Revisions to the Export Administration Regulations: Initial Implementation of Export Control Reform

DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 730, 732, 734, 736, 738, 740, 742, 743, 744, 746, 748, 750, 756, 758, 762, 764, 770, 772, and 774

[Docket No. 120403246-2657-01]

RIN 0694-AF65

Revisions to the Export Administration Regulations: Initial Implementation of Export Control Reform

AGENCY:

Bureau of Industry and Security, Commerce.

ACTION:

Final rule.

SUMMARY:

As part of the Export Control Reform (ECR) Initiative, the Bureau of Industry and Security (BIS), and the Directorate of Defense Trade Controls (DDTC), Department of State, have published multiple proposed amendments to the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR), respectively, to strengthen national security by fundamentally reforming the export control system. This final rule implements the initial ECR changes by adding a structure and related provisions to control munitions items that the President has determined no longer warrant export control on the U.S. Munitions List (USML) on the Commerce Control List (CCL), specifically aircraft, gas turbine engines, and related items. This rule is being published in conjunction with a Department of State rule that revises the USML so that upon the effective date of both rules, the USML and CCL and corresponding regulatory structures will be complementary. The revisions in this final rule are also part of Commerce's retrospective regulatory review plan under EO 13563, which Commerce completed in August 2011.

DATES:

Effective Date:

This rule is effective October 15, 2013.

ADDRESSES:

Commerce's full plan can be accessed at:

http://open.commerce.gov/news/2011/08/23/commerce-plan-retrospective-analysis-existing-rules.

FOR FURTHER INFORMATION CONTACT:

For general questions about the “600 series” control structure or transition related questions, contact Hillary Hess, Regulatory Policy Division, Office of Exporter Services, Bureau of Industry and Security, at 202-482-2440 or

rpd2@bis.doc.gov.

For technical questions about the ECCNs included in this rule contact Gene Christiansen, Office of National Security and Technology Transfer Controls, at 202-482-2984 or

gene.christiansen@bis.doc.gov.

For questions about the definition of “specially designed,” contact Timothy Mooney, Regulatory Policy Division, Office of Exporter Services, Bureau of Industry and Security, at 202-482-2440 or

timothy.mooney@bis.doc.gov.

SUPPLEMENTARY INFORMATION:

This final rule implements the initial ECR changes by adding a structure and related provisions to control munitions items that the President has determined no longer warrant export control on the U.S. Munitions List (USML) on the Commerce Control List (CCL). In addition to adding this control structure, this rule creates ten new “600 series” Export Control Classification Numbers (ECCNs) to control an initial tranche of items moving from the USML to the CCL: aircraft and gas turbine engines, related parts, components, accessories, attachments, software, and technology.

This rule also adopts as much as possible a common definition of “specially designed” for use under the EAR and the ITAR, along with other key terms used on the two control lists. In addition, this rule addresses implementation issues related to the transition of items from the USML to the CCL, including the continued use of DDTC-issued licenses that include items transferred to the CCL.

This rule implements changes that were proposed in five rules published between July 15, 2011 and June 21, 2012 under ECR. This rule is being published in conjunction with a Department of State rule that revises the USML so that upon the effective date of both rules, the USML and CCL and corresponding regulatory structures will be complementary.

Contents

I. The Export Control Reform Initiative

A. Background

B. List of Proposed Rules

C. Relationship to Other Rules Implementing ECR

II. Addition of the “600 series” to the CCL

A. General Structure

B. Reasons for Control

C. Items Paragraph

III. Transition

A. Delayed Effective Date

B. Amendment to the EAR To Address Dual Licensing

C. Transition Period and General Order No. 5

IV. Retrospective Regulatory Review

V. Part 730—General Information

VI. Part 732—Steps for Using the EAR

VII. Supplement No. 3 to Part 732—Red Flags

VIII. Part 734—Scope of the EAR

A. Dual Licensing

B.

De Minimis

IX. Part 736—General Prohibitions

A. Foreign-Produced Direct Product

B. General Order No. 5

X. Part 738—CCL Overview and the Country Chart

XI. Part 740—License Exceptions

A. Restrictions

B. License Exception TMP

C. License Exception RPL

D. License Exception GOV

E. License Exception TSU

F. License Exception STA

G. Other License Exception STA Changes

H. Country Groups

XII. Part 742—Control Policy

A. National Security (NS) Review Policy

B. Regional Stability (RS) License Requirements

C. RS Review Policy

XIII. Part 743—Special Reporting

A. Conventional Arms

B. Major Defense Equipment

XIV. Part 744—End-User and End-Use Controls

A. “Military End Use” in §§ 744.17 and 744.21

B. China Military End-Use Control

XV. Part 746—Embargoes and Other Special Controls

A. Iraq

B. UN Embargoes

XVI. Part 748—Applications and Documentation

A. Classification Requests To Confirm That Items Are Not “Specially Designed”

B. Unique Submission Requirements

XVII. Part 750—Application Processing, Issuance, and Denial

A. Calculating Processing Times

B. Shipment to Approved End Users

C. Extended Validity

D. Specificity on Application

XVIII. Part 756—Appeals

XIX. Part 758—Export Clearance Requirements

A. Automated Export System (AES) Filing Regardless of Value, Except for .y Items

B. Furnishing of ECCNs to Consignees

C. Removal of Obsolete References in Revised Sections

XX. Part 762—Recordkeeping

XXI. Part 764—Foreign-Produced Direct Product and Denial Orders

XXII. Part 770—Interpretations

XXIII. Part 772—Definitions (Including Specially Designed)

A. “Specially Designed” Definition

B. Other Definitions

XXIV. Part 774—The Commerce Control List

A. Product Group Headings

B. ECCN 0A919

C. Aircraft and Related Items “600 Series” ECCNs

D. Gas Turbine Engines and Related Items “600 Series” ECCNs

E. 9Y018 ECCNs Rolled Into “600 Series”

F. Supplement Nos. 6 and 7—Sensitive List and Very Sensitive List

G. Supplement No. 4—Commerce Control List Order of Review

XXV. Procedural Amendment—Authority Citation Update

I. The Export Control Reform Initiative

A. Background

The objective of the Export Control Reform (ECR) Initiative is to protect and

enhance U.S. national security interests. President Obama directed the Administration in August 2009 to conduct a broad-based review of the U.S. export control system to identify additional ways to enhance national security. In April 2010, then-Secretary of Defense Robert M. Gates, describing the initial results of that effort, explained that fundamental reform of the U.S. export control system is necessary to enhance national security. Once the International Traffic in Arms Regulations (ITAR) and its U.S. Munitions List (USML) are amended so that they control only the items that provide the United States with a critical military or intelligence advantage or otherwise warrant such controls, and the Export Administration Regulations (EAR) are amended to control military items that do not warrant USML controls, the U.S. export control system will enhance national security by (i) improving interoperability of U.S. military forces with allied countries, (ii) strengthening the U.S. industrial base by, among other things, reducing incentives for foreign manufacturers to design out and avoid U.S.-origin content and services, and (iii) allowing export control officials to focus government resources on transactions that pose greater concern.

On July 15, 2011, BIS published

Proposed Revisions to the Export Administration Regulations (EAR): Control of Items the President Determines No Longer Warrant Control under the United States Munitions List (USML)

(76 FR 41958) (hereinafter “July 15 (framework) rule”). That rule proposed a regulatory framework to control items on the USML that, in accordance with section 38(f) of the Arms Export Control Act (AECA) (22 U.S.C. 2778(f)(1)), the President determines no longer warrant export control under the AECA. These items would be controlled under the EAR once the congressional notification requirements of section 38(f) and corresponding amendments to the ITAR (22 CFR parts 120-130) and its USML and the EAR (15 CFR parts 730-774) and its Commerce Control List (CCL) are completed.

After the July 15 (framework) rule proposed this regulatory framework, BIS published subsequent rules proposing specific changes to the CCL, and to other parts of the EAR. Among other rules, on June 21, 2012, BIS published

Proposed Revisions to the Export Administration Regulations: Implementation of Export Control Reform; Revisions to License Exceptions After Retrospective Regulatory Review

(77 FR 37524) (hereinafter “June 21 (transition) rule”). That rule proposed,

inter alia,

establishing a general order to facilitate the transition from ITAR to EAR licensing jurisdiction and broadening certain EAR license exceptions and licensing procedures to ensure they are not more restrictive than comparable ITAR exemptions and approvals.

This final rule implements ECR by finalizing the provisions contained in five proposed rules published between July 15, 2011 and June 21, 2012, which adds to the CCL military aircraft, military gas turbine engines, and related items that the President has determined no longer warrant export control on the USML. The Department of State made the congressional notification required by Section 38(f) of the AECA for removal of these items from the USML. The majority of the revisions in this rule are specific to the munitions items that are transferred from the USML to the CCL; however, many revisions also affect items or transactions that were already subject to the EAR prior to the effective date of this rule.

Rather than adding a new paragraph to § 734.3 for the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), as proposed, BIS is adding a note to section 734.3(b)(1)(i) to clarify the delegations of authority between the Departments of State and Justice with respect to defense articles identified on the USML in the ITAR and the United States Munitions Import List (USMIL). BIS received no comments from the public on this issue. BIS does not believe that this change is substantive; rather it more accurately reflects the relationship between the USML in the ITAR and the United States Munitions Import List.

B. List of Proposed Rules

This rule implements amendments to the EAR proposed in the following five rules published between July 15, 2011 and June 21, 2012 under ECR:

•

Proposed Revisions to the Export Administration Regulations (EAR): Control of Items the President Determines No Longer Warrant Control Under the United States Munitions List (USML),

(, 76 FR 41958, July 15, 2011) (RIN 0694-AF17) (“July 15 (framework) rule”);

•

Revisions to the Export Administration Regulations (EAR): Control of Aircraft and Related Items the President Determines No Longer Warrant Control Under the United States Munitions List (USML),

(76 FR 68675, November 7, 2011) (RIN 0694-AF36) (“November 7 (aircraft) rule”);

•

Revisions to the Export Administration Regulations (EAR): Control of Gas Turbine Engines and Related Items the President Determines No Longer Warrant Control Under the United States Munitions List (USML),

(76 FR 76072, December 6, 2011) (RIN 0694-AF41) (“December 6 (gas turbine engines) rule”);

•

“Specially Designed” Definition,

(77 FR 36409, June 19, 2012) (RIN 0694-AF66) (“June 19 (specially designed) rule”); and

•

Proposed Revisions to the Export Administration Regulations: Implementation of Export Control Reform; Revisions to License Exceptions After Retrospective Regulatory Review,

(77 FR 37524, June 21, 2012) (RIN 0694-AF65) (“June 21 (transition) rule”).

C. Relationship to Other Rules Implementing ECR

This final rule is published concurrently with the Department of State final rule,

Revisions to the International Traffic in Arms Regulations: Initial Implementation of Export Control Reform.

BIS anticipates additional final rules will be published concurrently by both agencies moving additional munitions items from the USML to the CCL, once the notification process is completed in accordance with section 38(f) of the AECA and subsequent USML categories and the corresponding Export Control Classification Numbers (ECCNs) are published in final form.

II. Addition of the “600 Series” to the CCL

In the July 15 (framework) rule, BIS proposed to add a new “xY6zz” control series to the CCL. This series, known as the “600 series,” would control most items formerly on the USML that move to the CCL and would consolidate the thirteen existing Wassenaar Arrangement Munitions List (WAML) entries (i.e., those entries currently under “xY018”). In implementing the “600 series” in this rule, as discussed below, BIS took into account comments related to the function and structure of the “600 series” submitted under all prior proposed rules issued as part of ECR that would move items from the USML to the CCL. These rules are:

•

Revisions to the Export Administration Regulations (EAR): Control of Military Vehicles and Related Items That the President Determines No Longer Warrant Control on the United States Munitions List,

(76 FR 76085, December 6, 2011);

•

Revisions to the Export Administration Regulations (EAR): Control of Vessels of War and Related Articles the President Determines No Longer Warrant Control Under the

United States Munitions List (USML),

(76 FR 80282, December 23, 2011);

•

Revisions to the Export Administration Regulations (EAR): Control of Submersible Vessels, Oceanographic Equipment and Related Articles That the President Determines No longer Warrant Control Under the United States Munitions List (USML)

(76 FR 80291, December 23, 2011);

•

Revisions to the Export Administration Regulations (EAR): Control of Energetic Materials and Related Articles That the President Determines No Longer Warrant Control Under the United States Munitions List (USML)

(77 FR 25932, May 2, 2012);

•

Revisions to the Export Administration Regulations: Auxiliary and Miscellaneous Items That No Longer Warrant Control Under the United States Munitions List and Items on the Wassenaar Arrangement Munitions List

(77 FR 29564, May 18, 2012);

•

Revisions to the Export Administration Regulations (EAR): Control of Personal Protective Equipment, Shelters, and Related Items the President Determines No Longer Warrant Control Under the United States Munitions List (USML)

(77 FR 33688, June 7, 2012); and

•

Revisions to the Export Administration Regulations (EAR): Control of Military Training Equipment and Related Items the President Determines No Longer Warrants Control Under the United States Munitions List (USML)

(77 FR 35310, June 13, 2012).

These rules, as well as the rules referenced in Section I.B., above, published in 2011 and 2012, provided the public with extensive notice regarding the proposed control structure and transition-related provisions and offered a wide array of examples of proposed “600 series” items. The public comments BIS received in response to these proposed rules have played an important role in helping the Administration refine the provisions that are included in this final rule and the corresponding Department of State final rule to achieve initial implementation of ECR. A summary of the comments and BIS' responses are provided below.

A. General Structure

Under the July 15 (framework) rule, BIS proposed to add the new “600 series” to each applicable CCL category so that it would fall after the 300 series (ECCNs that control items primarily for chemical and biological weapon proliferation reasons) and before the 900 series (ECCNs that control items for various U.S. foreign policy reasons). The “600 series” framework would allow for identification, classification, and control of items transferred from the USML that, based on their technical or other characteristics, are not classified under an existing ECCN that is subject to controls for any reason other than Anti-Terrorism (AT) reasons. This structure would allow for a straightforward application of a licensing policy for items that move to the CCL from the USML. The fourth and fifth characters of each new “600 series” ECCN would generally track the WAML categories for the types of items at issue.

BIS is adopting the general structure of the “600 series” proposed under the July 15 (framework) rule. Most commenters were supportive of this structure, but some commenters were concerned that it did not make the CCL more “positive” and that dual-use items may be controlled under a “600 series” ECCN. BIS shares the goal of creating a more positive control list, but maintained a goal that no items be unintentionally decontrolled during the process of moving items from the USML to the CCL. Since the USML contains,

inter alia,

catch-all controls on parts, components, accessories, and attachments specifically designed or modified for defense articles, most of these catch-all controls are being moved to the CCL. BIS will continue to work to make the CCL more positive through the multilateral regimes and through considering public comments responding to the advance notice of proposed rulemaking,

Feasibility of Enumerating “Specially Designed” Components,

(77 FR 36419, June 19, 2012). Also, BIS does not believe that dual-use items or purely civil items—i.e., items that are now subject to the EAR and not subject to the jurisdiction of the ITAR—would be moved to a “600 series” entry because items in a -018 ECCN are on the WAML and thus, even prior to this rule, are more properly described as munitions items than dual-use or purely civil items.

B. Reasons for Control

In proposing the “600 series,” the July 15 (framework) rule also proposed the reasons for control for “600 series” ECCNs. Generally, such ECCNs would be subject to National Security Column 1 (“NS1”), Regional Stability Column 1 (“RS1”), Anti-Terrorism Column 1 (“AT1”), and United Nations Embargo (“UN”) reasons for control. In addition, end items moving from the USML that are controlled by the Missile Technology Control Regime, Australia Group, and Firearms Convention would be controlled for Missile Technology Column 1 (“MT1”), Chemical and Biological Weapons Proliferation Column 1 (“CB1”), and Firearms Convention (“FC”) reasons, respectively, under the EAR. Items that were on the CCL prior to the creation of the “600 series” and that move into the “600 series” would retain the reasons for control to which those items were subject prior to the creation of the “600 series.”

BIS is adopting the reasons for control described above in this final rule. Some commenters were concerned that the “600 series” ECCNs contained too many varying controls, unilateral NS controls, overly sensitive NS1 and RS1 controls, or could inaccurately contain MT controls. BIS does not agree with these comments. Almost all items moving from the USML to the “600 series” are also on the WAML, particularly considering the catch-all controls in the WAML. Thus, there is already multilateral agreement on such items and NS controls are warranted. To the extent an item in the “600 series” is not on the WAML, BIS has concluded that its inherent or unique military or intelligence applicability warrants RS1 controls, unless the item is specifically listed in a .y paragraph within the ECCN (see discussion below in Section II.C for an explanation of .y paragraphs). BIS has also determined that certain license exceptions should be available under certain circumstances and under specific conditions in order to better harmonize the EAR's exceptions with the exemptions in the ITAR or to otherwise implement the national security objectives of the reform effort as set forth above. With respect to MT controls, the Departments of Defense, State, and Commerce have reviewed the USML to determine which items are currently subject to MT controls. As mentioned, BIS will continue to review the CCL to make the entries more clear and positive, including reviewing the scope of controls on items subject to the EAR.

The United Nations (UN) reason for control was added to the “600 series” ECCNs after publication of the rule

Export and Reexport Controls to Rwanda and United Nations Sanctions Under the Export Administration Regulations

(77 FR 42973, July 23, 2012) established this convention for identifying items controlled to UN arms-embargoed destinations.

C. Items Paragraph

Within each “600 series” ECCN, the July 15 (framework) rule proposed that specific “end items,” “parts,” “components,” “accessories,” and “attachments” moving from the USML would, unless otherwise noted, be

positively enumerated in paragraphs .a through .w. Former USML “parts,” “components,” “accessories,” and “attachments” that are not (i) enumerated in the revised, positive USML or (ii) enumerated in a new “600 series” entry in paragraphs .a through .w would be controlled in the .x paragraph of each new corresponding “600 series” ECCN as “parts,” “components,” “accessories,” and “attachments” “specially designed” for items controlled elsewhere in that ECCN or for defense articles controlled in the corresponding USML category.

The .y paragraph of each “600 series” would control specific types of “parts,” “components,” “accessories,” and “attachments” that, even if “specially designed” for a defense article or “600 series” end item, warrant no more than AT-only controls. Thus, one would not need to review the .x paragraph if a “part,” “component,” “accessory,” or “attachment” is described in the .y paragraph. The .y paragraphs thus do not control the enumerated items if they were not “specially designed” for a “600 series” item or a defense article subject to the ITAR.

BIS received multiple comments regarding the structure of the .x and .y paragraphs. With respect to the .x paragraph, some commenters recommended that the descriptions of items should be more positive and avoid the use of “specially designed,” while other commenters believed that items in .x should only be subject to embargoes, end-use controls, and end-user controls. Again, BIS shares the goal of ultimately having a more positive list of items controlled in the “600 series” and the CCL generally. However, the proposed revisions must comply with multilateral regime obligations and must not inadvertently decontrol items that are being moved from the USML. Moreover, it would be physically impossible and impractical to enumerate every U.S. and foreign-origin “part,” “component,” “accessory,” and “attachment” that is or ever was “specially designed” for every U.S. and foreign-origin military item. Therefore, BIS is maintaining the use of “specially designed” when describing items in the .x paragraph. Further, while items in the .x paragraph are of less significance than the controls of the ITAR warrant, they nevertheless warrant control beyond the requirements of parts 744 and 746 due to their inherent military or intelligence characteristics.

With respect to the .y paragraph, commenters expressed support for positively enumerating items in the .y paragraph and applying an AT control only. However, some commenters believed that .y items should be designated EAR99, that BIS should develop a list of items that would be controlled for AT reasons only across all “600 series” ECCNs, or that .y items should be controlled under an existing ECCN subject to AT control rather than a “600 series” ECCN.

BIS does not accept these recommendations. All items described in the .y series have been subject to the ITAR in that they, by definition, were “parts,” “components,” “accessories,” or “attachments” specifically designed or modified for a defense article. If such items were identified as not being ITAR controlled in a commodity jurisdiction (CJ) determination or were not otherwise specifically designed or modified for a defense article, then they were not ITAR-controlled and are not now becoming subject to a .y control. To avoid designating such items as EAR99, BIS developed the .y list structure and is implementing the .y list structure in this final rule to reflect the lesser military significance of such items. Also, as one commenter alluded to, the definition of “specially designed” already provides a list of “parts” in paragraph (b)(2) of the definition that are militarily less significant across all categories. The .y list is necessary for individual “600 series” entries because a “part” “specially designed” for one end item or end use may not be considered critical, but similar “parts” may be critical for a different end item or end use. For example, “hoses” for military vehicles may warrant a .y listing in the “600 series” controls for military vehicles but not all “hoses” specially designed for military aircraft are

per se

insignificant. Moreover, BIS believes that the inherent military nature of .y items necessitates inclusion in a “600 series” ECCN rather than an existing ECCN with an AT reason for control. Because different classification and marking schemes will already be necessary for such items since they are currently subject to the ITAR, there would be little benefit to exporters of using an existing ECCN vis-à-vis a .y entry in a “600 series” ECCN because both are subject to the same reason for control and the same reporting requirements in the Automated Export System (AES). As described below, part 758 is being amended to address issues pertaining to the reporting of “600 series” items in AES.

This rule does not adopt the proposal to create .y.99 paragraphs that was first proposed in the November 7 (aircraft) rule. One commenter raised concerns about moving items to the .y.99 paragraph if the items were determined to be subject to the EAR under a prior CJ determination and are not on the CCL. BIS agrees that the burden of tracking down and analyzing whether items formally determined not to be subject to the ITAR were also EAR99 items because they were not identified on the CCL outweighs the once-contemplated organizational benefits of creating the .y.99 control. Such items have already gone through an interagency review process that concluded whether the items were subject to the ITAR. Thus, BIS has determined that any such items should retain EAR99 status if not otherwise identified on the CCL. Paragraph (b)(1) of the new definition of “specially designed” also reflects this understanding. An amendment to General Order No. 5 from what was proposed in the June 21 (transition) rule, as discussed further below in Section III.C, also addresses this issue.

III. Transition

A. Delayed Effective Date

This rule adopts a delayed effective date of 180 days after publication in the

Federal Register

. The public comments addressing the effective date for this final rule varied. Some commenters requested a 120-day delay before the effective date while other commenters requested a longer delay, ranging from 180 days to four years. They cited many tasks to be performed as a result of this transition, including classifying and marking items transferred to the CCL, obtaining new licenses, changing internal databases, modifying compliance practices, and training personnel. BIS and the Directorate of Defense Trade Controls (DDTC), Department of State have taken various steps to ease the transition from the USML to the CCL. This final rule includes specific provisions to ease the transition process, such as the new General Order No. 5 in Supplement No. 1 to part 736 being added to the EAR in this final rule and the provisions to address the dual-licensing issue, that are discussed below in Sections III.B and III.C.

These provisions, along with the other changes included in this final rule, are intended to ease the transition for exporters, reexporters and transferors from the USML to the CCL and alleviate some of the public concerns regarding the effective date of the rule. BIS agrees that a reasonable period of transition, including a delayed effective date for this final rule, should be provided. Therefore, this final rule has a delayed effective date of 180 days. This approximately six-month period will provide the regulated community a reasonable amount of time to implement

changes to conform their export control compliance systems to the new “600 series” and the first ten ECCNs that are being added to the EAR in this final rule. A longer delay, such as four years, as recommended by one commenter, would not have been reasonable given the national security objectives of the reform effort set out above. A 180-day delayed effective date represents BIS's best effort to provide sufficient time for exporters, reexporters and transferors to update their internal systems and for BIS to provide education and outreach services to those affected who may not have been following closely the changes BIS has proposed over the course of the last two years.

B. Amendment to the EAR To Address Dual Licensing

In response to the June 21 (transition) rule, many commenters expressed concerns that the movement of items from the USML to the CCL would result in the need to obtain a license from DDTC and a license from BIS for many transactions that currently only require one license from one agency. For example, exports of end items on the USML often contain related USML parts and components in the shipment, so such items are typically authorized under a single DDTC license, such as a DSP-5. Since many parts and components are moving from the USML to the CCL, this typical export scenario could require two separate authorizations from two agencies. Further, one commenter to the June 21 (transition) rule stated that it is industry practice to include items currently subject to the EAR in a single license application to DDTC or under the Foreign Military Sales (FMS) program because such items will accompany USML items in a shipment authorized under a license or because such EAR items are included in an executed Letter of Offer and Acceptance (LOA) under the FMS program.

To address these issues, BIS is amending part 734 to reflect the fact that the President has delegated to the Secretary of State the authority to license or otherwise authorize the export, reexport or in-country transfer of items otherwise subject to the EAR, as agreed upon by the Secretaries of State and Commerce. (Executive Order 13637 of March 8, 2013, Administration of Reformed Export Controls, 78 FR 16129, March 13, 2013). The items will remain subject to the EAR, and BIS will continue to maintain jurisdiction for licensing and enforcement. However, applicants will be able to choose whether to use a DDTC or BIS authorization so long as the export, reexport, or in-country transfer meets the applicable requirements described herein.

In accordance with new § 120.5(b) of the ITAR, § 734.3(e) authorizes the export, reexport or in-country transfer of items subject to the EAR when the items subject to the EAR will be used in or with items subject to the ITAR and are included on the same DDTC license, agreement, or other approval. Thus, a DDTC license, agreement, or other approval made in accordance with § 120.5(b) of the ITAR will preclude the need for a separate license from BIS, and a BIS license will only be required when an export, reexport, or in-country transfer exceeds the scope of the DDTC license, agreement, or other approval or exceeds the scope of § 120.5(b) of the ITAR. DDTC added § 120.5(b) to the ITAR on April 16, 2013.)

Under this provision, DDTC has discretion in determining whether the requirements of § 120.5 have been met and whether items subject to the EAR should be authorized under a license, agreement, or other approval by DDTC. To provide guidance on the use of § 120.5(b) of the ITAR, items subject to the EAR may be exported, reexported, or transferred (in-country) using a valid DDTC license, agreement, or other approval. The following are illustrative scenarios for when such approvals may be used:

• Parts and components subject to the EAR that will be used in or with end items subject to the ITAR and that would otherwise require a license from BIS may all be exported under a DDTC license, such as a DSP-5, or reexported under a DDTC General Correspondence (GC) approval.

• Software subject to the EAR that will be used in or with software or an end item subject to the ITAR and that would otherwise require a license from BIS may all be exported under a DDTC license, such as a DSP-5, or reexported under a GC.

• Technology subject to the EAR that is used with technical data subject to the ITAR that will be used under the terms of a Technical Assistance Agreement (TAA) or Manufacturing License Agreement (MLA) and that would otherwise require a license from BIS may all be exported under the TAA or MLA.

• If a program authorized by a TAA or MLA requires that parts and components subject to the EAR

and

parts and components subject to the ITAR be shipped in furtherance of the TAA or MLA, then DSP-5 licenses may be used. However, if the program only requires that parts and components subject to the EAR be shipped in furtherance of the TAA or MLA, then authorization must be obtained from BIS and DSP-5 licenses may not be used.

One commenter also believed that another scenario would require additional licensing—the export and subsequent installation of a “600 series” part or component into a foreign defense article. Under this situation, a license may be required from BIS to export the “600 series” parts or components and then a TAA may be required from DDTC to perform the defense service in order to provide the installation and integration services with respect to a defense article. However, this scenario differs from those above because two authorizations would already be required under the ITAR. For instance, if the part or component to be exported is currently on the USML, then the applicant would need to apply for a TAA for the exchange of technical data pursuant to providing the installation and integration service regarding a defense article, while also applying for a separate DSP-5 license for the export of the part or component. If the part or component is currently subject to the EAR or would become subject to the EAR as a “600 series” item, then a TAA would still be required from DDTC and a license or other authorization would be required from BIS for the export of the part or component. Since the number of authorizations would remain the same, this scenario would not be eligible for the provision described above.

Section 734.3(e) authorizes the export, reexport or in-country transfer of items subject to the EAR when those items are subject to licenses, agreements, or other approvals issued by DDTC to authorize items subject to the EAR that will be exported, reexported, or transferred (in-country) under the FMS program. Items subject to the EAR that are included in an executed Letter of Offer and Acceptance under the FMS program may be identified in a DSP-94 submitted in accordance with § 126.6(c) of the ITAR. The DSP-94 and use of § 126.6(c) will serve as authorization for items subject to the EAR, and no separate authorization from BIS will be required. However, any export, reexport, or in-country transfer of an item subject to the EAR that is outside the scope of the LOA or DSP-94 must adhere to the requirements of the FMS case. In addition, no separate authorization from BIS is required to supplement actions taken on FMS cases by the Department of State's Office of Regional Security and Arms Transfers (RSAT). Questions regarding §§ 120.5(b) or 126.6(c) of the ITAR; the use of any DDTC license, agreement, or other approval; or FMS

cases should be directed to DDTC or RSAT, as appropriate.

C. Transition Period and General Order No. 5

In the June 21 (transition) rule, BIS proposed creating General Order No. 5 in Supplement No. 1 to part 736 to describe the transition process for items moving from the USML to the CCL upon the publication of the pertinent final rules. The proposed general order described the grandfathering of DDTC licenses and agreements, the use of BIS authorizations, and the submission of disclosures to BIS and DDTC related to the transition of items from the USML to the CCL. In response to the proposed general order, BIS received public comments regarding: the timing for submitting a license application to BIS, clarification of when to submit a disclosure to BIS and when to submit a disclosure to DDTC, a recommendation to include some form of a “safe harbor” for violations when a DDTC approval is used for items subject to the EAR, and guidance on shipping documentation.

1. Timeline for Applications, Amendments, and Grandfathering

Because BIS and DDTC are adopting a six-month delay in the implementation of this final rule, BIS has made corresponding amendments to General Order No. 5 regarding the earliest date that BIS will accept license applications for items moving from the USML to the CCL under this final rule and under future final rules. For those wishing to export under the authority of the EAR as soon as possible for items moving from the USML to the CCL, applicants may submit license applications immediately after the publication of the final rule adding such items to the CCL. Thus, applicants may, in effect, pre-position license applications early to facilitate processing of the license application. Such a pre-positioned license application will be processed in accordance with § 750.4 of the EAR, but if BIS completes processing the application prior to the effective date of the applicable final rule, BIS will hold the application without action (HWA), until the effective date of that final rule. Applications for transitioned items received after the effective date of the applicable final rule will be processed as described in § 750.4 of the EAR.

Existing holders of DDTC licenses, agreements, or other approvals, may maintain existing authorizations or obtain new authorizations for items moving from the USML to the CCL in accordance with DDTC's transition plan. Proposed General Order No. 5 has been amended to more closely correspond to DDTC's finalized transition plan. Questions regarding the continued use of DDTC licenses, agreements, or other approvals should be directed to DDTC.

2. Submission of Voluntary Self-Disclosures

BIS is amending the prior guidance in proposed General Order No. 5 with respect to submitting disclosures to BIS or DDTC. The amendment makes clear the existing recommended practice will continue to apply. For potential violations of the EAR, persons are recommended to submit a voluntary self-disclosure to BIS; for potential violations of the ITAR, persons are recommended to submit a voluntary disclosure to DDTC; and for potential violations of both the EAR and ITAR, persons are recommended to submit disclosures to both agencies. One commenter suggested inserting a “safe harbor” provision for those who use a DDTC authorization for items subject to the EAR. BIS believes that the addition of § 734.3(e) addresses that commenter's concerns, because it removes the dual licensing requirement that gave rise to those concerns (see Section III.B., above). Also, if a person uses a DDTC authorization for an item subject to the EAR that does not fall within the circumstances described in § 734.3(e), BIS will exercise discretion in reviewing and responding to those who filed disclosures involving such scenarios.

3. Miscellaneous Issues

Because of the six-month implementation period for this final rule, BIS believes that the public will have adequate time to adjust USML and CCL notations for shipping documents. BIS, therefore, is not adding provisions related to export clearance in General Order No. 5. BIS is, however, amending the proposed General Order No. 5 to add a paragraph (c) to address the removal of the proposed .y.99 paragraph for “600 series” ECCNs by clarifying that if the U.S. Department of State has previously determined that an item is not subject to the ITAR and the item is not listed on the CCL, then the item will remain designated as EAR99.

IV. Retrospective Regulatory Review

On January 18, 2011, President Barack Obama issued Executive Order 13563, affirming general principles of regulation and directing government agencies to conduct retrospective reviews of existing regulations. Although ECR did not originate with Executive Order 13563, it is consistent in spirit and substance. On August 5, 2011, BIS issued a notice soliciting public comment on streamlining its regulations pursuant to that executive order (76 FR 47527). In response to public comments received on the August 5, 2011 notice, and consistent with BIS's internal analysis, the June 21 (transition) rule proposed revisions to license exceptions for government uses (GOV, § 740.11) and temporary exports (TMP, § 740.9) that streamlined and updated unduly complex or outmoded provisions. At the same time, BIS broadened certain provisions within these license exceptions to implement ECR. One commenter to the June 21 (transition) rule stated that it appreciated BIS's efforts to streamline this regulatory text.

BIS intends to address other proposed changes to the EAR in accordance with the executive order in separate

Federal Register

notices. BIS received a number of comments, particularly on license exceptions in response to the June 21 (transition) rule, that require extensive consideration, possibly including additional proposals seeking public comment. BIS intends to address these comments in future rules as part of BIS's continuing retrospective review of the EAR.

Commerce's full retrospective regulatory review plan under Executive Order 13563 can be accessed at:

http://open.commerce.gov/news/2011/08/23/commerce-plan-retrospective-analysis-existing-rules.

V. Part 730—General Information

This rule revises the heading of § 730.3 from “Dual use exports” to ““Dual use” and other types of items subject to the EAR” to reflect the scope of items subject to export controls under the EAR. Similarly, the revised text notes that while the term “dual use” is often used to describe the types of items subject to the EAR, more precisely, any item that is not exclusively controlled for export or reexport by another agency of the U.S. Government or excluded from the EAR pursuant to § 734.3(b), is subject to the EAR.

One commenter recommended deletion of part 730, because it is not regulatory, but guidance. BIS has not adopted this recommendation, because it was outside the scope of this rule. The part exists for the benefit of those new to exporting.

VI. Part 732—Steps for Using the EAR

BIS is amending §§ 732.2 (Steps regarding scope of the EAR) and 732.3 (Steps regarding the ten general prohibitions) to remove text that is redundant to that found in § 736.2(b)(3)—General Prohibition Three. BIS received one comment in

response to the July 15 (framework) rule's part 732 proposal. The commenter recommended deletion of parts 730 and 732, because the commenter believes those provisions are guidance and not regulatory in nature. For reasons described in discussion to part 730 above, BIS has decided to keep parts 730 and 732 for the benefit of those new to exporting. However, BIS agreed with the recommendation to add a disclaimer to part 732 stating that part 732 should only be used as a general overview of the EAR. This disclaimer is in new § 732.1(a)(3). BIS also agreed that repeating regulatory text concerning General Prohibition Three in §§ 732.2 and 732.3 is not useful; therefore, the repeated text is deleted and replaced by a brief explanation of the direct product rule (General Prohibition Three) and a reference to § 736.2(b)(3) is added to § 732.2(f). Although the June 21 (transition) rule proposed revisions to the direct product rule, it did not propose corresponding revisions to the steps. This final rule makes that conforming change.

The order of review in § 732.3(b) (Step 7: Classification) is revised to add a reference to Supplement No. 4 to part 774—Commerce Control List Order of Review. The July 15 (framework) rule proposed to add a cross reference in Step 22 (Terms and Conditions of the License Exceptions), § 732.4(b)(3)(iv). The reference alerts exporters that, if they are exporting under License Exceptions LVS, TMP, RPL, STA, or GOV and their item is classified in the “600 series,” they should review § 743.4 of the EAR to determine the applicability of certain reporting requirements for conventional arms exports. This rule implements that proposal.

The July 15 (framework) rule also proposed to revise Step 26 (license applications) to add a paragraph describing the process of requesting License Exception STA eligibility for export, reexport or in-country transfer of an aircraft controlled under ECCN 9A610.a. While the July 15 (framework) rule proposed eligibility requests for “end items” generally, ships, vehicles, and aircraft were the “end items” items identified in subsequent technical reviews as requiring a determination of eligibility for License Exception STA, and of those, only aircraft are included in this final rule. A reference is also added to Step 26 to Supplement No. 2 to part 748, paragraph (w) (License Exception STA eligibility requests), which contains instructions for how to request in an application that subsequent exports of such end items be eligible for License Exception STA. The revisions to Step 26 also indicate that exporters, reexporters and transferors may review the list of such end items that have already been approved for License Exception STA pursuant to § 740.20(g) in the License Exceptions paragraph of ECCN 9A610. Lastly, to alert exporters, reexporters, and transferors who wish to use License Exception STA in such cases in which License Exception STA has been approved, a new Note was proposed to § 734.4(b)(7)(ii) to remind them to review paragraphs (a) and (b) to determine the steps needed in using license exceptions. BIS did not receive any comments regarding these specific proposals.

VII. Supplement No. 3 to Part 732—Red Flags

This rule expands the EAR's “Know Your Customer” Guidance and Red Flags to provide compliance guidance for License Exception STA and the “600 series.”

The July 15 (framework) rule proposed creating two new red flags, designated as numbers 13 and 14 in Supplement No. 3 to part 732, that would be specific to “600 series” items in addition to the existing 12 red flags in that supplement that apply to EAR transactions generally.

One such proposed red flag (number 13) would address a proposed transaction involving “parts” of “600 series” items where the country of destination has no apparent need for the “parts” or for the quantity ordered. One commenter stated this proposed red flag overlaps with two existing red flags that address item suitability and quantity for transactions subject to the EAR. This commenter proposed generalizing the proposed new red flag to make it applicable to all transactions subject to the EAR, not just “600 series” items. Another commenter recommended that the phrase “You receive an order” in this red flag be changed to read “An order received” and that the term “components” be added to the red flag to make the red flag consistent with other red flags. Finally, one commenter recommended that this red flag not apply to .y items because such application would place an unreasonable requirement on the exporter.

The second proposed red flag would address a proposed transaction in which the customer indicates that the “600 series” items are destined for an arms embargoed country. One commenter suggested that this red flag be expanded to include customer indications of shipment to destinations or end users that would be prohibited or restricted for transactions involving all items subject to the EAR with a specific reference to “600 series” items and arms embargoed destinations.

One commenter recommended that both proposed red flags not be adopted because they would not be applicable to any of the items proposed for the “600 series” in the July 15 (framework) rule.

This final rule makes one change to the new proposed red flags in response to these comments. It adds the term “components” to red flag number 13 because BIS believes the additional term more completely describes the transactions that this red flag is intended to address, although the listing of “parts” and “components” is not intended to be an exhaustive listing of items that may fall within the scope of this red flag because other “600 series” items, such as “accessories” and “attachments” could also be used in this scenario. This final rule also makes a non-substantive clarification, by changing references from “item” to “end item” to create greater consistency with how the term “end item” is being used in the context of this new red flag 13. Lastly, to conform to the changes being made in this final rule, BIS is replacing the reference to arms embargoed countries in new red flag 14, with a reference to destinations listed in Country Group D:5 (see Supplement No. 1 to part 740 of the EAR), which as described below, is a new country group being added to the EAR in this final rule.

BIS did not adopt any of the other recommendations concerning the red flags for the following reasons. Generalizing red flags 13 and 14 to apply to the entire EAR would dilute their effect in highlighting the military nature of the “600 series” items and the precautions appropriate for such items, including the various provisions being added to the EAR in this final rule to implement an appropriate control structure under the EAR for these munitions items. Adopting the phrase “An order received,” would be only a minor stylistic change from the proposed text that does not provide additional clarity. Excluding .y items from red flag 13 would be inappropriate because, even though the .y items require a license to fewer destinations than “600 series” items generally, they are “specially designed” “parts” and “components” for military items and, as such, deserve inclusion.

Several commenters in response to the July 15 (framework) rule also noted that exporters who will be new to the EAR because their items were previously only subject to the ITAR would benefit by having outreach

materials developed specifically for them to assist them in understanding the EAR and the new “600 series.” Red flags in this supplement, including the new red flags 13 and 14 being added in this final rule, are and will be an important part of BIS's outreach program. The BIS outreach program focuses on assisting persons involved in transactions that are subject to the EAR in understanding their responsibilities and what steps they can take to avoid being involved in transactions that may violate the EAR. BIS believes the two new red flags described above will assist those persons involved in transactions that are subject to the EAR involving “600 series” items, in particular those exporters, reexporters and transferors who will be new to the EAR.

VIII. Part 734—Scope of the EAR

A. Dual Licensing

As described above under section III.B., BIS is amending part 734 to note the authority of DDTC to authorize certain exports of items subject to the EAR to address public comments regarding dual licensing concerns.

B. De Minimis

Section 734.4 of the EAR sets forth the

de minimis

provisions, which provide that foreign-made items incorporating less than

de minimis

levels of U.S. content are not subject to the EAR. The July 15 (framework) rule proposed to add special restrictions for

de minimis

applicability for “600 series” items. That rule proposed amending § 734.4 (

De minimis

U.S. content) by adding paragraph (b)(3) and making a conforming change to paragraph (c). The rule proposed restricting the scope of

de minimis

for “600 series” “parts,” “components,” and other items subject to the EAR (i.e., those classified under xB6zz, xC6zz, xD6zz and xE6zz entries). The rule also proposed that when foreign-made items that incorporate such controlled U.S.-origin “600 series” items are to be exported from abroad or reexported to any country they are subject to the 10%

de minimis

rule for U.S.-origin content rather than the 25%

de minimis

rule.

Fourteen commenters found the July 15 (framework) rule proposal regarding a revised

de minimis

rule for “600 series” items too complex and unworkable. Commenters stated that having a 10%

de minimis

rule for “600 series” items and a 25%

de minimis

rule for all other items subject to the EAR would be extremely burdensome, if not impossible, for the commenters to calculate.

The June 21 (transition) rule proposal addressed the calculation concerns of the commenters to the July 15 (framework) rule by proposing to maintain the EAR's 25 percent

de minimis

rule for reexports to most countries; and would carry forward the ITAR's zero percent

de minimis

rule with respect to reexports of foreign-made items containing “600 series” content to countries subject to U.S. arms embargoes (Country Group D:5 of Supplement No. 1 to part 740 of the EAR).

BIS received eight comments to the June 21 (transition) rule. Four commenters agreed with this approach. Four commenters disagreed with this approach, generally suggesting that the arms embargoed countries be subject to the same 10%

de minimis

threshold that applies to countries in Country Group E:1. These commenters provided two reasons. First, they stated that foreign manufacturers determine

de minimis

at development stage and use the lowest possible threshold. The possibility of a 0% threshold may lead to designing out EAR content. Second, these commenters stated that three

de minimis

thresholds would make determining whether an item produced outside the United States is subject to the EAR unduly complex. BIS does not accept the recommendations to replace the 0% with a 10% U.S. content for foreign-made items containing “600 series” items destined to U.S. arms embargoed destinations (Country Group D:5 of Supplement No. 1 to part 740). BIS also does not agree with the comments that the approach would be unduly complex. All legal trade in defense articles is now with countries that are not subject to U.S. arms or other embargoes, and all such defense articles are subject to a 0%

de minimis

rule for all such destinations. Thus, for example, a foreign party's transfer of a foreign-made end item containing even one U.S.-origin ITAR-controlled component of any value from one NATO member to another NATO member requires State Department authorization. This naturally creates dis-incentives to purchase U.S.-origin content even for end items to be sold to allies of the United States. This rule changes this current 0%

de minimis

rule of the ITAR for all such items to the standard 25%

de minimis

rule of the EAR for all such items. Contrary to the comments, this change is a dramatic reduction in complexity and will significantly reduce the current incentives for buyers in such countries to avoid purchasing what were ITAR-controlled parts and components and what will, with this rule and successive implementations of additional categories, become “600 series” items subject to the EAR. It will at the same time maintain the status quo with respect to the 0%

de minimis

rule for trade in items with countries subject to U.S. arms embargoes. This is a simple rule—trade in foreign-made items with non-arms embargoed countries containing U.S.-origin military items is subject to the same rule as all other items subject to the EAR and trade in such items with countries subject to arms embargoes is prohibited, as is the case today. This furthers the twin U.S. policy objectives of removing unnecessary barriers in trade with most of the world and discouraging or indeed prohibiting trade in military items containing controlled U.S.-origin content with arms embargoed destinations.

One commenter asked that BIS clarify the

de minimis

provisions of the EAR by rewriting Supplement No. 2 to part 734 and by eliminating the one-time reporting requirement that applies to technology. BIS is not addressing this comment because it is outside the scope of any of the proposed rules being addressed by this final rule. Two commenters pointed out that § 123.9 of the ITAR contains an exemption for U.S.-origin components incorporated into a foreign defense article to a government of a NATO country, or the governments of Australia, Japan, New Zealand, South Korea and Israel without prior written approval from DDTC. License Exception GOV is equivalent to this ITAR exemption, and other license exceptions in part 740 may also be available,

e.g.,

License Exception STA, for such transactions. One comment suggested BIS clarify the method of calculating the

de minimis

value by rewriting Supplement No. 2 to part 734 of the EAR; this recommendation falls outside the scope of this final rule.

In sum, this rule furthers U.S. national security and foreign policy interests by prohibiting the reexport of foreign-made items containing “600 series” content to countries subject to U.S. arms embargoes (Country Group D:5 in Supplement No. 1 to part 740), while removing the incentive the ITAR creates for foreign buyers to avoid such U.S.-origin content with respect to trade by and between other countries.

IX. Part 736—General Prohibitions

A. Foreign-Produced Direct Product

Prior to the effective date of this rule, certain foreign-produced direct products of U.S. technology were subject to the EAR: national security controlled items that were direct products of U.S.

national security-controlled technology, or of a plant that is the direct product of national security-controlled technology, when those products were destined to countries of concern for national security reasons (Country Group D:1) or terrorist-supporting countries (Country Group E:1). The June 21 (transition) rule proposed to expand these provisions by adding an additional country and product scope. Foreign-produced direct products of U.S.-origin “600 series” technology, or of a plant or major component of a plant that is a direct product of U.S.-origin “600 series” technology, that are “600 series” items are now subject to the EAR when reexported or exported from abroad to countries listed in Country Groups D:1 (national security countries of concern), D:3 (chemical and biological countries of concern), D:4 (missile technology countries of concern), D:5 (U.S. arms embargo countries) or E:1 (countries that support terrorism) in Supplement No. 1 to part 740. Foreign-made items subject to the EAR because of this rule are subject to the same license requirements to the new country of destination as if they were of U.S. origin.

BIS received three comments opposing the expanded country scope “to include countries of concern due to nuclear proliferation or missile technology reasons” for “600 series” items on the grounds that “600 series” items are controlled for national security and regional stability reasons. BIS is not making the suggested changes and is adopting the expansion of the country scope to countries of concern for missile or chemical and biological weapon proliferation reasons, because some “600 series” items are or likely will be only controlled for missile technology or chemical and biological reasons. BIS does not anticipate that any “600 series” items will be controlled for nuclear nonproliferation reasons, so BIS did not propose expansion of the foreign-produced direct product rule for “600 series” items to countries of concern for nuclear proliferation and does not adopt such an approach in this final rule.

B. General Order 5

As described above in section III.C., BIS is amending part 736 to add General Order No. 5 to Supplement No. 1.

X. Part 738—CCL Overview and the Country Chart

This rule implements changes proposed in the July 15 (framework) rule to paragraph (b) of § 738.2 (Commerce Control List (CCL) structure) by adding the new terms “end items,” “attachments,” “parts” and “systems” to the description for Product Group A in order to describe the scope of items within CCL Product Group A with the more precise terms that are added to part 772 by this rule.

BIS also adopts revisions to paragraph (c) of § 738.2 (Order of review) to provide a cross reference to the new Supplement No. 4 to part 774—Commerce Control List Order of Review that is also being added in this final rule. This new Supplement No. 4 sets forth the steps that should be followed in classifying items that are “subject to the EAR” and provides new guidance for how to classify items in light of the addition of the “600 series” of ECCNs to the CCL and the new definition of “specially designed” also being added with this final rule.

BIS had proposed in the July 15 (framework) rule to add to paragraph (d)(1) of § 738.2 (Commerce Control List (CCL) structure) a reference to items warranting national security or foreign policy controls at the determination of the Department of Commerce under ECCN 0Y521. BIS received one comment suggesting that the descriptor for ECCNs that have “5” as their third digit should be, “Items subject to license requirements described in § 742.6(a)(7).” BIS does not accept this suggestion to allow broader applicability than the items described in § 742.6(a)(7). Another commenter recommended adding “Unilateral National Security or Foreign Policy Reasons” as a revised reason for control for ECCNs that have “5” as their third digit. This recommendation is also not accepted. BIS notes that in the final rule implementing the 0Y521 series, (4/13/12, 77 FR 22191) the EAR indicates that the determination to control ECCNs that have “5” as their third digit was made by the Department of Commerce, and the term “Items warranting national security or foreign policy controls at the determination of the Department of Commerce” provides a more precise descriptor for these ECCNs.

In § 738.2(d)(1), the July 15 (framework) rule proposed to add a reference to the “600 series” to indicate that items in which the third character is a “6” are “600 series” items and controlled because they are Wassenaar Arrangement Munitions List (WAML) and formerly USML items subject to the jurisdiction of the EAR. As described in Section XXIII (part 772—Definitions (including Specially Designed)) in this rule, this rule also adds a definition of “600 series” to provide additional information to the public regarding this control series. To explain the meaning of the last two numbers in “600 series” ECCNs, this rule adds a new paragraph (d)(1)(iv) that indicates that the last two characters of each “600 series” ECCN, with few exceptions, track the WAML categories for the types of items at issue. In order to stay consistent with the general structure of the groups within the CCL Categories, the Wassenaar Arrangement ML21 (“software”) and ML22 (“technology”), however, are rolled into the existing D (“software”) and E (“technology”) CCL product groups. The WAML numbering structure for the last two characters is generally used rather than the USML numbering structure because the majority of items to be transferred are subject to the WAML, although the “600 series” is not limited to items on the WAML. Thus, the numbering scheme is generally consistent with such controls. BIS, however, deviated from this scheme with respect to the new controls on military aircraft engines and related items that fall under new ECCNs 9A619, 9B619, 9C619, 9D619, and 9E619. WAML Category 19 controls directed energy weapons, but BIS has used the “19” ECCN suffix in order to track the new USML category XIX that identifies the military aircraft engines and related items that were formerly controlled under USML Category VIII(b).

This structure makes it easier to see that the United States continues to control all WAML items. In addition, multinational companies that must deal with both the USML system and the numbering system of most other allied countries (which generally track the WAML) should find compliance and tracking of controlled items somewhat easier.

BIS received one comment suggesting that the “600 series” descriptor should be “Commerce Munitions List.” BIS did not accept the suggestion because it is not creating a new list of controlled items but rather incorporating items formerly subject to the ITAR into the existing Commerce Control List.

This rule revises § 738.2(d)(2)(ii) to state that in some “600 series” ECCNs, the STA license exception paragraph or a note to the License Exceptions section contains additional information about License Exception STA applicability to that ECCN. This sentence is needed to distinguish the role of STA paragraphs in the License Exception sections of “600 series” ECCNs from the role of those paragraphs in other ECCNs where the STA paragraph only denotes ineligibility of STA for destinations listed in § 740.20(c)(2). Upon the effective date of this final rule, those destinations will be listed in Supplement No. 1 to part 740, Country Group A:6. As described below in more

detail and briefly mentioned above, Country Group A:6 is one of the new country groups added to the EAR in this final rule. BIS proposed this revision to the text of § 738.2(d)(2)(ii) in the November 7 (aircraft) rule and received no comments. This final rule adopts the proposed text without change. As a conforming change, BIS is also replacing the phrase “eight destinations listed in § 740.20(c)(2) of the EAR” where it appears in ECCN entries in part 774 with the phrase “destinations listed in Country Group A:6 (see Supplement No. 1 to part 740 of the EAR).”

XI. Part 740—License Exceptions

License Exceptions are published authorizations set forth in part 740 of the EAR that allow exports, reexports, and in-country transfers that would otherwise require a license to proceed without one if certain conditions are met. License Exceptions operate under the EAR the same way exemptions operate under the ITAR.

A general principle underlying the incorporation of the “600 series” into the EAR is that, because items subject to the EAR are less militarily significant than those subject to the ITAR, EAR exceptions should not be more restrictive than comparable ITAR exemptions. BIS recognizes that several commenters to the June 21 (transition) rule agreed with this principle. The June 21 (transition) rule proposed to harmonize the provisions of several EAR license exceptions with several ITAR exemptions, as set out in detail below, but only insofar as they are permitted by law and otherwise relevant to “600 series” items and other items subject to the EAR. In particular, BIS has no authority to change the scope of license exceptions available for items controlled for MT reasons because of statutory restrictions. See section (6)(

l

) of the Export Administration Act of 1979, as amended, 50 U.S.C. app. § 2405(

l

).

When a license exception authorizes reexports under certain terms and conditions, there is no national security or foreign policy objective met by restricting in-country transfers that also meet those terms and conditions. In the June 21 (transition) rule, BIS proposed revising License Exceptions TMP and GOV (§§ 740.9 and 740.11, respectively) to explicitly provide authorization for in-country transfers.

One commenter responding to the July 15 (framework) rule stated that “no limitation should be placed on in-country transfers of licensable items.” The commenter continued, “[t]he prospect that an item exported to an entity in a foreign country may be transferred to another entity in the same licensed country is inherent in the assessment of an export transaction. Accordingly, part 740 of the EAR should be revised to exclude all mentions of “transfers (in-country).” BIS does not agree with this comment. The EAR's end-use and end-user controls evidence a longstanding policy that an assessment of an export transaction involves more than the country of destination. Further, conditions on most licenses restrict subsequent transfer of the licensed items. Rather than include in-country transfers in some license exceptions and not in others when the policy rationale is the same, this rule revises § 740.1 to state that, when a license exception authorizes reexports, in-country transfers meeting the terms and conditions of the reexport are also authorized. While this specific revision was not proposed in the June 21 (transition) rule, it is a logical outgrowth of BIS's original proposal that stems from reviewing the related public comment and further thinking about how in-country transfers are addressed in part 740.

A. Restrictions

Section 740.2 describes restrictions on all license exceptions, and this rule adds certain restrictions specific to “600 series” items in new paragraphs (a)(12) through (a)(16).

In the July 15 (framework) rule, BIS proposed adding to § 740.2 new paragraphs (a)(12) (restricting the use of license exceptions to countries subject to a United States arms embargo) and (a)(13) (restricting the use of license exceptions for “600 series” items destined to countries other than those listed in proposed (a)(12)). In the June 21 (transition) rule, BIS proposed that in addition to items destined to arms-embargoed countries, items shipped from or manufactured in those destinations also be restricted from license exceptions. With this final rule, BIS adopts the (a)(12) proposal with an additional change. Rather than list the countries in (a)(12), they are being identified in a new Country Group D:5 (Supplement No. 1 to part 740 of the EAR), as explained below in the Country Groups discussion (Section XI.H). The restriction on using license exceptions for “600 series” items destined to, shipped from, or manufactured in a destination subject to a United States arms embargo as described in § 126.1 of the ITAR remains set forth in paragraph (a)(12). One commenter recommended deleting Yemen from the (a)(12) list of countries to reflect an amendment to the ITAR; BIS agrees with this comment, and this rule does so in Country Group D:5. Further comments received on paragraph (a)(12) are described below, as part of the discussion of Country Groups in Section XI.H.

Paragraph (a)(13) is adopted as set forth in the July 15 (framework) rule. The license exceptions available for “600 series” items are listed in paragraph (a)(13). Each exception is available according to the terms and conditions set forth in its section and subject to the restrictions in § 740.2.

Finally, in the June 21 (transition) rule, BIS proposed adding to § 740.2 two new paragraphs (a)(15) and (a)(16) restricting the availability of license exceptions for certain “600 series” exports for which prior notification to Congress will be made. This rule changes BIS's original proposal, as explained below in the discussion of “600 Series Major Defense Equipment” in Section XIII.B.

B. License Exception TMP

This rule revises § 740.9, License Exception Temporary imports, exports and reexports (TMP) paragraphs (a) (Temporary exports and reexports) and (b) (Exports of items temporarily in the United States) to streamline the existing exception consistent with the retrospective review and regulatory improvement directed in E.O. 13563, and to broaden the exception to correspond to certain ITAR exemptions. BIS proposed these revisions in the transition rule.

BIS received three comments stating that, to correspond to the ITAR, TMP should provide for the return or disposal of items within four years rather than the current one year, and a further five comments stating that when authorization to retain the item abroad beyond one year is requested, that authorization be valid for four years rather than a one-time extension of six months.

BIS does not agree that the term of TMP should be four years in order to correspond to the ITAR. Under the ITAR, most exemptions for temporary export require some other form of authorization to be in place for the exemption to be available. These requirements mean that simply extending TMP to a four-year term generally would be significantly more expansive than the ITAR exemptions. However, to better approximate ITAR controls, this rule revises TMP to provide that, when authorization to retain the item abroad beyond one year is requested, the term of the authorization may be for a total of four years rather than just an additional six months.

Four commenters questioned the term “order to acquire,” seeking clarification on whether a purchase order would be considered an example of an order to acquire an item. BIS confirms that a purchase order would be one such example, and adds that example in this final rule. Four commenters asked for clarification that the term “U.S. persons and their employees” referred to employees of foreign branches. BIS is maintaining the existing definition in License Exception TMP of “U.S. persons,” which does not include foreign branches. Thus, no regulatory change is required.

Seven commenters stated that § 740.9(a)(3)(i)(B), as proposed in the June 21 (transition) rule, introduces “additional recordkeeping requirements” for a temporary export of technology as a tool of trade by a non-U.S. person. In fact, prior to publication of that proposed rule, that requirement existed in the EAR in § 740.9(a)(3)(iv)(A)(2). It was originally published on December 12, 2007 (72 FR 70509) in a rule that established the ability to temporarily export technology as a tool of trade under License Exception TMP, which had previously been limited to commodities and software. This 2007 expansion of TMP was based in part on § 125.4(b)(9) of the ITAR, which allows certain exports of technical data by U.S. persons. The 2007 rule also required that the employers of non-U.S. persons document the need to travel, as a safeguard to the expansion of the tools of trade provision of TMP beyond U.S. persons. This restriction does not impose additional requirements on any permanent release of technology, because License Exception TMP does not authorize any new (i.e., previously unauthorized) release of technology. It authorizes temporary exports of that technology as a tool of trade. BIS believes the commenters misconstrued this provision, and this final rule adopts it as proposed in the June 21 (transition) rule.

In the June 21 (transition) rule, BIS proposed that temporary exports under License Exception TMP to a U.S. person's foreign subsidiary, affiliate, or facility abroad would no longer be limited to exports to Country Group B countries in order to make TMP consistent with § 123.16(b)(9) of the ITAR. Three commenters recommended adding “materials” to the types of items eligible for this provision. BIS did not make this change. Materials are unlikely to be returned in the form received and are inappropriate for this provision.

Four commenters recommended replacing the country scope “E:2, Sudan and Syria” with “E:1” throughout TMP. BIS agrees that this expression is clearer and has made this change.

One commenter requested that the requirement for personal inspection of body armor be dropped. In this final rule, BIS has dropped the entire paragraph relating to body armor. The issue will be addressed in a future final rule that will address controls on personal protective equipment.

This rule updates the provision authorizing certain tools of the trade for Sudan by removing outdated technical parameters and ECCN paragraph references that no longer exist.

Consistent with § 123.19 of the ITAR, this rule adds a note to the temporary imports paragraph of License Exception TMP stating that a shipment originating in Canada or Mexico that incidentally transits the United States en route to a delivery point in the same country does not require a license. BIS did not receive public comments on this note and adopts it as proposed in the June 21 (transition) rule. A note regarding shipments from one location in the United States to another location in the United States via a foreign country, also proposed in the June 21 (transition) rule, was not adopted in this final rule. BIS received no comments on this note, but, upon further review and interagency consultation, BIS determined that the concept is already implicit in § 734.2(b)(8). Therefore, BIS deleted the proposed note.

An additional note explaining that defense articles on the USMIL are controlled by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) for purposes of permanent import under its regulations at 27 CFR part 447, proposed in the June 21 (transition) rule, was not adopted because it duplicates the USMIL description added to part 734 (described above).

Three commenters requested confirmation that § 740.9 (b)(3) applies to technology. BIS confirms that it does; technology is a component of the definition of “items,” as defined in § 772.1.

C. License Exception RPL

In the July 15 (framework) rule and the June 21 (transition) rule, BIS proposed changes to § 740.10 (Servicing and replacement of parts and equipment (RPL)). The July 15 (framework) rule proposals all related directly to servicing and replacement of “600 series” items. The June 21 (transition) rule proposals were related to a similar ITAR exemption.

In the July 15 (framework) rule, BIS proposed revising RPL to: (1) Add “600 series” “parts,” “components,” “accessories,” and “attachments” to the scope of this authorization; (2) impose restrictions on the use of License Exception RPL for the export or reexport of “parts,” “components,” “accessories,” and “attachments” classified in “600 series” ECCNs; (3) authorize exports and reexports of certain items “subject to the EAR” to or for a defense article described in an export or reexport authorization issued under the authority of the AECA; and (4) exclude from authorization the export or reexport of “parts,” “components,” accessories,” or “attachments” that are defense articles identified on the USML (22 CFR §§ 120.6 and 121.1). In this final rule, BIS adopts all of these proposals.

One commenter to the July 15 (framework) rule suggested that “accessories” and “attachments” be removed from License Exception RPL, as they are by definition not necessary for items' operation. BIS does not agree with this suggestion, as servicing and replacement of “accessories” and “attachments” may be within the scope of transactions conducted under this license exception and thus should be authorized.

The June 21 (transition) rule proposed to revise RPL to allow export or reexport of spares up to $500 in total value, and to remove the requirement that the ability to return serviced commodities and software or replace defective or unacceptable U.S.-origin equipment be limited to the original exporters. BIS is not adopting these proposals at this time, for the reasons explained below.

Six commenters addressed this proposal, most requesting clarification of the relationship between the shipment of spares under proposed revised RPL and low-value shipments under existing License Exception LVS. Two commenters proposed different ways of valuing the spares or suggested placing a value limit on the item shipped or the transaction rather than the shipment. One comment recommended restructuring the exception into separate paragraphs for spares as distinguished from one-for-one replacement parts, and another comment recommended numerous changes, amounting to a thorough revision of the license exception. Additionally, in response to the July 15 (framework) rule, BIS received a comment recommending that RPL define enhancement resulting from servicing or replacement of parts or components as “affecting a controlled characteristic of an end item.”

Unlike License Exceptions TMP and GOV, BIS did not propose a wholesale clarification and streamlining of RPL in

the June 21 (transition) rule. Based on public comments and internal analysis, however, BIS has concluded that a completely revised RPL should be proposed separately as part of a retrospective regulatory review, using public comments already received as part of the basis for the new proposal. While the June 21 (transition) rule proposal to amend RPL was related to a similar ITAR exemption, it was not specific to the “600 series.” As such, and because BIS plans to propose comprehensive revisions to RPL, this final rule adopts only the changes to RPL proposed in the July 15 (framework) rule. It does not adopt changes proposed in the June 21 (transition) rule or address comments received in response to those proposed changes in this final rule.

D. License Exception GOV

Consistent with the retrospective review and regulatory improvement directed in Executive Order 13563, the June 21 (transition) rule proposed to completely revise § 740.11, License Exception GOV (Governments; International Organizations; International Inspections under the Chemical Weapons Convention; and the International Space Station). Prior to the effective date of this rule, License Exception GOV contained references to items on the Wassenaar Arrangement's Sensitive and Very Sensitive Lists, which necessitated annual regulatory revisions and was so lengthy that it required a supplement to the section. The June 21 (transition) rule proposed shortening and simplifying License Exception GOV by including the Sensitive and Very Sensitive Lists as supplements to part 774, described below in Section XXIV.F. BIS received no public comments on this simplification, and this final rule adopts it without change.

The July 15 (framework) rule proposed restricting certain “600 series” items' eligibility for License Exception GOV, and the November 7 (aircraft) rule proposed changes with respect to restricting certain aircraft-related software and technology as listed in a proposed Supplement No. 4 to part 740. The December 6 (gas turbine engines) rule added restrictions on certain engine-related software and technology to Supplement No. 4 to part 740. This final rule, however, does not adopt the proposal to include Supplement No. 4 to part 740, and instead incorporates these restrictions into the relevant ECCNs for ease of use, as described below in Sections XXIV.C and .D.

As proposed in the June 21 (transition) rule, this rule expands GOV to authorize items consigned to non-governmental end users, such as U.S. Government contractors, acting on behalf of the U.S. Government in certain situations, subject to written authorization from the appropriate agency and additional export clearance requirements. One commenter on the June 21 (transition) rule noted its agreement with BIS's proposal to extend GOV to U.S. Government contractors. Two commenters on the June 21 (transition) rule suggested that the requirement for written authorization be deleted in favor of relying on the actual contract, noting that certification is a burden on both the exporter and on the Department of Defense, and that OFAC's Sudanese Sanctions Regulations (31 CFR part 538) are less restrictive with a similar purpose. Another commenter requested confirmation that the exception includes subcontractors under certain contract clauses, and asked that the final rule include examples and scenarios. This final rule adopts as proposed the requirement for written authorization and does not allow use of the license exception by subcontractors. Given the broad scope of items authorized under the GOV license exception, written authorization and a direct relationship between the exporter and the U.S. Government is necessary to ensure proper use of the exception. BIS does not include examples in this final rule, but will attempt to generate such scenarios to include in outreach efforts. Four commenters recommended that references to A:1 countries, a narrow group of close allies, be replaced with “Wassenaar member countries,” a broader group. Another commenter recommended expanding the provisions available for cooperating governments to include all of Country Group B. Given the broad scope of items authorized under the GOV license exception, BIS considers the suggested changes to the country scopes too broad, and therefore does not accept them.

One commenter recommended deletion of the requirement for a statement that the U.S. Government owned the property being exported because it was too broad. BIS agrees and has limited the requirement to Government Furnished Equipment. In response to a request for clarification of the scope of a provision describing programs related to capacity-building and counterterrorist operations, BIS determined that the provision was subsumed by a less specific provision describing cooperative efforts with foreign governments or international organizations, and deleted the unclear provision.

This rule also adopts provisions for exports made under the direction of the U.S. Department of Defense consistent with §§ 125.4(b)(1), 125.4(b)(3) and 126.6(a) of the ITAR. This provision was proposed in the June 21 (transition) rule and received no comments.

The June 21 (transition) rule proposal to add a note regarding authorization of Foreign Military Sales is not adopted in this final rule. Authorization of Foreign Military Sales is addressed above in section III.B.

This rule adopts provisions in the June 21 (transition) rule that expands the scope of countries eligible to receive items on the Sensitive List under § 740.11(a) (International Safeguards) and (c) (Cooperating Governments) to include the governments of those 36 countries listed in new Country Group A:5, discussed below in Section XI.H. BIS received no comments on this proposal.

This rule makes one correction to GOV as proposed in the June 21 (transition) rule. Section 740.11(b)(2)(iii)(G) has been amended to remove “defense articles” from the parenthetical in that paragraph since BIS does not have jurisdiction over items subject to the ITAR.

E. License Exception TSU

This rule implements revisions proposed in the June 21 (transition) rule to § 740.13 License Exception Technology and Software—Unrestricted (TSU) that would include training information in the operation technology authorized, as it is in § 125.4(b)(5) of the ITAR. This rule also adds TSU authorization for the release of software source code and technology in the United States by U.S. universities to their bona fide and full-time regular foreign national employees to correspond with a similar authorization in § 125.4(b)(10) of the ITAR. Further, this rule amends TSU to add an authorization corresponding to § 125.4(b)(4) of the ITAR for copies of technology previously authorized for export to the same recipient.

Two commenters stated that the revised TSU for university employees should not be subject to the end-use and end-user restrictions in part 744 of the EAR because such restrictions do not now exist in the comparable ITAR exemption at § 125.4(b)(10). In addition, the commenters said that TSU should not preclude the unlicensed release of encryption-related software controlled for “EI” and other software and technology controlled for “MT” (Missile Technology) reasons because ITAR § 125.4(b)(10) does not now preclude the release of such software and

technology to bona fide university employees under the exemption. This rule does not make the suggested revisions. While license exceptions under the EAR should not be more restrictive than corresponding exemptions under the ITAR, license exceptions must be implemented within the framework of the EAR. The restrictions proposed in the transition rule are consistent with those imposed on other license exceptions for national security and foreign policy reasons, and restrictions on MT items are statutory. Another commenter recommended that the provision be extended to entities other than universities. BIS does not accept this recommendation. This provision broadened TSU to correspond with an ITAR exemption for university employees; its expansion to other entities would exceed that rationale.

One commenter suggested that the university employee's requirement not to transfer technology survive his employment at the university; BIS agrees, because export controls on technology exist independently of nondisclosure or other agreements. Another commenter suggested striking the prohibition on “establishing or producing items,” because the phrase is not uniquely defined in the EAR and does not provide clarity about what it excludes. BIS agrees with this analysis and has made this revision.

With respect to paragraph (g), one commenter suggested deleting “copies” from the heading and revising the text accordingly. BIS does not accept this recommendation. “Copies” is an accurate description of the intended scope of the provision.

F. License Exception STA

This final rule describes how and under what circumstances License Exception STA may be used for “600 series” items. This rule implements the proposals regarding License Exception STA that appeared in the July 15 (framework) rule, the November 7 (aircraft) rule and the June 21 (transition) rule. Generally, License Exception STA will be available for exports, reexports and transfers (in-country) of “600 series” items to any of the 36 destinations currently listed in § 740.20(c)(1) (which this rule will move to a new Country Group A:5 in Supplement No. 1 to part 740), but not to the destinations currently in § 740.20(c)(2) of the EAR (which this rule will move to a new Country Group A:6 in that supplement). As with all license exceptions in the EAR, its use is optional. If an exporter, for example, prefers to export an item otherwise eligible to be exported under License Exception STA under the authority of a license, then the exporter may apply for such a license.

License Exception STA may not be used for any “600 series” items identified in the relevant ECCN as not being eligible for export under STA. It may not be used to export, reexport, or transfer (in-country) “600 series” items to persons, whether non-governmental or governmental, unless those persons are in and, if natural persons, nationals of a country listed in Country Group A:5 or the United States

and either

(a) the

ultimate

end user for such items is the armed forces, police, paramilitary, law enforcement, customs, correctional, fire, or a search and rescue agency of a government of one of the countries listed in Country Group A:5 or the United States Government,

or

(b) are for the “development” or “production” of an item in one of the countries listed in Country Group A:5 or the United States that will

ultimately

be used by any such government agencies, the United States Government, or a person in the United States. It may not be used to export, reexport, or transfer (in-country) end item aircraft described in ECCN 9A610.a until after BIS has approved their export under STA under the procedures set out in § 740.20(g) of the EAR. It may not be used to export, reexport, or transfer (in-country) “600 series” items “subject to the EAR” if they are “600 Series Major Defense Equipment” and the value of such items in the contract requiring their export exceeds $25,000,000. This rule also will add provisions to the License Exception STA consignee statement that will apply only to shipments containing “600 series” items. The consignee will have to acknowledge the end-use and consignee restrictions that apply to “600 series” shipments under License Exception STA and consent to U.S. Government post-shipment verifications.

BIS is implementing these changes to License Exception STA with respect to “600 series” items because such items are, by definition, military items or specially designed for military applications and thus warrant controls beyond those dual-use and civil items eligible for export under STA. This revised License Exception STA will enhance national security because it will, with respect to such items, (a) allow for greater interoperability between the United States and its NATO and other multi-regime allies because it will permit more efficient and quick trade in such items than is now possible under the ITAR, (b) enhance the United States industrial base by reducing the incentive for buyers in such countries to avoid or design out such U.S.-origin content and, thus, create more opportunities to be regular, predictable suppliers to buyers in such countries, (c) allow the government to focus its limited licensing resources on transactions of concern rather than those that are routinely approved, and (d) allow for greater enforcement- and compliance-related visibility into such transactions.

BIS received several comments concerning License Exception STA as it applies to “600 series” items. The comments and BIS's responses are summarized below.

One commenter noted that, in some instances, “600 series” “components” could be sent to an STA eligible destination for incorporation into an end item that would be exported to a non-STA eligible destination. One commenter requested that BIS “pre-approve” such end items for

de minimis

treatment. Another commenter stated its belief that License Exception STA may not be used to export a part that will be incorporated into an end item that will be shipped to a non STA eligible destination. This commenter asked that BIS clarify that the exporter of the “600 series” part could list the manufacturer of the end item as the end user on a license application because the end item would not be subject to the EAR.

License Exception STA states that “600 series” items must be for ultimate government end-use to be eligible. If a “600 series” part or component to be exported is destined for ultimate end use by a government that is not among the STA-36 or the United States, then a license is required to export the part or component. However, there may be a third scenario in which items are not destined for end use in an STA-36 country but are destined for an end use that has been explicitly authorized by the U.S. Government. To address this scenario, BIS has made a change to STA as discussed below in Section XI.G.

One commenter stated that paragraph (c)(1) in License Exception STA appears to exclude from STA all ECCNs that have antiterrorism as a reason for control. This same commenter expressed a belief that only governments would be eligible recipients of “600 series” items under License Exception STA. The commenter noted that the latter limit could seriously disrupt supply chain activity because licenses would be needed to supply vendors who supply STA eligible governments.

BIS believes that this commenter misconstrues the terms of License Exception STA as proposed in the July 15 (framework) rule, the November 7 (aircraft) rule and the June 21

(transition) rule. Paragraph (c)(1) of § 740.20 refers to “Exports, reexports and in country transfers in which the only applicable reason for control is . . ..” This text in the June 21 (transition) rule is unchanged from the current text of paragraph (c)(1), except in that it identifies the authorized destinations and nationals by Country Group A:5. BIS has consistently construed the phrase “applicable reason for control” to mean the reasons for control that would impose a license requirement on the export, reexport or in country transfer at issue, not every reason for control that appears in the ECCN that covers the item being shipped. In accordance with part 742, AT controls do not apply to any destination for which License Exception STA is available. As proposed in the July 15 (framework) rule and the November 7 (aircraft) rule, this rule makes private sector parties eligible recipients of “600 series” items exported under License Exception STA if the “600 series” item is for

ultimate

end use by a designated agency of an eligible government or for development, production, operation, installation, maintenance, repair, overhaul, or refurbishing in an eligible country or the United States for use by such a government agency or by the United States Government. Because “600 series” ECCNs do not specify controls on “use” software or technology, the term “use” does not appear for those items in this license exception.

The June 21 (transition) rule contained a note 2 to paragraph (c) providing that License Exception STA may authorize export, reexport or in country transfer of “600 series” items only if the purchaser, intermediate consignee, ultimate consignee and end user have previously been approved on a license issued by BIS or the Directorate of Defense Trade Controls. This proposal elicited a number of questions and comments.

Commenters wanted to know whether the previous license had to be for the same commodity as will be shipped under License Exception STA, whether the validity of the prior license for purposes of STA eligibility continues after the name of the party changes and whether the prior license for a party authorized use of License Exception STA for all locations of that party within one country.

The purpose of this requirement is to provide some assurance that the foreign parties in transactions involving “600 series” items under License Exception STA are reliable as evidenced by the fact that either BIS or DDTC have approved licenses for transactions in which that party was involved. Plans to export under License Exception STA a different item than that under previous licenses do not alter the fact that the U.S. Government had vetted through the licensing process the foreign parties at issue in the transaction. Also not affecting the conclusion that the U.S. Government has vetted a foreign party through the licensing process is if the company changes its name or has offices at various addresses. Because the approval must have been for the party that will receive items under STA, an approval for a different entity, even if it is related to or affiliated with that party, would not meet the requirements for note 2 to paragraph (c)(1). BIS believes that no changes are needed to the text proposed in the June 21 (transition) rule to implement these points.

One commenter asked whether exporters would be required to provide the information about approved parties and, if so, specifically what information would have to be provided and how often would it have to be provided. The commenter suggested that the exporter should be required to provide the information only for the initial export under License Exception STA to the party.

The June 21 (transition) rule did not propose any requirement that the exporter report to BIS information about the prior licenses. As with other license exceptions, by entering STA (or the corresponding AES license code) into AES, the exporter represents to the United States Government, subject to penalties for false statements, that all of the requirements of License Exception STA have been met. In addition, parties to transactions that are subject to the EAR must provide BIS or other authorized U.S. Government agency with documents relating to the transaction upon request. BIS believes that no change to the text as proposed in the June 21 (transition) rule is needed on this point.

Some commenters noted that parties wishing to use STA would not have access to licensing records from which they could determine whether the party to which they wish to ship under License Exception STA had previously been on an approved license. These commenters recommended several changes to address this issue. One recommendation was to remove the requirement because ordinary screening of customers as part of company compliance programs should be adequate and, especially with exports to close allies, additional measures should not be needed. Another recommendation was that the government, which has all the licensing records needed to determine whether a party was on a previously approved license, could provide the information (including known name changes) on a Web site. Additionally, the government could implement a procedure whereby AES could notify an exporter who wishes to use License Exception STA for a “600 series” item that the consignee is not an eligible recipient. Such a notice could be based on the fact the consignee has not previously appeared on an approved license or on other non-public information that the government possesses.

Items in the “600 series” are military items or items that are designed for military application. Although they are less significant military items that the President has determined do not warrant control on the USML, they nonetheless, as military items, warrant export under more extensive safeguards against diversion than are applied to some of the other items that are subject to the EAR. The presence of a party on a previous license provides such a safeguard for such items because it indicates that the United States Government has reviewed that party and approved a transaction in which that party participated. Although providing access to the information obtained in connection with a license application about the identity of parties on approved licenses to the public via a Web site would likely make use of License Exception STA for “600 series” items easier, Section 12(c) of the Export Administration Act precludes such disclosure absent a finding that doing so is in the national interest. Given the widespread access to items posted on public Web sites, including access by persons not intending to use License Exception STA, such a finding would be unlikely. Attempting to modify AES in the way suggested is not yet feasible. Moreover, AES filings for “600 series” items will take place shortly before the time of export. An exporter relying on AES to screen out ineligible consignees would have done all of the work necessary for an STA shipment including furnishing the ECCN(s) to and obtaining the required statement from the consignee only to find out almost at the moment of shipment that the consignee is not eligible. BIS expects that, in most instances, a consignee that is willing to make the commitments and certifications required under License Exception STA will also be willing to confirm to the potential exporter, reexporter or transferor whether it has been a party on any approved licenses. Accordingly, BIS is making no substantive changes to the note to

paragraph (c)(1) in response to these comments. (See Section XX below for recordkeeping requirements.)

The June 21 (transition) rule would require consignees of “600 series” items to state that the items are for ultimate end use (or will be used in development, production, use, operation, installation, maintenance, repair, overhaul, or refurbishing of an item for ultimate end use) by an authorized government agency or a person in the United States; and to consent to an end-use check. One commenter questioned whether a private consignee would be able to consent to an end-use check on a government end user.

BIS agrees that a private party should not be expected to make a commitment on behalf of a government. In addition, the governments eligible to ultimately receive “600 series” items under License Exception STA were selected because of their status as NATO allies of the United States or multi-regime members. Therefore, this final rule revises the requirement to make clear that only a non-government consignee is required to consent to an end-use check. In such an instance, BIS recognizes that because a condition of STA is that “600 series” items must ultimately go to an authorized government end user or a user in the United States, the items may no longer be on the consignee's premises. Nevertheless, an end use check at the consignee's premises may provide information that would help confirm the ultimate disposition of the items.

G. Other License Exception STA Changes

The November 7 (aircraft) rule proposed creating a new Supplement No. 4 to part 740 that would list certain “600 series” items that are not eligible for License Exception STA. Both the November 7 (aircraft) rule and the December 6 (gas turbine engines) rule proposed items for inclusion in this new supplement. Upon reflection, BIS has concluded that listing these ineligible items in the ECCNs to which they apply will make the ineligible items more readily apparent to readers than will listing them in a separate supplement. Accordingly, this rule does not list these items in a supplement as proposed, but in ECCNs 9D610, 9E610, 9D619 and 9E619. This change is purely one of format. The ineligible items listed in those four ECCNs are the same as those proposed in the November 7 (aircraft) rule and the December 6 (gas turbine engines) rule.

The conditions under which License Exception STA may be used have been revised to allow for situations where the United States would, for national security, foreign policy, or other reasons, explicitly authorize its use in circumstances not yet contemplated. In response to the June 21 (transition) rule, commenters requested that BIS allow for the use of STA to authorize certain exports in situations in which the exporter knows that the items may be reexported to both STA-36 and non-STA-36 destinations. This new provision is designed to give the U.S. Government, through the normal interagency license review process, flexibility to craft license authorizations and conditions to address atypical fact patterns and allow for the use of STA in situations that would not otherwise be authorized. For example, a foreign consignee may receive a U.S. Government authorization to reexport from an STA-36 country a foreign-made item containing controlled U.S.-origin content. The new provision would allow the continued use of STA for exports of controlled items to a foreign consignee in one of the STA-36 countries so long as the foreign consignee has a valid license authorizing such a use of STA. The consignee would need to certify that it has such a license and, in addition, provide a copy of it to the U.S. exporter before License Exception STA may be used.

H. Country Groups

This rule creates three new country groups in part 740 of the EAR following consideration of public comments described below recommending reorganization of various lists of countries in the EAR. Specifically, this rule adds two new columns to Country Group A to incorporate the lists of countries previously set forth in the text of License Exception STA, and it adds one new column to Country Group D to incorporate the list of countries subject to a U.S. arms embargo proposed in the July 15 (framework) rule to be set forth in § 740.2. Several commenters addressed the various groupings of countries in the EAR and noted possible ways to reduce the number of such groupings or highlighted areas where the current groupings and those proposed in the June 21 (transition) rule could be simplified. One commenter noted that many such groupings were nearly identical to each other and to existing Country Groups in Supplement No. 1 to part 740 of the EAR. This commenter suggested that several such groupings be replaced by existing country groups. This commenter also recommended that certain countries listed in § 740.2(a)(12) of the transition rule that currently are subject to limited exceptions to the policy of denial under § 126.1 of the ITAR be removed from § 740.2(a)(12) in the final rule; BIS did not accept this recommendation because BIS believes it is appropriate to limit the use of license exceptions to countries subject to a U.S. arms embargo as a matter of foreign policy. One commenter suggested that the countries currently listed in § 740.2(a)(6) could be combined with the countries listed in proposed § 740.2(a)(12) with a single

de minimis

level for both groups. Other commenters recommended a 10%

de minimis

level for both § 740.2(a)(6) and § 740.2(a)(12) countries. A commenter also substituted the term STA-36 for references to destinations listed in § 740.20(c)(1), demonstrating the usefulness of a shorthand reference for this group of countries.

BIS recognizes that a number of the country groupings in the EAR are similar to each other and to the Country Groups in Supplement No. 1 to part 740 of the EAR. The small differences between some of these country groupings reflect the fact that each country grouping generally implements a policy tailored to certain destinations that do not exactly match the broad Country Groups in Supplement No. 1 to part 740. A comprehensive revision of country groupings in the EAR is outside the scope of this rule, but BIS acknowledges that it is an appropriate subject to be examined in the future as part of a retrospective review.

In addition, the countries listed in § 740.2(a)(6) are countries that are subject to broad export controls and, in some cases, comprehensive embargoes that encompass items of no military significance. The countries listed in § 740.2(a)(12) of the proposed transition rule are subject to United States arms embargoes. Moreover, paragraph (a)(6) applies to all items that are subject to the EAR whereas paragraph (a)(12) applies to the distinctly military items that are in “600 series” ECCNs. BIS believes that the distinctly military nature of “600 series” items justifies a stricter

de minimis

treatment compared to the broader universe of items that are subject to the EAR, and thus BIS does not adopt the commenter's suggestion.

Although not adopting their specific recommendations, BIS believes that these commenters raised valid points concerning the need for clarity in grouping countries in the EAR. Accordingly, this rule revises Supplement No. 1 to part 740 to add new columns A:5 and A:6 to Country Group A and to add a new column D:5 to Country Group D. Column A:5 lists the 36 destinations that currently are in

§ 740.20(c)(1), Column A:6 lists the eight destinations that currently are in § 740.20(c)(2), and Column D:5 lists the destinations subject to a United States arms embargo that were listed in § 740.2(a)(12) of the June 21 (transition) rule and July 15 (framework) rule. These changes are to format only and are not intended to change any controls.

XII. Part 742—Control Policy

A. National Security (NS) Review Policy

In the July 15 (framework) rule, BIS proposed revising the review policy for license applications for items controlled for national security reasons by adding a new paragraph (b)(1)(ii) to § 742.4 of the EAR. The proposed rule stated that in addition to the policy set forth in existing paragraph (b)(1)(i) of § 742.4, items classified under the “600 series” ECCNs would be subject to a general policy of denial when destined to a country subject to a U.S. arms embargo.

BIS received a comment on the proposed review policy that observed that such a policy would be more stringent than the policy for embargoed destinations and significant items under the ITAR. BIS has revised the proposed review policy in response to a commenter's observation as further discussed below.

To harmonize the EAR's policy with that of the ITAR, a new paragraph (b)(1)(ii) to § 742.4 is adopted to state that when destined for a country listed in D:5 in Supplement No. 1 to Part 740 of the EAR, items classified under “600 series” ECCNs will be reviewed consistent with the United States arms embargo (§ 126.1 of the ITAR). Although “600 series” items do not warrant control on the U.S. Munitions List, they are nonetheless items specially designed for military uses or applications or otherwise identified on the WAML and thus the stated review policy is appropriate. The scope of the U.S. arms embargoes is, however, not the same for each arms embargoed country. Section 126.1 of the ITAR has a detailed description of the policies for each such country to which BIS will defer.

One commenter noted that the proposed transition rule listed in § 740.2(a)(12) all the countries in § 126.1 of the ITAR, but that the preamble referred only to § 126.1(a) of the ITAR. Although at one point in its text, the preamble to the transition rule referred to § 126.1 of the ITAR, in other places it referred to § 126.1(a). While this comment referred to the section on restrictions on license exceptions, the issue is more strongly related to license review policy. BIS's intent is to apply the general policy of denial for “600 series” items to all destinations that are subject to a United States arms embargo. For this reason, BIS is not removing any destinations that are subject to limited exceptions found in other paragraphs of § 126.1 from the list of arms embargoed destinations. The general policy of denial provides adequate discretion to approve a license when the interagency license application review process pursuant to Executive Order 12981, as amended, recommends doing so in accordance with the national security and foreign policy of the United States and if no other law prohibits such approval. In other words, BIS is maintaining the status quo for “600 series” items to such destinations to conform to the State Department's policy and practice.

B. Regional Stability (RS) License Requirements

The July 15 (framework) rule proposed to individually list each of the new “600 series” ECCNs that would be controlled for RS Column 1 reasons in § 742.6(a)(1), which currently lists in a single sentence all ECCNs or portions thereof that are subject to the RS Column 1 controls of that paragraph. That framework was difficult to read and the listing of ECCNs duplicated information provided by the combination of ECCN entries and the Commerce Country Chart in Supplement No. 1 to part 738. This final rule simplifies and streamlines § 742.6(a)(1), which provides that a license is required for items designated in their ECCNs as subject to RS Column 1 controls to all destinations other than Canada, which is consistent with the format of describing other reasons for control in part 742. This change to § 742.6(a)(1) is in format only; it does not alter the license requirements for any item that is subject to the RS Column 1 reason for control. New paragraph (a)(1) continues to exclude from its coverage items described in paragraphs (a)(2) or (a)(3) of § 742.6 because those items are subject to their own special RS Column 1 controls. To conform to this rule's removal of ECCN 9A018.a, this rule revises § 742.6(a)(4)(i) to remove three references to ECCN 9A018.a.

C. RS Review Policy

BIS proposed in the November 7 (aircraft) rule to revise paragraph (b)(1) of § 742.6 to read that applications for “600 series” ECCN items listed in paragraph (a)(1) and destined to a country subject to a U.S. arms embargo would be reviewed in accordance with U.S. arms embargo policies and generally would be denied. In addition, a general policy of denial for a regional stability (“RS”) column 1 reason would apply to license applications for “parts,” “components,” “accessories,” “attachments,” software, or technology “specially designed” or otherwise required for F-14 aircraft. BIS revised the November 7 proposed license application review policy in paragraph (b)(1) for “600 series” ECCN items destined to U.S. arms embargoed countries, stating that such applications generally would be denied. BIS adopts in this final rule the same purpose and rationale described for the national security review policy in Section XII.A. above for the RS review policy, which is that when destined for a country listed in D:5 in Supplement No. 1 to Part 740 of the EAR, items classified under “600 series” ECCNs will be reviewed consistent with the United States arms embargo policies (§ 126.1 of the ITAR).

The June 21 (transition) rule proposed that paragraph (b)(1) of § 742.6 be further revised to add a case-by-case review to determine whether the “600 series” transaction is contrary to the national security or foreign policy interests of the United States, while retaining all provisions as published in a final rule which implemented the 0Y521 ECCN series, published April 13, 2012 (77 FR 22191). The June 21 (transition) rule proposal for case-by-case review is adopted in this rule without change.

XIII. Part 743—Special Reporting

A. Conventional Arms

The July 15 (framework) rule proposed to create a new semi-annual reporting requirement for “600 series” items that would be specifically identified in new § 743.4(c)(1) as items that require reporting under the Wassenaar Arrangement. One commenter described addition of this conventional arms reporting as “premature” as it was “unlikely” to be applicable to any “600 series” items. BIS did not agree with this comment. The framework must be established for this reporting to abide by U.S. multilateral commitments. Section 743.4 is adopted as it was proposed in the July 15 (framework) rule.

B. Major Defense Equipment

As set forth in § 123.15 of the ITAR, Section 36(c) of the Arms Export Control Act requires that a certification be provided to the Congress prior to approval of certain high-value exports of major defense equipment, other defense articles, or firearms. Approvals may not be granted when the Congress has

enacted a joint resolution prohibiting the export. While this process is not statutorily required for items subject to the EAR, BIS proposed in the June 21 (transition) rule to institute similar procedures in the EAR for certain exports of items that were classified as Major Defense Equipment (MDE) under the ITAR and are now subject to the EAR. BIS is adopting these procedures for certain exports of MDE in this final rule. “600 Series Major Defense Equipment” means any item listed in ECCN 9A610.a, 9A619.a, 9A619.b or 9A619.c, which has nonrecurring research and development costs of more than $50,000,000 or total production cost of more than $200,000,000. The Defense Security Cooperation Agency (DSCA) maintains a list of MDE items, currently categorized by USML category, available online at

http://www.dsca.osd.mil/samm/ESAMM/Appendix01.htm

(“DSCA List”).

This final rule adopts the July 15 (framework) rule proposal to create a new § 743.5, which provides that BIS will notify the Congress of transactions that include “600 Series Major Defense Equipment”—i.e., any “600 series” items identified on the DSCA List—valued in excess of $14,000,000 for destinations outside of the new Country Group A:5 and $25,000,000 for destinations listed in the new Country Group A:5. Notification will not be required for exports made under License Exception GOV. When a license application is submitted, BIS will draw the necessary information to make the congressional notification from the license application. Section 740.2, Restrictions on License Exceptions, discussed above, is also revised to preclude use of license exceptions, other than License Exception GOV, for such transactions.

BIS received eleven comments on the congressional notification proposal. In general, the commenters complained that notification would be cumbersome and defeat many of the potential efficiencies of the EAR for transitioned items. The commenters also asserted that congressional notification is not required for items subject to the EAR. BIS does not agree with such comments. BIS recognizes that congressional notification procedures may impose a regulatory burden for some export transactions. However, BIS is not requiring notification for any transactions that would not now require notification under the ITAR and the Arms Export Control Act. Thus, there will be no increased burden on exporters as a result of the new notification requirements in the EAR.

Six commenters stated that the threshold for congressional notification should be based on the value of the “600 series” items in the license application, not the total contract under which the items are sold. BIS accepts this recommendation. BIS recognizes that the total value of a contract that includes transitioned items may also include substantial sums for items subject to the ITAR or subject to the EAR, but which are not “600 Series Major Defense Equipment.” Therefore, to ensure that only transactions that include more than the applicable threshold of “600 Series Major Defense Equipment” items trigger the notification requirement, BIS is revising the notification requirement threshold to the value of the “600 Series Major Defense Equipment” items included in the contract.

Five commenters requested that BIS specify that dual notification of a transaction is not required. BIS accepts the commenters' request. If a transaction includes more than the threshold amount of ITAR MDE or other ITAR items triggering the ITAR congressional reporting requirement, and also triggers the BIS requirement due to the value of the “600 Series Major Defense Equipment” items, it would serve little purpose to require that both BIS and DDTC notify the Congress for the same transaction. Therefore, BIS is revising the notification requirement to state that transactions that have been, or are concurrently being, notified to the Congress by DDTC do not require congressional notification by BIS. One commenter also suggested that applicants must provide notice of prior notification by providing BIS with the Congressional Notification Identification Number on their application in SNAP-R. BIS agrees with the suggestion and has amended the EAR accordingly. BIS, however, will not approve the license for items subject to the EAR until the applicable period for congressional notification has expired.

One commenter noted that the congressional notification procedures require that the exporter provide BIS with the written contract under which the items are being sold, and that this requirement is unique in the EAR. BIS acknowledges that the requirements that exporters whose transactions meet the thresholds for congressional notification to provide the written contract for the sale of the items is unique in the EAR. But, BIS believes that relatively few transactions will require congressional notification each year and that those transactions are of such a size that it is unlikely that they will be concluded without a written contract. Additionally, a written contract is required for these transactions under the ITAR, so there is no increase in regulatory burden.

Four commenters requested that BIS include the definition of Major Defense Equipment in part 772. BIS accepts this recommendation and has included a definition in part 772.

XIV. Part 744—End-User and End-Use Controls

A. “Military End Use” in §§ 744.17 and 744.21

In the July 15 (framework) rule, BIS proposed amending the definition of “military end use” used in § 744.17 (Restrictions on certain exports and reexports of general purpose microprocessors for `military end uses' and to `military end users.') and § 744.21 (Restrictions on certain `military end uses' in the People's Republic of China (PRC)). In both sections, the definition of “military end use” was revised to include incorporation into items classified under “600 series” Product Groups A, B or C ECCNs and for the “use,” “development,” or “production” of items classified under “600 series” Product Group A, B or C ECCNs. For consistency, BIS is making clarifying changes to the proposed language to ensure greater understanding of the scope of the provision. BIS received no public comments on these amendments to the military end use definition, and this final rule adopts the July 15 (framework) rule's proposal without substantive change.

B. China Military End-Use Control

In the June 21 (transition) rule, BIS proposed to make all “600 series” items subject to the China Military End Use provision set forth in § 744.21 through a new paragraph (a)(2), which provided a general prohibition on exports to China of “600 series” items without a license. One commenter to the June 21 (transition) rule stated that this amendment would create an unnecessary burden for “600 series” paragraph .y items and that .y items should only be restricted for export to China if they are intended for a military end use. In addition, the commenter said that there is no need to restate the denial policy for non-.y “600 series” items because this is currently reflected in § 742.6 (Regional Stability).

BIS does not agree with this recommendation, and is adopting the June 21 (transition) rule addition of paragraph (a)(2) without change. “600 series” items were previously on the USML or the WAML and therefore are

presumptively for a military end use. Accordingly, BIS is imposing under § 744.21 a license requirement for all “600 series” items, including paragraph .y items, destined for China. Paragraph .y items are “specially designed” “parts,” “components,” “accessories,” and “attachments” for defense articles on the USML or for other military items (i.e., “600 series” items), and the definition of “military end use” in § 744.21 includes incorporation into a military item. The commenter's concerns regarding an unnecessary burden on paragraph .y items is outweighed by the national security need for a license requirement. As to the commenter's concern regarding restating the denial policy with respect to other “600 series” items, paragraph (a)(2) does not do this. Other “600 series” items are subject to multiple reasons for control on the CCL as well as to end-use and end-user controls, and different licensing review policies may apply.

After interagency review, BIS is amending the proposed text in § 744.21(f) removing references to “Product Group A, B or C.” This change is intended to clarify the intent of the July 15 (framework) rule, which was to maintain the scope of current policy with respect to defense articles that will remain on the USML or defense articles that will transfer to the CCL as “600 series” items.

XV. Part 746—Embargoes and Other Special Controls

A. Iraq

The July 15 (framework) rule proposed to revise paragraph (b)(2) of § 746.3 (Iraq) of the EAR to make “600 series” items, which are arms or arms-related, subject to the Iraq arms embargo provisions. No comments were received on this provision. This final rule revises that proposal by specifying that license applications for the export, reexport, or transfer to the Government of Iraq of “600 series” items will be subject to the review policies set forth for such items in §§ 742.4(b) and 742.6(b) of the EAR to cross reference the review policies set forth in part 742 elsewhere in this rule.

B. UN Embargoes

In the July 23, 2012 final rule on Export and Reexport Controls to Rwanda and United Nations Sanctions Under the Export Administration Regulations (77 FR 42973), BIS amended § 746.1 to limit the use of license exceptions to countries subject to a United Nations Security Council arms embargo. The July 15 (framework) rule and the June 21 (transition) rule proposed restrictions in § 740.2(a)(12) on license exceptions for “600 series” items destined to countries subject to a U.S. arms embargo (a list that includes countries subject to United Nations Security Council arms embargoes). One commenter recommended that BIS make available license exceptions in addition to GOV for items being sent to countries subject to United Nations Security Council arms embargoes as implemented under the EAR. The commenter stated in support of the recommendation that some circumstances in which controls related to arms embargoes could be superseded by license exceptions was contemplated in a proposed amendment to paragraph (b)(3)(vi) (General Prohibition Three—Foreign-Produced Direct Product Reexports) of § 736.2 set forth in the June 21 (transition) rule.

BIS does not agree with the commenter's reasoning and is not adopting the recommendation. Part 746, as stated in § 746.1(a), is the focal point for all the EAR requirements for transactions involving sanctioned and embargoed countries. Thus, the availability of license exceptions to those countries is governed primarily by the provisions in part 746. This rule does amend § 746.1 to clarify that the availability of license exceptions for Iraq, North Korea, and Iran will continue in effect as set forth in § 746.3 (Iraq), § 746.4 (North Korea), and § 746.7 (Iran) rather than being governed by the more general restrictions being implemented in § 746.1.

XVI. Part 748—Applications and Documentation

A. Classification Requests To Confirm That Items Are Not “Specially Designed”

In response to public comments received regarding the scope of the proposed definition of “specially designed” in the June 19 (specially designed) rule, this final rule adds a new paragraph (e) to § 748.3 (Classification requests, advisory opinions, and encryption registrations) to establish a process whereby the public may submit classification requests to confirm that a “part,” “component,” “accessory,” “attachment,” or “software” is not “specially designed.” This new paragraph describes this process and identifies the criteria that must be met and the review criteria that will be used by the Departments of Commerce, State and Defense. A consensus determination of these three agencies is required to confirm that a “part,” “component,” “accessory,” “attachment,” or “software,” is not “specially designed” based on this new paragraph. The policy objective of this new provision is to replicate in the EAR the practice that the State and Defense Departments have adopted with respect to their consideration of commodity jurisdiction requests. Thus, the new paragraph (e) maintains the status quo with respect to the government's consideration of the control status of items that may be within the scope of a “600 series” ECCN or other specially designed catch-all provision that might have once seemed to have been within the scope of one of the ITAR's catch-all provisions. In other words, if the State Department would have issued a commodity jurisdiction determination that an item was not within the scope of one of the USML's catch-all provisions and was not otherwise subject to the ITAR, then the Commerce Department, after interagency consensus, would issue a similar classification determination that the same item was not within the scope of a “600 series” ECCN.

B. Unique Submission Requirements

1. License Exception STA Eligibility Requests for “600 Series” Items

The July 15 (framework) rule proposed a new paragraph (g) to § 740.20 in License Exception STA that identified the requirements and process that would be used by license applicants to request License Exception STA eligibility for “600 series” “end items.” The public comments regarding License Exception STA were generally favorable, but some commenters made suggestions for how the process could be improved or simplified for these requests.

Three commenters recommended that BIS allow applicants to submit License Exception STA eligibility requests either on their own or with an application for the export of the requested item. In the July 15 (framework) rule, BIS proposed that License Exception STA eligibility requests could only be submitted at the time of a license application to minimize the potential of a large number of submissions at one time. However, as the review of the USML Categories has been completed and the revised USML Categories and corresponding “600 series” ECCNs have been published in proposed form, BIS, along with the Departments of Defense and State, has determined that the universe of “600 series” “end items” that require a prior review from the U.S. Government should be limited to ECCNs 8A609.a (vessels), 0A606.a (vehicles), and 9A610.a (aircraft); only ECCN 9A610.a is included in this final rule

and BIS will create ECCNs 8A609.a and 0A606.a in future final rules. All other “600 series” “end items” will be automatically eligible for License Exception STA, although the exporter must still ensure that the item and other aspects of the transaction are not restricted under § 740.2 and the transaction meets the applicable terms and conditions of License Exception STA. There will nonetheless still be restrictions on the use of License Exception STA for various types of software and technology, as described below.

Given this much smaller universe of “600 series” “end items” that will require the submission of License Exception STA eligibility requests, BIS accepts the commenter's recommendation to allow the public to submit License Exception STA eligibility requests at any time and will no longer require such requests to be submitted at the time of a license application requesting authorization for an export, reexport, or transfer (in-country). However, to assist in the tracking and efficient interagency review of such requests, these License Exception STA eligibility requests must be submitted via the BIS Simplified Network Application Process—Redesign (SNAP-R) system unless BIS authorizes submission via the BIS-748-P Multipurpose Application form. Accordingly, this final rule revises § 748.1(d) to add License Exception STA eligibility requests to the list of applications that must be submitted via SNAP-R unless BIS authorizes paper submissions. In SNAP-R and on the BIS-748-P, a request for License Exception STA eligibility will be submitted as an export license application, but in the future these requests will be filed electronically as a separate work item type in SNAP-R. This will occur once the SNAP-R system is revised to accommodate STA eligibility requests as a separate work item type. These changes are limited to the process that will be used in SNAP-R for submitting License Exception STA eligibility requests. The types of information required to be submitted will be the same as that proposed in the July 15 (framework) rule.

Upon reflection, BIS has determined that the July 15 (framework) rule's proposal to list the “600 series” end items approved for STA in a newly proposed Supplement No. 4 to part 774 would be unduly complex. As noted above, the end items in only three ECCNs will require a specific determination to be eligible for License Exception STA. Given this small number, BIS believes that readers of the regulations will find it easier to identify the approved end items if they are listed in their respective ECCNs rather than in a separate supplement. Accordingly, such end items will be listed in the ECCNs under which they are classified. To avoid a break in the series of supplements to part 774, in this final rule, Supplement No. 4 to part 774 contains a description of the order of review of the CCL as discussed below.

This final rule also makes some conforming changes in Supplement No. 2 to part 748 (Unique Application and Submission Requirements) under the new paragraph (w) (License Exception STA eligibility requests for “600 series” end items) to conform to BIS's decision not to add a new Supplement No. 4 to part 774. This final rule revises the first three sentences of paragraph (w) to specify that to submit an STA eligibility request the applicant must mark an (X) in the “Export” box in Block 5 (Type of Application); mark an (X) in the “Other” box and insert the phrase “STA request” in Block 6 (Documents submitted with Application); and include the specific “600 Series” ECCN in Block 22 (ECCN). This final rule also removes the reference to Supplement No. 4 to part 774 and adds a reference to the “600 series” ECCN where such end items determined to be STA eligible through this new process would be identified on the CCL. Also to add greater specificity, this final rule uses the term “end item” for purposes of paragraph (w).

This rule also adds two sentences to paragraph (w) to clarify that if an applicant cannot provide some of the information described under paragraph (w), the U.S. Government will still evaluate the request. This new text also clarifies that the U.S. Government will use resources and information that may only be available to the U.S. Government in evaluating License Exception STA eligibility requests, as a way to encourage applicants that even if they feel that they may not have information in certain areas that the U.S. Government will also use its resources and expertise in evaluating these requests. However, this new text also clarifies that when submitting such requests applicants should provide as much information as they can based on the criteria noted in paragraph (w) to assist the U.S. Government in evaluating these License Exception STA eligibility requests. Lastly, for the changes to paragraph (w), this final rule is removing the term “otherwise” before the phrase “or is available in countries that are not regime partners or close allies.” The term otherwise was not needed to convey the intended meaning of the sentence, so BIS removed it.

One commenter recommended that the timeline for the review of License Exception STA eligibility requests should be similar to those set forth by § 740.17(b)(2) for ENC classifications, where a determination would be made thirty days after the submission of the request. BIS does not accept this recommendation because these “STA requests” are not the same as requests for ENC classification, which consists more of a technical review. The STA eligibility requests involve not only a technical review of the end item but also a broader policy review to determine whether such end items should be eligible for License Exception STA. These “STA requests” are not part of a license application requesting an authorization for an export, reexport or in-country transfer. However, BIS has determined using the timelines set forth in Executive Order 12981 and § 750.4, as was proposed in the July 15 (framework) rule, is the best approach to establish clear guidelines for the timeline for the interagency reviews conducted by the Departments of Commerce, State and Defense.

One commenter requested “ECCN entry” be changed to “end item” in § 740.20(g)(5)(i) because BIS is not making the entire ECCN eligible, but only a specific end item. BIS does not accept this change because in certain cases BIS may approve an ECCN entry for License Exception STA eligibility, but in other cases the end item approved for STA eligibility may be more narrowly defined. Therefore, BIS is not changing the “ECCN entry” as requested, but is adding “or end item” to add greater specificity. This will clarify that when BIS publishes final rules adding License Exception STA eligibility to the EAR for “600 series” end items, it may be done at the higher (i.e., more general description) ECCN level or specific end item level (e.g., a specific model number).

Two other commenters requested BIS allow the STA eligibility requests to cover the entire ECCN subject to the request versus the specific end item in the request. BIS is not making the requested changes. As noted, the STA eligibility requests are not limited to a specific model and can be requested at the ECCN level or ECCN “items” paragraph level. However, BIS anticipates that initially the end items that are determined to be eligible for License Exception STA under the § 740.20(g) process will likely be at the specific end item level. Over time as the U.S. Government has an opportunity to review more of these requests, it may be

possible that broader descriptions can be developed and authorized for License Exception STA. However, to protect U.S. national security interests a review of the end items classified in ECCN 9A610.a must be made by the U.S. Government prior to any of those end items being determined to be eligible for License Exception STA.

Two commenters requested BIS provide applicants with an opportunity to participate in unclassified interagency discussions on their License Exception STA eligibility requests similar to the opportunity to participate in open sessions of interagency discussions associated with the interagency licensing review process. BIS does not need to make any regulatory changes to address this comment. Requesters who submit “STA requests” under § 740.20(g) are participating in the review process in an important way. Therefore, such requesters are encouraged to submit any information that they believe would be relevant to the U.S. Government review of the License Exception STA eligibility requests. In reviewing and evaluating such requests, if BIS or one of the other departments has a question regarding what was submitted, a representative from BIS will likely contact the applicant through SNAP-R to request an answer to the specific question or request additional information. This process is similar to the typical level of applicant participation that occurs in the license application review process, so BIS is not making any additional changes to the EAR or internal license review processes of the U.S. Government to create a greater role for the applicant in the interagency review process for License Exception STA eligibility requests.

One commenter requested BIS allow an extension of the review period for STA eligibility if agreed to by the applicant. This commenter suggested this could be implemented in § 750.4(f) (Procedures for processing license applications) by allowing for an additional review period of 10 calendar days, with an extension if agreed to by the applicant. BIS is not accepting this change because the License Exception STA eligibility requests and the license applications requesting an authorization for an export, reexport or in-country transfer are no longer going to be linked in this final rule, so the concern with the License Exception STA timeline interfering with the timeline for the review of the license application is no longer an issue.

One commenter thought it would be useful to provide further clarity on the proposed “STA eligibility” review process, and its precise relationship to the ACEP licensing process. If it is the intent to review STA eligibility requests in tandem with the ACEP licensing review process, this commenter is concerned whether such a review would provide adequate administrative due process. As noted above, the License Exception STA eligibility requests will not be reviewed in tandem with the license application review process, so this concern is already addressed. In addition, as described in § 740.20(g), in the event that STA eligibility is denied, exporters are able to seek reconsideration of the denial and are encouraged to provide any additional information supporting their request. Further, a denial of STA eligibility does not preclude an exporter from applying for a license for the same export.

One commenter requested that BIS mandate applicants who receive a notification from BIS authorizing the use of License Exception STA for specific end items to share such determinations with other parties. BIS does not accept this change. Applicants who receive an approval may share that notification, but BIS does not believe that mandating that party to share the notification received from BIS is warranted. BIS will communicate such determinations based on an amendment to the EAR as described in § 740.20(g)(5)(i). BIS believes this combination of a voluntary sharing approach followed by a regulatory change to inform the public is the best approach.

2. License Application for a “600 Series” Item That Is Equivalent to a Transaction Previously Approved Under a State License or Other Approval

This final rule is making changes to Supplements Nos. 1 (Item Appendix, and BIS-748P-B: End-User Appendix; Multipurpose Application Instructions) and 2 (Unique Application and Submission Requirements) to part 748 to allow for the consideration of previous State licenses or other approvals that are equivalent to a new license application for a “600 series” item. These changes are being made to address a comment regarding how previous ITAR licenses or other approvals could be considered as part of the EAR license review process. Other changes included in this final rule address the use of ITAR licenses and other approvals that remain valid (see Section III.C above).

One comment requested BIS create an ID code in SNAP-R to automatically convert ITAR agreements to BIS licenses. Another commenter suggested implementing an amendment capability as it relates to licenses. BIS does not accept the suggested change to create an ID code in SNAP-R that would allow applicants for “600 series” items to automatically transfer previous ITAR agreements (e.g., MLA or TAA) to a BIS license because of technical limitations in the SNAP-R and the importance of reviewing these new proposed exports, reexports, and transfers (in-country) that will be made under the EAR licenses being applied for at the time of the new applications.

However, BIS does agree that an export, reexport or in-country transfer previously authorized under an ITAR license or other approval (e.g., MLA or TAA) may be relevant to the review of a subsequent EAR license application if the transaction in question is equivalent to the transaction previously authorized. Therefore, BIS is making a change that was not proposed previously in the July 15 (framework) rule to revise the license application process to provide guidance to applicants on how to have a previous State license or other authority be considered as part of the license review process for a “600 series” item.

To implement this change, BIS is revising the instruction in Supplement No. 1 to part 748 (BIS-748P, BIS-748P-A: Item Appendix, and BIS-748P-B: End-User Appendix; Multipurpose Application Instructions) to create a process in SNAP-R for applicants to input a State license or other approval number in Block 24. The ITAR license or other approval number will alert BIS and the other U.S. Government agencies reviewing a particular “600 series” application that the new application is equivalent to a previous State license or other approval.

Only those license applications where the particulars (e.g., the description of the item, the purchaser, ultimate consignee and end-user(s)) are the same in both the EAR license application and the previously issued ITAR authorization, will receive full consideration under this paragraph. In some instances, review under this paragraph may result in a quicker processing time. The State license number or other identifier, such as a MLA or TAA identifier, must be included in Block 24 of the BIS license application, as noted above. Lastly, this final rule is adding a Note to paragraph (x) to clarify license applications submitted under paragraph (x) will still be reviewed on their own merits and in accordance with license review procedures and timelines identified in part 750.

BIS agrees with the second commenter who suggested an amendment capability for licenses

would improve the efficiency of the EAR licensing process as the current EAR does not allow for amendments to licenses. Amendments to licenses are addressed with the submission of a replacement license when a change needs to be made to a previously authorized license for a change not described in § 750.7(c) in accordance with the instructions contained in Supplement No. 1 to part 748 of the EAR, Block 11. At this time, BIS is not able to implement a process in this final rule to allow for amending of existing EAR licenses. However, BIS intends to reconsider this idea once the single licensing form is developed and the export control IT system has greater flexibility to address such changes, including creating an efficient process for allowing license holders to submit such requests for changes to a license and allowing for identification and efficient tracking of such changes. These types of improvements in the IT system will better ensure relevant U.S. Government enforcement officials can identify such approved changes to verify compliance with approved amended licenses.

XVII. Part 750—Application Processing, Issuance, and Denial

In the June 21 (transition) rule, BIS proposed revising § 750.4 to address Congressional notification for the export of “600 Series Major Defense Equipment” and revising § 750.7 to extend the validity period of BIS licenses and permit shipment to and among multiple end users. These proposals, public comments thereto, and final decisions are discussed in more detail below.

A. Calculating Processing Times

As proposed in the June 21 (transition) rule, this rule amends § 750.4(b) to add the congressional notification process associated with requests to export “600 Series Major Defense Equipment” to the list of actions not included in license application processing time calculations.

B. Shipment to Approved End Users

BIS licenses generally designate one ultimate consignee and may have many designated end users. DDTC authorizations may designate multiple foreign end users. The June 21 (transition) rule proposed to revise § 750.7(c) explicitly to allow direct shipments to approved end users on an export or reexport license if those end users are listed by name and location on such license. BIS received no comments that directly referred to this proposed revision, but one commenter expressed concern that EAR licenses would afford less flexibility than ITAR agreements, which may allow shipments

among

approved end users outside the United States in addition to direct shipment to approved end users from the United States. BIS acknowledges that this is a valid concern; therefore, this rule amends proposed § 750.7(c)(1)(ix) by allowing direct export, reexport and transfer (in-country) to

and among

approved end users provided they are listed by name and location on such license and that the license does not contain any conditions that cannot be complied with by the end user, and by removing a proposed restriction on exports and reexports to unlisted end users. This rule also makes conforming changes to § 758.5.

C. Extended Validity

Current ITAR licenses are generally valid for four years. Agreements under the ITAR may be valid as long as ten years. Prior to the effective date of this rule, BIS licenses were generally valid for two years. In order to harmonize the EAR with the ITAR, the June 21 (transition) rule proposed to revise § 750.7(g) to extend the validity period of BIS licenses issued hereafter from two years to four years, with some exceptions, unless otherwise specified on the license.

Three commenters expressed support for this extension, and none expressed opposition to it. However, one commenter suggested a default ten-year validity period for replacing an ITAR agreement. BIS does not accept the suggested revision, but BIS notes that exporters may request an extended validity period pursuant to § 750.7(g)(1) beyond four years. Such requests will be reviewed on a case-by-case basis. Grounds for requesting extension would include having had agreements on similar matters previously approved by the Department of State for a longer period. BIS believes that setting up a new process for a default validity period would restrict the flexibility of the reviewing agencies without significantly lessening the burden on the applicant, as the same information would have to be supplied under a default process as will be required for a license application and request for extended validity.

D. Specificity on Application

Three commenters asserted that BIS's proposed licensing process is more burdensome than DDTC licensing because the ITAR allows identifying general categories rather than parsing out each part covered by an application. BIS believes that most general categories of items transitioning from the USML will fall into general categories in the EAR as well, such as the .x paragraphs of the “600 series” ECCNs. Therefore, the burden should be comparable. For example, if a collection of parts specially designed for a military aircraft were formerly controlled under USML Category VIII(h) and were not identified in the revised USML Category VIII(h), then they would be controlled under ECCN 9A610.x. BIS does not and would not generally expect more detail on a BIS license application in this regard than what DDTC would generally expect on one of its license applications.

XVIII. Part 756—Appeals

This final rule adopts the position described in the July 15 (framework) rule that STA eligibility decisions cannot be appealed through part 756. BIS is maintaining this position for the reasons set forth in that rule, i.e., that the decision to grant STA eligibility is a foreign policy determination and because consensus is required among the considering agencies to do so. In addition, exporters should keep in mind that a denial of STA eligibility does not preclude the exporter from submitting a license application for the same transaction. This rule amends the regulatory text proposed in the July 15 (framework) rule to remove ambiguity about its scope.

XIX. Part 758—Export Clearance Requirements

A. AES Filing Regardless of Value, Except for .y Items

The June 21 (transition) rule proposed to revise § 758.1 to require that information on all exports of “600 series” items be filed in AES regardless of value or destination. Six commenters opposed this requirement. They cited difficulties in separating “600 series” items from other CCL items in their internal systems, and stated that applying different clearance requirements for items eligible for the same license exceptions was confusing. BIS did not accept these suggestions. Due to the nature of “600 series” items as items specially designed for military applications or end items, the U.S. Government needs to retain a degree of visibility into the movement of these items. This final rule adopts the amendment to § 758.1 from the proposed rule, except with respect to .y items, which is discussed further below.

Three commenters requested that .y items not be subject to as stringent requirements. BIS agrees, given the lesser military significance of .y items. To lessen the AES requirements on .y

items, BIS has removed .y items from the mandate to file in AES for all exports. Thus, the AES filing requirement for .y items would be the same for all other AT-only controlled items on the CCL.

The June 21 (transition) rule proposed to revise § 758.1 to require AES filing for all exports under License Exception Strategic Trade Authorization (STA), regardless of value, to enable the U.S. Government to obtain information about low-value shipments of these items. That rule also proposed to revise § 758.2 to preclude the option of post-departure filing for exports of “600 series” items because this option is not permitted for ITAR-controlled exports now, and the rule proposed removing the option of post-departure filing for License Exception STA and Authorization VEU because the nature of these authorizations requires pre-departure filing of this information to ensure compliance with their terms and conditions. These proposals are adopted in this final rule.

B. Furnishing of ECCNs to Consignees

Section 758.6 requires that exports of items on the CCL be accompanied by a Destination Control Statement (DCS) identifying the items as subject to the EAR. Given the nature of the “600 series” items and requirements related to them, additional information identifying “600 series” items is necessary. The June 21 (transition) rule proposed to revise § 758.6 to require a more specific DCS for “600 series” items, which would require exporters to identify in the text of the DCS the ECCNs of all “600 series” items being exported to ensure that consignees are aware that they are participating in a transaction that includes such items.

BIS received comments on this proposal requesting that BIS not change the DCS, as it is pre-printed on certain export control documents, so tailoring it to different shipments is burdensome. Taking these views into account, but in continued recognition of the need to identify “600 series” items to consignees and national authorities, BIS has revised § 758.6 to require that the ECCN for each “600 series” item being shipped be provided on the same documents on which the DCS is required, but not in the text of the DCS itself. This rule requires that the ECCN for each “600 series” item must be entered on the invoice and on the bill of lading, air waybill, or another export control document that accompanies the shipment from its point of origin in the United States to the ultimate consignee or end user abroad. This final rule does not change the text of the DCS requirement; it merely adds a new “[g]eneral requirement” heading to the previously existing requirement.

BIS received one comment that requested that BIS require the ECCN for all items, not just “600 series” items, in the DCS to assist foreign parties in classification. BIS recognizes the value to foreign parties of requiring exporters to furnish the ECCN for all items shipped. However, this rule's purpose is to revise the EAR to allow the transition of the “600 series” from the ITAR to the EAR. Therefore, BIS does not accept this recommendation as it is outside the scope of this final rule. BIS does, however, urge exporters to advise foreign parties to the transaction of the ECCNs of all exported items.

BIS received eight comments requesting that it not require the inclusion of the ECCN for “600 series” items in the DCS. These commenters argued that there would be substantial burden in revising their information technology (IT) and compliance systems to insert the ECCN into the DCS and further burden in maintaining a separate DCS for “600 series” items. Consistent with the discussion above, BIS agrees with commenters that the burden of including ECCNs in the DCS paragraph outweighs the value of notifying national authorities, consignees, and other parties of ECCNs via that statement. Therefore, BIS has determined that the ECCN must be included on the export control documents in a manner that will allow national authorities, consignees, and others who review those documents to quickly and easily determine the ECCN of each “600 series” item in a shipment, but will not require changes to the DCS paragraph. This will alert those interested parties to the export control classification of the “600 series” items and facilitate their determination of what controls are applicable to the particular “600 series” items. Allowing exporters flexibility in the placement of the ECCNs on the documents will allow each exporter to minimize the regulatory burden by adopting practices that fit most easily with its systems while helping to protect U.S. national security interests.

Two commenters noted that the ECCN is already included in most export control documents, so inclusion in the DCS was unnecessary. BIS accepts this recommendation to the extent that it suggested that the ECCN requirement be removed from the DCS paragraph and applied to “export control documents” more generally and notes that exporters will have flexibility as to how to include the ECCN on “export control documents.” This flexibility should minimize the impact of this requirement for those exporters that already include the ECCN on their export control

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