In 2009, President Obama created a task force to review the U.S.’ current export control system. The task force, which included members from all departments and agencies with roles in export controls, was asked to make recommendations as to how to reform the system to ensure that items that pose the greatest threat to national security remain controlled while the licensing burden on exporters is reduced. The aim of the taskforce was to recommend means of reforming controls in the context of the current commercial landscape in order to make export controls more effective and thereby reduce the resources required by both government and industry to comply with export controls.
In reviewing the export control system, the task force recognised that the current system is overly complicated, contains too many redundancies, regulates goods that do not pose a threat to national security, and therefore does not sufficiently reduce national security risk.
There are five significant anticipated changes to the existing regime as a result of the task force’s review:
1. development a single export-control list (i.e. combine the CCL and USML),
2. formation of a single licensing agency and development of a multi-agency license application form,
3. formation of a single enforcement-coordination agency,
4. transitioning various agencies with export control responsibilities to a single IT system to allow for decision makers to have greater visibility of relevant facts pertaining to license applications, and
5. consolidation of the lists of restricted or banned end-users into a single screening list.
The proposed changes will be implemented via a three-phased process, which is discussed below in more detail.
The current system is based on two different control lists (the CCL and USML), which are administered by two different departments, the Bureau of Industry (BIS) and Security and the Department of State. Further, there are currently three different primary licensing agencies (none of whom sees the others licenses), a multitude of enforcement agencies with overlapping and duplicative authorities, and a number of separate information technology systems (none of which are accessible to or easily compatible with the other. The fragmented system, combined with the extensive list of controlled items which resulted in almost 130,000 licenses in 2010, dilutes the U.S. government’s ability to adequately control key items and technologies and protect their national security.
In the words of Kevin Wolf, Undersecretary for Export Administration with the BIS, the goal of the reform effort is “to build high walls around a smaller yard” by focusing our enforcement efforts on our “crown jewels.”
Example of intended reforms
One of the major problems identified by the task force was that USML is not a positive list and therefore results in unnecessary compliance requirements for exporters. For example, a bolt used in an F-16 fighter jet is currently controlled for ITAR if that commercially available bolt has been shortened for use on the jet. While the bolt itself does not pose a national security risk, it is considered to be a ‘specially modified’ part of a jet and therefore requires an export license from the State Department. This type of ‘overkill’ control will be reduced or eliminated as the CCL is revised to be a positive list which is based on ‘function’ and not ‘design intent’. In other words, certain items that do not pose a clear threat to national security, such as a bolt, will be moved to the EAR, and possibly even reclassified to what is currently ‘EAR99’. This will help to reduce the licensing burden on exporters and re-exporters.
What will the reforms look like?
The reforms will be implemented using a three-phased approach.
During Phase I, government agencies, including BIS and the Department of State, will establish new criteria for determining what items need to be controlled. They will then develop a common set of policies for determining when an export license is required.
Phase I will also involve the development of a single, consolidated entity screening list. This list has already been developed and is available on the BIS website. Click here to download the list.
http://www.export.gov/ecr/eg_main_023148.asp
Through consolidation brought about by the proposed export reforms, definitions will be ‘harmonised’ across agencies in Phase I, giving exporters greater certainty on what is meant by broad terms such as ‘technology’, ‘publicly available’, and ‘fundamental research’. The definition of ‘specially designed’ which is currently defined differently under the four international agreements the U.S. is a signatory to, including the Waassenar Agreement and Australia Group, will be broadened. More than one definition will be published for industry comment.
In Phase II, the Department of Commerce will coordinate a restructuring of the CCL as currently embodied in the Export Administration Regulations (EAR), and the Department of State will coordinate a restructuring of the USML as currently embodied in the International Traffic in Arms Regulations (ITAR).
For the USML, this process will involve subject matter experts on each category of items applying their knowledge and judgment to decide which types of goods should remain ITAR controlled and which may move to the EAR. After the team identifies the general types of items that should remain on the USML, each USML category will be organized so that it tracks the A,B,C,D,E structure of the CCL and so that it has an additional F and G group to address ITAR-specific defense service and manufacturing controls. This structural alignment will allow the two lists to be combined into a single export control list in Phase III.
Within each category group, a review team will use specific guidelines to identify types of goods to fall within each heading and any of the control criteria. If a good that is currently on the USML does not fall within the control criteria, it will not appear on the revised list. A separate team of policy officials will work with various agencies to decide if any additional items should be added to the list for statutory, national security, foreign policy or human rights reasons, or to satisfy other multilateral obligations. Proposals to amend the CCL and USML by adding or removing controls will be submitted multilaterally. As a protection measure, Congressional notification will be required to remove munitions list controls or transfer items from the munitions list to the dual-use list.
The initial overhaul of the two lists will result in some items being moved from the USML to the CCL or being decontrolled altogether. It is anticipated that ‘catch-all’ controls for generic parts and accessories that have been ‘specially designed or modified’ for a military purpose will not appear on the revised USML. In fact, ‘specially designed’ will only be used as a control criteria where required by a multilateral obligation or no other option exists.
Both the CCL and USML, will each be broken into three tiers, depending on the level of control required for the item. The lists will be structurally aligned so that in Phase III, the lists can be combined to form one ‘positive’ three-tiered list that outlines exactly what is controlled.
Tier I will be for highly sensitive items – items that provide a critical military or intelligence advantage to the United States and are available exclusively from the United States, or items that constitute weapons of mass destruction.
Tier II will be for somewhat less sensitive items – items that provide a substantial military or intelligence advantage to the United States and are available almost exclusively from multilateral partners and allies of the United States.
Tier III will be for items that provide a significant military or intelligence advantage, but that are broadly available. In Phase III, the USML and CCL will be combined to form a single, positive, export control list.
As Part of Phase III, a single licensing agency will be established. In addition, a single license application form will be developed that will embody the requirements of the Department of State, Department of Commerce (BIS) and the Treasury. The form will be electronic and applicants will have the ability to attach material, such as PDFs and images. Currently, the expectation is that a license will generally be required for items in Tier I for all destinations, while most of the items in Tier II will be authorized for export to certain destinations under license exemptions or general authorizations, and items in Tier III would not need a license.
Certain enforcement activities will be consolidated into a Primary Enforcement Coordination Agency. The U.S. government will seek to prosecute individuals as well as companies in the future. Individuals cutting corners to make money will be held personally responsible for deliberate violations.
In addition, a single information technology (IT) System will be implemented to serve both the licensing and enforcement agencies. Currently, the Departments of Defense and State are being transitioned to the same system and the Department of Commerce will be transitioned onto this system by the end of 2012. This change will ensure that the license reviewing process is efficient and that decision makers have all of the necessary information with which to make an informed decision.
Most of the proposed changes to reform the current export controls system can be executed through an executive order from President Obama. However, creating a single licensing agency and a single enforcement coordination agency, the “Enforcement Coordination Center” will require congressional approval. Though the execution of the proposals put forth by the task force depend on the composition of Congress and the items on their agenda for the term, export control reform is seen as a top agenda item for the Obama administration.
Should you have any questions or concerns about how these reforms may impact your business, please call me on +61 421 506 095 or email me at
eva@internationaltradeadvisors.com.au.
Visit
www.internationaltradeadvisors.com.au for periodic updates on export control reform.
The current system is based on two different control lists (the CCL and USML), which are administered by two different departments, the Bureau of Industry (BIS) and Security and the Department of State. Further, there are currently three different primary licensing agencies (none of whom sees the others licenses), a multitude of enforcement agencies with overlapping and duplicative authorities, and a number of separate information technology systems (none of which are accessible to or easily compatible with the other. The fragmented system, combined with the extensive list of controlled items which resulted in almost 130,000 licenses in 2010, dilutes the U.S. government’s ability to adequately control key items and technologies and protect their national security.
In the words of Kevin Wolf, Undersecretary for Export Administration with the BIS, the goal of the reform effort is “to build high walls around a smaller yard” by focusing our enforcement efforts on our “crown jewels.”
Example of intended reforms
One of the major problems identified by the task force was that USML is not a positive list and therefore results in unnecessary compliance requirements for exporters. For example, a bolt used in an F-16 fighter jet is currently controlled for ITAR if that commercially available bolt has been shortened for use on the jet. While the bolt itself does not pose a national security risk, it is considered to be a ‘specially modified’ part of a jet and therefore requires an export license from the State Department. This type of ‘overkill’ control will be reduced or eliminated as the CCL is revised to be a positive list which is based on ‘function’ and not ‘design intent’. In other words, certain items that do not pose a clear threat to national security, such as a bolt, will be moved to the EAR, and possibly even reclassified to what is currently ‘EAR99’. This will help to reduce the licensing burden on exporters and re-exporters.
What will the reforms look like?
The reforms will be implemented using a three-phased approach.
During Phase I, government agencies, including BIS and the Department of State, will establish new criteria for determining what items need to be controlled. They will then develop a common set of policies for determining when an export license is required.
Phase I will also involve the development of a single, consolidated entity screening list. This list has already been developed and is available on the BIS website. Click here to download the list. http://www.export.gov/ecr/eg_main_023148.asp
Through consolidation brought about by the proposed export reforms, definitions will be ‘harmonised’ across agencies in Phase I, giving exporters greater certainty on what is meant by broad terms such as ‘technology’, ‘publicly available’, and ‘fundamental research’. The definition of ‘specially designed’ which is currently defined differently under the four international agreements the U.S. is a signatory to, including the Waassenar Agreement and Australia Group, will be broadened. More than one definition will be published for industry comment.
In Phase II, the Department of Commerce will coordinate a restructuring of the CCL as currently embodied in the Export Administration Regulations (EAR), and the Department of State will coordinate a restructuring of the USML as currently embodied in the International Traffic in Arms Regulations (ITAR).
For the USML, this process will involve subject matter experts on each category of items applying their knowledge and judgment to decide which types of goods should remain ITAR controlled and which may move to the EAR. After the team identifies the general types of items that should remain on the USML, each USML category will be organized so that it tracks the A,B,C,D,E structure of the CCL and so that it has an additional F and G group to address ITAR-specific defense service and manufacturing controls. This structural alignment will allow the two lists to be combined into a single export control list in Phase III.
Within each category group, a review team will use specific guidelines to identify types of goods to fall within each heading and any of the control criteria. If a good that is currently on the USML does not fall within the control criteria, it will not appear on the revised list. A separate team of policy officials will work with various agencies to decide if any additional items should be added to the list for statutory, national security, foreign policy or human rights reasons, or to satisfy other multilateral obligations. Proposals to amend the CCL and USML by adding or removing controls will be submitted multilaterally. As a protection measure, Congressional notification will be required to remove munitions list controls or transfer items from the munitions list to the dual-use list.
The initial overhaul of the two lists will result in some items being moved from the USML to the CCL or being decontrolled altogether. It is anticipated that ‘catch-all’ controls for generic parts and accessories that have been ‘specially designed or modified’ for a military purpose will not appear on the revised USML. In fact, ‘specially designed’ will only be used as a control criteria where required by a multilateral obligation or no other option exists.
Both the CCL and USML, will each be broken into three tiers, depending on the level of control required for the item. The lists will be structurally aligned so that in Phase III, the lists can be combined to form one ‘positive’ three-tiered list that outlines exactly what is controlled.
Tier I will be for highly sensitive items – items that provide a critical military or intelligence advantage to the United States and are available exclusively from the United States, or items that constitute weapons of mass destruction.
Tier II will be for somewhat less sensitive items – items that provide a substantial military or intelligence advantage to the United States and are available almost exclusively from multilateral partners and allies of the United States.
Tier III will be for items that provide a significant military or intelligence advantage, but that are broadly available. In Phase III, the USML and CCL will be combined to form a single, positive, export control list.
As Part of Phase III, a single licensing agency will be established. In addition, a single license application form will be developed that will embody the requirements of the Department of State, Department of Commerce (BIS) and the Treasury. The form will be electronic and applicants will have the ability to attach material, such as PDFs and images. Currently, the expectation is that a license will generally be required for items in Tier I for all destinations, while most of the items in Tier II will be authorized for export to certain destinations under license exemptions or general authorizations, and items in Tier III would not need a license.
Certain enforcement activities will be consolidated into a Primary Enforcement Coordination Agency. The U.S. government will seek to prosecute individuals as well as companies in the future. Individuals cutting corners to make money will be held personally responsible for deliberate violations.
In addition, a single information technology (IT) System will be implemented to serve both the licensing and enforcement agencies. Currently, the Departments of Defense and State are being transitioned to the same system and the Department of Commerce will be transitioned onto this system by the end of 2012. This change will ensure that the license reviewing process is efficient and that decision makers have all of the necessary information with which to make an informed decision.
Most of the proposed changes to reform the current export controls system can be executed through an executive order from President Obama. However, creating a single licensing agency and a single enforcement coordination agency, the “Enforcement Coordination Center” will require congressional approval. Though the execution of the proposals put forth by the task force depend on the composition of Congress and the items on their agenda for the term, export control reform is seen as a top agenda item for the Obama administration.
Should you have any questions or concerns about how these reforms may impact your business, please call me on +61 421 506 095 or email me at eva@internationaltradeadvisors.com.au.
Visit www.internationaltradeadvisors.com.au for periodic updates on export control reform.