The May 24, 2013 Proposed Rules introduced by the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") and the U.S. State Department's Directorate of Defense Trade Controls ("DDTC"), a part of the on-going Export Control Reform ("ECR") initiative, are consistent with the previous changes made as part of the initiative. BIS: http://www.gpo.gov/fdsys/pkg/FR-2013-05-24/pdf/2013-11986.pdf DDTC: http://www.gpo.gov/fdsys/pkg/FR-2013-05-24/pdf/2013-11985.pdf They introduce substantive changes to the rules to reduce unnecessary, outdated, or disproportionate regulation, and clarify the current rules to reduce confusion about their interpretation. The broad objective of ECR is to replace existing catchalls with more targeted standards for those items controlled by the International Traffic in Arms Regulations ("ITAR"), which are listed on the United States Munitions List ("USML"). Many articles are being moved from the more restrictive USML, regulated by DDTC under the ITAR, to BIS' Commerce Control List ("CCL").
The most recent changes are a result of changes in successive National Defense Authorization Acts ("NDAAs"). Section 1513 of the 1999 NDAA mandated that all satellites and related items be subject to the ITAR. Subsequently, section 1248 of the 2010 NDAA required the Secretary of State and the Secretary of Defense to carry out an assessment of risks associated with reconsidering that policy; the present changes reflect the recommendations of the resultant report. Section 1261 of the 2013 NDAA removed the requirement imposed by the 1999 NDAA, and section 38(f) of the Arms Export Control Act ("AECA") requires the President to "determine what items, if any, no longer warrant export controls."
Changes to the USML
In consequence, many satellite and other space related articles are being moved from the USML to the CCL. Only articles determined by the Department of Defense to have an "inherently military" purpose or articles that provide unique intelligence or military value and are "almost exclusively available from the United States" will remain subject to the USML. The articles being removed from the USML are being removed from Category XV (spacecraft and related items) and will be moved to a new Export Control Classification Number ("ECCN") on the CCL.
The revised USML will more specifically identify most items that fall under its purview, although some items will be part of a new catchall, an (x) paragraph that allows ITAR licensing for commodities, software, and technical that would be subject to Export Arms Regulations ("EAR") but are intended for use in or with ITAR regulated articles. Items that are subject to the Missile Technology Control Regime ("MTCR") will now be identified with a parenthetical (MT) on the USML. Additionally, DDTC has indicated that once a revised Category XII is implemented, certain GPS receiving equipment will be relocated to Category XV from Category XII.
Changes to the CCL
The articles moved from the USML to the CCL will fall under a new ECCN series, the 500 series. They will be labeled 9×515, where x is a letter between A and E. The new series will have the same de minimis threshold as the recently created 600 series – a 25% threshold by value of U.S. origin controlled components for foreign made items, with no de minimis threshold for countries subject to U.S. arms embargoes. All items in the series will be subject to national security, regional stability, and anti-terrorism controls. Some will also be subject to missile technology controls on a case by case basis.
Most 500 series items will be subject to a number of license exceptions. With the exception of certain items in ECCN's 9D515 and 9E515, most 500 series items will be eligible for a Strategic Trade Authorization ("STA") exception; the requirements for the STA exception will also be somewhat less restrictive than they are for the 600 series ECCN's in light of the primarily commercial nature of most items in the 500 series. The 500 series will however require that the consignee consent to an end-user check by the U.S. government. Items in the 9A515 and 9B515 ECCN's will also eligible for Limited Value Shipments ("LVS"), Temporary Exports ("TMP"), and U.S. Government ("GOV") exceptions.
Definitional Changes
The new changes also included two significant definitional changes. The first is a change in the definition of "space qualified." In 2012 the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies ("Wassenaar Arrangement") amended its definition of "space qualified" to be "designed, manufactured, or qualified through successful testing, for operation at altitudes greater than 100 km above the surface of the earth." BIS proposes to adopt the same definition for the purpose of the EAR, and that in the context of that Wassenaar Agreement language, "manufactured" and "designed" are synonymous with the EAR's recently redefined "specially designed." The result is that any item that becomes "space qualified" by virtue of testing is necessarily considered "specially designed" under the EAR.
The second significant definitional change is to the definition of "defense services" for the purposes of the ITAR. The State Department previously declared as part of the April 16, 2013 changes that the current definition of defense services was exceedingly broad; in the more recent changes, DDTC has issued a number of clarifications and incorporated changes based on the most recent comment period. It is republishing the proposed rule with the incorporated changes to gather more comments before a final rule is made. The new definition also includes provision of certain services related to spacecraft. There are many relatively technical changes incorporated into the new definition, but the gist is to fine-tune the definition and make it more precise, both reducing its scope and enhancing certainty as to exactly which services qualify.
Conclusion
Comments on the proposed changes must be received by July 8, 2013. It is likely that throughout the rest of 2013 the ECR initiative will continue, with further changes being consistent with the two most recent changes – using more specific language to identify articles subject to the ITAR and moving more items from the USML to the CCL in order to allocate resources more appropriately. This will allow more thorough control of items that actually belong on the USML while enabling easier export of articles that are regulated under the EAR.
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