© 2013 foley hoag llp. all rights reserved.countdown to compliance | 1 countdown to compliance...

© 2013 Foley Hoag LLP. All Rights Reserved. Countdown to Compliance | 1

Countdown to Compliance

October 15, 2013

Gwendolyn W. Jaramillo

Foley Hoag LLP


• Manufacturing

• Aerospace

• Defense/Defense Services

• Higher Education

• Professional Services

• Other

POLL: What Industries are Represented today?


Agenda

October 15, 2013 ECR Implementation

1. Movement from USML to EAR

2. New 600 Series ECCNs and restrictions

3. “Specially Designed”

4. License Exception STA and other License Exception Changes

5. General Order No. 5/Licensing Transitions

6. AES changes

7. Country Groups and De Minimis Changes

Planning Ahead

8. Compliance Planning & Next Changes

9 Triage


October 15, 2013Implementation of Key Initial Changes in

Export Control Reform


• EAR only

• ITAR and EAR

• ITAR only

• ITAR/EAR and other control regimes

• What are “ITAR and EAR?”

POLL: What regimes do you export under?



Category VIII - Aircraft

Category XVII – Classified Articles

Category XIX - Gas Turbine Engines

Category XXXI – Articles Not Enumerated



Category VIII– Formerly, VIII(a) controlled aircraft “specially designed, modified or

equipped” for military use

– New VIII contains paragraphs a(1)-(a)(13) which enumerate specific aircraft that are controlled

– Category VIII(h) enumerates key parts, components, accessories, attchments and associated equipment and systems

– VIII(i) provides that technical data for some items that moved to the CCL is stil controlled under ITAR

– VIII(x) covers “commodities, software, and technical data subject to the EAR used in or with defense articles controlled by this

Key is to look at new definitions in ITAR/EAR

If it is not enumerated on USML, it is on the CCL!



Within 600 Series ECCN:

.a ‐ .w: specifically enumerated end items, materials, parts, components, accessories, and attachments

– – Some items may be “specially designed”

.y: specifically enumerated parts, components, accessories, and

attachments that are “specially designed”

.x: “specially designed” parts, components, accessories, and attachments that are not specifically enumerated



License Exceptions Available:

–LVS – 740.3

–TMP – 740.9

–RPL – 740.10

–GOV – 740.11

–TSU – 740.13

–STA – 740.20

BUT – Some ECCNs excluded from all but GOV – Beware!



Key 600 Series RestrictionsNew Red Flags (Supplement 1 Part 732)

– An order for parts or components for an end itemin 600 series. If you “know” these parts are more than required to possibly service the end items indestination country, or there are none there

– Customer indicates a 600 series item may be reexported to a Country Group D5 destination

Reasons for control: – NS1

– RS1

– AT1

– UN

Destination Control Statements Required



Remember – Under the EAR:

Re-exports always subject to original destination controls

Same type of license or approval required as for initial export

Foreign parties may apply via SNAP-R



Catch and Release!



Overview:– Similar (but not identical) new definitions for the term “specially designed”

– “Catch and Release” Structure

– Does not apply to technology or technical data, except software

Order of Review– 1. Is the item described on the USML?/

– 2. Is it “Specially Designed” per 121.1(d)?

– 3. Is it subject to the EAR?

How can I tell if Item is Subject to EAR?– 1. Identify Category and Group

– 2. Is item in 600-series in category that does not use “specially designed”?

– 3. Is item a “specially designed” 600-series item?

– 4 Is item listed in a non-600-series ECCN?

Handy decision tree tools at BIS website make this somewhat less painful:

• http://www.bis.doc.gov/index.php/decision-tree-tools



(a) Except for items described in (b), an ‘‘item’’ is ‘‘specially

designed’’ if it: – (1) As a result of ‘‘development’’ has properties peculiarly responsible

for achieving or exceeding the performance levels, characteristics, or functions in the relevant ECCN or U.S. Munitions List (USML) paragraph; or

– (2) Is a ‘‘part,’’ ‘‘component,’’ ‘‘accessory,’’ ‘‘attachment,’’ or ‘‘software’’ for use in or with a commodity or defense article ‘enumerated’ or otherwise described on the CCL or the USML.



(b) A ‘‘part,’’ ‘‘component,’’ ‘‘accessory,’’ ‘‘attachment,’’ or ‘‘software’’ that would be controlled by paragraph (a) is not ‘‘specially designed’’ if it:– (1) Has been identified to be in an ECCN paragraph that does not

contain ‘‘specially designed’’ as a control parameter or as an EAR99 item in a commodity jurisdiction (CJ) determination or interagency-cleared commodity classification (CCATS) pursuant to § 748.3(e);

– (2) Is, regardless of ‘form’ or ‘fit,’ a fastener (e.g., screw, bolt, nut, nut plate, stud, insert, clip, rivet, pin), washer, spacer, insulator, grommet, bushing, spring, wire, solder;

– (3) Has the same function, performance capabilities, and the same or ‘equivalent’ form and fit, as a commodity or software used in or with an item that:

• (i) Is or was in ‘‘production’’ (i.e., not in ‘‘development’’); and

• (ii) Is either not ‘enumerated’ on the CCL or USML, or is described in an ECCN controlled only for Anti-Terrorism (AT) reasons;



– (4) Was or is being developed with ‘‘knowledge’’ that it would be for use in or with commodities or software

• (i) described in an ECCN and

• (ii) also commodities or software either not ‘enumerated’ on the CCL or the USML (e.g., EAR99 commodities or software) or commodities or software described in an ECCN controlled only for Anti-Terrorism (AT) reasons;

– (5) Was or is being developed as a general purpose commodity or software, i.e., with no ‘‘knowledge’’ for use in or with a particular commodity (e.g., an F/A–18 or HMMWV) or type of commodity (e.g., an aircraft or machine tool); or

– (6) Was or is being developed with ‘‘knowledge’’ that it would be for use in or with commodities or software described

• (i) in an ECCN controlled for AT-only reasons and also EAR99 commodities or software; or

• (ii) exclusively for use in or with EAR99 commodities or software.



(a)(1) – The design Catch Catches any item that as a result of development has properties peculiarly

responsible for achieving or exceeding performance levels, characteristics, or functions of the relevant USML paragraph or ECCN

– Peculiarly responsible = direct and proximate causal relationship that is centrail or special for achieving or exceeding performance levels resulting from development, meaning design, research, concepts, etc

(a)(2) – The use Catch Catches any part, component, accessory, attachment or software used in

or with an enumerated commodity or defense article on either CCL or USML (except EAR99)

Use need not result from development



(b)(1) – CJ or CCATS– CJ (past or future) that:

• States BIS (EAR) export jurisdiction and

• Identifies an ECCN that does not contained “specially designed” or is EAR99

– Future CCATS• states BIS jurisdiction and

• Establishes ECCN of EAR99 or nonspecially designed ECCN

(b)(2) – Fasteners Only– Part is released if an enumerated kind of fastener – EAR99

– Regardless of form or if mondified for ITAR controlled article

– ONLY APPLIES TO THOSE TYPES OF PARTS

(b)(3) – Equivalency Analysis– If the part is identical in form, function and fit to an item in production for

non-USML, AT-only item, item is not specially designed. Analysis required for review of “specially designed” status under new 748.3 process



(b)(4) – Developed for dual use– Releases Items that were knowingly developed for use in or with both USML and

non USML item; or only a USML specially designed item; or both CCL and specially designed or AT only item

• States BIS (EAR) export jurisdiction and

• Identifies an ECCN that does not contained “specially designed” or is EAR99

– Future CCATS• states BIS jurisdiction and

• Establishes ECCN of EAR99 or nonspecially designed ECCN

(b)(5) – General Purpose– Releases items developed for general purpose, for no particular use

– Requires absence of knowledge for use in or with particular commodity

(b)(6) – EAR Only– If not released by (b)(1)-(5), released if knowingly developed for use in EAR99

AND AT only ECCN, or only for EAR99 commodities/software

These Releases Require Proof!!



License Exception STA– Applies the same way for all EAR jurisdiction items EXCEPT some

additional requirements for 600-series items

– Process:• Provide consignee with ECCN

• Obtain consignee statement

• Notify consignee that export is taking place under License Exception STA

• KEEP RECORDS showing which exports go to which consignees

– Consignee statement must acknowledge:• Export occurring under STA

• ECCN for each item being exported under STA

• No subsequent license except APR (a) or (b) shipments

• Consignee will not transfer items in violation of EAR

• Consignee will provide records/documents to BIS on request



STA Requirements for 600 Series Items– Must be for end use by US government or foreign government in

Country Group A:5 (the “STA 36 countries”) or– For return to US; or

– Otherwise authorized by competent US government authority; or

– Under a previously approved DDTC or BIS license for non-US parties

– Consignee must agree to ultimate end-user restrictions and end-use check

– Eligibility request required for end item aircraft

NOTE – BIShas announced intention to audit/scrutinize use of STA!



License Exception TMP: – removes Group B limitation on exports to US person’s foreign affiliates

License Exception GOV: – limits in GOV have been adjusted

– May be used to send items to US government contractors in some circumstances, but needs written authorization from relevant agency

– Authorizes exports under direction of USDoD consistent with ITAR exemptions

License Exception TSU: – Permits US universities to release source code and technology in US to bona

fide, full time regular foreign national employees (similar to ITAR)

– Authorizes export of copies of technology previously authorized for export (similar to ITAR)



Pre-October 15 Transactions:– Existing DDTC licenses, agreements or approvals remain valid until dates stated

on approvals even if items no longer ITAR controlled

– Pre-positioning/submission of BIS license applications permitted; to be issued on October 15

Post-October 15 Transactions– Obtain and utilize BIS license if required

– Use BIS license exception if applicable

– May obtain a license instead of using STA, eg

If Items are Transitioning:– DSP5, Technical Assistance Agreement, Manufacturing License Agreement,

Warehouse Distribution Agreements:

• If all items are transitioning to CCL, use for 2 years post October 15 or expiration/exhaustion

• If some but not all items are transitioning, valid until expiration date on license or when expended/exausted



Other Situations:– DSP-61 and DSP73 valid until expiration on date of license

– If you choose to obtain an BIS license instead of DDTC authorization, must terminate in accordance with applicable requirements

BIS License Validity Periods– Most will be 4 years instead of 2

SNAP-R Applications for 600 Series Items– In block 24, enter any precedent DDTC approved licenses or approvals. If these

meet requirements in Supplement 1 to Part 748, application should be processed faster


6. Country Groups and De Minimis

New Country Groups:– A:5 – may receive all STA-eligible items under License Exception STA

– A:6 – may receive only certain STA-eligible items under License Exception STA

– D:5 – May not receive 600 series items (same as ITAR 126.1 arms embargo list)


6. Country Groups and De Minimis

Basic EAR De Minimis Rule– In EAR, de minimis based on percentage of US content in foreign-made item

– EAR controls apply when de minimis threshold exceeded

– 25% or less except to Group D:5 countries

– 10% or less to Group E:1 countries

– Please note many exceptions apply especially in realm of software – do your homework!!

De Minimis Update for 600 Series Items– ITAR – zero de minimis “see-through” rule applies to defense articles on USML

– EAR: 0% de minimis rule for 600 series items to new D:5 country group

– D:5 Group = IAR 126.1 countries

Direct Product Rules Much Stricter For 600 Series– Re-exports of foreign made items the direct product of U.S. origin 600 series

technology/software require prior approval under EAR to:• D:1, D:3, D:4, D:5, E:1


7. AES Changes

October 12-14 weekend: AES Update scheduled *pre-shutdown* - apparently went ahead as scheduled

ECCNs 9A610, 9A619, 9B610, 9B619, 9C610, 9C619, 9D610, 9D619, 9E610 and 9E619 to be added to AES ECCN reference table

New “600 series” ECCNs to be added as additional items from USML categories transition to the CCL

Use of STA for “600 Series” will be permitted

AES Filing Required:– For all exports of “600 series” items enumerated in paragraphs .a

through .x of a “600 series” ECCN regardless of value or destination, including exports to Canada

– For all exports under License Exception Strategic Trade Authorization (STA)


7. AES Changes

AES Creating New License Type DY6 (C60) – Required for .y paragraph “600 series” items only

– Low value and Canadian exemptions apply to DY6 (C60)

– ECCNs are allowed but not required

– License Number “DY6” is required

EAR Items Licensed under ITAR– State Department may license an item subject to EAR on an ITAR approval

– ITAR section 120.5(b)

– AES filer must report the ECCN or EAR99 in the ECCN field

– Including for license type S05 (DSP-5)


Planning Ahead



Compliance Planning/Best Practices

1.Review of Products and Software– Update existing catalogues for new classifications

– Training of staff on new regulations/need for review

– Documentation of reviews/self-classifications

2.Documentation of Development– Crucial to properly evaluate “specially designed” items in the future

– Do your R&D team and engineering units know how to document for the new regime?

3.Policies and Procedures– Update customer/distributor information and forms

– Assess changes to services provided

– Implement changes for ITAR to EAR transition items

4.Training– Identify key departments/business units for training

– Initial training for first ECR changes must be followed by continuing updates during successive ECR rollouts



Compliance Planning/Best Practices

5.Review use of license exceptions under EAR

6.Parts, Parts, Parts! – Review of classification of parts and components under new regulations

7.Communication with Supply Chain– Regarding classifications of items produced

– Regarding documentation required by one or both parties under new regime

Plan for ITAR authorization expirations

Pre-position BIS licenses if required

Submit Specially Designed review requests, CJ’s and CCATs requests if necessary



Next ECR Rollouts:

October 25, 2013: New ITAR Brokering Rule.– rule requires that brokering activities be "on behalf of another," specifically

covers activities such as soliciting or promoting defense articles or defense services.

– Specifically excludes certain activities, including activities by regular employees acting on behalf of their employer; basic administrative activities; promoting company goodwill at trade shows; and activities by an attorney that do not extend beyond the provision of legal advice to clients.

– Specifically excludes from the definition of "brokering activities" those activities performed by an affiliate on behalf of another affiliate. In the new rule, foreign subsidiaries of U.S. parent companies who promote their parents' defense products and services are no longer considered to be engaged in brokering activities. Foreign subsidiaries of U.S. parent companies that promote the defense products and services of third parties would be required to register.

– Comments were due October 10, 2013, so stay tuned for a final final rule.



Next ECR Rollouts:

January 6, 2014:– Category VI - Vessels

– Category VII - Vehicles

– Category XIII – Auxiliary Military Equipment

– Category XX – Submersibles


9. Triage

Everyone: Review new definitions in both sets of regulations

Everyone: Review specially designed: was any item decontrolled or moved to CCL from USML?

ITAR only exporters: start with the October 15 updates. Was anything decontrolled?

ITAR only exporters: When do your existing authorizations expire? Can you start to migrate to BIS licenses/license exceptions (and be thankful you can operate under existing authorizations while we wait for the government to reopen)

EAR only exporters: check to see if any items ending in “018” migrated to the new 600 series. Update your records and AES entries, etc, accordingly!


10. Triage

All exporters: check AES submissions and update responsible personnel to ensure that no invalid/outdated entries are occurring

EAR exporters (including new EAR exporters!): review changes to License Exceptions to ensure that exports still comply

Exporters under STA: Review changes; prepare appropriate consignee/end user documentation

Everyone: Don’t Panic! They’re from the government and they’re here to help.


The Wildcard (or, “Thanks - great timing!”)


What we know as of 10/14…

BIS– Not accepting new export

license applications.

– Not processing classification requests.

– No encryption reviews or registrations.

– No advisory opinions issued.

– SNAP-R application on BIS’s Website is not available and will not reopen until the shutdown ends.

– Applicants may request emergency processing of export license applications for national security reasons. Submit email requests to Deputy Assistant Secretary for Export Administration Matthew Borman at [email protected].

– Subject line of the email should read "Request for Emergency License“; the email must identify the applicant (including point of contact), intermediate and ultimate consignees, and end user(s), items, end use, and national security justification for the emergency processing


POLL: Do you have pending requests/license applications with BIS?

•Yes, my company has pre-positioned license applications

•We have submitted CCATs or CJs for review under the new regulations

•None at all


What we know as of 10/14…

Census– AES Direct is functional

– AES Filing assistance ONLY at [email protected]

– AES Update has reportedly occurred

– Website is down for FTR and Schedule B

Customs– Operational but reports of

delays at ports

DDTC– Open and doing their best

– Emergency export license application processing for military, humanitarian or other emergencies: email Lisa Aguirre at [email protected]. Subject line of email should read “Request for Emergency License” and the message must include the applicant name and registration code, the end-use/end-user, justification for needing an emergency license, and a point of contact


Questions?

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