Expediting Export: License Exceptions and “600 Series” ECCNs.

December 22, 2014 by 2 Comments

We recently had a member ask about the applicability of export license exceptions to the new “600 Series” ECCNs.  Attendees of our workshops, and regular readers of this blog, know that we frequently recommend taking advantage of export license exceptions whenever possible.  Using such exceptions can save money and time, and are particularly important for AOG customers when time is of the essence and waiting for an export license is simply not an option.

As those familiar with export know, a particular article’s ECCN helps us determine when an export license will be required for export to certain countries.  The “600 Series” ECCNs have been created as part of the ongoing Export Control Reform initiative.  These ECCNs control those articles that formerly appeared on the USML and were therefore considered ITAR controlled.  Those ECCNs of most concern to us are ECCN 9A610 “Military aircraft and related commodities, other than those enumerated in 9A991.a” and 9A619 “Military gas turbine engines and related commodities.”  We will use “600 Series” in this post to refer to those two ECCNs.

This shift from State Department control (under the ITAR) to Commerce Department control has been a welcome change for exporters.  However, as the creation of the new “600 Series” ECCNs suggest, these transitioned articles, formerly controlled as defense articles under the ITAR,  warrant some different level of control than those ordinary dual-use parts that were already subject to Commerce Department control.  This makes intuitive sense, as these are military parts that warrant some enhanced level of control, but which do not provide a “critical military or intelligence advantage.”

Given that articles in the “600 Series” ECCNs now occupy a sort of middle ground—subject to the somewhat less-restrictive level of control of the Commerce Department, yet still warranting additional control due to their nature as military parts—we should expect the applicability of commonly used license exceptions to be subject to some limitations.

In our workshops we typically recommend the use three primary license exceptions: Civil End-Users (CIV), Servicing and Replacement of Parts and Equipment (RPL), and Aircraft, Vessels, and Spacecraft (AVS).  We will primarily focus on the applicability of these three exceptions.

The first exception, CIV, can be dispensed with quickly.  CIV is designated on the Commerce Control List (CCL) “600 Series” ECCNs as “CIV: N/A.”  License exception CIV applies to those articles controlled only for National Security (NS) reasons.  Because the articles under ECCNs 9A610 and 9A619 are military articles they are controlled for additional reasons, including Regional Stability (RS) and Missile Technology (MT).  License exception CIV is therefore not applicable to these “600 Series” ECCNs. Strike one.

Skipping over exception RPL briefly, exception AVS can also be dispensed of quickly. License exception AVS permits the export of equipment and spare parts for permanent use on an aircraft and exports to planes of U.S. or Canadian registry and U.S. or Canadian Airlines’ installations or agents.  However, the Export Administration Regulations specifically omit exception AVS as a permissible exception from its list of license exceptions applicable to the “600 Series.”  We can add license exception AVS to our list of exceptions unavailable for use with “600 Series” articles.  Strike two.

Down to our final commonly used license exception, we return to exception RPL.  License exception RPL permits export for the one-for-one replacement of parts, components, accessories and attachments as well as export for servicing and replacement of commodities that are defective or that an end user or ultimate consignee has found unacceptable.

In short, RPL works two ways.  The first way is that a part may be exported to replace a previously legally exported part.  The parts must be identical, and the core must be returned to the exporter or destroyed (and as a best practice proof of such destruction provided). The second way is a return of an article that is either defective or in need of servicing or repair (i.e., the part has been found “unacceptable”).  Upon servicing the part is then returned under exception RPL.

Luckily for us, license exception RPL is permissible for use with “600 Series” articles! Use of this exception can greatly increase an exporter’s ability to service its customer.

Such use is not without limitations though.  Recall again that “600 Series” ECCNs occupy a special in-between zone of export control.  Use of exception RPL is therefore limited with respect to certain countries.  No “600 Series” ECCN article may be exported under license exception RPL to any destination identified in Country Group D:5.  Country Group D:5 countries are those with which the U.S. maintains an arms embargo, and can be located on the Country Group List, Supplement 1 to 15 C.F.R. Part 740.  Although not a grand slam, RPL is a valuable license exception for “600 Series” articles.

Two other less-commonly used exceptions may also be available for export of “600 Series” articles.

The first is Shipments of Limited Value (LVS).  LVS is a list based exception like CIV and therefore appears on the CCL in the ECCN information.  Both 9A610 and 9A619 are limited to shipments valued at less than $1500. This low dollar value makes exception LVS of limited practical application to “600 Series” articles.  It is also forbidden to split or otherwise manipulate or structure a transaction to attempt to evade license requirements using LVS.  Those seeking to use exception LVS should consult their export compliance department.

The second less common exception is exception Strategic Trade Authorization (STA). STA is best suited to those exporters with a regular and recurring shipment of articles requiring a license.  Due to the complexity of exception STA, we will be addressing that exception as it relates to “600 Series” ECCNs in a subsequent blog post.

Available license exceptions are clearly limited in the case of parts listed as ECCN 9A610 or 9A619.  Of the three primary exceptions—CIV, RPL, and AVS—only RPL is permissible, and even then with restrictions.  Knowing the available license exceptions, however, can both help you service your customer and ensure you remain compliant.

The Export Administration Regulations provide a handy cheat sheet listing the license exceptions generally applicable to “600 Series” articles at 15 C.F.R. § 740.2(a)(13).  Unless you are already familiar with the regulations, however, this reference should be used only as a starting point in your inquiry.  You should consult your export compliance officer or legal counsel to ensure full compliance with the regulations when using more complicated license exceptions.

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Export Regulations Are Changing! Is Your Export License Still Valid?

October 9, 2013 by 3 Comments

We have previously written on this blog about the upcoming changes to the State Department’s International Traffic in Arms Regulations (ITAR) and Bureau of Industry and Security’s Export Administration Regulations (EAR).  The transition of many United States Munitions List (USML) items (controlled by the State Department’s DDTC) to the Commerce Control List (CCL) 600 Series ECCNs (controlled by the Commerce Department’s BIS) is intended to ease export compliance and allow the State Department to better focus its resources on those items with the greatest national security implications.

The amendments to the regulations concerning the export of these certain defense-related articles articles go into effect on October 15, as a significant number of articles formerly found on the USML transition to the CCL, and the USML itself transitions to a positive list of controlled articles.

With the pending transition of articles formerly exported under a DDTC permanent export license (DSP-5) to BIS control, we have had a number of members ask about the status of DDTC-issued export licenses after the new rules become final on October 15.  Export licenses issued by the DDTC are typically valid for four years, so it will be important for distributors with DDTC-issued export licenses to know for how long, and under what circumstances, those licenses authorizing export of new 600 Series ECCNs remain valid.  (Previously issued BIS export licenses will not be affected by the change.)

Because the ITAR is generally more restrictive than the EAR, the BIS has largely deferred to the transition plan established by the DDTC in its final rule.  The DDTC transition plan contemplates the two possible scenarios in which articles covered by a DDTC export license transition to the 600 Series ECCNs such that they be regulated by the EAR in the future.

The first scenario considers an export license in which ALL articles that are included on the issued export license transition to the CCL. Such a license will remain valid for two years from the effective date of the final rule (October 15, 2013), which means October 15, 2015, or until the license expires, whichever occurs first.  Until that time, there is no need to apply for a new export license and the distributor may rely on the export license as usual.

The second scenario considers an export license in which only some of the articles included on the license transition to the CCL, but others remain on the USML and subject to the ITAR.  In this case, the export license will remain valid until it expires, whether the expiration date is prior to October 15, 2015 or not.  This means that those distributors who find a DSP-5 now lists a mix of USML and CCL items may continue exporting pursuant to that license beyond the October 15, 2015 cutoff date, assuming the license has not previously expired.

Of course, in both cases a license may still be voluntarily returned to the DDTC or otherwise suspended, revoked, or terminated.

Ultimately, in the short term, those distributors exporting pursuant to a DDTC export license issued prior to October 15, 2013 may continue to export under the terms of their validly issued export licenses.  The key factor is that if it is determined that all articles authorized on the license have transitioned to the CCL, then the distributor may only continue to export under the license until October 15, 2015 at the latest.  After October 15, 2015, distributors wishing to continue to export those articles must apply to BIS for the appropriate export licenses, or ship under a valid exception.  Export licenses that continue to authorize at least one article still on the USML will be valid until expiration, at which point application must be made to BIS for future export licenses.

Export issues can often be confusing, even without the challenges of new amendments to the governing regulations.  We have significant experience in handling export compliance matters, so if you have any questions regarding the October 15 transition, or regarding export compliance in general, feel free to call our office with your export concerns.

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New Export Rules Released – Should Provide Clearer Guidance to Aircraft Parts Exporters

April 16, 2013 by 1 Comment

The rules for exporting aircraft parts are changing!

This morning, the State and Commerce Departments released sweeping new regulations that should make it easier for exporters to identify which regulatory regime applies to dual-use parts and other parts that have caused aircraft parts distributors to be confused about compliance.

The International Traffic in Arms Regulations (ITARs) have traditionally applies to all aircraft parts that are designed, manufactured or modified for use on defense related aircraft (this language comes from Category VIII of the United States Munitions List or USML).  The problem with this definition has been that it often leaves no way for a aircraft parts distritor to conclusively identify which parts really are ITAR-controlled.  For example, a component that was designed for a defense related aircraft but then was later used in civilian aircraft might be ITAR-controlled.  This has included component that was designed for a defense related aircraft but then never used on defense related aircraft (e.g. where the designer lost a bid for a defense contract, and later manufactured the component solely for civilian aircaft).  Another class of problem parts is parts that are dual-use (the part fits on both civilian and defense related aircraft).

This has been a priority for the aviation community – changing the regulations to provide clearer guidance abouut which regulations control the export of any given aircraft part.

Non-Engine Parts

The new regulations, while not perfect, nonetheless do seem to provide clearer guidance.  The revised regulations modify USML Category VIII (the USML Category that applies to aircraft and aircraft parts).  The new langauge creates a “positive list” of parts that will continue to be regulated under the ITARs.  This positive list will include ():

  • Parts for the B–1B, B–2, F–15SE, F/A–18E/F/G, F–22, F–35 and the F–117;
  • Certain high velocity gearboxes;
  • Defense-specific parts, like tail hooks, wing folding systems and bomb racks;
  • Certain technical related to export-controlled items;
  • Classified items;
  • “Commodities, software, and technical data subject to the EAR (§ 120.42 of this subchapter) used in or with defense articles controlled in this category.”

This last category could prove to be a problem if it serves as a back-door to State Department assertion of control over parts that do not seem to fit the other USML-regulated categories but that the State Department argues are “used … with defense articles.”  Otherwise, though, the shift to a positive list should provide much clearer guidance to exporters of aircraft parts.

Note that there is another category of aircraft parts that are regulated under the ITARs.  Inertial navigation systems (INS), aided or hybrid inertial navigation systems, Inertial Measurement Units (IMUs), and Attitude and Heading Reference Systems (AHRS) that are designed for defense aircraft and their parts will be regulated under the ITAR.

Engine Parts

Certain engines and their parts will be controlled under USML Categopry XIX.  Most of these engines appear to have characteristics that are uniquely associated with (1) defense related aircraft and/or (2) armed or military unmanned aerial vehicle systems, cruise missiles, or target drones.

  • Certain engines are called-out by designation: GE38, AGT1500, CTS800, TF40B, T55, TF60, and T700 engines.  These will all be ITAR-controlled engines;
  • Digital engine control systems controls (FADEC) and Digital Electronic Engine Controls (DEEC) that are specially designed for engines controlled Category XIX will be controlled;
  • Parts for any of these engines: AE1107C, F101, F107, F112, F118, F119, F120, F135, F136, F414, F415, J402, GE38, TF40B, and TF60;
  • Hot section parts, uncooled turbine blades, vanes, disks, tip shrouds, combustor cowls, diffusers, domes, shells and engine monitoring systems specially designed for any engine controlled under Category XIX;
  • Certain technical related to export-controlled items;
  • Classified items.

To address the many items that are being moved from State Department’s export control to the Commerce Department’s export control, the Commerce Department has established a new set of ECCNs – the 600 series ECCNs.  Items subject to these ECCNs will have heightened restrictions associated with them – they will often require licenses and the will generally always be required to be disclosed through AESDirect (common exceptions will not apply).

The regulations will require that exports of items on the CCL be accompanied by a Destination Control Statement (DCS) identifying the items as subject to the EAR.  The recommended language for this DCS is:

‘‘These commodities, technology, or software were exported from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. law is prohibited.’’

For each ‘‘600 Series’’ item being exported, in addition to the DCS, the ECCN must be printed on the invoice and on the bill of lading, air waybill, or other export control document that accompanies the shipment from its point of origin in the United States to the ultimate consignee or end-user abroad.

The Commerce Department regulations can be found online at http://www.gpo.gov/fdsys/pkg/FR-2013-04-16/pdf/2013-08352.pdf.

The State Department regulations can be found online at http://www.gpo.gov/fdsys/pkg/FR-2013-04-16/pdf/2013-08351.pdf.

These new rules will be effective as of October 15, 2013.  Remember that you must remain in compliance with the current regulations until the new regulations take effect!

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Exporting Dual Use Aircraft Parts? Simpler Rules are Around the Corner!

July 31, 2012 by Leave a comment

Many ASA members have found themselves overwhelmed by U.S. regulation compliance. The Administration is acting to alleviate some of these export concerns.

Dual-use parts are a particular problem for ASA members.  Dual-use aircraft parts are replacement parts that can be installed on both civilian and military aircraft.  Their precise placement into Bureau of Industry and Security (BIS) or Directorate of Defense Trade Control (DDTC) jurisdiction can be ambiguous, and can be based on facts that are not readily available to distributor-exporters. For example, the mechanism for obtaining a license to export a replacement part that is listed on both a military engine design and a civilian engine design (approved by the FAA) is very ambiguous, because it can be unclear whether the FAA exception applies [originally published in the 1979 Export Administration Act section 17(c), the exception has been turned into a puzzle that rivals a Rubik’s cube by contradictory guidance and misleading].

We’ve been vocal supports of these changes, having spoke with both Commerce Department and White House officials about reforms.  The Administration has developed and is implementing a plan to revise the U.S. export rules in a way that makes it less complex to export dual-use aircraft parts.

Those of you who’ve seen me speak on export law in the past year know that I have been predicting that the Administration will take far less than the normal 18 months to publish the final rule in the export reform provisions. While most people deride election cycle politics for its emphasis on form over substance, and a tendency for both parties to block partisan gains that might help the other earn votes, this is one situation where election year politics work in our favor. The Administration would like to be able to take credit for making it easier for businesses to export products, in order to show that they are not anti-business. The export reforms will do just that.

The Hill Reports that the Administration is getting ready to publish the first of these export revisions.

If the final rule looks like the proposal, then it will ease unnecessary burdens on the export of many dual-use aircraft parts by clarifying who has jurisdiction over various aircraft parts and reserving the most onerous rules only for those parts that serve a clear defense mission.  The proposed rule would move all of the dual use aircraft parts into BIS jurisdiction, leaving only parts with a clear defense mission in the jurisdiction of DDTC.

This is important to exporters because (1) many BIS exports do not need a license while nearly all DDTC exports require a license, and (2) even if a license is necessary, it is far quicker and easier to obtain a license from BIS than it is from DDTC. It is also useful because there has been a lot of confusion about which agency’s rules must be followed for certain aircraft parts, and the reform would make the pathway to compliance much more clear.

In the current political climate, we hope that the Administration will issue these rule changes before the November elections.

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