On June 7, 2012, the US Department of Commerce, Bureau of Industry Security (BIS) and the US Department of State, Directorate of Defense Trade Controls (DDTC) proposed rules to move protective personnel equipment, shelters, and related articles currently controlled by United States Munitions List (USML) Category X to the Commerce Control List (CCL). The proposals, at 77 Fed. Reg. 33688 and 77 Fed. Reg. 33698, indicate that the Administration’s export control reform initiative efforts have determined that certain protective equipment no longer warrants control under the USML. BIS and DDTC are accepting public comments regarding the proposed rules until July 23, 2012.
BIS Proposed Rule: The proposed BIS rule establishes four new Export Control Classification Numbers (ECCNs) for protective personnel equipment, shelters, and related software and technology, amends existing ECCNs to comport with the proposed changes, and extends license exceptions to items controlled under the proposed rule. A broad summary follows.
Proposed ECCNs: The BIS proposal would impose national security (NS), regional security (RS), and antiterrorism (AT) controls on items covered by the following new ECCNs.
- ECCN 1A613 would control armored plates “specifically designed” for military use; shelters designed to protect against ballistic, nuclear, biological, or chemical threats; certain military helmets and helmet shells; soft body armor and other protective military garments; and personal protective equipment, such as ballistic shields. (BIS proposed to move anti-gravity suits, pressure suits, and diving suits from USML Category X to ECCN 9A610 in a November 7, 2011 proposed rule discussed here.)
- ECCN 1B613 would control equipment specifically designed for the production or development of articles controlled by USML Category X or ECCN 1A613.
- ECCN 1D613 would control software specifically designed for the production, development, operation, or maintenance of commodities controlled by USML Category X or ECCN 1A613.
- ECCN 1E613 would control technology required for the development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of commodities controlled by USML Category X or ECCN 1A613.
Each new ECCN would contain a paragraph “.y.99” that covers items not previously listed on the Commerce Control List but are otherwise subject to Export Administration Regulations (EAR) and would be controlled by one of the new “0x613” ECCNs.
Amended ECCNs: The proposed rule would amend the following existing ECCNs to comport with the subject changes:
- ECCN 0A018 would be amended to exclude military helmets that would be controlled under new ECCN 1A613.y.1. Such helmets are currently controlled for NS, AT, and United Nations (UN) reasons. Given the general denial policy for “series 600” items destined for countries subject to US or UN Security Council arms embargoes, continued control for UN reasons is unnecessary.
- Pursuant to the proposed rule, conventional steel military helmets currently controlled under ECCN 0A988 (for UN reasons only) would be controlled for AT reasons only. This change would remove the CCL-based license requirement for exports or reexports to Rwanda and Iraq because (1) Rwanda is no longer subject to a UN arms embargo and (2) ECCN 0A988 helmets do not fall within the scope of the current UN arms embargo against Iraq. Under the proposed rule, only machetes would be controlled by ECCN 0A988.
- The proposed rule would also revise the list of items controlled by ECCN 1A005 to more positively identify soft body armor and hard body armor plates controlled under the ECCN.
The items controlled by the four new ECCNs would be eligible for the License Exceptions LVS (limited value shipments up to $1,500) and RPL (servicing and parts replacement). In addition, body armor classified under ECCN 1A613.d would be eligible for License Exceptions BAG (baggage) and TMP (temporary exports). Items controlled by proposed ECCNs 1A613 and 1B613 would be eligible for § 740.20(c)(1) of License Exception STA without a prior determination. No items controlled by new ECCNs 1A613, 1B613, 1D613, or 1E613 would be eligible for § 740.20(c)(2) of License Exception STA.
The proposed rule incorporates de minimis provisions introduced in the July 15, 2011 (76 Fed. Reg. 41958, previously discussed here) proposed rule. Under certain conditions, protective personnel equipment, shelters, and related items manufactured outside the US, but which incorporate EAR controlled items are not subject to the EAR, provided such items do not contain more than a de minimis percentage of controlled US-origin content. Depending on the item’s destination, the de minimis percentage can be 10% or 25%.
DDTC Proposed Rule: The DDTC proposed rule parallels the BIS proposal. A summary is below.
Revision of Category X: The proposed rule would revise USML Category X to advance national security interests and more clearly distinguish between articles controlled by the USML and CCL.
- Body armor enumerated in paragraph (a)(1) would be that which meets or exceeds NIJ standard-0101.06 Type IV. Type III body armor would be controlled by CCL ECCN 1A613.
- Anti-gravity suits, pressure suits, and diving suits would become subject to the EAR.
- Paragraph (a)(7) would control certain protective goggles, spectacles, and visors with an optical density of 3 or greater.
- Permanent and transportable shelters currently controlled in paragraph (b) and related production equipment would be controlled by CCL ECCNs 1A613 and 1B613.
- The scope of paragraph (d) would be limited to include only ceramic or composite body armor plates, laser protective lenses for the eyewear described in paragraph (a)(7), and classified hardware.
“Specially Designed”: Despite aims to describe USML controls without reference to design criteria, several controls in the proposed rule reference “specially designed” articles. DDTC’s proposed rule indicates that the draft definition of specifically designed in a December 2010 proposal (75 Fed. Reg. 76935) should guide interpretations of the proposed rule. That draft definition proposes to define “specifically designed” articles as those with properties that “(1) distinguish it for certain predetermined purposes, (2) are directly related to the functioning of a defense article, and (3) are used exclusively or predominately in or with a defense article identified on the USML.” We note, however, that a new proposed definition of “specially designed” was published by BIS and DDTC on June 19th, 2012, and presumably that definition would trump the previously proposed definition.
BIS’ and DDTC’s proposed liberalization of USML Category X mark the latest step in the Administration’s export reform efforts. In addition to the Category X amendments discussed above, the Administration has also proposed rules for the transfer of certain Category V, VI, VII, VIII, XIII, XIX, XX items from the USML to the CCL. Although the changes are significant, the regulatory framework may still pose compliance challenges for exporters.