Author Archives: Export Compliance Solutions

State and Commerce Department Licensing On Hold During Shutdown

As the partial government shutdown continues, please note that the Departments of State and Commerce have put export licensing on hold.

The Department of State’s Directorate of Defense Trade Controls published the following notice on their website:

Industry Notice: Lapse in funding

Due to the lapse in funding affecting the Department of State that occurred at 12:01am on Saturday, December 22, 2018, services at the Directorate of Defense Trade Controls are significantly curtailed, including requests for licenses, advisory opinions, and retransfers except for those that provide direct support to the military, humanitarian aid, or other similar emergencies.  In addition, the 3pm daily pick-up and drop-off service is cancelled.  All D-Trade electronic submissions will be rejected by the system and returned to the applicant.  Requests that are currently in process at DDTC as of December 21, 2018, will remain in that status however; further review actions will be delayed until after restoration of funding. If industry applicants believe they have a case (either “In-Review” or new submission required) involving direct support to the military, humanitarian aid, or other similar emergencies, please email the DDTC Response Team (DDTCResponseTeam@state.gov). The subject line of your email MUST read “Request for Emergency License” and the message must include the license number (if already pending with DDTC) the applicant name and registration code, the end-use/end-user, justification for needing an emergency license, and a point of contact. The Directorate will contact the requestor with guidance on how to proceed if the request will be honored. (12.22.19)

Notably, D-Trade is not offline, but new applications will be rejected and will need to be resubmitted once normal operations resume.

SNAP-R, the Department of Commerce’s licensing application, has been taken offline and the following message posted:

Due to the lapse in government funding, snapr.bis.doc.gov and all associated online activities will be unavailable until further notice.

The Department of Defense is not affected by the shutdown and pending case statuses can still be viewed through ELISA.

Update, January 24, 2019

The Department of State’s Directorate of Defense Trade Controls has reopened and posted the following notice:

Effective Thursday, January 24, 2019, the Directorate of Defense Trade Controls (DDTC) will temporarily return to full operational status with all electronic application systems placed in normal operational mode and the 3pm daily pick-up and drop-off service restored. Priority will be placed on issuance of licenses in the system at the time of implementation of lapse of funding operations on December 22, 2018. New licenses will be accepted; however, industry is advised of the likelihood of longer than normal processing times due to the high volume of licenses DDTC expects to receive. The “Emergency License” process described in DDTC’s December 22, 2018 announcement below is hereby suspended.

Update, January 28, 2019

With the “temporary” end to the partial government shutdown, SNAP-R and the Consolidated Screening List are back online.  Licensing delays are anticipated as the offices get back to work.

Be on the Lookout, Stricter License Requirements Expected for Chinese Military; Review the New Emerging Technologies and Send Your Comments to BIS!

Chinese Military End Users Targeted in Commerce Regulatory Agenda

On November 16, 2018, the Department of Commerce published its Fall 2018 Semiannual Agenda of Regulations (83 FR 57998).  In addition to various entries for other parts of the department, it includes an announcement that the Bureau of Industry and Security (BIS) plans to expand license requirements for export, reexports, and transfers (in country) to military end users in the People’s Republic of China.  Currently, Section 744.21 of the Export Administration Regulations (EAR) imposes license requirements on such transactions when the item is intended for a “military end use” in China or a “military end user” in Russia or Venezuela.  The change would likely expand licensing requirements for China to match current requirements for Russia and Venezuela and make other changes, including to EAR “Reasons for Control” and Automated Export System (AES) filing requirements.  A Notice of Proposed Rulemaking is anticipated in February 2019.

Comments Requested on Emerging Technologies

This summer’s Export Control Reform Act (ECRA) directed the Department of Commerce, along with Defense, Energy, and State, to identify “emerging and foundational technologies” that may warrant export controls to include CFIUS review and export licensing.

Proceeding with this review, the Department of Commerce published a notice (83 FR 58201) on November 19, 2018 requesting comments on emerging technologies that are essential to national security due to “potential conventional weapons, intelligence collection, weapons of mass destruction, or terrorist applications” or that may provide the U.S. “qualitative military or intelligence advantage.”

The notice includes the following representative list of technologies currently controlled by the EAR, but with limited licensing requirements:

(1) Biotechnology, such as:

(i) Nanobiology;
(ii) Synthetic biology;
*
(iv) Genomic and genetic engineering; or
(v) Neurotech.

(2) Artificial intelligence (AI) and machine learning technology, such as:

(i) Neural networks and deep learning (e.g., brain modelling, time series prediction, classification);
(ii) Evolution and genetic computation (e.g., genetic algorithms, genetic programming);
(iii) Reinforcement learning;
(iv) Computer vision (e.g., object recognition, image understanding);
(v) Expert systems (e.g., decision support systems, teaching systems);
(vi) Speech and audio processing (e.g., speech recognition and production);
(vii) Natural language processing (e.g., machine translation);
(viii) Planning (e.g., scheduling, game playing);
(ix) Audio and video manipulation technologies (e.g., voice cloning, deepfakes);
(x) AI cloud technologies; or
(xi) AI chipsets.

(3) Position, Navigation, and Timing (PNT) technology.

(4) Microprocessor technology, such as:

(i) Systems-on-Chip (SoC); or
(ii) Stacked Memory on Chip.

(5) Advanced computing technology, such as:

(i) Memory-centric logic.

(6) Data analytics technology, such as:

(i) Visualization;
(ii) Automated analysis algorithms; or
(iii) Context-aware computing.

(7) Quantum information and sensing technology, such as

(i) Quantum computing;
(ii) Quantum encryption; or
(iii) Quantum sensing.

(8) Logistics technology, such as:

(i) Mobile electric power;
(ii) Modeling and simulation;
(iii) Total asset visibility; or
(iv) Distribution-based Logistics Systems (DBLS).

(9) Additive manufacturing (e.g., 3D printing);

(10) Robotics such as:

(i) Micro-drone and micro-robotic systems;
(ii) Swarming technology;
(iii) Self-assembling robots;
(iv) Molecular robotics;
(v) Robot compliers; or
(vi) Smart Dust.

(11) Brain-computer interfaces, such as

(i) Neural-controlled interfaces;
(ii) Mind-machine interfaces;
(iii) Direct neural interfaces; or
(iv) Brain-machine interfaces.

(12) Hypersonics, such as:

(i) Flight control algorithms;
(ii) Propulsion technologies;
(iii) Thermal protection systems; or
(iv) Specialized materials (for structures, sensors, etc.).

(13) Advanced Materials, such as:

(i) Adaptive camouflage;
(ii) Functional textiles (e.g., advanced fiber and fabric technology); or
(iii) Biomaterials.

(14) Advanced surveillance technologies, such as:

Faceprint and voiceprint technologies.

*(1)(iii) was omitted in the published notice.

Comments are requested on how to define emerging technology, control criteria, and other relevant information.  Comments may be submitted until December 19, 2018.  Please see the Federal Register Notice for more information.  A separate notice is planned for “foundational technologies.”

Export Compliance Updates: DECCS, Electronic Waste, and Wassenaar

Be the First to Test On-Line Advisory Opinion & Registration Applications!

DDTC is requesting industry testing of future Advisory Opinion and Registration applications in the Defense Export Control and Compliance System (DECCS).  See the DDTC News & Events page (10/15/2018 & 10/30/2018) for more information.  Testing is expected to continue through mid-November.

Comment on Prior Approval Requests for Brokering

On October 16, the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice (83 FR 52298) requesting comments on Brokering Prior Approval requests.

As described in the notice:

Currently submissions are made via hardcopy documentation. Applicants are referred to ITAR part 129 for guidance on information to submit regarding proposed brokering activity. Upon implementation of DDTC’s new case management system, the Defense Export Control and Compliance System (DECCS), a DS-4294 may be submitted electronically.

Comments may be submitted until December 17, 2018.  Please see the Federal Register Notice for additional details.

And the New Year Will Bring:

  • Movement on USML Categories I-III – see our previous blog posts on the proposed changes to firearms, guns, and ammunition;
  • Revisions to ITAR Exemption 126.4(a) – Shipments by or for U.S. Government agencies;
  • DECCS testing of the DSP-85 – classified hardware & technical data; and
  • Reorganization of the sections of the ITAR.

Commerce Requests Comments on Electronic Waste

On October 23, 2018, the Department of Commerce published a notice (83 FR 53411) requesting public comments on potential export controls on electronic waste.  This request is based on concerns that “counterfeit goods that may enter the United States’ military and civilian electronics supply chain” resulting from unregulated overseas recycling of discarded electronic equipment.  See the Federal Register Notice for additional background, potential definitions, and potential regulatory requirements and exemptions.  Comments may be submitted through December 24, 2018.

Commerce Revises CCL to Reflect Wassenaar Plenary

On October 24, 2018, the Department of Commerce published rule (83 FR 53742) which amends the Commerce Control List (CCL) to reflect changes made to the Wassenaar Arrangement List of Dual-Use Goods and Technologies at the December 2017 Plenary meeting.

The rule revises 50 Export Control Classification Numbers (ECCNs): 0A617, 0A919, 1A002, 1C001, 1C002, 1C007, 1C010, 1C608, 2A001, 2B001, 2B006, 2B007, 2B008, 2E003, 3A001, 3A002, 3B001, 3B002, 3C002, 3C005, 3C006, 3C992, 3E001, 4A003, 4A004, 4D001, 4E001, 5A001, 5A002, 5D002, 5E002, 6A002, 6A003, 6A004, 6A005, 6A008, 6A203, 6D003, 6D991, 6E001, 6E002, 6E201, 7A006, 7E004, 9A002, 9A004, 9D001, 9D002, 9D004, and 9E003.  It also removes ECCNs 6A990 and 6E990, corrects 3A991, and makes other changes to ECCNs 2B206 and 3A001.i.  Furthermore, the rule moves 37 definitions from Part 772 to the relevant ECCNs and makes changes throughout the Export Administration Regulations (EAR) to reference the revised ECCNs.

A follow-up notice was published on November 2, 2018 (83 FR 55099) to correct an omitted reference to the Civil end-users (CIV) exception for some 3A001 items.

Export compliance is always changing.  Subscribe to Our “EAR”… to the ITAR to keep up!

CFIUS EXTENDS LONG ARM TO INCLUDE REVIEW OF DEFENSE ARTICLES/ DEFENSE SERVICES ON THE USML

As anticipated following the August enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the Department of the Treasury has issued new regulations implementing changes to the Committee on Foreign Investment in the United States (CFIUS).

CFIUS Amendments

The first, an interim rule issued October 11, 2018 (83 FR 51316), primarily makes technical amendments to the CFIUS Part 800 regulations.  These changes include:

  • Extending CFIUS review period from 30 to 45 days,
  • Revising various definitions to be consistent with FIRRMA,
  • Providing examples of covered transactions,
  • Implementing electronic submissions,
  • Allowing parties to stipulate that a transaction is a covered transaction, and
  • Revising language regarding violations and remedies.

This rule was effective immediately and comments may be submitted through November 10, 2018.  Please see the Federal Register Notice for more information on how to comment.

Pilot Program

The second notice, also issued on October 11, 2018 (83 FR 51322) implements a “pilot program” expanding CFIUS review and mandatory declarations to a specific list of covered industries when dealing with “critical technologies.”

Under the new rule, “critical technologies” include:

  • Defense articles or defense services included on the United States Munitions List (USML) controlled by the Department of State,
  • Commerce Control List (CCL) items controlled pursuant to multilateral regimes, for regional stability, or surreptitious listening by the Department of Commerce,
  • Nuclear equipment and technology controlled by the Department of Energy,
  • Nuclear facilities, equipment, and material controlled by the Nuclear Regulatory Commission, and
  • Select agents and toxins controlled by the Department of Agriculture or the Department of Health and Human Services.

Companies in or developing products for the industries listed in the new Annex A to Part 801 are covered by the pilot program as follows, including North American Industry Classification System (NAICS) codes:

Industry NAICS Code
Aircraft Manufacturing 336411
Aircraft Engine and Engine Parts Manufacturing 336412
Alumina Refining and Primary Aluminum Production 331313
Ball and Roller Bearing Manufacturing 332991
Computer Storage Device Manufacturing 334112
Electronic Computer Manufacturing 334111
Guided Missile and Space Vehicle Manufacturing 336414
Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing 336415
Military Armored Vehicle, Tank, and Tank Component Manufacturing 336992
Nuclear Electric Power Generation 221113
Optical Instrument and Lens Manufacturing 333314
Other Basic Inorganic Chemical Manufacturing 325180
Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing 336419
Petrochemical Manufacturing 325110
Powder Metallurgy Part Manufacturing 332117
Power, Distribution, and Specialty Transformer Manufacturing 335311
Primary Battery Manufacturing 335912
Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing 334220
Research and Development in Nanotechnology 541713
Research and Development in Biotechnology (except Nanobiotechnology) 541714
Secondary Smelting and Alloying of Aluminum 331314
Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing 334511
Semiconductor and Related Device Manufacturing 334413
Semiconductor Machinery Manufacturing 333242
Storage Battery Manufacturing 335911
Telephone Apparatus Manufacturing 334210
Turbine and Turbine Generator Set Units Manufacturing 333611

Transactions in these areas are covered by the pilot program when the investment would give a foreign investor:

  • Access to material nonpublic technical information;
  • Membership, observer, or nomination rights on the board of directors; or
  • Involvement in substantive decision-making regarding critical technology.

This rule will take effect on November 10, 2018 and comments may be submitted through that date.  Please see the Federal Register Notice for more information on how to comment.

The Department of the Treasury has also published a press release and fact sheet that summarize these changes.

The pilot program is scheduled to end no later than March 5, 2020, once replaced by a full expansion of CFIUS review.

State Department Tweaks ITAR, Requests Comments

On October 4, the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice (83 FR 50003) that made several immediate, but minor, changes to the International Traffic in Arms Regulations (ITAR) and United States Munitions List (USML).  The revisions are in response to a July 2017 request for comments implementing the President’s Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs” and other industry feedback.

Other than USML revisions and notes, the only ITAR change was the removal of the requirement to return expired or exhausted licenses for technical data under 123.22(b)(3)(i) and (c)(2).

The USML revisions are as follows:

  • A note to USML Category IV(d) clarifies that it does not control satellite and spacecraft thrusters (instead, refer to XV(e)(12) and ECCN 9A515).
  • A note to USML Category V clarifies that, except for materials in V(c)(6), (h) or (i), the Department of Commerce licenses materials when incorporated into an item classified under ECCN 1C608 (“Energetic materials and related commodities”).
  • VIII(h)(12) – The description of UAV flight control systems is revised so that collision avoidance alone does not lead to ITAR controls:

(12) Unmanned aerial vehicle (UAV) flight control systems and vehicle management systems with swarming capability (i.e. UAVs that operate autonomously (without human input) to interact with each other to avoid collisions and stay together, fly in formations, and are capable of adapting in real-time to changes in operational/threat environment, or, if weaponized, coordinate targeting) (MT if for an aircraft, excluding manned aircraft, or missile that has a ‘‘range’’ equal to or greater than 300 km);

  • Notes to XI(a)(3)(i) and (xii) add additional technical specifications and a reference to Commodity Jurisdiction determinations to avoid control of airborne radars used by commercial drones.
  • Revisions to XI(c)(4) implement power thresholds to exclude components necessary for 5G wireless technology, including four required criteria and eight explanatory notes.
  • XV(f) is revised to include “to a foreign person” in its definition of satellite and spacecraft defense services.

DDTC also noted that it is working on a possible temporary export exemption for repair/replacement by foreign Original Equipment Manufacturer (OEM) as well as revised definitions proposed in 2015 (80 FR 31525) that were not included in the 2016 interim final rule (81 FR 35611) or final rule (81 FR 62004).

The Federal Register Notice includes additional background and responses to comments that may be of interest.  While these changes are effective immediately, comments may be submitted until November 19, 2018.

In separate notices, DDTC has also requested comments on three existing information collections for Office of Management and Budget (OMB) approval.  Click on the Federal Register Notices for more information and docket and control numbers needed for comments:

  • §123.9 Request to Change End-User, End-Use and/or Destination of Hardware (83 FR 47235).  The notice acknowledges that DDTC is working on a DS-6004 form to be submitted through the Defense Export Control and Compliance System (DECCS).  Comments will be accepted up to November 19, 2018.
  • Part 129 Annual Brokering Reports (83 FR 47390). Comments will be accepted up to November 19, 2018.
  • DS-2032 Statement of Registration (83 FR 48496).  Comments will be accepted up to November 26, 2018.

As always, these are important opportunities to comment on how your business views and is affected by export regulations.

“U.S. Persons” Include More Than Just Citizens

What is a “U.S. Person”?  If you are hiring for ITAR-controlled programs, you need to know.

The U.S. Department of Justice recently settled a hiring discrimination investigation against a large international law firm, Clifford Chance US LLP:

The Department’s investigation determined that Clifford Chance’s unlawful practice of excluding otherwise qualified non-U.S. citizens and dual U.S. citizens from the document reviewer positions was based on the law firm’s misunderstanding of the requirements of the International Traffic in Arms Regulations (ITAR). The Department found that the law firm improperly terminated or removed three individuals from their positions based on their citizenship status.

The settlement includes a $132,000 civil penalty, lost wages, compliance training, and two years of monitoring and reporting.

The problem for Clifford Chance was that the ITAR does not require that export-controlled projects be restricted to US citizens in order to avoid unauthorized exports.

The ITAR definition of a “U.S. person,” to which a release of technical data is not an export, is:

§120.15 U.S. person.
U.S. person means a person (as defined in §120.14 of this part) who is a lawful permanent resident as defined by 8 U.S.C. 1101(a)(20) or who is a protected individual as defined by 8 U.S.C. 1324b(a)(3). It also means any corporation, business association, partnership, society, trust, or any other entity, organization or group that is incorporated to do business in the United States. It also includes any governmental (federal, state or local) entity. It does not include any foreign person as defined in §120.16 of this part.

For individuals, including the categories in 8 U.S.C. 1324b(a)(3), U.S. persons include:

  1. US Citizens
  2. Lawful permanent residents (i.e., Green Card holders)
  3. Other narrow categories including some refugees and asylees.

Coming at it from the other side, foreign persons are defined as the inverse of US persons:

§120.16 Foreign person.
Foreign person means any natural person who is not a lawful permanent resident as defined by 8 U.S.C. 1101(a)(20) or who is not a protected individual as defined by 8 U.S.C. 1324b(a)(3). It also means any foreign corporation, business association, partnership, trust, society or any other entity or group that is not incorporated or organized to do business in the United States, as well as international organizations, foreign governments and any agency or subdivision of foreign governments (e.g., diplomatic missions).

While ITAR § 120.17(a)(2) defines releasing technician data to a foreign person in the United States as a deemed export, dual U.S. citizens and permanent residents (as well as other “protected individuals”) are not foreign persons.  As U.S. persons, they would not require export authorization and should not be categorically excluded.

The Export Administration Regulations (EAR) use the same basic definitions of U.S. and foreign persons for the purposes of deemed exports (see § 734.13(a)(2) for deemed exports and Part 772 for definitions).

So next time your company has an ITAR or EAR-related job listing, keep this case in mind.  Misunderstanding the category of “U.S. persons” could lead to steep penalties and time-consuming training.

Big Changes Coming to CFIUS, EAR No Longer an Emergency

This year’s defense authorization bill didn’t just fund the Department of Defense, but also set the stage for big changes to foreign investment and export controls.  Signed on August 13, 2018, the John S. McCain National Defense Authorization Act (NDAA) included the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) and the Export Control Reform Act (ECRA).

Foreign Investment Risk Review Modernization Act

The Foreign Investment Risk Review Modernization Act (FIRRMA) expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS).  CFIUS, an interdepartmental committee chaired by the Treasury Department, was already authorized to review certain business transactions involving foreign investment in the United States that involve national security considerations.

FIRRMA expands the scope of transactions subject to CFIUS review to include transactions involving foreign persons including:

  • real estate located in proximity to airports, maritime ports, or sensitive government facilities such as military bases;
  • critical infrastructure, critical technologies, or sensitive personal data of US citizens;
  • membership on the board of directors or other decision-making rights;
  • changes in a foreign investor’s rights resulting in foreign control; and
  • other transactions designed to circumvent CFIUS jurisdiction.

FIRRMA also revises filing and review processes and timelines, expanding the ordinary review period from 30 to 45 days, effective when FIRRMA became law.  Notices received before August 13th will remain subject to the 30 day review period.  FIRRMA also provides for the option for CFIUS to implement filing fees.

The most significant provisions will not be effective until the earlier of eighteen months after the enactment (February 2020) or 30 days after the Secretary of the Treasury publishes a notice that the necessary regulations and resources are in place.  CFIUS may also conduct pilot programs under the new law.

CFIUS has advised businesses to continue to notify transactions as provided in current CFIUS regulations.

The Treasury Department has released a summary of FIRRMA and FIRRMA FAQs.

The International Traffic in Arms Regulations (ITAR) continue to require notification when there are changes to ownership or control (as well as other material changes) under 122.4.  Notification of transfer of ownership or control to a foreign person is required 60 days in advance and is independent of CFIUS processes.  See the State Department’s Directorate of Defense Trade Controls Mergers/Acquisition/Divestitures page for more information.

Export Control Reform Act

The new Export Control Reform Act (ECRA) provides statutory authority for the Export Administration Regulations (EAR) and Antiboycott rules, which have been maintained by emergency executive orders under the International Emergency Economic Powers Act (IEEPA) since the Export Administration Act (EAA) expired in 1994.

Notably, the ECRA also directs the Departments of Commerce, Defense, Energy, and State to “identify emerging and foundational technologies” that may warrant export controls, including CFIUS and export licensing.

Continuing developments from the last year, the ECRA establishes a US government procurement ban on telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation.  It does not reinstate the Department of Commerce’s denial order for ZTE which was lifted in July.  The procurement ban also includes video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company.

The ECRA also increases potential civil penalties to $300,000 (from the most recently inflation-adjusted $295,141).

ECS will continue to monitor developments as new CFIUS regulations and the reviews of “emerging and foundational technologies” are discussed, proposed for comment, and implemented.

A Smorgasbord of Summer Export Compliance Updates

EAR Amendment: India Eligible for STA, License Requirements Revised

On August 3, 2018 (83 FR 38018), the Department of Commerce amended the Export Administration Regulations (EAR) to reflect India’s membership in the Wassenaar Arrangement and status as a Major Defense Partner.  Under this amendment, India moves from Country Group A:6 to Country Group A:1 and A:5.  Country Group A:5 “provides the benefit of greater availability of License Exception Strategic Trade Authorization (STA) for exports and reexports to, and transfers within India under the EAR.”

The Commerce Country Chart was also amended, removing the license requirement for National Security Column 2 (NS2) for India.  The amendment also makes conforming changes related to footnotes and AES filings.  This follows updates earlier this year to reflect India’s admission to the Australia Group.

Click here for the revised Commerce Country Chart (Supplement No. 1 to Part 738).

Click here for the Strategic Trade Authorization (STA) Exception (EAR §740.20, currently starting on page 59 of the pdf).

EAR Amendment: South Sudan Arms Embargo

Also on August 3, 2018 (83 FR 38021), the Department of Commerce amended the EAR to reflect the addition of South Sudan as a prohibited destination under ITAR §126.1(w).  South Sudan is now listed in Country Group D:5: Countries subject to U.S. arms embargoes.  Because the State Department list controls, the addition of South Sudan to ITAR §126.1 in February already had this affect.  The Commerce Department amendment conforms Country Group D:5 to the current ITAR §126.1.

EAR Amendment: MTCR Conforming Changes

On August 30, 2018 (83 FR 44216), the Department of Commerce amended the EAR to conform to changes to the Missile Technology Control Regime (MTCR), a voluntary multilateral anti-proliferation arrangement.  The following seventeen ECCNs have been revised to align CCL controls with changes made to the MTCR Annex in 2017 (ECCN headings summarized for readability may include additional specifications and related commodities):

1B117 – Batch mixers
1B118 – Continuous mixers
1C111 – Propellants and constituent chemicals
1C118 – Titanium-stabilized duplex stainless steel
2B109 – Flow-forming machines
2B120 – Motion simulators or rate tables
2B121 – Positioning tables
2B122 – Centrifuges
6A107 – Gravity meters or gravity gradiometers
7A105 – Airborne receiving equipment for ‘navigation satellite systems’
7A107 – Three axis magnetic heading sensors
7A116 – Flight control systems
9A012 – Non-military UAVs
9A101 – Turbojet and turbofan engines
9A115 – Apparatus, devices and vehicles for transport, handling, control, activation and launching of rockets, missiles, and UAVs
9A515 – Spacecraft
9A610 – Military aircraft

Additional details of changes can be found in the Federal Register Notice and the revised CCL.

Commerce Requests Comments on Spraying and Fogging Systems

On August 13, 2018 (83 FR 39921), the Department of Commerce published a request for comments on the effectiveness of its controls on spraying or fogging systems controlled under Commerce Control List (CCL) Category 2, ECCN 2B352.i.  The items are subject to Chemical & Biological Weapons Controls (CB column 2) because they are identified on the Australia Group’s “Control List of Dual-Use Biological Equipment and Related Technology and Software.”  The notice proposes alternative control criteria, particularly to aid classification and avoid controls of commercial (e.g., agricultural) systems.

Comments are due by October 12, 2018 and may be submitted via regulations.gov (docket number BIS–2018–0013), by email, or by paper submission.  Please see the Federal Register Notice for more details.

State Requests Comments on Part 130 Statements

On August 15, 2018 (83 FR 40618), the Department of State published a request for comments on the ITAR Part 130 “Statement of Political Contributions, Fees, and Commissions Relating to Sales of Defense Articles and Defense Services.”  Part 130 statements require information about fees, commissions, and political contributions from

“any person who applies to the Directorate of Defense Trade Controls for any license or approval… for the export, reexport, or retransfer of defense articles or defense services valued in an amount of $500,000 or more which are being sold commercially to or for the use of the armed forces of a foreign country or international organization.”

Comments may be submitted until September 14, 2018.  Please see the Federal Register Notice for additional details.

USML Category XI(b) Amended (Again) to Continue Current Text

On August 30, 2018 (83 FR 44228), the Department of State published an amendment to USML Category XI(b) that continues the current text which was scheduled to be replaced on August 30, 2018.  XI(b) currently controls:

*(b) Electronic systems, equipment or software, not elsewhere enumerated in this subchapter, specially designed for intelligence purposes that collect, survey, monitor, or exploit, or analyze and produce information from, the electromagnetic spectrum (regardless of transmission medium), or for counteracting such activities.

This text was scheduled to be replaced on August 30, 2018, but with the amendment the replacement will be delayed until August 30, 2019.  At that time, unless otherwise amended, Category XI(b) will read:

*(b) Electronic systems or equipment, not elsewhere enumerated in this subchapter, specially designed for intelligence purposes that collect, survey, monitor, or exploit the electromagnetic spectrum (regardless of transmission medium), or for counteracting such activities.

The change now scheduled for 2019 removes “software” as well as the capability to analyze and produce information from the electromagnetic spectrum.

The current language is meant to maintain control of “certain intelligence-analytics software” until a long-term solution is developed.  The rule gives the government additional time “to finalize its review of USML Category XI, with rulemaking to follow, to include any further modifications to the USML Category XI paragraph (b) as may be warranted.”

DDTC published a similar amendment last year.

DTAG to Meet in October

The Defense Trade Advisory Group (DTAG) will meet on October 25, 2018 to discuss the following topics:

  1. Oversight of technical data under the ITAR and NISPOM;
  2. Challenges regulated entities face in advising the Department of ownership changes that implicate existing licenses and foreign persons, and processes the Department may implement to facilitate the provisions of this information;
  3. Possible schedule for future ongoing periodic review of USML categories;
  4. Developing a definition for common carrier; and
  5. Issues that exist with licensing of defense articles, including intelligence related products, related technical data, and defense services to the ‘‘Five Eyes’’ countries of the U.S., UK, Australia, Canada and New Zealand.

The DTAG meeting is open to the public, with seating limited to 125 persons.  For meeting and registration information, click here for the meeting notice.

Click here for more information about DTAG.

Finally, watch for our next blog post on the NDAA and big changes coming to the Committee on Foreign Investment in the United States (CFIUS)!

Submit Your Comments for Categories I-III to State & Commerce Today

Updating on our previous post on the proposed revisions to USML Categories I, II, and III, the proposed rules to transfer articles from the firearms, artillery, and ammunition categories from State Department to Commerce Department jurisdiction have been published.

The proposed rules were officially published in the Federal Register on May 24, 2018 at 83 FR 24166 (Commerce Department) and 83 FR 24198 (State Department).  Comments will be accepted under both notices until July 9, 2018.

USML Categories I, II, and III Proposed for Reform!

Nearly two years after Export Control Reform stalled without reaching the remaining three categories, the Departments of State and Commerce have simultaneously published proposals to revise United States Munitions List (USML) Categories I, II, and III (firearms, artillery, and ammunition).  Click here for the Department of State proposal and click here for the Department of Commerce proposal.

The rationale for the review is that:

The Department of State is engaged in an effort to revise the U.S. Munitions List so that its scope is limited to those defense articles that provide the United States with a critical military or intelligence advantage or, in the case of weapons, are inherently for military end use. The articles now controlled by USML Categories I, II, and III that would be removed from the USML under this proposed rule do not meet this standard, including many items which are widely available in retail outlets in the United States and abroad.

Currently written broadly, USML Categories I, II, and III cover most firearms, artillery systems, and ammunition.  They also include catch-all parts and components categories (e.g., I(h) “Components, parts, accessories and attachments for the articles in paragraphs (a) through (g) of this category.”).  Items no longer controlled under the USML would be controlled by the Department of Commerce’s Export Administration Regulations (EAR) and listed on the Commerce Control List (CCL).

The eagerly-awaited USML Category I revision would include the following, notably excluding most “non-automatic or semi-automatic firearms”:

  1. Firearms using caseless ammunition.
  2. Fully automatic firearms to .50 caliber (12.7 mm) inclusive.
  3. Firearms specially designed to integrate fire control, automatic tracking, or automatic firing (e.g., Precision Guided Firearms (PGFs)), and specially designed parts and components therefor.
    Note to paragraph (c): Integration does not include only attaching to the firearm or rail.
  4. Fully automatic shotguns regardless of gauge.
  5. Silencers, mufflers, and sound suppressors, and specially designed parts and components therefor
  6. [Reserved]
  7. Barrels, receivers (frames), bolts, bolt carriers, slides, or sears specially designed for the articles in paragraphs (a), (b), and (d) of this category.
  8. Parts, components, accessories, and attachments, as follows:
    1. Drum and other magazines for firearms to .50 caliber (12.7 mm) inclusive with a capacity greater than 50 rounds, regardless of jurisdiction of the firearm, and specially designed parts and components therefor;
    2. Parts and components specially designed for conversion of a semiautomatic firearm to a fully automatic firearm.
    3. Accessories or attachments specially designed to automatically stabilize aim (other than gun rests) or for automatic targeting, and specially designed parts and components therefor.
  9. Technical data (see §120.10 of this subchapter) and defense services (see §120.9 of this subchapter) directly related to the defense articles described in paragraphs (a), (b), (d), (e), (g), and (h) of this category and classified technical data directly related to items controlled in ECCNs 0A501, 0B501,0D501, and 0E501 and defense services using the classified technical data. (See §125.4 of this subchapter for exemptions.)

x.  Commodities, software, and technology subject to the EAR (see §120.42 of this subchapter) used in or with defense articles. Note to paragraph (x): Use of this paragraph is limited to license applications for defense articles where the purchase documentation includes commodities, software, or technology subject to the EAR (see §123.1(b) of this subchapter)

Note 1 to Category I: Paragraphs (a), (b), (d), (e), (g), (h), and (i) of this category exclude: any non-automatic or semi-automatic firearms to .50 caliber (12.7 mm) inclusive; non-automatic shotguns; BB, pellet, and muzzle loading (e.g., black powder) firearms; and parts, components, accessories, and attachments of firearms and shotguns in paragraphs (a), (b), (d), and (g) of this category that are common to non-automatic firearms and shotguns. The Department of Commerce regulates the export of such items…

The proposed Category II revision includes expanded technical notes and specifications for control and enumerate the parts and components that will remain on the USML.  The proposed Category III is rewritten to control ammunition based on technical attributes rather than merely being “for the articles in Categories I and II.”  Both Category I and Category II will include paragraphs controlling developmental products funded by the Department of Defense.

Other sections of the International Traffic in Arms Regulations (ITAR) would be amended due to existing references to “firearms” that would be overbroad with a revised Category I.  These include the firearms exemptions in §123.17, which would no longer be subject to the ITAR.

Concurrently, the Department of Commerce would create new Export Control Classification Numbers (ECCNs) for the items leaving the USML.  Items currently controlled in Category II would be controlled under new “600 series” ECCNs “to control items of a military nature” and Category I and III items would be controlled under new “500 series” ECCNs “because, for the most part, they have civil, recreational, law enforcement, or other nonmilitary applications.”  Conforming to the new ECCNs, seven existing ECCNs would be revised and nine removed.  Various other changes would be made throughout the EAR.

Notably, from the Department of Commerce proposal:

This proposed rule does not deregulate the transferred items. BIS would require licenses to export, or reexport to any country a firearm or other weapon currently on the USML that would be added to the CCL by this proposed rule. BIS would also require licenses for the export or reexport of guns and armament that would be controlled under new ECCN 0A602, such as guns and armaments manufactured between 1890 and 1919 to all destinations except Canada. As compared to decontrolling firearms and other items, in publishing this proposed rule, BIS, working with the Departments of Defense and State, is trying to reduce the procedural burdens and costs of export compliance on the U.S. firearms industry while allowing the U.S. Government to enforce export controls for firearms appropriately and to make better use of its export control resources.

Comments on the proposed revisions may be submitted to the Department of State until 45 days after the publication of the Federal Register Notice—likely June 30, 2018 or later.  Comments are specifically requested regarding any possible gaps in control between the revised USML and CCL, items whose jurisdiction is unclear under the revision, the time needed for industry to implement any final rule, and any other regulatory burden.  Comments may be submitted via the Federal eRulemaking Portal at http://www.regulations.gov under Docket DOS-2017-0046 or by email to DDTCPublicComments@state.gov with the subject line, “ITAR Amendment – Categories I, II, and III.”

Comments may be submitted to the Department of Commerce on the same timeline via the Federal eRulemaking Portal at http://www.regulations.gov under Docket BIS-2017-0004 or by mail, referencing RIN 0694-AF47 to:

Regulatory Policy Division
Bureau of Industry and Security
U.S. Department of Commerce
Room 2099B
14th Street and Pennsylvania Avenue, NW
Washington, DC 20230

 

Update, May 25, 2018

The proposed rules were officially published in the Federal Register on May 24, 2018 at 83 FR 24166 (Commerce Department) and 83 FR 24198 (State Department).  Comments will be accepted until July 9, 2018.