Language in the recently proposed ITAR amendments may reveal one of those worst nightmare scenarios that have been frightening people for years (and not just at Halloween). You buy a 3A611.x part from a vendor, you put it in a product you manufacture and sell, and then, after you have thousands of your product in the field, you learn that one midnight the part turned not into crazed gremlins but an even more frightening ITAR item.
How could this transformation happen? Did somebody give the part food after midnight? No, it was repurposed and — poof! — it’s now a part specially designed for a defense article on the USML. And thanks to the “see-through” rule, your items using that part may now be subject to all of the export controls in the ITAR. DDTC does not specifically address the issue of previously manufactured parts, but, as a practical matter, even if DDTC says earlier manufactured parts are not transformed, if the part used on the submarine is identical, it will be difficult to document whether the part is controlled or not.
What’s driving this horror scenario is a strange explanation given in the Federal Register notice for a new “release” in the definition of specially designed. The new release is intended to deal with a supposed problem for items developed as parts of defense articles where the relevant USML listing does not cover “specially designed parts” for that item. The release, DDTC suggests, is needed in case that part is later used in a defense article in a USML category that does cover specially designed parts.
Here is the explanation of the concern:
For example, consider a component originally developed for an electronic support system described in paragraph (a)(4)(i) of USML Category XI. If the component is not described elsewhere on the USML, it is subject to the EAR and described in Export Control Classification Number (ECCN) 3A611.x. Years later, the unmodified component is reused in an electronic support system specially designed for a naval submarine described in paragraph (a)(1) of USML Category XX, which has a catch-all control in paragraph (c) of Category XX. In the context of that catch-all control, the component meets the definition of “specially designed” in ITAR § 120.41(a)(2) as a component for use in or with the Category XX(a)(1) submersible. It does not meet the criteria in the current carve-out language in paragraphs (b)(3) through (5) of § 120.41 because it was developed exclusively for a defense article and is still used only in defense articles. As a result, the component previously subject to the EAR becomes described on the USML in Category XX(c) solely due to its subsequent use in a Category XX(a)(1) submersible. New paragraph § 120.41(b)(7) would ensure such a component is not described in USML Category XX(c) if it has the same or equivalent form when comparing the versions used in each defense article.
Okay, let’s start with the good news. If the unchanged part was incorporated in something that is in production and not a defense article, then (b)(3) of the definition of specially designed is the release and the magical transformation of the item into an ITAR-controlled part is not something to worry about. But that release will not be available where the part is used only in or with items on the USML.
Now the bad news. This transformation is only made possible by a very peculiar form of time travel. The example neglects the fact that the part catch-all is a part “specially designed for” a submarine. If the item was not specially designed for a submarine when it was designed, then a subsequent decision to use it in a submarine can’t travel back in time and affect the original design intent, which had nothing to do with submarines. If it wasn’t designed for submarines when it was designed, it can’t magically become designed for submarines when it gets installed on one. If you use a book as a door stop, the book does not become a door stop and your library is not now magically filled with door stops on your shelves.
But here’s the even worse news. The newly added release will not always work. The newly added language says that an item is not specially designed if it
[w]as not described in §?121.1 of this subchapter within the first year after leaving development, and is subsequently used, in the same or equivalent form, in or with a defense article that is described in a USML entry that has a catch-all control on the USML
The release has a significant limitation that is not mentioned in the example given above. If the part is put into a defense article without a parts control but is crammed into a submarine three months after the part left development, prest-o change-o, the part is now a defense article and the item in which you put the part is now ITAR-controlled because the incorporated part became a USML part in the first year after development.
But wait! There is even worse news. The Note to paragraph (b) of the definition says “documents contemporaneous with its development, in their totality, must establish the elements of paragraph (b)(4), (5), or (7).” Because release (b)(7) does not depend at all on design intent, this must mean documents to establish somehow that the item was not described on the USML in the first year after development. How can documents “contemporaneous with its development” establish what happened in the first year after development?
The practical consequences of this mysterious transmogrification can be considerable. If post-transition you export the article with the part you will have to register under Part 122. The 60-day notice requirement will apply to a transfer of ownership or control of your company to a foreign person. The ability to use license exceptions STA and APR disappears in a puff of smoke.
Let’s see if this proposal makes it into the final rule. I’m not placing a bet one way or the other.