The Year Mark

Apparently, it is now fashionable among my peers to host elaborate parties in honor of the first birthdays of their children. I have attended a number of these fêtes, and been impressed to just what lengths the parents will go to celebrate twelve months of growth and achievement for a Guest of Honor who will almost certainly not recall the event. However, we at the Global Trade Law Blog are nothing if not fashionable (thanks to our firm’s Fashion and Apparel blog – your move, “white shoe” firms) and are not to be left out of the latest trend.  As such, we are throwing our own birthday party, celebrating the first anniversary of Export Control Reform.

The Effects of a One-Year-Old ECR

On October 15, 2014, the first export regulations revised under the ECR will have been in effect for one full year. Preliminary numbers suggest that U.S. exports are growing under the reduced controls and that companies are making use of regulatory exceptions to export all over the world with fewer or no licensing obligations. You may well ask, “How do you know? Can you point to specific facts?” “Well,” I might well answer, “you are in The Blogosphere now, a realm constructed on a bare few facts, but stacked to the rafters with rumor and speculation.” I may also answer as follows:

Last week I had the good fortune of speaking at a defense export controls conference in Amsterdam just after the presentation by Kevin Wolf, whom some describe as the Eddie Van Halen of export controls, as well as the Assistant Secretary of Commerce for Export Administration. During his presentation, the Assistant Secretary discussed statistics he had just received from his office that will likely be published soon.[1]  Those statistics reportedly indicate that billions of dollars in exports are being made under licenses issued for 600 series items and that further billions are being exported under the STA exception.[2] Further, those numbers do not and cannot include all of the exports of items that have fallen out of ITAR catch-all categories and are now classified as EAR99.  

When BIS publishes the final numbers, the relationship between the streamlining of license requirements in the first year of the ECR and an increase in U.S. exports should be made clear.

The Year We’ve Had

As illustrated by the chart below – modified from the DDTC’s version – the final ECR revisions have been drafted for nearly three-quarters of USML categories and, by the end of 2014, fifteen revised categories will be in effect. The remaining categories (in yellow) may be tricky for regulators to finalize, but regulators are, it seems, nearing the home stretch.

Click here to view table.

However, finalizing the ECR revisions is not the only work to be done.  Recently, Eric L. Hirschhorn, Undersecretary of U.S. Commerce for Industry and Security, reminded an audienceof lawyers and compliance experts that they must understand the rules, maintain effective internal compliance programs, communicate the rules throughout their companies or to their clients, and stay current with changes in the rules. Mr. Hirschhorn presented four questions that compliance personnel should ask themselves:

  1. Have you worked with your company to ensure that it has developed and coordinated its internal corporate plans, ranging from training staff to reclassifying products to comply with export control reform?
  2. Have you worked with the compliance and marketing team to encourage them to train their supplier base and their customers?
  3. If you are a U.S. subsidiary of a non-U.S. company, what regulatory training does the company or counsel provide to its foreign parent?
  4. Have you worked with your clients to ensure that they have put into place systems to monitor for errors and to take corrective actions if errors occur?

Hirschhorn added that BIS “will continue issuing rules that will make it easier for exporters, including small and medium enterprises, to navigate the export control bureaucracy.”

The Year to Come

While it is pleasant to take time to reflect on the ECR’s first year, we cannot linger long at the party. We have to prepare for much more to come.  On November 10, 2014, ECR revisions to USML Category XV Spacecraft and related articles, will move nearly all commercial satellites, their parts and components, and much of the related technology, off of the USML and under BIS control on the Commerce Control List. On December 10, 2014, revisions to USML Category XIMilitary Electronics will take effect. Those changes will be both sweeping, sending vast numbers of items from ITAR to EAR controls, and nuanced, requiring detailed product analysis to determine the jurisdiction and classification of items.