Archive for the ‘Export Reform’ Category

Dec

13

Call Kevin Wolf

Posted by Clif Burns at 7:24 pm on December 13, 2011
Category: BIS • Export Reform
Kevin Wolf
ABOVE: Kevin Wolf

Who says you never have gotten to talk to an Assistant Secretary of Commerce? Tomorrow, Wednesday, December 14, 2011, you can dial up Kevin Wolf at 2:00 p.m. to discuss the White House’s current export reform proposals. The dial-in number for the conference calls will be 1-877-389-6079, Participant Code: 905168. BIS has announced that this will be the beginning of a weekly series of calls on export reform with Assistant Secretary Wolf that will take place each Wednesday at 2:00 pm EST.

There’s only one small catch: Questions for Kevin should be sent in advance of the call to oesdseminar@bis.doc.gov with a subject line of “Teleconference questions.” This is to avoid having someone from the Howard Stern show hijack the teleconference with inappropriate questions. (That, of course, isn’t the real reason, but it would be a good one.)

The stated purpose of these calls is “to foster public understanding of the initiative and to assist interested parties to prepare more informed comments.” I have been told by a reliable source that so far BIS has received almost no comments on these proposals and that BIS is very much interested in input from the export community. There are three public notices relating to the export control reform initiative with comment periods that are still open: the comment period for the notice on aircraft and related parts closes on December 22, 2011 (i.e. almost tomorrow) and the comment period for the notices relating to gas turbine engines and military vehicles closes on January 20, 2012.

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Aug

17

White House Tries to Extend EAA … Again

Posted by Clif Burns at 8:55 pm on August 17, 2011
Category: BIS • Export Reform

White HouseWhile Washington is as empty as a turkey coop on Thanksgiving, the White House sent up to the abandoned halls of Congress its annual proclamation, under the International Emergency Economic Powers Act (“IEEPA”), declaring a continuation of the national emergency that is claimed to authorize the executive to extend unilaterally all the provisions of the now lapsed Export Administration Act (“EAA”). Without this annual exercise, everyone at the Bureau of Industry and Security (“BIS”) would have to pack up their desks and go home. Also, without this declaration you could freely export uranium enrichment centrifuges to Iran.

Of course, the extent of the President’s authority to, in effect, resurrect an expired legislative scheme that Congress has itself declined to resurrect is open to some degree of question. In the Micei International case, the D.C. Circuit held that the President did not have the authority to extend the direct review provisions of the EAA.

The only way to eliminate the whole question as to what parts, if any, of the EAA can be resuscitated by executive fiat is for Congress to pass export reform legislation. I am not holding my breath.

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Jul

26

Cloudy, With A Chance of Heavy Fines

Posted by Clif Burns at 5:45 pm on July 26, 2011
Category: Deemed Exports • Export Reform • Technical Data Export

Cloud ComputingThe Brookings Institution just issued a brief report entitled “Addressing Export Control in the Age of Cloud Computing.” The report raises more issues than it answers, which is not surprising given the brevity of the report and the uncertain state of the application of export rules and regulations to cloud computing.

One thing the report gets quite right is its observations that the questions of the application of export law to cloud computing are issues that pre-date the current cloud computing phenomenon and were raised initially by the trans-national characteristics of the Internet itself. Consider this example provided by the report:

Person A, a U.S. citizen located in the United States, sends an e-mail containing EAR-restricted information in the body of the message to Person B, a U.S. citizen who normally works at a location in the United States. Unbeknownst to Person A, Person B is on a short trip overseas. Person B logs onto his e-mail while overseas using a public computer in the lobby of his hotel, sees that he has an e-mail message from Person A, but since he does not have any reason to believe in advance that it will contain EAR-restricted information, proceeds to click on the message and read it.

Assuming this is an export violation, and under a literal reading of the Export Administration Regulations (“EAR”) it would be, who has broken the rules? The party sending the email without knowing it was going to leave the country or the party opening the email not knowing it contained export controlled data? The report piles on another question and another wrinkle: suppose the email provider moved the email on to a foreign server after noticing that Person B was accessing the email from abroad. Is the email provider guilty of an export violation? These same issues that are posed by a simple email are also posed when companies begin storing data on the cloud without full control or knowledge of where the cloud servers may be located.

Of course, the literal interpretation of export rules might well forbid the use of email, cloud services or the Internet in general with respect to export-controlled data. Is it time to shut off the computers, address a bunch of envelopes, and crank up the dusty postage meter in the back of your office?

The report suggests that regulators might avoid charges of Luddism and the enshrinement of nineteenth-century concepts of exports by looking at data encryption. Under current rules, data is exported if it crosses borders whether it does so as clear or encrypted text. Perhaps securely encrypted text can find a safe harbor from traditional concepts of export. And although the regulations do not currently take this approach, I have advised people emailing export-controlled data to do so always in encrypted form to guard against things similar to the scenario posed above. If the controlled data, through the miracle of the Internet, winds up on a foreign server, at least the contents of that data aren’t available in any practicable sense to any foreign persons with access to that server. If not a defense to the export violation, it is at least going to be a mitigating factor in any penalty action.

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Jul

15

New Rule Would Make It Harder to Export Spare Parts without Licenses

Posted by Clif Burns at 5:21 pm on July 15, 2011
Category: CCL • Export Reform • USML

Spare PartsAs noted in yesterday’s post dealing with the proposed rule by the Bureau and Industry and Security (“BIS”) on the transfer of United States Munitions List (“USML”) items to the Commerce Control List (“CCL”), parts and components of USML items may be transferred to the CCL while the item itself remains on the USML. In those cases, the parts, which will be covered under the new series 600 ECCNs, can be exported under BIS’s license exception RPL. However, that license exception requires that the exported spare parts be one-for-one replacements for parts of an item that had been previously exported pursuant to a license issued by the Directorate of Defense Trade Controls.

The problem here is that those parts now may only be exported without license using the overly restrictive conditions of RPL which require that the parts be a one-to-one replacement and cannot be shipped to be held in inventory for future repairs. This has been a much criticized aspect of BIS regulations which makes American goods less competitive by holding repairs hostage to the shipping delays that the one-to-one replacement rule inherently causes.

If the parts remained on the USML, they would be entitled to the license exemption in ITAR section 123.16(b)(2), which does not contain the burdensome one-to-one replacement requirement. That exemption permits the unlicensed export of repair parts if they are valued at less than $500, provided there are no more than 24 shipments per year to each approved end user. In those many instances where spare parts needed for repairs are relatively inexpensive, this rule provides much more flexibility to exporters; but it will now be lost for those parts that are transferred to the CCL.

Perhaps, the new license exception STA will be used to ameliorate this hardship somewhat. However, for each of the transferred USML parts, STA eligibility will depend on a one-time eligibility determination that may not have been made yet for the particular part at issue. And it won’t apply to exports of parts to countries not eligible for license exception STA. Those wishing to comment on the proposed rule might consider requesting that the provisions of 123.16(b)(2) be written into the revised RPL for the new series 600 ECCNs.

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Jul

14

Major Rule Implementing Export Reform Released for Public Comment

Posted by Clif Burns at 9:15 pm on July 14, 2011
Category: Export Reform

Export ReformThe Bureau of Industry and Security (“BIS”) is publishing in tommorow’s Federal Register a proposed rule setting forth the framework under which items removed from the USML will be treated in the Export Administration Regulations (“EAR”). I haven’t carefully studied all 132 pages, so there will be multiple postings on the proposed rule as I go through it with more care. This post will simply provide a top-level review of what is in the proposed new rule.

First, the commentary to the rule addresses, and dismisses, the supposed dichotomy between the United States Munitions List (“USML”) and the Commerce Control List (“CCL”). Common wisdom tends to distinguish the USML and the CCL by noting that the USML covers military items while the CCL deals only with dual-use items. That, however, is not strictly true. Items with ECCNs ending in 018 are items from the Wassenaar Arrangements military list that are not on the USML. For example, ECCN 9A018 controls non-armed all-wheel drive vehicles capable of off-road use with NIJ Level III ballistic protection. ECCN 0A919 covers certain foreign-produced military items incorporating certain cameras controlled under ECCN 6A003.

Under the proposed rule, items moved from the USML to the CCL will be put in a new “600 series” of ECCNs — that is ECCNs where the third digit is 6, such as, potentially, ECCN 3A601. Items in 018 series ECCNs, such as the Wassenaar Arrangement military items mentioned above, would also be put in one of the new 600 series ECCNs. Items in the 600 series would generally be controlled for National Security Column 1 (“NS1″) reasons which means that they would require a license for all destinations except for Canada. The new license exception STA would not automatically cover items in the 600 series but would require a specific eligibility determination by BIS. Requests for such determination may be made in license applications for 600 series items not already subject to such a determination.

Many of the items that are anticipated to be removed from the 600 series are parts and components of defense articles otherwise covered under the USML. The proposed rule would permit these 600 series parts to be exported under RPL provided that they are one-for-one replacement for parts in a USML defense article lawfully exported under the Arms Export Control Act.

There is much more of interest in the proposed rule, and I intend to devote several more posts to the details.

Public comments are due sixty days after publication of the notice in the Federal Register which, if the notice is published on July 15, will be August September 13, 2011.

UPDATE: Here is the link to the notice in the July 15 Federal Register.

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