Export Control Reform Finally Kicks In - Export Controls & Trade & Investment Sanctions

I. Introduction

On October 15, 2013, the first set of final rules implementing the US Government's Export Control Reform (ECR) Initiative took effect, reshaping the structure of US export controls. The effective date is based on an approximate 180-day period set forth in final rules published on April 16, 2013 by the Department of Commerce, Bureau of Industry and Security (BIS) and the Department of State, Directorate of Defense Trade Controls (DDTC) (collectively the Agencies), amending the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR), respectively. These parallel rules will move a significant number of items (i.e., commodities, technology, and software) from the US Munitions List (USML), maintained by DDTC, to the Commerce Control List (CCL), maintained by BIS. In order to implement the transition, the rules also create new structures to maintain tight controls over certain USML defense articles moved to the CCL while also integrating them into the EAR licensing regime.

The final rules that took effect this week include the addition of USML Category XIX (gas turbine engines), along with revisions to Categories VIII (aircraft), XXI (items not otherwise enumerated), and XVII (classified items not otherwise enumerated). A second round of final rules, published on July 8, 2013 by DDTC and BIS, take effect on January 6, 2014, and will amend USML Categories VI (surface vessels), VII (ground vehicles), XIII (materials and miscellaneous), and XX (submersible vessels). The Agencies also have published proposed rules for seven other USML categories and are also modifying the ITAR definition of "defense services." All of these rules have an impact on the correlative CCL Categories. See the ECR Control List Tracking Sheet for the latest list of published rules by USML Category (as of this writing, no proposed rule has been published for six USML Categories).

II. Overview of Export Control Reform A. Goals and Implications

In August 2009, President Obama directed the Agencies to conduct a broad-based policy review with a goal of modernizing the US export control system. As part of the Administration's ECR Initiative, the Agencies determined that the existing system, by over-regulating less sensitive items, prevented the government from focusing on the most critical national security priorities and undermined US business competitiveness in key technological and defense-industrial sectors. They also found that the inefficient regulatory regimes were too complicated and did not enable companies to export easily to allied countries, even when dealing in non-sensitive military items, thus impairing interoperability with friendly countries and weakening US national security.

As discussed below, the ECR Initiative may make international trade more efficient in the long run by harmonizing the US export regimes, making the criteria for control more positive and transparent to industry, and controlling fewer items under the more restrictive ITAR. However, in the short term, many US and foreign businesses and industries will have new compliance obligations that must be understood and incorporated into their business processes; they will face a learning curve regarding how to make commodity jurisdiction and classification determinations under the new regimes; and they will have a short period of time to apply for and obtain appropriate licenses or use license exemptions for items transitioning from the USML to the CCL.

B. Primary Features

The reform effort consists of four primary features discussed immediately below, including (1) a (more) positive USML, (2) a new "600 series" in the CCL; (3) a number of harmonized and modified definitions, such as "Specially Designed," and (4) implementation of new license exception Strategic Trade Authorization (STA).

1. Positive List

Many in the defense industry base had criticized the USML for being too general, controlling broad categories of products with no performance criteria to distinguish capabilities, as well as controlling any component, part, or attachment specifically designed, developed, configured, adapted or modified for defense articles with no predominant civil application/performance equivalent. This led to over-classification of items, and DDTC controlling many items that did not appear to have much significance to US national security or war-fighting capability. This in turn resulted in DDTC and other agencies spending a great deal of time licensing items that did not require review, and US companies expending a great deal of compliance effort on items that presented little to no security risk. DDTC is now revising the USML to function more akin to a "positive list," enumerating specific items sensitive enough to continue to warrant strict ITAR controls, even when it comes to exports to allies and partners. In many instances, controls will be based on specific technical criteria discernible by industry participants. Moreover, with the removal of the broad catch-all provisions in each category will allow more benign and mundane parts and components for defense articles to be subject to the more flexible and appropriate dual use controls administered by the Commerce Department.

2. CCL 600 Series

To accommodate the many items transitioning from the USML to the CCL, BIS is adding a new "600 series" to the CCL. The items controlled under this new 600 series will enjoy more flexible licensing provisions than under the ITAR, but will be subject to somewhat stricter export and reexport licensing controls than most other items controlled under the EAR. Exporters and reexporters will still need to obtain determinations from the Agencies or self-determine whether (1) an item is subject to the ITAR/USML, and (2) if not, how it is then regulated by the EAR/CCL, i.e., covered by the 600 series. An important aspect of the 600 series controls is that items falling within this control regime will still be subject to ITAR-like restrictions applicable to exports or reexports to US arms embargoed countries.

3. Specially Designed

The ITAR and EAR maintained slightly different definitions and interpretations about whether an item is "specifically designed" or "specially designed." Therefore, the Agencies agreed to a common definition of "specially designed" that will govern whether certain end items, parts and components, or software are deemed to be military items for purposes of both the USML and the CCL's 600 series. This harmonized definition used in both regimes will incorporate a more objective basis using a "catch-and-release" construct, described in detail below.

4. License Exception STA

The Agencies have also tailored the new license exception Strategic Trade Authorization (STA) to facilitate exports to, and reexports involving, allies and partners under this restructured system. Only 36 countries are eligible to receive exports pursuant to license exception STA's most permissive provisions; 8 other countries are eligible to receive items under STA if the items do not fall within the 600 series, and are controlled for export to that country only for National Security (NS) reasons.

C. Effect of the New Rules

On the positive side, ECR is expected to free companies that engage in frequent exports and/or reexports of military parts and components to friendly countries from the need to seek licenses for the vast majority of their export transactions. That change will primarily benefit large exporters of such parts and components, particularly those whose items will all transition from the USML to the CCL.

On the negative side, the regulatory system that the Agencies created in order to achieve that goal will be far more complex. The complexity of the new system will inevitably hit small companies the hardest, increasing short term barriers to entry in the export sector and making compliance more challenging.

In the wake of these changes, many ITAR-registered exporters will find that their products have been moved to the CCL and that many or all of their products will therefore be subject to the EAR rather than the ITAR going forward. Companies in this situation will need to move relatively quickly to become familiar with and manage the EAR more generally and the ECR transition rules more specifically. One cannot assume that an item moving from the USML to the CCL will not require a license for export or reexport.

III. Discussion of Changes to the ITAR

As noted above, the new ECR rules will drastically change the way the USML operates by crafting a more objective "positive list".

A. Positive List

The USML previously consisted of enumerated lists of covered items and major sub-systems, but it also contained a specific provision in each Category covering all components, parts, accessories, attachments and associated equipment (or software) specifically designed, developed, configured, adapted, or modified for any of the articles listed in the Category. Under that structure, items could be designated as defense articles based on a determination that they were, at some point in their design history, designed or modified for a military, satellite, or intelligence application. That construct created uncertainty, and also subjected items to the ITAR that did not merit such strict controls.

The revised USML removes most of the broad provisions based on design intent of hardware,¹ and replaces them with positive lists of controlled parts and components, as well as a few narrower provisions that incorporate design intent as a criteria for control in certain enumerated circumstances. The new list is meant to be more deliberately crafted to include only those items that merit inclusion and to offer more clarity for users.

In addition to enumerating specific types of defense articles that are included (e.g., in revised Category VIII "Aircraft as follows: bombers, fighters . . ."), the amended USML categories in some cases describe performance characteristics that will determine whether an item is included (e.g. also in revised Category VIII "Drive systems and flight control systems specially designed to function after impact of a 7.62mm or larger projectile"). The new lists also include certain items based on the fact that they were funded by the Department of Defense or that they are classified, contain classified software, or were developed using classified information. Finally, the revised categories contain a new paragraph (x) that is intended to allow DDTC to issue licenses for commodities, software and technical data subject to the EAR that will be used "in" or "with" USML-controlled items (e.g., again in revised category VIII, "Commodities, software, and technical data subject to the EAR . . . used in or with defense articles controlled in this category"). The paragraph (x) items will technically remain under the jurisdiction of the EAR, but the category will be used as a vehicle to allow exporters to seek only one license from DDTC, rather than two licenses from two different agencies, when USML and CCL-controlled items are going to be used together upon exportation. This will be important to recognize as part of the license transition plan.

B. New and Revised Categories and Definitions

The final rule that went into effect this week contains the revised Category VIII (aircraft) and the new Category XIX (gas turbine engines). With the revisions to Category VIII, certain aircraft and gas turbine engines, and related parts and components, that were previously controlled under the USML will be transferred to the 600 series of the CCL because the Administration determined that those items no longer warrant control under the ITAR. The transitioning items include unarmed military aircraft, regardless of origin or designation, manufactured prior to 1956 and unmodified since manufacture, which will be classified under ECCN 9A610. They also include certain military gas turbine engines and related commodities, which will be classified under ECCN 9A619. The new Category XIX includes engines and parts that were previously classified under Category VIII, and is intended ultimately to cover other gas turbine engine articles that are currently listed elsewhere on the USML after those other categories are revised as ECR progresses.

The July 8 Federal Register Notice from DDTC, will go into effect in January 2014, contains the revised Categories VI (surface vessels), VII (ground vehicles), XIII (materials and miscellaneous) and XX (submersible vessels). DDTC narrowed Category VI by removing harbor entrance detection devices and submarines. The new Category VII no longer controls most unarmored and unarmed military vehicles. Category XIII will transfer articles controlled under paragraph (c), including underwater breathing and self-contained diving apparatus, to the CCL. Category XX consolidates submersible vessel items into a single category, including submarines and naval nuclear propulsion power plants.

In addition to revising certain USML categories and transitioning certain items to the CCL, the new rule that went into effect this week provides several important new definitions. It revises the definition of a "system" under Part 121.8 and of "forgings, castings, and machined bodies" under Part 121.10. A "system" no longer has to be "specifically designed, modified or adapted to operate together," because the Agencies want to remove, to the extent possible, design intent criteria. The new rule narrows Part 121.10 by no longer automatically qualifying a forging, casting or machined body as a defense article when it is associated with a USML end-item. Instead, the properties of the item itself, not its association with a defense article, determine whether it is controlled on the USML: "forgings, castings, and other unfinished products ... that have reached a stage in manufacturing where they are clearly identifiable ... as defense articles."

C. New Policy Governing Commodity Jurisdiction

In addition to making the USML a more positive list, DDTC has modified its policy at Part 120.3 for determining in the future whether an item will be controlled by the ITAR. The prior policy treats an item as a defense article if it was, among other criteria, "specifically designed, developed, configured, adapted, or modified for a military application." The revised Part 120.3 discards that factor and looks only to whether the item is listed on or provides equivalent performance capabilities of an item listed on the USML. The revised Part 120.3 also requires any item that provides a critical military or intelligence advantage to be controlled by the ITAR; the prior policy merely allowed DDTC to make that determination.

IV. Changes to the EAR

The new rules will drastically remake certain portions of the EAR, including by adding a new 600 series for military items subject to the CCL, modifying many of the key license exceptions, and changing certain reporting requirements.

A. Creation of the 600 Series

While narrowing and simplifying the ITAR, ECR will greatly expand and complicate the EAR. The EAR will no longer be distinguishable from the ITAR on the basis that the ITAR controls "military" articles while the EAR applies to "dual-use" items. In addition to civil and dual-use items, the revised EAR will control items that were originally designed for military applications but that have been determined not to warrant control under the ITAR (the "600 series"). Adding a new level of complexity to the EAR, several provisions will be modified in order to align regulations governing the 600 series of the CCL more closely with the ITAR's arms embargoes and national security priorities. In other words, the EAR will have its traditional, more flexible provisions for dual-use items along with strict new provisions for the military items in the 600 series.

The 600 series will generally require licenses for export or reexport, other than to Canada, but license exception STA will be available for most exports and reexports of such items to certain allied countries for ultimate end use by the government, when being returned to the United States, or when used with an existing authorization.

Similar to other existing subcategories in the CCL, the 600 series will apply to commodities, materials, equipment, software, and technology. Within each CCL category, the 600 series subparagraphs will control items as follows:

Subparagraphs .a ‐ .w control specifically enumerated end items, materials, parts, components, accessories, and attachments (some items may be "specially designed").
Subparagraph .x controls "specially designed" parts, components, accessories, and attachments that are not specifically enumerated. This is a catch-all category for items that are not enumerated elsewhere on the USML or CCL, and that are specially designed for a military application.
Subparagraph .y affirmatively removes some less sensitive items from .x controls. This subparagraph controls specifically enumerated parts, components, accessories, and attachments that are "specially designed". These items will generally be subject to a lower level of licensing control, and reasons for control NS and RS generally will not apply to items controlled under subparagraph .y.

In addition to creating the new 600 series architecture to accommodate defense articles transferred from the USML, BIS will re-classify certain military items already controlled on the CCL and move them to the 600 series. Notably, items that had been covered by ECCNs that end in -018, which are on the Wassenaar Arrangement Munitions List (WAML), are being moved to the 600 series on a rolling basis. Additionally, the classification for foreign-made and -located "military commodities" (ECCN 0A919) will be expanded to include those incorporating more than a de minimis proportion of US-origin 600 series content, along with direct products of US-origin 600 series technology.

The transfer of USML items to the CCL will also have a significant impact on reexport controls under the CCL. Foreign‐made items incorporating de minimis levels of controlled US "dual use" content can be subject to the EAR's licensing controls, depending on the end country destination, end user, or end use. Under the EAR regime prior to the implementation of ECR, if such foreign produced items did not contain either 10% to 25% of controlled US-origin content, the items would not be subject to the EAR's reexport jurisdiction. The new ECR rules provide no de minimis exception for foreign-made items that incorporate US-origin 600 series items when destined for countries subject to US arms embargoes set forth in Country Group D:5, which notably, includes the People's Republic of China. Consequently, if a foreign produced item has any 600 series content and is destined for such countries, it will require a reexport license (which will be subject to a strong presumption of denial) and the STA exception discussed below cannot be used. This is similar to the "see-through" policy that DDTC currently applies under the ITAR. The de minimis threshold for reexports of foreign made articles integrating 600 series items destined to all other countries is 25%, and there is no presumption of denial for the reexport license application

The 600 series is also subject to a broader "direct product rule" than other items subject to the EAR. The "direct product rule" applies EAR controls to a foreign-made item located outside the United States that falls under the 600 series if the item is (1) the direct product of US-origin 600 series technology or the direct product of a plant that is itself the direct product of US-origin 600 series technology, and (2) being reexported to a destination in Country Groups D:1, D:3, D:4, D:5 or E:1. Non-600 series foreign-made direct products located abroad only require a license (or license exception) for reexportation to destinations in Country Groups D:1 and E:1.

B. License Exception STA

Licenses will generally be required to export and reexport 600 series items to most destinations. However, license exception STA will authorize exports and reexports to the 36 countries listed in EAR section 740.20 if: (1) the end user is the US Government or the armed forces, police or a similar agency of a government of one of the 36 countries, or (2) the items are for the development or production of an item in one of the 36 countries or the United States that will ultimately be used by the government agencies described in (1) or by a person in the United States.

License Exception STA for the 36 countries noted above will be available for 600 series items only if the purchaser, intermediate consignee, ultimate consignee and end-user were previously approved for a BIS or DDTC license.

License Exception STA also contains a more limited exception for 8 countries that are eligible to receive items that do not fall within the 600 series that are controlled only for NS reasons to the recipient country.

C. Changes to Other License Exceptions

The new rules change certain existing EAR license exceptions. The preamble to the BIS rule states that "because items subject to the EAR are less militarily significant than those subject to the ITAR, EAR exceptions should not be more restrictive than comparable ITAR exemptions." In the spirit of that principle, the new rule makes several important revisions, described below.

In-country transfers: When a license exception authorizes reexports, in-country transfers meeting the terms and conditions of the reexport are also authorized.
Arms embargo destinations: All EAR license exceptions are subject to new limits for 600 series items to maintain restrictions against those items being exported or reexported to countries under a US arms embargo (see also Section IV.A, above regarding the restricted de minimis rule for 600 series items).
License Exception Temporary Imports, Exports and Reexports (TMP) is expanded to correspond to analogous ITAR exemptions, in particular by providing for temporary exports for up to four years (upon request for authorization, rather than automatically as under the ITAR) and by lifting restrictions on the allowable destination countries.
License Exception GOV is expanded to authorize items consigned to non-governmental end users, such as US Government contractors, acting on behalf of the US Government in certain situations and subject to written authorization from the appropriate agency and additional export clearance requirements.
License Exception RPL (servicing and replacement of parts and equipment) is, among other things, revised by:
- Adding 600 series items to its scope while imposing certain restrictions on its use for those items;
- Authorizing exports and reexports of certain items subject to the EAR to or for, or to replace, a defense article described in a DDTC-issued export or reexport authorization; and
- Excluding from its scope the export or reexport of parts, components, accessories and attachments identified on the USML.
License Exception Technology and Software—Unrestricted (TSU) is modified to:
- Include training information for the operation, maintenance, and repair technology;
- Authorize the release of software source code and technology (except to the extent controlled as Encryption Items or for Missile Technology reasons) in the United States by US universities to their bona fide and full-time regular foreign national employees; and
- Authorize exports of copies of technology previously authorized for export to the same recipient.

D. Reporting Requirements

The new BIS rule requires that information on all exports of 600 series items be filed in the Automated Export System (AES) regardless of value or destination, except for .y items. The rule also requires AES filing for all exports under License Exception STA, regardless of value, and precludes post-departure filing for exports of 600 series items.

Exporters (but not reexporters) will also be required to provide the ECCN for 600 series items on the same documents on which a destination control statement (DCS) appears, such as on the invoice, bill of lading, air waybill.

V. New Definition of "Specially Designed"

Because it would be difficult to enumerate every single item subject to the control lists, the Agencies have retained certain catch-all categories based on the "specially designed" concept. In particular, the .x paragraphs of the 600 series contain broad catch-alls designed to encompass many of the parts and components that previously fell under the USML. While this is inconsistent with the "positive list" framework, the Agencies hope that the specially designed concept can be applied objectively and consistently by both the government and the diverse community of exporters. To assist in that effort, BIS and DDTC have adopted nearly identical definitions. However, the "specially designed" construct will not apply to technology/technical data or defense services/technical assistance applied abroad, which are being or will be revised by other definitions and proposed rules as part of the ongoing ECR Initiative.

The specially designed concept operates as a "catch and release" framework that first establishes which items may be specially designed (the "catch," in paragraph (a)) and then sets forth certain conditions under which the definition would not apply to a particular item (the "release," in paragraph (b)).

An item is specially designed if it:

1. as a result of development, has properties peculiarly responsible for achieving or exceeding the performance levels, characteristics or functions in the relevant ECCN or USML paragraph; or

2. is a part, component, accessory, attachment or software for use in or with an item enumerated on the CCL or the USML.

The first category will catch end items, and the second category will catch parts, components, accessories, attachments, or software, that meet the conditions set forth above and as further defined or interpreted by the Agencies. An item that fits one of those sets of criteria is nonetheless "released" from the controls of the catch-all category if it:

[Under the ITAR] Is subject to the EAR, pursuant to a commodity jurisdiction (CJ) determination; [Under the EAR] Is classified (a) under an ECCN paragraph that does not contain specially designed as a control parameter, or (b) as an EAR99 item pursuant to a CJ determination or interagency-cleared commodity classification (CCATS);

1. Is, regardless of form or fit, a fastener, washer, spacer, insulator, grommet, brushing, spring, wire or solder;

2. Has the same function and performance capabilities, and the same or equivalent form or fit, as a commodity used "in or with" an item that is or was in production (i.e., not in development) which either is not enumerated on the USML or the CCL, or is described in an ECCN controlled only for Anti-Terrorism (AT) reasons;

3. Was or is being developed with knowledge that it would be used in or with both listed products and products that are either not listed or are classified under an ECCN controlled only for AT reasons;

4. Was or is being developed as a general purpose item with no "knowledge" that it will be used in or with a particular commodity or type of commodity; or

5. [Under the EAR] Was or is being developed with knowledge that it would be for use "in or with" EAR99 items or items controlled only for AT reasons.

Releases 4, 5 and 6, like prior ITAR policies, look to design intent as part of the criteria for determining jurisdiction. In order to release a product based on the developer's knowledge of its intended use, the manufacturer may be required to produce documents contemporaneous with the product's development.

BIS has provided, on its website, an online tool that walks manufacturers through the definition of "specially designed," step by step. In order to help exporters determine commodity jurisdiction – i.e., whether an item falls under the CCL or the USML – BIS has promulgated guidance on "CCL Order of Review" in Supplement No. 4 to Part 774 of the EAR along with a corresponding CCL Order of Review web tool. This guidance first directs exporters to determine if the item is described on the USML. If not, and if the item is otherwise subject to the EAR, as defined in Part 734.3 of the EAR, the exporter is directed to review the characteristics of the item to determine the applicable CCL category (0 through 9) and group (A through E) and whether the item is enumerated in a 600 series ECCN. Because 600 series items are subject to greater controls than other CCL items, BIS has stated that 600 series ECCNs "trump" other ECCNs. If the item is not classified under a 600 series ECCN, the exporter is directed to determine if the item is described in any other ECCN. If not, the item is classified as EAR99.

Exporters wondering whether their products have been transferred from ITAR to EAR jurisdiction may find it easiest to determine which items are not changing jurisdiction. For instance, manufacturers of end items that had been listed on the USML should review the revised USML category to determine which defense articles are enumerated in the initial paragraphs. End items not listed will be transferred to the 600 series. Similarly, exporters of parts or components should consider which parts or components will remain on the USML; these include parts, components and accessories that are specifically enumerated as well as those specially designed for certain enumerated military uses. Parts and components not described on the USML will transfer to the 600 series. Finally, exporters of software or technology should consider whether the commodity for which the software or technical data was developed will remain on the USML. If the commodity remains on the USML, the software or technology directly related to it will as well; otherwise, it will move to the 600 series.

VI. Transition Rules

The first round of changes became effective on October 15, 2013 and the second round will become effective on January 6, 2014, 180 days after their publication. The 180-day transition period is a significant expansion of the 45 days that the Agencies initially proposed. The Agencies also have sought to facilitate the transition by enacting the measures described below.

A. New License Applications

During the 180-day transition period, for any given category DDTC will continue accepting license applications for items moving to the CCL. Furthermore, BIS will review "pre-positioned" license applications during the 180-day transition period for items that will move to the CCL.

B. Grandfathering of DDTC Authorizations

The new rules provide for the grandfathering of existing DDTC authorizations. Exporters may continue to use DDTC licenses, agreements, or other approvals for items moving to the CCL that are issued prior to the effective date of the final rules transferring the items to the CCL. DDTC licenses issued prior to the effective date of the new rules, and which do not include any items remaining on the USML, will be valid for two years after the effective date of the rules, unless they first expire or are returned or revoked. Licenses containing some transitioning items and some that will remain on the USML will be effective until they expire or are returned or revoked, as will temporary licenses (DSP-61 and DSP-73) issued prior to the effective date of the new rules. Agreements issued prior to the effective date of the new rules will be effective for two years after the effective date, unless they first expire or are returned or revoked.

USML Categories subject to the final rules will have a new (x) paragraph. This will allow for ITAR licensing of commodities, software, and technology subject to the EAR, provided that such items are to be used in or with defense articles controlled by the USML and described in supporting documentation with a license request. All license applications, including amendments to existing Part 124 agreements, received by DDTC after the effective date for items that have transitioned to the CCL must be identified in a (x) paragraph of the applicable 600 series or they will be Returned Without Action with instructions to contact the Department of Commerce. In addition, certain pre-existing DDTC reexport or retransfer authorizations for transitioned items will continue to be valid without any set expiration period. This will allow companies abroad that reexport or retransfer transitioned items under pre-existing DDTC authorizations to avoid having to seek new authorization from BIS to continue to do so. This grandfathering provision will apply where there is:

reexport/retransfer authority granted through a program status DSP-5;
a sales territory of a manufacturing license or warehouse and distribution agreement; and
any stand-alone reexport/retransfer authorization received pursuant to ITAR Part 123.9(c).

C. Extended Validity of BIS Licenses

The new rules extend the validity of BIS licenses from two years to four years (with exceptions) in order to harmonize the EAR with the ITAR. Where a BIS license replaces an ITAR agreement (which can be valid for up to ten years), exporters may request an extended validity period beyond four years.

D. Effect of Previous CJ Determinations

Previously issued commodity jurisdiction determinations finding that a product is not ITAR-controlled will remain valid. For items previously determined to be subject to the USML, DDTC will not review them automatically to rule whether they have been transitioned. However, for items transitioning to the CCL that were previously found to be ITAR-controlled, the revised lists will supersede previous CJ determinations. Exporters or reexporters will need to decide whether a formal CJ application to DDTC or self-determination is in order.

E. Consolidated DDTC Licensing Authority for Mixed-Jurisdiction Items

Under the revised rules, end items are more likely to contain some parts and components that are subject to the ITAR and some that are not. In response to concerns that exporters would be required to seek licenses from both DDTC and BIS, the new rules consolidate limited licensing authority with DDTC, obviating the need to obtain licenses from both agencies. Such consolidated licensing will be available for the export of: (1) parts and components subject to the EAR that will be used in or with a USML end item; (2) software subject to the EAR that will be used in or with a USML article or software; (3) technology subject to the EAR that will be used with ITAR technical data under a Technical Assistance Agreement (TAA) or Manufacturing License Agreement (MLA) (the TAA or MLA itself will suffice as authorization); or (4) parts and components under a TAA or MLA, when the program authorized by the TAA or MLA requires shipments of parts and components subject to both the EAR and ITAR (if the required items are subject only to the EAR, a BIS license is required and a DDTC license will not suffice).

VII. Guidance for Exporters of Items Shifting from the USML to the CCL

The Export Reform Initiative was motivated in part by criticism that US export controls are too complicated. Yet, many manufacturers may find that adapting to the revised regulations is equally, if not more, complicated. While the revised rules narrow the USML, many manufacturers, exporters, and brokers of ITAR-controlled defense articles may find themselves facing the complicated architecture of the EAR for the first time. And reexporters may find that the 600 series and licensing/license exemption requirements do not provide the degree of flexibility hoped when the ECR Initiative began

Exporters of items shifting from ITAR to EAR control can take certain steps to prepare for the upcoming changes. At the outset, a company should determine the correct jurisdiction and classification of its items under the new rules. Of course, they should become familiar with the EAR, develop an EAR compliance program, and provide employees with necessary training.

We will continue to monitor sanctions related developments.

Footnote

¹ The revised USML categories still have broad provisions controlling technical data and defense services directly related to the defense articles enumerated in a given category, but no longer have analogous provisions based on design intent for parts and components (defense articles).

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.

United States: Export Control Reform Finally Kicks In