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First Final Rules Issued Under Export Control Reform Initiative

Wednesday, April 17, 2013
By Shawn McCausland
Sandler, Travis & Rosenberg Trade Report

The Obama administration today took a historic step in its effort to improve national security, improve interoperability with foreign partners and bolster the U.S. defense industrial base as part of the Export Control Reform Initiative. The  Commerce Department’s Bureau of Industry and Security and the State Department’s Directorate of Defense Trade Controls issued final rules that, effective Oct. 15, will significantly revise three categories on the U.S. Munitions List by transferring certain goods to the Commerce Control List, which provides typically more liberal rules on exports and reexports of purely commercial items as well as those that have both commercial and military applications. Additional such rules affecting other USML categories are expected to be issued in the near future, and companies that may be affected by these changes should act now to verify if and how their products may be affected. Sandler & Travis Trade Advisory Services is conducting a webinar on export regulatory requirements on April 17 that will include a discussion of these new rules.

The DDTC final rule amends the International Traffic in Arms Regulations with respect to USML categories VIII (aircraft and related articles), XVII (classified articles, technical data and defense services not otherwise enumerated), and XXI (articles, technical data and defense services not otherwise enumerated). It also creates a new Category XIX covering gas turbine engines and associated equipment.  The BIS final rule creates ten new 600 series export control classification numbers to accommodate the items being transferred from the USML, which include aircraft, gas turbine engines, related parts, components, accessories, attachments, software and technology. Policies for handling licensing and other issues both before and after the 180-day transition period are provided.

Both rules also provide the long-awaited definitions for the term “specially designed” under the ITAR and the Export Administration Regulations. In addition, the BIS rule establishes a new process whereby exporters and reexporters may request formal BIS confirmation that a part, component, accessory, attachment or software is not specially designed.

Companies are urged to take the following steps in response to these new regulations.

- Review your product lines and the contents of the new regulations to evaluate whether any of your items will shift from the USML to the CCL.

- If so, determine your new CCL classifications, reasons for control and licensing requirements under the EAR.

- Take stock of your current ITAR licenses and authorizations and develop strategies for timely obtaining the appropriate EAR authorizations within the timeframes specified under the DDTC final rule. While EAR license exceptions may now be available for activities that previously required authorization under the ITAR, in many cases these exceptions will impose additional administrative requirements on exporters and reexporters. As a result, if your activities have previously been exclusively subject to the ITAR, you need to become informed on the requirements of the EAR, both substantive and administrative. 

- Take prompt steps to revamp your export compliance policies and procedures to reflect the EAR requirements, to document those new processes in writing, and to provide EAR compliance training to personnel who may be only familiar with ITAR requirements.

It is important to note that other final rules covering different USML and CCL categories will be issued over the coming months. As a result, companies that may not be affected by today’s final rules should nonetheless adopt the internal review and compliance strategies outlined above to assess how and if they may be impacted by future changes.

For details on the specific provisions of the BIS and DDTC final rules, please click here.

If you have specific questions on these new regulations or any other aspect of the Export Control Reform initiative, please contact Melissa Miller Proctor, Donna L. Bade or Anu Gavini.

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