Our “EAR”... to the ITAR
Answers to your questions about U.S. export controls
from
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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.
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”:
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.
On May 8, 2018, the White House announced the termination of U.S. participation in the Joint Comprehensive Plan of Action (JCPOA) with Iran. Previously suspended sanctions, particularly related to Iran’s energy, petrochemical, and financial sectors will be re-imposed subject to a wind-down periods for existing business.
The Department of the Treasury released a follow-on statement including the following:
As soon as is administratively feasible, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) expects to revoke, or amend, as appropriate, general and specific licenses issued in connection with the JCPOA. At that time, OFAC will issue new authorizations to allow the wind down of transactions and activities that were authorized pursuant to the revoked or amended general and specific licenses. At the end of the 90-day and 180-day wind-down periods, the applicable sanctions will come back into full effect.
OFAC also posted FAQs on the re-imposition of sanctions. Notably, the 90-day wind-down period that ends on August 6, 2018 includes:
ii. Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and
iii. Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.
The 180-day wind-down period that ends on November 4, 2018 includes shipping, shipbuilding, petroleum, and energy sectors. Other categories of business are distributed between the two wind-down periods.
Due to the wind-down periods, sanctions and license revocations were not yet officially implemented. The full FAQs may be found here.
For ITAR purposes, Iran was and remains a prohibited destination subject to a policy of denial under Section 126.1. The Department of Commerce Export Administration Regulations (Section 746.7) include both Commerce Department and OFAC licensing requirements for Iran.
On April 19, 2018, the White House released a new Conventional Arms Transfer Policy (CAT). This is a high level policy which directs the Departments of State, Defense, Commerce, and Energy to coordinate on the policy considerations for arms transfers. Replacing the 2014 Conventional Arms Transfer Policy, it adds “Economic Security” to the list of factors used in evaluating proposed armed transfers, retaining the factors of national security, relationships with allies and partners, and nonproliferation. “Economic Security” includes the effect of a proposed transfer on the defense industrial base and the availability of comparable foreign systems.
The State Department’s Directorate of Defense Trade Controls (DDTC) has posted a statement on the new CAT policy which includes some useful examples:
Specifically, we will increase opportunities for pre-deployment training and simulations of complex operational environments to help partners avoid civilian casualties. We will also encourage acquisitions of U.S. technology and training to enable more accurate battlespace awareness and more accurate targeting. We will also continue training to assist security forces in carrying out operations in a manner that respects human rights.
DDTC welcomes submission of stakeholder comments to ArmsTransferProcess@state.gov.
It remains to be seen what effect these changes will have on particular license applications, but the consideration of foreign availability is one of the major factors driving the simultaneous reevaluation of unmanned aerial systems (UAS) policy.
The State Department released a fact sheet on the new UAS export policy which seeks to increase trade opportunities for U.S. companies, enhance partner security and counterterrorism capabilities, and strengthen bilateral relationships while preserving U.S. military advantage and preventing the weapons of mass destruction delivery system proliferation. UAS transfers remain subject to the Missile Technology Control Regime (MTCR).
For additional background on the Conventional Arms Transfer and UAS policies from Peter Navarro, Assistant to the President and Director of the Office of Trade and Manufacturing Policy, click here.
Finally, DDTC has announced the launch of a redesigned website effective April 30, 2018, intending “a number of significant enhancements including improved navigation, searchability, and accessibility, with a consistent, full-featured experience across mobile devices.” The redesign has changed many links, so bookmarks and other saved references may need to be updated.
The Department of State, Directorate of Defense Trade Controls (DDTC) has published the following notice on their website:
Industry Notice: Industry Feedback on Electronic Disclosures (DS-7787) (4.12.18) DDTC is developing an electronic version of the current DS-7787: Disclosure of Violations of the Arms Export Control Act form, also known as Disclosures. As an alternative to paper and mail, the online version will allow Industry personnel to submit Disclosures directly through DDTC’s Defense Export Compliance and Control System (DECCS). In an effort to improve this electronic form, DDTC is enabling a test version of the new online process for Industry feedback between April 16, 2018 – April 30, 2018, prior to it being publicly available online. If you are interested in participating, please visit https://pmddtcqa.service-now.com/um/ for more information on how to access and use the test version. Once you have completed testing, you can submit feedback or comments through the Provide feedback button.
As disclosures are an important part of compliance programs, this is a great opportunity to see what DDTC is developing and help make it more useful and user-friendly in the future.
Australia Group EAR Amendments
On April 2, 2018 (83 FR 13849), the Department of Commerce amended the Export Administration Regulations (EAR) to revise the following Export Control Classification Numbers (ECCNs) based on 2017 Australia Group decisions:
The specific changes, largely intended to clarify the entries, are detailed in the Federal Register Notice.
In addition, due to the admission of India to the Australia Group in January, an international forum for harmonizing for chemical and biological export controls, the Country Commerce Chart (Supplement No. 1 to part 738 of the EAR) was revised to remove the “X” in India’s entry for the CB 2 column (Chemical and Biological Weapons) and India was added to the Australia Group column (A:3) in the Country Groups chart (Supplement No. 1 to part 740 of the EAR).
DTAG to Meet in May
The Defense Trade Advisory Group (DTAG) will meet on May 10, 2018 to discuss the following topics:
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.
OFAC and DHS Inflation Adjustments of Civil Monetary Penalties
On March 19, 2018, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published inflation adjustments for civil monetary penalties under multiple sets of regulations. The changes are detailed in the Federal Register Notice, 83 FR 11876.
On April 2, 2018, the Department of Homeland Security (DHS) published inflation adjustments for civil monetary penalties under DHS components, including the Chemical Facility AntiTerrorism Standards (CFATS), U.S. Customs and Border Protection (CBP), U.S. Immigration and Customs Enforcement (ICE), and the U.S. Coast Guard. The changes are detailed in the Federal Register Notice, 83 FR 13826.
License Application Forms and DSP-83
On February 26, the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice (83 FR 8312) requesting comments on the following forms:
Comments are requested to:
Comments may be submitted at www.regulations.gov (Docket No. DOS–2017–0047), by email to DDTCPublicComments@state.gov, or by mail through April 27, 2018. (Refer to the Federal Register Notice for additional information.)
DSP-5 “Vehicle” for Agreements
On February 27, the DDTC published a notice (83 FR 8563) requesting comments on the use of the DSP-5 “vehicle” to transmit proposed technical assistance, manufacturing, or distribution license agreements for DDTC approval.
As above, comments are requested to:
Comments may be submitted at www.regulations.gov (Docket No. DOS–2018–0011), by email to DDTCPublicComments@state.gov, or by mail through April 30, 2018. (Refer to the Federal Register Notice for additional information.)
Recordkeeping by DDTC Registrants
Finally, on February 27, DDTC also published a notice (also 83 FR 8563) requesting comments on the general record-keeping requirements imposed on registrants by the ITAR. ITAR § 122.5 requires registrants to “maintain records concerning the manufacture, acquisition and disposition (to include copies of all documentation on exports using exemptions and applications and licenses and their related documentation), of defense articles; of technical data; the provision of defense services; brokering activities; and information on political contributions, fees, or commissions furnished or obtained, as required by part 130 of this subchapter” with additional conditions for storage methods and duration.
As with the other requests, comments are requested to:
Comments may be submitted at www.regulations.gov (Docket No. DOS–2018–0009) or by email to DDTCPublicComments@ state.gov through April 30, 2018. (Refer to the Federal Register Notice for additional information.)
Please be aware that comments are considered public record and should not include proprietary or other sensitive information.
State Department Request for Comments
On February 2, the Department of State published a notice (83 FR 5970) seeking comments on the following topics as they relate to U.S. Munitions List (USML) Categories V (Explosives and Energetic Materials, Propellants, Incendiary Agents, and Their Constituents), X (Personal Protective Equipment), and XI (Military Electronics). Specifically, the notice requests comments on the following issues:
Comments may be submitted by internet at www.regulations.gov (Docket No. DOS–2017–0017) or by email to DDTCPublicComments@ state.gov through April 13, 2018. Comments will be published and should not include proprietary or other sensitive information.
For the current USML categories, click here.
Commerce Department Request for Comments
In a related notice (83 FR 5968), the Department of Commerce requests comments on the following Commerce Control List (CCL) ECCNs (Export Control Classification Numbers): energetic materials (1B608, 1C608, 1D608 and 1E608); armored and protective equipment (1A613, 1B613, 1D613, 1E613); military electronics (3A611, 3B611, 3D611 and 3E611); and cryogenic and superconducting equipment (9A620, 9B620, 9D620 and 9E620). Specifically, the notice requests comments on the efficacy of the previous revisions, how to improve the implementation of these 600 series items on the CCL, and the potential cost savings of shifting control of these specific items from the USML to the CCL.
Comments may be submitted by internet at www.regulations.gov (Docket No BIS–2018–0004) through April 13, 2018. Comments will be published and should not include proprietary or other sensitive information.
For the current CCL categories click here.
The State Department’s Directorate of Defense Trade Controls (DDTC) has published a web notice announcing a policy change for South Sudan:
Change in Policy on Exports of Defense Articles and Defense Services to South Sudan (2.2.18)
Pursuant to section 38(a) of the Arms Export Control Act and the delegated authority of the Secretary of State thereunder, the Secretary has determined that it is the policy of the Department of State to deny, with limited exceptions, export licenses or other approvals for defense articles and defense services subject to the International Traffic in Arms Regulations (ITAR) and destined for South Sudan. This policy is effective immediately. DDTC will publish a rule in the Federal Register to implement a conforming change to ITAR §126.1.
Sudan is already listed as a prohibited destination under ITAR § 126.1, which includes a note on South Sudan’s previous post-independence status:
Note to §126.1. On July 9, 2011, the Republic of South Sudan declared independence from Sudan and was recognized as a sovereign state by the United States. This policy does not apply to the Republic of South Sudan. Licenses or other approvals for exports or imports of defense articles and defense services destined for or originating in the Republic of the South Sudan will be considered on a case-by-case basis.
The State Department has also published a more detailed press release on the policy change based on continuing violence in South Sudan.
UPDATE: The amendment (83 FR 6457) adds South Sudan under 126.1(w) effective February 14, 2018:
(w) South Sudan. It is the policy of the United States to deny licenses or other approvals for exports of defense articles and defense services destined for South Sudan, except that a license or other approval may be issued, on a case-by-case basis, for:
(1) Defense articles and defense services for monitoring, verification, or peacekeeping support operations, including those authorized by the United Nations or operating with the consent of the relevant parties;
(2) Defense articles and defense services intended solely for the support of, or use by, African Union Regional Task Force (AU-RTF) or United Nations entities operating in South Sudan, including but not limited to the United Nations Mission in the Republic of South Sudan (UNMISS), the United Nations Mine Action Service (UNMAS), the United Nations Police (UNPOL), or the United Nations Interim Security Force for Abyei (UNISFA);
(3) Defense articles and defense services intended solely for the support of or use by non-governmental organizations in furtherance of conventional weapons destruction or humanitarian demining activities;
(4) Non-lethal defense articles intended solely for humanitarian or protective use and related technical training and assistance;
(5) Personal protective equipment including flak jackets and helmets, temporarily exported to South Sudan by United Nations personnel, human rights monitors, representatives of the media, and humanitarian and development workers and associated personnel, for their personal use only; or
(6) Any defense articles and defense services provided in support of implementation of the Comprehensive Peace Agreement, the Agreement on the Resolution of the Conflict in the Republic of South Sudan, or any successor agreement.
Editorial Updates to EAR
On December 27, 2017 (82 FR 61153, corrected by 83 FR 709), the Department of Commerce issued a series of revisions, clarifications, and technical corrections to the Export Administration Regulations (EAR). These are editorial corrections that do not affect license requirements. The rule also updates the Export Control Decision Tree (supplement No. 1 to part 732), last revised in 2004, primarily to correct references to the EAR. The flow of the Export Control Decision Tree is unchanged.
Civil Penalties Adjusted for Inflation
On January 3, 2018 (83 FR 234, corrected by 83 FR 2738), the Department of State amended the ITAR (and other Title 22 regulations) to adjust the maximum civil penalties for inflation. The § 127.10 civil penalties were amended as follows:
On January 8, 2018 (83 FR 706), the Department of Commerce published its adjustments for inflation, including increasing the maximum penalty for a violation of the International Emergency Economic Powers Act from $289,238 to $295,141.
DTAG Membership Notice
Finally, the Defense Trade Advisory Group (DTAG), the State Department’s advisory group of defense trade representatives, is seeking applications for membership with a postmark deadline of March 2, 2018. For application and submission instructions, please see this notice.