Commerce Revises CCL to Reflect Wassenaar Plenary

On May 23, 2019, the Department of Commerce, Bureau of Industry and Security (BIS) published a rule (84 FR 23886) 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 2018 Plenary meeting.

The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies is a global multilateral export control regime, covering both conventional weapons and sensitive dual-use goods and technologies.  Participants agree to control exports and retransfers of items on a control list of dual-use goods and technologies and munitions.  Its Plenary meeting normally occurs once a year in December in Vienna, Austria.  CCL revisions take effect when officially amended through a Federal Register notice.  (Click here for last year’s updates.)

The new rule revises four Export Control Classification Numbers (ECCNs) and adds one new ECCN as follows:

• 3A001 Electronic Items – Adds paragraph b.3.f. to control discrete microwave transistors “rated for operation with a peak saturated power output greater than 5 W (37.0 dBm) at all frequencies exceeding 8.5 GHz up to and including 31.8 GHz”.
• 3D005 Continuity of Operation Software – Creates a new ECCN for software that ensures continuity of operation when electronics are exposed to Electromagnetic Pulse (EMP) or Electrostatic Discharge (ESD).
• 5A002 Information Security Systems, Equipment, and Components – Revises Technical Notes following 5A002.a.4 to address certain post-quantum asymmetric algorithms.
• 6A001 Acoustic Systems, Equipment and Components – Revises paragraph a.2.a.6 to add “and having a ‘hydrophone sensitivity’ better than -230 dB below 4 kHz” to remove transducers or hydrophones that are not of strategic concern, moves and revises two notes, and corrects availability of the License Exception Low Value Shipment (LVS)
• 9A004 Space Launch Vehicles and Spacecraft – Adds paragraph .g to control aircraft specially designed or modified to be air-launch platforms for space launch vehicles.

Venezuela

The following day, May 24, 2019, BIS published a rule (84 FR 24018) removing Venezuela from Country Group B and moving it to Country Group D:1, as well as D:2, D:3, and D:4.

Country Group B provides favorable treatment for exports of some National Security-controlled items through the GBS license exception (EAR §740.4), while Country Group D identifies countries of concern:

D:1      National security
D:2      Nuclear
D:3      Chemical & Biological
D:4      Missile Technology
D:5      U.S. Arms Embargoed Countries

The move from Group B to Group D makes some exports, reexports, and transfers ineligible for license exceptions and updates the published BIS licensing policy towards Venezuela to a more restrictive position.

Before this change, Venezuela was already listed as a D:5 U.S. arms embargo country based on its status as a prohibited destination under the International Traffic in Arms Regulations (ITAR) §126.1.  Venezuela was also already subject to EAR restrictions for military end users under §744.21 and significant financial sanctions through the Department of the Treasury, Office of Foreign Assets Control (OFAC).

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

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)!

Question: I know what to do if it becomes necessary to amend a State/DDTC authorization for exports under the ITAR. But what if I need to make a change to a Commerce/BIS export license? Can I even do that?

The short answer to your question is, Yes, you can – but there’s a very good chance you won’t need to.

Here’s the skinny on correcting a BIS-748P application form or modifying a previously approved export license through the Commerce Department’s SNAP-R system:

You’ve determined that your export falls under the jurisdiction of Commerce and that the transaction requires a license from BIS. You’ve done your research, put together all the information and documentation you need, and have just successfully submitted a SNAP-R BIS-748P license application online. Not long afterwards, before you have even finished congratulating yourself on another job well done, you suddenly realize—to your embarrassment and disgust—that you entered some incorrect information in one of the data fields in your submission, or that you completely forgot to attach the required documents. You quickly log on again to your SNAP-R account and hunt around frantically for an “Undo” or “Recall” button, but fail to find one. Zero, zilch, zip, nada, nothing. What are you supposed to do? Visions of denied licenses, lost time, angry customers, and potential export violations swim before your eyes. Is this going to be a big problem?

Not to worry. Rest assured that you aren’t the first exporter to mess up a license application form. While it’s true that there isn’t any way to undo or recall your Form BIS-748P online once it’s been submitted, all you need to do is phone the BIS’s Office of Export Services and let them know about the mistake. The licensing officer will then simply mark your application “Returned Without Action” (RWA), which means in essence that your application has been rejected, but without any prejudice to future resubmissions. Once that’s done, you can breathe a sigh of relief, copy your original application, fix the mistakes or omissions, and re-submit it to BIS—correctly, this time!—through SNAP-R. Or, if your only mistake was failing to attach the documentation, the licensing officer will just send you an e-mail requesting those documents, to which you can reply directly and rectify the omission.

But what if your export license has already been approved by Commerce, but now you realize you’re going to have to modify it because some things have changed since then? What should you do?

Well, the good news is that you might not have to do anything at all, if:

(1) your modifications are considered “non-material changes,” according to the detailed description in EAR Section 750.7(c);

or

(2) your modifications are covered by the “shipping tolerances” provision of EAR Section 750.11.

The list of “non-material changes” includes such alterations as a change in unit price or total value, a change in intermediate consignee (if the new intermediate consignee is located in the country of ultimate destination), and a change in the address of purchaser or ultimate consignee (if the new address is located within the same country shown on the license). For the details, read through §750.7(c) carefully; there’s a very good chance you’ll find your change listed there. (And, while you’re doing that, take a couple of minutes more to familiarize yourself with the shipping tolerance exceptions in §750.11 as well; it’s practical knowledge that may prove handy!)

Even in the case of a minor change to your company’s name—assuming that the name change is not the result of a change of ownership, a merger, or an acquisition—you may find that all you really need to do is have the administrator for your SNAP-R account update the name online in the Administration Module. A word of caution, though: a company’s name change may or may not be considered a “non-material change” by the BIS; you’ll need to write to them on company letterhead and request an Advisory Opinion about that before proceeding.

Finally, what if you’ve carefully scrutinized Section 750.7(c) of the EAR and determined that the modification you need to make is unfortunately not among numerous exceptions designated there as “non-material changes”? If that is the case — assuming that you are still shipping the identical items to the identical ultimate consignee — you will need to notify BIS of the change, and it’s up to them to approve or not approve the modification.

You’ll be glad to know that you can deal with this situation online by applying for a “Replacement License” number from BIS. Simply make your request via a SNAP-R Form BIS-748P, using Block 11, “Replacement License Number,” stating concisely what change you are making to the original export license.

In the event that BIS does not approve your “Replacement License” request—they will give you their response in writing— a new export license application will need to be submitted, and approved by BIS, before you can make any further shipments.

Sound easier than you thought it would be? Well, many companies who have entered the regulatory jurisdiction of BIS for the first time recently, thanks to the Export Control Reform Initiative (ECR), have said they were surprised and relieved to discover that Commerce’s controls and licensing regime are often simpler and less restrictive than State’s. Export Licensing Officers have generally found Commerce’s SNAP-R electronic application portal to be more user-friendly than the State Department’s D-Trade system.

There are other significant differences between the two export regimes as well. For example, you do not need to “return” your Commerce export license to BIS once it is no longer valid, as you are required to do with a DSP license from State/DDTC after expiration or exhaustion when it has not been decremented entirely electronically through AES. In future posts, we’ll be spotlighting some other similarities and differences between EAR and ITAR licensing, in addition to providing you with practical information you’ll need when applying for and using Commerce licenses for “600 series” items, which were formerly subject to the ITAR.

Even though the BIS application process is simpler in many ways, be aware that Commerce export licenses typically have more conditions attached than State/DDTC licenses or agreements. And remember this, too: whether you’re exporting your product under a Commerce or a State export license, you and your company are responsible and legally accountable to stay within authorized scope of the export authorization and strictly observe all its provisos and conditions.

Commerce and State have been increasingly active in export enforcement lately. Civil and criminal penalties for export violations in recent cases have been extremely heavy. Even “minor” export violations of the ITAR and EAR can have very serious consequences for companies and individuals.

Achieving and maintaining corporate ITAR and EAR compliance can be a daunting challenge for U.S. exporters, but we’re here to help. Export Compliance Solutions (ECS) has built a distinguished record based on many years of experience in the field of U.S. export controls. As the nation’s premier export compliance consultants and educators, we offer a wide variety of training, auditing, and advisory services, including live regional and on-site seminars, webinars, export compliance awareness video courses for employees, and other products to support our clients. Give us a call or send us an e-mail today. The ITAR and EAR compliance experts at ECS can help you successfully navigate the sometimes rough regulatory seas of U.S. export controls.