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U.S. Export Control & Compliance:What Canadian Entities Should Know

The Knowledge GroupApril 6, 2016, Webinar

Export Control Reform – Implementation Challenges and Impacts on Canadian Companies

Chuck Barry, Special Counsel, Eckland & Blando LLPcbarry@ecklandblando.com

Cell: 763-807-9724

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Agenda

• Export Control Reform (ECR) Context – Changes and Challenges

• Determining Changes in Jurisdiction & Classification• 5 Key Results of ECR Affecting Canadian Companies• ITAR – Canadian Exemptions (Sec. 126.5)• Reexporting – Steps for Success & Surprises• Transition Challenges• Summary

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Export Control Reform (ECR) Context – Changes and Challenges

• “Export controls are about risk mitigation.”• Main goal of export controls – keep select states or

non-state actors (e.g., Al Qaeda, Taliban, Hezbollah, Hamas, ISIS) from obtaining military capabilities that could threaten important U.S. national security interests.

• Aug 2009 – U.S. agencies directed by President Obama to build U.S export control system with:– “Higher walls…around fewer, more critical items.”(Former Secretary of Defense Robert M. Gates, April 10, 2010)

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Export Control Reform (ECR)-Cont’dGoals

• Goals of ECR to enhance US national security:– Overhaul Cold War-era system of regs by focusing

on threats that matter most– Increase interoperability with and streamline

defense transfers to NATO (includes Canada) and other close allies

– Strengthen US national security while increasing competitiveness of US industry by reducing incentives for non-US manufacturers to design out or avoid US origin content .

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Export Control Reform (ECR)-Cont’d“Four Singles” Objectives - Elusive

• Single export-control list• Single licensing entity (regulating agency)• Single enforcement agency • Single IT infrastructure • Results: Progress moving toward these

– Phase 1 “USXPORTS” selected as single licensing database (secure DoD database)

– Consolidated screening list (3 agencies) to self-screen (100,000 screens per day as Feb-11-16)

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Export Control Reform (ECR)-Cont’dKey Accomplishments

– Major changes: moved less sensitive items from U.S. Munitions List (USML) to new section of Commerce Control List (CCL) called the “600 Series” and for spacecraft “9X515” items. Created “Positive Lists” of ITAR-controlled items .

• E.G., military aircraft instrument flight trainers not specially designed to simulate combat were moved from USML to CCL.

• Prior to ECR, most parts specifically designed or modified for military aircraft fell under USML Category VIII (h), and corresponding tech data for the parts was under USML Category VIII (i). After ECR, most of parts moved to new 600 Series under ECCN 9A610, and corresponding technology required for development, production, etc. of the parts falls under ECCN 9E610.

– Most 600 series items require license to all countries except Canada.• However many of those will be eligible for an EAR license exception, e.g., STA.

– Revision of 18 of 21 categories of USML, 15 of which have final regulations implemented, remaining 3 been published for public comment (02-10-16). DDTC of State Department aims to finalize initial review of all USML in 2016.

– More flexible licensing process under CCL to export less sensitive defense products/services to allies and partners, benefitting US (and NATO, including Canadian, and allied or partner countries’ manufacturers.

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Export Control Reform (ECR)-Cont’dFewer Burdens for 600 Series Items*

• no defense services • no brokering • no registration • no registration or licensing fees • availability of a de minimis rule

(U.S. content 25% or less of total value of item for most countries) for non-embargoed countries (No US export juris.)

• vastly less burdensome direct product rule

• one page licensing forms rather than complex MLA’s and TAA’s

• More flexible dual/third country national rules

• No need for authorizations just to market or to manufacture abroad

• No import requirements• No purchase order requirements

(thus allowing for better business planning)

• Multiple license exceptions for trade with allied countries, such as STA, GOV for exports to the US and allied governments, and

• RPL for replacement parts

*Kevin Wolf, Assistant Secretary of Commerce for Export Admin, BIS Annual Update 2015 – Nov 2, 2015

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Determining Changes in Jurisdiction (agency) and Classification (item)

• All items controlled by either ITAR or EAR:– ITAR controls exports on USML– EAR controls dual use and certain “military items”– If get jurisdiction wrong, every export decision in future will be wrong,

too– This determination sets direction toward the correct:

• Controlling agency - Dept. of State (DOS) or Dept. of Commerce (DOC)

• License Requirements (or exemptions \ exceptions),

Also, similar serious compliance risk of export violation, if product classification is incorrect.

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Determining Jurisdiction and Classification

• Two Basic Questions:1. Is product, service, or data item controlled under ITAR? (Jurisdiction) - If yes, which USML Category and Classification (C)

- All J & C reviews must start with ITAR review & only State Dept has legal authority to decide whether item is ITAR-controlled

- Self-determine and may seek CJ per ITAR 22 CFR 120.4

2. If not under ITAR, where is it controlled within the EAR? (Classification) - Which ECCN (Export Control Classification Number)?

• Resolved Questions by required “Order of Review” and document the results. Start analysis with 22 CFR ITAR 121.1(b) to determine jurisdiction and classification.

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Order of Review – Determine Jurisdiction & Classification (J&C)

• J&C process governed by “Order of Review”• Order of Review defines steps for reviewing ITAR,

then EAR to assess jurisdiction and classification• Only analyze “specially designed” if such words are in

control paragraph in ITAR or EAR, as case may be• DDTC and BIS “Decision Tools”:

– ITAR 121.1(b)(1)• Online Decision Tool: http://pmddtc.state.gov/licensing/dt_OrderofReview.htm

– EAR 774 Supplement No. 4• Online Decision Tool:• http://www.bis.doc/index/php/export-control-classification

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“Specially Designed”ITAR §120.41

• Definition of “specially designed” uses a “catch and release” structure. Two “catches”

• Is specially designed ITAR item if it is:– As result of development can achieve or exceed

the controlled performance levels, characteristics, or functions described in relevant USML paragraph; OR

– A part, component, accessory, attachment, or software for use in or with a defense article.

• These are two VERY BROAD “CATCHES.”

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Specially Designed – 5 Possible “Releases” – Not subject to ITAR

• Item is subject to EAR under DDTC C J • Is, regardless of form or fit, a fastener, washer, spacer,

grommet, bushing, wire, etc.• Has same function, performance capabilities as item or

sofware in production and not on USML• Was or is being developed knowing use in or with BOTH

defense items and items Not on USML• Was or is being developed as general purpose item with no

knowledge for use in or with particular commodity, e.g, an aircraft or machine tool - Must have contemporaneous documents that establish this fact, e.g., concept design, marketing plans, declarations in patent apps or contracts.

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ITAR Examples – Order of Review

• ITAR: Aircraft tail boom component – Review USML Category VIII(a)(1) & ITAR 120.41 “specially designed” words are expressly stated in (h)(3)

• ITAR: Static line anchor cable for CH-47 Chinook – Review USML Category VIII – not listed in VIII (h)(1) or in paragraph using “specially designed.” So, move your export review to EAR 600 Series

– Source: DDTC at Society for International Affairs (SIA) Conference – Mar 9 2015

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EAR Examples – Order of Review• Items previously controlled under USML Category VIII –

Aircraft and Related Articles

– For end item: if not listed in ITAR USML VIII(a), (e), or (f), then it is moving to CCL’s new 9A610 (aircraft). Part of new “600 Series” (EAR as former USML item.)

– For Software or technology (unclassified): • If an item stays on USML, then these 2 items directly related to the USML

item also stay - on USML VIII (i) or XIX(g).

• If not on USML, item is moving to CCL’s new 9D610/9E610 (aircraft software/tech) or 9D619/9E619 (engine software/technology)

– Source: Bureau of Industry and Security (BIS) at SIA Conference Mar 9 2015

USML Framework• Control text for:

– End platforms and major systems– Parts, components, accessories, and attachments– Classified articles

• Technical data (including software) anddefense services

• Items subject to the EAR – new “(x)”paragraph

CCL 600 Series Framework (Source: BIS)

Former USML items (and -018 items)listed in the “Items” paragraph.

Order of review:• .a - .w: specifically

enumerated end items, materials, parts, components, accessories, and attachments– Some items may be

“specially designed”• .y: specifically described

commodities (primarily parts, components, accessories, and attachments) that are “specially designed”

• .x: “specially designed” parts, components, accessories, and attachments that are not specifically enumerated

9A610CCLCategory 0-9

Product Group A-E

“600 series” derives its name from the 3rd

character of the ECCN

Last two characters will generally track the WAML

CCL 600 Series Framework

STA eligibility requests for “600 series” end items). (2) Paragraph (c)(2) of License Exception STA (§740.20(c)(2) of the EAR) may not be used for any item in 9A610.

9A610 Military aircraft and related commodities, other than those enumerated in 9A991.a (see List of Items Controlled)License RequirementsReason for Control: NS, RS, MT, AT, UN

List Based License Exceptions (See Part 740 for a description of all license exceptions) LVS: $1500

GBS: N/A CIV: N/A

Special Conditions for STA

STA: (1) Paragraph (c)(1) of License Exception STA (§740.20(c)(1) of the EAR) may not be used for any item in 9A610.a (i.e., “end item” military aircraft), unless determined by BIS to be eligible for License Exception STA in accordance with §740.20(g) (License Exception

.a - .x items controlled to all countries except Canada

.y items controlled to Country Group E:1, China, Russia, and Venezuela

Control(s) Country Chart (See Supp. No. 1 to part 738)

NS applies to entire entry except 9A610.u, .v,.w, and .y

NS Column 1

RS applies to entire entry except 9A610.y RS Column 1

MT applies to 9A610.u, .v, and .w MT Column 1

AT applies to entire entry AT Column 1

UN applies to entire entry except 9A610.y See §746.1(b) for UN controls

Examples: USML to 600 Series (Source: BIS)

Revised USML End-Items

“A More Positive List”

(“. a-.w ” i tems) Specially enumerated end-items, “parts”, “components”, “accessories”

& “attachments”.

Commerce Control List 600 Series

• F-15, F-16• Assembled engines• Weapons pylons• Mission systems• Bomb racks• Missile launchers• Fire control computer• Fire control Radar

(“. x ” i tems) “Specially Designed” “parts”, “components”, “accessories”, and “attachments”.

(“.y” items)Specifically enumerated “parts”

“components”, “accessories”, “specially designed”…

• Aircrew life support and safety equipment

• Parachutes/paragliders• Controlled opening

equipment of automatic piloting systems, designed for parachuted loads

• T-1 Aircraft

• Wings, Rudder, Fin, Panels• Fuselage – forward, center,

aft• Cockpit structure• Forward equipment bay• Control surfaces, activation

and control systems

• Aircraft tires• Hydraulic system filters• Hydraulic and fuel hoses,

fittings, clips, couplings, brackets

• Cockpit panel knobs, switches, buttons, dials

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5 Key Results of ECR Affecting Canadian Companies

• No change to ITAR Canadian Exemptions (126.5)• ECR simplifies export of 600 Series items from U.S. to

Canada• ECR makes easier retransfer of 600 Series items

within Canada• Canadian Purchasers may avoid being subject to ITAR

“see-through rule” for reexports of Canadian-made items with US origin 600 Series content

• Canadian Purchasers may require US suppliers to give ECCN for 600 Series items.

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ECR Affecting Canadian Companies1st – No Change to ITAR Canadian Exemptions (126.5)

• Many items changed from USML to CCL– E.G., ground vehicles, surface vessels; not explosives,

energetic materials, missiles.• For those remaining subject to ITAR – existing

Canadian exemptions in Sec. 126.5 remain• Certain ITAR items for export to Canada or

retransfer within Canada – may be eligible• Only minor rev to reflect realigning USML• See List of ITAR Exemptions & EAR Exceptions

ITAR Exemptions & EAR ExceptionsITAR Exemptions EAR License Exceptions

§ 123.4 RPL § 740.10; TMP § 740.9(b)(2) and (b)(4)§ 123.16(b)(2) LVS § 740.3

§ 123.16(b)(5) TMP § 740.9(a)(5)

§ 123.16(b)(9) TMP § 740.9(b)(10)

§ 123.17(f)-(i) TMP § 740.9(a)(11); BAG § 740.14(h)(2)

§ 123.19 TMP § 740.9(b)(1)

§ 125.4(b)(1) GOV § 740.11(b)(2)

§ 125.4(b)(3) GOV § 740.11(b)(2)

§ 125.4(b)(4) TSU § 740.13(g)

§ 125.4(b)(5) TSU § 740.13(a)

§ 125.4(b)(10) TSU § 740.13(f)

§ 126.4 GOV § 740.11(b)(2)

§ 126.6(a) GOV § 740.11(b)(2)

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ECR Affecting Canadian Companies2nd - simplifies export of 600 Series items from U.S. to Canada

• Prior to ECR, most EAR-controlled items could be exported from US to Canada – no license required (NLR)

• After ECR, this expanded to include new 600 Series ECCN from USML – to be exported for ultimate end-use in Canada NLR. Much easier to export former USML items to Canada without having to resort to ITAR exemption.

• Canada is the only country to which 600 Series items – in general, may be exported NLR.

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ECR Affecting Canadian Companies3rd - Makes easier retransfer of 600 Series items within Canada

• What if you want to sell ITAR-controlled items from Ottawa to Toronto, or send same to Vancouver for heat treatment or to Winnipeg for testing? US State-DDTC likely view such actions as “retransfers” requiring their approval.

• Yet, possible to retransfer in Canada, most EAR-controlled items (including 600 Series) with no US export authorization – if not transfer for prohibited end –use or end-user, and know the Canadian customer will not export in violation of EAR (Cuba or Europe without license or exception.

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ECR Affecting Canadian Companies4th - Canadian Purchasers may avoid being subject to ITAR “see-

through rule” for reexports of Canadian-made items

• Canadian Purchasers may avoid being subject to ITAR “see-through rule” for reexports of Canadian-made items with US origin 600 Series content.

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Export Control Basics: What are export controls & how affect me?

• U.S. laws/regs that govern electronic transfer or shipment overseas (or to foreign nationals within U.S.) of certain controlled information, technologies and commodities.

• Protect economy, promote trade goals, restrict export of tech and goods that could militarily aid U.S. adversaries. Is good business. Failure is costly & impacts ability to deliver or on time.

• Protect your company’s reputation/ability export.• Other countries have similar laws.

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Export Control Basics: What are export controls & how affect me?

• Export: actual shipment or transmission of items out of U.S. (EAR 734.2(b)) Examples:– Physical shipment, hand carried items or laptops,

email, posting or pulling from FTP site, accessing a server overseas, file sharing with foreign person or colleague overseas, telephone, fax, visual inspection by foreign person in U.S. or abroad of controlled tech, actual use or application of controlled tech for the benefit of a foreign entity or person anywhere.

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Export Control Basics: What are export control laws/regs that affect me?

• U.S. Dept. of Commerce (DOC) – Export Administration Regs (EAR) – focus on dual-use

• U.S. Dept. of State (DOS) – International Traffic in Arms Regulations (ITAR) – focus primarily on military items and technologies.

• Two main lists: EAR Commerce Control List (CCL) and ITAR Regs – U.S. Munitions List (USML)

• Plus – Office of Foreign Assets Control (OFAC)• Varying levels – trade embargoes (17 countries)

– Cuba still subject, Iran, Iraq, North Korea, Sudan, etc.

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Export Control Basics: Question 2: What are export control items-technologies?

• Examples in export control lists - seek expert legal advice to see if license or license exception fits before export:

• advanced computing; microelectronics; telecomm; information security and encryption; certain life sciences (biotech, biomed engineering) and chemicals, e.g., health sciences research, e.g. anthrax or botulism to protect military; nanotechnology and materials tech – e.g., composites, ceramics; advanced avionics/navigation (DOC); space-related and prototypes (ITAR); robotics; and items or technology specially developed for military (ITAR).

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Export Control Basics: Quest 3: Are there any export exemptions/exclusions?

• Yes, in both EAR and ITAR – However, be careful.• EAR – No License Required (NLR) OK if ECCN has no “X”

on EAR Country Chart under “Reasons for Control” or “EAR 99” items if no license required based on any other licensing requirement (e.g., end-use/user requirement; restricted destinations - countries).

• ITAR – Part 125 Exemptions, e.g., tech data previously authorized for export to same recipient; or for use by US Person abroad.

• Should obtain export legal advice prior to use of any exemption (ITAR) or exception (EAR).

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Export Control Basics: Quest 4: What are the “Foreign Person” export licensing rules?

• “Deemed Export” – transfer of tech or tech data to foreign person is deemed to be export to home country of the Foreign Person. Foreign national or person refers to everyone other than a U.S. citizen, a permanent resident alien (has “Green Card”), or certain protected individuals like refugees and persons with asylum via USG. (ITAR 22 CFR 120.16)

• Even a discussion with a Foreign Person in U.S. is considered a “deemed export.” Avoid doing unless obtain in advance an export license or obtain license exception approved by proper U.S. Govt. agency and qualified export legal advice.

• Tech Data definition (EAR and ITAR) is very broad and inclusive: design, development, production, maintenance, repair, testing, manufacture, assembly. Includes blueprints, drawings, photos, plans, instructions, diagrams, models, specs, etc.– Tech Data definition does not include: basic marketing info on function,

purpose or general descriptions of defense items. If so, no EAR or ITAR export license required.

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Export Control Basics: Question 5: How long does it take to get export license?

• Export licenses can take 60 days to 3 months to obtain after applications are sent to Govt.

• Consider these factors in your export planning:– Physical shipments could be delayed.– International collaborations and exchange of controlled

information could be delayed.– Restricted equipment at your business may trigger

technology control plan requirements, e.g. physical and IT security & foreign national review requirements.

– Training on military restricted (ITAR) equipment could trigger licenses for certain foreign nationals at your business or elsewhere.

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Export Control Basics: Quest 6 - What are penalties for violating such laws?

• Important to take steps to prevent violations of export regs and become personally liable for substantial civil and criminal penalties.

• Consequences of violating EAR or ITAR can be severe – for both the company and individual.

• State Department (ITAR):

- Criminal: up to $1M per violation, up to 10 years imprisonment

- Civil: seizure & forfeiture of items and any vessel, aircraft or vehicle involved in attempted violation, revocation of export privileges, fines up to $500,000 per violation

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Export Control Basics: Quest 6 - What are penalties for violating such laws?

• Commerce Department (EAR):

– Criminal: $50K to $1M or up to 5 times the value of export, whichever is greater per violation (range depends on applicable law); up to 20 years prison.

– Civil: loss of export privileges, fines up to $250K per violation or up to twice the value of the export.

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Export Control Basics: Quest 6 - What are penalties for violating such laws?

• Treasury Department (OFAC):

– Criminal: up to $1M per violation, up to 10 years imprisonment

– Civil: $55,000 to $250,000 fines (depending on applicable law) per violation

For all 3 agencies: penalties apply to each violation, which means that if a violation relates to more than one controlled item or material or occurs more than one occasion, each item or incident may trigger a penalty.

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Export Control Reform (“ECR”) -Context• ECR overhauled – major “sea lane” changes to 15+ of US

Munitions List Categories (21). Process started 2009 - present.– Affected wide range of industries.– Created “Positive Lists” of ITAR-controlled items; many

former ITAR items new 600 Series; spacecraft to 500 Series & CCL Category.

• ECR impacts jurisdiction and classification or reclassification of products, data or service(s).

• Key investment-effort to review all items down to component level; need expertise in EAR and ITAR.

• Is compliance seen as “bonus prevention” by some international business teams? (Are compliance, business strategy and incentive compensation properly aligned?)

• Effective export compliance is a “business enabler.”

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Commodity Jurisdiction and Product, Data, Services Classification

• All items controlled by either ITAR or EAR:– ITAR controls exports on USML– EAR controls dual use and certain “military items”– If get jurisdiction wrong, every export decision in future will be wrong,

too– This determination sets direction toward the correct:

• Controlling agency - Dept. of State (DOS) or Dept. of Commerce (DOC)

• License Requirements (or exemptions \ exceptions),

Also, similar serious compliance risk of export violation, if product classification is incorrect.

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Determining Jurisdiction and Classification

• Two Basic Questions:1. Is product, service, or data item controlled under ITAR? (Jurisdiction) - If yes, which USML Category and Classification (C)

- All J & C reviews must start with ITAR review & only State Dept has legal authority to decide whether item is ITAR-controlled

- Self-determine and may seek CJ per ITAR 22 CFR 120.4

2. If not under ITAR, where is it controlled within the EAR? (Classification) - Which ECCN (Export Control Classification Number)?

• Resolved Questions by required “Order of Review” and document the results. Start analysis with 22 CFR ITAR 121.1(b) to determine jurisdiction and classification.

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Before You Begin

• Jurisdiction and classification review should be an established part of company procedures:– Product development gate– Proposal review– Quote or Proposal release– Export Approval May be required for products, data, services

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Before You Begin• Certain data or information will be required

before you can review an item’s jurisdiction and classification (J&C)

• This will likely come from different functional areas within your company:– Engineering / Research & Development– Business Development / Sales– Contracts– Legal Determining J&C should be a coordinated team effort

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Before You Begin – Product• You must have a complete understanding of

the product:– Product description– Source of product– Understanding of product capabilities & end-uses– Product specifications and drawings– Real and expected customers for the product– Any past J&C or export history– Comparable products, including foreign availability

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Before You Begin – Data, Services

• Similar information is required for data or services to be reviewed– What is the source of the data or service?– Who (end-user) receives the service?– In what context has the service been provided in

the past? A checklist or questionnaire is often useful for gathering this information

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Determining Jurisdiction

• Jurisdiction may be determined in two ways:

– Self-determination based on a review of the ITAR, or if sourcing item from a supplier – ask them to identify either ITAR or EAR controlled (ECCN)

– Submitting commodity jurisdiction request (C J) to the Department of State (ODTC)

• Only a CJ determination is legally binding

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Order of Review – Determine Jurisdiction

• J&C process governed by “Order of Review”• Order of Review defines steps for reviewing ITAR,

then EAR to assess jurisdiction and classification• Only analyze “specially designed” if such words are in

control paragraph in ITAR or EAR, as case may be• DDTC and BIS “Decision Tools”:

– ITAR 121.1(b)(1)• Online Decision Tool: http://pmddtc.state.gov/licensing/dt_OrderofReview.htm

– EAR 774 Supplement No. 4• Online Decision Tool:• http://www.bis.doc/index/php/export-control-classification

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“Specially Designed”ITAR §120.41

• Definition of “specially designed” uses a “catch and release” structure. Two “catches”

• Is specially designed ITAR item if it is:– As result of development can achieve or exceed

the controlled performance levels, characteristics, or functions described in relevant USML paragraph; OR

– A part, component, accessory, attachment, or software for use in or with a defense article.

• These are two VERY BROAD “CATCHES.”

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Specially Designed – 5 Possible “Releases” – Not subject to ITAR

• Item is subject to EAR under DDTC C J • Is, regardless of form or fit, a fastener, washer, spacer,

grommet, bushing, wire, etc.• Has same function, performance capabilities as item or

sofware in production and not on USML• Was or is being developed knowing use in or with BOTH

defense items and items Not on USML• Was or is being developed as general purpose item with no

knowledge for use in or with particular commodity, e.g, an aircraft or machine tool - Must have contemporaneous documents that establish this fact, e.g., concept design, marketing plans, declarations in patent apps or contracts.

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ITAR Examples – Order of Review

• ITAR: Aircraft tail boom component – Review USML Category VIII(a)(1) & ITAR 120.41 “specially designed” words are expressly stated in (h)(3)

• ITAR: Static line anchor cable for CH-47 Chinook – Review USML Category VIII – not listed in VIII (h)(1) or in paragraph using “specially designed.” So, move your export review to EAR 600 Series

– Source: DDTC at Society for International Affairs (SIA) Conference – Mar 9 2015

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EAR Examples – Order of Review• Items previously controlled under USML Category VIII –

Aircraft and Related Articles

– For end item: if not listed in ITAR USML VIII(a), (e), or (f), then it is moving to CCL’s new 9A610 (aircraft). Part of new “600 Series” (EAR as former USML item.)

– For Software or technology (unclassified): • If an item stays on USML, then these 2 items directly related to the item

also stay - on USML VIII (i) or XIX(g).

• If not on USML, item is moving to CCL’s new 9D610/9E610 (aircraft software/tech) or 9D619/9E619 (engine software/technology)

– Source: Bureau of Industry and Security (BIS) at SIA Conference Mar 9 2015

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Transition Challenges

• Despite all assistance and guidance of agencies, “export classification remains a dicey proposition.”*

• With all the ECR improvements, there “is an unwelcome passenger – increased complexity.”**

* “Unintended Consequences of Export Reform: Has DDTC Opened an Alternative to the CJ?” by Jones Day article in its publications on website, Feb 2014

** “Export Control Reform Expert Analysis,” article by John Black, website of Export Compliance Training Institute, March 2015

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Transition Challenges• DDTC Amendments to USML Categories VIII (Aircraft), XV

(Satellites/Spacecraft), and XI (Military Electronics-effective 12-30-2014) (3 of 15 categories revised to date).

• Major impact on manufacturers and their 2nd and 3rd tier suppliers – especially for Military Electronics (ME).

• While many ME low level items were removed from ITAR licensing; large number will be subject to EAR, and broad open-ended “catch-all” provisions being transferred to CCL 600 Series,

e.g, ECCN 3A611 “includes any radar, … “specially designed” for military application that are not enumerated or otherwise described…” Result – much analysis reclassifying and BIS Munitions Licenses in some cases.

Source: “New Export Control Requirements for Electronics Manufacturers in Defense and Aerospace Industries,” Thomas B. McVey, Williams Mullen law firm website, Nov 6 2014

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Practical Tips for Classification

• Use DDTC and Commerce online decision tools; DDTC’s first, as part of Order of Review (listed above)

• Define your EAR item in the control parameters of the potentially applicable ECCN(s)

• End use, specifications, sales literature, etc., may be helpful to extent relevant and accurate.

• Focus on functions and performance capabilities as basis for defining if it is subject to ITAR, e.g., new Category XI Spacecraft and Related Articles.

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Practical Tips for Classification

• If trying to determine release from “specially designed” (SD) catch all:– Define item in 5 release parameters of SD (b)(1) thru

(b)(5) in ITAR 120.41 (b) and similar for EAR version as applicable

– For (b)(2) item must meet the dictionary definition of the items listed, e.g, fastener, wire.

– For (b)(3), item must meet all 3 criteria. Side by side comparison (performance, form & fit) helpful

Source: Department of Commerce at SIA Export Conference, March 9-11, 2015

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Summary - Discussed• Export Control Basics• Export Control Reform (ECR) • Jurisdiction (Agency) and Classification (Item)• Impact of Jurisdiction and Classification• Order of Review – Determine Jurisdiction under ITAR,

including if “specially designed” by express wording in USML paragraph; if not applicable, then EAR Classification

• ITAR and EAR Examples – Order of Review• Transition Challenges• Practical Tips for Classification

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Final Reminders – Due to ECR

• Be extremely careful…• For some items, realize there are significant

differences of opinion within U.S. Government• Learn to understand requirements for “600 Series”• Document your Order of Review and rationale for

either new or reclassification. Securely retain indefinitely…

• Reach out to U.S. Government regulators for advice and consult export legal counsel.

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Source NotesECR – Context

Slide 3 “Hearing on Export Control Reform, Testimony”, Brian Nilsson, Deputy Secretary for Defense Trade Controls, Bureau of Political- Military Affairs, U.S. Department of State, Statement Before the U.S. House Small Business Committee, Washington, DC, February 11, 2016. 3 “An Imperfect Balance: ITAR Exemptions, National Security, and U.S. Competitiveness”, C.Long, National Security Law Journal, Vol.

2:1, 2013, p. 43. U.S. Department of Commerce, Bureau of Industry and Security (BIS) presentation, ROK and U.S. Defense Industry, Seoul, Korea, November 1, 2013, slide 40.4 “Export Control Reform Update, Fact Sheet”, Office of the Spokesperson, Directorate of Defense Trade Controls, U.S. Department of

State, Washington, DC, February 10, 2016. Visit export.gov/ecr/ for more information on President Obama’s Export Control Reform Initiative . Additional information is available on the Export Control Reform page of the State Department’s Directorate of Defense Trade Controls website.

5 J. Barker, Arnold & Porter LLP, “Export Controls, Compliance and National Security Concerns – Part II: U.S. Export Controls Under the ITAR and the EAR: …”, presented at West Government Contracts Year In Review Conference – Covering 2015 - Conference Briefs, p. Int’l 3-11 to 3-21, at 3-11 and -12, February 16, 2016. Also, “Hearing on Export Control Reform, Testimony,” Brian Nilsson, Deputy Secretary for Defense Trade Controls, Bureau of Political-Military Affairs, U.S. Department of State, Statement Before the U.S. House Small Business Committee, Washington, DC, February 11, 2016. 6 A. Lopes, Director, Office of Nonproliferation and Treaty Compliance, Bureau of Industry and Security, U.S. Department of Commerce, “Export Control Reform: Update”, March 2015, slides 2-4 and ECR “Dashboard”, slides 5-6. “Critical Technologies - Agency Initiatives Address Some Weaknesses, but Additional Interagency Collaboration Is Needed”, GAOE -15-288, ECR portions on p. 7-13, at 7-8, Feb 2015. “Break Down the Latest Updates to the Export Control Reform”, Interview with B. Bittner, Director of Global Trade Compliance, Textron, by Marcus Evans, January 222,2016, p. 1. “U.S .Export Control Reform Initiative - Overview”, Department of Commerce, 2014, p. 1-2.7 Speech of Assistant Secretary of Commerce for Export Administration, Kevin J. Wolf, BIS Annual Update 2015 Conference, November 2, 2015, p. 3.