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Export Control Reform – A 60 Day Snapshot

By: Jenny Hahn, President,  FD Associates, Inc.

Revisions to the ITAR and the EAR, as a result of Export Control Reform (ECR) are changing the way U.S.exporters of systems, parts, components, accessories and associated technical data and services arerequired to evaluate and license equipment, technology and services for their international business  transactions.

On October 15, 2013, the State Department issued the first of these significant reforms with revisions toCategory VIII of the U.S. Munitions List (USML) for aircraft and related parts, technical data and services. Other changes are scheduled to come into effect on January 6.

The revised Category VIII includes a so-called “positive list” of articles requiring ITAR authorization priorto export. These revisions make it clear which systems, parts, components, accessories and associatedequipment remain under Category VIII due to the sensitivity of the aircraft, system and or component.The revised Category VIII includes systems that were previously classified under different USML categories, such as integrated helmets incorporating optical sights or slewing devices, previouslyclassified under Category X, or Fire Control Computers controlled under Category XII. Gas propulsionengines, including engines for military aircraft, naval vessels and military vehicles have been moved to a new Category XIX.

Prior to making any export, exporters of military aircraft, parts, components, accessories and associated equipment must now review the positive USML category VIII or XIX for their article or service, to determine if ITAR licensing is required. If the article is not specifically enumerated on the revised USML Category, or captured by the new term “specially designed”, then the item is transferred to the Commerce Control List (CCL) of the Export Administration Regulations (EAR) in a new series of ExportControl Classification Numbers (ECCNs) under 9A610 or 9A619. In a few limited situations the articles may be captured elsewhere on the CCL.

60 days have passed since the effective date of implementation on October 15 and it’s a good time to review how companies have been impacted. At first blush, many exporters involved solely in the export of aerospace parts, components and accessories, have found the positive revisions to the USML Category VIII have largely transferred their items to the CCL 600 series ECCNs. In general, our observation is the 80/20 rule comes into play with 80 % of the transactions involving parts and components, no longer subject to the controls of the ITAR.

Terrific, but what does that mean for your company if your item is not ITAR? Contrary to a misheld perception that there are no controls in place, articles captured under the EAR in the 600 series ECCN entries of 9A610 or 9A619, generally requires licenses to all destinations, unless an exception to obtaining a license (License Exception), is available.

Aerospace Companies with items transitioned to the EAR from the ITAR must do a full analysis of ECCN 9A610 or ECCN 9A619 to determine a) if the article meets the technical parameters/criteria of the ECCN,and b) whether a license is required for the export transaction. In some instances, exports may be able to occur immediately under a License Exception once the company conducts its due diligence review. What does this entail?

  1. Confirmation of the specific ECCN classification of the part/system. A U.S. exporter can self-classify the ECCN after determining the article is no longer subject to the ITAR.
  2.  Review of the ECCN “Reasons for Control” to determine if the ECCN allows for use of License Exceptions “STA” (Strategic Trade Authorization) or “LVS” ( Low Value Shipment: $1500 or less, being the most common value).
  3. If License Exception STA can be used, is the export to one of the 36 “STA” eligible countries specified in EAR Part 740.20, and does the transaction meet all of the parameters of the License Exception. For example, the exporter must notify the foreign consignee in writing of the ECCN, and in addition to the country being included in EAR Part 740.20, the ultimate end user must be a foreign government, or the goods must be returned to the U.S. Further, there must have been prior licensing approval either by DDTC or BIS of the parties involved in the transaction. Additionally, the foreign consignee must execute a statement prior to the export, acknowledging compliance to all elements of the STA License Exception which includes among other things, flow down of STA restrictions for retransfers of the US articles to additional foreign parties and US Government access to foreign consignee records.
  4. If you or your consignee cannot meet all of the criteria called out in STA, LVS or any of the other permissible License Exceptions (i.e. TMP, RPL, GOV) you will be required to obtain a license from the BIS for the export.
  5. As always, in any export transaction, you should obtain a detailed end-use/end-user statement before applying for a license or using a License Exception under the EAR, and you should conduct a full due diligence review of all the parties to the transaction including verifying that none of the parties are listed on any of the multiple US government denied party lists.

Our initial assessment is that for many US exporters of items transitioned to the EAR from the ITAR and classified as ECCN 9A610 or 9A619, approximately 80% have been eligible to use license exception STA and do not need a license from the Department of Commerce.

While use of EAR license exceptions offers US exporters and their foreign consignees’ significant advantages, like everything related to exports, the devil is in the details and the company records and documents must be fully compliant with all aspects of the EAR in using these License Exceptions. Companies using STA should also anticipate a possible audit by the US government.

Questions? Contact FD Associates for assistance in navigating the changes to the ITAR and the EAR applicable to your products and services, classification support and if the items are classified as EAR under either ECCN 9A610 or 9A619, assistance in determining if you are eligible to export under License Exception STA or LVS, or any of the other eligible License Exceptions and establishing the required procedures/records.

January 6 brings revisions to USML Categories VI, VII, XIII and XX….are you ready?