Export Control Reform in the United States

Presented by Christopher B. StaggOctober 2013

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BackgroundPresident’s National Export Initiative

U.S. goal to double exports over five years

Federal agencies working to streamline U.S. export controls

Build higher walls around the most sensitive itemsAllow exports of less critical items under less restrictive conditions

Proposals to move many military end-items and their systems, subsystems, parts, components, and technologies from the U.S. Munitions List (USML) to the Commerce Control List (CCL)

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BackgroundExport Control Reform will improve national security

Reform will provide a more clear line by using positive criteria to identify what items are controlled on the USML or the CCLControlling less sensitive items on the CCL will remove the so-called “ITAR taint” and the resulting incentives by non-U.S. firms to avoid or otherwise design out U.S. origin contentIt will promote interoperability and allow for a greater number of items going to the CCL to be exported under license exceptions

Export Control Reform will create business opportunities

By more clearly identifying those items subject to the USML or CCL, it will enable businesses to have greater clarity over which regulatory authority applies to their activities and productsBy allowing exports of less critical items under the CCL’s less restrictive conditions, it will open up new business opportunities that were unavailable when such items were subject to the USML

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Benefits of Export Control Reform>Most items moved to

CCL will be – Controlled for national

security reasons – Require a license for

export to all destinations, except Canada

– Eligible for broad license exceptions

– Eligible for de minimis treatment when incorporated into a foreign article

>Some end-items, as well as many parts and components, will be less strictly controlled for export and re-export.

>Manufacturers, exporters and brokers of moved items would no longer be required to register with US State Department

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Regulatory ChangesThe entire U.S. Munitions List will be revised and turned into a positive control list

The intent of the revised USML is to make it clear through specific positive control parameters those items controlled on that listPreviously undefined terms and the use of broad control language will be changed The revisions will make the USML similar to the CCL’s use of positive control criteria to establish a bright line for jurisdiction

The creation of a new “600” series on the Commerce Control List to capture those items previously on the USML

The reform efforts are not intended to “decontrol” items but to move less sensitive items from the USML to the CCL, where the CCL’s legal authorities provide greater flexibility for license exceptions

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Regulatory ChangesExport Control Reform introduces many new approaches and concepts to export controls

New approach of a positive control list as the current USML uses broad and subjective language, which has led to many conflicting interpretations over the intended meaningIt will now define important terms such as design intent (“specially designed”) and provide clarifying notes within the USMLThe new framework of the Department of State to have the authority to license items subject to the EAR in certain circumstancesThere will be a transition period for those items moving from the USML to the CCL, as well as grandfathering of certain items

The regulatory changes will require adjustment for businesses but they will result in new business opportunities

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Impacts for Non-U.S. PartiesReview the possible changes to jurisdiction from the USML to the CCL

Notification to suppliers and customers of any changes to jurisdiction, including their responsibilities as recipients of U.S. export controlled items

Destination Control Statement requires flow-down by both U.S. and non-U.S. parties

Understand export rules on the CCL such as:

The De Minimus RuleForeign Direct Product RuleLicense exceptions and exemptions

How to handle re-export and retransfers

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Status of Export Control ReformRevisions to aircraft and gas turbine engines take effect on October 15, 2013:

Revises USML Category VIII for aircraft and related articles, and creates new CCL ECCN 9Y610Adds new USML Category XIX for gas turbine engines and associated equipment, and creates new CCL ECCN 9Y619.

USML Category XIX will control all such engines previously controlled in Category VIII for aircraft, as well as Categories IV (launch vehicles), VI (vessels), and VII (vehicles)

Also revises language for two broad catch-all concerning classified items (Category XVII) and other items not otherwise enumerated on the USML (Category XXI) These changes include the transition guidance, grandfathering provisions, the definition of “specially designed,” “subject to the EAR,” and other conforming changes.

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Status of Export Control ReformRevisions to naval vessels, ground vehicles, miscellaneous items, and submersibles take effect on January 6, 2014:

Revises USML Category VI for surface vessels of warand special naval equipment, and creates new CCL ECCN 8Y609Revises USML Category VII for ground vehicles and creates new CCL ECCN 0Y606Revises USML Category XIII for materials and miscellaneous articles and creates new CCL ECCN OY617Revises USML Category XX for submersible vessels and related articles, and creates new CCL ECCN 8Y620

Many key areas of the USML, such as military electronics, sensors and space-related items, have yet to go into final rules and may be the subject of further public comment

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Export Control Reform in a Nutshell

Intended to promote U.S. exports and enhance national securityNew rules will clarify jurisdiction (USML or CCL) so businesses will have greater clarity over which rules applyMany regulatory changes will take effect on October 15, 2013 and businesses need to prepare nowAdditional changes to the USML and CCL will be implemented in phases throughout 2013 and 2014Public comment periods are taking place to determine what items are covered in certain USML and CCL categoriesBusinesses should monitor the reform efforts and provide feedback on issues that affect their operations

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Questions?

Christopher B. StaggWilliams Mullen 1666 K St., NW, Suite 1200 Washington, DC 20006

T: (202) 293-8135E: cstagg@williamsmullen.com