Navigating the Special U.S.-U.K. Trade Relationship | ECTI

The United Kingdom (England, Scotland, Wales and Northern Ireland) has historically been one of the United States’ best trading partners, which provides unique opportunities for exporters.

The 2007 Defense Trade Cooperation Treaty between the United States and United Kingdom created a highly unusual exemption from the required export licenses on certain defense-related items subject to the ITAR (International Traffic in Arms Regulations). Similar exemptions exist only for Canada and Australia.

Further, the U.K. is in Country Groups A:1, A:2, A:3, A:4 and A:5 of the Export Administration Regulations, providing some of the most favorable trading treatment under the EAR.

But as with many export issues, exploiting these opportunities requires technical expertise and care.

The U.K. as an export market

The U.K. is the seventh largest trading partner of the U.S. with $117.9 billion in total trade in 2021—between No. 6 South Korea ($160.8 billion) and No. 8 Taiwan ($114.0 billion). That year, $63.4 billion in exports went to the U.K.—representing 4.1% of U.S. exports around the globe.

According to the Bureau of Industry and Security, which administers the EAR, the top export categories to the U.K. are:

• Stone, glass, and semiprecious metals: 24.7 percent of total exports;
• Transportation equipment: 14.9 percent;
• Machinery and mechanical appliances: 14.8 percent.

In the first five months of 2022, exports to the U.K. exceeded imports by $5.9 billion—the fourth-largest trade surplus among all U.S. trading partners.

Partners in defense and technology

Since the end of WWII, the U.K. has been the seventh largest market for U.S. defense exports, according to the Defense Security Cooperation Agency.

In 2021, 1,760 export applications to the U.K. were granted for $4.9 billion worth of sensitive items subject to the EAR—an approval rate of 89.5 percent, compared to 85.5 worldwide.

The most frequently cited ECCNs by value in these applications were 9A610 (military aircraft and related commodities); 9A604 (commodities related to launch vehicles, missiles and rockets); and 9A619 for military gas turbine engines and related commodities.

That longstanding relationship was the basis for the 2007 defense cooperation treaty, which was designed to facilitate the exchange of controlled items—particularly those subject to the ITAR (though many of the items subject to the ITAR at the time the treaty was negotiated have since transitioned to the EAR).

In some cases, those exports represent traditional sales. But in others, they are the product of international co-development projects, such as the F-35 stealth fighter jet—a 15-nation collaboration involving more than 100 U.K. suppliers.

So defense exports to the U.K. represent more than sales; they’re often a function of direct collaboration between governments.

The exemption from export license requirements under the ITAR, found in Section 126.17 of the ITAR, seems broad and enticing. But the reality is more restrictive, and is difficult enough to navigate that it’s the subject of e-seminars offered by the Export Compliance Training Institute.

There are three essential challenges when applying the license exemption:

1. The U.K. entity receiving the item must be a pre-approved member of a community of “certain U.K Government entities and facilities, as well as non-governmental facilities that have been vetted and approved by both Treaty partners,” according to the S. Directorate of Defense Trade Controls (DDTC). Each member is assigned an Approved Community ID (ACID) number, which may be validated through the DECCS portal (Defense Export Control and Compliance System).
2. The item being exported must be eligible for the exemption. Supplement No. 1 to Part 126 of the ITAR provides a table of items excluded from the license exemption for
3. Canada, Australia and the U.K.—each in a separate column. There are other exclusions, and Supplement No. 1 isn’t the only source that needs to be checked. Section 126.17 of the ITAR identifies general categorical exclusions of items in the rule, such as certain developmental items, and needs to be checked as well.
4. The export needs to be for a specifically authorized end-use, as identified on DDTC’s public website. In general terms, authorized end-uses will fall into a few categories, such as joint U.S.-U.K. military operations or U.K. military programs.
   Another qualifying category is for use by the U.S. government, but there’s no list of eligible programs under this category. Rather, the validating language must be written into the contract between a company and the U.S. government—AND the items specified in the contract must be eligible for a license exemption in Supplement No. 1 to Part 126 of the ITAR.

One final point on this: If an export item meets all three of these requirements, there are still some unique and potentially burdensome administrative requirements that don’t exist anywhere else in the ITAR. Examples:

• Items and documents exported under the exemption need to be marked and identified in a specific manner;
• Transport must be through certain approved carriers;
• Additional recordkeeping processes are required.

Many companies find the exemption burdensome enough that they’ll just apply for an export license instead. Such applications for the U.K. receive priority for consideration.

Subject to the EAR

Working with the EAR is generally less restrictive than the ITAR. Whether an item requires an export license is based mostly on its classification and destination. The U.K. is in the most favorable country groups defined in the EAR, so many items can be exported NLR (related post: NLR Authorization and Exporting Without a License).

But there are still reasons why a license may be required for certain items, which are embedded in the Commerce Country Chart. These include categories such as national security, regional stability, missile technology and chemical and biological weapons.

At the same time, because the U.K. is in Country Groups A:1, A:2, A:3, A:4, and A:5, it’s eligible for some powerful license exceptions. These include License Exception STA and License Exception GOV, which cover many items exported to the U.K.—including some that might otherwise require a license.

If it all seems like too much to consider, it’s helpful to keep in mind that the vast majority of items exported from the United States are subject to the EAR and travel NLR. For exporters of sensitive items, specific training is available and likely necessary to navigate the complexities of the special trade relationship between the United States and United Kingdom.

Do you have questions about the trade relationship between the U.S. and U.K.? Visit www.learnexportcompliance.com to learn about our company, our faculty, our staff and our esteemed Export Compliance Professional (ECoP®) certification program. To find upcoming e-seminars, live seminars and live webinars and browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You can also call the Export Compliance Training Institute at 540-433-3977 for more information.