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Commerce & State Advance U.S. Export Reform
Efforts In December FR Publications

December 22, 2010

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In December, both the Department of Commerce (Commerce) and the Department of State (Directorate of Defense Trade Controls or DDTC) issued public notices on proposals that are a part of the Administration’s Export Control Reform Initiative announced by the President in August 2009 to modernize the export control system. These include:

1. Export Control Modernization: Strategic Trade Authorization (STA) License Exception (Proposed Rule) 75 FR 76653, dated 12/09/10

In August of 2009, the President directed a broad-based interagency review of the U.S. export control system with the goal of strengthening national security and the competitiveness of key U.S. manufacturing and technology sectors. This proposed rule would add a new license exception (License Exception Strategic Trade Authorization (STA)) to the Export Administration Regulations.

The new license exception would take a tiered approach and authorize broad based exports, reexports and transfers (in-country) to destinations that pose little risk of unauthorized uses, and for which U.S. national security and foreign policy justify authorizing transactions without the delay and expense of obtaining an export license. For instance the proposed rule provides the following:

  • If the only reason for control that impose a license requirement on the transaction is national security (NS), chemical or biological weapons (CB), nuclear nonproliferation (NP), regional stability (RS), encryption items (EI), crime control (CC) (but not ECCNs 0A981, 0A982, 0A983, 0A985 or 0E982), or significant items (SI), exports, reexports and transfers (in-country) to 37 destinations would be authorized.
  • If, however, the only reason for control that imposes a license requirement on the transaction is national security (NS) and the item is not designated in the STA sensitive items exclusion paragraph in its ECCN, two destinations in addition to the 37 noted above would be authorized.
  • Finally, if the only reason for control that imposes a license requirement on the transaction is national security (NS), the item that is the subject of the transaction is not designated by the STA exclusion paragraph in its ECCN and the item is being exported, reexported or transferred (in-country) for a civil enduse, 125 additional destinations would be authorized. Civil enduse is defined as an enduse that is not a military enduse as defined by section 744.21(f) or a proliferation activity described and prohibited by part 744 of the EAR.

To provide safeguards against possible reexports to destinations that are not authorized under License Exception STA (where there is a greater risk of diversion to unauthorized enduses) the license exception would also impose certain notification, destination control statement and consignee statement requirements. Use of this license exception would be optional. Parties would be free to use other license exceptions that would authorize a planned transaction or to apply for a license if they prefer to do so.

Public comments on the proposal are due by February 7, 2011.

2. Commerce Control List: Revising Descriptions of Items and Foreign Availability (Advanced Notice of Proposed Rulemaking) 75 FR 76664, dated 12/09/10

The Bureau of Industry and Security (BIS) is seeking public comments on how the descriptions of items controlled on the Commerce Control List (CCL) of the Export Administration Regulations (EAR) could be more clear and positive and “tiered” in a manner consistent with the control criteria the Administration has developed as a part of its reform effort. A core task of the Administration's Export Control Reform Initiative is to enhance national security by reviewing and revising, as necessary and to the extent permitted by law and regime obligations, the lists of items (i.e., commodities, software, and technology) controlled for export and reexport so that they (1) are clearer and more "positive" in nature and (2) can more easily be screened into three tiers based upon a set of criteria. The Administration has developed a three-tiered set of criteria to help determine whether a license should be required or a license exception should be available to allow license-free export, reexport, or transfer (in-country) of a given item, with appropriate conditions, to various destinations. The three-tiered set of criteria has two primary elements: (a) the degree to which an item provides the United States with a military or intelligence advantage and (b) the availability of the item outside the United States, its close allies and multilateral export control regime partners.

Because of this latter aspect of the criteria for the tiers, BIS also requests comments on the processes and criteria BIS should employ to evaluate the availability of information provided in response to this request. Comments are due by February 7, 2011.

3. Implementation of Additional Changes from the Annual Review of the Entity List 75 FR 78883, dated 12/17/10

This rule amends the EAR to implement additional changes to the Entity List (Supplement No. 4 to Part 744) on the basis of the annual review of the Entity List conducted by the End-User Review Committee (ERC). The changes from the annual review will be implemented in three rules. The second rule, published today, implements the results of the annual review for entities located in China and Russia. This rule removes five entities from the Entity List under Russia and makes twenty-one modifications to the Entity List (consisting of modifications to eighteen Chinese entries and three Russian entries currently on the Entity List) by adding additional addresses, aliases and/or clarifying the names for these twenty-one entities.

4. Proposed Revisions to the United States Munitions List 75 FR 76935, December 10, 2010, Public Notice 7257

As part of the President's export control reform initiative, the Directorate of Defense Trade Controls (DDTC) is seeking publiccomment on revisions to the United States Munitions List (USML) that would make it a "positive list" of controlled defense articles, requests that the public "tier" defense articles based on the Administration’s three-tier control criteria, and identify those current defense articles that the public believes do not fall within the scope of any of the criteria's tiers. A "positive list" is a list that describes controlled items using objective criteria rather than broad, open-ended, subjective, or design intent-based criteria. DDTC is not seeking with this advance notice of proposed rulemaking (ANPRM) input on whether particular defense articles should or should not be controlled on the USML or whether any defense articles should be controlled differently. Rather, it is only seeking with this ANPRM input on how the USML can be revised so that it clearly describes what is subject to the jurisdiction of the International Traffic in Arms Regulations (ITAR), how defense articles are identified by tier, and what current defense articles do not fall within the scope of any of the tiers. Guidelines for revision of the USML toward this end are provided in the ANPRM. The following proposed rule is an example of a USML Category that has been revised in this manner.

Comments are due February 8, 2011.

5. Amendment to the International Traffic in Arms Regulations: Revision of U.S. Munitions List Category VII 75 FR 76930, December 10, 2010, Public Notice 7256

Both the ITAR and the EAR impose license requirements on exports and reexports. Items not subject to the ITAR or to the exclusive licensing jurisdiction of any other set of regulations are subject to the EAR. A key part of the Administration’s Export Control Reform effort is to review and revise these two lists of controlled items to enhance national security so that they:

  1. Are ‘‘tiered’’ consistent with the criteria the U.S. Government is establishing to distinguish the types of items that should be controlled at different levels for different types of destinations, enduses, and end-users (‘‘Criteria’’);
  2. Create a ‘‘bright line’’ between the two lists to clarify jurisdictional determinations and reduce government and industry uncertainty about whether particular items are subject to the jurisdiction of the ITAR or the EAR; and
  3. Are structurally ‘‘aligned’’ so that they later can be combined into a single list of controlled items.

This proposed rule would revise Category VII (tanks and military vehicles) to describe more precisely the defense articles described therein. Some commenters have already expressed concern that the proposed revisions to Category VII have expanded on to products that have otherwise been under EAR jurisdiction.

If you would like to know more about these proposed rules, and how they might impact your company, or wish assistance in preparing comments, please contact George Tuttle, III at (415) 986-8780 or george.tuttle.iii@tuttlelaw.com.



George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in San Francisco.

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

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