On May 18, 2012, the US Department of Commerce, Bureau of Industry and Security (BIS), and the US Department of State, Directorate of Defense Trade Controls (DDTC), published parallel proposed rules aimed at transferring current United States Munitions List (USML) Category XIII articles to a new Commerce Control List (CCL) classification.  The proposed rules, 77 Fed. Reg. 29564 and 77 Fed. Reg. 29575, are part of the Administration's ongoing Export Control Reform Initiative, and are part of a planned series aimed at transferring articles from the USML to the CCL.  Both BIS and DDTC are accepting comments on the May 18th proposed rules until July 2, 2012.

The proposed rules are highly detailed.  Below is a high-level summary of the proposed changes:

BIS Proposed Rule: The proposed BIS rule describes the transfer of items controlled under Category XIII of the USML, auxiliary military equipment and related items, to the CCL.

Determination of articles proposed to be transferred: Category XIII articles that would remain on the USML are those which (1) are inherently military and otherwise warrant control on the USML, and/or (2) are of a type common to civil applications, possessing parameters or characteristics that provide a critical military or intelligence advantage to the United States, and that are almost exclusively available from the United States.  Category XIII articles that would be transferred to the CCL are those that do not satisfy the above criteria for the USML, but are nonetheless determined to be a type of article that is now on the corresponding USML or the Wassenaar Arrangement Munitions List (WAML).

Addition of new ECCNs: The BIS proposed rule of July 15, 2011 established a framework for the assignment of an Export Control Classification Number (ECCN) to transferred articles.  As discussed in previously proposed rules regarding the transfer of items from the USML to the CCL, the proposed rule would add a new "600 series" to the CCL to control most items formerly on the USML moved to the CCL and to consolidate existing WAML entries.  The intent would be to consolidate control of munitions items and related articles on the CCL, essentially creating a "Commerce Munitions List."  The current proposed rule also follows this framework for Category 0.  Specifically, the current proposed rule would create five new "600 series" ECCNs in CCL Category 0, accounting for product groups A through E.   The rule also would transfer some items currently classified in the CCL under 0A018, 0A918, and 0E018 to the 600 series, thereby consolidating the WAML and former USML items into one series of ECCNs:

  • ECCN 0A617 would cover miscellaneous equipment, materials, and related commodities that are currently controlled under USML Category XIII, such as certain types of construction equipment, items for aircraft, concealment and deception equipment,  bridges and pontoons, test models, photointerpretation items, metal embrittlement agents, and parts and components of the above. 
  • ECCN 0B617 would cover test, inspection, and production equipment and related commodities specially designed for the development or production of commodities controlled by ECCN 0A617 or USML Category XIII.
  • ECCN 0C617 would cover miscellaneous materials specially designed for military use.
  • ECCN 0D617 would cover software specially designed for the development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of commodities controlled by 0A617, equipment controlled by 0B617, or materials controlled by 0C617.
  • ECCN 0E617 would cover technology required for the development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of commodities controlled by 0A617, equipment controlled by 0B617, materials controlled by 0C617, or software controlled by 0D617.

Each product group would also have a special paragraph designated ".y.99" to cover items that were previously determined to be subject to the Export Administration Regulations (EAR), were not listed on the CCL (i.e., would previously have been classified as EAR99), and would otherwise fall within the scope of the "600 series."  All items in these proposed ECCNs (except paragraphs .y) would be subject to national security (NS Column 1), regional stability (RS Column 1) and antiterrorism (AT Column 1) controls.  Items in the .y paragraphs would be subject only to antiterrorism (AT Column 1) controls.  The July 15 and November 7 proposed rules would change § 742.4 and § 742.6 of the EAR to apply a general policy of denial to "600 series" items for destinations that are subject to a United States arms embargo.  This policy would apply to all items controlled for national security (NS) reasons and regional stability (RS) reasons under the current proposed rule.

Addressing license exceptions availability: The new rule likewise addresses license exception availability for items controlled by the five new ECCNs that would be created.

  • The new rule proposes that STA (strategic trade authorization) -eligible items controlled under new ECCN 0A617, 0B617, and 0C617 would not be subject to the restriction, proposed in the July 15 rule, on using of License Exception STA for "end items" in "600 series" ECCNs unless a specific request for License Exception STA eligibility has been submitted to, and approved by, BIS.
  • Items controlled under proposed ECCNs 0A617, 0B617, and 0C617 would be eligible for License Exception LVS (limited value shipments) up to a value of $1,500. 
  • Items controlled under proposed ECCNs 0A617, 0B617, 0C617, 0D617, or 0E617 also would be eligible for License Exception TMP (temporary exports), and items controlled under proposed ECCNs 0A617, 0B617, or 0D617 would be eligible for License Exception RPL (servicing and replacement parts).

Unlike items on the USML, the items contained in the new ECCNs created by this proposed rule would be subject to the de minimis provisions outlined in the July 15, 2011 proposed rule.  Under certain conditions, non-U.S.-origin items incorporating items subject to the EAR are subject to the EAR if they contain more than a de minimis percentage of controlled U.S. origin content.  Foreign made items incorporating items controlled under the new ECCNs would become eligible for de minimis treatment if they meet the threshold of no more than 10 percent controlled U.S.-origin content – a lower threshold than applies to non "600 series" items for export to most countries.  Because all items in the new ECCNs (except those classified under paragraph .y), would be subject to NS Column 1, RS Column 1, and AT Column 1 controls, these items would be considered "controlled" content if incorporated into a foreign produced good, except when the foreign-produced good was being exported to Canada.  

DDTC Proposed Rule

The proposed DDTC rule revises USML Category XIII as outlined above.  Below is a high-level summary:

"Bright line" list: The proposed rule would revise USML Category XIII to advance national security objectives and more accurately describe the articles within the category, in an effort to establish a "bright line" between the USML and the CCL for the control of such articles.

  • The articles currently controlled under Paragraph (a) (i.e., cameras and specialized processing equipment) would be controlled in revised Category XII of the CCL, which will be the subject of a separate notice.  Photointerpretation, stereoscopic plotting, and photogrammetry equipment "specially designed" for military use would be controlled under ECCN 0A617.e.
  • The articles currently controlled under Paragraph (c) (i.e., self-contained diving and underwater breathing apparatus) would be controlled in ECCN 8A620.f.
  • Paragraphs (d), (e), (g), and (h) would be reorganized and expanded to better describe the articles controlled therein.
  • The articles in the current Paragraph (f) (i.e., structural materials) would be controlled in proposed CCL ECCN 0C617 and in revised USML Categories VII, VIII, and XIII.
  • Signature reduction software, with embrittling agents (currently controlled in Paragraph (i)) would be controlled under ECCN 0A617.f.
  • Paragraph (m) would be amended to reflect the revisions made throughout this category.
  • Finally, articles common to the Missile Technology Control Regime (MTCR) Annex and the USML would be identified on the USML with the parenthetical "(MT)" at the end of each section containing such articles.

"Specially designed": Although one of the goals of the export control reform initiative is to describe USML controls without using design intent criteria, some of the controls in the currently proposed revision nonetheless use the term "specially designed."  In its proposed rule, DDTC stated that the definition of "specially designed" as provided in the December 2010 proposal (75 FR 76935) – and not as set out in the July 15, 2011 proposed rule – should be used for the evaluation of the currently proposed rule.  Under that definition, "'specially designed' means that the end-item, equipment, accessory, attachment, system, component, or part has properties that (i) distinguish it for certain predetermined purposes, (ii) are directly related to the functioning of a defense article, and (iii) are used exclusively or predominantly in or with a defense article identified on the USML." However, the Departments of State and Commerce plan to publish for public comment another proposed rule with further revisions to the definition of "specially designed" that would be common to both the USML and the CCL.

Overall, the proposed rules continue the major effort undertaken by the Administration to modernize its export controls framework, though they do acknowledge some redirection of the reform efforts undertaken thus far, such as a deferral of the focus on establishing "tiered" controls, and renewed efforts to define the term "specially designed."  While many of the proposed changes are likely to be welcomed by exporters, some have the potential to complicate the export compliance efforts undertaken by companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.