By: John Black
As I contemplated the 82 pages (each with three columns of the smallest font size I can read) of the Commerce Department Federal Register notice, I glanced at the corresponding 20 page State Department FR notice (same 3 columns and small font) sitting on my desk. Yep, over one hundred pages of regulatory notices that will have a dramatic impact on my job, and yours, especially if you deal with the ITAR items that will be list shifted from the USML to the CCL.
Note: The advance copy of the Commerce Department notice is 355 pages long because it is printed in a one column, 12 point font, double spaced format. It came out a few days before the actual Federal Register notice. And let me tell you one thing, there is nothing that makes an export control insider happier than getting an advance copy of a new regulation, or seeing 355 pages of advance regs come pouring out of the laser printer. I know at many a bar in Washington, people were bragging because they got the advance reg 17 minutes before everybody else.
I haven’t been studying the multiple proposed regulations that have been coming out over the past few years that are the basis for the 100 pages of final rules sitting on my desk today, so I didn’t know what to expect in the new regs. But I did know what to do.
I poured me a strong pint (coffee). I grabbed my highlighter. I adjusted the binder clip holding the 80+ page Commerce notice, so that only half of it was pinching the pages and the other half was hanging over the edge-After 29 years of reading regulations, there is one thing I know, and that is how to properly apply a binder clip so not one of the precious words of the regulations are hidden in the pinch and so that each page, once devoured by this regulatory steel trap I call my brain, will fold over perfectly revealing the next fresh page of regulatory text hot off the presses (i.e., my laser printer).
Fast forward 5 hours.
I’ve read and studied the new regs. My brain is full. (For what it is worth, I found the new regulations to be well-written and, don’t tell anybody, interesting.) Now, my job is to reduce 100+ pages of regulations to an article that tells you what the new rules do, in a fashion that reveals sufficient details so you understand the rule and know what you need to research further, while at the same keeping the article to a length you can easily understand and possibly read to the end in one sitting. OK, let’s dive in.
As I have discussed in prior articles, these regulation changes prepare the Export Administration Regulations (EAR) and the Commerce Control List (CCL) to receive items the Obama Administration decided to list shift from the US Munitions List (USML) in the International Traffic in Arms Regulations (ITAR). In other words, before shifting certain military aircraft parts from the USML to CCL, the Commerce Department has to revise the EAR/CCL to add some ITAR/USML style policies to apply to certain of the list shifting items. That is because the EAR will apply ITAR-like, or ITAR-lite, policies to some of the list shifted items and the EAR will apply more standard EAR policies to the other list shifted items. These regulations also shift certain military aircraft and gas turbine engine related items from the USML to the CCL. At the end of the day (or maybe at the end of the year) (or maybe in a year or so), when companies figure out the new rules, they will see less stringent US export controls for the list shifted items.
These regulations do not simplify US export control regulations. These rules make the regulations more complex. The benefit of the complexity is that the new rules significantly relax US export control regulations that apply to list-shifted items.
The people who will be most impacted by these rules are those whose items move from the relatively simple and highly restrictive ITAR, to the complex and less-restrictive EAR. On the other hand, if all you make is EAR99 truck parts, the new rules will have little impact on your current activities.
The regulations were published in the April 16, 2013 Federal Register. The regulations do not enter into force until October 15, 2013. You may not use the new regulations until October 15. That means you have some time to learn the rules and then make your action plan to get ready for October 15.
In this article, I will highlight the most important elements of the new rules. I will try to cover what everybody needs to know. Some of the issues I discuss probably deserve an article of their own-issues such as License Exception STA, the definition of “specially designed,” the details of the new USML Category VIII and Category XIX, an analysis of what shifted from the USML to the CCL, and maybe even License Exception GOV. I will endeavor to write articles analyzing various aspects of the new rules over the coming months, and years.
This article is not a substitute for reviewing the new rules. It is intended to teach you about the new rules so you will find it easier to read and apply the new rules. It is also intended to highlight for you the key aspects of the rules that you need to understand.
What Shifted from the USML to the CCL?
In its Federal Register notice, DDTC published the new Category VIII (Aircraft and Related Articles) and Category XIX (Gas Turbine Engines and Associated Equipment). Category XIX controls many of the military aircraft gas turbine engines that were formerly in Category VIII, as well as other military gas turbine engines. Category VIII no longer controls engines and related items.
For the purpose of this article, I will avoid a deep and thorough analysis of Category VIII and Category XIX and what items shifted lists. I think that is best left for another day (noting that it is currently Saturday afternoon). What I want to do here is use the new Category VIII to show you the structure and approach of the new/revised USML categories, and point out some key things to notice and analyze, to make it easier for you to figure how they impact your items.
One thing you will immediately notice is that Category VIII is much longer than it used to be. This is because one objective of the reform process is to replace catch-all language (e.g., parts specifically designed or modified for military aircraft) with specific language that names (the regulations constantly use the word “enumerates” for this) specific items (e.g., tail hooks and arresting gear, wing folding systems, air-to-air refueling systems). So, for the most part, the Category VIII(h) current control on “parts, components, accessories and attachments specifically designed or modified for” military aircraft is replaced by the new paragraphs (h)(1) – (h)(26) in Category VIII. Paragraph (h) is much longer because it names (or enumerates) everything it controls, but it controls significantly fewer items because it only controls what it names (or enumerates).
(Note: Among the many benefits of being an export control nerd like me is the benefit that export regs often expand my vocabulary. The EAR antiboycott rules made “tertiary” a part of my vocabulary. I now see that the reform regs will pull “enumerates” off the English language top shelf and bring it into my standard vocabulary.
Note: Throughout this section, when I include excerpts from the regulations, I will not include certain words so that we can save space and focus on key points. You will see “…” when I do that. I also add bold face when I need to make sure you see something.
First let’s look at the controls on military aircraft. The current VIII(a) controls aircraft “specifically designed, modified or equipped” for military use, which is a catch-all control approach. The new Category VIII has paragraphs (a)(1) – (13) which enumerates (or names) the specific aircraft that are controlled. Here is an excerpt that illustrates this:
Category VIII-Aircraft and Related Articles
(a) Aircraft (see §121.3 of this subchapter) as follows:
*(2) Fighters, fighter bombers, and fixed-wing attack aircraft;
*(3) Turbofan- or turbojet-powered trainers used to train pilots for fighter, attack, or bomber aircraft;
*(4) Attack helicopters;
(12) Aircraft capable of being refueled in flight including hover-in-flight refueling (HIFR);
The first thing to analyze is that paragraph (a) mentions the new 121.3 definition of “aircraft.” We need to look at that because if something flies, but does not meet the definition of 121.3, then it is not an ITAR controlled “aircraft”, so it is not in Category VIII(a).
(a) In Category VIII, except as described in paragraph (b) below, “aircraft” means aircraft that:
(1) Are U.S.-origin aircraft that bear an original military designation of A, B, E, F, K, M, P, R, or S;
(2) Are foreign-origin aircraft specially designed to provide functions equivalent to those of the aircraft listed in paragraph (a)(1) of this section;
(3) Are armed….;
(4) Are strategic airlift aircraft…;
(5) Are capable of being refueled in-flight;
(7) Are Optionally Piloted Vehicles (OPV)…
Paragraphs (a)(1) – (5) focus on identifying specific aircraft that are ITAR “aircraft” and paragraph (a)(6) is a catch-all approach that controls any aircraft that incorporate a mission system. This would control, for example, a Lear Jet that incorporates military radar. Paragraph (a)(6), while it is a catch-all, is narrower than the current Category VIII(a), which controls aircraft “designed, modified or equipped” for military use, because (a)(6) requires that the aircraft actually incorporates a “mission system” This same concept is also in Category VIII(a)(11).
The happy news is paragraph (b) which shifts certain pre-1956, unarmed military aircraft from the USML to the CCL. Well, it is happy news for collectors and antique dealers, but maybe not for the many of you who are dealing with pre-1956 aircraft and related items.
Now, let’s look at other key Category VIII(h) controls on parts, components, accessories, attachments and associated equipment and systems.
(h) Aircraft parts, components, accessories, attachments, associated equipment and systems, as follows:
(1) Parts, components, accessories, attachments, and equipment specially designed for the following U.S.-origin aircraft: the B-1B, B-2, F-15SE, F/A-18 E/F/G, F-22, F-35 and future variants thereof; or the F-117 or U.S. Government technology demonstrators. Parts, components, accessories, attachments, and equipment of the F-15SE and F/A-18 E/F/G that are common to earlier models of these aircraft, unless listed in paragraph (h) of this category, are subject to the EAR;
(2) Face gear gearboxes …
(3) Tail boom, stabilator and automatic rotor blade folding systems …;
(4) Wing folding systems and specially designed parts and components therefor;
(5) Tail hooks and arresting gear and specially designed parts and components therefor;
(6) Bomb racks, missile launchers, missile rails …
We see in (h)(1) catch all controls on any items specially designed for the sensitive US-origin aircraft. Clearly, the US Government wants to retain full ITAR controls on these items for sensitive aircraft. If we have an item that is not for a sensitive U.S.-origin aircraft in (h)(1), we look to paragraphs (h)(2) – (26) to find the item. So, if our part for a non-sensitive US-origin military aircraft is not enumerated and controlled in (h)(2) – (26), it is not controlled by Category VIII, which means it is either controlled somewhere else in the USML or it is in the CCL.
Next let’s look at VIII(i) which controls technical data and defense services.
(i) Technical data (see §120.10 of this subchapter) and defense services (see §120.9 of this subchapter) directly related to the defense articles enumerated in paragraphs (a) through (h) of this category and classified technical data directly related to items controlled in ECCN’s 9A610, 9B610, 9C610, and 9D610 and defense services using classified technical data. (See §125.4 of this subchapter for exemptions.) (MT for technical data and defense services related to articles designated as such.)
Worthy of note is that the ITAR retains control over classified technical data directly related to items that may have list shifted to the specified ECCNs and defense services using classified tech data. A related point is that the new rules revise the ITAR definition of technical data in ITAR 120.10(a)(2) to point out that the definition of ITAR tech data includes (and controls) classified tech data related to 600 series ECCNs in the CCL.
The last instructive point here is the new paragraph (x) that will be in most USML categories. Here is VIII(x):
(x) Commodities, software, and technical data subject to the EAR (see §120.42 of this
subchapter) used in or with defense articles controlled in this category.
As we will discuss later, the new rules allow you to include CCL-controlled items on DDTC applications for USML items in certain cases. When you do that for CCL aircraft parts, you identify them as VIII(x) on your DDTC application.
The New 600 Series ECCNs
In a fashion similar to how I discussed the USML changes, I will discuss the new ECCNs. I will not analyze what each paragraph in each new ECCN controls. That will be left for another day (preferably not another Saturday). Here I want to point out key things you need to understand as you prepare to carefully analyze each new ECCN.
Items list shifted from the USML to CCL often will land in the new 600 series ECCNs (i.e., ECCNs in which 6 is the third character), such as 9A610, for “Military Aircraft and Related Commodities.” Certain items in existing ECCNS ending in “018″ will move into 600 series ECCNs. An important aspect of the new 600 series ECCNs are the .x and .y paragraphs, such as 9A601.x and 9A610.y, respectively.
The 600 series .y paragraphs, such as 9A601.y, identify decontrolled items such as parts, components, accessories, attachments specially designed for an item in the same ECCN, or in the USML (if the USML, of course, has released control on the parts, components, accessories or attachments). The .y paragraph will name decontrolled items-for example, 9A601.y names aircraft tires, map cases and urine collection bags/pads/cups/pumps, all of which are specially designed for military aircraft. These “decontrolled” items are controlled for anti-terrorism (AT) reasons and eligible for No License Required (NLR) to all countries, except Cuba, Iran, North Korea, Sudan and Syria.
The 600 series .x paragraphs, such as 9A610.x, imposes fairly stringent export controls on parts, components, accessories and attachments that are not named in 9A610.y and are:
1) Specially designed for an item in the same ECCN or in the USML (if the USML has released controls on the parts, components, accessories or attachments); and
2) Not elsewhere specified in the USML or CCL.
General Order No. 5 and Dual Licensing
Supplement No. 1 to Part 736 of the EAR contains the new General Order No. 5 (“GO 5″) that addresses various transition issues. Key elements of GO 5:
- If you have a license or approval (agreement or GC) from the Directorate of Defense Trade Controls (DDTC) for items that are list shifted from the USML to the CCL, you may continue to use that license or approval after the list shift occurs, even though the items are no longer ITAR-controlled (as long as the license or approval was issued prior to the list shift).
Between the time there is a Federal Register notice saying a list shift will occur and the effective date of that list shift, you may apply for licenses to the Bureau of Industry and Security (BIS) for the things that will shift to the CCL. BIS will process the applications, including inter-agency reviews in the US Government. If an application is ready for approval, prior to the effective date of the list shift, BIS will Hold Without Action (HWA) the applications until the effective date, and on the effective date, BIS will issue the license.
- For example, military aircraft parts that the April 16 Federal Register shifted to the CCL effective October 15: You may start applying for BIS licenses today. If BIS decides to approve your application in June, it will put your application in HWA status and issue it on October 15.
- After the effective date of a list shift, you may stop using your DDTC licenses and return your licenses to DDTC, according to 123.22 of the ITAR.
- After the effective date of a list shift, you may terminate your Technical Assistance Agreements (TAA), Manufacturing License Agreements (MLA), and Warehouse and Distribution Agreements (WDA), according to 124.6 of the ITAR.
- If you chose to do a voluntary disclosure for a violation that involves both EAR and ITAR violations, you should send your disclosure to both BIS and DDTC.
The new rules are friendly and flexible when it comes to licenses and approvals for items shifted from the USML to the CCL. In addition, to what GO 5 provides, you may put items shifted from the USML to the CCL on your DDTC license and agreement applications for the USML items. This means you may obtain a single license, for example, to export a USML Category VIII military aircraft and CCL 9A610 parts for that aircraft. You may use a TAA to export both ITAR technical data and EAR technical data.
The rules for this single license for CCL and USML items are in ITAR 120.5(b) and 123.1(b) and EAR 734.3(e). To be eligible to include CCL items along with USML items on an ITAR license, these three things have to be true:
- The purchase documentation includes both USML and CCL items;
- The CCL items are for use in or with the USML items; and
- The application separately enumerates the CCL items in a USML (x) paragraph-for example, Category VIII(x).
(You will notice that USML categories that have undergone a list shift will include an (x) paragraph, such as VIII(x), which is the classification to be shown on the license application for EAR items.)
There are also similar provisions for mixing CCL items with USML items in Foreign Military Sales authorizations.
New EAR Country Groups
The new rules create new country groups in Supplement No. 1 to Part 740:
Country Group A:5: Countries eligible to receive all STA-eligible items under License Exception STA
Country Group A:6: Countries eligible to receive only certain STA-eligible items under License Exception STA
Country Group D:5: Countries subject to US arms embargoes. This country group comes from the list of countries in ITAR 126.1 because the EAR is intended to reflect ITAR policies for these countries, especially with regards to 600 series and military items.. Thus, in many cases, countries in Country Group D:5 are subject to more stringent EAR controls than those that apply to other countries.
New Red Flags for 600 Series Items
The EAR says you may not proceed with an activity if there is a “Red Flag” present that indicates a high risk that the transaction is related to a violation, or will result in a violation. There are two new Red Flags for 600 series items in the List of Red Flags in Supplement No. 1 to Part 732:
13. You receive an order for ”parts” or ”components” for an end item in the ”600 series.” The requested ”parts” or ”components” may be eligible for License Exception STA, another authorization, or may not require a destination-based license requirement for the country in question. However, the requested ”parts” or ”components” would be sufficient to service one hundred of the ”600 series” end items, but you ”know” the country does not have those types of end items, or only has two of those end items.
14. The customer indicates, or the facts pertaining to the proposed export suggest, that a ”600 series” item may be reexported to a destination listed in Country Group D:5 (see Supplement No. 1 to part 740 of the EAR).
These Red Flags reflect the theme that the EAR considers some of the items shifted from the USML to the CCL to be more sensitive than many current CCL items so there are some new special rules, such as these Red Flags, for such items.
Controls on Foreign Made Items
The EAR imposes controls on items made outside of the United States (“foreign made items) if, in certain circumstances, they contain US content or they were produced using US technology.
EAR 734.4(a)(6) states that the standard EAR de minimis rules do not apply to foreign made items that incorporate 600 series US content when destined for a country list in Country Group D:5. This means when such foreign made items are destined to Country Group D:5, they do not benefit from the 10% and 25% de minimis thresholds that apply to most items subject to EAR jurisdiction. Importantly, however, when such foreign made items are destined for a country not in Country Group D:5, the standard EAR de minimis rules are applicable.
EAR 736.2(b)(3)(iii) imposes US controls on foreign items that were produced using 600 series US technology or software. This control is more restrictive than the standard EAR controls on foreign items produced using US technology/software. The new rule says the EAR controls 600 series foreign made items when all three of these are true:
- They are the direct product of US 600 series technology or software;
- They are in a 600 series ECCN; and
- They are destined to Country Groups D:1, D:3, D:4, D:5 or E:1.
There are new definitions of these terms in Part 770 of the EAR:
- 600 Series
- 600 Series Major Defense Equipment
- Military Commodity
- Specially Designed
- Build to Print Technology
- End Item
- Dual Use
I will discuss “specially designed” below. You may review the others at your leisure.
A wide range of changes were made to EAR Part 740 which contains the EAR license exceptions. In some cases, the changes limit license exception availability for 600 series items. In other cases, they change the scope of specific license exceptions, often to make the EAR license exceptions authorize at least as much as corresponding ITAR license exemptions.
740.2: Restrictions on All License Exceptions:
- A new paragraph 740.2(a)(12) says you may not use license exceptions for 600 series items destined to, shipped from, or manufactured in Country Group D:5, except for License Exception GOV in certain cases.
- A new paragraph 740.2(a)(13) imposes limits on using license exceptions for 600 series items by identifying the only license exceptions available for 600 series items and identifying certain restrictions applicable to those license exceptions.
- New paragraph 740.2(a)(15) and (16) limit the use of license exceptions for “600 series Major Defense Equipment” based on the dollar value of the contract and the country, except for US Government end users under GOV.
License Exception TMP 740.9
Currently, TMP authorizes exports to a US person’s foreign affiliates in Country Group B. The new rules would remove the Country Group B limitation.
License Exception GOV 740.11
The rules make various changes to GOV. The highlights are:
- Certain ECCNs will limit the availability of GOV for certain items in the ECCN and the limits in GOV itself for certain items have been adjusted.
- GOV may be used to send items to US Government contractors in certain situations, subject to written authorization from the appropriate US Government agency and special export clearance requirements.
- GOV now authorizes exports under the direction of the US Department of Defense consistent with the existing exemptions in ITAR 125.4(b)(1) and (3) and 126.6(a).
License Exception TSU
Among the various changes:
- TSU authorizes US universities to release software source code and technology in the United States to their bona fide full time, regular foreign national employees similar to ITAR 125.4(b)(10).
- TSU authorizes the export of copies of technology previously authorized for export, similar to ITAR 125.4(b)(4).
License Exception STA
License Exception STA in EAR 740.20 will be one of the primary export authorizations for the 600 series items. This means that many, but not all, list shifted items go from requiring an ITAR license to not requiring an EAR license (i.e., they are either eligible for a license exception or NLR).
But wait, you are an ITAR only exporter, you never do anything (other than the occasional release of brochures at trade fairs) without getting a written approval from DDTC. Are you ready for the new world of self-policing your exports? To paraphrase Jack Nicholson from A Few Good Men, “Can you handle self-policing your exports, reexports and retransfers? Can you? You have always lived in a world that requires licenses. And those licenses are issued by officials who do a thorough national security and foreign policy review of your transaction. Who is gonna do the review for you? You? Your back-up Mr. Nerdly? DDTC has a greater export control responsibility than you can possibly fathom. You weep for lost sales and curse inconsistent provisos. You have that luxury. You know nothing of transaction review, a world in which the US Government, while slow and inconsistent, prevents dangerous exports. Government review of your activities, while grotesque and incomprehensible to you, saves lives. You don’t want to review your own exports. Because deep down, in places you don’t talk about at parties, you want DDTC on that wall. You need DDTC on that wall. Licensing officers use words like national security concerns, RWA, provisos. We use these words as the backbone to a life spent defending something. You use ‘em as a punchline at an SIA golfing event. DDTC has neither the time nor the inclination to explain itself to a man who rises and sleeps under the blanket of the very freedom it provides, then questions the manner in which DDTC provides it!”
Or, to quote Dirty Harry, “Do you feel lucky, punk?”
As is the case with all license exceptions, the use of STA is optional. I would not be surprised if some ITAR experts who are encountering controlled EAR exports for the first time choose to apply for licenses instead of using STA. If you prefer getting a license over using STA, feel free to do so-and when I say free, I also mean free in that BIS license applications do not carry the $250 per license fee that DDTC licenses have.
In general, STA will authorize exports of most 600 series items (as well as other non-600 series items) to the new Country Group A:5 and nationals of (and in) Country Group A:5. STA will continue to authorize a smaller set of items to the new Country Group A:6. EAR 740.2 and individual ECCNs will limit and define the scope of items eligible for STA, so you should check both before using STA. Some specific points are:
In 740.20(b)(3) STA is for 600 series items only when the ultimate end user is the armed forces, police, paramilitary, law enforcement, customs, correctional, fire or search and rescue agency of a government of Country Group A:5 or the United States, or are for the development or production of items destined to the same types of end users in the same countries.
- An exception to the above country limit is that STA may be used to export items to a foreign party in Country Group A:5 even if the party plans to reexport some of the items to a country not eligible under STA as long as the foreign party has a BIS reexport license and gives a copy of the license to the US exporter.
- The Note following 740.20(c)(1) says that STA may be used for 600 series items only if the purchaser, intermediate consignees, ultimate consignees, and end-users are on a previously approved BIS or DDTC license.
- 740.20(g) describes the process for getting BIS approval to use STA to export 600 series end items in 9A610.a STA may not be used to export end item aircraft in 9A610 unless BIS has approved the export of that aircraft under 740.20(g) of STA-See 740.20(b)(3)(iii).
- STA may not be used to export 600 Series Major Defense Equipment in a contract valued over $25 million. -See 740.20(b)(3)(iv).
- In 740.20(d)(2)(vi) and (vii), the STA “consignee statement” for 600 series items requires that the end-user acknowledge the end-use and consignee restrictions applicable to 600 series items and consent to US Government post-shipment verification checks.
Generally speaking, STA is a complex license exception that replaces getting an export license with establishing a paper trail of export control responsibility. I have mentioned only the highlight of some of the new things in STA. If you have never used STA, or if you have been using it in its current format, you should do a thorough analysis of the new STA before you begin using it on October 15.
600 Series Major Defense Equipment
Items shifted from the USML to 9A610.a or 9A619.a – .c are 600 Series Major Defense Equipment (MDE) if they have a non-recurring research and development cost of more than $50 million or a total production cost of more than $200 million. Thus, these items bring with them an MDE status similar to MDE in the ITAR. EAR 743.5 says that in certain cases, BIS will notify Congress before it approves licenses for MDE depending on the dollar value and country on the license. For Country Group A:5, the threshold is $25 million and for the rest of the world, the threshold is $14 million.
Special Military End-Use Based License Requirements
The new rule adjusts the narrow military end use rules for the PRC in EAR 744.21. First, it states that you may not send any 600 series items to the PRC without a license. This has its major impact where it requires a license for military end use in China of the items in the 600 series .y paragraphs which normally are NLR eligible for most of the world. In 744.21(f), it also adjusts the definition of “military end use” for the PRC to include incorporation in or development/production/use of :
- USML items
- Wassenaar Arrangement Munitions List items
- 600 series ECCNs
- ECCNs ending with A018.
The rule also revised the definition of “military end-use” for the military end user controls on 3A991.a.1 microprocessors destined to Country Group D:1, to include incorporation in or development/production/use of :
- USML items
- Wassenaar Arrangement Munitions List items
- 600 series ECCNs
- ECCNs ending with A018.
One objective of reform is to clarify the meaning of “specially designed” (or in ITAR terms, “specifically designed”) and revise it, so it more precisely controls the things the government thinks need to be controlled. Another objective is, as much as possible, to move away from controlling an item just because it is “specially designed” for another item and move towards controlling items by enumerating (or naming) them in a control list. We have already seen how Category VIII and ECCN 6A010, to some extent, move away from using “specially designed” as the “catch-all” basis for controlling an item and include long lists of specifically enumerated items. That makes Category VIII and 6A010 relatively lengthy. The new one-page (3 columns per page of the smallest print I can read) definition of “specially designed” also takes the long-standing EAR approach of more-words-mean-clearer-and-more-focused-regulations.
Both the EAR and the ITAR use the same approach in their new definitions of “specially designed,” although there are some differences because each is set up in the framework of its own respective area of export jurisdiction. The ITAR definition (120.41) focuses on “specially designed” as it relates to determining USML vs. CCL jurisdiction for an item. The EAR (Part 770) looks at the definition as it relates to determining the ECCN or EAR99 classification.
The US Government refers to the definition as a “catch and release” approach because it starts out by catching a lot of things but eventually releases most things with the definition, in the end, controlling only what the government wants to control. In both regs, paragraph (a) catches things into being controlled and then paragraph (b) releases things into a lesser controlled status.
Here we will look at the ITAR definition of specially designed to understand the new approach in both the EAR and ITAR. The definition below is in indented italics and my commentary is not.
§120.41 Specially designed.
(1) As a result of development, has properties peculiarly responsible for achieving or exceeding the controlled performance levels, characteristics, or functions described in the relevant U.S. Munitions List paragraph; or
(2) Is a part …, component …, accessory …, attachment …, or software for use in or with a defense article.
We see here that (a) catches a lot of items. Now for the good news. If any item meets the requirements of any one of the paragraphs (b)(1) – (5), it is not caught by a “catch all” control:
(b) A part, component, accessory, attachment, or software is not controlled by a USML “catch-all” or technical data control paragraph if it:
(1) Is subject to the EAR pursuant to a commodity jurisdiction determination;
Paragraph (b)(2) is straight-forward good news for those items.
(3) Has the same function, performance capabilities, and the same or “equivalent” form and fit as a commodity or software used in or with a commodity that:
(ii) Is not enumerated on the USML;
That means if the military part you are looking at is identical in function, form and fit to an item in production for a non-USML item, your item is not controlled as being “specially designed” for a USML item. A note after the definition makes this even more generous by saying that a commodity is “equivalent” if its form has been modified solely for fit purposes.
(4) Was or is being developed with knowledge that it is or would be for use in or with both defense articles enumerated on the USML and also commodities not on the USML; or
Paragraphs (4) and (5) say if the item is for both USML and non-USML items, or its general purpose is that it can be for many items, it is not caught as “specially designed.” The notes following the definition say that if you use these two paragraphs as the basis for determining something is not “specially designed,” you must have documents that prove it is true. If you do not have the documents, you may not use these paragraphs as the basis for an item not being “specially designed.”
Also for paragraphs (4) and (5), the notes say that the word “knowledge” includes not just certain knowledge, but also awareness that there is high probability that something is true or will be true in the future. If somebody disregards or avoids certain available information, you have knowledge. (This is an example of the ITAR using the EAR definition of “knowledge.”)
Paragraphs (4) and (5) give a favorable definition that can release things from control, but the documentation requirements and knowledge definition mean you better be able to prove your position, and you better take into account everything that everybody in your company knows or suspects about the situation. In the current regs, there is no comprehensive definition of “specially designed”-it is just a term that the government interprets on a case-by-case basis. In the new regs, the added clarity means you can make your own decisions about “specially designed”, but you better be able to defend it.
The notes following the definition clarify various aspects of the definition by telling you what “enumerated” and “catch-all” mean, which I already explained.
As I said, the EAR and ITAR take the same approach to specially designed. You may still use the Commodity Jurisdiction determination procedure to get a DDTC ruling on whether something is ITAR controlled as “specially designed.” A new EAR 748.3(e) describes the process for getting a BIS ruling on whether something is “specially designed.”
BIS Applications for 600 Series Items
In the BIS license application, in Block 24 you should enter any precedent DDTC approved licenses or approvals. If the precedent meets the requirements stated in Supplement No. 1 to Part 748 Block 24, your application will be processed in a shorter time period.
BIS License Validity Periods EAR 750.7(g)
Most new BIS licenses will be valid for 4 years (currently 2). You may ask for a longer validity period.
Export Clearance/Documents and AES/EEI
The new rules have several important changes for 600 series items.
EAR 758.1(b)(3): You must do an AES filing for exports of 600 series paragraphs a. through x. items to all countries regardless of value. 600 series paragraph y. items are subject to standard EAR AES rules.
EAR 758.1(b)(4): You must do an AES filing for exports under STA.
EAR 758.6(b): You must identify the ECCN for all 600 series items on the invoice and on the bill of lading, air waybill, or other export control document that accompanies the shipment. Those are the same documents on which you must put the Destination Control Statement.
Well, that about does it. From which items shifted from the USML to the CCL, to clearing your exports out of the country, I have tried to provide an instructive summary of the first tsunami of export control reform regulations. I tried to explain what I think is a reasonable and digestible first bite of the new reg. I also gave cites in the new regs so you can dig deeper into the issues I pointed out. And digging deeper is something you need to put on your agenda. It is on my agenda. I need to learn more about the new rules and the issues they create for exporters and reexporters. Fortunately, I have until October 15 to do so.
In the meantime, we need to develop our plans for transiting our compliance programs and procedures to the new regs. We should understand enough of the concepts, even if we lack expertise on all the details, to make our plans.
As I worked through my study of the new regs and this write, I realized that I am bound to miss something in this first run. There are many nuances to these new rules that I will discover only through reading and studying them more and, ultimately, after October 15, applying them to actual transactions. In the meantime, we all need to get trained. And we need to train others in our companies.
I don’t think I can absorb more of these new regs now, but I know what to do. Pour me a strong pint (not coffee), drop my empty highlighter in the trash, and put my binder clip in the fully locked, briefcase-ready position.
John Black is a consultant with BSG Consulting with over 30 years of experience in the field of export controls. He regularly instructs seminars and webinars for the Export Compliance Training Institute and will be speaking on the current state of the reform efforts, among other things, at upcoming seminars in Montreal, Washington DC and San Francisco.