On June 13, 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 IX articles to a new Commerce Control List (CCL) classification. The proposed rules, at 77 Fed. Reg. 35310 and 77 Fed. Reg. 35317, are part of the US Government's ongoing export control reform initiative, and are part of a series of rules aimed at transferring articles from the jurisdiction of the USML to the CCL. Both BIS and DDTC are accepting comments regarding the proposed rules until July 30, 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 IX of the USML, military training equipment and training, to the CCL.
Determination of articles proposed to be transferred: Category IX articles that would remain on the USML are those that are: (1) inherently military and otherwise warrant control on the USML, or (2) of a type common to non-military training equipment applications, which must possess parameters or characteristics that provide a critical military or intelligence advantage to the United States and are almost exclusively available in the United States. Category IX articles that would be transferred to the CCL are those that do not satisfy the above criteria, but are nonetheless a type of article that is, as a result of differences in form and fit, "specially designed" for military applications.
Addition of new ECCNs: On July 15, 2011, as part of the ongoing export control reform initiative, BIS published a proposed rule ( 76 FR 41958, previously discussed here) that set forth a framework for the assignment of an Export Control Classification Number (ECCN) to transferred articles. The proposed framework would add a new "600 series" to the CCL to control most items formerly on the USML and to consolidate existing Wassenaar Arrangement Munitions List (WAML) entries. BIS intends to consolidate control of munitions items and related articles on the CCL, essentially creating a "Commerce Munitions List." The subject proposed rule specifies the framework under Category 0. Specifically, this rule would create four new "600 series" ECCNs in CCL Category 0, accounting for product groups A, B, D, and E:
- ECCN 0A614 would control military training equipment and specific parts, components, accessories, and attachments thereof. Notes to ECCN 0A614 would identify how specific commodities would be classified, including simulators for non-combat military aircraft, certain radar training units, and training equipment for ground military operations.
- ECCN 0B614 would control test, inspection, and production equipment, including related parts, components, accessories, and attachments, for the production or development of commodities controlled by ECCN 0A614 or articles controlled by USML Category IX.
- ECCN 0D614 would control software for the development, production, operation, or maintenance of items controlled by ECCNs 0A614 or 0B614.
- ECCN 0E614 would control technology for the development, production, operation, installation, maintenance, repair, or overhaul of commodities controlled by ECCNs 0A614 or 0B614 or software controlled by ECCN 0D614.
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, 2011 proposed rule, as modified by BIS' November 7, 2011 proposed rule ( 76 FR 68675, previously discussed here), would change sections 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 NS and RS reasons under the current proposed rule.
Addressing license exceptions availability: The proposed rule likewise addresses license exceptions availability for items controlled by the four new ECCNs that would be created.
- None of the items controlled by new ECCNs 0A614 or 0B614 would be subject to the restriction in the July 15, 2011 proposed rule that requires a specific approval by BIS before using the STA (strategic trade authorization) license.
- The items controlled by the four new ECCNs also would be eligible for the following license exceptions: LVS (limited value shipments) up to $1,500; TMP (temporary exports); and RPL (servicing and replacement parts), pursuant to Part 740 of the EAR.
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-US-origin articles incorporating items "subject to the EAR" may be controlled by the EAR for re-export purposes if they contain more than a de minimis percentage of controlled US-origin components or content. Foreign made items incorporating items controlled under the new ECCNs would become eligible for de minimis treatment if they contain no more than 10 percent controlled US-origin content – a lower threshold than applies to non "600 series" items for re-export to most countries of 25 percent. 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 under the EAR if incorporated into a foreign produced article, software, or technology, except when the foreign-produced item was being exported to Canada.
DDTC Proposed Rule: The proposed DDTC rule revises USML Category IX as outlined herein. Below is a high-level summary:
Revisions of Category IX: The proposed rule would revise USML Category IX to advance national security objectives and to describe the articles within the category more precisely. By so doing, DDTC proposes to establish a "bright line" between the USML and the CCL for the control of such articles.
- The title of Category IX would be changed to indicate that it covers training equipment only. Training on a defense article would be a defense service covered under the category in which the defense article is enumerated.
- Paragraph (a) would list all the types of training equipment covered in the category.
- Paragraph (b) would be revised to more specifically describe the items (simulators) controlled therein. Radar target generators would be controlled in Category XI(a). Infrared scene generators would be controlled in Category XII(c).
- Tooling and production equipment currently controlled in paragraph (c) would be covered on the CCL in proposed ECCN 0B614.
The most significant aspect of the proposed USML category is that it does not contain controls on all generic parts, components, accessories, and attachments (currently captured in paragraph (d)) that are in any way "specially" designed, developed, configured, modified, or adapted for a defense article, regardless of their significance to maintaining a military advantage to the United States. These items would be subject to the controls of the four new ECCNs that would be created by the BIS proposed rule.
"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 rules 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: (1) distinguish it for certain predetermined purposes, (2) are directly related to the functioning of a defense article, and (3) are used exclusively or predominantly in or with a defense article identified on the USML." However, DDTC and BIS plan to publish another proposed rule for public comment 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." In addition to the above discussed Category IX proposed rules, the Administration has also proposed rules for the transition of certain items from Categories V, VI, VII, VIII, X, XIII, XIX, XX of the USML to the CCL. 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.