Export Control Reform: Implementing the Transition

U.S.. Department of Commerce, Bureau of Industry and Security

Export Control Reform:Implementing the Transition

Kevin J. KurlandDirector, Office of Enforcement Analysis

Massachusetts Export CenterExport ExpoDecember 11, 2012

Massachusetts Exports

Bureau of Industry and Security, Export Enforcement

Value% of 2010

Massachusetts’s Exports

Licensed Dual-Use Exports $171,959,276 0.65%Licensed Munitions Exports $1,071,046,451 4.07%Total Controlled Trade $1,243,005,727 4.73%

Total BIS License Applications (2010):

1202 Approved

9,161 companies exported; 90% were SMEs

28% of manufacturing workers depend on exports


Export Control Reform Initiative

In August 2009, the President directed a broad-based interagency review of the U.S. export control system to build:

“Higher walls…around fewer, more critical items.”Secretary of Defense Robert M. Gates, April 20, 2010

The Administration determined that fundamental reform of the current system is necessary to enhance our national security by:

(i) focusing resources on the threats that matter most

(ii) increasing interoperability with our Allies

(iii) strengthening the U.S. defense industrial base by reducing incentives for foreign manufacturers to design out and avoid using U.S. parts and components

Key Goal Is to Leverage Existing Flexibilities

USML CCLLicense requirement Worldwide license -

CanadaRanges from worldwide license to license exceptions to no license required

Exemptions/exceptions Limited GOV, STA, TSU, TMP, RPL, etc.De minimis None 25% / 10%Registration Yes NoProhibitions ITAR 126.1 T-5; end-use/user controlsTemporary Import Controls

All USML items None

Enforcement ICE, FBI BIS, ICE, FBI


Step 1: Focus on Fewer, More Critical Items via Regulatory Reforms


Military or Intelligence Advantage

Foreign Availability

Tier 1 Critical Almost none

Tier 2 Substantial Regime members

Tier 3 Significant Worldwide

Establishing a “bright line” between items controlled on the USML and

CCL by identifying items in a “positive” manner is the key

deliverable of ECRBureau of Industry and Security, Export Enforcement

Regulatory Impacts: Dual-UseLicense Exception STATwo groups of countries: 36 and 8 eligible destinations

SafeguardsFirst step in tiering the CCL$41 million in exports impacted to date

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Country ECCN ECCN/Description ECCN Value

China 3B001 Equipment for the Manufacturing of Semiconductor Devices

$18,268,509

Qatar 3A101 Electronic Equipment, Devices and Components $17,879,113

Taiwan 3C003 Organo-inorganic Compounds $13,940,827

Taiwan 3C001 Hetero-epitaxial Materials $9,946,351Great Britain 9A004 Space Launch Vehicles and Space-craft $9,118,253

Top 5 Dual-Use Licensed Exports from Mass. by Destination (2010)

STA Eligibl

e

Regulatory Impacts: Dual-Use


EncryptionReplaced 30 day technical review period and sales reports for most items eligible for License Exception ENC and mass market products with registration and self-classification report

0Y521Creation of Export Control Classification Number (ECCN) 0Y521 (April 13, 2012)

Items that warrant control on the CCL but not identified in an existing ECCN

E.g., emerging technologies Currently 9 items identified for 0Y521 controls

Regulatory Impacts: USML Positive List Identify what items require USML control

Inherent military function; critical military/intelligence advantage

Convert USML into a “positive list” Establish objective technical parameters rather than

design intent to control items on USML Items not meeting criteria “positive” USML

criteria would be transferred to new “600 series” on CCL* and include: End-items, parts, components, accessories, and

attachments* Requires congressional notification

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Regulatory Impacts: Anatomy of a New “600 series” ECCN

CCL Category0-9 Product

Group A-E

The “600 series” derives its name from the 3rd character (i.e., number) of the ECCN.

Last two characters (i.e. numbers) will generally trackthe Wassenaar Arrangement

Anatomy of a “600 Series” ECCN (cont’d)

Items controlled Enumerated end items

Enumerated parts and components

“Specially designed” parts and components (“.x”)

Enumerated insignificant parts and components (“.y”)

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USML – Aircraft and Related Articles

Federal Register Proposed RulesFederal Register Proposed Rules• Bombers• Fighters, fighter bombers, and fixed-wing

attack aircraft• Jet-powered trainers used to train pilots• Attack helicopters• Unmanned aerial vehicles (UAV’s)• Military intelligence, surveillance, and

reconnaissance aircraft• Electronic warfare, airborne warning, and

control aircraft

• Air refueling aircraft and Strategic airlift aircraft

• Target drones• Aircraft equipped with any mission systems

controlled under this subchapter; or,• Aircraft capable of being refueled in flight

including hover-in-flight refueling• Launching and recovery equipment

• Developmental aircraft and “specially designed” parts, components, accessories, and attachments therefore developed under a contract with the DoD

• Aircraft components, parts, accessories, attachments, and associated equipment as follows:‒ Components, parts, accessories, attachments,

and equipment “specially designed” for the following U.S.-origin aircraft: B-1B, B-2, F-5SE, F/A18E/F/G, F-22, F-35 (and variants thereof), F-117, or U.S. Government technology demonstrators

Illustrative list onlyReference Federal Register / Volume 76, No. 215 / Monday, November 7, 2011 / Proposed rules, page 68697

USML F-16 Systems/Components/Parts

F-16 Specific USML ItemsF-16 Specific USML Items Other Aircraft USML ItemsOther Aircraft USML Items• Assembled engines• Weapons pylons• Mission systems• Bomb racks• Missile launchers• Fire control computer• Radar• Radar warning receiver• Radar jammer• Laser/Missile warning system• Countermeasures dispensing system• Aerial refueling receptacle• Helmet mounted displays/sights

• Aircraft wing folding systems, parts, and components

• Tail hooks and arresting gear, and parts and components

• Missile rails, weapon pylons, pylon-to launcher adapters, UAV launching systems, and external stores support systems and parts and components

• Damage/failure-adaptive flight control systems• Threat-adaptive autonomous flight control

systems• Air-to-air refueling systems and hover-in-flight

refueling (HIFR) systems and parts and components

• UAV flight control systems and vehicle management systems with swarming capability


Commerce “600 Series” Systems/Components/Parts for the F-16

• Wings, Rudder, Fin, Panels• Fuselage – forward, center, aft• Cockpit structure• Forward equipment bay• Horizontal stabilizer• Conformal fuel tank• Cartridge Actuated Device, Propellant

Actuated Device (CAD / PAD)• Control surfaces, activation and control

systems• Internal and exterior fuel tanks

• Engine inlets and ducting• Wing box• Flaperon• Static structural members• Exterior skins, fairings, radomes, access

doors, leading edge flap• Landing gear• Technology associated with above items


“600 Series” “.y” Parts for F-16

Cockpit gaugesand indicators

Fuel lines

Hydraulics

F-16 Specific .y ItemsF-16 Specific .y Items Other Aircraft .y ItemsOther Aircraft .y Items• Aircraft tires• Analog cockpit gauges and indicators• Hydraulic System Filters• Check valves• Hydraulic and Fuel hoses, Fittings, Clips,

Couplings, Nut plates, Brackets• Cockpit mirrors• Beacons• Urine collection systems• Cockpit panel knobs, Switches, Buttons, Dials

• Audio selector panels• Check valves for hydraulic and pneumatic

systems• Crew rest equipment• Ejection seat mounted survival aids• Energy dissipating pads for cargo (for pads

made from paper or cardboard)• Filters and filter assemblies for hydraulic, oil,

and fuel systems• Steel brake wear pads (does not include

sintered mix) • Propellers, propeller systems, and propeller

blades used with reciprocating enginesIllustrative list onlyReference Federal Register / Volume 76, No. 215 / Monday, November 7, 2011 / Proposed rules, page 76081

Tires

Technology ControlsF-16 Example

Technology controls follow the end-item, part, or component: Technical data and services for aircraft-level

design, development, engineering, manufacture, testing, and modification also remain on the USML

Technology required for design, development, and manufacture of F-16 major components, minor components, parts, accessories, and attachments that move to the “600 Series” (e.g., fuselage, wings, tail sections), also moves to Commerce controls

License Requirements for “600 Series” End items: License required for export or reexport

to all countries except Canada

Parts + components: STA for ultimate government end-use

“.y” items: no license required except to China and terrorist supporting countries

ITAR 126.1 countries subject to State Dept. licensing policy

License validity periods General Order 5 and DDTC grandfather rules BIS extension to 4 years Double licensing issues

License exceptions STA (ultimate gov’t end use), GOV, RPL, TSU, TMP

ITAR 126.1 carve-out License review standard and consensus Foreign direct product rule MDE reporting AES requirements

No post-departure filing Special “600 series” filing requirements ECCN requirement on DCS

Other Transition Rule Issues

Benefits of “600 Series” Focus controls and

compliance (incl. resources)

Security of supply with allies and partners

Avoid design-out

Eliminate MLAs/TAAs

Eliminate registration requirements 19

USML “defense articles”

CCL “600 series” items

End-items Worldwide license - Canada

Worldwide license - Canada

Identified P+C Worldwide license - Canada

License Exception STA

Specifically/specially designed P+C

Worldwide license - Canada

(“.x”) License Exception STA

Insignificant P+C Worldwide license - Canada

(“.y”) NLR except T-5 + China

De minimis None 25% except ITAR 126.1 countries

Registration Yes No

Prohibitions ITAR 126.1 ITAR 126.1

Exemptions/exceptions

limited GOV, STA (ultimate government end-use), TSU, TMP, RPL

Temporary Import Controls

All USML items None

Impact Analysis BIS processed ~25,000 licenses in 2011 State processed ~85,000 licenses in 2011

BIS estimates that approximately 50% of State licenses will contain items moving to the 600 series

Of that 40,000, at least 50% are estimated to be eligible for License Exception STA

Total Mass. munitions exports (2010): $1,071,046,451


Category

Description Value

CAT I Firearms $26,820,263

CAT III Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs and Mines

$241,111,540

CAT VIII Aircraft and Associated Equipment $221,361,942

CAT XI Military Electronics $135,941,982

CAT XII Fire Control, Range Finder, Optical and Guidance and Control Equipment

$146,891,041

CAT XXII

Miscellaneous Articles $13,431,461

Sample of Munitions Exports from Mass (2010)

Step 2: Erecting Higher Walls


Targeted outreach OEE permanent law enforcement

authorities Focused evaluation of STA

Desk audits One-time reviews Daily AES checks to interdict Enhanced end-use checks

Information Triage Unit (dedicated IC assets)

BIS-DDTC coordination Export Enforcement Coordination

Center International cooperation

Higher Walls: Enhanced Compliance & Enforcement

Other ECR Actions Single form; harmonized definitions USXports Consolidated screening list Follow along on www.export.gov/ecr 2013+ priorities

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ECR Success =


Focus on what is important Clearer regulations More harmonized implementation Enhanced compliance and enforcement Greater interoperability with allies More competitive U.S. industrial base…and Increased U.S. national security!

Contact Info


Presenter:Kevin J. Kurland ([email protected])Director, Office of Enforcement Analysis, BIS

Outreach Assistance:Bernie Kritzer ([email protected])Director, Office of Exporter Services, BIS

600 Series Licensing:Todd Willis ([email protected])Director, Munition Controls Division, BIS

Local BIS Enforcement POC:John McKenna ([email protected])Special Agent-in-Charge, OEE Boston Field Office, BIS

www.export.gov/ecr

Export Control Reform: Implementing the Transition

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