International Trade Law News

The Coalition for Security and Competitiveness (CSC) today released detailed recommendations on the specific steps the Obama Administration and Congress can take to reform and modernize the U.S. export control system.

The document, entitled "Recommendations for a 21st Century Technology Control Regime", which was included with a letter sent to to President Obama and other key members of the Obama Administration, states that:

United States export control system has not been significantly revised in more than twenty years. The result is a system that no longer fully protects our national security, has not kept up with accelerating technological change, and does not function with the efficiency and transparency needed to keep the United States competitive in the global marketplace.

The Administration’s export control review, as well as impending legislative proposals, provides an opportunity to strengthen our security and give business the clarity and guidance it needs to comply with the rules and remain competitive.

In order to accomplish these reforms, the CSC indicated that these goals can best be accomplished in the near term by structuring export control reform around the following five themes:

Labels: BIS, BIS; EAR, DDTC, Export Controls, ITAR

Last week the Wassenaar Arrangement (WA) on Export Controls for Conventional Arms and Dual-Use Goods and Technologies held its 15th annual Plenary session in Vienna, Austria.

During the Plenary the participating countries agreed to a number of changes to the WA's List of Dual-Use Goods and Technologies and the Munitions List. The changes to the List of Dual-Use Goods and Technologies included the modification of a number of entries on the control lists (including changes in parameters and specifications), the addition and changes to several notes, as well as other changes to the text that were intended to make the lists more "user-friendly" for exporters and licensing authorities.

Among the more significant changes is a new Note 4 to Category 5 - Part 2 of the Dual-Use List, the category that covers information security and encryption. The new note indicates that Category 5–Part 2 does not apply to items incorporating or using "cryptography" and meeting all of the following:

a. The primary function or set of functions is not any of the following:
1. "Information security";
2. A computer, including operating systems, parts and components therefor;
3. Sending, receiving or storing information (except in support of entertainment, mass commercial broadcasts, digital rights management or medical records management); or
4. Networking (includes operation, administration, management and provisioning);
b. The cryptographic functionality is limited to supporting their primary function or set of functions; and
c. When necessary, details of the items are accessible and will be provided, upon request, to the appropriate authority in the exporter’s country in order to ascertain compliance with conditions described in paragraphs a. and b. above.

Because the U.S. is a participating member of the WA, the U.S. must modify the Commerce Control List (CCL) in order to incorporate these changes. However, as indicated by our previous post regarding the changes made at the 2008 WA Plenary, the changes made at the 2009 Plenary will not take effect until the CCL is modified by the Bureau of Industry and Security (BIS) next year.

The next regular Wassenaar Arrangement Plenary meeting will take place in Vienna in December 2010.

A summary of changes adopted at the December 2009 Plenary can be found here.

The latest version of the List of Dual-Use Goods and Technologies and the Munitions List incorporating the made at last week's Plenary can be found here.

Labels: BIS; EAR, Export Controls

Today's Jerusalem Post reports that "despite efforts by Washington in recent years to bring about a normalization of relations between Israel and the Arab world, Saudi Arabia has been steadily intensifying its enforcement of the Arab League boycott of Israel."

The article, which examines recent data issued by the Bureau of Industry and Security's (BIS), Office of Antiboycott Compliance, indicates that the number of boycott-related requests submitted to BIS has increased in the past two years, rising from 42 in 2006 to 65 in 2007 to 74 in 2008, an increase of 76 percent.

The article notes that the "bulk of these requests were related to the companies' or products' relationship to Israel. Typically, Saudi officials ask foreign suppliers to affirm that any goods exported to the desert kingdom are not manufactured in Israel and do not contain any Israeli-made components."

The antiboycott provisions of the U.S. Export Administration Regulations (EAR) (15 CFR Part 760) prohibit U.S. persons from engaging in certain activity relating to restrictive trade practices and unsanctioned foreign boycotts, including implementing letters of credit containing prohibited boycott terms or conditions and entering into agreements containing prohibited boycott language.

The U.S. antiboycott regulations also require U.S. persons to report to BIS certain requests they have received to take certain actions to comply with, further or support an unsanctioned foreign boycott.

Labels: BIS; EAR, Boycotts

The Bureau of Industry (BIS) published a final rule (PDF) in today's Federal Register amending several sections of Part 744 of the Export Administration Regulations (EAR) to specify that in-country transfers of items subject to the EAR to parties on the Entity List are now subject to the Entity's List's licensing requirements.

BIS stated that the rationale for making these changes was as follows:

Regardless of the form of the transaction (export, reexport, or transfer (incountry)), the United States Government believes it is important to review all transactions involving persons listed on the Entity List prior to the initiation of a transaction with a listed person and/or receipt by the listed person of an item in a transaction.

The Entity List (PDF), set forth in Supplement No. 4 to Part 744 of the EAR, provides notice to the public that certain exports, reexports, and transfers (in-country) to parties identified on the Entity List require a license from the Bureau of Industry and Security (BIS) and that availability of License Exceptions in such transactions is limited.

Labels: BIS; EAR, Export Controls

Today's edition of the Federal Register contains the final rules making the changes to the U.S. embargo on Cuba announced last week by the Departments of Treasury and Commerce.

• The PDF version of the changes made to OFAC's Cuban Assets Control Regulations can be found here.

• The PDF version of the Changes to the Commerce Department's Export Administration Regulations modifying the rules on certain exports to Cuba can be found here.

Summaries of the various changes made to the U.S. embargo on Cuba can be found here (OFAC) and here (BIS).

Despite these changes, there are still significant restrictions on exports, reexports and travel to Cuba. For example, all sales of U.S. telecommunications, agricultural or medical products exported or re-exported to Cuba pursuant to the recent changes must be authorized or licensed by BIS. In addition, nearly all travel to Cuba, including for educational and humanitarian purposes, still requires a specific license to be issued by OFAC before such travel occurs. In addition, all authorized travel to Cuba must be arranged and provided by OFAC authorized providers of air and travel services.

Labels: BIS; EAR, Cuba, OFAC

In order to implement yesterday's changes in certain aspects of the U.S. embargo on Cuba, the Census Bureau's Foreign Trade Division has issued Foreign Trade Letter No. 5 explaining the requirements for filing electronic export information (EEI) through the Automated Export System (AES) for shipments under new License Exception Consumer Communication Devices (CCD).

License Exception CCD authorizes exports and re-exports to Cuba of certain donated consumer communications devices, computers, and software to individuals in Cuba and to independent non-governmental organizations in Cuba. Exports or re-exports under the License Exception CCD may not be made to organizations administered or controlled by the Cuban Government or the Communist Party or to designated officials of the Cuban Government or Communist Party.

FTR Letter No. 5 also states that Census has modified the AES by adding the new License Type Code “C58” for the License Exception CCD. The AES filers who report “C58” are required to report CCD, regardless of value, in the license number field and the Export Control Classification Numbers 4A994, 4D994, 5A991, 5D991, 5A992, 5D992, or EAR99 corresponding to the License Exception. The country of destination and ultimate consignee reported in the AES must be CU.

Labels: BIS; EAR, Census, Cuba, Sanctions

In addition to the changes made in the U.S. embargo on Cuba made today by OFAC (see previous post) the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) today amended the Export Administration Regulations (EAR) to implement the President’s April 13, 2009 directive to make it easier for Americans with family members in Cuba to visit and send gifts to their relatives.

The amendments to the EAR will authorize items normally exchanged between individuals as gifts to be included in gift parcels going to Cuba and remove the requirement that gift parcels be sent only to members of the donor’s immediate family. Gift parcels may now be sent from an individual in the United States to an individual or an independent religious, educational, or charitable organization in Cuba.

The amendment also raises the value limit for gift parcels from $400 to $800 and increases the number of parcels that an individual donor may send each month.

The EAR update also removes the 44-pound limit on personal baggage that previously applied to travelers to Cuba and creates a new License Exception that authorizes exports and re-exports to Cuba of donated personal communications devices such as mobile phone systems, computers and software, satellite receivers and digital cameras.

The amendment also revises BIS licensing policy to facilitate exports needed to establish telecommunications links between the United States and Cuba, including links established through third countries, and including the provision of satellite radio or satellite television services to Cuba.

Labels: BIS; EAR, Cuba

American Metal Market (www.amm.com) recently ran the following story containing additional details on our recent post describing the recent Bureau of Industry and Security (BIS) enforcement case involving Eastways Shipping Corporation, a New York City-based freight forwarder. As noted below, it appears that the penalty will force the freight forwarder to shut down their business (disclaimer: the editor of International Trade Law News is quoted in the article):

Export of Tinplate Brings Freight Firm $70,000 Fine

By: Paul Schaffer
Published: Aug. 26, 2009
(Reprinted with permission of American Metal Market)

New York -- A freight forwarder who arranged to deliver $95,335 worth of tinplate scrap to Pakistan in 2006 has been hit with a $70,000 penalty because the Karachi buyer was on a U.S. Commerce Department blacklist.

Although New York-based Eastways Shipping Corp. has been given six months to pay the penalty in installments, owner and president Nigel Storey told AMM that the business can't survive such a hit and that he will shut it once he settles with his landlord. The order issued by the Bureau of Industry and Security said Eastways failed to obtain a license for the shipment. The violation didn't pertain to the contents of the shipment, but rather that Allied Trading Co. is on the bureau's "entity list." The Commerce Department roster shows Allied as one of many buyers of technologically sensitive goods that ended up in Pakistan's nuclear weapons program.

Storey said that his client, Fairfield, Conn.-based Tinplex Corp., was listed as the exporter and was willing to explain Eastways' limited role to the Commerce Department. "They wanted no part of that," he said. The forwarder is held responsible for knowing export control subtleties if the commodity itself isn't on any restricted list. "I still felt that the actual exporter was really the responsible party," he said.

Douglas Jacobson, a Washington-based trade lawyer not involved with the forwarder or Allied, said that Eastways would have been cleared for the shipment if it had dealt with Commerce ahead of time. However, any transactions with Allied Trading require pre-clearance because of the Pakistani company's past activities, he said.

Note that the article's reference to "pre-clearance" refers to the Export Administration Regulation's requirement that exports and reexports to parties identified on the Entity List require a license to be obtained from BIS prior to shipment. In this case, the Entity List states that the license review policy for Allied Trading Company is "case-by-case for all items listed on the CCL" and that there is a "presumption of approval for EAR99 items." Because the scrap metal was classified as EAR99, it appears that BIS may have approved the export license application submitted by the exporter in this case.

It is not yet clear whether BIS has or will bring an enforcement case against the exporter of the scrap metal to Pakistan. While each case is evaluated by BIS independently, BIS will typically allege that both the freight forwarder and exporter engaged in prohibited activity in connection with the export to the party on the Entity List.

Labels: BIS; EAR, Export Controls

Yet another company has been fined by the Bureau of Industry and Security (BIS) for an export-related violation involving a party on the Entity List.

Today BIS posted the settlement documents involving Eastways Shipping Corporation, a New York City-based freight forwarder. Eastways agreed to pay a $70,000 civil penalty ($23,333 per violation) for allegedly arranging for the export of scrap metal worth $95,335 to Allied Trading Company, a company in Karachi, Pakistan that is included on the Entity List. The scrap metal involved in these transactions was classified as EAR99.

As a result of its actions, BIS charged Eastways with three counts of aiding and abetting an act prohibited by the Export Administration Regulations (EAR) since the scrap metal was apparently exported to Pakistan without the required export licenses.

The Entity List, established in 1997 and modified periodically, is found in Supplement No. 4 to Part 744 (pdf) of the EAR. The Entity List includes non-U.S. businesses, research institutions, government and private organizations, individuals, and other types of entities whose activities are contrary to U.S. national security and/or foreign policy interests.

The inclusion of a party on the Entity List notifies exporters that certain exports and reexports to parties identified on the Entity List require an export license from BIS and that the availability of License Exceptions in such transactions is limited. The Entity List also includes the license review policy for each part listed. In some cases, there is a presumption that an export license will not be granted.

In this case, the Entity List states that for Allied Trading Company the license review policy is "case-by-case for all items listed on the CCL" and that there is a "presumption of approval for EAR99 items." Because the scrap metal was classified as EAR99, it appears likely that BIS would have approved the export license application submitted by the exporter in this case. BIS has yet to post the civil penalty against the exporter that attempted to sell the scrap metal to Pakistan.

This case once again demonstrates the need for all parties in U.S. export transactions to screen all of the customers and end-users against the Entity List and the other restricted party lists maintained by the U.S. Government.

Labels: BIS; EAR, Export Controls

The Commerce Department's Bureau of Industry and Security (BIS) has imposed a civil penalty on a U.S. manufacturer and an employee with export control compliance responsibilities for unlicensed exports of high performance semiconductor components to China.

RF Micro Devices, Inc. (RFMD), a Greensboro, N.C.-based manufacturer of high-performance semiconductor components, has agreed to pay a $190,000 civil penalty to settle allegations that it exported spread-spectrum modems in violation of the Export Administration Regulations (EAR) to the People's Republic of China. The unique aspect of this case, which was voluntarily disclosed by RFMD, is that BIS also imposed a $15,000 civil penalty on a RFMD manager with export compliance responsibilities for making false and misleading statements to BIS Special Agents during the investigation of RFMD.

BIS alleged that during 2002 and 2003 RFMD made 14 unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number (ECCN) 5A001, to the People’s Republic of China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. In addition, BIS alleged that on 13 occasions RFMD made false or misleading statements in connection with the submission of Shipper’s Export Declarations (SEDs). ECCN 5A001 covers controlled telecommunications systems, equipment, components and accessories. Certain products classified in ECCN 5A001 are controlled for National Security reasons and require an export license to China.

BIS also alleged that, in 2004, a RFMD manager with export control compliance responsibilities told a BIS investigator that an outside export control consultant had confirmed that RFMD’s products were not export-controlled to any region where the company was marketing or selling its products. However, BIS alleged that the RFMD manager "had been repeatedly advised that certain RFMD products may have been classified under the Commerce Control List and that these products may have required an export license."

In announcing this case, Kevin Delli-Colli, the Acting Assistant Secretary of Commerce for Export Enforcement said that "unlawful shipment of state-of-the-art micro devices is a serious national security concern.” Delli-Colli also added that "companies that voluntarily disclose violations must provide truthful and complete information to investigators. Self-serving, false or misleading statements only serve to further undermine corporate credibility.”

This is one of the very few cases in which a company's export compliance manager has been assessed civil penalties in an export enforcement case.

Update: The proposed charging letter and settlement documents in this case can be found here (employee) and here (RFMD).

The proposed charging letter issued to RFMD indicates that the controlled products exported to China were RF3000 and RF3002 spread-spectrum modems, classified under ECCN 5A001, despite being advised by an export controls consultant that a review of the classification and export control requirements of such products were "a priority issue for the company". BIS also charged the company with "acting with knowledge" of violations since the company had been advised of the possible licensing requirements. RFMD was also charged with 14 counts of making a false statement on a SED (now EEI) by indicating that no license was required (NLR) to export the products from the U.S.

The proposed charging letter issued to the RFMD manager with "export control compliance" responsibilities indicated that the employee advised a BIS special agent that "she had been advised . . . by an outside export controls consultant that had been hired by RFMD, that all of RFMD's products were classified as EAR99 and were not export-controlled to any region in which RFMD was marketing or selling its products." The employee also had been advised by the outside export controls consultant "on multiple occasions . . . that RFMD's export control classification review was incomplete."As a result, the employee was charged with one count of making a false statement to BIS in the course of an investigation and agreed to pay a $15,000 penalty to settle the matter.

Labels: BIS; EAR, Export Controls

In yet another export enforcement case involving controlled valves, the Commerce Department's Bureau of Industry and Security (BIS) announced late last week that FMC Technologies, Inc., a Houston-based provider of specialty products and services to the oil and gas sector, agreed to pay a $610,000 civil penalty to settle allegations that it exported controlled valves in violation of the Export Administration Regulations (EAR).

BIS said that FMC voluntarily disclosed the violations and cooperated fully with the investigation.

BIS alleged that between 2003 and 2007 FMC made 78 unlicensed exports of butterfly and check valves classified under Export Control Classification Number (ECCN) 2B350.

ECCN 2B350, which covers many valves and other type of equipment used in the chemical industry, is one of the most common ECCNs subject to BIS enforcement actions.

In its press release, BIS quoted Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement, as saying that an "effective compliance program is only as good as its last revision" and "not staying up to date with regulatory changes can lead to violations of the export regulations." This statement apparently refers to the final rule issued by BIS on April 14, 2005 that amended the EAR to significantly increase the country scope of chemical/biological (CB) controls on chemical and biological equipment and related technology included on the Australia Group control lists.

As a result of the 2005 change, exports of products classified as ECCN 2B350 require an export license to all countries, except the 40 members of the Australia Group. Export licenses are required to export products classified in ECCN 2B350 to such common destinations as China, India, Israel, Russia, Taiwan and the United Arab Emirates. Many exporters, however, did not update their export compliance programs and internal controls to implement the 2005 changes to determine whether an export license was needed prior to exporting valves and other products controlled by ECCN 2B350. This breakdown in compliance has led to numerous BIS enforcement cases. Additional enforcement cases involving products covered by ECCN 2B350 are expected.

ECCN 2B350 was most recently amended by BIS on July 6, 2009 to implement recent changes made by the Australia Group.

Update: The proposed charging letter and settlement documents in this case, which can be found here, indicates that FMC was charged with six counts of making unlicensed exports of ECCN 2B350 check and butterfly valves to China, Mexico, Tunisia and Venezuela following the issuance of the April 2005 final rule noted above. FMC was also charged with making 72 unlicensed reexports of 2B350 butterfly valves from the company's warehouses in Singapore, UAE and the UK to 18 countries.

Labels: 2B350, BIS; EAR, Export Controls

The Bureau of Industry and Security (BIS) yesterday published a final rule in the Federal Register to amend the Export Administration Regulations (EAR) to implement the 2008 Australia Group (AG) intersessional decisions.

Among other things, this final rule makes an important change to Export Control Classification Number (ECCN) 2B350, the ECCN that covers many valves used in the chemical industry. ECCN 2B350 is one of the most common ECCNs subject to BIS enforcement actions.

The final rule amends ECCN 2B350 by revising the controls on valves included in ECCN 2B350.g to include any valves (including casings or preformed casing liners designed for such valves) that are made from any of the following ceramic materials:

(1) Silicon carbide with a purity of 80% or more by weight;

(2) aluminum oxide (alumina) with a purity of 99.9% or more by weight; or

(3) zirconium oxide (zirconia).

In addition, this final rule adds a new ECCN 2D351 to control dedicated software for toxic gas monitoring systems and their dedicated detecting components controlled under ECCN 2B351.

Finally, this rule amends the list of countries that are States Parties to the Convention on the Prohibition of the Development, Production, Stockpiling, and Use of Chemical Weapons and on Their Destruction (known as the Chemical Weapons Convention or CWC) by adding the Bahamas, Dominican Republic, Iraq and Lebanon, all of which recently became States Parties to that Convention.

Labels: BIS; EAR, Export Controls

The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation and Trade will hold a hearing on various policy considerations associated with the lapsed Export Administration Act this Thursday at 10 a.m. on July 9th in room 2172 of the Rayburn House Office Building. This hearing was originally scheduled to be held on June 18th and was postponed due to pending House business.

The witnesses scheduled to appear at the hearing are:

• The Honorable John Engler, President and Chief Executive Officer of the National Association of Manufacturers
  

• Arthur Shulman, Esq., Senior Research Associate at the Wisconsin Project on Nuclear Arms Control

• Owen Herrnstadt, Esq., Director of Trade and Globalization Policy at the International Association of Machinists and Aerospace Workers

The Export Administration Act of 1979 lapsed in August 2001 and has not been renewed by Congress. The Export Administration Regulations have remained in effect pursuant to Executive Order 13222 issued on August 17, 2001 pursuant to the International Emergency Economic Powers Act and extended annually by the President.

Labels: BIS; EAR, Congress, Export Controls

The Bureau of Industry and Security (BIS) has released the first version of its Commodity Classification Information Table.

In September 2008, BIS announced that it intended to establish a page on its website where manufacturers could voluntarily provide information to customers and other persons that intend to export their products the Commerce Control List commodity classifications of their products. BIS explained that they commenced this initiative in an effort to aid exporters in the licensing process and to assist exporters in complying with U.S. export and reexport control laws.

The first version of the Commodity Classification Information Table, which is in PDF format, contains information submitted by 17 companies. The information that was submitted by companies varies widely and includes links to very detailed CCATS tables to general websites. In many cases, companies chose to simply list their export controls contact person, which at least gives customers a person to contact with questions regarding a product's ECCN, Schedule B number and other licensing requirements.

If your company currently has, or plans to have, Commodity Classification information available on your company’s website, or an export control point of contact, and you would like this information to be accessible via the BIS website, send an e-mail to CommodityClassifications@bis.doc.gov. In your e-mail, provide any of the following information you would like to be posted on the BIS website:

1) Company name
2) General description of the products/services
3) Commodity classification information website address
4) Export control point of contact (may be a general telephone number or email address)

We encourage companies planning to include their commodity classification information on the BIS website to contact their in-house legal counsel or outside export controls attorney before submitting the information to BIS.

UPDATE: Thanks to our readers for pointing out that the need to include the actual link on the BIS website where updated versions of the Commodity Classification Information Table will be posted in the future. The link is as follows: www.bis.doc.gov/commodityclassificationpage.htm.

Labels: BIS; EAR, Export Controls

The Bureau of Industry and Security (BIS) today issued the following notice reminding exporters about their responsibilities in cases involving the transfer of export licenses, such as when the party listed on the license no longer exits due to a merger or acquisition.

The full text of BIS's notice is as follows:

Under the Export Administration Regulations (EAR), BIS issues individual export licenses to parties. In some instances, ownership of the party/licensee changes due to mergers and acquisitions. This may result in a change to the license if the party to whom the license was issued no longer exists, or is no longer engaged in exporting.

The EAR contain a procedure under Section 750.10 that provides for the transfer of export licenses in such circumstances. Persons planning corporate mergers, transfers, or acquisitions should consider whether any existing export licenses will need to be transferred and should consult Section 750.10(b) which provides detailed instructions.

Please note that the transfer of an export license must be requested by the licensee, therefore, any request for a transfer of a license that is the result of a corporate transaction in which the licensee will cease to exist as a legal entity must be made prior to the licensee ceasing to exist.

Labels: BIS; EAR

In an interesting and unusual development, last Thursday the U.S. Commerce Department’s Bureau of Industry and Security (BIS) issued a Temporary Denial Order (TDO) in an effort to prevent a powerboat containing U.S. engines and other components from being reexported from South Africa to Iran for possible use by the Iranian Revolutionary Guard Corps navy.

The parties named in the TDO included the Islamic Republic of Iran Shipping Lines (IRISL) and Tadbir Sanaat Sharif Technology Development Center (TSS), both based in Tehran, Iran, and Icarus Marine (Pty) Ltd. of Cape Town, South Africa.

According to the TDO, BIS obtained evidence that the denied parties were about to commit an imminent violation of the Export Administration Regulations (EAR) by re-exporting a Bladerunner 51 powerboat, containing U.S. origin engines and other components (classified as ECCN 8A992.f), to TSS for use by the Iranian Revolutionary Guard Corps navy. BIS also stated that an IRISL vessel, the M/V “Diplomat” (a/k/a the “Iran Diplomat”), is going to be used to transport the powerboat to Iran.

Because the powerboat can reportedly reach speeds of up to 65 knots BIS has concerns that the boat will be used by the IRGC navy as a fast-attack craft to mount surprise attacks. BIS noted that similar vessels have been armed with torpedoes, rocket launchers and anti-ship missiles.

As a result of BIS's actions, the denied parties are prohibited from engaging in this re-export transaction and from directly or indirectly participating or benefiting in any way in or from any other transaction subject to the EAR. In addition, no other person may participate in a transaction subject to the EAR with any of the denied parties. The TDO is effective for 180 days from issuance and is subject to possible renewal.

As we have reported, in September 2008the Department of the Treasury’s Office of Foreign Assets Control (OFAC) added IRISL’s entire fleet, including the Diplomat, to the List of Specially Designated Nationals (SDN List).

Interestingly, TSS's website, was was referred to in the TDO and was hosted by a Canadian hosting company, has been recently suspended. Google's cache of the site can be found here and here.

Labels: BIS; EAR, OFAC, Sanctions; Iran

The Bureau of Industry and Security has posted the public comments submitted on the proposed rule to establish License Exception Intra-Company Transfer (ICT) that was issued by BIS on October 3, 2008.

BIS received 18 comments on the proposed rule from individuals, companies and trade associations. In general, the comments commended BIS for making the effort to reduce the licensing burdens on U.S. companies and their affiliates. However, most of the comments noted that many aspects of the proposed rule in its current form were too burdensome burdensome. Several of the comments indicated that the proposed ICT license exception was in practice similar to the rarely used Special Comprehensive License that is available to U.S. exporters today.

The comments can be found at the following link (note that this is a very large PDF file (12MB)).

Labels: BIS; EAR

The Bureau of Industry and Security published a final "fix-it" rule in Monday's Federal Register making a number of clerical and technical changes to the Export Administration Regulations (EAR). Among other things, the final rule:

• Updates addresses, telephone numbers, procedures and a definition;
  
• Removes some potentially confusing language regarding de minimis content of foreign made items;
• Makes a necessary conforming change to one Export Control Classification Number (ECCN 1C202);
  
• Restores some header language in Category 5, Part II of the Commerce Control List;
• Restores ECCN 5B991, which was inadvertently omitted from the Code of Federal Regulations;
• Revises the authority citation paragraphs for 14 parts of the EAR to include citations to the most recent presidential notices that extend authority for those parts or to remove an outdated citation or both.

Labels: BIS; EAR

The Bureau of Industry and Security (BIS) published in Monday's Federal Register a "fix-it" rule correcting the November 18, 2008 final rule that amended the end-use and end-user controls in the Export Administration Regulations (EAR) and revising the definition of the term "transfer."

Today's notice notes that the November 18, 2008 final rule:

contained one inadvertent error in the amendatory instruction used for revising one of those two sections. This error in the amendatory instruction led to one sentence of the revised regulatory text [in Section 760.1] to not be revised as was intended in the regulatory text of that final rule. This document corrects that amendatory instruction error by revising that one sentence from that section.

Labels: BIS; EAR

The Bureau of Industry published in today's Federal Register a final rule amending the end-use and end-user controls in Part 744 of the Export Administration Regulations (EAR) and revising the definition of the term "transfer."

The changes to the EAR made in today's rule, which is effective immediately, clarify that a party cannot proceed with an export, reexport, or in-country transfer that is in transit at the time the party is informed by BIS that a license is required, unless that party first obtains a license from BIS authorizing the completion of the transaction. These changes are intended to enhance BIS's ability to stop items subject to the EAR, including items not on the Commerce Control List, from being exported, reexported or transferred in-country when there is an unacceptable risk that such items will be used in, or diverted to, any of the proliferation activities specified in the the EAR.

This rule also amends the EAR by revising the definition of the term "transfer" in section 772.1 of the EAR to clarify that the term merely refers to the conveyance of items and certain related terms to provide greater clarity regarding these provisions.

Today's final rule is identical to the proposed rule published by BIS on April 18, 2008. BIS received one comment on the proposed rule but made no changes as a result.

Labels: BIS; EAR

The Bureau of Industry and Security has published on its website a number of questions and answers on the proposed rule establishing License Exception Intra-Company Transfer (ICT).

License Exception ICT would allow an approved “parent company” and its approved wholly-owned or “controlled-in-fact” entities to export, reexport, or transfer (in-country) many items on the Commerce Control List (CCL) among themselves for internal company use only. Prior authorization from BIS would be required to use ICT.

Public comments on the proposed rule were due yesterday, November 17, 2008.

Labels: BIS; EAR

The Commerce Department’s Bureau of Industry and Security (BIS) announced that Cabela’s Incorporated, an outdoor equipment outfitter based in Sidney, Nebraska, has agreed to pay a civil penalty of $680,000 to settle allegations that it committed 152 violations of the Export Administration Regulations involving the export of controlled optical sighting devices to various countries.

The allegations involved 76 exports of optical sighting devices for firearms in 2004 and 2005 to Argentina, Brazil, Canada, Chile, Finland, Ireland, Malaysia, Malta, Mexico, Pakistan, the Philippines, South Africa, Sweden and Taiwan. BIS also alleged that Cabela’s failed to file the required Shipper’s Export Declaration (now known as Electronic Export Information) for each of the 76 exports in question.

Optical sighting devices for firearms are classified on the Commerce Control List under ECCN 0A987 and are controlled for crime control and firearms convention reasons.

In February 2005, Cabela’s settled similar allegations made by BIS that, on 685 occasions in 1999 and 2000, Cabela’s made unlicensed exports of optical sighting devices to a number of countries, including Argentina, Brazil, Canada, Chile and Mexico. Cabela's paid a $265,000 civil penalty to settle those charges.

Labels: BIS; EAR

The Commerce Department's Bureau of Industry and Security published in today's Federal Register two corrections to the final rule published on October 14, 2008 revising the Export Administration Regulations to implement changes made to the Wassenaar Arrangement's List of Dual Use Goods and Technologies.

The corrections are as follows:

1. On page 60911, in the second column, under the heading Revisions
to the Commerce Control List, in the 13th and 14th lines, "1A006 and
1A007" should read "1A006, 1A007, and 3C006".

2. On the same page, in the same column, under the same heading, in
the 18th line, "3C005, 3C006, 3D001" should read "3C005, 3D001".

Labels: BIS; EAR

The Government Accountability Office (GAO) today publicly released a report (pdf) on U.S. export controls on the sale of semiconductor manufacturing equipment and materials to China and the state of China's semiconductor manufacturing industry. In its report, the GAO recommends that the Secretary of Commerce suspend the Validated End-User (VEU) program until the Commerce Department can conduct on-site reviews in China to ensure that the items shipped to the VEUs in China are used as intended.

Representatives Howard Berman (D-CA) and Ileana Ros-Lehtinen (R-FL), the Chairman and Ranking Member, respectively, of the House of Representatives Committee on Foreign Affairs, requested the GAO to update its 2002 report in order to learn of changes in the Chinese semiconductor manufacturing sector and to U.S. export control policies over the sale of semiconductor manufacturing equipment and materials to China.

At the outset, the report notes that since 2002, "China’s ability to manufacture semiconductors has steadily advanced, but semiconductors produced commercially in China remain approximately one generation, or about 1 to 2 years, behind state-of-the-art semiconductors produced in the United States." The report also states that China continues to rely on imports of new and used semiconductor manufacturing equipment from Europe, Japan and the United States for production of integrated circuits.

Next, the report discusses changes in U.S. export control laws on the sale of semiconductor manufacturing equipment and materials to China since 2002, including the Validated End-User (VEU) program for China that was introduced by the Bureau of Industry and Security (BIS) in June 2007.

The GAO's assessment found problems and deficiencies in the VEU program, including:

• The advantages of the VEU program anticipated by Commerce have not yet been realized because few U.S. exporters have shipped items to China under the Authorization VEU. As of June 2008, only one of the three validated end-users authorized to receive semiconductor equipment and materials had received any items under the program. In addition, only 6% of the total exports of semiconductor manufacturing equipment to China have taken place under the VEU program. The remaining 94% were exported under an export license.

• BIS may not be able to ensure that semiconductor equipment and materials exported to China are used as intended because it has not negotiated a VEU-specific agreement with the Chinese government for conducting on-site reviews under the VEU program and lacks specific procedures for carrying out these reviews.
  

As a result of its review of the VEU program, the GAO recommended that in order to better promote the VEU program’s objective of trade facilitation and enhanced oversight, the Secretary of Commerce should suspend the VEU program to China until a VEU-specific agreement and procedures are established for on-site reviews. Specifically, the GAO said the Commerce Department should:

• Negotiate a VEU-specific agreement with the Chinese government to conduct on-site reviews or amend the 2004 End Use Visit Understanding (EUVU) to include the Validated End-User program; and

• Develop procedures for conducting on-site reviews that are applicable to all validated end-users.

The report notes that the Commerce Department disagreed with the GAO's recommendations, stating that the report’s premise— that the VEU program has no adequate mechanism to oversee exports of semiconductor equipment to China—is incorrect. Commerce first contends that on-site reviews could be conducted under the 2004 EUVU or a VEU-specific addendum to the EUVU, which it is currently negotiating with the Chinese government. Commerce also asserted that procedures for selecting on-site reviews exist, that general procedures for end-use checks are in place, and that specific guidance for on-site reviews must be developed on a case-by-case basis.

Labels: BIS; EAR, China;

The Bureau of Industry and Security (BIS) will hold a public meeting on October 27, 2008 in Washington, DC to provide additional information to exporters on the proposed Intra-Company Transfer (ICT) license exception that was recently published in the Federal Register.

The meeting will be held at the main Commerce Department building and will start at 9 a.m. Seating is first come first served. The meeting will also be accessible via to a limited number of participants.

For more information and details on the meeting, see this notice issued by BIS.

Labels: BIS; EAR

The era of filing paper license and commodity classification requests with the Commerce Department's Bureau of Industry and Security (BIS) is soon coming to an end.

As a result of the final rule issued by BIS in August, starting next Monday, October 20, 2008, the following types of submissions must be submitted via the web-based Simplified Network Application Process Redesign (SNAP-R) system:

• Export license applications (other than Special Comprehensive License and Special Iraq Reconstruction License applications);
• Reexport license application;
  
• Commodity classification requests;
• Encryption review requests;
• License Exception AGR notifications;
  
• All documents submitted in support of or related to the above submissions.

The final rule states that BIS will authorize paper submissions in only a few limited situations, such as when:

1. BIS has received no more than one submission from the party in the twelve months immediately preceding the current submission, i.e., the combined total of the party's license applications (other than Special Comprehensive Licenses), encryption review requests, License Exception AGR notifications, and classification requests could not exceed one;
2. The submitter does not have access to the Internet;
3. BIS has rejected the party's electronic filing registration or revoked its eligibility to file electronically;
4. BIS has requested that the party submit on paper for a particular transaction; or
5. BIS has determined that urgency, a need to implement government policy or a circumstance outside the submitting party's control justifies allowing paper submissions on a particular instance.

Labels: BIS; EAR, Export Controls

The Commerce Department's Bureau of Industry and Security has published a lengthy final rule in Tuesday's Federal Register (pdf) to revise the Export Administration Regulations (EAR) to implement changes made to the Wassenaar Arrangement's List of Dual Use Goods and Technologies.

Today's final rule revises the EAR by:

• Amending the following Export Control Classification Numbers (ECCNs) controlled for national security reasons: 1A004, 1E001, 1E201, 2B001, 2B002, 2B006, 2B007, 2B008, 3A001, 3A002, 3A229, 3B001, 3C002, 3C005, 3D001, 3E001, 5A001, 5A002, 6A001, 6A005, 6A995, 7A002, 7A003, 7A008, 9A012 and 9E003;
• Adding the following new Export Control Classification Numbers (ECCNs) to the Commerce Control List (CCL): 1A006, 1A007 and 3C006;
  
• Amending and adding certain definitions contained in section 772.1 of the EAR;
• Adding or expanding unilateral U.S. export controls and national security export controls on certain items to make them consistent with the Wassenaar Arrangement's decisions.

While this final rule is effective immediately, the rule contains a "saving clause" which provides that pending shipments pursuant to actual orders for export or reexport to a foreign destination, may proceed to that destination under the previous license exception eligibility or without a license so long as they have been exported from the U.S. or reexported before December 15, 2008 (60 days after the publication date).

Labels: BIS; EAR

U.S. manufacturers and exporters of products classified under Export Control Classification Number (ECCN) 2B350 should be aware that the final rule issued by BIS on October 6, 2008 making changes to the Commerce Control List contained several changes to ECCN 2B350.

ECCN 2B350 covers valves, pumps, reaction vessels and other types of equipment used in chemical manufacturing facilities.

While the rule did not make any substantive changes to the list of items that are controlled under 2B350, the rule made a number of changes to the text of ECCN 2B350 that should be reviewed:

• Reordered the "Items" paragraph in the List of Items Controlled Section.
• Redesignated the "Technical Note" at the end of the ‘‘Items’’ paragraph in the List of Items Controlled section, as ‘‘Technical Note 1".
• Added a ‘‘Technical Note 2’’ to define the term ‘‘alloy’’. This new definition of ‘‘alloy’’ states that the metal alloys in 2B350 are those containing a higher percentage by weight of the stated metal than any other element.
• Moved the text of the ‘‘Related Controls’’ paragraph to a new ‘‘License Requirement Note’’ to clarify the intended scope of the control.

Labels: BIS; EAR, Export Controls

The following are the descriptions of and Federal Register links to the five important final and proposed rules recently published by the Commerce Department's Bureau of Industry and Security:

Final and Interim Final Rules:

1. De Minimis U.S. Content in Foreign Made Items (October 1, 2008) - This interim final rule amends various sections of the Export Administration Regulations (EAR) as follows:

• Changes the de minimis calculation for foreign produced hardware that is bundled with U.S.-origin software.
• Clarifies the definition of "incorporate" as it is applied to the de minimis rules and to the medical statement of understanding.
  
• Removes the requirement to submit a one time report to BIS for foreign-made software that incorporates U.S.-origin software.
  
• Revises the “Steps for Using the EAR” and General Prohibition Two with regard to the de minimis rules in order to reduce redundancies in the EAR and harmonize the provisions with other revisions made by the rule.

2. Encryption Simplification (October 3, 2008) - This interim final rule amends the EAR as follows:

• Make the treatment of encryption items more consistent with the treatment of other items subject to the EAR, as well as to simplify and clarify regulations pertaining to encryption items.
  
• Removes License Exception KMI as it has become obsolete because of developments in uses of encryption.
  
• Removes notification requirements for items classified as 5A992, 5D992, and 5E992.
  
• Increases certain parameters under License Exception ENC, which is intended to reflect advances in technology.
  
• Adds two new review and reporting requirement exclusion paragraphs under License Exception ENC for wireless ‘‘personal area network’’ items and for ‘‘ancillary cryptography’’ items.
  
• Adds Bulgaria, Canada, Iceland, Romania, and Turkey to the list of countries that receive favorable treatment under License Exception ENC.
• Commodities and software pending mass market review may no longer be exported under ECCNs 5A992 and 5D992 using No License Required (NLR). However, once the mass market review has been received by BIS, then such commodities and software may be
  exported using License Exception ENC under ECCNs 5A002 and 5D002.
  

3. Revisions to EAR Based Upon Systematic Review of CCL (October 6, 2008) - This final rule makes a number of changes to the Commerce Control List (CCL) including:

• Clarifying existing controls;
• Eliminating redundant or outdated controls;
• Establishing more focused and rationalized controls; and
  
• Adding additional controls for clarity or for consistency with international regimes.
  

Note: All exporters of items on the CCL should review this rule to determine whether their ECCNs have been modified byt.

4. Wassenaar Arrangement Plenary Agreements Implementation: December 2007 Categories 1,2,3,5 Parts I and II, 6,7, and 9 of the Commerce Control List, Definitions; December 2006 Solar Cells (will be published later this week) - In order to implement changes made to the Wassenaar Arrangement's List of Dual Use Goods and Technologies, this final rule revises the EAR by:

• Amending certain entries that are controlled for national security reasons in Categories 1, 2, 3, 5 Part I (telecommunications), 5 Part II (information security), 6, 7, and 9;
  
• Adding new entries to the Commerce Control List (CCL), and amending and adding EAR Definitions

Note: All exporters of items on the CCL should review this rule to determine whether their ECCNs have been affected.

Proposed Rule:

5.Establishment of License Exception Intra-Company Transfer (ICT) (published October 3, 2008) - This proposed rule would amend the EAR as follows:

• Establish new license exception ‘‘Intra-Company Transfer (ICT)’’ that would allow an approved parent company and its approved wholly-owned or controlled in fact entities to export, reexport, or transfer (in-country) certain items on CCL among themselves for internal company use.
• Prior authorization from BIS is required to use this license exception.
• This rule describes the criteria pursuant to which entities would be eligible to use License Exception ICT and the procedure by which they must apply for such authorization.
• Contains a list of the countries in which eligible applicants must be incorporated in or have their principal place of business in to use License Exception ICT.

Labels: BIS; EAR

The latest edition of the Hartford Business Journal contains an article entitled "Industry Applauds New Dual-Use Rule", which discusses how Connecticut's many aerospace companies will benefit from the State Department's recently issued final rule clarifying the jurisdiction of parts and components used on both civil and military aircraft.

By way of background, on August 14, 2008, the State Department's Directorate of Defense Trade Controls published in the Federal Register a long-awaited final rule amending Category VIII of the U.S. Munitions List to clarify how the criteria of section 17(c) of the Export Administration Act should be applied in determining whether certain basic parts and components having a history of use on both civil and military aircraft should be under the jurisdiction of the International Traffic in Arms Regulations or the Export Administration Regulations.

The new rule amends USML Categories VIII(b) and (h) and adds an important new "Note" after Category VIII(h) which clarifies that any part or component that (a) is standard equipment; (b) is covered by a civil aircraft type certificate (including amended type certificates and supplemental type certificates) issued by the Federal Aviation Administration for civil, non-military aircraft (this expressly excludes military aircraft certified as restricted and any type certification of Military Commercial Derivative Aircraft); and (c) is an integral part of such civil aircraft, is subject to the Export Administration Regulations.

Labels: BIS; EAR, Export Controls, ITAR

The Bureau of Industry and Security and the American Enterprise Institute (AEI) are presenting a half-day conference on technology and export control issues on September 24, 2008 in Washington, DC. The conference, entitled "Beyond the Zero-Sum Game: Technology Transfer and International Security in the Twenty-First Century", will consist of two panels:

• Panel I: Emerging Models for Innovation and the Implications for National Security
  

• Panel II: Promoting National Security and Counterproliferation—the Role of Export Controls

For more information and to register for the program, see this link on the AEI website.

Labels: BIS; EAR, Export Controls

The Bureau of Industry and Security published a final rule in today's Federal Register amending the Export Administration regulations (EAR) to add Kosovo for export licensing purposes. The U.S. recognized Kosovo as a sovereign state on February 18, 2008.

Today's final rule amends the EAR as follows:
1. In Supplement No. 1 to part 738 of the EAR, the Commerce Country Chart is amended by adding "Kosovo''.
2. In Supplement No. 1 to part 740 of the EAR (Country Groups),
Country Group B is amended by adding "Kosovo''.
3. Section 740.7(d)(1) of the EAR (Computer Tier 3 destinations) is
amended by adding "Kosovo'' for License Exception APP purposes.

Exports to Kosovo are controlled for the following reasons: CB 1, CB 2, NP1, NS 1, NS 2, MT 1, RS 1, RS 2, CC 1, CC2 and CC3.

Labels: BIS; EAR

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has imposed a $90,000 civil penalty ($10,000 per violation) on Taiwan's Johnson Trading & Engineering Company, Ltd. for knowingly causing the unlicensed exports of computer chips to China. BIS also charged that Johnson Trading took action to evade the EAR and acted with knowledge of a violation.

According to BIS, on seven occasions between February 2003 and December 2003, Johnson Trading took actions to evade the EAR and knowingly caused the unlicensed exports of SRAM modules, an EE Mixed module and an EEPROM module (all classified as ECCN 3A001.a.2.c) from the U.S., via Taiwan and Hong Kong, to China. Johnson Trading allegedly ordered the computer chips from a U.S. exporter and falsely represented to that exporter that the country of ultimate destination was Taiwan. Following the shipment of the computer chips to Taiwan, Johnson Trading arranged and facilitated for the items’ subsequent shipment to China via Hong Kong. The computer chips in question were subject to the EAR and controlled for national security and anti-terrorism reasons.

Johnson Trading also agreed to a suspended five-year denial of export privileges and to an audit of the company’s export compliance program. Under the settlement agreement Johnson Trading must provide a copy of their export compliance program to BIS's Office of Export Enforcement within seven months. If Johnson Trading complies with the terms of the settlement agreement, BIS will suspend $30,000 of the $90,000 penalty.

Labels: BIS; EAR, China, Export Controls

The Bureau of Industry and Security (BIS) published a final rule in today's Federal Register amending the Export Administration Regulations to modify the designation of parties included on the Entity List. The Entity List, contained at Supplement Number 4 to Part 744 of the EAR, provides notice to the public of the export licensing requirements applicable to exports to the parties included on the list.

The final rule modifies the Entity List in two ways. First, the final rule expands the criteria for inclusion on the Entity List to include when:

There is reasonable cause to believe, based on specific and articulable facts, that the entity has been involved, is involved, or poses a significant risk of being or becoming involved in activities that are contrary to the national security or foreign policy interests of the United States and those acting on behalf of such entities.

The final rule contains an illustrative list of five types of activities that may be deemed to be "contrary to the national security or foreign policy interests of the United States":

1. Supporting persons engaged in acts of terror.
2. Actions that could enhance the military capability of, or the ability to support terrorism of governments that have been designated by the Secretary of State as having repeatedly provided support for acts of international terrorism.
3. Transferring, developing, servicing, repairing or producing conventional weapons in a manner that is contrary to United States national security or foreign policy interests or enabling such transfer, service, repair, development, or production by supplying parts, components, technology, or financing for such activity.
4. Preventing accomplishment of an end use check conducted by or on behalf of BIS or the Directorate of Defense Trade Controls of the Department of State by: precluding access to; refusing to provide information about; or providing false or misleading information about parties to the transaction or the item to be checked.
5. Engaging in conduct that poses a risk of violating the EAR when such conduct raises sufficient concern that the End-User Review committee believes that prior review of exports or reexports involving the party and the possible imposition of license conditions or license denial enhances BIS's ability to prevent violations of the EAR.
   

Second, the final rule amends the EAR to provide that a party listed on the Entity List has a right to request that its listing be removed or modified and sets forth procedures for addressing such requests and for conducing periodic reviews of the parties named on the Entity List.

Specifically, the final rule provides that in order to ensure that the parties on the Entity List are reviewed periodically, BIS's End-User Review Committee will conduct "a systematic review of the Entity List for the purpose of identifying and implementing any needed corrections and updates at least annually." The End-User Review Committee procedures are included in new Supplement No. 5 to Part 744. BIS expects that the first review under these new procedures will be completed no later than August 21, 2009.

Finally, BIS notes in the final rule that it "intends to publish guidance in the near future on dealing with entities related to those on the Entity List."

Labels: BIS; EAR