Export reform impact on defense electronics suppliers
StoryApril 09, 2015
Over the last two years the Obama Administration has pushed out export reforms that essentially move a number of items from the United States Munitions List (USML) under the International Traffic in Arms Regulations (ITAR) over to the Department of Commerce to make it easier for U.S. defense and satellite suppliers to do business overseas. The reforms like the regulations they aim to change are complicated, but attorneys at Arent Fox, LLP in Washington have put together a review of the reforms with content on how they affect defense electronics suppliers.
Below are highlights from the review, authored by attorneys Kay Georgi and Marwa Hassoun of the Arent Fox International Trade Practice. Georgi notes that it is a high-level overview and that “those seeking to classify their items post-ECR of their category will be well advised to see expert advice and assistance. These changes have affected a wide range of industries. As with all changes associated with Export Control Reform (ECR), the amendments to the ITAR and the EAR have resulted in the creation of positive lists of ITAR-controlled items in the USML while transferring the former military items to the new 600 Series and, in the case of spacecraft to the 500 Series, to the relevant Commerce Control List (CCL) category.”
Highlights from the Arent Fox review
Changes Common to All USML and CCL Categories
• “Generic parts, components, accessories, and attachments that are specifically designed or modified for a defense article, regardless of their significance to maintaining a military advantage, have been removed from the USML. Instead, unless such items are enumerated on the revised USML, such items are controlled in their respective CCL category, either specifically enumerated in ECCNs XA6XX.y or potentially caught in ECCNs XA6XX.x. The USML now provides an enumerated generally positive list of parts, components, accessories, and attachments that are still controlled under the ITAR. The USML still contains, however, a number of “catch-all” categories for “specially designed” parts, components, accessories, and attachments for certain special defense articles.”
• The USML continues to control commodities even if not specifically enumerated in the USML, but are classified or are being developed using classified information.
Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs, and Mines, USML Category IV. On July 1, 2014, the Directorate of Defense Trade Controls (DDTC) and the BIS implemented final rules for launch vehicles, guided missiles, ballistic missiles, rockets, torpedoes, bombs, and mines.
• Changes to Category IV transfer demolition blocks, blasting caps, and military explosive excavating devices from the USML to the CCL. Category IV continues to control certain rockets, space launch vehicles (SLVs), missiles, bombs, torpedoes, depth charges, mines, grenades, their launchers, and apparatus and devices specially designed for handling, controlling, activating, monitoring, detecting, protecting, discharging, or detonating such commodities. Also controlled under the USML are certain rocket, SLV, and missile power plants and non-nuclear warheads.
Surface Vessels of War and Special Naval Equipment, USML Category VI and Submersible Vessels and Related Articles, USML Category XX. On January 6, 2014, the DDTC and the BIS implemented final rules for surface vessels of war and special naval equipment.
• The USML now contains a specific definition of surface vessels at 121.15, which considerably narrows the surface vessels controlled under the ITAR. Specifically, surface vessels are US- or foreign-origin manned or unmanned warships or other combatant vessels, high speed air cushion vehicles with payloads over 25 tons, vessels integrated with or designed to support nuclear propulsion plants, armed vehicles or vehicles specially designed to deliver munitions or destroy or incapacitate targets, or vehicles that incorporate “mission systems” — defense articles that perform specific military functions, such as providing military communication, target designation, surveillance, target detection, or sensor capabilities — and remain subject to the ITAR. Notably, the DDTC has removed harbor entrance detection devices from the USML.
• Surface vessels no longer controlled under the ITAR have been transferred to Category 8 (Marine) of the CCL in ECCNs 8Y609 for each product group and are controlled for national security, regional stability, antiterrorism, and UN embargo reasons except paragraph .y, which is controlled only for antiterrorism reasons.
• Submersible vessels, such as submarines, formerly in USML Category VI are now in Category XX and include certain of their engines, motors, and propulsion plants. Submersible and semi-submersible vehicles no longer controlled under the USML are controlled in CCL Category 8 (Marine) in ECCNs 8Y620 for product groups A, B, D, and E and generally are controlled for national security, regional stability, antiterrorism, and UN embargo reasons.
Ground Vehicles, USML Category VII. On January 6, 2014, the DDTC and the BIS implemented final rules for ground vehicles.
• Major changes to the USML include adding 121.4, which explicitly defines “ground vehicles.” Similarly, the CCL also defines ground vehicles in a note to the new ECCNs.
• Additionally, the DDTC has removed most manned and unmanned unarmored and unarmed military vehicles, unless such vehicles are specifically designed as firing platforms for weapons above .50 caliber, and armored vehicles, either unarmed or with inoperable weapons manufactured before 1956. Armed vehicles and vehicles that incorporate “mission systems,” as defined above, remain subject to the ITAR.
Military Electronics, USML Category XI. The final rule for military electronics was implemented on December 30, 2014.
• Military electronics that State and Commerce have transferred to ECCN 3A611 include radar, telecommunications, acoustic or computer equipment specially designed for military application and are not enumerated in the USML, high frequency surface wave radar, and application specific integrated circuits (ASICs) and programmable logic devices (PLDs) programmed for “600 Series” items, certain printed circuit boards assemblies, and multichip modules. The BIS has included all these items in 3A611 instead of creating new 600 Series ECCNs in CCL Categories (Computers), 5 (Telecommunications), 6 (Radar), and 7 (Avionics). Those Categories contain references to the Category 3 600 Series. Technology, software, materials, and equipment for these commodities are controlled under the related 3Y611 product groups. Other than the .y paragraph, which is only controlled for antiterrorism reasons, the remainder of Category 3’s 600 Series is controlled for national security, regional stability, antiterrorism, and UN embargo reasons.
• Certain microwave monolithic integrated circuit (MMIC) power amplifiers and discrete microwave transistors will be controlled as ECCN 3A001.b.2 and b.3 and not the 600 Series. In exchange for this reprieve, the BIS has added a control for NS1 except if the commodities are exported or re-exported for use in civil telecommunications applications.
• While the majority of Category XI consists of enumerated lists, XI(b) is a catch-all for electronic systems or equipment specially designed for intelligence purposes that collect, survey, monitor, or exploit the electromagnetic spectrum or for counteracting such activities. The corresponding CCL subcategory, 3A611.b is reserved for the time being.
Spacecraft and Related Articles, USML Category XV. On November 10, 2014, the Departments of State and Commerce implemented final rules for spacecraft and related articles.
• The Departments os State and Commerce staggered the implementation of this rule in response to industry concerns highlighting the quickly evolving nature of microelectronic circuits. On June 27, 2014, controls on radiation-hardened microelectronic circuits currently in USML Category XV(d) and microelectronic circuits in Category XV(e) were transferred to the ECCNs 9A515.d and .e, and related software and technology transferred to 9D515.d and .e, respectively. On November 10, 2014, the rest of the proposed changes concerning all other spacecraft, satellite, and related items were implemented.
• The BIS has determined that spacecraft will be included in a new 500 series rather than a 600 series in Category 9 Aerospace and Propulsion, which recognizes the commercial nature of many of the items transferring to the 500 series.
• Commerce will treat licensing for the 500 series as it has done for the 600 series — there will be a policy of denial for China and Country Group E:1 (Cuba, Iran, North Korea, Sudan, and Syria), and license applications for Country Group D:5 will be reviewed consistently with ITAR § 126.1.
• Category XV contains a revised definition of “defense services” as applicable to spacecraft and satellite that is broader than the ITAR’s general definition of defense services as it may apply to the furnishing of assistance and training for spacecraft and satellite now subject to the EAR. Specifically, defense services as related to spacecraft and satellite include the furnishing of assistance, including training, in 1) the integration of a satellite or spacecraft to a launch vehicle, including both planning and onsite support, regardless of the jurisdiction, ownership, or origin of the satellite or spacecraft, or whether technical data is used; and 2) the launch failure analysis of a satellite or spacecraft, regardless of the jurisdiction, ownership, or origin of the satellite of spacecraft, or whether technical data is used.
• Generally, an ITAR-controlled item continues to be subject to the ITAR even if it is incorporated into a higher-level assembly, making that assembly also subject to the ITAR. Manufacturers of ITAR-controlled spacecraft and satellite components are often unable to compete in the global market because their parts will “taint” the satellite or spacecraft into which these ITAR-controlled parts are incorporated. The Departments of State and Commerce have added notes to Category XV(a) and 9A515 respectively resolving this concern.
For more information, please contact Kay C. Georgi or Marwa M. Hassoun from Arent Fox’s International Trade practice.
