Overview
Law360, New York (May 29, 2015, 10:49 AM ET) --
On May 5, 2015, the State Department’s Directorate of Defense Trade Controls (DDTC) and the Commerce Department’s Bureau of Industry and Security published companion proposed rules to amend Category XII of the United States Munitions List (USML) and transfer some of its less-sensitive items to the Commerce Control List (CCL). This is one of the last categories of the USML to be addressed under the president’s Export Control Reform (ECR) initiative, on which we have previously advised. The agencies will accept comments on the proposed rules until July 6, 2015.
Category XII covers fire control, range finder, optical and guidance and control equipment. The DDTC’s proposed revision would list in far greater detail the types of items controlled, while moving many items previously controlled under Category XII to new and pre-existing Export Control Classification Numbers (ECCNs) on the CCL. The BIS rule would institute a more complex and nuanced treatment for sensitive night vision and camera equipment (and related parts, components, software and technology) on the CCL and would tighten controls on many of those items.
USML Changes: Positive List
The DDTC acknowledged the possibility that some of the articles in the proposed Category XII may currently be used in conventional commercial applications. Nonetheless, Category XII continues to cover items that the DDTC identified as providing the United States with a critical military or intelligence advantage and not widely available outside the United States. The DDTC is requesting that commenters identify instances in which article descriptions or control criteria would include items that are known to be currently in actual commercial use (as opposed to theoretical or potential commercial use) or to be available abroad. In this way, the DDTC desires not to control such items inadvertently under the International Traffic in Arms Regulations.
At the same time, the DDTC has excluded many items from Category XII if they are known to have common commercial applications. For instance, new paragraph (b)(6) includes a carveout for light detection and ranging systems with civil automotive applications. Similarly, new paragraph (c)(1) is only meant to include second and third generation image intensifier tubes (IITs). The DDTC also determined in paragraphs (c)(3)-(6) that the control criteria for sensor assemblies should be established at a level that excludes most commercial products. On the other hand, Global Navigation Satellite System equipment will remain ITAR-controlled, though it will move from Category XV to a revised paragraph XII(d).
An interesting aspect of the proposed rules concern infrared focal plane arrays and permanent encapsulated sensor assemblies. Once incorporated into a camera core, monocular, binocular or other higher-order system, many IRFPAs will be subject to the BIS Export Administration Regulations rather than the ITAR. However, most multispectral IRFPAs and IRFPAs with charge multiplication will remain subject to the ITAR, even when incorporated into higher-order systems. BIS is seeking comment on the concept of a ‘‘permanent encapsulated sensor assembly’’ for IRFPAs. Additionally, the parts and components enumerated in paragraph XII(e) will become subject to the EAR once “integrated into and included as an integral part of” an item subject to the EAR in such a way that they “cannot be removed without destruction or damage to the article or render [sic] the item inoperable.” Conversely, technical data directly related to IITs, IRFPAs and other Category XII items will remain ITAR-controlled even when the related defense articles themselves are part of a system that is subject to the EAR.
As with prior revisions of the USML under ECR, one of the DDTC’s intentions in revising this category is to describe in more detail the types of articles controlled, thereby creating more of a ‘‘bright line’’ between the jurisdictional scope of the ITAR and the EAR. To that end, the new Category XII would be far more detailed, eschewing broad “catch-all” categories for enumerated article descriptions and specifically defined control criteria. The DDTC and BIS are seeking comments regarding whether the proposed revisions will cover all of the US government’s commitments under the Wassenaar Arrangement, any potential coverage gaps and any items proposed for control that are not controlled on the Wassenaar Arrangement’s Dual Use or Munitions Lists, as well as any control criteria that do not clearly establish a bright line between the USML and CCL or between the 600 series of the CCL (discussed below) and other ECCNs.
BIS Rule: New Complexities and Tighter Controls on Night Vision and Cameras
The proposed rule from BIS is complex. It creates several new ECCNs, revises a number of pre-existing ECCNs and removes many items from eligibility for key license exceptions. In addition, BIS proposes to amend § 742.6 of the EAR to create a worldwide Regional Stability control specifically covering night vision and certain camera items.
Even with these efforts to tighten controls in this sensitive area, the proposed rule may still be generally beneficial to industry. For instance, some items transitioning to the CCL will become eligible for license-free de minimis treatment when incorporated into foreign-made products. Some will also become eligible for License Exception Strategic Trade Authorization, with exceptions noted below, along with License Exceptions Servicing and Replacement of Parts and Equipment (RPL), Shipments of Limited Value (LVS) and others. Commodities controlled under ECCNs 6A002 and 6A990, along with certain software and technology, will not be eligible for STA. In addition, foreign-made items incorporating 600-series content destined to US arms embargo countries and foreign military commodities incorporating items controlled under ECCNs 6A002, 6A003, 6A990 or 6A993.a will not be eligible for de minimis treatment and will be subject to a reexport license requirement.
The BIS rule would create two new primary 600 series ECCN types to control military items moving to the CCL: 6A615 (along with 6B615, 6D615 and 6E615 for test equipment, software and technology) and 7A611 (along with 7B611, 7D611 and 7E611 for test equipment, software and technology). It would also create two new technology ECCNs outside the 600 series that would be subject to worldwide RS controls: 0E987 (technology for firearm optical sighting devices incorporating a focal plane array or IIT) and 6E994 (technology for the maintenance, repair or overhaul of optical sensors, cameras or readout integrated circuits (ROICs)). It would also create new ECCN 6D994 for software, not elsewhere specified, ‘‘specially designed’’ for the maintenance, repair or overhaul of commodities controlled by ECCNs 6A002, 6A003 or 6A990. None of those three new technology and software ECCNs would be eligible for License Exception STA.
At the same time that it creates a new worldwide RS licensing policy for ECCNs 6A002 (optical sensors), 6A990 (ROICs) and related software and technology, BIS’s proposed rule limits the availability of important license exceptions. For instance, it would remove STA eligibility for all items in ECCNs 0E987, 6A002, 6A990, 6D002, 6D003 and 6D991. Additionally, it would make technology for the production of IITs, focal plane arrays and ROICs ineligible for any license exception. It would also limit the availability of License Exception Additional Permissive Reexports (APR) for ECCNs 6A002, 6A003 (except certain cameras) and 6A990, as well as items covered by ECCN 0A919 incorporating such items, and items in ECCN 0A897 (optical sighting devices) that incorporate an IIT. As a consequence, many of the items transitioning to the CCL may still be subject to a specific license requirement.
The proposed rule would place more limitations on de minimis treatment for reexports of foreign-made commodities, in effect requiring specific BIS authorization to ship such items from abroad when they incorporate US-origin content. Specifically, the rule would broaden the scope of military commodities in ECCN 0A919 for which there is no de minimis level. ECCN 0A919 covers military commodities produced and located outside the United States that are not subject to the ITAR, but which incorporate certain ECCN 6A003 cameras or more than a de minimis amount of U.S.-origin 600 series content, or which are the direct product of US-origin 600 series technology or software. BIS has proposed to broaden the scope of ECCN 0A919 to include foreign items that incorporate commodities classified under ECCNs 6A002, 6A003, 6A990 or 6A993, and to limit license-free re-exports for those items by excluding them from the de minimis rule in § 734.4 of the EAR.
Furthermore, BIS has proposed that more items, including commodities controlled by ECCNs 6A002, 6A003, 6A990 and others, face end-use restrictions under § 744.9 of the EAR for exports or reexports to any destination other than Canada when the exporter knows or is informed that the item is intended to be used by a “military end user” or incorporated into an ECCN 0A919 military commodity.
In order to accommodate the Category XII items moving to the CCL, while maintaining consistency with the Wassenaar Dual-Use List, most of the proposed ECCN revisions would not amend the items paragraph. Rather, the rule proposes to add notes to the related controls paragraph or items subparagraphs to reference the corresponding Category XII controls. For example, ECCN 6A003 will refer to similar controls in Category XII(c) and ECCN 6A990 will refer to controls on certain ROICs under Category XII(e). Some of the CCL references will be solely for new 600 series ECCNs. Other ECCNs such as 2A984 will add related control references to clarify the jurisdictional scope even though no new items would move into that ECCN from the USML.
Conclusion
The proposed rules issued by the DDTC and BIS have no immediate effect on the scope of US export controls, but do provide industry and other stakeholders with an opportunity to comment by July 6. Industry should consider commenting on potential areas of confusion and where there may be increased controls (not eligible for license exceptions) for night vision and related equipment that may require modification to avoid inadvertently including items that do not warrant increased controls. Another round of proposed rules is likely before the agencies publish a final or interim rule in this area, particularly if there is additional controversy created by the comments.
—By Peter Jeydel, Jack Hayes, Ed Krauland, Meredith Rathbone, Alexandra Baj and Andy Irwin, Steptoe & Johnson LLP
Ed Krauland is a partner in Steptoe's Washington, D.C, office and has served with the Nuclear Regulatory Commission in the area of nuclear export transactions.
Meredith Rathbone is a partner in Steptoe's Washington office.
Jack Hayes and Alexandra Baj are of counsel and Peter Jeydel is an associate in Steptoe's Washington office.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
All Content © 2003-2015, Portfolio Media, Inc.
