Industry Concerned About 'Specially Designed' Controls for Parts and Components, Etc.
Industry expressed concern over increased controls on exports parts and components that would result from the Bureau of Industry and Security and State Department’s proposed definitions of “specially designed’ on the Commerce Control List (CCL) and U.S. Munitions List (USML), in comments submitted in response to BIS and State’s June 19 proposed rules. Comments were due Aug. 3. While most commenters were generally supportive of BIS and State’s efforts at a unified definition, others were worried about the effect of the rules on small business. A BIS advisory committee voiced its complete opposition to the proposed definitions, calling instead for removal of the phrase “specially designed” from the CCL.
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(Both proposed definitions, published June 19, adopted a two-paragraph “catch and release” format, where paragraph (a) contains broad bases for items to be “specially designed,” and paragraph (b) contains various exceptions to an item’s being “specially designed.” In its proposed rule, State said the exclusions under paragraph (b) would play an important role, because paragraphs (a)(2) and (3) of the proposed definition are broad enough to capture all the defense articles that would be potentially “specially designed,” but in practice would capture a larger set of parts, components, accessories, and attachments than is intended. Paragraph (b) would then work to release from inclusion specific and non-specific parts, components, accessories, and attachments, consistent with existing U.S. export control and international commitments, it said. See ITT’s Online Archives 12061802 for summary of BIS and State’s proposed rules.)
General Support, but Concern for Small Businesses
Most commenters were supportive of the Export Control Reform in general, as well as the proposed definitions of “specially designed” in particular. “GE appreciates the Department’s effort to advance Export Control Reform by establishing a 'bright line' between the USML and CCL, and believes that this proposed definition goes a long way towards achieving that objective,” said General Electric. Alliant Techsystems also applauded BIS and State’s efforts by saying that revisions to the definition “have resulted in a succinct definition which is easy to follow and understand.”
However, others were concerned that the definition is unwieldy and will have unintended consequences. “This third proposed definition of 'specially designed' is again overly complex and confusing,” said ION Geophysical Corporation. “When a definition is not easily comprehensible to export practitioners then it is not going to be decipherable by industry as a whole.”
ION also questioned the depth of BIS’ assessment of the effect of the proposed definition on small businesses. Noting that BIS did not submit a regulatory flexibility analysis for small businesses, but instead certified that the proposed rule will not have a significant impact, ION said the impact on small businesses has not been properly assessed. “Given that changes of this magnitude incorporating definitions from the USML into the CCL have never been made previously, we do not feel that a memorandum on the impact on small businesses between Chief Counsels is sufficient,” ION said.
Parts and Components Controls too Restrictive, say Commenters
Several commenters suggested changes to paragraph (b)(2) of the proposed definition, which would “release” an item if it is “a single unassembled part of a type commonly used in multiple types of commodities not enumerated on the USML or CCL, such as fasteners, basic hardware, wire, and solder.” Limiting this release paragraph to single piece parts may result in over-controlling items, GE said. GE, Alliant Techsystems, and Esterline were concerned that restricting the “release” to single unassembled parts would lead to controls of many simple multi-use items that may not merit control.
Many companies thought the “release” in paragraph (b)(3) of the proposed definition is too restrictive. As proposed, paragraph (b)(3) would “release’ an item if it has the same form, fit, and performance capabilities as a part, component, accessory, or attachment used in or with a commodity that: (1) is or was in “production” (that is, not in development); and, (2) is not enumerated on the USML (or, in the case of the BIS rule, is not enumerated on the USML or is enumerated in an ECCN that is controlled only for antiterrorism (AT) reasons). According to GE, “the scope of proposed (b)(3) may be unnecessarily limited to items that share exact dimensions.”
Rolls Royce, the Industrial Fasteners Institute, Continental Tire, and Esterline all agreed. Companies suggested replacing “same” with “equivalent” in the language of the “release,” adding specifications allowing for minor changes to fit within a defined range, and removing stipulations that form and fit are the same so that the definition only refers to performance capabilities.
'Reasonable Expectation' Could Result in Control of Obsolete Items
The proposed definitions have two “releases” for (1) items developed with a reasonable expectation of use in or with both controlled commodities and non-controlled commodities, or use in or with commodities that are not controlled; and (2) items developed with no reasonable expectation of use for a particular application. KEMET Electronics and Alliant Techsystems said the two “releases”, set forth in paragraphs (b)(4) and (5), respectively, would create a burden on industry by controlling items that are old enough that use expectation can’t be determined.
“Determining the original design intent of a capacitor developed in the 1950s and 1960s is often a futile exercise,” KEMET said. Alliant Techsystems agreed, arguing that the definition as proposed “would result in obsolete technology that cannot qualify under the proposed paragraph (b) exclusions being treated as “specially designed,” while newer, more capable items are excluded.”
Industry Worried About Impact on Prior Commodity Jurisdiction Determinations
Concerned that the “specially designed” definition would result in increased controls for items that have been determined not to merit such controls by State’s Commodity Jurisdiction process, GE and Esterline requested that language be inserted into the “specially designed” definition to explicitly say that the definition does not reverse such determinations.
“Without this clarification, exporters may suddenly discover items previously assessed as ‘EAR99,’ or other CCL entry, are transitioned to the “600-series” with corresponding increased levels of control,” GE said.
BIS Advisory Committee Voices Total Opposition to Definition
Finally, BIS’ own Information Systems Technical Advisory Committee expressed their total opposition to a definition of “specially designed” for the CCL. Instead, ISTAC said, its members prefer eliminating or replacing the term “specially designed.” According to ISTAC, the proposed definition is complicated and imprecise, and it has not been adopted by participating member states of the Wassenaar Arrangement or other multilateral regimes.