Export Control Reform – Will It Make Your Exporting Easier?

As everyone knows in the exporting world, the U.S. government is in the process of reorganizing export requirements. The agencies really are spending a lot of time and energy trying to do the right thing and bring the controls up to date and make the system easier for companies to do business globally. If you don’t know, the State and Commerce Departments are working together on a weekly basis to facilitate this reform.  Moreover, Commerce holds conferences calls for businesses to ask questions about the proposed changes.   Expect more changes in the coming months with the final implementation rules out by the end of 2012.  The State and Commerce Departments hope to make the export control regime more business friendly within the limitations imposed and ongoing by Congress (who must approve the changes).

What will it mean for your company and how difficult it will be for you to work with the reforms is still unclear.  Ultimately, it will benefit thousands of companies that currently register under the International Traffic in Arms Regulations (ITAR) that no longer will need to register. However, it will be a long time before all the transition issues will be implemented and then clarified.  The process will require compliance officers to struggle to understand what is expected and how the new requirements are meant to apply to your business. It will be like having a teenager….an expected but often painful part of the maturing process.

The new export program, as expressed by officials, is a mantra that goes like this —

To have a:

  • Single enforcement agency for exports
  • Single control list of items
  • Single IT system and a
  • Single licensing agency

One of the first steps is the new “600 Series” which will be controls for items that are moving from the State Department’s control under the U.S. Munitions List (USML) to the Commerce Department’s  Commerce Control List (CCL).  The conventional thinking is that exporting will be easier if items move from the USML to the CCL because the CCL requires less items have a license for export. However, this may not be true for most companies.  At least with ITAR if you are on the list you know what you need to do. You need to register and get a license.  The list is the list – there is little confusion regarding applicable categories and no catch-all USML category.   For the items moving to Commerce, rumor has it that BIS will have a Commerce Munitions List of sorts.   Items that were once covered by Technical Assistance Agreements  (TAAs) and Manufacturing License Agreements (MLAs) or under a license pursuant to ITAR will now be subject to Commerce rules.  These rules are more broadly based and include such topics as the amorphous concept of “Am I subject to the EAR”, the  de minimis exception, brokering issues,  and  the reexport provisions.  These rules make determining licensing requirements “fuzzy.”   There may be additional new reporting requirements under the EAR and waiting periods.  Moreover, the transition from an existing ITAR license or ITAR exemption to a Commerce license or Commerce exception are not yet clear.

What this means for you is that there is no guidance available yet for modifying your business activities. Compliance risks will increase because new rules require “interpretation.”  These changes will require internal auditing, new procedures and revised compliance programs.  Transition rules are being drafted.  BIS will likely have a new license exception for Military License Export (MLX) that will allow series 600 exports without a license for parts and components that support items exported under a DDTC license, a TAA or MLA.  What is frustrating for compliance folks is that we cannot yet plan for the changes.

Obviously, this blog won’t go into details regarding the changes or be a report on the substantive issues.  However, we will try to be ahead of the curve and provide thought on how to get your hands around some of the foreseeable issues you will need to think about regarding the upcoming changes and their effects on your compliance program and export procedures.