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The Clock is Ticking to Comply with the New Export Control Regulations

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Everyone knows the President’s Export Control Reform Initiative is changing the landscape for export compliance.  Is there a simple way for you to understand the changes that will apply to your company?  We think so.  Start now to understand what is coming.  The changes will begin this fall and will be implemented in phases.  Even if the first set of changes doesn’t apply to you, it would be prudent to have an understanding of the new catch-and-release system and determine how to modify your compliance program to incorporate the amended regulations and new standards.

The system of U.S. export controls on military and civil “end items,” including software, technology and defense services has remained largely unchanged for more than 30 years.  As a result, exporters and the government have become increasingly dissatisfied with a system that strictly regulates things like tent components and anything for use in outer space, including fasteners and washers, that fall under the State Department’s United States Munitions List (“USML”) because they are “specifically designed” or modified for military or space use.  This has led to a system that is too rigid and outdated.

The most-high profile reform involves reducing the controls by moving some items from the USML to the Department of Commerce’s Commerce Control List (“CCL”) for dual-use items.  The first transfers will take effect on October 15, 2013, when parts and components of certain aircraft and gas turbine engines will move to the “600 Series” of the CCL.  (600 Series refers to the fact that all of the items moved onto the CCL will have “6” as the third character of their Export Control Classification Numbers (“ECCNs”).)  License requests for 600 Series items will be processed by the new Munitions Control Division at the Department of Commerce.

Exporters will be able to rely on interagency-cleared Commodity Control Automated Tracking System (“CCATS”) classifications indicating that items are not specially designed for military applications to show that items are not in the 600 Series.

Tip: If you discuss a prospective 600 Series license application with someone at the Department of Commerce, include that data point in the written application so reviewers at the Department of Defense can refer to Commerce for clarification if necessary.

What Is the Benefit of Moving Items From the USML to the 600 Series?

The advantage of Commerce jurisdiction over Department of State jurisdiction is that Commerce uses a Country Chart which specifies the license requirements to export on a country-by-country basis for each ECCN rather than an almost universal licensing requirement under the USML.  Most items ultimately do not require a license for export under the CCL as there are many license exceptions.  Not so under the USML controls.  Additionally, if a company no longer has USML items, it will no longer have to register and file annual reports with or pay annual fees to the State Department.

Freedom for Fasteners

Another exciting component of export control reform that takes effect on October 15th will simplify the lives of parts sellers everywhere.  Fasteners and similar simple parts are being decontrolled altogether.  Note, however, that it is still unclear whether this will apply to parts specifically designed for use in space.  This is part of the “catch-and-release” system that is the key component of the export control reform.

Under the old “specially designed” rule, design intent determined whether an item was controlled.  Thus, a bolt would be subject to the State Department’s International Traffic in Arms Regulations (“ITAR”) if the designer originally created it for use in a military vehicle.  There was no automatic mechanism to exempt such non-sensitive USML items, and companies had to apply for licenses for all of them that were granted or denied on a case-by-case basis.  Under the new system, if the item is potentially covered by one of the 600 Series ECCNs on the CCL that use the term “specially designed,” then you look at the government’s new definition of specially designed.  The definition includes releases for some of those items that would otherwise be in the 600 Series.  The decontrol of fasteners is one of those releases.

No See-Through Rule for Avionics and Other Components of Civil Aircraft

Another important consequence of the move to the 600 Series is that the “Look-Through” or “See-Through” rule does not apply to Commerce-controlled items as it does to items on the USML.  If a component, software, or technical data subject to the ITAR is used in, for example, a civil aircraft, the entire aircraft is subject to ITAR controls.  Once ITAR-controlled avionics, move to the 600 Series, they will no longer be subject to this rule.  This will make it easier to incorporate state of the art technologies in airplanes for use in heavily export controlled destinations like China.

What Should Companies Do to Comply with the New Regulations?

If you are in the aircraft industry or supply parts, software or services related to aircraft or their engines, learn what new classifications will apply to your products, technology and software before October 15th.

The Department of Commerce has created useful online tools for exporters that help:

  • apply the new definition of “specially designed”;
  • understand the recently clarified “order of review” for determining correct CCL classifications; and
  • determine whether exports are eligible for License Exception STA, which applies to certain allied countries.

For definitive guidance, of course, there is no substitute for obtaining a government classification and/or professional advice.  When requesting CJs and CCATS classifications, make sure you are providing everything the government requires in your initial application.  When in doubt, ask for help, and always document the guidance you are given!

The post The Clock is Ticking to Comply with the New Export Control Regulations appeared first on Corporate Compliance Insights.


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