ITAR/EAR Export Control Jurisdictional Issues for Exporters and

Government Contractors

Kevin Wolfkwolf@bryancave.com -- 202-508-6113

Partner, Bryan Cave LLP

Washington, DC

September 13, 2006

Workshop for NCMA, Cape Canaveral Chapter, Workshop

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ITAR vs. EAR

• The ITAR trumps the EAR

• “Dual use” is a misleading term– Dual-use items are used in commercial applications but can

be used in military or other strategic applications (e.g., nuclear)

– A “dual-use” item is subject to the jurisdiction of the EAR, not ITAR

– Some items that are subject to the jurisdiction of the ITAR also have commercial applications

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ITAR vs. EAR: Definitions

• Definitions are key to every jurisdictional and classification issue

• But definitions are not always obvious, industry standard, or intuitive

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ITAR Jurisdiction

• If an item or technical data is not a “defense article,” it is not subject to ITAR control

• If an activity is not a “defense service,” it is not subject to ITAR control

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Defense Articles

• “Defense article” means any item or technical data on the U.S. Munitions List– Defense article defined in § 120.6

– U.S. Munitions List in § 121.1

• The ultimate question in a jurisdictional analysis is: Is the item or technical data a “defense article”?– If so, it is ITAR controlled

– If not, it is probably subject to the EAR

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Core ITAR Jurisdictional Questions

• Was the item – regardless of how it is now used – originally specifically designed, developed, configured, adapted or modified in any way for a military application, military end-item or a commercial satellite, spacecraft or launch application?

• What technical data is directly related to and required for such items?

• Is a service – any assistance or training – being provided to a foreign person (wherever located) in connection with the article, software, or data?

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ITAR Jurisdictional Issues• Re-read the first core question:

– It is a distillation of the entire ITAR jurisdictional rule

– focus is on the intention of the designer or the modifier of an item -- remember this when drafting contracts!

• Final jurisdictional determinations, however, must be based on the specific words in the relevant USML subcategories because not all subcategories are worded in the same way.

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The USML parsed• The scope of some USML subcategories depends upon

whether a part, component or other item has “military applicability.” See, e.g., subcategories I(c), II(b), II(k)(3), III(f)(5), V(a)(35), V(b)(7), V(c)(10), V(d)(12), V(e)(19), V(f)(21), V(i)(1), X(a), XI(a), XI(a)(6), XI(a)(6)(7), XII(b), XII(c), XIII(b), XIII(e), XIII(g), XIII(h), XIII(j), XIV(n), XV(e) Note, XVI(c), XVIII(a), and the catch-all Category XXI(a).

• The scope of other USML subcategories depends upon whether a part, component, or other item as a “military purpose.” See, e.g., subcategories V(c)(7), VI(a), VIII(a), VIII(f), IX(a), XI(b), XIII(a), XX(a), XX(b), and XXI(a).

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The USML parsed cont.• The scope of other USML subcategories depends upon

whether a part, component or other item is for the “production” of a defense article. See, e.g., subcategories II(g), III(c), IX(c), X(c), XIII(k), XIV(l), XVIII(c). And yet others depend upon whether the part, component or other item is for “use with” a defense article. See, e.g., subcategories VIII(c), VIII(g), X(d), XI(a)(6), XI(a)(7), XIV(g), XIV(h), and XV(c)(3).

• Many USML subcategories are defined by whether a part, component or other item was “specifically designed or modified for” an article listed elsewhere in the Category. See, e.g., subcategories I(e), I(g), I(h), II(e), II(h), II(i), II(j), III(b), III(d), IV(a), IV(c), IV(f), IV(h), VI(f), VII(g), VIII(d), VIII(h), IX(d), X(d), XI(c), XI(a), XI(e), XIII(d), XIII(f), XIV(j), XV(e), XVI(d), XVIII(d), XVIII(e), and XX(c).

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USML parsed cont.

• Even if specifically designed or modified for a defense article, the USML expressly exempts some articles if they are “in normal commercial use.” See subcategories XI(c) (electronics); XII(e) (optical guidance, control and equipment), and XVI(b) (equipment for use in nuclear weapons (!)) In addition, XIV(n)(2) (biological agents) is not applicable if the modification is made for “civil applications.”

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Typical Jurisdictional Question

• Was an item (or in any of its parts or components) originally designed or modified for: – an exclusively military application (regardless of subsequent

uses in commercial applications),

– exclusively commercial applications (even if later military applications were found), or

– dual-use applications?

• Again, what was the “intent?”

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ITAR Jurisdictional Issues (cont.)

• DDTC has complete discretion in determining what is and is not a defense article

• Judicial review of DDTC’s jurisdictional determinations is prohibited by law

• So, when doing jurisdictional analysis, consider– The ITAR’s words

– DDTC’s interpretation of the words

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DDTC’s Interpretation

• If DDTC’s interpretation seems inconsistent with the law:– The solution is for the company to resolve it with DDTC

through, e.g.,

• A Commodity Jurisdiction (CJ) request

• Some other form of writing with DDTC

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Defined Types of Defense Articles• End-items

• Components

• Accessories and attachments

• Parts

• Firmware

• Software

• Systems

• Technical data

See §§ 120.6, 121.8, 120.10

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Irrelevant Common Sense Factors for Final Self-Determinations

• Intended use (§ 120.3)• Level of technical sophistication• Age• Foreign availability• Foreign export controls• Common availability in the U.S. market• Incorporation into another end-item – the “See Through” Rule• No obvious military capabilities• Source of funding• THESE ARE ALL KEY POINTS TO MAKE IN A CJ REQUEST

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Technical Data• Technical data includes information (other than software) that is

required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of “defense articles” (§ 120.10(a)(1))

• All USML subcategories control Technical Data and defense services directly related to the defense articles enumerated in the preceding sub-paragraphs of that Category.

• Thus, unless the technical data is “directly related” to a “defense article,” the information cannot be subject to ITAR control

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Public Domain Exception• Through sales at newsstands and bookstores;

• Through subscriptions that are available without restriction to any individual who desires to obtain or purchase the published information;

• Through second-class mailing privileges granted by the U.S. government;

• At libraries open to the public or from which the public can obtain documents;

• Through patents available at any patent office;

• Through unlimited distribution at a conference, meeting, seminar, trade show or exhibition, generally accessible to the public, in the United States;

• Through public release (i.e., unlimited distribution) in any form (e.g., not necessarily in published form) after approval by the cognizant U.S. government department or agency; or

• Through fundamental research in science and engineering at accredited institutions of higher learning in the United States where the resulting information is ordinarily published and shared broadly in the scientific community.

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“See Through Rule”

• DDTC: “If a defense article is incorporated into a civil product, that product would be controlled by State rather than Commerce. Under section 38 of the AECA, the President [i.e., DDTC] determines what is covered by the U.S. Munitions List and that determination does not change when the defense item is incorporated into a civilian item.”

• Others: “Jurisdiction of the parts does not extend to the whole, nor does jurisdiction of the whole extend to its parts.”

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“See Through” Cont.

• Caution: Rule is opposite of the EAR’s “Interpretation 2” -- “An assembled machine or unit of equipment is being exported. In instances where one or more assembled machines or units of equipment are being exported, the individual component parts that are physically incorporated into the machine or equipment do not require a license.”

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Defense Service• “The furnishing of assistance (including training) to foreign

persons, whether in the United States or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles”

• The furnishing to foreign persons of any [ITAR-controlled] technical data . . . whether in the United States or abroad; or

• Military training of foreign units and forces, regular and irregular, including formal or informal instruction of foreign persons in the United States or abroad or by correspondence courses, technical, educational, or information publications and media of all kinds, training aid, orientation, training exercise, and military advice.”

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Defense Services cont.

• “The furnishing of ‘defense services’ to foreign persons – regardless of whether the underlying defense article(s) is of U.S. or foreign origin – is appropriately subject to control under the [ITAR] by [DDTC] even when no technical data is involved (e.g., all the information relied upon in furnishing defense services to a foreign government foreign person is in the public domain);. . . .”

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“Policy” Considerations

• What if the item was specially designed or modified for a military application but you know for a moral certainty that it now meets one or more of the following criteria?– A “predominant civil application”

– “Performance equivalents” to items with civil applications

– No “significant military or intelligence applicability”

See § 120.3(a), (b)

More ...

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“Policy” Considerations (cont.)

• These criteria are used as “policy” considerations by DDTC in determining whether an article “may be designated or determined in the future to be” a defense article. (§ 120.3)

• DDTC makes the final determination “on a case-by-case basis” as to whether one or more of these criteria have been met. (§120.4(d)(1), (2), (3))

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Why Submit CJ Requests?

• The ITAR provide two reasons for when the CJ process “is used” or “may” be used:– When one wants to have a defense article removed from

ITAR jurisdiction; or

– When “doubt” exists about whether an item is subject to the ITAR. (§ 120.4(a))

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Why Submit CJ Requests? (cont.)

• Other reasons to submit a CJ request include:– Eliminating confusion

– Supporting customer or vendor relations

– Eliminating government concerns regarding the flow of military technology to commercial applications

– Getting comfort in high-risk transactions

– Satisfying gut reaction

– Questioning a competitor’s or supplier’s determination

– Understanding how DDTC interprets an issue

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CJ Process and Issues

• Time-consuming

• Be prepared for arbitrary results, good or bad

• CJ requests are advocacy documents

• Presumption of ITAR control while pending

• Review new DDTC CJ Guidelines at: – http://www.pmdtc.org/revised_cjguidelines.htm

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Summary EAR Classification Issues• Differences between ITAR jurisdictional analysis and EAR

CCL classification analyses. For example,

– Definitions are slightly different; e.g., “defense article” includes technical data, which includes software and other items (120.5 and 120.10)

– No permissive reexports unless permission granted by DDTC, even if incorporated into foreign-made product (123.9(b))

– A defense service is furnished even if information is in public domain (120.9)

– Additional countries subject to restrictions (126.1(d))

– Registration (122.1 - 122.4)

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Classification Classification• Commerce Control List (“CCL”) (part 774) has detailed list-based requirements.

• Items “subject to EAR” but not listed are considered “EAR99.”

• Categories are: – (0) Nuclear Materials, Facilities and Equipment, and Miscellaneous

– (1) Materials, Chemicals, Micro-organisms, and Toxins

– (2) Materials Processing

– (3) Electronics

– (4) Computers

– (5) Telecommunications and Information Security

– (6) Sensors and Lasers

– (7) Navigation and Avionics

– (8) Marine

– (9) Propulsion Systems, Space Vehicles and Related Equipment

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Conclusion

• At the heart of most commercial and military export control disputes and violations is a misunderstanding or disagreement about whether an item or collection of technical data is subject to the jurisdiction of the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR).

• Think about and document the intent of the designers and the modifiers at the beginning of a program.