Archive for the ‘EAR’ Category

The Politics Behind the (Possible) Upcoming Shift of Gun Exports

2019/02/20

By: Danielle Hatch

Officials from the State Department and the Commerce Department told Congress privately that they intend to finalize rules in the coming weeks that would shift most consumer gun exports from the State Department to the Commerce Department’s jurisdiction. In a nutshell, semiautomatic and single-shot firearms, as well as a range of parts and components would make the transition while the State Department would continue to control the sale of automatic weapons as well as items that serve “a critical military advantage or perform an inherently military function.”

Politically there has been push back on the changes by liberal lawmakers and democrats who believe the proposed shift could do more harm than good for national security. The Trump administration is reminding lawmakers that this roll out is nearly identical to the proposed changes released by President Obama that became delayed and never reopened after the Sandy Hook Elementary School shooting that killed 26 people in 2012. Although none of these rule changes are related to domestic gun control, the idea of easing any regulations on guns after shootings doesn’t sit well with the most Americans.

The changes are meant to cut costs for businesses and prioritize the control of military grade or other arms that pose national security concerns rather than commercial items. The shift will also cause Congress to lose the ability to oversee any commercial arms sales worth $1 million or more which is currently required under the Arms Export Control Act. The act requires the State Department to submit information on sales this large for congressional review, the Commerce Department does not have such a requirement.

Learn More: https://www.nytimes.com/2019/01/31/us/politics/gun-exports-trump.html

https://www.nbcnews.com/news/amp/ncna968601


Cyber-Surveillance Export Control Reform in the United States

2019/01/31

By: Peter Lichtenbaum (plichtenbaum@cov.com), David W. Addis (daddis@cov.com), and Doron O. Hindin (dhindin@cov.com) are attorneys in the International Trade practice at Covington & Burling LLP. Mr. Lichtenbaum previously served as Assistant Secretary of Commerce for Export Administration.

Based on recent US agency actions and statements, the US government is likely to update soon its export controls on intrusion software (including exploit research), network surveillance systems, and intelligence collection tools.

Collectively, these items consist of equipment, software, and technologies designed to gain access to, surveil, and control third-party electronic devices. These highly effective tools are increasingly being used for nefarious purposes, such as by ‘black hat’ hackers to steal sensitive information and extort corporations and private individuals, and by authoritarian government regimes to repress dissidents. However, such products are also routinely used by ‘white hat’ cybersecurity specialists to protect systems and data as well as by legitimate government intelligence and law enforcement agencies to achieve critical national security objectives.

As background, and as discussed further below, the US Commerce Department sought in 2014-15 to limit the proliferation of these items through proposed export control regulations on ‘intrusion software’ and ‘IP network communications surveillance systems,’ but that regulatory endeavour lapsed in 2016 in the face of resolute opposition by industry and civil society.

However, the US government has maintained its overall objective of regulating cyber-surveillance and intelligence-gathering tools through export controls. To that end, the Commerce Department and State Department are working toward a series of regulatory changes that, in the aggregate, would significantly change export controls over cyber and intelligence products.

This article surveys these regulatory developments and evaluates what to expect from the US government in the months ahead.

Wassenaar cyber-surveillance controls and  US exceptionalism

In December 2013, the cyber industry result of proposals by France and the United Kingdom, the Wassenaar Arrangement’s List of Dual-Use Goods and Technologies and the Munitions List (collectively, the ‘Wassenaar List’) was amended to cover, for the first time, ‘intrusion software’ and “IP network communications surveillance’ systems. This proposal was made a result of concerns from non-government organisations that certain repressive governments were able to use such software and systems to eavesdrop on dissidents and reporters within their societies.

The new 2013 language covered commodities, software, and technology for the generation, operation, or delivery of, or communication with, ‘intrusion software,’ defined as:

Software specially designed or modified to avoid detection by monitoring tools, or to defeat protective countermeasures, of a computer or network-capable device, and performing any of the following:

(a) The extraction of data or information, from a computer or network-capable device, or the modification of system or user data; or

(b) The modification of the standard execution path of a program or process in order to allow the execution of externally provided instructions.

(Notes and quotation marks omitted)

In addition, the updated 2013 Wassenaar List covered communications surveillance systems, and related commodities, software, and technologies, specially designed to extract, index, search, and map metadata from carrier class IP networks, such as national grade IP backbones.3

The controls over intrusion software and IP network communications surveillance systems were immediately implemented by the export control authorities of a number of countries for which the Wassenaar List is self- executing. In other countries, the Wassenaar List requires subsequent implementing legislation, but is then generally adopted verbatim, such as in the European Union.

By contrast, the United States does not automatically adopt Wassenaar List amendments. Rather, after amendments are adopted at annual Wassenaar plenary meetings, the US government launches an interagency review process, which routinely involves seeking industry comments, to determine national security, foreign policy, and economic impacts of the Wassenaar amendments. Following that process, the US government typically adopts the amendments, but frequently modifies the language to reflect US-specific interests and so that it fits neatly within either the Commerce Control List (‘CCL’) – administered by the US Department of Commerce, Bureau of Industry and Security (‘BIS’) pursuant to the Export Administration Regulations (‘EAR’) – or the US Munitions List (‘USML’) – administered by the Department of State, Directorate of Defense Trade Controls (‘DDTC’) pursuant to the International Traffic in Arms Regulations (‘ITAR’).

The US government took this approach with respect to Wassenaar’s 2013 cyber-surveillance amendments. Ultimately, in May 2015, BIS published a proposed rule to incorporate the 2013 Wassenaar intrusion software controls into CCL category 4 and the controls over IP network communications surveillance systems into CCL category 5 part 1.

BIS’s proposed rule elicited a deluge of public comments from industry and civil society. Many of the commenters expressed serious concern that because the Wassenaar language was, in their view, overly broad, its incorporation into the CCL would chill global ‘white hat’ exploit and vulnerability research and would otherwise undermine US national security and economic interests.6 For example, commenters presented BIS with hypothetical scenarios in which exploit researchers uncover vulnerabilities in software platforms of foreign vendors but are then prevented from immediately notifying those vendors of the risks, due to a requirement to first obtain export controls licensing from BIS. Similarly, commenters argued that the proposed rule could unjustifiably require victims of rootkit or other malicious software attacks to obtain licensing prior to sharing their infected device with non-US forensic specialists.7  Others explained that adopting the Wassenaar language would be counterproductive to US national security and economic interests by imprudently controlling general purpose programming environments, such as integrated design environments, and commonly used defensive cyber tools, such as penetration testing products, adaptable end point detection and response tools, auto-updating antivirus and antimalware programs, and forensic exploit toolkits.

The industry concerns prompted BIS to publish 32 clarifying frequently asked questions (‘FAQs’), which in turn prompted yet further industry pushback.9 Ultimately, the force of the industry concern resulted in a 2016 letter by then-Secretary of Commerce Penny Pritzker to cyber industry representatives notifying them that in light of industry feedback and input from Congress, academia, and civil society, the United States would not implement the Wassenaar 2013 intrusion software controls.10 The letter further committed that the US government would advocate at upcoming Wassenaar plenary meetings for the Wassenaar List to be amended by deleting the intrusion software controls in their entirety.

To date, the intrusion software controls in the Wassenaar List have not been eliminated.11 However, as explained by BIS in a recent FAQ, US government efforts have been successful in negotiating limited changes to the Wassenaar List, ‘in order to minimize the negative impact the [intrusion software] entries would have.

A particularly significant development that the FAQ attributes to US negotiation efforts is that as of 7 December 2017, the Wassenaar List now clarifies that the technology controls on intrusion software ‘do not apply to “vulnerability disclosure” or “cyber incident response”, new terms of art in the Wassenaar List with corresponding definitions. This important clarification provides welcome relief to vendors worldwide, who are often mandated by contract or by prevailing regulation to respond without delay to data breaches. The change also offers a needed safe- harbour for exploit researchers and cybersecurity   specialists   worldwide who can now receive, analyse, and remediate vulnerabilities without delay.

A second change to the Wassenaar List discussed in the BIS FAQ is that the list now clarifies that software that provides updates or upgrades that are authorised by the owner or operator of the target system would not be controlled as intrusion software, as long as the software itself was not specially designed to update intrusion software  or  command  and  delivery platforms for intrusion software.14 That clarification was necessary to avoid unnecessarily controlling general purpose design environments, auto- updating anti-virus tools, and other pervasive and commercially available software tools, while focusing controls only on more aggressive command and delivery platforms for intrusion software, such as exploit toolkits and penetration testing tools.

Shortly after these Wassenaar changes were agreed to, Rob Joyce, the White House cybersecurity coordinator at the time, praised the US negotiating achievements: ‘We applaud the hard work of the US interagency and our partners in industry, the research community, and foreign governments to clarify software and technology controls that could have had a negative impact on legitimate cybersecurity.’

However, notwithstanding these negotiation successes, BIS has acknowledged that they are only an initial step towards addressing the concerns raised in response to its 2015 rulemaking proposal, and that a number of alternative next steps remain possible:

‘We have not decided on a next step yet [concerning intrusion software]. There are a range of possible actions we could take, including returning to Wassenaar in 2018 to negotiate further changes to the text, publishing a rule to implement the text, or publishing a notice of inquiry or proposed rule for further comment.’17

Subsequently, on 24 October 2018, BIS finalised implementation of the

2017 Wassenaar List. To the continued relief of the cybersecurity industry, neither Wassenaar’s category 4 intrusion software nor its category 5 part 1 IP network communications surveillance entries were incorporated in the CCL.

However, BIS’s recent CCL update, which implements the most current Wassenaar List but continues to exclude that list’s controls over cyber- surveillance tools, by no means signals a retreat by the US government from asserting control over those tools. In fact, other regulatory developments, surveyed below, signal the opposite: cyber-surveillance applications, including exploit research, may be the subject of a broad regulatory reform.

ECRA foundational technologies– comment period

On 13 August 2018, Congress enacted the Export Control Reform Act of 2018 (‘ECRA’), which established a formal interagency process to identify and regulate emerging and foundational technologies that are deemed ‘essential to the US national security’ and are not otherwise controlled for export purposes.

The interagency process established under ECRA has already led to a 19 November 2018 publication in the Federal Register of an advance notice of proposed rulemaking for the ‘Review of Controls for Emerging Technologies. As described in the notice’s preamble, BIS‘ seeks   public   comment [by 10 January 2019] on criteria for identifying emerging technologies that are essential to US national security, for example because they have potential conventional weapons, intelligence collection, weapons of mass destruction, or terrorist applications or could provide the United States with a qualitative military or intelligence advantage. (Emphases added)

In addition, a specific category of representative emerging technologies proposed in the notice is: ‘Advanced surveillance  technologies,  such  as: Faceprint and voiceprint technologies.’ Commerce will publish a separate notice of proposed rulemaking related to ‘foundational’ technologies, which could   also   potentially   encompass cyber-surveillance tools and technologies.

The emphasis in the November notice’s preamble on intelligence collection and the US intelligence advantage, and the inclusion of a dedicated emerging technology category of ‘[a]dvanced surveillance technologies,’ relates directly to the government’s ongoing efforts at leveraging export controls to curtail the proliferation of intrusion software and surveillance technologies.

As discussed above, the 2013 Wassenaar cyber-surveillance amendments originated from proposals by European governments and the US government yielded to the barrage of public disapproval that they generated. By contrast, under ECRA, the US Congress has explicitly directed the US administration to identify, and impose export controls on, emerging and foundational technologies, which the government has in turn interpreted to include advanced surveillance technologies, including for intelligence collection purposes. With ECRA as its tailwind, the US government might be more determined to impose controls on cyber-surveillance items, particularly if these controls are limited based on the Wassenaar amendments discussed above.

Human rights export controls for the 21st Century

On 9 May 2018, and in parallel to ECRA developments, Senator Marco Rubio and Representative Chris Smith, on behalf of the Congressional- Executive Commission on China (‘CECC’), transmitted a letter to Secretary of Commerce Wilbur Ross identifying that compelling evidence indicates that, notwithstanding current US export controls, US companies are selling Chinese authorities advanced products used for ‘surveillance, detection, and censorship’.20 The congressmen in the letter explicitly asked the Secretary to explain what new legislation or new authorities [are] needed to revisit/revise export control regulations so they are consistent with the rapid evolution of technology,’ and whether any ‘software or technology which could be used for the purpose of domestic repression, [is] subject to export controls with respect to Chinese end-users of concern?

These concerns and the need to ‘revisit/reform export control regulations’ were echoed in CECC’s 2018 annual report, published on 10 October 2018, which recommends that the US administration ‘Revamp Export Controls,’ including by amending the USML to include ‘new technologies… [that] enhance surveillance and the ability of security forces to repress universally recognized human rights.’21

In response, the Secretary of Commerce reportedly informed CECC by letter that by the autumn of 2018, the Department of Commerce would propose new ‘human rights controls for the 21st century’. The concept would be to update the Commerce Department’s so-called ‘Crime Controls’, under which the department regulates items of traditional human rights concerns such as leg shackles, thumbscrews and police batons. The new proposal would focus on high-technology items that can facilitate human rights abuses. It is unclear how this development would relate to the ECRA rulemaking discussed above, but it may provide a more expedited vehicle for Commerce to control intrusion software platforms or surveillance tools, compared with the ECRA process. In particular, this could be the case with respect to software items that are long- established technologies, since the ECRA      process      for      identifying

‘foundational’ technologies has not yet even started. Even the ECRA ‘emerging’ technologies process will probably not result in an actual proposed rule until sometime in 2019. By contrast, the ‘human rights’ rulemaking is expected to involve publication of a proposed rule in December 2018.

USML category XI(b)

A further indication of forthcoming controls on intrusion software and surveillance technologies was DDTC’s announcement on 30 August 2018, of a 12-month extension of the application of USML category XI(b), in order to provide DDTC with the opportunity to complete a ‘wholesale revision of USML category XI.’

Category XI(b) – the scope of which has been the subject of ongoing interagency debate and numerous rulemaking processes23 – is the principal USML entry intended to capture national-level intelligence collection tools:

* [XI](b) Electronic systems, equipment or software, not elsewhere enumerated in this subchapter, specially designed for intelligence purposes that collect, survey, monitor, or exploit, or analyze and produce information from, the electromagnetic spectrum (regardless of transmission medium), or for counteracting such activities.

Currently, the broad formulation of category XI(b) serves as a strong hook for the US government to control sensitive intrusion software platforms or IP network surveillance technologies. At the same time, category XI(b)’s fairly abstract language has also historically provided exporters with tenable arguments to justify self-classifications of intelligence collection items under BIS jurisdiction, to the extent those items are more accurately described in the CCL. A discussion of the numerous surveillance- and intelligence-related export control classification numbers on the CCL, as well as BIS’s policies governing surreptitious listening and cryptographic or cryptanalytic items, is beyond the scope of this article. Nonetheless, it is worth noting that these Commerce Department controls and policies, and attendant licence exceptions, have proven relevant for various vulnerability software and surveillance tools that may routinely be sold to local law enforcement or private security firms and that are more precisely captured under the EAR, and not under the ITAR’s USML category XI(b) controls.

However, that all may change with the as-yet-unknown ramifications of DDTC’s ‘wholesale revision of USML Category XI’. The DDTC’s undertaking with respect to category XI should be viewed in conjunction with the Wassenaar, ECRA, and China Commission developments discussed above, which collectively signal forthcoming export controls over intrusion software and surveillance technologies.

Conclusion

The confluence of efforts by the US delegation at Wassenaar; pending ECRA rulemaking on emerging technologies, and the expected similar ECRA rulemaking on foundational technologies; encouragement by Congress for revised Commerce Department ‘human rights controls for the 21st century’; and impending revisions of USML category XI(b) by the State Department, collectively signal a forthcoming reform in US export controls over intrusion software (including potentially exploit research), network communications surveillance systems, and intelligence-collection tools.

Those likely to be most affected by such reforms should closely monitor the concurrent agency processes discussed above. Stakeholders should also consider proffering feedback and insights to government, so that the emerging rules appropriately reflect values of human rights, national security, foreign policy and economic interests.

More Information: https://www.cov.com/-/media/files/corporate/publications/2018/12/cybersurveillance_reform_in_the_united_states.pdf

Links and notes

1    The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Technologies is a multilateral organisation with 42 member states, and several other non-member observers, that collaborate on export controls.

2    Wassenaar List (2013), Category 4.A.5.

3    Wassenaar Category 5.A.1.j.

4    The European Union, for example, adopted the 2013 Wassenaar List controls on 22 October 2014. See: Commission delegated regulation, (EU) No. 7567/2014 (Oct. 22, 2014), at http://ec.europa.eu/transparency/regdoc/rep/3/2014/ EN/3-2014-7567-EN-F1-1.PDF, entering into force on December 31, 2014, pursuant to Commission delegated regulation (EU) No. 1382/2014, OJ L 371/1, (30 December 2014).

5    Department of Commerce, Wassenaar Arrangement 2013 Plenary Agreements Implementation: Intrusion and Surveillance Items, Proposed Rule with Request for Comments, 80 Fed. Reg. 28553 (20 May 2015).

6    See e.g., Comments to the US Department of Commerce on Implementation of 2013 Wassenaar Arrangement Plenary Agreements (RIN 0694-AG49) On Behalf Of Access, Center for Democracy & Technology, Collin Anderson, Electronic Frontier Foundation, Human Rights Watch, and New America’s Open Technology Institute (20 July 2015), available at https://www.eff.org/files/2015/07/21/jointwassenaarc omments-final-1.pdf.

7    See https://www.cs.dartmouth.edu/~sergey/drafts/ wassenaar-public-comment.pdf http://trade.ec.europa.eu/doclib/docs/2017/december /tradoc_156502.pdf

8    See e.g., BIS 2015 ‘Intrusion and Surveillance Items Frequently Asked Questions (‘FAQ’),’ at FAQs 8, 12, 16, and 29, available as an archived webpage at: https://web.archive.org/web/20150908025350/https://www.bis.doc.gov/index.php/policy- guidance/faqs?view=category&id=114#subcat200.

9    Id; See Mailyn Fidler, Proposed US Export Controls: Implications for Zero-Day Vulnerabilities and Exploits at Lawfareblog.com (10 June 2015), available at, https://www.lawfareblog.com/proposed-us-export- controls-implications-zero-day-vulnerabilities-and-exploits

10   Letter From The Honorable Secretary of Commerce, Ms. Penny Pritzker, To American Petroleum Alliance (API), et. al. (1 March 2016), available at https://www.bis.doc.gov/index.php/forms- documents/about-bis/newsroom/1434-letter-from-secre tary-pritzker-to-several-associations-on-the- implementation-of-the-wassenaar-arrang/file.

11   Tami Abdollah, US fails to renegotiate arms control rule for hacking tools, Associated Press (19 December 2016), available at https://apnews.com/c0e437b2e24c4b68bb7063f03ce892b5 (noting that initial attempts in 2016 at renegotiating the controls were unsuccessful); Garett Hinck, Wassenaar Export Controls on Surveillance Tools: New Exemptions for Vulnerability Research (5 January

2018), available at https://www.lawfareblog.com/wassenaar-export-controls-surveillance-tools-new-exemptions-vulnerability-r esear (surveying the US negotiating efforts to date and resultant changes in December 2017 to the Wassenaar List).

12   BIS, ‘Intrusion and Surveillance Items,’ FAQ No. 1, at, https://www.bis.doc.gov/index.php/policy- guidance/faqs#faq_62 (visited 20 November 2018).

13   Wassenaar List Category 4.E.1. (defining a ‘vulnerability disclosure’ as ‘the process of identifying, reporting, or communicating a vulnerability to, or analysing a vulnerability with, individuals or organizations responsible for conducting or coordinating remediation for the purpose of resolving the vulnerability’ and defining a ‘cyber incident response’ as ‘the process of exchanging necessary information on a cybersecurity incident with individuals or organizations responsible for conducting or coordinating remediation to address the cyber security incident’).

14   BIS, ‘Intrusion and Surveillance Items,’ FAQ No. 1, at, https://www.bis.doc.gov/index.php/policy- guidance/faqs#faq_62 (visited 20 November 2018).

15   See e.g., BIS 2015 ‘Intrusion and Surveillance Items Frequently Asked Questions (‘FAQ’),’ at FAQs 8, 12, 16, and 29, available as an archived webpage at: https://web.archive.org/web/20150908025350/https://www.bis.doc.gov/index.php/policy- guidance/faqs?view=category&id=114#subcat200.

16   Shaun Waterman, The Wassenaar Arrangement’s latest language is making security researchers very happy in cyberscoop.com (20 December 2017), available at, https://www.cyberscoop.com/wassenaar-arrangement- cybersecurity-katie-moussouris/.

17   BIS, ‘Intrusion and Surveillance Items,’ FAQ No. 1, at, https://www.bis.doc.gov/index.php/policy- guidance/faqs#faq_62 (visited 20 November 2018).

18   Department of Commerce, Review of Controls for Certain Emerging Technologies; Advance notice of proposed rulemaking (ANPRM), 83 Fed. Reg. 58201 (19 November, 2018).19   The comment period was initially scheduled to close on December 19, 2018, but was extended by three weeks in response to requests by leading technology companies that they be allotted additional time for drafting comments

20   See Letter From Senator Marco Rubio and Representative Chris Smith, Co-Chairs of the Congressional-Executive Commission on China, To The Honorable Wilbur Ross, Secretary of Commerce (9 May 2018), available at https://www.cecc.gov/media- center/press-releases/chairs-ask-commerce-secretary-ro ss-about-sale-of-surveillance-technology.

21   CECC, Annual Report, 2018, p. 16, available at https://www.cecc.gov/sites/chinacommission.house.gov/files/Annual%20Report%202018.pdf.

22   Department of State, Continued Temporary Modification of Category XI of the United States Munitions List; Final rule; notice of temporary modification, 83 Fed. Reg. 44224 (30 August 2018).

23   Department of State, Amendment to the ITAR: USML Category XI (Military Electronics), and Other Changes; Final Rule, 79 Fed. Reg. 37536, 37544 (1 July 2014) (proposing XI(b) controls that excluded the phrase

‘analyze and produce information from’ and that controlled only ‘systems or equipment,’ but not software); Department of State, Temporary Modification of Category XI of the USML; Final rule; notice of temporary modification, 80 Fed. Reg. 37974, 37975 (2 July 2015) (explaining that as a result of the 2014 version of XI(b), DDTC grew concerned ‘that exporters may read the revised control language [in Category XI(b)] to exclude certain intelligence analytics software that has been and remains controlled on the USML.’).

24   Department of State, Continued Temporary Modification of Category XI of the United States Munitions List; Final rule; notice of temporary modification, 83 Fed. Reg. 44224 (30 August 2018).


Export News: The Rules Are about to Change, What You Can Expect?

2019/01/31

By: Johanna Reeves, Esq., jreeves@reevesdola.com, +1 202-715-9941; and Katherine Heubert, Esq., kheubert@reevesdola.com, +1 202-715-9940. Both of Reeves & Dola, LLP. (Source: R/D Report)

Earlier this year, the U.S. Department of State, Directorate of Defense Trade Controls (DDTC) published a proposed rule in the Federal Register to amend the International Traffic in Arms Regulations (ITAR) and revise U.S. Munitions List (USML) Categories I, II, and III to better identify the articles the U.S. government believes warrants export and temporary import control on the USML. Those items deemed not to require control under the ITAR are proposed to be removed from the USML and would become subject to the U.S. Department of Commerce, Bureau of Industry and Security’s (BIS) Export Administration Regulations (EAR). BIS published a companion proposed rule at the same time to identify where those items removed from the USML will be controlled on the Commerce Control List (CCL). We covered the proposed transition rules in our alerts, dated May 23, June 1, June 8, and June 13, 2018, all of which can be accessed at reevesdola.com.

Soon the highly anticipated rules containing the final rewrites of U.S. Munitions List Categories I, II, and III should be published. In advance of their publication, companies should begin to prepare now in order to be best positioned to take advantage of the change in regulations as soon as they become effective. In this alert we seek to answer some basic questions about the transition and walk through the review process that companies will need to undertake to determine which set of controls will now apply to their goods and services.

What Will the Rewrites Do?

As many of you already know, USML Categories I, II, and III are the last USML categories to go through the revision process. All other USML Categories have been revised, some multiple times already as part of the previous Administration’s Export Control Reform (ECR) effort. What the upcoming final rules will do is to remove from the USML those items the U.S. government has determined to be of less military significance or of a more commercial nature. As explained in the proposed rule, DDTC’s intent is to revise these categories so that the scope of the respective USML Category is limited to those defense articles that provide the United States with a “critical military or intelligence advantage or are inherently for military end use.” (83 FR 24198). DDTC further explains in the proposed rule that the articles that would be removed from the USML do not meet this standard, and notes that many items are widely available in retail outlets in the United States and abroad. Those items removed from the USML will be subject to the EAR in new Export Control Classification Numbers (ECCNs) on the CCL.

Despite what many have claimed, this is not a decontrol of the items identified for removal from the USML. Rather, it is a right-sizing of U.S. export controls. Items that have historically required a license from DDTC will now be subject to the export licensing requirements of the EAR. However, this does not mean that companies will be able to ship firearms and ammunition throughout the world without a license. To the contrary, many items moving to the CCL will require an export license from BIS, even to Canada. It is also important to remember that the revisions to the USML have no impact on how the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) controls firearms and ammunition for permanent import into the United States under its regulations at 27 C.F.R. Part 447.

Has the Transition Already Taken Effect?

No! As of today, the revisions have not yet been published as a final rule and the USML currently remains unchanged for Categories I, II, and III. When the final rules are published in the Federal Register, they will provide an effective date for the implementation of the changes. If the previous USML Category rewrites are any indication, the rules will likely become effective 180 days after the final rule publishes, though the agencies could decide to provide a shorter implementation period. A delayed effective date, which has been provided in all the previous USML Category revisions, is intended to give impacted industry members the time to implement the revisions by reclassifying their inventory, making changes to internal processes and procedures, train employees on the new controls, update databases, notify customers, and other necessary compliance actions.

Is There Anything to do to Prepare for this?

Yes! Companies now can begin reviewing their inventory and internal procedures to identify those items and functions that may be impacted. While the proposed rules aren’t set in stone, they do provide a good roadmap of what is likely going to move off the USML and onto the CCL. Companies can use that to redline processes and procedures and identify any necessary changes to databases and systems that house jurisdictional determinations for products. The proposed rules can also help companies start walking through the jurisdictional review analysis to determine what export control regime will likely apply to their products after the revisions become effective. For a refresher on the proposed rules, please review our previous alerts.

The process for walking through this jurisdictional review is called the Order of Review. The Order of Review is the process by which one makes a jurisdiction and classification decision with respect to the export control regulation applicable to any piece of hardware, software, technology, or service. The Order of Review is completed by first reviewing the USML, followed by the CCL, and essentially asking a series of yes/no questions. The following outline is designed to walk you through the basic decision process for an Order of Review analysis.

Step 1: Review the ITAR

* If your item is enumerated by name or capability in a USML control paragraph, your review has ended. The item is ITAR controlled.

* If your item is described in a control paragraph that contains the “specially designed” modifier, you must perform the specially designed analysis in 22 C.F.R. §120.41 to determine whether your item is captured.

– If after performing the “specially designed” analysis the item is determined to be “specially designed,” then the item is controlled in that subparagraph of the USML. Your review has ended.

– If after performing the “specially designed” analysis the item is released (i.e., determined not to meet the “specially designed” criteria), then the item is not controlled on the USML and a review of the EAR is required. Proceed to Step 2 below.

* If the item is not described in any control paragraph on the USML, then the item is not captured by the ITAR and a review of the EAR is required. Proceed to Step 2 below.

Note: if an item appears to be listed in multiple paragraphs, any paragraph that is designated Significant Military Equipment (SME) takes precedence over a non-SME paragraph. In other words, always follow the highest applicable level of control.

Step 2: Review the EAR

Note: the EAR does not have a “see through” rule like the ITAR, so do not consider the individual parts inside of an item when classifying it. Instead, consider overall functions and characteristics to classify the item under review. Compare the characteristics of the item to the 10 CCL categories and then determine the applicable product group A-E.

* Start your CCL review with the “500-series” and “600-series” ECCNs. If your item is enumerated by name or capability in a “500-series” or “600-series” ECCN on the CCL, your review has ended. The item is controlled in that control paragraph of the CCL.

* If your item is described in a control paragraph that contain the “specially designed” modifier, then perform the “specially designed” analysis, described in Part 772 of the EAR.

– If after performing the “specially designed” analysis the item is determined to be “specially designed” then the item is controlled in that control paragraph of the CCL. Your review has ended.

– If after performing the “specially designed” analysis the item is released, then a review of the rest of the CCL is required.

* If you have reviewed the “500-series” and “600-series” ECCNs and your item is not captured, then proceed to review the rest of the CCL. If your item is enumerated by name or capability in a “non-600/500 series” ECCN on the CCL, then your item is controlled in that paragraph of the CCL. Your review has ended.

* If your item is described in a control paragraph that contains the “specially designed” modifier, then perform the “specially designed” analysis, described in Part 772 of the EAR.

– If after performing the “specially designed” analysis the item is determined to be “specially designed” then the item is controlled by the that paragraph of the CCL. Your review has ended.

– If after performing the “specially designed” analysis the item is released, proceed to Step 3.

* If your item is not described in any ECCN on the CCL, then proceed to Step 3 below.

Step 3: Item Not Captured by Specific ECCN

If the Order of Review is performed and the item is not captured by the USML and is not captured by any ECCN on the CCL, then the item is classified as ECCN EAR99. The Order of Review analysis has ended.

If, after performing the Order of Review, questions remain as to the proper jurisdiction and classification of an item, consider submitting a Commodity Jurisdiction (CJ) request to DDTC for an official jurisdictional determination for a product. When submitting a CJ request to DDTC, it is recommended to include a description of the Order of Review analysis that was conducted and a clear explanation as to why confusion remains. Also, indicate the USML Category(ies) or ECCN(s) that you believe is/are most likely applicable to the item under review. DDTC provides step-by-step instructions for preparing and submitting Commodity Jurisdiction requests on its website.

Additionally, both DDTC and BIS have developed Order of Review tools to aid industry in making a jurisdiction and classification analysis.

DDTC’s web-based decision tools:

* Order of Review: Use this tool to help you figure out where your item(s) is controlled on the USML.

* Specially Designed: Use this tool to help you determine if a particular item is “specially designed” or meets one of the five carve-outs. This tool applies ONLY to commodities and software related to USML Categories that have been revised in accordance with the President’s Export Control Reform initiative. DO NOT USE if your USML category has not yet been revised.

BIS web-based decision tools:

* CCL Order of Review: This tool will assist in understanding the steps to follow in reviewing the Commerce Control List when determining the classification of their item. (See Supplement No. 4 to part 774 of the EAR).

* Specially Designed: This tool will assist users in determining if an item is “specially designed” under the Export Administration Regulations. (See § 772.1 of the EAR).

Closing Thoughts

Of course, each jurisdictional determination is unique, with some being more complex than others. Additionally, the “specially designed” review is its own separate catch-and-release analysis. We will address the “specially designed” review in an upcoming alert. Please note that the “specially designed” analysis is slightly different between the two regulations, so do not assume that if an item is released from the ITAR, it is automatically classified as EAR99.

Even though the transition is not a decontrol of firearms and ammunition exports, the process will be radically different from what many are already accustomed. The rules of the game are about to change, and so it is vitally important that companies get ready. Many will need to learn a new set of export controls regulations (the EAR) that may never have applied to their products before. Whether it’s reclassifying products or retooling corporate policies and procedures, businesses must be prepared to adapt to the new rules to ensure export transactions remain compliant.


BIS Amends EAR & CCL to Implement Changes Made to the WA List

2018/11/26

The Bureau of Industry and Security (BIS) has implemented changes to the Export Administration Regulations (EAR) and the Commerce Control List (CCL) to implement changes made to the Wasaenaar Arrangement List of Dual-Use Goods and Technologies (WA List) which were agreed upon by all the governments participating in the Wassenaar Arrangement at the December 2017 Plenary meeting. This ruling also includes associated changes to the EAR and a few corrections. The rule became effective on October 24, 2018.

Relevant CCL Changes (final rule revised 50 ECCNS, ECCNs with editorial changes excluded below):

  • Category 0—Nuclear Materials, Facilities, and Equipment [and Miscellaneous Items] 0A617 Miscellaneous ‘‘Equipment’’, Materials, and Related Commodities
    • 0A617 paragraph y.3, containers for shipping or packing defense articles or items controlled by ‘‘600 series’’ ECCNs, is amended by narrowing the scope to International Organization for Standardization (ISO) intermodal containers or demountable vehicle bodies (i.e., swap bodies), but also expands the scope beyond ‘‘specially designed’’ by adding ‘‘or modified’’. As the term ‘modified’ is in single quotes, BIS is also adding the technical note that defines ‘modified,’ which was already existing text in Wassenaar Arrangement Military List of 2017 (WAML 17).
  • Category 1—Special Materials and Related Equipment, Chemicals, ‘‘Microorganisms’’, and ‘‘Toxins’’
    • 1C001: Subparagraph b is amended by moving the phrase ‘‘not transparent to visible light’’ to the beginning and adding more descriptive text ‘‘near-infrared radiation having a wavelength’’ to clarify the scope of the control. Also, the parameters are changed from ‘‘1.5 × 1014 Hz’’ to ‘‘810 nm’’ and ‘‘3.7 × 1014 Hz’’ to ‘‘2,000 nm (frequencies exceeding 150 THz but less than 370 THz)’’. (The frequency band is changed to the equivalent wavelength band to make the parameter easier to understand and not to change the scope of control.)
    • 1C608: WA agreed to add a Note specifying that WAML 8.c.1 does not apply to aircraft fuels—JP–4, JP–5 and JP–8. This rule adds this Note below 1C608.n ‘‘Any explosives, ‘propellants,’ oxidizers, ‘‘pyrotechnics’’, fuels, binders, or additives . . .’’ as well as bringing forth another Note from WAML 8.c.1 that specifies that aircraft fuels specified by WAML 8.c.1 are finished products, not their constituents.
  • Category 2—Materials Processing
    • 2A001 Note 2 at the beginning of the Items paragraph is amended by adding ‘‘(or national equivalents)’’, in order to help efficiently classify bearings using national standards that are equivalent to ISO 3290 as grade 5. 2B001 Machine Tools.
    • 2B006 heading is revised to add ‘‘position feedback units’’ and ‘‘electronic assemblies’’ to more accurately describe the scope of controls in Items paragraph .b.
      • Linear Variable Differential Transformer (LVDT) systems formerly in 2B006.b.1.b are moved to 2B206.d and no longer have a national security control.
    • 2B007 paragraph .a ‘‘[Robots] capable in real-time of full three-dimensional image processing or full three dimensional ‘‘scene analysis’’ to generate or modify ‘‘programs’’ or to generate or modify numerical program data’’ is removed and reserved because of insufficient connection to military capabilities. Robots of national security concern are controlled under 2B007.b, .c and .d.
    • 2B008 heading is amended by replacing ‘‘assemblies or units’’ with ‘compound rotary tables’ and ‘‘tilting spindles’’, as well as removing ‘‘or dimensional inspection or measuring systems and equipment’’ to align with revisions made to the List of Items Controlled in this ECCN.
      • Item paragraphs .a (linear position feedback units) and .b (rotary position feedback units) are removed and reserved, because this rule moves these items to 2B006.b.2 and .c, respectively.
      • Item paragraph .c is amended by replacing and cascading the parameter paragraphs, as well as moving the definition for ‘compound rotary table’ from part 772 to a Technical Note under this Item paragraph.
    • 2B206 is amended by adding Linear Variable Differential Transformer (LVDT) systems to Item paragraph .d, because this item is removed from 2B006.b.1.b. While LVDT systems are no longer controlled for national security reasons, they are still on the Nuclear Supplier’s Group (NSG) list under 1.B.3.b.2 and remain controlled for nuclear nonproliferation reasons on the CCL.
    • 2E003 paragraph .a (‘‘technology’’ for the ‘‘development’’ of interactive graphics as an integrated part in ‘‘numerical control’’ units for preparation or modification of part programs) is removed and reserved because of the advancement of technology.
      • Item paragraph .a is removed from License Exception TSR.
    • Category 3—Electronics Product Group A. ‘‘End Items’’, ‘‘Equipment’’, ‘‘Accessories’’, ‘‘Attachments’’, ‘‘Parts’’, ‘‘Components’’, and ‘‘Systems’’
      • 3A001 is amended by replacing ‘‘Electrical Erasable Programmable Read-Only Memories (EEPROMS), flash memories, and MRAMs’’ with ‘non-volatile memories’ and adding a Technical Note to define ‘non-volatile memories,’ to provide a more generic term for these types of memory integrated circuits.
        • Paragraph a.5.a ‘‘ADCs’’ and the Technical Note below a.5.a are amended by replacing the term ‘‘output rate’’ with the ‘‘sample rate’’ as measured points at the input, except for oversampling (defined as output sample rate), and the Technical Note identifies common ways manufacturers specify ‘sample rate.’ The definition for ‘‘sample rate’’ is added to part 772 ‘‘Definition of Terms. . . .’’
        • Item paragraph a.5.b.2.a, ‘‘settling time’’ parameter, is amended by adding ‘‘arrive at or within’’ to clarify the potentially ambiguous parameter with common usage and understanding of DAC specifications, so that it will not be misinterpreted to mean the time to deviate by the specific amount from the original level.
        • Intensity, amplitude, or phase electrooptic modulators, designed for analog signals, including electro-optic modulators having optical input and output connectors are added to new paragraph 3A001.i to address photonic components for analog Radio Frequency (RF) over fiber antenna remoting, and analog RF distribution of signals. One of the parameters for these items is ‘halfwave voltage’ (‘Vp’), which is defined in a Technical Note below the new paragraph. These items will be eligible for License Exception GBS; therefore, the GBS paragraph is revised to add Item paragraph .i.
      • 3A002 frequency parameter is raised from ‘‘exceeding 10 MHz’’ to ‘‘exceeding 40 MHz’’ for signal analyzers having a 3 dB resolution bandwidth (RBW) in Item paragraph c.1
      • 3B001 Mask ‘‘substrate blanks’’ with multilayer reflector structure consisting of molybdenum and silicon being ‘‘specially designed’’ for ‘Extreme Ultraviolet (EUV)’ lithography and being compliant with SEMI Standard P37 are added to new paragraph 3B001.j, because mask ‘‘substrate blanks’’ and the subsequent substrate blank with multilayer reflector structure are critical materials for EUV lithography 7. EUV lithography opens up integrated circuit fabrication at the most advanced state-of-the-art technology node. The definition for ‘Extreme Ultraviolet (EUV)’ is added to a Technical Note below Item paragraph j.2.
      • 3B002 Test Equipment ‘‘Specially Designed’’ for Testing Finished or Unfinished Semiconductor Devices Item paragraph .a is revised from ‘‘For testing S-parameters of transistor device at frequencies exceeding 31.8 GHz’’ to read ‘‘For testing S-parameters of items specified by 3A001.b.3’’ to remove potential overlapping controls for network analyzers (which measure Sparameters) described in 3A002.e, to harmonize the control text of equipment for testing S-parameters of transistors specified in paragraphs 3A001.b.3.a and 3A001.b.3.b (i.e., transistors that are below 31.8 GHz), and to remove ambiguity regarding the meaning of the phrase ‘‘transistor devices’’ by substituting the unambiguous reference to transistors specified by 3A001.b.3.
      • 3C002 wavelength for positive resists in Item paragraph a.1 is revised from ‘‘wavelengths less than 245 nm . . . .’’ to ‘‘wavelengths less than 193 nm . . . .’’ in order to match the material control with the lithography equipment parameters in 3B001.f.1.a.
      • 3C005 heading revised to move the items that were in the Heading to Items paragraph .a. Polycrystalline ‘‘substrates’’ or polycrystalline ceramic ‘‘substrates’’ are added to Item paragraph .b, because there are both military and commercial applications for microwave transistors fabricated on the engineered substrates. These newly added substrates will be controlled for NS:2 and AT:1 and have License Exception LVS ($3,000), GBS and CIV eligibility.
      • 3C006 heading is amended by adding ‘‘Materials, not specified by 3C001, consisting of a’’ at the beginning of the Heading in order to clarify the scope of the control.
        • The former language of 3C001, 3C005 and 3C006 has common elements that have led to some confusion around the control of silicon carbide wafers.
        • 3C992 heading is amended by replacing the wavelength range from ‘‘370 and 245 nm’’ to ‘‘370 and 193 nm.’’
      • 3E001 Note 3 is added to exclude from 3E001 ‘Process Design Kits’ (‘PDKs’) unless they include libraries implementing functions or technologies for items specified by 3A001. A Technical Note is added below Note 3 to define ‘Process Design Kit’ (‘PDK’). PDKs do not provide knowledge about production tools.
    • Category 4—Computers
      • 4A003 Adjusted Peak Performance (APP) is raised from ‘‘exceeding 16 WT’’ to ‘‘exceeding 29 WT’’ in Item paragraph .b and in accordance with this revision the APP is raised to 29 in the AT control text in the License Requirements table and in two places in the Note to the table.
      • 4D001 Adjusted Peak Performance (APP) is raised from 16 Weighted TeraFLOPs (WT) to 29 WT in License Exceptions TSR and STA in accordance with the new APP level in 4A003.b. The APP control level is raised from ‘‘exceeding 8 WT’’ to ‘‘exceeding 15 WT’’ in Item paragraph b.1. These revisions continue to address the need to track incremental (e.g., ‘‘Moore’s Law’’) improvements in microprocessor technology.
    • Category 5—Part 1— ‘‘Telecommunications’’
      • 5A001 In the NS Column 1 paragraph of the License Requirements table, the order of the referenced Item paragraphs is corrected. For telecommunications equipment specially designed to withstand transitory electronic effects or electromagnetic pulse effects, the temperature range parameters is changed from ‘‘to operate outside the temperature range from 218K (-55 °C) to 397 K (124 °C)’’ to ‘‘below 218K (-55°C)’’ in Item paragraph a.3 or ‘‘above 397 K (124 °C)’’ in new Item paragraph a.4, which does not change the scope of control, but seeks to make the text easier to understand.
        • Because of technology advances, phased array antennae are increasingly being developed for civil telecommunications applications, including cellular, WLAN, 802.15, and wireless HDMI. Exclusion Note 2 is added in order to remove from control phased array antennae specially designed for those purposes.
      • Category 5—Part 2
        • 5A002 Paragraph .a is amended by replacing the phrase ‘‘where that cryptographic capability is usable without ‘‘cryptographic activation’’ or has been activated’’ with the phrase ‘‘where that cryptographic capability is usable, has been activated, or can be activated by means of ‘‘cryptographic activation’’ not employing a secure mechanism’’. The revision clarified that an item is controlled if (1) the ‘cryptography for data confidentially’ is usable from the beginning regardless of ‘‘cryptographic activation’’ (i.e., not dormant), (2) the cryptographic capability was previously dormant but is now usable (whether by ‘‘cryptographic activation’’ or by other means; or (3) the ‘‘cryptographic activation’’ mechanism is not secure (i.e., the cryptographic capability is not securely kept dormant). Items paragraph .b is amended by replacing ‘‘to enable’’ an item with ‘‘for converting’’ an item and replacing ‘‘to achieve or exceed the controlled performance levels for functionality specified by 5A002.a that would not otherwise be enabled’’ with ‘‘not specified by Category 5 —Part 2 into an item specified by 5A002.a or 5D002.c.1, and not released by the Cryptography Note (Note 3 in Category 5—Part 2), or for enabling, by means of ‘‘cryptographic activation’’, additional functionality specified by 5A002.a of an item already specified by Category 5— Part 2’’. This clarifies that a ‘‘cryptographic activation’’ mechanism is controlled by 5A002.b in two situations: (1) It converts an item classified outside of Category 5—Part 2 into a 5A002.a item (e.g., by activating ‘cryptography for data confidentiality’ capability in an item that was previously limited to performing ‘‘authentication,’’ or by activating encryption capability which disqualifies a product from the Cryptography Note exclusion (Note 3 in Category 5—Part 2)); or (2) it enables additional functionality specified in 5A002.a in an item that was already classified in Category 5—Part 2 (e.g., making additional encryption algorithms usable by the item, or that would change the item from being eligible or described under § 740.17(b)(1) into an item described under § 740.17(b)(2) or (3)).
        • 5D002 Paragraph .b of ECCNs 5D002 and 5E002 is amended by replacing ‘‘enable’’ with ‘‘for converting’’ and replacing ‘‘to meet the criteria for functionality specified by 5A002.a, that would not otherwise be met’’ with ‘‘not specified by Category 5—Part 2 into an item specified by 5A002.a or 5D002.c.1, and not released by the Cryptography Note (Note 3 in Category 5—Part 2), or for enabling, by means of ‘‘cryptographic activation’’, additional functionality specified by 5A002.a of an item already specified by Category 5— Part 2’’. These revisions are made to create mirroring entries consistent with the changes being made to 5A002.b.
      • Category 6—Sensors and Lasers
        • 6A002 Paragraph .f is added to establish a control for Read-Out Integrated Circuits (ROICs) to ensure that certain ROICs not controlled on the Munitions List, but that provide night vision capability, are controlled. In order to maintain consistent paragraph placement with the WA List this rule adds and reserves Items paragraph .e, so that ROICs can be added to Item paragraph .f. For consistency, Items paragraph .f is added to the Regional Stability controls (RS Column 1) in the License Requirements section, because 6A990, where ROICs were formerly controlled, was controlled for RS Column 1.
        • 6A003 paragraphs a.1 (high-speed cinema recording cameras) and a.2 (mechanical high speed cameras) are removed and reserved because of the advancement of technology. Item paragraph a.3.a (mechanical streak cameras) is also removed because of the advancement of technology. As a result of this change, electronic streak cameras are moved from Item paragraph a.3.b to a.3.
        • 6A004 Dynamic wavefront measuring equipment is added to Item paragraph .f, with parameters in subparagraphs and a Technical Note at the end to define ‘‘frame rate’’. The purpose of wavefront sensing is to measure the level of the wavefront aberration as it is transferred through an optical system, regardless if the source of that aberration is the optical system itself or something external to that system. Wavefront sensors are principally used as one of the main components of adaptive optics systems where they serve to close the control loop and feed the information about the required correction to deformable mirrors and beam steering mirrors in real-time, which are also controlled in this ECCN.
        • 6A005 Item paragraph f.1 (dynamic wavefront (phase) measuring equipment) is removed and reserved, because this item is moved to ECCN 6A004.f, because of its close association to the mirrors controlled in 6A004. A Nota Bene is added to point to the new Item paragraph where this item is controlled. Item paragraph f.2 (‘‘Laser’’ diagnostic equipment) is amended by replacing ‘‘capable of measuring’’ with ‘‘specially designed for dynamic measurement of’’ and replacing ‘‘equal to or less than’’ with ‘‘and having an angular ‘‘accuracy’’ of’’ to refine the scope of the entry. The phrase ‘‘(microradians) or less (better)’’ is added after ‘‘10 mrad’’ to clarify the unit. Item paragraph f.3 (Optical equipment and components) is amended by moving the phrase ‘‘coherent beam combination’’ for better readability. The ‘‘accuracy’’ parameter is cascaded down to Item paragraph f.3.b and a new ‘‘accuracy’’ parameter is added to f.3.a, so that the equipment is controlled if it meets either of the ‘‘accuracy’’ parameters.
      • Category 9—Aerospace and Propulsion
        • 9A002 Heading is amended by revising and moving the parameter ‘‘with an ISO standard continuous power rating of 24,245 kW or more and a specific fuel consumption not exceeding 0.219 kg/ kWh in the power range from 35 to 100%’’ to the Items paragraph and adding ‘‘designed to use liquid fuel and having all of the following (see List of Items Controlled),’’ to the Heading. Two parameters are added for this ECCN: Maximum continuous power and ‘corrected specific fuel consumption’. (These revisions therefore do not change the scope of the existing control text, but rather clarify it by making it clear that the specific fuel consumption of concern applies at the ‘‘turndown performance’’ of 35%.)
        • 9A004 The scope of Item paragraph f.1 (Telemetry and telecommand equipment) is clarified by adding ‘‘specially designed’’ and two specific end uses in order to eliminate data processing equipment for mission data, such as GPS, science data, communication and broadcasting, since this data is not meant to be controlled under 9A004.f.1. The scope of Item paragraph f.2 (Simulators) is narrowed by adding ‘‘specially designed for ‘verification of operational procedures’ of ‘‘spacecraft’’.
        • 9D004 Paragraph .b (‘‘Software’’ for testing aero gas turbine engines, assemblies, ‘‘parts’’ or ‘‘components’’) is amended by removing the parameter and cascading subparagraphs with specific features or functions, such as ‘‘specially designed’’ for testing aero gas turbine engines . . . , to clarify and focus (narrow) the scope of control. A Note is added above Item paragraph .c to exclude software for operation of the test facility or operator safety, or production, repair or maintenance acceptance-testing . . .’’

Relevant EAR (Relevant changes listed below with editorial changes excluded):

  • Part 772: This rule removes 37 definitions from § 772.1 and adds them to the ECCNs where they are used. According to the WA drafting guidelines, if a term is only used in a single ECCN, then the definition must be in a Technical Note close to where that term is used.
  • Supplement No. 6 to Part 774: Sensitive List Paragraph (1)(i), ECCN 1A002, is amended by narrowing the scope from all of ECCN 1A002 to only subparagraph a.1 ‘‘ ‘‘Composite’’ structures or laminates made from an organic ‘‘matrix’’ and ‘‘fibrous or filamentary materials’’ specified by 1C010.c or 1C010.d’’, because the rest of the items in ECCN 1A002 do not warrant control on the Sensitive List as they are not key technologies.
  • Supplement No. 7 to Part 774: Very Sensitive List Paragraph (1)(i), ECCN 1A002, is amended by narrowing the scope from subparagraph .a to subparagraph a.1 (‘‘Composite’’ structures or laminates made from an organic ‘‘matrix’’ and ‘‘fibrous or filamentary materials’’ specified by 1C010.c or 1C0010.d), because the rest of the items in ECCN 1A002.a do not warrant control on the Sensitive List as they are not key technologies.
  • Section 740.16: License Exception APR is amended to remove a reference to ECCN 6A990 in paragraphs (a)(2) and (b)(2)(v), because ECCN 6A990 is removed from the CCL by this rule. ROICs are now specified in 6A002.f.
  • Section 740.20 License Exception STA is amended to remove reference to ECCNs 6A990 and 6E990 from paragraph (b)(2)(x), because these ECCNs are removed from the CCL. ROICs are now specified in 6A002.f and ROIC technology is specified in ECCNs 6E001 and 6E002.
  • Section 742.6: Regional Stability Paragraph (b)(1)(ii) is amended by removing reference to ECCN 6E990, because this ECCN is removed by this rule. ROIC technology is now controlled under ECCNs 6E001 and 6E002.
  • Section 744.9: Restrictions on Exports, Reexports, and Transfers (In-Country) of Certain Cameras, Systems, or Related Components Section 744.9 is amended by removing reference to ECCN 6A990 from paragraphs (a) and (b), because this ECCN is removed from the CCL. ROICs are now controlled under ECCN 6A002.f.

Federal Register Notice: https://www.govinfo.gov/content/pkg/FR-2018-10-24/pdf/2018-22163.pdf


India is Movin’ On Up…from A:6 to A:1

2018/09/27

By: Danielle Hatch

Effective August 3, 2018, the Bureau of Industry and Security (BIS) has removed India from Country Group A:6 and placed it in Country Group A:1 (Supplement No. 1 to Part 740) and Country Group A:5. In a nutshell, this change is going to expand the number of US goods that can be exported/reexported to India using NLR and License Exceptions STA, GOV, and APR…which is good news. Fun Fact: India is the 37th country to join Country Group A:5 (make sure to share that one).

The biggest change exporters/reexporters will actually “see” is the ability to use paragraph (c)(1) of License Exception STA for exports/reexports and transfers within India. Exporters with also find that the move to Country Group A:5 now allows License Exception paragraph (c) to be used on exports and transfers of some 600-series goods (not all; dependent on end use/user and other exceptions specified elsewhere).

Now that India is in Country Group A:1, License Exception GOV can be used for exports/reexports of goods to the Indian government agencies. Related to this, License Exception GOV can be used to authorize some 600-series items now that India is in Country Group A:5.

It should be noted that License Exception APR (paragraphs (a), (b) and (j)) are now open for India too. The new ruling also removed the “X” for India in the NS column 2 of the Commerce Country Chart (Supplement No. 1 to Part 738) which allows a large number of items that previously required a license or license exception to be exported/reexported to India under No License Required (NLR).

Breakdown of EAR Changes:

  • Part 738: BIS amends Supplement No. 1 to Part 738, Commerce Country Chart, by removing the license requirements for National Security Column 2 (NS2) reasons. Accordingly, this rule removes the ‘‘X’’ in NS Column 2 for India.
  • Part 740: BIS amends Supplement No. 1 to Part 740 to add, in alphabetical order, India to Country Groups A:1 and A:5.
  • Conforming 738 Amendments
    • Removal of the first sentence of footnote 7 to the Commerce Country Chart in Supplement No. 1 to Part 738, related to India. This amendment removes the requirement that exporters file in the Automated Export System when items controlled for Crime Control Columns 1 and 3 reasons, and Regional Stability Column 2 reasons were destined to India. As a conforming change,
    • Removal of the word ‘‘Also’’ from the second sentence of footnote 7 and capitalizes the ‘‘n’’ in ‘‘note’’ since it begins the sentence.
    • Paragraph (b)(3) of§ 738.4 removes the name ‘‘India’’ and replace it with the name ‘‘Chad.’’ The sample analysis used India as an example of a country with NS Column 2 controls. That reason for control no longer applies to India but currently applies to Chad.
  • Conforming 740 Amendments
    • Removal of India from Country Group A:6 to avoid creating conflicting eligibility criteria for STA provisions.
  • Part 743: India now is subject to reporting requirements for items controlled under Wassenaar, as set forth in Part 743, Special Reporting and Notification. Specifically, India is added, in alphabetical order, to Supplement No. 1 to Part 743, Wassenaar Arrangement Participating States.
  • Part 758: Removal of the requirement that exporters file in AES when items controlled for CC Columns 1 and 3 reasons and RS Column 2 reasons are destined to India. This reporting requirement had been instituted when the license requirement for such items was removed (see U.S.-India Bilateral Understanding: Additional Revisions to the U.S. Export and Reexport Controls Under the Export Administration Regulations; January 23, 2015; 80 FR 3463).
  • Part 772: India added, in alphabetical order, to the list of countries under the term Australia Group in § 772.1, Definitions of terms as used in the Export Administration Regulations (EAR). This updates the definition consistent with formal recognition of India’s membership in the AG in a BIS final rule, entitled ‘‘Implementation of the February 2017 Australia Group (AG) Intersessional Decisions and June 2017 Plenary Understandings; Addition of India to the AG’’ (83 FR 13849, April 2, 2018).

Final Rule: https://www.gpo.gov/fdsys/pkg/FR-2018-08-03/pdf/2018-16691.pdf


Export Control Amendments Proposed for Commercial Firearms, Ammunition and Related Products

2018/06/29

By: Thomas B. McVey, Esq., tmcvey@williamsmullen.com; Camden R. Webb, Esq., crwebb@williamsmullen.com; and Charles E. “Chuck” James, Jr., Esq., cjames@williamsmullen.com. All of Williams Mullen.

On May 24, 2018 the State and Commerce Departments issued proposed regulations regarding the transfer of export jurisdiction for commercial firearms and ammunition from the International Traffic In Arms Regulations (“ITAR”) to the Export Administration Regulations (“EAR”).[1]  Specifically, the proposals would amend Categories I, II and III of the U.S. Munitions List (“USML”) to remove certain commercial firearms products, ammunition, and certain parts, components, accessories and attachments and transfer these items to the Commerce Control List (“CCL”) under the EAR.  This is the first step in the long-awaited process under export control reform to transfer firearms products that no longer warrant control as military products from ITAR to the less restrictive EAR.  This is welcome news to our clients and many in the firearms and firearms accessory market.  The following is a summary of a number of the proposed changes and the impact on companies dealing in these products.

At the outset, it should be recognized that these are proposed amendments – they are not the final versions of the regulations.  State and Commerce have provided these in proposed form and are requesting comments from interested parties during a 45-day comment period.  Upon the receipt of comments, the agencies may make further modifications to the proposals and must still issue final regulations.  Consequently, companies should be alert to any additional changes and not act on the proposed regulations until they become final.  Nevertheless, companies can become engaged in the process now by submitting comments with recommendations for further revisions and begin planning for the transition to the new regulatory program.  Many industry groups and advocacy organizations are encouraging their members to offer comments in support of the proposed regulations.

Amendments Under ITAR.  Under the proposed State Department rule, USML Category I, covering firearms and related articles, will be amended to remove non-automatic and semi-automatic firearms up to caliber .50 (12.7 mm) inclusive and certain parts, components, accessories and attachments “specially designed” for such articles.  The goal of such amendments is to remove common items like modern sporting rifles while continuing to control under ITAR “only defense articles that are inherently military or that are not otherwise widely available for commercial sale.”[2]  Such products would be transferred to be controlled under the EAR (discussed further below).  Certain products, however, would continue to remain on USML Category I and subject to ITAR that fit within the above parameters, including the following:

  • Firearms that fire caseless ammunition;
  • Fully automatic firearms to caliber .50 inclusive;
  • Firearms specially designed to integrate fire control, automatic tracking and automatic firing systems;
  • Fully automatic shotguns;
  • Silencers, mufflers, sound suppressors, and specially designed parts and components;
  • Barrels, receivers (frames), bolts, bolt carriers, slides, and sears, specially designed for the firearms in Category I;
  • High capacity (greater than 50 rounds) magazines, and parts and components to convert a semi-automatic firearm into a fully automatic firearm; and
  • Accessories and attachments specially designed to automatically stabilize aim (other than gun rests) or for automatic targeting.

Category II, covering guns and armaments, would be amended to specifically list the items subject to controls and to establish a “bright line” between the USML and the CCL for the control of these items.  Items removed and transferred to the CCL include engines for self-propelled guns and howitzers,[3] tooling and equipment for the production of articles controlled in USML Category II[4] and certain test and evaluation equipment.[5]  Items specifically remaining on the USML and subject to ITAR would include certain apparatus and devices for launching or delivering ordnance,[6] certain autoloading systems currently controlled under USML Category II paragraph (i), developmental guns and armaments funded by the Department of Defense[7] and specially designed parts and components of such developmental products.

Category III, covering ammunition and ordinance, would be amended to be consistent with Category I, including the removal of ammunition for small arms that were transferred out of Category I.  Category III would also be amended to remove the broad “catch-alls” previously covered and to specifically enumerate the remaining items to be controlled.

New Controls Under the EAR.  Items removed from the USML as described above would be transferred to be controlled under the EAR which is administered by the Bureau of Industry and Security (“BIS”) within the Commerce Department.  As part of this transfer, BIS has established 17 new export control classification numbers (“ECCN’s”) on the CCL to control items that were removed from the USML.

Items covered by these ECCN’s will continue to be subject to significant export restrictions.  For example, these items will require export licenses for exports, reexports and in-country transfers.  In addition, certain “technology” related to the transferred firearms, ammunition and related products will be controlled on the CCL – in many cases licenses will be required for the transfer of controlled technology out of the U.S. and the transfer or disclosure of controlled technology to foreign persons in the U.S.  Certain license exceptions would also be available for the transferred items (although the license exceptions under the EAR frequently differ from the license exemptions under ITAR).  As with ITAR licenses issued by DDTC, items exported under a license would only be authorized for the end user and end use specified on the license – any reexports or in-country transfers of such items beyond such authority will require specific additional license authorization from BIS.

Continued ITAR Controls On Brokering of Commercial Firearms.  Notwithstanding the changes described above, commercial firearms and ammunition would continue to be covered under the ITAR brokering requirements.  Specifically, the State Department proposed rule states that products listed on the U.S. Munitions Import List (used by the Bureau of Alcohol, Tobacco, Firearms and Explosives for administering controls on the permanent import of firearms products) will continue to be subject to the ITAR brokering requirements set forth in 22 CFR Part 129.  Category I(a) of the USMIL includes nonautomatic and semiautomatic firearms, to caliber .50 inclusive, and USMIL Category III(a) includes ammunition for such products.  Thus, despite the broad changes to USML Categories I and III under the proposed amendments, parties will still be subject to ITAR regulation for brokering and “facilitation” in the sale of commercial firearms products, including requirements for registration, obtaining advanced authorizations for certain transactions, reporting, recordkeeping and restrictions on brokering transactions involving the “proscribed” countries identified in 22 CFR §126.1.

Impact On Firearms Companies.  The proposed changes will most likely affect many companies in the firearms industry in a number of ways including:

  • Export Classifications.  Companies will review the export jurisdiction and classification of their products to determine if they have been transferred to BIS jurisdiction and, if so, to determine the correct ECCN’s for their products.  This will apply to firearms, ammunition, parts, components, accessories and attachments.
  • Licenses For Products, Technology and Software.  As referenced above, companies will still be required to obtain export licenses for exports, reexports and in-country transfers for controlled products, technologies and software.  However, in many cases these will be from a different licensing agency under different licensing procedures.  Consequently, many companies will be amending their export compliance procedures to conform to these new requirements.
  • Registration.  There is no requirement for companies to register under the EAR, as exists under ITAR.  Of course, if companies still engage in activities regulated under ITAR (such as brokering commercial firearms products or the sale of items remaining in USML Categories I, II and III), they will be required to maintain their DDTC registration.
  • Defense Services.  There are reduced controls on performing services under the EAR as compared with those under ITAR.[8]
  • Temporary Imports.  The EAR does not contain controls on the temporary import of items subject to the EAR as required under ITAR.
  • Reports for Payments of Fees, Commissions and Political Contributions.  The EAR does not require exporters to file reports on the payment of political contributions, fees and commissions as under ITAR Part 130.
  • Items Still Regulated Under ITAR.  For items that remain listed on the USML after the amendments, such items will still be subject to ITAR and the requirements thereunder.

Status of Amendments.  As stated above, the amendments described in this alert are proposed changes only and not final amendments.  Parties have until July 9, 2018 to submit comments to State and Commerce on the proposed regulations.  Companies are encouraged to review the proposals carefully to assess how they will apply to their businesses as there is still opportunity to propose further amendments.  Officials at DDTC and BIS typically review the comments carefully and often adopt changes recommended by commenters.

While the transfer of commercial firearms products from ITAR to EAR controls is not yet concluded, the process has begun.  This is the time for companies to become engaged – in reviewing, commenting on and planning ahead for these changes.

[1] The proposed State Department rule is available here, and the proposed Commerce Department rule is available here.

[2] See State proposed rule p. 24,198.

[3] To be transferred to the CCL under ECCN 0A606.

[4] To be transferred to the CCL under ECCN 0B602

[5] To be transferred to the CCL under ECCN 0B602.

[6] To be included in a new USML paragraph (a)(4).

[7] To be included in new USML paragraph (a)(5).

[8] The performance of services is addressed in the EAR in 15 CFR §744.6(a)(1)(ii) and §744.6(a)(2).  In addition, the BIS proposed rule states as follows regarding defense services: “The EAR does not include a concept of “defense services,” and the “technology” related controls are more narrowly focused and apply in limited contexts as compared to the ITAR.”  See BIS proposed rule at p. 24,167.


U.S. Department of Justice (DOJ) – Enhanced Security Plan Sets Best Practices for Use of Cloud Services for Sensitive Data

2018/04/04

By:  Pablo LeCour, Partner, plecour@deloitte.co.uk; Tina Carlile, Senior Manager, ticarlile@deloitte.co.uk; and Ziyu Chin, Senior Consultant, ziyu.chin@deloitte.co.uk. All of Deloitte.

In December 2017 a global software company serving the telecommunications industry settled charges with the U.S. Department of Justice for violating U.S. controls on foreign access to sensitive data, including export controlled information. As part of the settlement, the company agreed to implement an Enhanced Security Plan designed to increase information security by regulating remote access to company networks and transfers of sensitive data.

The Enhanced Security Plan is a helpful benchmark for network providers seeking to protect sensitive information about U.S. telecommunications networks and other critical infrastructure.

Many tech companies develop software using foreign technical personnel both inside and outside of the U.S. The use of a global technical workforce increases the risk of unauthorized access to U.S. controlled information, including sensitive network data and data critical to the U.S. domestic communications infrastructure. Unauthorized access has consequences from an export controls perspective – under the U.S. Export Administration Regulations (EAR) and U.S. International Traffic in Arms Regulations (ITAR) licenses might be required to store U.S. sensitive data in overseas servers or for non-U.S. persons to handle, transmit or access controlled software, technology or technical data that is subject to U.S. jurisdiction. The Enhanced Security Plan provides an example of how these information security requirements can be met by:

  • Requiring authentication and tracking of changes to systems software through code-signing and other means;
  • Restricting access, transmission and storage of certain sensitive data to U.S.-based servers and U.S.-based network infrastructure; and
  • Controlling access by non-U.S. persons and implementing procedures for the proper vetting and licensing of non-U.S. employees and agents.
  • Additionally, the Enhanced Security Plan recommends an effective compliance program that includes the following:
  • Appointing a Security Director with appropriate authority, reporting lines, independence, skills, and resources to ensure compliance;
  • Implementing a Security Policy that describes the management of user identity and access, and building systems that monitor unauthorized attempts to access and screen personnel;
  • Conducting periodic third-party audits of the security procedures and their implementation; and
  • Engaging a third-party auditor to ensure compliance.

Companies doing business with the U.S. government or in connection with critical U.S. infrastructure, as well as companies that handle or use export-controlled technology, software, technical data, and cloud or network services, should review the DOJ Enhanced Security Plan requirements and consider including them within their own compliance programs.


US Firms Part Ways with China’s ZTE Monitor

2018/02/08

In early 2017 China’s largest telecommunications company agreed to pay a nearly $900 million penalty to the US after entering a guilty plea for illegally shipping goods to Iran and North Korea. ZTE was charged with 380 violations of the EAR, including (1) Conspiracy (2) Acting with Knowledge of a violation in Connection with Unlicensed Shipments of Telecommunications Items to North Korea via China and (3) Evasion. The company also entered into a settlement with OFAC for violating the Iranian Transactions and Sanctions Regulations (“ITSR”; 31 CFR Part 560). More Information on these charges can be found here.

Part of the settlement with OFAC required the company to hire an initial independent compliance monitor approved by the US government for a three-year term. The monitor is responsible for preparing the initial three annual audit reports to be provided to the US government. In addition, ZTE had to hire an independent compliance auditor, also approved by the US government, for an additional three years to prepare the remaining three annual audit reports.

Guidepost Solutions and Larkin Trade International were hired in June 2017 by the US monitor, James Stanton, a Texas civil and personal injury lawyer in charge of the oversite regime for ZTE. Stanton’s job is to help evaluate ZTE’s US export controls compliance and sanctions laws, and mitigate any future violations. US District Judge Ed Kinkeade, who presided over the ZTE sanctions case, actually rewrote the agreement to put Stanton in charge of monitoring the company before signing off on the plea deal. It has been said that Stanton has a lack of experience in US trade controls and the order naming him is sealed, leaving the reasoning behind the judge’s decision unclear. This situation is a bit of an anomaly because generally, the Department of Justice chooses an independent monitor in corporate criminal cases from candidates proposed by the company, which is how the agreement was originally written before Judge Kinkeade rewrote it. ZTE and the Justice Department agreed to Judge Kinkeade’s choice and the changes to the monitorship agreement, sources said, because the plea had already been negotiated and filed in the judge’s court and a temporary license allowing ZTE to continue to obtain US made goods was about to expire.

In December 2017, rumors broke out that Guidepost Solutions and Larkin Trade International had resigned in August 2017 from the job of actively auditing ZTE. Although the exact reason is unclear, some say it was a result of  Stanton restricting their access to ZTE documents and officials, which ultimately hindered their ability to effectively monitor the company. Stanton’s first report was due to the US government last month and this report, as well as the subsequent 2 reports will decide whether the company is liable for an additional fine of $300 million or being added to the US denial list.

Nearly all parties related to the case, including Guidepost Solutions, Larkin Trade International, Judge Ed Kinkeade, and James Stanton have all declined requests for comments based on this news. Additional details about this story and the ties between Judge Kinkeade and James Stanton can be found at https://www.reuters.com/article/us-usa-zte-exclusive/u-s-experts-resign-from-monitoring-chinas-zte-corp-sources-idUSKBN1EG03R


Miltech, Inc. of Northampton, MA Receives 18 Charges of Alleged Export Violations

2017/11/15

By: Ashleigh Foor

On September 25, 2017, Miltech, Inc. of Northampton, MA was charged a civil penalty of $230,000 due to engaging in conduct prohibited by the EAR when it exported items subject to the EAR from the United States to China and Russia without the required BIS Licenses. On eighteen separate occasions between, on, or around October 14, 2011 and July 14, 2014, Miltech exported active multiplier chains, items classified under Export Control Classification Number (“ECCN”) 3A001.b.4 and valued in total at approximately $364,947, without seeking or obtaining the licenses required for these exports pursuant to section 742.4 of the EAR. These items are controlled on national security and anti-terrorism grounds.

Miltech received 18 charges of 15 C.F.R. § 764.2(a) for engaging in prohibited conduct. $180,000 of the $230,000 penalty must be paid within 30 days, and the remaining $50,000 will be suspended and waived after two years if Miltech fulfills the terms of its settlement agreement and this order.  The company will not be debarred if penalty is paid as agreed and Miltech complies with other terms of this settlement.


BIS Revises CCL and Corresponding EAR Parts to Implement WA 2016 Plenary Agreements

2017/10/16

By: Ashleigh Foor

A final ruling by the Bureau of Industry and Security (BIS) revises the Commerce Control List (CCL) and corresponding parts of the Export Administration Regulations (EAR) to implement changes made to the Wassenaar Arrangement List of Dual-Use Goods and Technologies (WA List). The CCL identifies certain items subject to Department of Commerce jurisdiction and is maintained, as part of its EAR, by the BIS. These changes were agreed to by governments participating in the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies at the December 2016 WA Plenary meeting. The objective of The Wassenaar Arrangement is to improve regional and international security and stability by implementing effective export controls on strategic items. This rule revises the Export Control Classification Numbers (ECCNs), controlled for national security reasons in each category of the CCL, to match the CCL with the agreements reached at the 2016 Plenary meeting. Any associated changes were also made to the EAR.

As of August 15, 2017, the following is to be expected:  (1) The effective date for amendatory instruction 30 (ECCN 4A003 in Supplement No. 1 to part 774) is September 25, 2017; and (2) the effective date for amendatory instruction 2 (Sec.  740.7 of the EAR) is November 24, 2017.

Background:

The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies is a group of 41 governments that believe in promoting responsibility and transparency in the global arms trade, and want to prevent destabilizing accumulations of arms. As a Participating State, the United States has committed to controlling for export all items on the WA control lists. The lists were first created in 1996 and have been reviewed and updated annually thereafter. Proposals for changes to the WA control lists that generate consensus are approved by Participating States at annual Plenary meetings. Participating States are expected to abide by the agreed list changes as soon as possible after approval. By implementing the WA list changes, the US ensures they have a level playing field with their competitors in other WA Participating States.

Revisions to the Commerce Control List Related to WA 2016 Plenary Agreements:

Revises (50) ECCNs: 1A004, 1A007, 1B001, 1C007, 1C608, 1E001, 1E002, 2A001, 2B001, 2B005, 2B991, 2D992, 2E003, 3A001, 3A002, 3A991, 3B001, 3C001, 3E001, 3E002, 3E003, 4A003, 4D001, 4D993, 5A001, 5B001, 5E001, 5A002, 5A003, 5D002, 5E002, 6A001, 6A003, 6A005, 6A008, 6D003, 6E003, 7D003, 7D004, 7E001, 7E003, 7E004, 8A002, 8C001, 9A001, 9A004, 9A515, 9B002, 9B009 and 9E003.

License Exception eligibility additions: 3A001.b.12 to LVS, and 3A001.a.14 to GBS.

License Exception eligibility expansion: TSR and STA for ECCNs 4D001 and 4E001.

Saving Clause:

Shipments of items that were removed from license exception eligibility or eligibility for export, reexport, or transfer (in-country) without a license as a result of this regulatory action that were already en route aboard a carrier or on dock for loading on August 15, 2017 may proceed to that destination under the previous license exception eligibility or without a license as long as they have been exports, reexports, or transfers (in-country) before October 16, 2017.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-08-15/pdf/2017-16904.pdf