Where Have All the Licenses Gone?

When the first of three (3) final rules to change the International Traffic in Arms Regulations (ITAR) U.S. Munitions List (USML) categories and establish the new “600 series” on the Export Administration Regulations (EAR) Commerce Control List (CCL) was published on April of 2013, it seemed like everyone was scrambling to meet the 180-day transition period. October 15, 2013 is now in the rear-view mirror and (from where I sit) there has yet to be a significant spike in the number of export licenses we are reviewing, let alone getting ANY licenses with a new “600 series” commodity staffed from Department of Commerce (DoC). 

So I am wondering - Why all this hype, excitement, and preparation?  I have a few theories.

Maybe exporters have just decided to take the “mea culpa” route. The three (3) final rules are quite detailed and admittedly a perplexing read. For larger exporters / big industry, determination of new classifications, for the over 30K parts, is a daunting task and for smaller exporters / small businesses, the specially-trained staff and time to analyze the new rules does not exist (to determine what license might be required). The difficulty with this approach is the risk of the exporter receiving an ITAR violation. 

Another reason could be that exporters are filing Commodity Jurisdiction requests (with either Department of State (DoS) or DoC (or both) to obtain an authoritative ruling on the appropriate placement of their commodity before moving forward with any license request. Please refer to my previous post regarding Commodity Jurisdictions at: http://www.thetsateam.com/export-control-blog/

Or, perhaps exporters who HAVE read / understood the new rules have decided to actually use them and have chosen to execute ITAR 120.5(b) and EAR 734.3(e) which “authorizes the export, reexport, or in-country transfer of items subject to the EAR when the items subject to the EAR will be used in or with items subject to the ITAR and are included on the same DDTC license, agreement, or other approval.” This provision removes the requirement to obtain licenses from both agencies in certain circumstances and even allows for both USML and CCL items to be included on a DSP-5 (permanent export license) or Technical Assistance Agreement / Manufacturing License Agreement (TAA / MLA). Of course exceptions exist; therefore I recommend a thorough analysis of the rules for a comprehensive understanding. 

Another possibility for the delay in DoC licenses is the ‘transition plan’ presented by both DoC and DoS allowing for some additional delays in obtaining new licenses. Part of the transition plan allows for existing licenses or agreements to stay in effect for up to two (2) years, from the effective date of the revised USML category (only if ALL of the items within the license or authorization have transitioned from the USML to the CCL). Another part allows for licenses or agreements to remain valid until its expiration (only if SOME of the items on the license or authorization have transitioned from the USML to the CCL). Simply stated, some cases will enable exporters to wait and apply for a new license, specifically exporters can obtain authorization two years after the effective date of the revised USML category or when their existing license / authorization expires (in the case of USML Category VIII, exporters potentially have until October 14, 2015 to obtain a new license). The transition is clearly going to take time and perhaps five months is premature to expect the changes to come into effect given that export control reform has taken more than five (5) years to implement.

I am curious to see how export control reform is going to change…and am anxiously awaiting!

More information on the transition plan can be found at:  https://www.pmddtc.state.gov/FR/2013/78FR22740.pdf

http://www.bis.doc.gov/index.php/regulations/federal-register-notices/17-regulations/496-federal-register-notices-2013#78fr22660

Link to the ITAR 120.5(b):http://www.ecfr.gov/cgi-bin/text-idx?SID=86008bdffd1fb2e79cc5df41a180750a&node=22:1.0.1.13.57&rgn=div5#22:1.0.1.13.57.0.31.5

Link to the EAR 734.3(e): http://www.ecfr.gov/cgi-bin/retrieveECFR?gp=1&SID=a8460dee9a3ce9050bf04fa7591c1a2a&ty=HTML&h=L&n=15y2.1.3.4.22&r=PART#15:2.1.3.4.22.0.1.3

Need help with export controls?  TSA Inc. can help!

Heidi France is a Lead International Trade Specialist, Technology Security Associates, Inc.

Email: heidi_france@theTSAteam.com

Contributor: Jackie Sudore-Flood, Director of International Programs, Technology Security Associates, Inc., Email: jackie_sudore-flood@theTSAteam.com

Pick A Commodity – Any Commodity

If only it were as easy as a simple card trick. Choosing the correct classification for a commodity has recently become more difficult.  In the past year there have been three final rules issued by the Department of State (DoS) and Department of Commerce (DoC) which outline the restructuring of the U.S. Munitions List (USML) and the Commodity Control List (CCL) respectively. Many items that were previously included on the USML are now controlled on the CCL. The third and latest implementing rule was issued on 2 Jan 2014 with an effective date of 1 July 2014. 

Within each revised USML category the parameters have become increasingly narrower to keep in line with a goal of Export Control Reform of creating a “positive” list of items that warrant control. Those items that don’t “make the cut” have been moved to the CCL and newly established Export Control Classification Numbers (ECCN) have been assigned. 

If there is still uncertainty about where a commodity falls, an exporter can apply for a Commodity Jurisdiction (CJ) per §120.4 of the International Traffic in Arms Regulations (ITAR). It is not required for an exporter to be registered with the DoS in order to apply for a CJ. The exporter should provide as much information as possible on the Commodity Jurisdiction Determination Request Form (DS-4076) and also provide any amplifying information as attachments so the reviewers at the DoS and agency levels can properly identify the product and locate the correct technical authority to determine the proper classification. 

It is important to note that because of the specificity within the new USML Categories, it is recommended for the exporter to provide details about the product and its use. For example, instead of just indicating that a commodity is for use on a F/A-18 aircraft, provide the Model (A-D or E/F or EA-18G). This aligns with the new breakdown of aircraft within USML Category VIII. Do your homework before applying for a CJ.  Block 17 on the DS-4076 asks for a suggested USML Category or ECCN. If this block is left blank, the reviewers could make the determination that the commodity is something other than the exporter’s desired outcome leaving the exporter unprepared to take the necessary steps to export their product timely and compliantly. If a USML Category or ECCN is provided within the application it is much easier for the reviewers to pinpoint a correct placement of the commodity and helps to advance the application. That’s not to say that the reviewers will always agree with the exporter’s assessment, but it does assist in expediting the review. 

Once the CJ review is complete, DoS will provide a determination letter to the exporter indicating whether the commodity falls under the USML or the CCL. If it is determined that the commodity belongs in a USML category, the licensing requirements of the ITAR must be followed. However, if the commodity is determined to belong on the CCL, then a very specific ECCN must be assigned in order to determine the licensing requirements. There is a separate process to assist with the proper classification of a commodity within the CCL. The process falls under the Export Administration Regulations (EAR) which is Title 15 Code of Federal Regulations (CFR) §748.3. The great thing about this process is that the Bureau of Industry and Security (BIS) will provide an ECCN down to the paragraph or subparagraph level. The results are only considered an “Advisory Opinion” but will provide the exporter with an answer whether a license is required or not for a particular commodity, end user and end use. 

The DoS Directorate of Defense Trade Controls (DDTC) has a very useful link for a Commodity Jurisdiction request:  http://www.pmddtc.state.gov/commodity_jurisdiction/index.html

The BIS, DoC has a very useful link for Classification requests: http://www.bis.doc.gov/index.php/licensing/commerce-control-list-classification/classification-request-guidelines

Need help with export controls?  TSA Inc. can help!

Heidi France is a Lead International Trade Specialist at Technology Security Associates, Inc.

Email: heidi_france@theTSAteam.com

Cover Letters - Make a Good First Impression

In the nine (9) years that I have been reviewing and pre-coordinating export license applications, one of the biggest complaints about obtaining an export license is the time factor – “How long will it take for my application to go through the system?” Certainly one of the most important things to ensure an expeditious review is to make a good first impression; and by that I mean state your purpose clearly in a well-written explanatory letter. Having reviewed thousands of applications for the Department of the Navy as a Contractor, I have seen it all; from no cover letter (Gasp!), to a cover letter that only provides a point of contact (POC) at the applicant’s company, who happens to also be the HR manager / empowered official = just took an International Traffic in Arms Regulations (ITAR) boot camp last week, to eight page cover letters that drag on (and put the reviewer to sleep) but not before Returning Without Action (“RWA-ing”) the application. Then of course, are the letters that are well-written, concise and believe me – refreshing to review so the process can move along as expeditiously as possible.

Per the ITAR (§124.12), only Technical Assistance Agreements (TAA) and Manufacturing Licensing Agreements (MLA) require an explanatory letter. It is also advisable to include an explanatory letter with all export license applications (DSP-5, DSP-61, DSP-73, and DSP-85). The required information is outlined within the regulations and quite procedural – detailed information is not mandatory, however, even with those requirements clearly outlined some letters barely make the mark.

Be sure to provide the company’s registration number, as well as contact information of the individual in your company / organization who can answer questions (should clarification be needed) about the application. A person reviewing the application at all levels within the Government review process will not hesitate to pick up the phone and call an applicant if additional information is needed. On more occasions than I would like to report, I have called a company to get clarification on a license (as a courtesy before denying or “RWA-ing”) and the person responsible for the application has had no technical background about the products or a clear understanding of why the license was sought. These occasions often led to a comprehensive discussion regarding the importance of ITAR training, the need for an internal export compliance program (for said company), and potential violations should adhering to the rules not be followed.  

When writing a cover letter, be concise and provide clear details regarding background information and reasons why the license is needed. If a precedent case exists, include the case number and clearly identify the changes of the new application from the previous approved license. The reviewer of your application is not intimate with your company and writing your letter with this understanding, is a sound approach.

If the cover letter is for an Agreement (TAA or MLA), clearly state all of the involved parties in the Agreement. Too often I review applications and the end-user list in the electronic application does not match the end-user list provided in the letter. Any inconsistency can lead to delays in the application review.  

If possible, in addition to the Government contract number, provide a knowledgeable point of contact within the appropriate DoD Program Office(s) who is aware of the application and in agreement with the purpose / intent of the license. In my experience, most DoD Programs have a single position through which licenses are staffed. That person then further staffs the license to the correct Technical POCs (TPOCs) within their Program office. If years have passed since your last application, update your POCs. I have seen names on licenses of people who have long since left a program / organization. Keeping abreast of employees and accurate organizational structures are important. Spelling, grammar, and clear requests are also very useful and helpful to the reviewer. 

Incorporating a few of the above recommendations will certainly aid in the advancement of your application. The goal is to clearly explain to DoS why your application / license is needed, include the who, what, where, when, and why…if any of the basics are missing, more time is needed by DoS to review…which may negatively impact your business / organization.

The US DoS has a very useful link of frequently asked questions and answers:  www.pmddtc.state.gov/faqs/index.html

Need help with export controls?  TSA Inc. can help!

Heidi France is a Lead International Trade Specialist at Technology Security Associates, Inc.

Email: heidi_france@theTSAteam.com

Contributor: Jackie Sudore-Flood, International Trade Director, Email: jackie_sudore-flood@theTSAteam.com

 

Were YOU talking to ME?

YES! If you provide (or your company provides) defense services (ITAR §120.9) to foreign persons (ITAR §120.16) or foreign countries or you manufacture (or your company manufactures) defense articles (ITAR §120.6) that are sold or shared with foreign persons or foreign countries or if you create and disclose technical data (ITAR §120.10) to foreign persons or foreign countries…then I was talking to you. 

Let us break down the definition of an export as defined by § 120.17 of the International Traffic in Arms Regulations:

(1)   Sending or taking a defense article out of the United States in any manner, except by mere travel outside of the United States by a person whose personal knowledge includes technical data; or…

What is a defense article (ITAR §120.6)? Any item or technical data designated in the United States Munitions List (USML) (ITAR §121.1). The policy described in § 120.3 is applicable to designations of additional items. This term includes technical data recorded or stored in any physical form, models, mockups or other items that reveal technical data directly relating to items designated in the USML. Please note that basic marketing information, on function or purpose or general system descriptions, is not included.

For example, if you are an engineer, who supports a DoD program, and go on vacation to Mexico, that does not constitute an export UNLESS you go around sharing technical data with every foreign person you meet. In other words – keep technical data to yourself OR get an export license!

What is technical data (ITAR §120.10)? Information, other than software as defined in § 120.10(a)(4), which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles. This includes information in the form of blueprints, drawings, photographs, plans, instructions or documentation. Also included is Classified information relating to defense articles and defense services; Information covered by an invention secrecy order; and Software as defined in § 121.8(f) directly related to defense articles.

 

What is NOT technical data? Information concerning general scientific, mathematical or engineering principles commonly taught in schools, colleges and universities or information in the public domain as defined in § 120.11. As stated above, basic marketing information relating to function, purpose, or general system descriptions, of defense articles, is excluded.

(2)   Transferring registration, control or ownership to a foreign person of any aircraft, vessel, or satellite covered by the U.S. Munitions List, whether in the United States or abroad; or…

Who is a foreign person (ITAR §120.16)? Any natural person who is not a lawful permanent resident as defined by 8 U.S.C. 1101(a)(20) or who is not a protected individual as defined by 8 U.S.C. 1324b(a)(3). It also means any foreign corporation, business association, partnership, trust, society or any other entity or group that is not incorporated or organized to do business in the U.S., as well as international organizations, foreign governments and any agency or subdivision of foreign governments (e.g., diplomatic missions).

Knowing your product, technology, and/or technical data is so important. Understand how the USML works and whether your products are covered under the USML…before you transfer control or ownership to a foreign person.

(3)   Disclosing (including oral or visual disclosure) or transferring in the United States any defense article to an embassy, any agency or subdivision of a foreign government (e.g., diplomatic missions); or

(4)   Disclosing (including oral or visual disclosure) or transferring technical data to a foreign person, whether in the United States or abroad; or…

Exports can also occur in the U.S. For example, a foreign person visits a U. S. owned and operated company, receives a technical data briefing, a tour of the U.S. facility, and a ride in a simulator. Unless these items and events were previously approved for public release through the proper authority, these actions are an export.  

(5)   Performing a defense service on behalf of, or for the benefit of, a foreign person, whether in the United States or abroad.

What is a defense service (ITAR §120.9)? 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 technical data controlled under § 120.10, 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.

(6)   A launch vehicle or payload shall not, by reason of the launching of such vehicle, be considered an export for purposes of this subchapter. However, for certain limited purposes (see § 126.1 of this subchapter), the controls of this subchapter may apply to any sale, transfer or proposal to sell or transfer defense articles or defense services.

As you can see specific definitions and guidance for key ITAR terms exist and provide valuable information to ensure understanding. A valuable reference can be found at: http://pmddtc.state.gov/regulations_laws/itar_official.html

TSA, Inc. is here to help! Call us if you need assistance navigating through export controls!

Heidi France is a Lead International Trade Specialist at Technology Security Associates, Inc.  Email: heidi_france@theTSAteam.com
Contributor: Jackie Sudore-Flood, International Trade Specialist, Email: jackie_sudore-flood@theTSAteam.com

Export Control Reform is here - Now What?

When the Export Control Reform (ECR) initiative was first announced in 2009, the initial reaction was, “That’s never going to happen and we won’t have to learn about it”.  Well, flash forward four years and it has really happened and we do have to learn about it.   If you are in the business of exporting your product or technology, you should learn about it too.  In an effort to eliminate redundancy, streamline processes and update outdated Cold-War regulations for both Department of State and Commerce there are four goals of ECR which are known commonly as the “four singulars”: single License Authority (SLA), single list of controlled technologies, single export control IT system, and a single enforcement authority.  The singulars are being tackled in a three-Phased approach.  Phases I and II are aligning the regulations, definitions and policies before moving into Phase III which will finalize the singulars.  Each singular is at its own stage of implementation but all are in motion.  Status can be tracked at http://export.gov/ecr

New rules: The latest and by far the biggest change to date are the Final Rules that were published in a Federal Register notice on 16 April 2013 with an effective date of 15 October 2013.  These rules introduce policies and procedures for the licensing of items moving from the International Traffic in Arms Regulations (ITAR) U.S. Munitions List (USML) to the Export Administration Regulations (EAR) Commerce Control List (CCL) and provide much-needed beefed-up definitions for things such as “aircraft” and “specially designed”.  Specifically, the new rule re-writes USML Category VIII (Aircraft and Related Articles) and added a Category XIX (Gas Turbine Engines and Associated Equipment).  For those who have spent their careers studying and enforcing the ITAR; this is a game-changer.  The new regulations require a very detailed understanding of the new ITAR regulations as well as the EAR and the CCL and how to apply it to your product.  Of course there are seminars, webinars, publications and trade groups who have focused on providing training and transition assistance. 

Buyer beware: The key in applying the new regulations is to have a strong understanding of your product, its intended uses and a list of potential or confirmed foreign partners.  The biggest misconception is that if a product is moved to the CCL that it no longer will require a license.  The EAR has its own complex licensing requirements.  An item must be properly classified with an Export Control Classification Number (ECCN) and there are many License Exceptions to navigate before making the determination of a license requirement.  The most commonly-used Exception for the new CCL items will be the Strategic Trade Authorization (STA) exception which will allow a “no license required (NLR)” to 36 countries with other stipulations.    

The new rules do not get us to Phase III of the four singulars, there are still two licensing authorities and two lists of controlled technologies.  This means that for now there are still two Departments with two separate systems for submitting a license request.  Fortunately Department of Commerce does not require a registration fee to submit a license unlike the Department of State.  If assistance is needed in making a classification determination a Commodity Jurisdiction request can still also be filed. 

The biggest take-away is that going forward exporters must have a strong knowledge of both ITAR and EAR and how they apply to their products and in-house compliance programs in order to avoid unnecessary violations.  If you are a small exporter you know how hard it was just to keep up with the ITAR.  If a violation is discovered, exporters are strongly encouraged to file a voluntary disclosure either to Department of State or Commerce as appropriate. 

If you have any questions or need assistance navigating export compliance, contact us – TSA, Inc. can help!       

Heidi France is a Lead International Trade Specialist with Technology Security Associates, Inc.   Email Heidi at heidi_france@theTSAteam.com