November 24, 2014

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November 21, 2014

What Export Control Reform Means for You - Episode III: Harmonizing Export Administration Regulations (EAR) Exceptions and International Traffic in Arms Regulations (ITAR) Exemptions

Background

In Episode I and Episode II of this series, we discussed some key points of U.S. Export Control Reform and took you through a step-by-step reclassification analysis of parts and components transitioning from the USML to the EAR.  After determining that the items you export will move from the USML to the CCL, you will need to evaluate your licensing requirements.

As it moved items from the USML to the CCL, the ECR effort faced a conundrum: some articles falling within ITAR licensing exemptions could move to the CCL and not qualify under an EAR license exception.  Those articles would, counter-intuitively, move into stricter regulation under the EAR than they were subject to under the ITAR.  To address this unacceptable result, BIS has undertaken a comprehensive review of EAR license exceptions to harmonize them with ITAR exemptions.

The existing and amended EAR exceptions represent a long-term promise for more licensing flexibility.  If you’re an exporter of items destined for the new 600 series, this is good news!  Those items moving to EAR controls from ITAR controls may now be eligible for certain EAR license exceptions, i.e., you may be able to export and re-export items without specific authorization from BIS or the State Department.

While most substantive elements of EAR license exceptions have not changed, the proposed changes (which go into effect on October 15, 2013) revised the EAR license exceptions to mirror ITAR license exemption provisions that were broader in scope than their EAR counterparts.

The Exceptions

The license exceptions available for 600 series items are described below.  While the proposed rule changes are detailed and complex, we hope these summaries highlight the potential benefits for exporters who will be eligible to use these exceptions.

  • Shipments of limited value (LVS) (15 C.F.R. §740.3).  Exporting small-dollar value 600 series items?  This EAR license exception would allow shipments below a value of $1,500 to more than 175 countries (listed inGroup B).

  1. The revised TMP would allow the temporary export without a license of certain items, including 600 series items, to a U.S. subsidiary, affiliate or facility abroad in any country (not just Group B countries) other than Cuba, Iran, North Korea, Sudan, or Syria.

  2. The revised TMP would allow a shipment originating in Canada or Mexico could transit the United States en route to a delivery point in the same country without an export license.

  3. The revised TMP would increase the amount of time a temporary export may remain abroad under a requested extension.  The current allowable extension is only an additional six months.  The revised TMP would allow an extension of up to four years.

  • Servicing and Replacement of Parts and Equipment (RPL) (15 C.F.R. § 740.10).  Replacing and repairing parts could get easier!  This EAR license exception would allow the export and reexport of one-for-one replacement of parts, servicing, and replacement of defective equipment that was lawfully exported.  The revisions to RPL expand the scope of the exception to include components, accessories, and attachments, not just parts, in order to encompass 600 series items.

  • Governments and International Organizations (GOV) (15 C.F.R. § 740.11).  Government service providers need to listen up.  This EAR license exception would allow, in specific circumstances, the export, reexport and transfer of 600 series items consigned to non-governmental end-users such as U.S. government contractors that are acting on behalf of the U.S. government and DOD-directed shipments.

  • Technology and Software (TSU) (15 C.F.R. §740.13).  Exporting technical information to Universities? Class is in session!  This EAR license exception  would allow the export and reexport of technology, including training information, and publicly available software related to defense articles.  TSU’s scope will be expanded to include the export of technology by universities in the United States to their bona fide and full-time regular foreign national employees and the export of copies of technology previously authorized to be exported to the same recipient.

  • Strategic Trade Authorization (STA) (15 C.F.R. §740.20).  While this exception is not new, the revised STA is potentially a game-changer for many exporters of military items destined for foreign government end-use.  This EAR license exception will allow the export of a number of 600 series items for export to 36 ally countries (listed at §740.20 (c)(1)) without a license if the items are for end-use by a government of one of those countries.  This license exception has received much attention and analysis by export controls professionals and we intend to explore this exception in detail in another Episode of this series.

Exporters should be aware that license exceptions are subject to some restrictions.  Most notably, the exceptions above are not eligible for use to U.S. embargoed countries (new Group D:5.[1]), except for license exception GOV in very limited circumstances.  Restrictions also apply for the export of major defense equipment requiring notification to Congress.  Other restrictions are found in Restrictions to All License Exceptions (15 C.F.R. §740.2) and in the individual license exception provisions.

What the Changes Mean to You

Revisions to the licensing regimes could potentially open up new business opportunities for exporters and should offer more flexibility in the context of existing export activities.  Companies should reevaluate their export compliance processes and procedures to take full advantage of the exceptions where they make business sense.  We will continue to roll out Episodes in this ECR series to help keep you up to date, and more importantly, help you understand how the ECR rules may benefit you, so stay tuned.


[1] The new Country Group D:5 includes: Afghanistan, Belarus, Burma, China, Democratic Republic of Congo, Cote d’Ivoire, Cuba, Cyprus, Eritrea, Fiji, Haiti, Iran, Iraq, North Korea, Lebanon, Liberia, Libya, Somalia, Sri Lanka, Sudan, Syria, Venezuela, Vietnam, and Zimbabwe.

Copyright © 2014, Sheppard Mullin Richter & Hampton LLP.

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