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Export Control Reform Making Progress, Yielding Benefits, Officials Say

Monday, August 18, 2014
Sandler, Travis & Rosenberg Trade Report

Conference on Export Controls and Policy said efforts under the Export Control Reform are moving forward and having a number of short-term and, potentially, long-term beneficial effects. Highlights of their remarks include the following.

Ongoing Reform. Kevin Wolf, Assistant Secretary of Commerce for Export Administration, told attendees that they should not view ECR as “something where there is a finish line and then the regulations and the procedures stop changing.” Instead, he said, it is about “instilling … a culture of regularly thinking about and then actually making the changes that are needed to the system in order to accomplish the core mission, which is, again, for various national security, foreign policy and other reasons, identifying and controlling the specific items, technologies, software, and services that warrant government review before being exported or reexported to specific end uses, end users, and destinations. If something no longer warrants such controls because of changes in technologies, for example, then it should come off the list. If something new presents issues from a national security or foreign policy perspective, which includes human rights concerns, then the regulations need to be revised to address it. For export controls to accomplish their mission without imposing more of a regulatory burden than necessary, they, thus, need to be dynamic.”

Transparency. “Another victory of the reform effort,” Wolf said, “is that we are getting to a system where exporters -- and reexporters -- can really believe the regulations,” meaning that “with some advance planning and compliance-related work … your trade in these items can become incredibly efficient.”

Wolf explained that if an item being exported is described on the new U.S. Munitions List, it is still controlled under the International Traffic in Arms Regulations. If technology, software or a service directly relates to something that is on the new USML, it remains ITAR controlled as well. If an item is not described on the USML, however, then it and the technology, software and services directly related to it are also not ITAR controlled. “The ITAR doesn’t include as many catch-all controls for unspecified parts and components as it once did,” Wolf noted, “so do not just assume your part or component is still ITAR controlled because it is for a military end item.”

If an item (or related technology or software) is not described on the USML, the exporter should check the relevant 600 series entry on the CCL. If the item is a part or component listed there, or if it is otherwise specially designed for something in the 600 series entry or the corresponding USML category, then it is subject to the 600 series controls. Otherwise, those controls do not apply.

Similarly, if a satellite-related item is not listed in the new USML Category XV, then as of Nov. 10 it will not be ITAR controlled. If it is listed in the new satellite 9x515 ECCNs on the CCL, then it will be controlled there.

Harmonization. Wolf said that as part of the ongoing effort to harmonize the ITAR and the Export Administration Regulations the structure of BIS licenses has been revised to make them more like those issued by the Directorate of Defense Trade Controls. The general validity period is now four years, and end users and ultimate consignees can now ship or release items to and among each other to allow for easier collaboration and less paperwork than applying for multiple licenses for the same program. Efforts to harmonize definitions used in the ITAR and EAR are underway with respect to the terms “technology,” “fundamental research,” “public domain” and “export.” BIS is also harmonizing and updating its support document, recordkeeping and destination control statement requirements. Finally, BIS is planning efforts to revise other outdated aspects of the EAR, such as the Special Comprehensive License.

Interagency Cooperation. “Another less quantifiable benefit to the dual-use controls that has occurred as a result of the reform effort,” Wolf said, is that the federal agencies responsible for export controls “are working well together.” The number of disagreements about what the rules actually say or what the right outcome should be is “way down,” as is the number of disputed licenses, commodity jurisdiction determination, Commodity Classification Automated Tracking System numbers, and other interagency decisions. The result is “a smoother, more professional export control system” that represents a step toward a situation where “export control agencies think of themselves as part of one system, one administration, bound by the rules, but willing and able to change those rules in a transparent, regularized process as foreign policy and national security considerations change, and as technology evolves.”

Export Facilitation. BIS chief Eric Hirschhorn said the ECR has thus far provided exporters with a number of benefits, including the following.

- vastly improved interoperability with the United States’ closest friends and allies

- availability of 25 percent de minimis treatment to non-embargoed destinations, which should help reduce incentives for non-U.S. companies to design out or avoid U.S.-origin content and services

- eligibility for various license exceptions, notably STA (strategic trade authorization), GOV (for certain government end users) and RPL (for replacement parts)

- elimination, in many cases, of the requirement for manufacturing license arrangements and technical assistance agreements (though BIS continues to control releases of technology through simpler authorizations)

- ability to apply for a license before a purchase order has been received

- elimination of registration requirements

- elimination of defense service controls (though, again, BIS continues to control releases of technology in other simpler ways)

- elimination of brokering constraints for less sensitive military items (though BIS still controls the transfer of the items themselves)

- no registration or licensing fees

Hirschhorn added that BIS’s Munitions Control Division has now processed more than 5,000 licenses with an average processing time of 15.3 days. License exception STA has been used for more than 3,700 transactions and other license exceptions such as RPL, GOV and Temporary Exports have been used for an additional 7,800 transactions. Benefits include timely exports to key defense allies and a reduction of the licensing burden for exporters.

Finally, Hirschhorn said, BIS “has made significant progress” in converting the interagency aspects of export licensing from its 30-year-old ECASS information technology system to the Department of Defense's USXPORTS system. End-to-end testing has begun and Hirschhorn expressed hope that all work will be completed within the next few months.

Future Work. White House Chief of Staff Denis McDonough said the administration is “still deep in the second phase of our three phase implementation work plan, which was developed in 2010,” and that the remaining items “aren’t just finishing touches [but] key priorities.” This includes a comprehensive review of the CCL to synchronize regulations with U.S. partners and allies while continuing to streamline licensing and application processes. There are also complex policy issues yet to resolve, like updating encryption controls and examining topics like cloud computing and cybersecurity. All of these efforts have as their ultimate goal the objective of “a single list, a single licensing agency, a single primary enforcement agency, and a single information technology system.”

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