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Archive for July, 2011

Jul

19

Update from Update 2011: License Exception STA

Posted by Clif Burns at 8:26 pm on July 19, 2011

Category: BIS

Update Banner This afternoon I was at Update 2011, the conference held every year in DC by the Bureau of Industry and Security (“BIS”). One of the break-out sessions dealt with the new license exception STA and, needless to say, it was well attended by exporters interested in the new exception.

I want to start out, however, by correcting something I missed in one of my earlier posts on license exception STA’s application to the new 600 series of items under the proposed rule dealing with items transferred from the United States Munitions List. Replacement parts and components do not need explicit BIS certification of eligibility under the process set forth in proposed section 740.20(g). That process only applies to end items. Parts and components in the new 600 series can be exported without license under exception STA if they are destined for use by a government in one of the 36 countries eligible under section 740.20(c)(1).

The biggest surprise came in response to a question as to how many exporters had so far used license exception STA. According to information from the Automated Export System, license exception STA has only been used twice since the exception became effective.

The BIS panel indicated that exporters could apply for a license even for products and destinations that qualified for the exception. Initially, BIS will hold the application in order to contact the exporter and confirm that the exporter wants to apply for a license rather than use exception STA. Also such a license, if and when granted, will not slip in as provisos the conditions that are otherwise required for STA eligibility, such as the required written certification from the foreign consignee. In fact, although the panel did not say this, many exporters may prefer to get a license rather than use exception STA precisely because of the difficulty of getting the required written certification from the foreign consignee.

One panel member brushed off the importance of the additional record keeping requirements for using the exception. Exporters will need to keep the written certification from the foreign consignee, the written notification from the exporter to the consignee of the applicable ECCN, and the written notification to the consignee that the shipment is made pursuant to license exception STA. The BIS spokesman brushed these new requirements off by saying, in effect, the exporter already has to keep voluminous records, so what are a few more? Really.

One audience question caught a panel member off guard. The question was whether license exception STA could be used, where otherwise applicable, to a temporary export for a duration longer than that permitted by license exception TMP. Initially, the panel member noted that the license exception could be used for temporary exports as well as permanent exports. But then the panel member realized that, under the question, the temporary export would be in the custody of an employee of the exporter. That, he thought, created problems because there had to be a foreign consignee for license exception STA to apply.

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Jul

18

New Bio Links Pretty Woman Producer and Export Violations

Posted by Clif Burns at 6:20 pm on July 18, 2011

Category: Criminal Penalties

Confidential Book Cover A new bio of Arnon Milchan — who, among other things, produced the movie “Pretty Woman” — alleges that he had a secret life as a spy and links him to an 1980s criminal export case. The book, Confidential: The Life of Secret Agent Turned Hollywood Tycoon – Arnon Milchan, by Meir Doron and Joseph Gelman, is a subject of a report today in Haaretz, which gives the details.

According to the Haaretz story, Milchan was recruited by Shimon Peres to work for the Israeli spy agency LAKAM which was tasked with making purchases for Israel’s nuclear program

For years, Milchan operated in secret, yet in the mid-1980’s U.S. customs uncovered an attempt to smuggle “switches” â€“- equipment that can be used both for medical purposes and for nuclear weapons manufacture -â€“ by the California-based Milco company, owned by Milchan. The company’s CEO, Richard Kelly Smyth, was arrested and released on bail. He fled the country soon after.

Smyth was declared a fugitive, and according to some reports found refuge in Israel. In 2001 he was captured in Spain and was brought back to the U.S., where he stood trial and was incarcerated. The FBI began an investigation into Milchan’s affairs, yet he has never been charged.

According to the book, right after the “switches” fiasco Milchan called his friend Peres, then prime minister, and asked for his help in dealing with the Ronald Reagan administration. Milchan is quoted in the book as saying he never received money for his services, and that everything he did was for the state of Israel.

Laura Rozen, whose post alerted me to the story, notes that the switches were krytrons, which are used to trigger spark gap switches to detonate nuclear devices. Laura also notes that Richard Kelly Smyth was not incarcerated upon his conviction but received parole because of his old age.

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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

Spare Parts As 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 Reform The 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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Jul

13

Judge Denies Request to Hold Export Defendant Without Bond

Posted by Clif Burns at 8:13 pm on July 13, 2011

Category: Criminal Penalties • Entity List

The story of the unlicensed export of epoxy paint by PPG to the Pakistan Atomic Energy Commission carries on. This blog reported on the $500,000 fine imposed on the regional sales manager involved. The epoxy was shipped to fulfill a contract between a Chinese subsidiary of PPG and another Chinese company engaged to work on the construction of the Chasma nuclear power plant for PAEC. Because PAEC is on the Bureau of Industry and Security’s Entity List, the export required a license from BIS.

Xu Wang, a U.S. woman who ran the Chinese subsidiary, was arrested last month. During a hearing yesterday, the government argued without success that she should be held without bail. According to this AP report on the hearing, the judge questioned the prosecution’s assertion that the case had serious national security ramifications.

“This is not latex paint,” said assistant U.S. Attorney G. Michael Harvey. “This is a very sophisticated paint, which has been tested and certified for use inside the containment facility of a nuclear reactor.”

That may well be the case, but if this paint indeed had such strategic implications, one has to wonder why the BIS stated, as it did in the case involving the sales manager, that the item was classified as EAR99.

A hearing was to be held today to determine the conditions of Mrs. Wang’s release.

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