On April 16, 2013, the Department of State and Department of Commerce published a pair of final rules implementing the first major step of the President’s Export Control Reform (ECR) initiative. These final rules, which become effective October 15, 2013, mark the first migration of items from the International Traffic in Arms Regulations (ITAR) United States Munitions List (USML) to the Export Administration Regulations (EAR) Commerce Control List (CCL).

While the new rule changes are fairly expansive, three critical components to understand are (1) the migration of items from the USML to the CCL, (2) the revised definition of “specially designed,” and (3) the export license transition process under the ITAR and the EAR. As the October 15 effective date draws near, exporters should take immediate action to determine how, and if, the rule changes will affect their operations in order to avoid any potential violations of U.S. export regulations.

 Revisions to the USML and CCL

On October 15, revisions to USML Category VIII (Aircraft), XVII (Classified Articles, Technical Data, and Defense Services Not Otherwise Enumerated), XXI (Articles, Technical Data, and Defense Services Otherwise Not Enumerated), and XIX (Gas Turbine Engines and Associated Equipment) will become effective. Category XIX was amended to establish new controls for gas turbine engines and associated equipment, while Category VIII was revised to “narrow the types of aircraft and related articles controlled on the USML to only those that warrant control under the requirements of the AECA.”

In other words, Category VIII was revised to reflect clearer and more specific controls on defense articles; less sensitive items are being removed from the USML to the CCL. For example, the current USML Category VIII(a) controls “aircraft, including but not limited to helicopters, non-expansive balloons, drones, and lighter-than-air aircraft, which are specifically designed, modified, or equipped for military purposes…” The new Category VIII(a) lists the specific types of aircraft controlled under the revised Category VIII, such as (1) bombers, (2) fighters, fighter bombers, and fixed-wing attack aircraft, and (3) turbofan- or turbojet-powered trainers used to train pilots for fighter, attack, or bomber aircraft.

In addition, the term “aircraft” itself has been further defined pursuant to § 121.3(a) of the revised USML. Examples of “aircraft” subject to Category VIII include (1) U.S.-origin aircraft bearing an original military designation of A, B, E, F, K, M, P, R, or S; (2) foreign-origin aircraft specially designed to provide functions equivalent to those of the aircraft listed in (1); or (3) aircraft armed or specially designed to be used as a platform to delivery munitions or otherwise destroy targets. Furthermore, section (b) of § 121.3 excludes certain aircraft from the scope of the revised Category VIII. Specifically, aircraft specially designed for military applications that are not described in § 121.3(a), including unarmed military aircraft manufactured prior to 1956, will be controlled on the CCL rather than the USML.

For those items no longer controlled on the USML, most will be controlled under the CCL’s new “600 series” of ECCNs. For example, the new ECCN 9A610 will control “military aircraft and related commodities.” As with the revised USML Category VIII, ECCN 9A610 was designed to reflect a more “positive” list of specific items controlled under that ECCN. The following are examples of items that will be controlled under 9A610:

(a)  Military aircraft “specially designed” for a military use that are not enumerated in USML paragraph VIII(a).

(f)   Ground equipment “specially designed” for aircraft controlled by either USML VIII(a) or ECCN 9A610.a.

In addition, the Department of Commerce’s final rule establishes two new ECCN paragraphs specifically for the 600 series. The 600 series “.x” subparagraphs will control parts, components, accessories, and attachments that are not enumerated in the revised USML and are not elsewhere enumerated in a revised 600 series ECCN paragraph. The “.y” paragraph will control parts, components, accessories, and attachments that, even if specially designed for a defense article, warrant no more that Anti-Terrorism (AT) controls. Accordingly, items listed under the new 9A610.y paragraph, such as aircraft tires, analog cockpit gauges and indicators, magnetic compasses will only require a license for export to E:1 Country Group destinations.

It is important to note that while items being removed from the USML to the CCL may be considered “less sensitive,” most are still subject to multiple reasons for control under the new 600 series. Items controlled under the new 600 series ECCNs may be subject to reasons for control ranging from National Security, Regional Stability, Anti-Terrorism, United Nations Embargoes, Missile Technology, Biological Weapons Proliferation, and/or Firearms Convention. Consequently, it is critical for exporters to fully understand the licensing analyses required under the EAR, especially if prior experience with the EAR is limited.

 Specially Designed

“Specially designed” is a phrase seen repeatedly throughout the revised USML and CCL, and was subject to its own revisions under ECR. The current definition of specially designed under the ITAR has essentially functioned as a broad, “basket” category to capture an extremely broad range of items under the jurisdiction of the ITAR. The revised definition is structured in a two-part, “catch and release” format intended to provide more definition guidelines for determining when an item is subject to the USML. As described in § 120.41, paragraph (a) of the revised definition “catches” items that are specially designed, while paragraph (b) “releases” items from that definition. Accordingly, if your item is caught by paragraph (a) and not released by paragraph (b), your item is considered specially designed and subject to the jurisdiction of the ITAR.

While the revised definition was originally intended to lessen the reliance on design intent for specially designed items, that analysis is still present to a certain extent in the new definition. However, the consideration of design intent under the new definition actually helps release items from ITAR controls, rather than only capture them. Paragraph (a) of the revised definition catches items that are “peculiarly responsible for achieving or exceeding the controlled performance levels, characteristics, or functions described in the relevant USML paragraph,” or are parts, components, accessories, or attachments for use in or with defense articles. While this may seem broad, paragraph (b) operates to limit the application of specially designed by removing items under five circumstances. For example, items subject to the EAR pursuant to a Commodity Jurisdiction (CJ) and any fasteners, washers, spacers, grommets, etc., are released under paragraph (b). Also released are items that were or are being developed with knowledge that they would be used in or with items controlled on the USML and items not controlled on the USML.

While many exporters may benefit from the revised definition, they should note that reliance on certain paragraph (b) release provisions comes with strings attached. For example, to use the release under § 120.41(b)(4) (items that were or are being developed with knowledge that they would be used in or with items controlled on the USML and items not controlled on the USML), exporters must have documentation (such as concept design information, marketing plans, etc.) establishing the elements of paragraph (b)(4). Given the strict penalties possible for unauthorized exports of ITAR-controlled items, it is critical for exporters to properly apply the new definition and thoroughly document the underlying analysis.

 Transition of Licensing Processes Under the ITAR and EAR

Exporters with items transitioning from the ITAR to the EAR should pay close attention to the transition rules pertaining to the licensing of items controlled on the USML and CCL. As the October 15 effective date nears, it is especially important for exporters with existing ITAR licenses, or those planning to apply for licenses in the near future, to understand how their items will be licensed moving forward.

Existing ITAR licenses will be effective for up to two years from October 15 if all items listed on the license have transitioned to the EAR. An existing ITAR license will be effective until its expiration if some items listed on the license have transitioned to the EAR. After the expiration of an ITAR existing license, items that have transitioned to the CCL will generally be licensed by the Department of Commerce if a license is required for the export. However, a new licensing procedure has been established for certain exports blending ITAR and EAR items. The revised USML categories will contain a new “x” paragraph which will permit EAR-controlled items to be authorized for export under an ITAR licensing, provided that all such items are to be used in or with an ITAR-controlled defense article and are described in the purchase documents submitted with the application. However, note that a license from the Department of Commerce will still be required for further export, re-export, or in-country transfers of EAR-controlled items that exceed the scope of the ITAR license.

 Moving Forward

It is important for exporters with items transitioning to the CCL to be aware that many other sections of the EAR have been amended to correspond to the newly established 600 series. Amended or newly established provisions of the EAR relevant to the 600 series include, but are not limited to, EAR license exceptions, de minimis calculations, General Prohibitions, reasons for control, country groups, special reporting requirements, end-user and end-use controls, and export clearance requirements for Automated Export System filings. With only two months remaining until the October 15 effective date, exporters should begin preparing their classification databases, existing or prospective licenses, and export compliance programs for compliance with the new rules as soon as possible.