EDUCATION

& TRAINING

PROGRAMS &

STAKEHOLDER

ENGAGEMENT

ADMINISTRATION

BIZ PARTNER

SCREENING &

END-USE/USER

DECLARATIONS

TECHNOLOGY

TRANSFERS,

SUPPLIER &

EMPLOYEE

SCREENING

LICENSES,

SUPPORT

DOCUMENTS &

TRACKING

CONTROL

RECORDS,

ARCHIVES

& AUDIT

PROGRAMS

Product Groups

& Divisions

CLASSIFY

PRODUCTS BOARDS

TECHNOLOGY &

UPDATE PLM

n/a n/a

CUSTOMERS

& EXTERNAL

TECHNOLOGY

SCREENING

AWARENESS &

DEPLOYMENT AS NEEDED –

TECH. CONTROL PLAN

DEPLOYMENT OF

COMPANY TECHNOLOGY

CONTROL PLAN

INTERNAL DEPLOYMENT

PROGRAM

TECHNICAL SUPPORT

DOCS

&

MANAGE PCDs

PROCESSES

&

RECORDS

Central R&D

(TR&D)

CLASSIFY

TECHNOLOGY &

DEPLOY TECHNO

CONTROL PLAN

n/a n/a

TECHNOLOGY

ACQUISITION &

TECHNOLOGY

TRANSFERS

DEPLOYMENT

OF CORP LEGAL

GUIDELINES

DEPLOYMENT OF

COMPANY TECHNOLOGY

CONTROL PLAN

INTERNAL DEPLOYMENT

PROGRAM

TECHICAL SUPPORT

DOCS

&

RECORDS

RECORD

KEEPING

Trade Compliance Education & Training

Training Programs & Modules 10

What isExport Control ?

Who is affected ? How will it work ? When will it start ?Where do I get

support ?

TRADE COMPLIANCE GENERAL AWARENESS

Product Classification

Export Control Regulation

Technology Control Plan

Record & Document

Management

Compliance Administration

TRADE COMPLIANCE FUNDAMENTALS

Risk Management

Due Diligence Order & ShipmentScreening

End User CertificationsCustomers Suppliers

DUE DILIGENCE MANAGEMENT

License Mgnt

Export Control

Import Control

Customs Reporting

IMPORT & EXPORT COMPLIANCE

ICP Mgnt

Authorities Liaisons

GOVERNANCE

Training program

Training should follow the “some for all and “all for some” approach

• Face to face training

• Awareness Training :

(training on Embargoed & Sensitive Countries to all the employees regardless their role in the

company)

• In-depth training :

(for employees directly involved in activities related with sensitive countries (i.e. sales, marketing etc.)

• Management update: (when needed)

• On-line training

11

Product Classification

Classification Approach

• ST Product Export classification consists in building the “Product

Classification Declaration” applying the following 7 steps:

1. Identifying the Product

2. Identifying the reference documentations

3. Identifying the classifier within the organization/business unit etc.

4. Classifying the product

5. Archiving the “Product Classification Report” (i.e. evidence of classification)

6. Entering the relevant ECCN(s) in SAP GTS (i.e. IT systems)

7. Validating the “Product Classification Declaration” (to be sent to the customer)

12

What do I have to classify ?Definitions

13

Goods Goods shall means items, including software and technology(incl.making available of sensitive data on servers)

Military Goods Listed Armaments

(..) «specially designed or modified» for military use

Dual Use Goods Goods related to either civil or military end use, including weapons of

mass destruction or Nuclear technology

Catch All Clause Not listed goods - If notified by Authorities/positive knowledge

Controlled if intended use is or could be “critical”:

Missiles for/and weapons of mass destruction

Military end use if purchaser or destination is part of special lists or

even embargoed

Military end use after an unhautorized export

For nuclear end use in specific countries

Classification - Technology & Software?Definitions

14

Technology Specific information necessary for the "development", "production", or

"use" of a product. The information takes the form of "technical data" or

"technical assistance".

Technical data May take forms such as blueprints, plans, diagrams, models, formulae,

tables, engineering designs and specifications, manuals and instructions

written or recorded on other media or devices such as disk, tape, read-

only memories.

Development It is related to all stages prior to serial production, such as: design,

design research, design analyses, design concepts, assembly and

testing of prototypes, pilot production schemes, design data, process of

transforming design data into a product, configuration design,

integration design, layouts.

Production It means all production stages, such as: product engineering,

manufacture, integration, assembly (mounting), inspection, testing,

quality assurance.

Use Operation, installation (including on-site installation), maintenance

(checking), repair, overhaul and refurbishing.

15Effectively examining the components

that are listed within your productIs a component……

… supposed to be a principal element ?

Not ClassifiedNo

Yes and

… easy to remove ?

or

….to be used for a different purpose ?

Not ClassifiedNo

Yes

classified

16Classification – Components

In order to determine whether the controlled component is a

principal element, the amount, value and the technological know-

how used as well as other conditions must be assessed.

The goods registered in the export list include both new and used

products.

Caution:

“The object of the controls contained in this Annex (source: Annex I to EU dual

use regulation) should not be defeated by the export of any non-controlled goods

(including plant) containing one or more controlled components when the

controlled component or components are the principal element of the goods and

can feasibly be removed or used for other purposes.

Component: required for intended function of the principal element (eg.processor)

Accessory: supplements the principal element or is useful (e.g.computer housing)

17

Model Issue Solutions

ServiceCustomer knows the

productPartner declaration

Component

manufacturingWe know the product Self-classification

Materials We know the product Self-classification

Tec. based on

customerPartner declaration

Tec. based on

customerPartner declaration

After Sales Own products Master Data integrity

Classification – Business Model

ECCN Structure• (example)

18

If a good is listed is mandatory to obtain an Authorization from

the Authority

Categories

0 Nuclear materials, facilities and

. equipment

1 High performance materials,

chemicals, toxins, micro-organisms

2 Materials processing

3 Electronics

4 Computers

5 Telecommunication and information

. security technology

6 Sensors and Lasers

7 Avionics and navigation equipment

8 Marine and ocean ship technology

9 Propulsion systems, space vehicles

. and related equipment

Types

A Systems, equipment and

components

B Test, inspection and production

equipment

C Materials

D Software

E Technology

Coding

001 – 099 Wassenaar Arrangement

101 – 199 MTCR Missile Technology

201 – 299 NSG Nuclear Technology

301 – 399 Australia Group

(Chemical/Biological)

401 – 499 Chemical Weapons Convention

501 – 899 (other / reserved)

901 – 999 National (unilateral) controls

5 A 002

So-called „Export Control Regimes“ define the scope of controlled

goods.

Their goal is the „non-proliferation“of the restricted technologies

ST’s classification - Flow 19

Cat 5 ECCN

Classification

Crypto

Products /

Telecommu

nication

products

MEMS /

Navigation

Products

IC &

Discrete

Products

CAT 5

Regulations

Apply ?

CAT 7

Regulations

Apply ?

CAT 3

Regulations

Apply ?

Cat 7 ECCN

Classification

Cat 3 ECCN

Classification

YES

YES

YES

YES

ECCN Technical specifications do NOT apply

NO

NO

NO

NO

NO

Is there a CAT

5 exemption ? NO

YES

YES

START Process

Is the

product

designed for

Aerospace?

NO

CAT 9

Regulations

Apply?

YES

NO (*)

Cat 9 ECCN

Classification

YES

(*) Note: if the flow is run for US classification, specific attention should

be used in checking the 500 and 600 series of cat 3,5 and 7

YES

New Product setup in SAP GTS 20

Classification

Approach“Product Classification Report”

21

22Classification

Approach“Product Classification

Declaration”

US Re-export Regulation

U.S. (Re)-Export RegulationPrimary U.S. Export/Import Controls

24

State Dept’s Directorate of Defense Trade Controls

(DDTC) controls defense articles, defense services,

and related technical data, including most space-

related articles -- ITAR.

Commerce Dept’s Bureau of Industry and Security

(BIS) controls “dual-use” items -- EAR.

Treasury Dept’s Office of Foreign Assets Control

(OFAC) oversees embargo and sanction lists --

OFAC regulations.

Homeland Security Dept’s U.S. Customs and

Border Protection enforces all exports at U.S.

borders -- Customs

U.S. (Re)-Export RegulationThe reach of US Re-Export Regulations

25

All foreign persons whose activities involve the export or re-export of items and/or technology

controlled by the ITAR or EAR (hereinafter collectively referred to as “controlled goods and technology”)

must be concerned about Compliance with the AECA (Arms Export Control Act) and EAA (Export

Administration Act).

Generally, non-US parties who re-export (export a US origin item or an item with US components from a

country outside the United States to another country outside the US) must adhere to the same rules as

US parties, though in some cases re-export rules are slightly more relaxed. ("Technology" and Technical

data, hardware, software)

U.S. (Re)-Export RegulationWhen do U.S. Sanctions Apply?

26

Any transaction that involves “U.S. Persons”

All other activities, if U.S.-origin items or certain foreign-made items

incorporating more than “10% or 25%” level of controlled U.S. content.

“U.S. Person” means:

U.S. companies and their non-U.S. branches; U.S. citizens, Green Card” holders, wherever located oremployed; and all persons in the United States regardless of their nationality.

If a non-U.S. company engages in transactions involving destinations or parties sanctioned by the UnitedStates, U.S. citizens or Green Card holders who are employed by, or acting on behalf of, the non-U.S.company are prohibited from participating in these transactions.

This prohibition applies to all U.S. citizens or permanent resident aliens wherever located, including those whoare affiliated with a non-U.S. company, such as (but not limited to): employees, secondees, independentcontractors, attorneys, officers, and directors.

Is my items subject to U.S Export Controls? 27

What items are subject to the EAR? Dual-Use – Abstract model

All items within the U.S.

All products sent to U.S.

All products with U.S. origin.

Outside U.S.:

- Products produced with U.S. content if the de-minims threshold is exceeded

- Normal over 25% in all countries

- Over 10% for terrorism supporting countries

- U.S foreign made items bundled with U.S. Software if the U.S content exceeds de-

minims threshold

- U.S. foreign made products (FMP)

- With the usage of sensible U.S. Technology or Software heading to certain

countries (§ 736.2(b)(3) EAR)

- Or items which are a direct product of U.S. Technology or Software (§736.2(b)(3)

EAR)

There are exception not applying to the model for certain technologies no de-

minimise threshold

General Prohibitions 28

1.What will be

exported?

2. Where it will

be exported

3. Who

receives the

item

4. What is the

end-use

Keep in mind the general prohibitions

1. Exporting/re-exporting controlled items without applicable export licenses

2. Re-exporting foreign-made items incorporating more than a De Minimis amount of controlled

U.S. content without licenses or applicable exception

3. Re-exporting to certain countries foreign-produced-direct-products of U.S. origin, technical

data or SW without licenses or applicable license exception

4. Exporting, re-exporting, or transferring within a country to parties on the Sanctioned Party Lists

(organizations/individuals who have violated the EC laws and regulations)

5. Exporting/re-exporting to end-users known to be involved in activities concerning weapons of mass

destruction or nuclear end-use

6. Exporting/re-exporting virtually any product to embargoed destinations

7. Engaging in conduct supportive of proliferation activities (see 5), or supporting foreign persons in

development or use of items that would be subject to the EC laws and regulations.

8. Shipping certain items in transit through sensitive countries if they will be unladen from vessels or

aircraft while in country

9. Violate any order, term, or condition of a license or license exception

10. Proceed with any transaction with knowledge that a violation of the EC laws and regulations has

occurred or is about to occur

All

items

ECCN-

items

U.S. (Re)-Export RegulationImpact of US Regulations on our daily business

29

The precise goods origin (US origin!) must be known

A precise determination of a license requirement is indispensable

The percentage of US goods contained in our final product must be known (i.e. de minimis rule)

All business partners must be screened against the frequently changing Sanctioned Party Lists

The very complex US Re(Export) Regulations must be well known and applied safely (…)

DE MINIMIS CALCULATION

U.S. (Re)-Export RegulationThe minimis rule

30

For non-“600 series,” non-9x515, non-‘see-through carve-out’1 items to Country Group E:1; and

For EAR99 items (except food and medicines) to N. Korea and Syria.

For .a-.x items, in “600 series” & 9x515, or ‘see-through carve-out’1 items, except to Country Group D:5;

For non-“600 series,” non-9x515, or non-‘see-through carve-out’1 items, except to Country Group E:1; and

For EAR99 items to Cuba and Crimea region of Ukraine (except food, medicines and certain software).

For .y items, in “600 series” or 9x515, except to Country Group E:1, E:2 and China;

For items controlled for (AT) reasons only, except to Country Group E:1 and E:2; and

For EAR99 items to all locations, except where noted above.

10 %

25%

Unlimited (not subject to the EAR for de minimis purposes)

U.S. (Re)-Export RegulationWho do I know if a license is required when ECCN – Listed ?

31

In order to know if a license is required, you have to know the destination

country

Compare the ECCN with it´s Reason for control with the Commerce Country

Chart in Part 738 Supplement No. 1 of the EAR

- Is a “X” in a Box a license or a license exception is required

1.What will be

re-exported?

2. Where it will

be re-exported

3. Who

receives the

item

4. What is the

end-use

U.S. (Re)-Export RegulationWho do I know if a license is required when ECCN NOT Listed ?

32

EAR 99 – A “bucket classification” at the end of each CCL category

Non-

Listed

Items

Items subject to the EAR that are not elsewhere specified in any category in the CCL are designated “EAR 99”.

EAR 99 means that a product is still controlled!

CCL

Work Process Flow – Decision Tree 33

Refer to the Bill of Materials (BOM) of the product to calculate de minimis (%) of controlled US-origin content using the formula

below,

US content value (%) =

Fair Market Value of US-origin

controlled content

Fair Market Value of the itemX 100

Thank youmaurizio.castello@st.com