Gwen Jaramillo

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Transcript Gwen Jaramillo

Countdown to Compliance
October 15, 2013
Gwendolyn W. Jaramillo
Foley Hoag LLP
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POLL: What Industries are Represented today?
•
•
•
•
•
•
Manufacturing
Aerospace
Defense/Defense Services
Higher Education
Professional Services
Other
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Agenda
October 15, 2013 ECR Implementation
 1.
 2.
 3.
 4.
Movement from USML to EAR
 5.
 6.
 7.
General Order No. 5/Licensing Transitions
New 600 Series ECCNs and restrictions
“Specially Designed”
License Exception STA and other License Exception
Changes
AES changes
Country Groups and De Minimis Changes
Planning Ahead
 8.
9
Compliance Planning & Next Changes
Triage
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October 15, 2013
Implementation of Key Initial Changes in
Export Control Reform
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POLL: What regimes do you export under?
•
•
•
•
•
EAR only
ITAR and EAR
ITAR only
ITAR/EAR and other control regimes
What are “ITAR and EAR?”
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1. Movement from USML to EAR
 Category VIII - Aircraft
 Category XVII – Classified Articles
 Category XIX - Gas Turbine Engines
 Category XXXI – Articles Not Enumerated
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1. Movement from USML to EAR
 Category VIII
– Formerly, VIII(a) controlled aircraft “specially designed, modified or
equipped” for military use
– New VIII contains paragraphs a(1)-(a)(13) which enumerate specific
aircraft that are controlled
– Category VIII(h) enumerates key parts, components, accessories,
attchments and associated equipment and systems
– VIII(i) provides that technical data for some items that moved to the
CCL is stil controlled under ITAR
– VIII(x) covers “commodities, software, and technical data subject to the
EAR used in or with defense articles controlled by this
 Key is to look at new definitions in ITAR/EAR
 If it is not enumerated on USML, it is on the CCL!
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2. New 600 Series ECCNs and restrictions
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2. New 600 Series ECCNs and restrictions
Within 600 Series ECCN:
 .a ‐ .w: specifically enumerated end items, materials, parts,
components, accessories, and attachments
– – Some items may be “specially designed”
 .y: specifically enumerated parts, components, accessories, and
 attachments that are “specially designed”
 .x: “specially designed” parts, components, accessories, and
attachments that are not specifically enumerated
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2. New 600 Series ECCNs and restrictions
 License Exceptions Available:
–LVS – 740.3
–TMP – 740.9
–RPL – 740.10
–GOV – 740.11
–TSU – 740.13
–STA – 740.20
 BUT – Some ECCNs excluded from all but
GOV – Beware!
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2. New 600 Series ECCNs and restrictions
Key 600 Series Restrictions
 New Red Flags (Supplement 1 Part 732)
– An order for parts or components for an end item
in 600 series. If you “know” these parts are more
than required to possibly service the end items in
destination country, or there are none there
– Customer indicates a 600 series item may be reexported to a
Country Group D5 destination
 Reasons for control:
– NS1
– RS1
– AT1
– UN
 Destination Control Statements Required
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2. New 600 Series ECCNs and restrictions
Remember – Under the EAR:
 Re-exports always subject to original destination
controls
 Same type of license or approval required as for initial
export
 Foreign parties may apply via SNAP-R
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3. “Specially Designed”
Catch and Release!
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3. “Specially Designed”
 Overview:
– Similar (but not identical) new definitions for the term “specially designed”
– “Catch and Release” Structure
– Does not apply to technology or technical data, except software
 Order of Review
– 1. Is the item described on the USML?/
– 2. Is it “Specially Designed” per 121.1(d)?
– 3. Is it subject to the EAR?
 How can I tell if Item is Subject to EAR?
–
–
–
–
1. Identify Category and Group
2. Is item in 600-series in category that does not use “specially designed”?
3. Is item a “specially designed” 600-series item?
4 Is item listed in a non-600-series ECCN?
 Handy decision tree tools at BIS website make this
somewhat less painful:
• http://www.bis.doc.gov/index.php/decision-tree-tools
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3. “Specially Designed”
 (a) Except for items described in (b), an ‘‘item’’ is ‘‘specially
designed’’ if it:
– (1) As a result of ‘‘development’’ has properties peculiarly responsible
for achieving or exceeding the performance levels, characteristics, or
functions in the relevant ECCN or U.S. Munitions List (USML)
paragraph; or
– (2) Is a ‘‘part,’’ ‘‘component,’’ ‘‘accessory,’’ ‘‘attachment,’’ or ‘‘software’’
for use in or with a commodity or defense article ‘enumerated’ or
otherwise described on the CCL or the USML.
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3. “Specially Designed”
 (b) A ‘‘part,’’ ‘‘component,’’ ‘‘accessory,’’ ‘‘attachment,’’ or
‘‘software’’ that would be controlled by paragraph (a) is not
‘‘specially designed’’ if it:
– (1) Has been identified to be in an ECCN paragraph that does not
contain ‘‘specially designed’’ as a control parameter or as an EAR99
item in a commodity jurisdiction (CJ) determination or interagencycleared commodity classification (CCATS) pursuant to § 748.3(e);
– (2) Is, regardless of ‘form’ or ‘fit,’ a fastener (e.g., screw, bolt, nut, nut
plate, stud, insert, clip, rivet, pin), washer, spacer, insulator, grommet,
bushing, spring, wire, solder;
– (3) Has the same function, performance capabilities, and the same or
‘equivalent’ form and fit, as a commodity or software used in or with an
item that:
• (i) Is or was in ‘‘production’’ (i.e., not in ‘‘development’’); and
• (ii) Is either not ‘enumerated’ on the CCL or USML, or is described in
an ECCN controlled only for Anti-Terrorism (AT) reasons;
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3. “Specially Designed”
– (4) Was or is being developed with ‘‘knowledge’’ that it would be for use
in or with commodities or software
• (i) described in an ECCN and
• (ii) also commodities or software either not ‘enumerated’ on the CCL
or the USML (e.g., EAR99 commodities or software) or commodities
or software described in an ECCN controlled only for Anti-Terrorism
(AT) reasons;
– (5) Was or is being developed as a general purpose commodity or
software, i.e., with no ‘‘knowledge’’ for use in or with a particular
commodity (e.g., an F/A–18 or HMMWV) or type of commodity (e.g., an
aircraft or machine tool); or
– (6) Was or is being developed with ‘‘knowledge’’ that it would be for use
in or with commodities or software described
• (i) in an ECCN controlled for AT-only reasons and also EAR99
commodities or software; or
• (ii) exclusively for use in or with EAR99 commodities or software.
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3. “Specially Designed”
 (a)(1) – The design Catch

Catches any item that as a result of development has properties peculiarly
responsible for achieving or exceeding performance levels, characteristics,
or functions of the relevant USML paragraph or ECCN
– Peculiarly responsible = direct and proximate causal relationship that is
centrail or special for achieving or exceeding performance levels
resulting from development, meaning design, research, concepts, etc
 (a)(2) – The use Catch


Catches any part, component, accessory, attachment or software used in
or with an enumerated commodity or defense article on either CCL or
USML (except EAR99)
Use need not result from development
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3. “Specially Designed”
 (b)(1) – CJ or CCATS
– CJ (past or future) that:
• States BIS (EAR) export jurisdiction and
• Identifies an ECCN that does not contained “specially designed” or is EAR99
– Future CCATS
• states BIS jurisdiction and
• Establishes ECCN of EAR99 or nonspecially designed ECCN
 (b)(2) – Fasteners Only
– Part is released if an enumerated kind of fastener – EAR99
– Regardless of form or if mondified for ITAR controlled article
– ONLY APPLIES TO THOSE TYPES OF PARTS
 (b)(3) – Equivalency Analysis
– If the part is identical in form, function and fit to an item in production for
non-USML, AT-only item, item is not specially designed. Analysis
required for review of “specially designed” status under new 748.3
process
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3. “Specially Designed”
 (b)(4) – Developed for dual use
– Releases Items that were knowingly developed for use in or with both USML and
non USML item; or only a USML specially designed item; or both CCL and
specially designed or AT only item
• States BIS (EAR) export jurisdiction and
• Identifies an ECCN that does not contained “specially designed” or is EAR99
– Future CCATS
• states BIS jurisdiction and
• Establishes ECCN of EAR99 or nonspecially designed ECCN
 (b)(5) – General Purpose
– Releases items developed for general purpose, for no particular use
– Requires absence of knowledge for use in or with particular commodity
 (b)(6) – EAR Only
– If not released by (b)(1)-(5), released if knowingly developed for use in EAR99
AND AT only ECCN, or only for EAR99 commodities/software
 These Releases Require Proof!!
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4. License Exception STA and other License
Exception Changes
 License Exception STA
– Applies the same way for all EAR jurisdiction items EXCEPT some
additional requirements for 600-series items
– Process:
• Provide consignee with ECCN
• Obtain consignee statement
• Notify consignee that export is taking place under License Exception STA
• KEEP RECORDS showing which exports go to which consignees
– Consignee statement must acknowledge:
• Export occurring under STA
• ECCN for each item being exported under STA
• No subsequent license except APR (a) or (b) shipments
• Consignee will not transfer items in violation of EAR
• Consignee will provide records/documents to BIS on request
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4. License Exception STA and other License
Exception Changes
 STA Requirements for 600 Series Items
– Must be for end use by US government or foreign government in
Country Group A:5 (the “STA 36 countries”) or
– For return to US; or
– Otherwise authorized by competent US government authority; or
– Under a previously approved DDTC or BIS license for non-US parties
– Consignee must agree to ultimate end-user restrictions and end-use check
– Eligibility request required for end item aircraft
 NOTE – BIS
has announced intention to
audit/scrutinize use of STA!
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4. License Exception STA and other License
Exception Changes
 License Exception TMP:
– removes Group B limitation on exports to US person’s foreign affiliates
 License Exception GOV:
– limits in GOV have been adjusted
– May be used to send items to US government contractors in some
circumstances, but needs written authorization from relevant agency
– Authorizes exports under direction of USDoD consistent with ITAR exemptions
 License Exception TSU:
– Permits US universities to release source code and technology in US to bona
fide, full time regular foreign national employees (similar to ITAR)
– Authorizes export of copies of technology previously authorized for export
(similar to ITAR)
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5. General Order No. 5/Licensing Transitions
 Pre-October 15 Transactions:
– Existing DDTC licenses, agreements or approvals remain valid until dates stated
on approvals even if items no longer ITAR controlled
– Pre-positioning/submission of BIS license applications permitted; to be issued on
October 15
 Post-October 15 Transactions
– Obtain and utilize BIS license if required
– Use BIS license exception if applicable
– May obtain a license instead of using STA, eg
 If Items are Transitioning:
– DSP5, Technical Assistance Agreement, Manufacturing License Agreement,
Warehouse Distribution Agreements:
• If all items are transitioning to CCL, use for 2 years post October 15 or
expiration/exhaustion
• If some but not all items are transitioning, valid until expiration date on license
or when expended/exausted
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5. General Order No. 5/Licensing Transitions
 Other Situations:
– DSP-61 and DSP73 valid until expiration on date of license
– If you choose to obtain an BIS license instead of DDTC authorization, must
terminate in accordance with applicable requirements
 BIS License Validity Periods
– Most will be 4 years instead of 2
 SNAP-R Applications for 600 Series Items
– In block 24, enter any precedent DDTC approved licenses or approvals. If these
meet requirements in Supplement 1 to Part 748, application should be
processed faster
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6. Country Groups and De Minimis
 New Country Groups:
– A:5 – may receive all STA-eligible items under License Exception STA
– A:6 – may receive only certain STA-eligible items under License Exception STA
– D:5 – May not receive 600 series items (same as ITAR 126.1 arms embargo list)
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6. Country Groups and De Minimis
 Basic EAR De Minimis Rule
– In EAR, de minimis based on percentage of US content in foreign-made item
– EAR controls apply when de minimis threshold exceeded
– 25% or less except to Group D:5 countries
– 10% or less to Group E:1 countries
– Please note many exceptions apply especially in realm of software – do your
homework!!
 De Minimis Update for 600 Series Items
– ITAR – zero de minimis “see-through” rule applies to defense articles on USML
– EAR: 0% de minimis rule for 600 series items to new D:5 country group
– D:5 Group = IAR 126.1 countries
 Direct Product Rules Much Stricter For 600 Series
– Re-exports of foreign made items the direct product of U.S. origin 600 series
technology/software require prior approval under EAR to:
• D:1, D:3, D:4, D:5, E:1
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7. AES Changes
 October 12-14 weekend: AES Update scheduled *preshutdown* - apparently went ahead as scheduled
 ECCNs 9A610, 9A619, 9B610, 9B619, 9C610, 9C619,
9D610, 9D619, 9E610 and 9E619 to be added to AES
ECCN reference table
 New “600 series” ECCNs to be added as additional items
from USML categories transition to the CCL
 Use of STA for “600 Series” will be permitted
 AES Filing Required:
– For all exports of “600 series” items enumerated in paragraphs .a
through .x of a “600 series” ECCN regardless of value or destination,
including exports to Canada
– For all exports under License Exception Strategic Trade Authorization
(STA)
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7. AES Changes
 AES Creating New License Type DY6 (C60)
– Required for .y paragraph “600 series” items only
– Low value and Canadian exemptions apply to DY6 (C60)
– ECCNs are allowed but not required
– License Number “DY6” is required
 EAR Items Licensed under ITAR
– State Department may license an item subject to EAR on an ITAR approval
– ITAR section 120.5(b)
– AES filer must report the ECCN or EAR99 in the ECCN field
– Including for license type S05 (DSP-5)
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Planning Ahead
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8. Compliance Planning & Next Changes
Compliance Planning/Best Practices
1.Review of Products and Software
–
–
–
Update existing catalogues for new classifications
Training of staff on new regulations/need for review
Documentation of reviews/self-classifications
2.Documentation of Development
–
–
Crucial to properly evaluate “specially designed” items in the future
Do your R&D team and engineering units know how to document for the new regime?
3.Policies and Procedures
–
–
–
Update customer/distributor information and forms
Assess changes to services provided
Implement changes for ITAR to EAR transition items
4.Training
–
–
Identify key departments/business units for training
Initial training for first ECR changes must be followed by continuing updates during
successive ECR rollouts
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8. Compliance Planning & Next Changes
Compliance Planning/Best Practices
5.
6.
Review use of license exceptions under EAR
Parts, Parts, Parts!
–
7.
Review of classification of parts and components under new regulations
Communication with Supply Chain
–
Regarding classifications of items produced
–
Regarding documentation required by one or both parties
under new regime
 Plan for ITAR authorization expirations
 Pre-position BIS licenses if required
 Submit Specially Designed review requests, CJ’s and
CCATs requests if necessary
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8. Compliance Planning & Next Changes
Next ECR Rollouts:
 October 25, 2013: New ITAR Brokering Rule.
– rule requires that brokering activities be "on behalf of another," specifically
covers activities such as soliciting or promoting defense articles or defense
services.
– Specifically excludes certain activities, including activities by regular employees
acting on behalf of their employer; basic administrative activities; promoting
company goodwill at trade shows; and activities by an attorney that do not
extend beyond the provision of legal advice to clients.
– Specifically excludes from the definition of "brokering activities" those activities
performed by an affiliate on behalf of another affiliate. In the new rule, foreign
subsidiaries of U.S. parent companies who promote their parents' defense
products and services are no longer considered to be engaged in brokering
activities. Foreign subsidiaries of U.S. parent companies that promote the
defense products and services of third parties would be required to register.
– Comments were due October 10, 2013, so stay tuned for a final final rule.
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8. Compliance Planning & Next Changes
Next ECR Rollouts:
 January 6, 2014:
– Category VI - Vessels
– Category VII - Vehicles
– Category XIII – Auxiliary Military Equipment
– Category XX – Submersibles
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9. Triage
 Everyone: Review new definitions in both sets of




regulations
Everyone: Review specially designed: was any item
decontrolled or moved to CCL from USML?
ITAR only exporters: start with the October 15 updates.
Was anything decontrolled?
ITAR only exporters: When do your existing
authorizations expire? Can you start to migrate to BIS
licenses/license exceptions (and be thankful you can
operate under existing authorizations while we wait for the
government to reopen)
EAR only exporters: check to see if any items ending in
“018” migrated to the new 600 series. Update your
records and AES entries, etc, accordingly!
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10. Triage
 All exporters:
check AES submissions and update
responsible personnel to ensure that no invalid/outdated
entries are occurring
 EAR exporters (including new EAR exporters!): review
changes to License Exceptions to ensure that exports still
comply
 Exporters under STA: Review changes; prepare appropriate
consignee/end user documentation
 Everyone: Don’t Panic!
They’re from the government
and they’re here to help.
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The Wildcard
(or, “Thanks - great timing!”)
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What we know as of 10/14…
 BIS
– Not accepting new export
license applications.
– Not processing classification
requests.
– No encryption reviews or
registrations.
– No advisory opinions issued.
– SNAP-R application on BIS’s
Website is not available and will
not reopen until the shutdown
ends.
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– Applicants may request
emergency processing of export
license applications for national
security reasons. Submit email
requests to Deputy Assistant
Secretary for Export
Administration Matthew Borman
at
[email protected]
– Subject line of the email should
read "Request for Emergency
License“; the email must identify
the applicant (including point of
contact), intermediate and
ultimate consignees, and end
user(s), items, end use, and
national security justification for
the emergency processing
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POLL: Do you have pending requests/license applications with BIS?
• Yes, my company has pre-positioned license applications
• We have submitted CCATs or CJs for review under the new
regulations
• None at all
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What we know as of 10/14…
 DDTC
– Open and doing their best
– Emergency export license
application processing for
military, humanitarian or other
emergencies: email Lisa Aguirre
at [email protected]
Subject line of email should
read “Request for Emergency
License” and the message must
include the applicant name and
registration code, the enduse/end-user, justification for
needing an emergency license,
and a point of contact
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 Census
– AES Direct is functional
– AES Filing assistance ONLY
at [email protected]
– AES Update has reportedly
occurred
– Website is down for FTR and
Schedule B
 Customs
– Operational but reports of
delays at ports
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Questions?
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