Determining Classification After U.S. Export Control Reform: The reexporter’s guide to determining US export license requirements in a reformed world

2014/08/27

By: Scott Gearity

— originally published in the World ECR…the journal of export controls and sanctions

This article is the second in a series of articles examining how U.S. export control reform impacts non-US firms. In the last installment, we introduced readers to this subject with a step-by-step guide to the application of U.S. export controls outside the U.S. In this and future articles, we will introduce case studies in export control reform and identify answers to common questions.

As U.S. exporters acclimate to the major changes to their country’s export control system, which began to come into effect last year, many non-U.S. firms affected by export control reform are just starting to appreciate what the new rules mean to them.

To illustrate some of the issues facing non-U.S. companies as a result of the U.S. reforms, consider a scenario involving a fictional Belgian aerospace and defense firm, which we will call “EuroAero.” EuroAero is the prime contractor for a fourth-generation fighter aircraft assembled in Belgium. Since the inception of the program, EuroAero has purchased the aircraft canopy actuator from its longtime U.S. supplier California Actuation. The actuator is made to EuroAero’s specifications in order to fit properly and integrate with the other components of the canopy assembly. California Actuation has always obtained U.S. Department of State licenses to authorize the export of the actuators to Belgium and onward to the various governments operating the aircraft.

EuroAero’s legal director calls you into his office. You immediately notice a newspaper clipping about U.S. export control reform on her desk. She says, “I just read this article about the new U.S. export control regulations and I have a few questions: Will these U.S.-origin actuators still be controlled by the Department of State under the International Traffic in Arms Regulations? If not, will they be controlled at all by the U.S.?”

How do you answer her?

Answers

The ITAR now takes a very different approach to controls on aircraft parts and components then it did prior to October 15, 2013, when U.S. reforms began to come into effect. In the past, the U.S. Munition List took a very general, vague approach to controls on these items. A handful of things were identified by name, but virtually any aircraft part could be subject to strict Department of State controls in USML Category VIII(h) if it were “specifically designed or modified” for a military aircraft. (And the U.S. Government never defined what was meant by “specifically designed or modified,” resulting in widely varying interpretations by exporters and reexporters).

Under export control reform, that is no longer the case. Now, there are only two ways in which an aircraft part may be controlled on the USML: either it is (a) “specially designed” for a handful of the most advanced U.S.-origin aircraft types, such as the B-2, F/A-18E/F/G or F-35 or (b) actually identified by characteristics or functions in a specific entry within Category VIII(h). A few examples of these items, which are now enumerated on the USML, are automatic rotor blade folding systems, weapons pylons and air-to-air refueling systems. In some instances, specially designed parts and components of these identified items are also ITAR-controlled.

Now let’s apply these concepts to EuroAero – a Belgian firm procuring a canopy actuator for their modern fighter aircraft. This is an aircraft component, so we review USML Category VIII(h). Since the actuator is made to EuroAero’s specifications for their aircraft, it is highly unlikely that it could be considered “specially designed” for one of the U.S. aircraft types listed in paragraph (h)(1). Next, we turn our attention to the items described in paragraphs (h)(2)-(26). None of these controls mention either canopies or actuators more generally. The probable conclusion – this actuator is no longer controlled under the ITAR. (It is worth noting that it is still possible to have an ITAR-controlled actuator if, for example, that actuator is “specially designed” for an automatic rotor blade folding system.)

The ITAR may no longer control this actuator, but that does not mean that no U.S. export controls apply to it.

To identify the relevant controls, the next step is to review the Commerce Control List within the Export Administration Regulations, in particular the new 600 series Export Control Classification Number 9A610, which was created largely to control military aircraft and related items no longer described on the USML. Some paragraphs of ECCN 9A610 do identify specific aircraft components (e.g. aircrew life support equipment in 9A610.g and certain radar altimeters in 9A610.v), but catch-all paragraph ECCN 9A610.x is now one of the most common classifications for military aircraft parts.

ECCN 9A610.x controls virtually any part, component, accessory or attachment “specially designed” for a military aircraft controlled in USML Category VIII(a) or ECCN 9A610.a, which is not otherwise controlled on the USML or by ECCN 9A610.y. If the canopy actuator is “specially designed” for EuroAero’s fighter jet, ECCN 9A610.x is now the most likely classification. Of course, in practice you would want to confirm this with the actuator manufacturer.

Scott Gearity will be discussing classification for European companies as well as many other important topics at ECTI’s “US Export Controls on Non-US Transactions” seminar in Amsterdam in October 2014.

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