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“While there is still more work to be done, taken together, these reforms will focus our resources on the threats that matter most, and help us work more effectively with our allies in the field. They’ll bring transparency and coherence to a field of regulation which has long been lacking both. And by enhancing the competitiveness of our manufacturing and technology sectors, they’ll help us not just increase exports and create jobs, but strengthen our national security as well.”
- President Obama, Department of Commerce Annual Export Controls Update Conference, August 30, 2010

PRESIDENT’S EXPORT CONTROL REFORM INITIATIVE

From the ECR Blog

February 4, 2013 - What are the “Higher Fences Around Fewer Items”?
Administration officials frequently state that the purpose of ECR is to put “higher fences around fewer items.” How will current defense articles or dual-use controlled items have more stringent licensing policies than at present and what is meant by “fewer items”?

A key element of the control-list reform effort is to clarify the items subject to control, particularly on the Department of State’s U.S. Munitions List (USML), based on objective technical parameters. The Department of Defense led a technical review that determined the most sensitive items which warrant control on the USML and those lesser sensitive items that may be moved to the Commerce Control List (CCL), thus allowing them to be exported under Commerce’s more flexible legal authorities to Allies and many multilateral export control regime partners. In this regard, this prioritization of controls is part of the “fewer items.”

Second, the increased clarity of the regulations will impose a “higher wall” by reducing ambiguity that can be exploited. Items subject to controls will be specifically enumerated to the greatest extent possible or for those controlled items not enumerated on any control list, the Administration’s definition of the term “specially designed,” to be used in both the USML and CCL, will provide clear guidance by defining the term for the first time. Application of strict USML licensing requirements on enumerated and “specially designed” items in the rebuilt USML categories imposes a “higher wall” on these most sensitive items.

Additionally, working collaboratively with Congress, the Administration has standardized the criminal and civil penalties for violations of either the State or Commerce regulations to the same maximum. Criminal penalties include a fine of either $1 million or five times the value of the transaction (whichever is greater) and up to 20 years imprisonment, per violation. Likewise, the maximum civil fines are the same for violating either State or Commerce regulations: the greater of $1 million per violation or twice the amount of the transaction that is the basis of the violation. This parity both maintains robust controls and provides greater clarity of penalties to the public.

Further, the Administration’s addition of a new control in the CCL, in Export Control Classification Number (ECCN) 0Y521, provides the U.S. Government with the ability to quickly control any item (e.g., an emerging technology) for foreign policy reasons to address any current control gaps, similar to how USML Category XXI (Miscellaneous Articles) works. This too is a feature of the “higher walls.” Finally, military items currently on the CCL will be consolidated with those items moved from the USML to the CCL and become subject to the more stringent licensing policies for ITAR §126.1 destinations. All “specially designed” items that move from the USML to the CCL will also be precluded from export to embargoed destinations.

These changes – the tightening of the embargoes, the increased clarity in both export control lists, the parity of penalties, the definition of “specially designed” and the prioritization of controls to allow less sensitive items to be exported to certain trusted destinations without requiring a specific license -- are all aspects of the “higher walls” in both lists around the “fewer items” that remain on the USML and those on the CCL that require a specific license. These actions will enhance U.S. exporter compliance with U.S. export control regulations, help focus U.S. Government licensing resources, and of particular importance, provide for the legal basis for the U.S. Government to prosecute violators using objective regulatory standards.

February 1, 2013 - State Publishes a Proposed Rule for Category XVI
The State Department published a proposed rule change for USML Category XVI-Nuclear Weapons, Design and Test Equipment on January 30, 2013. This rule is now available online and is distinct from the forthcoming Department of Energy proposed rule change to 10 CFR Part 810, which governs technologies and assistance for the design, production and use of facilities that make peaceful nuclear materials. The Department of State will accept comments to the Category XVI rule for a 45-day window, which will close on March 18, 2013.

February 1, 2013 - State and Commerce Publish Proposed Rules for Category IV
On January 31, the State and Commerce Departments published a pair of proposed rules for the transition of certain items currently subject to the USML’s Category IV-Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombes and Mines. These rules are now available for viewing online, and there will be a 45-day public comment period that will close on March 18, 2013.

January 30, 2013 - NDAA Includes Authorization for Satellite Export Control Reform
On January 2, 2013, President Obama signed into law the National Defense Authorization Act (NDAA) for FY 2013, which restores flexible authority to the President to tailor controls on the export of satellites and related items appropriately to the risk of diversion to unauthorized end-users or end-uses. This action marks a significant milestone in the President’s Export Control Reform Initiative and in the continued collaboration with Congress to modernize the nation’s export control system. Exports and reexports of all satellites, regardless of sensitivity or availability, will continue to be prohibited if destined to China, North Korea, Iran, and other countries subject to comprehensive arms or other embargoes. The new authorities are consistent with the recommendations of the Departments of Defense and State in the NDAA for FY 2010 Section 1248 report.

Tailoring satellite export controls will facilitate cooperation with Allies and many multilateral export control regime partners while maintaining robust export controls as necessary to protect national security. The Administration is preparing proposed rules to request public input on the rebuilt USML Category XV that currently includes satellites and related items. Updating satellite export controls will provide the U.S. satellite industry with an opportunity to seek to restore its leadership by allowing it to compete on a more level playing field with its international competitors. This will be particularly beneficial to small- and medium-sized U.S. companies that manufacture parts and components for satellites and will bolster the industrial base to ensure it can meet current and future U.S. requirements.

November 29, 2012 - Commerce Publishes Proposed Rule to Make the Commerce Control List Clearer
On November 29, the U.S. Department of Commerce published a proposed rule to clarify certain sections of the Commerce Control List to remedy any unnecessary compliance burdens caused by rules that are overly complex, outmoded, inconsistent, or overlapping as a result of accretion. There will be a 60-day window for submitting comments that will close on January 29.

November 29, 2012 - The Defense Trade Advisory Group Holds Meeting to Discuss Export Control-Related Issues
The Defense Trade Advisory Group (DTAG) held a meeting in Washington to present and discuss the findings from three of its recent studies regarding trade in defense industrial goods. The first discussion laid out a list of industry priorities for export control reform, the second included a proposal for a new ITAR exemption, and a third was an examination of proposed changes to ITAR brokering rules. Assistant Secretary of State Andrew Shapiro presented keynote remarks and provided a status update for the Export Control Reform effort.

November 28, 2012 - State and Commerce Publish Proposed Rules for Category XI
On November 28, the U.S. Departments of State and Commerce published proposed rules for the transition of certain items from Category XI of the U.S. Munitions List to the Commerce Control List. Category XI pertains to controls for a variety of “Military Electronics”, and there will be a 60-day window for submitting comments that will close on January 28.

November 28, 2012 - Assistant Secretary of Commerce for Export Administration to Host Weekly Conference Calls on Export Control Reform
BIS Assistant Secretary Kevin Wolf will resume his series of weekly conference calls on December 12 at 2:30 pm. These calls are open to the public and will provide interested parties with a unique opportunity to develop their understanding of the improvements now being made through the Export Control Reform Initiative. For more information about participating, please refer to the notice on the BIS website.

November 5, 2012 - Export Control Reform Levels the Playing Field for Small American Exporters
In addition to reducing the compliance burden for exporters, the Export Control Reform improvements will make it easier for smaller American firms to participate in foreign markets and provide after-market support to Allies who purchase U.S. systems. The Defense Department considers many parts and components of these systems to be less sensitive, so these items will be moved to the more flexible Commerce statutory authorities. This will make it easier to export to Allies, thereby enhancing interoperability. The items will remain controlled, but by prioritizing U.S. controls, the second- and third-tier suppliers who make many of these items for U.S. primes will no longer lose the after-market to foreign end-users who design-out U.S. content to avoid the reach of U.S. controls. Some items might even be eligible for a license exception. This will enhance the reliability of U.S. suppliers and will be beneficial to the health and competitiveness of the U.S. industrial base, including maintaining and expanding jobs. Most critically, these changes will ensure the vitality of the U.S. industrial base to meet future U.S. national security requirements.

For more information, please visit the ECR Library.

October 25, 2012 - Export Control Reform Reduces the Compliance Burden on Small Businesses
Small businesses are a key part of the defense industrial base, yet they are confronted by unique challenges in trying to export into foreign markets. According to the Small Business Administration, small firms account for 99.7 percent of all employers, comprise 97.5 percent of all identified exporters, and account for 31 percent of export value, yet they spend 36 percent more per employee than larger firms to comply with federal regulations. Given this disparity, a key objective of the President’s Export Control Initiative is to reduce the regulatory compliance burden on small firms to maintain the health of the industrial base. Some specific steps toward this objective include:

The creation of the Consolidated Screening List, which combines the screening lists maintained by the Departments of State, Treasury, and Commerce to help exporters evaluate parties to transactions themselves without having to hire a screening service or read the Federal Register each day;
The standardization of terminology to make the regulations easier to understand and enforce;
The elimination of the annual registration requirement and the related annual registration fee for an estimated 60 percent of current State Department registrants;
The elimination of requirements for a multitude of authorizations – whether individual export licenses, Technological Assistance Agreements to tell customers how to incorporate the exported item, or Manufactured Licensing Agreements to produce near the customer;
The elimination of the “see-through” rule for non-embargoed destinations that requires the manufacturer of a defense article to inform all domestic and foreign customers that their product will never lose its identity, regardless of what it is incorporated into, thus transforming those customers’ products into U.S. munitions items as well; and
The eventual move toward a single U.S. Government IT platform and licensing application to reduce confusion for exporters.

Ultimately, these and other important changes will allow small firms to prosper, making it easier for them to comply to the benefit of U.S. national security, while also bolstering the health and competitiveness of the U.S. industrial base and helping maintain and create American jobs. For more information, please visit the ECR Library.

October 11, 2012 – Public Comments for USML Categories IX, X, and XIII Published Online
Public comments to the following proposed rule changes are now published and available online:

The State and Commerce proposed revisions to Category IX-Military Training Equipment and Training
The State and Commerce proposed revisions to Category X-Protective Personnel Equipment and Shelters
The State and Commerce proposed revisions to Category XIII-Auxiliary Military Equipment.

The departments are now reviewing and considering these comments in preparation for the publication of the final versions of these rules.

August 15, 2012 - Public Comments on the BIS and DDTC Proposed Transition Rules Are Now Available Online
The State and Commerce Departments have published the public comments they received in response to the proposed rules for the orderly transition of items from the U.S. Munitions List (USML) to the Commerce Control List (CCL) as part of the reform effort. These comments are now being studied by the departments in preparation for publication in final and are available for public review on the State and Commerce websites, respectively.

August 14, 2012 - Public Comments on the Proposed Specially Designed Rules Are Now Available Online
The State and Commerce Departments have published the public comments they received in response to the proposed change in the definition of the term “specially designed” within the context of the reform effort. These comments are now being studied by the departments for preparation for publication in final and are available for public review on the State and Commerce websites, respectively.

August 3, 2012 - BIS Update 2012 Export Control Conference Held in Washington, DC
On July 17-19, the Bureau of Industry and Security hosted the “Update 2012 Conference on Export Controls and Policy”, which is an annual event for industry leaders and other interested stakeholders to learn about the current and future direction of export controls. The Export Control Reform Initiative was a key topic during the event, and several key participants in the process were present to discuss different aspects of the process. Speeches from the event by the following participants can be accessed online:

July 26, 2012 - The Defense Trade Advisory Group Holds Semi-Annual Meeting to Discuss Export Control-Related Issues
On July 26, the Defense Trade Advisory Group (DTAG) held a meeting in Washington to present and discuss the findings from two of its recent studies regarding trade in defense industrial goods. The first discussion focused on two competing legislative proposals to restore the authority of the President to determine the proper regulatory jurisdiction of commercial satellites, and the second was a presentation about how the ITAR might be improved to bring its guidance on transshipment requirements more into line with the challenges of current global logistics networks. Assistant Secretary of State Andrew Shapiro presented keynote remarks and discussed the importance of the Export Control Reform effort.

The speech listing for inclusion on the ECR Library page is as follows (the link goes to the same location as the one in the blog article):

Remarks by Andrew J. Shapiro, Assistant Secretary of Political-Military Affairs during the Defense Trade Advisory Group Plenary

July 2, 2012 – Public Comments on the Proposed Rule Changes to Category V-Explosives and Energetic Materials Are Now Available Online
The State and Commerce Departments have published the public comments they received in response to the proposed changes to the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) regarding ITAR Category V-Explosives and Energetic Materials. These comments are now being studied by the departments and are available for public review on the State and Commerce websites, respectively.

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