On April 16, 2013, the U.S. Departments of State and Commerce published the first in a series of final rules, amending the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR) in accordance with President Obama’s 2009 Export Control Reform (ECR) initiative.[1] This is a significant milestone in export reform. The ECR aims to focus U.S. government efforts on controlling the export of sensitive technologies while streamlining exports of defense-related items to U.S. allies and partners around the world.

Collectively known as the “beast” rules, these new final rules make numerous changes to the ITAR and the EAR, including by:

  • Revising three categories of the ITAR’s U.S. Munitions List (USML);
  • Adding one new USML category;
  • Adding a new Export Control Classification Number (ECCN) series to the EAR’s Commerce Control List (CCL);
  • Revising and adding new definitions;
  • Creating licensing procedures for the export of items newly subject to the EAR; and
  • Implementing related amendments to other ITAR and EAR sections.

Revision and Establishment of USML and CCL Categories.

Perhaps the most notable effect of the new rules is the movement of certain items from the USML to the CCL.

The rules accomplish this by revising USML Categories VIII (Aircraft and Related Articles), XVII (Classified Articles, Technical Data, and Defense Services Not Otherwise Enumerated), and XXI (Articles, Technical Data, and Defense Services Not Otherwise Enumerated), and establishing a new Category XIX (Gas Turbines and Associated Equipment). Specifically, the revisions narrow the types of aircraft and related articles controlled on the USML by moving gas turbine engines for articles currently controlled under Category VIII to the newly established Category XIX and to the CCL under ECCN 9Y619.

The new USML Category XIX covers gas turbine engines for cruise missiles, surface vessels, vehicles, and aircraft meeting certain criteria formerly covered under USML Categories IV, VI, VII, and VIII. Category XIX supersedes related controls under Categories IV, VI, and VII.

The revised Category VIII now contains, with one exception,[2] a positive list of parts, components, accessories, and attachments that continue to warrant control on the USML. All other parts, components, accessories, and attachments specially designed for a military aircraft are subject to the new “600 series” (xY6zz) controls in Category 9 of the CCL.

The 600 series controls most items formerly on the USML that move to the CCL. Generally, items classified under this series are subject to significant control (National Security Column 1, Regional Stability Column 1, Anti-Terrorism Column 1, and United National Embargo). Most subject items are positively enumerated in paragraphs .a through .w of the corresponding 600 series ECCN. Those items that are not positively enumerated are controlled in the .x paragraphs, and specific items that warrant only anti-terrorism controls and control to China under EAR section 744.21(a)(2) are controlled under the y. paragraphs.

Definitional Changes.

The final rules also implement corresponding definitional changes. As a result, a commodity or software is now “specially designed” under the ITAR if, as a result of development, it has properties peculiarly responsible for achieving or exceeding the controlled performance levels, characteristics, or functions described in the relevant USML paragraph, or is a part, component, accessory, attachment, or software for use in or with a commodity or defense article enumerated on the USML or CCL (other than merely for AT control). The new definition excludes fasteners and other listed examples of simple hardware, regardless of form or fit. It also excludes parts and components with same function and performance capabilities and same or equivalent form and fit as items in serial production that are not enumerated on the USML or CCL (except for AT control).

Under the final rules, the definition of specially designed also can exclude items based upon the intent of the designer. These intent-based exclusions cover items developed as general purpose commodities or software, i.e., with no knowledge for use in or with a particular commodity or type of commodity; items developed with knowledge that they are for use in or with items described in an ECCN, and also EAR99 or AT-only controlled items; items developed with knowledge that they would be for use in or with AT-only controlled items and also EAR99 items; and items exclusively for use in or with EAR99 items.

We anticipate fewer items will qualify for control under this definition than under the ITAR’s previous “specifically designed” provision, which swept more broadly.

Transition and New Licensing Procedures.

There is a 180-day transition period from the date of the final rules, April 16, 2013, for items to undergo the aforementioned changes in export jurisdiction. This means that the rules will become effective on October 13, 2013.

Both during and following the transition period, licenses and authorizations issued by the Department of State will remain valid on certain items that have newly shifted to the CCL. The State Department maintains the authority to license or otherwise authorize the export, reexport, or in-country transfer of items newly subject to the EAR. If all items listed on a State Department license or authorization have transitioned to the CCL, the license or authorization will be effective for up to two years from the effective date of the revised USML category. If only some of the listed items have transitioned to the CCL, however, the license or authorization will be valid until its expiry. Although these items technically remain subject to the EAR for licensing and enforcement, applicants are able to choose whether to use State or Commerce authorization.

Conclusion.

These rules represent a significant step toward simplifying and harmonizing the two most significant U.S. export controls regimes. They implement changes to the first of 19 USML categories that will be revised as part of the ECR to create a more positive control list and to eliminate, where possible, catch-all controls. The State Department has proposed revisions to 12 USML categories to date, and we expect additional proposed rules to be forthcoming.