BIS & State Issue Proposed USML to CCL Transition Plans: Part II - Transition, 600 Series, Export Clearance

The Bureau of Industry and Security and the State Department issued their proposed transition plans for items transitioning from the U.S. Munitions List to the Commerce Control List, pursuant to the Obama Administration’s Export Control Reform (ECR) initiative. In addition, the BIS proposed rule would (1) extend the validity of BIS licenses from two to four years; (2) broaden license exceptions to conform to State’s International Traffic in Arms Regulations exemptions; (3) amend license exceptions for government uses and temporary exports (4) propose a revised de minimis rule for 600-series USML-CCL transfers; and (5) make additional changes that BIS deems necessary to implement ECR, such as changes to reporting thresholds for the Automated Export System.

Comments on the BIS proposed rule and State’s proposed policy statement are due by Aug. 6.

(This is Part II of a two-part summary of State and BIS’ proposed transition rule, covering proposed transition procedures for USML-CCL transfers, proposed restrictions and the de minimis rule for 600-series items, and proposed export clearance requirements for the 600 series and certain license exceptions and authorization. See ITT’s Online Archives 12062031 for Part I of this summary, which covered proposed changes to BIS licenses and license exceptions.)

Two-Year Grace Period for ITAR Licenses, 45-day Expiration if Received After Rule Published

State said an immediate effective date for transfers of items from the USML to the CCL would impose undue compliance burden on the defense industry, so it developed a phased implementation plan for items that will be transitioned, which will become effective for those items upon publication of the relevant USML-CCL move final rule for each respective USML category. Highlights follow:

Two year grace period for ITAR licenses. ITAR licenses issued before publication of the relevant final rule moving the items from the USML to the CCL would remain in effect for a maximum of two years (or until the expiration date of the license, whichever comes first).

State said applications received prior to publication of the relevant rule would be adjudicated up until the effective date of the rule. However, applications or amendment requests received within 45 days after publication of the relevant rule but before the effective date would be adjudicated only when the applicant provides a written statement certifying that the export or temporary export will be completed within 45 days after the effective date of the rule. The validity period for such licenses or amended licenses would be limited to these 45 days after the effective date.

Agreements also would get two years. Similarly, technical assistance agreements, manufacturing license agreements, and warehouse and distribution agreements approved prior to publication of the relevant final rule would remain in effect for a maximum of two years (or until expired, whichever comes first), unless they require an amendment.

Agreement amendments that incorporate items moving from the CCL to the USML received prior to publication of the relevant final rule would remain valid for a maximum of two years or until expiration, whichever comes first. Agreements and amendments received after publication of the relevant final rule but before its effective date would be returned without action if the agreement contains both USML and CCL items. The agreement holder would then be required to amend the agreement to remove all CCL items. Agreements in which all items are transitioning to the CCL must be terminated and the applicant must seek authorization from BIS for such items.

Requests for CCL items after effective date returned. All license requests and agreements, including amendments, received after the effective date of the respect rule transitioning items from the USML to the CCL would be returned without action with instructions to contact BIS.

Previous commodity jurisdiction determinations invalid for items moved to CCL. State said previously rendered commodity jurisdiction determinations for items deemed to be on the USML but subsequently are transitioned to the CCL would no longer be valid after the effective date of the relevant final rule. As such, State said it encourages exporters to review each revised USML category along with its companion CCL category to determine which items have transitioned.

Consistent with the recordkeeping requirements of the ITAR and the EAR, licensees and foreign persons subject to licenses would have to maintain records reflecting their assessments of the proper regulatory jurisdiction over their items, State said.

Post-transition reexports and retransfers need BIS license if moved to CCL. Following the effective date of the relevant final rule, foreign persons who received an item under a State authorization that they are certain has transitioned to the CCL should treat the item as such and submit requests for post-transition reexports or retransfers to BIS.

License holders may forego grace period. License holders who wish to apply for and use BIS licenses for export of transitioned CCL items, as opposed to maintaining their ITAR licenses during the grace period, may do so but must return their State licenses and obtain the required BIS authorizations.

Must notify State if registration no longer required. Manufacturers, exporters, temporary importers, defense service providers and brokers who determine that all of their activities involve articles or services that will transition from the USML to the CCL, and therefore would no longer be required to register with State, would have to provide written notification that they are no longer required to register. Such registrants would have to maintain registration with State until the effective date of the rule moving their articles and services from the USML to the CCL. Also, such registrants who find that their registrations are set to expire between publication and the effective date of the relevant final rule may extend registration until the effective date without paying a fee.

BIS would add general order to implement. To implement the transition, BIS proposed to add General Order No. 5 (Supplement No. 1 to Part 736 of the EAR) to allow holders of State licenses to use appropriate BIS authorizations upon the effective date of the relevant final rule and return of the State license.

600 Series to have 25% de minimis Level, but also Direct Product Controls, Mandatory AES Reporting

BIS said the “600 series” items (items determined to no longer warrant control on the ITAR and moved from the USML to the CCL) would no longer be subject to the ITAR, but they would still be military items or items “specially designed” for military uses. BIS is not suggesting by their inclusion on the CCL that they are dual-use items, it said. As such, BIS proposed several provisions to specifically control 600 series items. Highlights include:

25% de minimis level for 600 series items. In response to comments, BIS proposed a 25% de minimis level for with respect to 600 series items for maximum U.S. content for foreign-made items to not be subject to the EAR, with the exception of 600 series items destined for U.S. arms embargoed countries that would not be eligible for de minimis treatment under the proposed rule. BIS had originally proposed a 10% de minimis level in its July 15, 2011 proposed rule, but commenters said it would be burdensome to have two separate de minimis levels for items subject to the EAR (all other items have a 25% de minimis level.

Direct product controls on reexports to cover 600 series. BIS’ proposed rule would also expand foreign-produced direct product controls to add 600 series technology. Foreign-produced direct products of U.S.-origin 600 series technology, or of a plant that is a direct product of U.S.-origin 600 series technology, that are 600 series items would be subject to the EAR when reexported to countries of concern for national security, chemical and biological weapons, missile technology or anti-terrorism reasons or to a U.S. arms embargoed country.

600 series items specifically restricted for China military end-use. BIS also clarified its restriction on 600 series items destined for China for a military end-use, proposed in the July 15, 2011 rule. BIS said the restriction on certain items destined for China at Section 744.21 would be amended to specifically say that all 600 series items are subject to this restriction, including for 600 series .y items.

Proposed Export Clearance Related Changes

BIS is also proposing to make changes to export clearance of 600 series items and exports under certain authorizations. These changes would affect eligibility for the AES low value exemption and post departure filing, among other things. Highlights include:

No exemption from AES filing for 600 series items. BIS proposed that 600 series items for all destinations would not be eligible for the $2500 low-value exemption from entering information on the transaction in AES. BIS said requiring entry of 600 series information regardless of value or destination would provide the government with the same information on exports of these items on the CCL as is not available for such items when they are subject to the ITAR.

No low value AES filing exemption for STA exports. Likewise, BIS’ proposed rule would eliminate the $2500 for exports under the strategic trade authorization (STA) license exception. Exports under STA license exceptions would be required to file in AES regardless of value.

No post-departure for 600 series, STA, and VEU. BIS proposed to eliminate post-departure filing as an option for exports of 600 series items, as well as items exported under the STA license exception Authorization Validated End User (VEU). Pre-departure filing would be required.

Destination control statements for 600 series must enumerate items. More specific destination control statements (DCS) would be required for 600 series items that would require exporters to identify the ECCNs of all 600 series items being exported in the text to ensure that consignees are ware they have such items.

Military Commodities Produced Outside U.S. Subject to Some 600 Series Restrictions

Finally, BIS’ proposed rule would subject ECCN 0A919, which covers certain military commodities produced outside the U.S., to the de minimis and foreign-produced direct product rules set forth in the proposed rule for 600 series items.

(See ITT’s Online Archives 11110604 for summary of BIS’ November 7, 2011 proposed rule, and 11071519 for summary of its July 15, 2011 proposed rule.)

BIS proposed rule (FR Pub 06/21/12) available here. State’s proposed policy statement (FR Pub 06/21/12) available here.