On May 5, 2015, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) and U.S. Department of State’s Directorate of Defense Trade Controls (“DDTC”) published proposed rules to transfer certain items from Category XII of the U.S. Munitions List (“USML”) – controlling Fire Control, Range Finder, Optical and Guidance and Control Equipment – to the Commerce Control List (“CCL”). These proposed rules represent the next step in the ongoing export control reform process, which is designed to streamline the USML and move less sensitive items to the CCL, where they will be eligible for less restrictive export authorizations. The agencies will accept public comments on the proposed rules until July 6, 2015.

BIS and DDTC have stated that the proposed rules aim to create a “bright line” between the coverage of the USML and CCL for these items. To that end, the proposed rules contain numerous revisions to existing ECCNs and USML Category XII and establish new ECCNs. They also significantly modify related EAR license exceptions and other export requirements to maintain tight control over certain items – mainly night vision items and other optical sensors – that are transitioned from the USML to CCL. We have summarized below the key changes to the USML and CCL structure and export compliance obligations that would result from implementation of the proposed rules.

BIS Rule

The BIS proposed rule would create the following four “600 Series” ECCNs to receive military fire control, range finder, and optical equipment items transitions from the USML:

  • ECCN 6A615 would cover military fire control, range finder, and optical equipment.
  • ECCN 6B615 would cover test, inspection, and production equipment and related commodities “specially designed” for the development or production of military fire control, range finder, and optical equipment.
  • ECCN 6D615 would cover software “specially designed” for the development, production, operation, or maintenance of military fire control, range finder, and optical equipment controlled by ECCNs 6A615 or 6B615.
  • ECCN 6E615 would cover technology required for the development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of military fire control, range finder, and optical equipment controlled by 6A615 or 6B615 or software controlled under 6D615.

The proposed rule would also create the following three “600 Series” ECCNs to receive certain military guidance and control equipment transitioned from the USML:

  • ECCN 7B611 would cover test, inspection, and production equipment and related commodities “specially designed” for military guidance and control equipment.
  • ECCN 7D611 would cover software “specially designed” for the development, production, operation, or maintenance of commodities controlled by 7A611 or equipment controlled by 7B611.
  • ECCN 7E611 would cover technology required for the development, production, operation, installation, maintenance, repair, overhaul or refurbishing of commodities controlled by 7A611, equipment controlled by 7B611, or software controlled by 7D611.

ECCN 7A611 already exists, but would be revised to include additional military guidance and control equipment that is being transferred to the CCL, but is not covered by an existing ECCN subject to controls for reasons other than Anti-Terrorism (AT). The proposed rule would also create new ECCNs 6D994 and 6E994 to control software and technology related to certain optical sensors and cameras. It would also revise several existing ECCNs – including 0A987, 2A984, and several 6Axxx and 7Axxx ECCNs – to include additional optical and guidance commodities transferred from the USML.

In addition to the CCL structural changes, BIS’ proposed rule would modify some export licensing and compliance requirements for certain night vision and camera items, including foreign-made military commodities controlled under ECCN 0A919. For example, there would be no de minimis level for foreign- made military commodities under ECCN 0A919 that incorporate certain night vision commodities classified under ECCNs 6A002, 6A003, 6A990, or 6A993.a. This would render all such foreign-made commodities subject to the EAR, regardless of the level of U.S.-origin content. One of the putative benefits of moving items from the USML to the CCL is to provide eligibility for using the de minimis rule, since foreign-made items incorporating a low level of US-origin content are generally not subject to U.S. export control requirements. This change would constitute a limited exception to that general rule, ensuring continued U.S. government oversight of reexports of night vision items due to their sensitivity, even after they are transitioned to the CCL. Other items included in this rule would be eligible for the de minimis rule, which is not available under the ITAR.

For similar reasons, BIS also proposed to remove the availability of License Exception APR (Additional Permission Reexports) for certain items controlled under various ECCNs, including 6A002, 6A003, and 6A990. It also proposed to remove the availability of License Exception STA (Strategic Trade Authorization) for ECCN 0E987 (technology for the development or production of commodities controlled by 0A987 that incorporate a focal plane array or image intensifier tube) and many CCL Category 6 items related to night vision, optical sensors, and cameras. The use of License Exception STA, which allows license-free exports to a group of allied countries subject to certain compliance conditions, is another major benefit for which CCL-controlled items are generally eligible. However, BIS is seeking to restrict this option, even for new CCL items outside the “600 Series,” in order to ensure continued U.S. government review of these sensitive items. Moreover, BIS proposes to add a new Regional Stability licensing policy for many products in CCL Categories 0 and 6 that would require a license for all exports, imposing a new license requirement to Canada for these existing ECCNs. Many of these products would carry a licensing policy of presumption of denial, while some would be reviewed by BIS on a case-by- case basis.

DDTC Rule

The DDTC proposed rule would revise USML Category XII to more precisely describe the articles still warranting control under the ITAR. Items no longer described on the revised USML would be moved to the CCL.

  • Paragraph (a)  would be  revised to add  9 specific subparagraphs  listing  controlled fire control, weapons sights, aiming, and imaging systems and equipment.
  • Paragraph (b) would be revised to add 14 specific subparagraphs listing controlled lasers and laser systems and equipment.
  • Paragraph (c) would be revised to add 21 specific subparagraphs listing controlled infrared focal plane arrays (IRFPA), image intensifier tubes, night vision, electro-optic, infrared and terahertz systems, equipment, and accessories. The proposed rule notes that most IRFPAs and permanent encapsulated sensor assemblies that incorporate IRFPAs would no longer be subject to the ITAR once they are incorporated into a non-enumerated higher order system (such as a camera core, monocular, or binocular system).
  • Paragraph (d) would be revised to add 9 specific subparagraphs listing controlled guidance, navigation, and control systems and equipment, and to move Global Navigation Satellite Systems (GNSS) equipment from USML Category XV.
  • Paragraph (e) would be revised to add 15 specific subparagraphs of parts and components.

Consistent with the intent of the export control reform process, the DDTC proposed rule would create a more positive control list that does not control all generic parts, components, accessories, and attachments that are specifically designed or modified for a defense article. Rather, with a few exceptions for “specially designed” parts and components that remain on the USML, the revised Category XII lists the specific parts, components, accessories, and attachments that continue to warrant control on the USML.

Conclusion

Comments may be submitted to BIS and DDTC until July 6, 2015. While the agencies request any comments on the proposed rules, they have highlighted certain subjects on which comments would be especially useful. These topics include:

  1. Any potential lack of coverage by either the USML or CCL brought about by the proposed rules when reviewed together.
  2. Any items proposed for control on the CCL that are not controlled on the Wassenaar Arrangement’s Munitions or Dual Use List.
  3. Specific examples of control criteria that do not clearly describe items that would be defense articles, and thus do not establish a “bright line” between the USML and the CCL, or between the 600 series and the rest of the CCL.
  4. Specific examples of items that would be controlled by the revised USML Category XII or the new 600 series entries that are now in normal commercial use and should be controlled elsewhere on the   CCL.
  5. The removal of license exception availability on items that are currently exportable (including to Canada) without a license or under a license exception.

The Administration intends to publish final rules on this topic by June 2016, which will become effective 180 days after publication. If these proposed rules are adopted, they will significantly change exporters’ compliance obligations. Many products may move to a different export control regime altogether, with different licensing vehicles and export control requirements. Existing CCL categories may change as well, with consequences for license requirements and the availability of license exceptions.