International Legal Affairs – V11N3

International Legal Affairs – Export Reform

By Jason M. Wong

Draft regulations have been published regarding the transfer of USML categories I, II and III from the U.S. State Department to the U.S. Commerce Department. Once the new regulations become effective, the change will represent the single largest change to small arms export policy in decades. Thankfully, the changes to the export of small arms will not be without precedent—the changes to USML categories I, II and III represent the last categories to undergo export reform. Thousands of commodities have already been transferred from State Department jurisdiction to Commerce jurisdiction, and the process for export licensing has mostly been worked out.

 

The 600 Series

Nearly all items formerly under State Department jurisdiction have been classified under a scheme designated the “600 series.” The series isn’t new but rather are an addition to existing Export Control Classification Numbers, or ECCNs. Military aircraft propulsion systems formerly controlled by the ITAR under USML category VIII are now classified by Commerce as ECCN 9A610 or 9E610. The “600 series” classification comes from the middle number of the ECCN. The 600-series is not a “new” ECCN category but rather new additions to existing ECCN categories, with the “6” designator to show that the commodity was formerly ITAR classified. As with the rest of the ECCN, the alpha classification (A through E) designate what type of commodity is being exported. Items can be easily classified by looking at the ECCN: (A) designators are for physical items, (B) designators are for test inspection and production equipment, (C) designators are for raw materials, (D) designators are for software, and (E) designators are for technology.

As a general rule, Commerce treats 600 Series commodities in nearly the same manner as the ITAR. Exporters of USML items must obtain an export license before exporting any item on the USML, barring use of any available exemption. Export of 600-series items will almost always require an export license. As a general matter, the 600 Series ECCNs are subject to the following export controls: National Security Column 1 (NS1), Regional Stability Column 1 (RS1), Anti-Terrorism Column 11 (AT1) and United Nations embargo (UN). In addition, all exports of 600 Series items must be reported via the ACE export system, regardless of value or destination. 600 Series items are also subject to U.S. arms embargoes; they cannot be exported to countries subject to a U.S. arms embargo.

 

ExemptionsKnow the Rules of the Game

The stated goal of export reform was intended to make exports of U.S.-made goods easier and simpler. While nearly all 600-series items will require an export license, there are a number of exemptions that may apply to 600-series commodities.

Recall that under the proposed reform of USML Category I, the U.S. State Department is retaining jurisdiction over most NFA classified weapons—machine guns, suppressors and destructive devices. Items shifted to the 600 Series have been deemed to be less militarily significant. As a result, Commerce has indicated that license exceptions for the export of 600 Series items should be more available than comparable ITAR exemptions. One potential exemption currently available for the export of 600-series commodities includes the Strategic Trade Authorization (STA) exemption, allowing the export of 600-series items to government end users within 36 countries in the A-5 Country Group listing without an export license. As with any exemption, the details matter, and exporters should carefully review the requirements of any license exception relied upon for export. Also recall that the final version of the regulations concerning small arms has not been released; there may be additional restrictions on the use of the STA exemption as applied to small arms and ammunition.

 

Facing Forward

The next few years are likely to be challenging for manufacturers, exporters and foreign end users. Manufacturers will potentially no longer need to register under the ITAR if they are not manufacturing ITAR regulated items. The export of small arms and ammunition may become easier, with less governmental oversight for some transactions. Exporters will likely face lower registration fees, as fewer export transactions will require a DSP-5 export license. It is likely that there will be many new faces in the arms export field within the next few years, as barriers to entry (via ITAR registration) are eliminated. There are no financial costs associated with Commerce license applications, and exporters who formerly only handled Commerce regulated items (or were unwilling to register under the ITAR) are likely to claim expertise in small arms exports. There are likely to be many new entrants to the field of arms exports, as there are no longer registration costs associated with conducting an export. U.S. Customs will likely face increased numbers of export violations and seizures as exporters work their way through the new regulatory requirements. Foreign end users should be cautious, as those without practical experience in arms exports (whether they have experience as an exporter or are new to the field) may not be the best choice for delivering product internationally. The end result should be increased arms exports from the United States, in an easier and less restrictive environment—as long as the regulations are followed. The new regulations should be published for final rule making in mid-2019, with the rules being implemented before the end of the year.

Jason Wong is a licensed attorney that manages Hurricane Butterfly, a U.S.-based company that specializes in the import and export of small arms. He may be reached via email: Jason at HurricaneButterfly.net. The foregoing is not intended as legal advice, and readers should not rely upon the foregoing without additional research. If readers have specific questions, they should seek competent legal counsel.