First they came by air, now by sea and by land.

On July 8, 2013, the U.S. Department of State published its final rule revising controls on naval vessels and military vehicles contained in the International Traffic in Arms Regulations (ITAR).   The changes will take effect on January 6, 2014 and will revise United States Munitions List Category VI (Surface Vessels and Special Naval Equipment), Category VII (Ground Vehicles), and Category XX, (now named Submersible Vessels and Related Articles).  The final rule also makes changes to Category XII (Materials and Miscellaneous Articles) which are noteworthy and will be covered separately in an upcoming episode of this series.

This article covers highlights of the regulatory changes for naval vessels and military vehicles, notes the pattern of the Export Control Reform revisions, and comments on how these changes may be important to you and your business.

ECR Changes Generally

For those keeping score at home, this rule makes 8 out of 21 final rules that have been published (cheat sheet of publications below), with more final revisions expected in September.

You will recall that the Export Control Reform changes are designed to streamline U.S. export controls.  The ECR initiative aims to place higher walls around the most sensitive U.S.-origin commodities and technical data.  Concurrently, the ECR revisions aim to reduce restrictions on less sensitive items and technology by moving them off of the United States Munitions List (USML) and onto the less heavily regulated Commerce Control List (CCL), thereby promoting manufacturing, export, and trade.  Below we explain how the recent revisions on ships and ground vehicles address those ends.

Changes to Controls on Sea Vessels

You are the type of intelligent reader who follows this blog.  Therefore, you would rightly intuit that revised USML Category VI will continue to cover vessels with military capabilities such as warships, landing craft, and mine warfare vessels.  Similarly, items having a self-evident military nature (e.g., gun mounts, mine sweeping equipment, and nuclear propulsion plants) will remain controlled under USML Category VI.  By contrast, items that do not confer specific military advantage, such as harbor entrance detector devices and certain developmental vehicles, will be removed from USML Category VI.

The most significant change to Category VI is to move many parts and components to the CCL.  Currently, USML Category VI(f) is a catch-all category covering “All specifically designed or modified components, parts, accessories, and associated equipment” for articles controlled under Category VI.  Under this control, a vast number of parts and components without obvious military applications, such as a ship’s ladder, certain navigation equipment, or even a simple bolt that happens to be designed for a vessel of war, may be controlled under this catch-all category.

By contrast, revised Category VI(f) affirmatively lists only nine types of parts and components.  Parts, components, accessories, attachments, associated systems, and equipment not listed in Category VI(f) will be controlled subject to the EAR under ECCN 8A609.  Below is a VERY simple illustration (which we know you would not consider to be legal advice) of how the ECR changes to Category VI will work.

Submersible Vessels

The new rules will move submarines and nuclear propulsion power plants for submersible vessels from USML Category VI to new USML Category XX.  After the change, all submersible vessels designed or modified for military use, and parts and components of those vessels controlled by the ITAR, will be found under Category XX.  Other submersible vessels will move to the Commerce Control List, such as submarine rescue vehicles, Deep Submersible Vehicles, and harbor maintenance detection devices.  In general, however, if you’re exporting a boat that dives below the surface, your search for the controls on that item (or related technical data) will begin with USML Category XX.

Changes to Controls on Military Ground Vehicles

The ECR changes to USML Category VII, (Ground Vehicles) are similar to those in Category VI (Naval Vessels).  Vehicles with obvious military capabilities, such as tanks and infantry fighting vehicles, will remain controlled under Category VII.  Most military vehicles, trucks, and trailers that are not armed or armored, however, will move to the CCL.  Typically the distinctions made for the revised controls are intuitive.  A vehicle specially designed as a firing platform for a weapon above .50 caliber will be controlled under Category VII.  A vehicle merely capable of being equipped with add-on armor, however, will not be controlled under Category VII.

As with naval vessels, the catch-all category for parts and components of military vehicles will be narrowed to a positive list.  The amended Category VII(g) includes only fourteen specific types of parts and components.  Parts, components, accessories, attachments, associated equipment, and systems specially designed for vehicles listed in Category VII, but not listed in paragraph (g), will be subject to the EAR under ECCN 0A606.  Below is an illustration (that will look familiar, but the author does not claim much creativity in the graphics department) of how the ECR changes to Category VII will work.

Effects of the ECR Changes

The changes take effect on January 6, 2014.  This revision should increase manufacturing, export, and trade for the United States and its trading partners.  The ECR revisions will reduce licensing requirements on items that fall from the ITAR’s restrictive control to the more flexible EAR controls.  Companies exporting parts and components formerly under ITAR controls will face reduced licensing requirements and may realize savings on the administrative costs of working under the ITAR regime.

Additionally, reduced controls on U.S.-origin parts and components should translate to reduced controls on foreign-made products incorporating U.S.-origin parts.  Under existing State Department regulations, incorporation of an ITAR-controlled item into a foreign-made product subjects the whole product to ITAR controls (referred to as the “see-through” rule).  Under current controls, a truck chassis or a panel for a ship hull designed or modified for military use would be ITAR controlled.  If a foreign manufacture used such a chassis or panel in its vehicle or vessel, the ITAR-controlled part would render the entire vehicle or vessel ITAR-controlled.

Under the ECR revisions, vehicle and vessel parts and components, no longer ITAR-controlled, provide new options for use by foreign OEMs.  Foreign manufacturers may select U.S.-origin parts that will not place the restrictions of ITAR controls on the finished product.  Furthermore, the de minimis rule which of the would mean (in most cases) that the EAR controls will only apply to a foreign-made product incorporating a CCL part or component when that part or component makes up more than 25% of the value of the product (for exports to designated terrorist-supporting countries, the de minimis level is 10% or more).

Conclusion

As with all ECR changes, the revised rules are not a release from U.S. export controls.  Manufacturers and exporters must be certain that they understand the applicable regulations and maintain adequate policies and procedures to comply with those regulations.   Once you are savvy, however, you can use your solid understanding of the ECR changes to help your company increase its manufacturing, exporting, or trade in naval vessels, ground vehicles, and associated parts and components.