On April 16, 2013, the Department of State, Directorate of Defense Trade Controls (“DDTC”) and Department of Commerce, Bureau of Industry and Security (“BIS”) published final rules that implement the first wave of Export Control Reform. The pair of final rules amend the International Traffic in Arms Regulations (“ITAR”) and Export Administration Regulation (“EAR”) to transfer certain items from the U.S. Munitions List (“USML”) to the Commerce Control List (“CCL”) and set forth the plans for transitioning license responsibility between the agencies. Revisions to the ITAR can be found at 78 Fed. Reg. 22740, while revisions to the EAR can be found at 78 Fed. Reg. 22660.
In brief, the final rules do the following:
- Revise USML Category VIII (Aircraft and Associated Equipment) by identifying in a positive manner (rather than by catch-all provisions) items that remain controlled under USML Category VIII.
- Move certain aircraft and related articles previously controlled under USML Category VIII to be controlled under the EAR in new ECCNs 9A610, 9B610, 9C610, 9D610, and 9E610.
- Populate USML Category XIX (Gas Turbine Engines and Associated Equipment). Previously this USML Category was “reserved.” This change shifts certain gas turbine engine and associated equipment that previously were classified under USML Category VIII to the new Category XIX. This Category will ultimately also capture gas turbine engine articles classified elsewhere in the USML.
- Move certain gas turbine engines and related articles previously controlled in USML Category VIII and which do not warrant control under new USML Category XIX into ECCNs 9A619, 9B619, 9C619, 9D619, and 9E619.
- Introduce a new definition of Specially Designed that applies to items subject to the EAR and (for now) to Categories VIII and XIX of the USML.
- Create a new licensing procedure for the export of items subject to the EAR used in or with defense articles controlled within USML Categories VIII and XIX.
- Revise certain license exceptions under the EAR.
The final rules also provide guidance for the 180-day “transition period” between the date of publication of these final rules (April 16, 2013) and the effective date of these rules (October 15, 2013), as follows:
Treatment of licenses in existence as of April 16, 2013
- Existing licenses for USML Categories VIII or XIX “transitioning items” (items changing jurisdiction from the USML to the CCL as of October 15, 2013) that are issued prior to April 16, 2013 will remain valid until the earliest of one of the following occurs: the license expires, the license is amended, or two years from the effective date of the transition (October 15, 2015).
- License holders may apply for and use CCL licenses for transitioning items rather then continue to use previously issued DDTC licenses. While BIS will accept such applications during the transition period, BIS will not issue approvals until October 15, 2013.
- Temporary import and export authorizations for items transitioning to the CCL will continue to be valid until expired or returned.
New licenses and agreements requested between April 16, 2013, and October 14, 2013
- License requests for exclusively transitioning items will continue to be reviewed and approved by DDTC during the 180-day transition period. Licenses will be approved for no more than 2 years. Licenses may, at the preference of the applicant, be submitted to BIS, but BIS will not issue approval for the license until October 15, 2013.
- Licenses for the export of some defense articles remaining on the USML as well as transitioning items submitted to DDTC during the transition period will be valid for all items covered by the license at the time it was issued until it expires in four years.
- DDTC will adjudicate amendments to licenses and Agreements during the transition period.
New licenses and agreements sought on or after effective date of October 15, 2013
- License applications, including amendments, and agreements received by DDTC on or after October 15, 2013, that contain only transitioning items will be Returned Without Action with instructions to contact the Department of Commerce.
- License applications, including amendments, and agreements received by DDTC on or after October 15, 2013, that contain both USML items and items that have been moved to the CCL will be Returned Without Action, unless, the transitioning items are identified in a DDTC authorization pursuant to the new licensing procedure for the export of items subject to the EAR that are for use in or with defense articles controlled by USML Categories VIII or XIX and are described in the purchase documentation submitted with the application.
Transition rules like those applicable to the announced changes in USML Categories VIII and XIX are expected to be applicable to the transition of other USML items to the CCL in the future. Even if not specifically affected by these significant changes to USML Categories VIII and XIX, it is important for businesses that manufacture or export defense articles or provide defense services that may be moving to the CCL when review of other USML Categories is complete to understand the scope of these transition rules and other changes to the ITAR and EAR. These final rules serve as a roadmap for transitioning items that will be moving to the CCL in the future. Further, the revised definition of specially designed, while it now only applies to Categories VIII and XIX, will be part of each USML category revision as it becomes final. The revised definition is also now incorporated into the EAR.