(Source: Reeves & Dola LLP Alert, 1 June 2018. Available via firstname.lastname@example.org)
On May 14, 2018, the U.S. Department of State posted on its website proposed rules to transition most firearms and ammunition off the International Traffic in Arms Regulations (ITAR) control list, known as the U.S. Munitions List (USML), over to the U.S. Department of Commerce’s export control list, known as the Commerce Control List (CCL). The reason for the change is to revise the scope of the ITAR to control only those articles that provide the United States with a critical military or intelligence advantage or, in the case of weapons, are inherently for military end use. Such items will remain on the USML, while items no longer warranting control under the ITAR will be transitioned to the CCL and be subject to the licensing provisions of the Export Administration Act (EAR), administered and enforced by the U.S. Department of Commerce, Bureau of Industry and Security (BIS).
In anticipation of the official publication of the proposed rules, scheduled for May 24, 2018, we thought it advisable to offer an overview of the EAR. Once the rules publish on May 24, we will circulate an in-depth 3-part review of the proposed amendments to the ITAR and to the EAR and the potential impacts on industry.
The following overview of the EAR is intentionally broad, and is intended to serve only as a backdrop to the proposed rules to transition most firearms and ammunition, along with certain parts, components, attachments and accessories, from ITAR controls to EAR controls.
Scope of Controls – Subject to the EAR
Items – the Commerce Control List
While the Department of State controls over exports, reexports, and temporary imports are confined to “defense articles” and “defense services” listed on the USML, the Department of Commerce controls over exports and reexports are much broader. The EAR, found in 15 C.F.R. Pts. 730-780, control the export and reexport of “items” (commodities, software, and technology, each term separately defined in the EAR) and certain activities that are NOT exclusively controlled for export or reexport by another agency of the U.S. government which regulates exports or reexports for national security or foreign policy purposes, such as the U.S. Department of State.
Items subject to the EAR consist of the items listed on the CCL in Part 774 of the EAR, and all other items that meet the definition of “subject to the EAR” in section 734.3. The CCL is made up of ten Categories that are further broken into Export Control Classification Numbers (ECCNs). An ECCN is an alpha-numeric code that describes an item or types of items and shows the controls on that item and available license exceptions. The ECCN is not a Harmonized Tariff Schedule (HTS) number, and is not a Schedule B number. To determine whether an item requires an export license from BIS, the exporter must know how the item is classified on the CCL.
As noted above, the CCL is divided into 10 categories, with each category subdivided into five groups, designated by the letters A through E as follows: (A) Equipment, assemblies and components; (B) Test, inspection and production equipment; (C) Materials; (D) Software; and (E) Technology. Within each group is where you will find the ECCNs that enumerate the items that are controlled on the CCL. The firearms and ammunition currently classified on the USML in Categories I, II and III that have been selected to transition to the EAR will be enumerated in new ECCNs created under Category 0 (nuclear materials, facilities and equipment, and miscellaneous items) and product groups A, B, D and E. We will review the proposed rules and the new ECCNs in detail in our forthcoming alerts.
Items subject to the EAR which are not listed on the CCL are generally designated as “EAR99.” Often, items classified as EAR99 do not require an export license, but EAR99 is a classification, not a license exemption! Further, EAR99 does not automatically mean that no license is required. If the export violates any of the general prohibitions listed in EAR section 736.2, such as prohibited end-user, end-use, or sanctioned or embargoed country, a license is required.
The above discussion relates only to the question of what is subject to the EAR. Being subject to the EAR does not automatically mean a license is required for an export or reexport. This is a separate analysis that we will examine below.
Parts and Components – De Minimis
Foreign-made commodities that incorporate controlled U.S.-origin commodities may also be subject to the EAR if they have de minimis level of U.S. content. What constitutes the de minimis level depends on the commodity and the destination country for the reexport, and may range from no de minimis levels (for items subject to higher controls), to 10% or 25% de minimis. The rules for calculating de minimis levels are found in section 734.4 of the EAR.
The EAR defines “technology” as “information necessary for the “development,” “production,” “use,” operation, installation, maintenance, repair, overhaul, or refurbishing (or other terms specified in ECCNs on the CCL that control “technology”) of an item. Each of the quoted terms are defined in Part 772 of the EAR.
EAR controls over “technology” are more narrowly focused than the ITAR controls over technical data, and apply in limited contexts. To determine whether the technology for an ECCN is also enumerated on the CCL, the corresponding “E” ECCN for the platform should be reviewed. For example, in the proposed rules for firearms currently in USML CAt. I, there will be a new ECCN 0E501 that controls technology for firearms and certain related items. However, the technology controlled would be that which is required for the “development” and “production” of firearms other than shotguns. This new ECCN also would apply the anti-terrorism and United Nations reasons for control (see below) to “technology” “required” for the operation, installation, maintenance, repair, or overhaul of such firearms. As the proposed Commerce rule explains, “controlling this “technology” under the EAR rather than the ITAR is appropriate because the “technology” for the “development,” “production,” operation, installation, maintenance, repair, and overhaul of the firearms to be described in 0A501 is widely available throughout the world and its possession does not confer a significant military or intelligence advantage on the United States.”
It is important to point out that the EAR’s carve-out from controls for published works or information in the public domain is much broader in scope compared to the ITAR carve-out for public domain. In section 734.7, “published” technology or software is carved out from EAR controls “when it has been made available to the public without restrictions upon its further dissemination….” For example, subscriptions available without restriction, libraries or other public collections open to the public and from which the public can obtain tangible or intangible documents, unlimited distributions at a conference, seminar, trade, show, or exhibition generally accessible to the public, public/unlimited distribution in any form, including posting on the Internet on sites available to the public. Many may rejoice over this, as the ITAR still does not recognize the Internet as being in the “public domain.”
As further illustration of technology not controlled under the EAR, the BIS proposed rule cites the example of a gun manufacturer posting a firearm’s operation and maintenance manual on the Internet, making it publicly available to anyone interested in accessing it and without restrictions on further dissemination. According to the proposed rule explanation, such operation and maintenance information included in that published manual would no longer be “subject to the EAR.” Nonproprietary system descriptions, including for firearms and related items, are another example of information that would not be subject to the EAR.
Reasons for Control
The reasons for control for exports under the EAR include the following:
– CB (Chemical & Biological Weapons)
– NP (Nuclear Proliferation)
– NS (National Security)
– MT (Missile Technology)
– RS (Regional Stability)
– CC (Crime Control)
– AT (Anti-Terrorism)
– UN (United Nations)
– EI (Encryption Item)
– CW (Chemical Weapons Convention)
The specific reasons for control for a particular item is identified within each specific ECCN. Unlike the blanket ITAR requirement for a license to anywhere in the world, BIS license requirements are unique to each individual ECCN. Whether a license is required for a particular export will depend on the destination country.
Licensing Under the EAR
Each ECCN is made up of four sections: a heading(description of the items controlled), the license requirements(including all possible reasons for control, such as AT, UN, NS, CC, and RS) the available license exceptions, and list of items controlled.
To determine the export and reexport license requirements for most items on the CCL, you must identify the reasons for control in the relevant ECCN and consult the Commerce Country Chart in Supp. No. 1 to Part 738 to see whether the applicable reasons for control are checked for the specific country. If so, then a license is required unless a license exception applies. Whether a license exception is available will depend on the ECCN and the Country Groups in Supplement No. 1 to Pt. 740.
Unlike the ITAR, the EAR does not require registration of exporters (so no registration fee), and there are no fees to apply for licenses through the SNAP-R. In addition, unlike the ITAR, the EAR does not include a concept of “defense services,” so there is no registration or licensing for the provision of defense services like there is under the ITAR.
The process for establishing a SNAP-R account is relatively easy, and no digital signature certificate is required. Further, unlike the ITAR, which contains several license forms depending on the transaction, the EAR prescribes one single form for each type of export (permanent, retransfer, reexport).
Covering Items Subject to the EAR on DDTC Licenses
With the rewrite of Categories I, II, and III, DDTC will add a “Paragraph (x)” to each of the revised categories. This paragraph has been added to all other USML Categories as they have gone through the rewrite process, and allows for the export of items subject to the EAR under ITAR licenses so long as the conditions of paragraph (x) are met (see ITAR §§ 120.5(b) and 126.6(c)). These conditions include:
(1) An ITAR license may only include items subject to the EAR that are for use in or with the listed defense articles;
(2) The purchase documentation must specify both the defense articles with the items subject to the EAR (no separate purchase orders breaking out the defense articles from the EAR items);
(3) The exporter must ship the EAR items together with the ITAR articles; and
(4) Items subject to the EAR that are included on an ITAR license do not lose their jurisdictional status as EAR-controlled items and remain subject to the EAR for any subsequent transactions.
In light of the last requirement, it is incumbent on the U.S. exporter to properly educate its customers and end-users when using an ITAR license for both defense articles and EAR items to be used in or with the defense articles. In the event the end-user need reexport approval, the approval must come from BIS for items subject to the EAR, not DDTC.
Below is a reference chart comparing some aspects of the EAR to the ITAR.
|Statutory Authority||Arms Export Control Act||Export Administration Act of 1979 50 USC 4601-4623 [lapsed]|
|Federal Agency||U.S. Department of State, Directorate of Defense Trade Controls||U.S. Department of Commerce, Bureau of Industry and Security|
|Citation||22 C.F.R. Pts. 120-130||15 C.F.R. Pts. 730 – 774|
|What is Covered||Export, reexport, and temporary import of “defense articles” and “defense services”||Items subject to the EAR|
|Control List||U.S. Munitions List
22 C.F.R. 121.1
|Commerce Control List
15 C.F.R. Pt. 774
|Registration Required?||Yes – manufacturers, exporters, temporary importers, and brokers of defense articles and defense services. Annual fees apply. Manufacturers of defense articles must register regardless of export activity.||No|
|Fee for Licenses||Yes – rolled into registration fee||No|
|Types of Licenses/ Authorization||Several types/forms – permanent export, temporary export, temporary import, agreements, brokering||One form for export, Reexport, In-Country Transfer|
|Brokering?||Yes – 22 C.F.R. Pt. 129||No – but see proposed rules for Cats. I-III|
|Technology Controls||Yes – “technical data” licensing and “defense services” licensing||Yes, but not as broad as ITAR; EAR controls only transmission
of technology, so no EAR concept of defense service
This overview of the EAR is the first installment of a four-part series on the proposed rules to transition firearms and ammunition from the USML to the CCL. Our next alert will examine the transition of certain firearms and their parts, components, accessories and attachments from USML Cat. I items to the CCL. Please stay tuned.