Middleton & Shrull August 2011 Newsletter
BIS recently rolled out two significant and much awaited changes to the EAR. The first creates a new License Exception while the second is a proposed rule that begins the long awaited shift of transferring common parts and components from the ITAR to the EAR.
Final Rule on the Export Control Reform Initiative:
Strategic Trade Authorization (STA) License Exception
A Final Rule on the Export Control Reform Initiative: Strategic Trade Authorization (STA) License Exception has been published by the Department of Commerce, Bureau of Industry and Security (BIS) in the Federal Register dated June 16, 2011. This rule adds a new license exception to the Export Administration Regulations (EAR) for relatively low risk items, and is only relevant to exports, reexports, and transfers for which a license is required under EAR.
License Exception STA covers two groups of countries;
(1) § 740.20(c)(1) covers the following 36 countries and authorizes the export, reexport and in country transfer of products that are subject to the following reasons for control: National Security (NS), Chemical or Biological Weapons (CB), Nuclear Nonproliferation (NP), Regional Stability (RS), Crime Control (CC) and Significant Items (SI).
Countries covered under (c)(1):
Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden , Switzerland, Turkey, and the United Kingdom.
(2) § 740.20(c)(2) covers the following 8 countries and authorizes the export, reexport and in country transfer of products that are subject to National Security (NS) reasons for control.
Countries covered under (c)(2):
Albania, Hong Kong, India, Israel, Malta, Singapore, South Africa, and Taiwan.
This final rule also removes the civil end use requirement that the proposed rule applied to destinations listed in paragraph (c)(2).
The license exception applies only to Commerce Control List based license requirements. The following items are NOT eligible for License Exception STA:
• License required because of the end-use, such as a proliferation end use or a proscribed end user or because the destination is subject to an embargo or special restrictions
• Items on the Commerce Control List that are subject to the encryption items (EI), short supply (SS), surreptitious listening (SL), missile technology (MT), or chemical weapons (CW) reasons for control.
• Items classified under specifically identified ECCNs (see § 740.20 for list of excluded provisions).
Conditions That Apply to License Exception STA:
Section 740.20(d) imposes three conditions on exports, reexports and transfers and an alternative set of conditions on deemed exports and deemed reexports made pursuant to License Exception STA. The ease in being able to comply with the conditions must be taken into consideration by any party intending to use STA.
(1) Exporters must furnish the consignee with the ECCN that applies to each item transferred under License Exception STA. Reexporters and transferors must provide subsequent consignees with the ECCN provided by the exporter or by prior reexporters or transferors. The ECCN need be furnished to each consignee only once for each item to be shipped under License Exception STA. So long as the furnished ECCN remains accurate, it need not be refurnished for subsequent shipments.
(2) Exporters, reexporters and transferors must obtain from their consignees, prior to the shipment, a written statement identifying the items to be shipped and restating the ECCN(s) provided to the consignees by the exporters, reexporters or transferors. The exporter, reexporter and transferor must maintain the consignee’s written statement as well as a log or other written record that identifies each shipment associated with a particular statement.
The statement must also acknowledge that the consignee:
• Is aware that items will be shipped pursuant to License Exception STA;
• Has been informed of the description of the items and their ECCN(s) by the exporter, reexporter or transferor;
• Understands that shipment pursuant to License Exception STA precludes subsequent use of paragraphs (a) or (b) of License Exception APR for the items;
• Agrees not to export, reexport or transfer these items to any destination, end use or end user prohibited by the EAR; and
• Agrees to produce copies of this document and all other export, reexport or transfer records (i.e., the documents described in part 762 of the EAR) relevant to the items referenced in this statement to the U.S. Government, upon request, as set forth in § 762.7.
(3) With each shipment under License Exception STA, the exporter (or reexporter or transferor as applicable) must notify the consignee in writing that the shipment is made pursuant to License Exception STA. The notice must either specify which items are subject to License Exception STA or state that the entire shipment is made pursuant to License Exception STA. The notice must clearly identify the shipment to which it refers. The written notice may be conveyed by paper documents or by electronic methods such as facsimile or email.
Releases within a single country of software source code or technology to foreign nationals imposes a different set of requirements.
For more information on the new Final Rule on the Export Control Reform Initiative: Strategic Trade Authorization (STA) License Exception please go to:
http://www.gpo.gov/fdsys/pkg/FR-2011-06-16/pdf/2011-14705.pdf .
Reform of the Export Control System
The Administration has stated that it is determined to reform and simplify the current export control system. The objective is to determine what items actually need to be controlled and develop a common set of policies for determining when an export license is required. Ultimately the responsible agencies, Departments of Commerce, State, and the Treasury are to work together to build a single control list, licensing agency, information technology system, and enforcement coordination agency.
In a major step toward achieving this objective on July 15, 2011 BIS published a Federal Register notice entitled Proposed Revisions to the EAR: Control of Items the President Determines No Longer Warrant Control Under the USML in which it identified its proposals to begin implementing the President’s Export Control Reform Initiative. http://www.bis.doc.gov/news/2011/fr_07152011.pdf
In the publication BIS identified its proposed changes which would result in fundamental changes to the export control system by:
• Laying out the process by which less militarily significant items (e.g., parts and components) will be transferred from the U.S. Munitions List (USML) to the more flexible Commerce Control List (CCL) within a new control series (informally termed the Commerce Munitions List);
• Defining the licensing policies for those items that will be moved;
• Proposing a single definition for a term ‘specially designed’ to clarify a central element of the export control system; and
• Demonstrating the application of this process to one category of the USML Category VII (Tanks and Military Vehicles).”
• Establishing a new classification ‘Reason for Control Group’ (i.e. ‘600 Series’) in the ECCN nomenclature to identify those products which are transferred to from the ITAR to the CCL, e.g.
• Creation ECCN 0Y521 as an equivalent to USML Category XXI (for articles not covered in other ECCNs)
BIS presumes that the proposed transfer of products from the ITAR to the CCL will have the following results:
• By applying the new criteria, 11,000 or approximately 90 percent of the 12,000 Category VII items licensed in 2009 and subject to stricter USML controls will be shifted to a more flexible list;
• Of the items that move, about 50 percent of the items will be eligible automatically for license-free treatment, subject to certain compliance and re-export requirements to U.S. allies and regime partners;
• About 35 percent of transferred items will continue to require an export license, but would be eligible for consideration for license exception eligibility to close U.S. allies and multilateral export control regime partners, with the same enhanced compliance and re-export authorization requirements, after U.S. Government approval;
• The remaining 15 percent will likely fall to the bottom of the list and no longer be subject to a license requirement to almost all countries;
• As a result, the agency anticipates that about 55 percent of the licenses currently issued for this category will be eliminated.