Archive for the ‘CCL’ Category


Aug

22

The Export Control Reform Act: Long on Control, Short on Reform


Posted by at 2:19 pm on August 22, 2018
Category: BISCCLCivil PenaltiesExport Reform

John McCain Official Portrait via https://commons.wikimedia.org/wiki/File:John_McCain_official_portrait_2009.jpg [Public Domain - Work of U.S. Government]The John McCain National Defense Authorization Act of 2018,  in addition to passing the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which reforms the CFIUS process, also enacted the Export Control Reform Act of 2018 (“ECRA”). That name is, I think, something of a misnomer given what the ECRA actually does. Perhaps a better name would have been the Export Administration Act Reenactment Act. After Congress in 1994 was unable to renew the Export Administration Act (“EAA”), which was the statutory authority for the parts of the U.S. export control regime covering dual use items and administered by the Commerce Department’s Bureau of Industry and Security (“BIS”), every U.S. President has resurrected the dead statute each year with an executive order under the International Emergency Economic Powers Act. With the passage of ECRA, that is one less executive order that the White House will need to issue each year.

Most of what ECRA does is provide the statutory authority for BIS that it previously had under the EAA and the yearly executive orders, although now with higher penalties for violations, which have been upped to $300,000 per violation. Why, after all, pass a law if you can’t raise the penalties? The only thing in ECRA which might be called a reform in a traditional sense of making life easier for regulated parties is section 1757 which says the President may authorize BIS to provide export counseling to exporters. This provision has generated so much excitement among exporters that U.S. exporters were popping bottles of Dom Perignon in celebration. Sorry, just kidding.

Rather than making life easier for exporters, the ECRA contains new controls certain to make exporters’ lives more difficult.  (In addition to the higher penalties.  Did I already mention those?) License applications will now have to explain why the export of an item will not have a negative impact on the U.S. defense industrial base. The law also mandates that BIS consider stopping exports of items on the Commerce Control List to countries that are subject to State Department arms embargoes. (Ahem, does anybody think that’s a dog whistle for restricting more exports to China?)

But the biggest change, and potential headache for exporters aside from higher penalties, is section 1758, which requires BIS, in cooperation with the Departments of State, Energy and Defense to identify and control “emerging and foundational technologies.” What on earth, you rightly wonder, is an emerging and foundational technology? The act only says that they are technologies that are “essential to the national security of the United States” but not already subject to export controls. Basically, since all export controls are based on national security, the only real definition of an emerging and foundational technology is something that is not already export controlled but should be. Your guess is as good as mine (and Congress’s) as to what these four agencies will decide to control under this new rubric.

Once the list of these new export controlled items is in force, then the ECRA requires as a minimum level of control that export of this technology to a “country subject to an embargo, including an arms embargo, imposed by the United States” would require a license. (Hello, China!) Embargo is not defined, so it’s not clear if a license would be required for these technologies with respect to a country to which the United States prohibited only a few types of goods or arms. A more significant issue is how this requirement, which applies to any “country” subject to an embargo would affect exports of emerging technologies to the Crimean territory, which is subject to a comprehensive embargo. This provision would impose the license requirement on either Russia or Ukraine depending on which country is considered to own Crimea and whether an embargo of a territory of a country means that the country is subject to an embargo.

The last thing to note about section 1758 is that the license requirement would not apply to what the Senate version referred to as “ordinary business transactions.” In the legislation as passed, these ordinary business transactions are described, for example, as

The sale or license of a finished item and the provision of associated technology if the United States person that is a party to the transaction generally makes the finished item and associated technology available to its customers, distributors, or resellers.

For those used to the EAR’s treatment of technology this provision seems odd and unnecessary. “Associated technology” generally made available to customers would be “published,” as defined in section 734.7 of the EAR, and thus not subject to the EAR or any license requirement, making this exception completely unnecessary. I suspect that the ECRA, which never defines “technology,” is using the term in a loose sense that would cover physical goods in addition to information. In any event, count on these exceptions to cause much confusion when the list of emerging and foundational technologies finally appears.

Oh, and did I mention the higher penalties?

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May

15

Export Control Reform Finally Announced for Guns and Ammo


Posted by at 7:04 pm on May 15, 2018
Category: BISCCLDDTCExport ReformUSMILUSML

Guns by Al [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/6gPGbx [cropped]The Directorate of Defense Trade Controls and the Bureau of Industry and Security today announced the proposed rules for the long awaited export control reform of Categories I, II and III of the United States Munitions List.  The proposed rules for DDTC are here; the proposed rules for BIS are here.

Under the proposed rules, the only items remaining in Category I will be firearms that fire caseless ammunition, are fully automatic, or are specially designed to integrate fire control, automatic tracking, or automatic firing.  Other small arms that were once in Category I will be moved to 0A501 and 0A502.  Small arms that are on Category I of the USMIL will still be subject to the brokering rules of the ITAR even if they have been moved to 0A501 or 0A502.

These new proposed ECCNs will be controlled by, among others, RS1 and FC meaning that licenses will be required for all destinations.  (RS1 captures every country but Canada and FC captures Canada).  The BIS proposed rules also exclude the use of most license exceptions so that the new regime will closely parallel the available exemptions that were available under the ITAR.   So the result of the transition of these items from the USML to the CCL will mostly be a change in the agency with licensing authority.

There are a few significant changes, however, worth noting.  First, the proposed rules would eliminate a particular bugbear of mine relating to the classification of rifle scopes.  Currently, rifle scopes are ITAR if they are “manufactured to military specifications,” whatever that means.   Foreign manufacturers of rifle scopes routinely decline to state whether their scopes are Category I(f) or 0A987 and do not provide enough information to decide whether a particular scope is manufactured to military specifications.  Under the proposed rules, a scope is on the USML only if it has night vision or infrared capabilities that would cause it to be captured under Category XII.  Everything else is now 0A987.

Second, these new rules will reverse the questionable position that DDTC has taken in the Defense Distributed case.   In that case, DDTC argued that posting 3D gun plans on the Internet is an export of controlled technical date on Category I firearms to every foreign person with access to the Internet.  BIS has a somewhat different take on posting things to the Internet.   Here’s what the proposed BIS rules say:

The EAR also includes well-established and well understood criteria for excluding certain information from the scope of what is “subject to the EAR.” (See part 734 of the EAR.) Items that would move to the CCL would be subject to existing EAR concepts of jurisdiction and controls related to “development” and “production,” as well operation, installation, and maintenance “technology.” While controlling such “technology,” as well as other “technology” is important, the EAR includes criteria in part 734 that would exclude certain information and software from control. For example, if a gun manufacturer posts a firearm’s operation and maintenance manual on the Internet, making it publicly available to anyone interested in accessing it and without restrictions on further dissemination (i.e., unlimited distribution), the operation and maintenance information included in that published operation and maintenance manual would no longer be “subject to the EAR.”

Part 734 makes clear that publication of technology on the Internet is not an export of that technology to the rest of the world; rather it is a release of that technology from export controls.

Third, the new rules will eliminate the issue as to whether firearms training is a defense service that cannot be provided by a U.S. person to a foreign individual without a license.  Both the existing and latest proposed DDTC rule defining defense services would require a license to provide basic firearms training to a foreign individual.  (The latest proposed rule permits basic training but only if there is an approved license to export the firearm to that individual.)  The BIS analysis of this is somewhat different.  The BIS notice of proposed rulemaking somewhat wryly states:

The EAR does not include a concept of “defense services,” and the “technology” related controls are more narrowly focused and apply in limited contexts as compared to the ITAR.

In fact, of course, under the proposed rules training a foreign individual in firearms use would require a license only if it involved a control of technology covered by proposed ECCNs 0E501 or 0E502.  However, neither ECCN covers information related to the use of 0A501 or 0A502 firearms.   As a result, firearms training that would have required a license under the old rules will not require a license if the new rules are adopted.

Photo Credit: Guns by Al [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/6gPGbx [cropped]. Copyright 2009 Al

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Feb

8

The Trials and Tribulations of Used Part Exporting – UPDATED


Posted by at 12:40 pm on February 8, 2018
Category: BISCCL

MHz HQ via https://mhzelectronics.com [Fair Use]Last month the Bureau of Industry and Security fined Phoenix-based used equipment and part dealer MHz Electronics $10,000 in connection with its exports of two pressure transducers classified as ECCN 2B230 to China and Taiwan. The fine was suspended contingent upon MHz behaving itself during a two-year “probationary period.”

Pressure transducers meeting the specifications in ECCN 2B230 can be used for blast measurement and are therefore controlled because of the role that they can allegedly play in nuclear testing and proliferation. The two items involved were sold for the eye-popping amounts of $280 and $1,100. Even though the fine imposed here was low, BIS’s miff factor was quite high, with the settlement documents noting that MHz did not have an “export compliance program.” In addition, MHz apparently brushed off a visit by FBI agents that had been trolling MHz’s (now-closed) eBay store and told them that one item (not either of these transducers) listed by them on eBay would require an export license if shipped internationally.

Under the circumstances, MHz got off lightly. But even so, this case raises some interesting questions and difficulties for export compliance for businesses like MHz. Like thousands of other small businesses, MHz bought and sold used electronic and testing equipment. With a 96,000 square foot warehouse, it no doubt had a staggering number of different kinds and types of parts and equipment.

How would it obtain ECCNs for all those items? Oh, you say, easy peasy: call the original manufacturer and ask. Uh-huh. Have you ever tried that before? Particularly if you’re selling used parts in an aftermarket competing with the original manufacturer. “You say you need the ECCN of our Model 2370C snarkle widget puffinator? Sure thing. Give me your phone number and someone will get right back to you by, say, April 1, 2032. Does that work?” Click.

And, I’m sure it should come as no surprise that many original manufacturers have no clue as to the ECCNs of their products, particularly if they are foreign. Try calling China and asking (in English or, even, Cantonese or Mandarin) for an ECCN.

Even if spec sheet for the product is published by the manufacturer, it rarely aligns with the control parameters in the relevant ECCN. I challenge you to figure out the classification of a CNC-machine, a computer, or almost anything else from published specification sheets.

The bottom line here is that compliance challenges effectively foreclose used parts companies (except, I suppose, companies exclusively devoted to selling used knitting supplies or antique fountain pens) from participating in the export market at all. And given that the parts that they sell are usually readily available outside the United States, there’s not much of a real justification for shutting this market down for them. BIS says that these bargain-basement priced items could be used for nuclear bomb testing. Does anyone really think that aspiring nuclear powers could not lay their hands on these (and probably better) items outside the United States?  And, if you can use a $280 sensor in nuclear testing, well, we’re in a lot more trouble than I imagined.

UPDATE:  An alert reader, who knows way more about nuclear bombs than I ever will, points out that pressure transducers covered by ECCN 2B230 are used for uranium enrichment in centrifuges, not for blast measurement.   Specifically, the reader notes:  “While 13 kiloPascal sounds like a big number, atmospheric pressure is 101 kPa, so 13 kPa is closer to a vacuum level.”    I’m going to point some finger of blame at BIS itself, which in the charging documents said: “Items classified under ECCN 2B230 … can be of significance for nuclear explosive purposes,” which suggests that the enforcement folks at BIS made the same mistake. Imagine that. In any event, if these small, readily available and inexpensive parts can be used for centrifuge uranium enrichment, we’re still in a whole lot of trouble.

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Feb

21

Unhelpful Suggestion of the Day


Posted by at 6:36 pm on February 21, 2017
Category: BISCCLCustomsDDTCHTSUSUSML

Jardins Tuliere [sic] Statue by Eksley [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/dRYGik [cropped]

An interesting article [subscription required] in the Journal of Commerce reports survey results indicating that one-third of all U.S. e-commerce merchants report that they have incurred fines and delays from regulatory agencies in connection with their imports and exports.  Within that group, 29 percent of the companies surveyed stated that they had been subject to fines in connection with cross-border shipments. With respect to delays, they cited the Bureau of Industry and Security, and the Directorate of Defense Trade Controls, at 32 percent and 30 percent, respectively. That’s a surprising figure by any measure, if true and representative.

But more astonishing and surprising is the suggestion that the JoC article author proposes to fix this:

The task of ensuring trade compliance is also becoming more difficult, as 48 percent said they now do business in more than 50 countries.Trade regulations are constantly increasing and growing, necessitating agile and adept global trade management platforms, empowered by a combination of technology, trade compliance intelligence, and automation.

These systems can help properly classify goods based on descriptions from product catalogs, country of export, and country of import. Strong and reliable classification can help avoid hang-ups at Customs agencies. … In addition to helping avoid run-ins with these agencies, automation is helpful because it allows shippers to track the costs and length of these delays, allowing for better forecasting and business planning.

Don’t get me wrong, automation is often a good idea. But to suggest that the HTSUS, USML Categories or ECCN numbers can be assigned to a product through automation is, well, preposterous. It is something that can only be suggested by someone who has never looked at the USML, the CCL or the HTSUS. Maybe this will be possible sometime in the future when cars fly and robots are butlers. But right now, it’s not a feasible solution.

Photo Credit: Jardins Tuliere [sic] Statue by Eksley [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/dRYGik [cropped]. Copyright 2009 Eksley

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Copyright © 2017 Clif Burns. All Rights Reserved.
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Nov

11

EU Moves Ahead on Intrusion Software; BIS Holds Back


Posted by at 7:57 pm on November 11, 2014
Category: BISCCLEUSurreptitious Listening Devices

By Sébastien Bertrand (http://www.flickr.com/photos/tiseb/4592786358/) [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0) or CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3AEuropean_Commission_flags.jpgOn October 22, the European Commission amended its List of Dual Use Items to include controls on “intrusion software” which the Wassenaar Plenary adopted in December 2013 and which we reported here. The new list, and the export controls on intrusion software, will go into effect after 60 days from October 22 unless the E.U. Council or Parliament interpose objections.

That, of course, raises the question about where the United States is on adopting these controls. Initially spokespersons for the Bureau of Industry and Security indicated that the rules on intrusion detection hardware and software would be out in September. Well, September and October have both come and gone and there is no sign of new rules on this issue.

Of course, at least part of what Wassenaar defined as intrusion software is already controlled in the United States under ECCN 5D980, which was adopted in December 2007 and which controls surreptitious listening software. But 5D980 does not control, as the new controls on intrusion detection software would, software performing “the modification of the standard execution path of a program or process in order to allow the execution of externally provided instructions.” The scope of the definition of intrusion software is undeniably broad and susceptible of covering some unobjectionable types of software, so it seems clear the BIS must be struggling with how to handle the breadth of the definition and limited unintended consequences.

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Copyright © 2014 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)