By George W. Thompson
Although I’ve advised clients regarding export controls for over two decades now and find it a fascinating area of practice, I have to admit that regulatory changes tend to be incremental and highly technical in nature.
The changes resulting from export control reform, however, are different.
They affect a broad class of products as well as the rules for anyone involved in exporting hardware and technical data covered by the International Traffic in Arms Regulations (ITAR). The resulting regulatory revisions both simplify and complicate compliance burdens at the same time.
Exporters ignore them at their own peril.
Second Anniversary of Export Control Reform Changes October 14
The initial set of export control reform changes is about to have their second anniversary. Regardless of whether you consider this event to be worthy of celebration, exporters who have had products and technology transferred from coverage by the ITAR to the Export Administration Regulations (EAR) should mark October 14, 2015 as a date to watch. This is because the initial round of changes, like all subsequent ones, provided for a two-year transition period.
That period ends on October 14.
Exporters had the option of continuing to use existing ITAR export authorizations for items that had been removed to the EAR. That option will no longer be available at the second anniversary date, at least when the EAR now covers all of the authorized items.
Of course, if an existing ITAR permission expired before then, a new authorization, under the EAR, would be required to continue exporting.
Category VIII Exporters May Have Difficulty
The first round of changes covered Military Aircraft, Category VIII of the United States Munitions List (USML). Out of all USML categories, this may pose the most difficult compliance challenge for exporters, and not only because it constituted the inaugural set of changes.
Under the pre-reform rules Category VIII, like the USML in general, had a “catch-all” provision for “specifically designed or modified parts and components” of military aircraft within its coverage.
In keeping with one of the key goals of reform, most such miscellaneous items have been removed from the USML and transferred to the EAR, with a specific list of aircraft types and related parts remaining in Category VIII. Even under the new rule, “specially designed” parts and components for the B-1B, B-2, F-15SE, F/A-18 E/F/G, F-22, F-35 and future variants thereof, F-117 and U.S. Government technology demonstrators remain within Category VIII. Coverage of technical data for catch-all parts follows this same jurisdictional divide.
Consequently for many aircraft parts manufacturers, export control reform has complicated, not simplified, the compliance challenge.
Complications with EAR and ITAR Compliance
They face the task of adapting to EAR requirements for the majority of their former Category VIII catch-all products, but parts for the named aircraft remain subject to the ITAR. This can lead to two sets of license requirements and two parallel (though overlapping) compliance programs where before there was one, and an infinite set of headaches.
The designers of export control reform changes incorporated rules that help mitigate the effects of having two systems in place. The two-year period during which previous ITAR authorizations remain valid for transitioned EAR items was noted above.
Additionally, existing ITAR authorizations covering “mixed” ITAR and EAR items may remain in effect until expiration and can be renewed. Exporters may also apply for new ITAR authorization to cover proposed exports of such “mixed” items. This provides exporters with the option of getting a single license for shipments of merchandise or transfers of technology that are otherwise subject to jurisdiction by two different agencies.
Of course, an exporter may conclude that it is better off using the EAR’s license and license exception scheme to cover eligible items.
To the extent an outstanding ITAR license, agreement or other form of authorization covers only transitioned EAR items, however, October 14, 2015, is the deadline. ITAR authorizations for former Category VIII are invalid after that date, and an EAR license or license exception must be in place for nearly all such transitioned items to avoid violations. Moreover, new ITAR licenses will not be granted for transactions involving EAR-only items.
Process Will Repeat for Other USML Categories
This process will repeat with each subsequent two-year anniversary for other reformed USML categories.
For example, Surface Vessels of War and Special Naval Equipment (USML Category VI) and Ground Vehicles (Category VII) have a transition end date of January 5, 2016, while the date for Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs, and Mines (Category IV) and Explosives and Energetic Materials, Propellants, Incendiary Agents, and Their Constituents (Category V) is June 30, 2016 and for Spacecraft and Related Articles is November 9, 2016.
Category VIII Exporters Should Immediately Make Required Adjustments
In sum, exporters of military aircraft parts that were removed from Category VIII, and who have not yet made the requisite adjustments, should move immediately to do so. While exporters of items removed from other categories have more time to adapt their compliance programs, they too should move sooner rather than later to do so.
The initial Commerce and State Department rules regarding Military Aircraft were published here http://www.gpo.gov/fdsys/pkg/FR-2013-04-16/pdf/2013-08352.pdf and here http://www.gpo.gov/fdsys/pkg/FR-2013-04-16/pdf/2013-08351.pdf , and the subsequent corrections here http://www.gpo.gov/fdsys/pkg/FR-2013-10-03/pdf/2013-23498.pdf and here http://www.gpo.gov/fdsys/pkg/FR-2013-10-03/pdf/2013-24235.pdf.
