Export Administration Regulation; Simplification of Export Administration Regulations

SUMMARY: This interim rule restructures and reorganizes the Export

Administration Regulations (EAR), the regulatory regime through which

the Bureau of Export Administration imposes export and reexport

controls on those items and activities within its jurisdiction. This

interim rule clarifies the language of the EAR, simplifies their

application, and generally makes the export control regulatory regime

more user-friendly.

DATES: Effective Dates: This interim rule is effective April 24, 1996,

except part 752, which shall be effective March 25, 1996. Removal of

newly designated Sec. 771A.25(d) shall be effective March 25, 1996.

Removal of newly designated parts 768A through 779A, 785A through 791A,

and 799A will be effective November 1, 1996.

COMMENTS: Comments on this rule must be received on or before May 24,

1996.

USE OF FORMS: On June 15, 1996 BXA will begin requiring applicants to

submit certain new forms to implement this interim rule. The new Form

BXA-748P, Multipurpose Application will be effective June 15, 1996.

Before June 15, 1996 BXA will not accept Form BXA-748P. After June 15,

1996 BXA will not accept existing Forms BXA-622P or BXA-699P. See

SUPPLEMENTARY INFORMATION for guidance on which forms to use before

June 15, 1996, and which forms to use after that date.

ADDRESSES: Written comments should be sent to Cecil Hunt, Deputy Chief

Counsel for Export Administration, United States Department of

Commerce, Bureau of Export Administration, Fourteenth Street and

Constitution Avenue, N.W., Room 3839, Washington, D.C. 20230.

FOR FURTHER INFORMATION CONTACT: Larry E. Christensen, Director,

Regulatory Policy Division, Bureau of Export Administration, (202) 482-

2440.

SUPPLEMENTARY INFORMATION:

Background

On September 30, 1993, the Secretary of Commerce submitted to the

Congress a report of the Trade Promotion Coordinating Committee (TPCC),

entitled Toward a National Export Strategy. The report included the

following among its goals:

Undertake a comprehensive review of the Export Administration

Regulations to simplify, clarify, and make the regulations more

user-friendly.

In November 1993, BXA organized a Task Group, drawn from several of

its offices, to carry out the TPCC recommendation. The Task Group

launched its review project by publishing an advance notice of proposed

rulemaking (ANPRM) in the Federal Register on February 10, 1994 (59 FR

6528). This notice was designed to solicit comments from industry and

the interested public. The ANPRM asked for suggestions concerning

improvements BXA could make to the EAR and described several specific

issues on which BXA was particularly interested in receiving public

input.

Over seven months during the development of a proposed rule with

request for comments that was published in the Federal Register on May

11, 1995, titled ``Export Administration Regulations; Simplification of

Export Administration Regulations'' (60 FR 25268) (hereafter referred

to as proposed rule), BXA shared four discussion packages with and

sought comments from the Regulations & Procedures Technical Advisory

Committee (RPTAC), an advisory committee consisting of industry

representatives intimately familiar with the private sector's role in

using the EAR. The packages were also made available to other

interested members of the public, with the last two being made

available electronically on FedWorld. The four discussion packages were

dated August 2, 1994, September 29, 1994, January 12, 1995, and

February 28, 1995.

The May 11 proposed rule reflected several new features based upon

the comments received from the public pursuant to the ANPRM, and the

RPTAC, and BXA's own assessment of how the EAR could be improved. Such

features include:

No license or other authorization would be required for

any transaction under BXA jurisdiction unless the regulations

affirmatively state the requirement. (Existing regulations state that

all exports are prohibited unless an applicable general license has

been established or a validated license or other authorization has been

granted by BXA.)

The terms ``general'' license and ``validated'' license

would be dropped. The term ``license'' would be used to refer only to

authorization issued by BXA upon application. The proposed regulations

would convert the many existing general licenses into a smaller number

of ``exceptions'' to require the obligation to seek a license when the

Commerce Control list indicates that the particular item going to the

stated country generally requires a license.

The parts of the EAR would be arranged to give the reader

a logical path to follow.

The affirmative statements of the need to obtain a

license, scattered throughout various parts of the existing EAR, would

be consolidated into ten general prohibitions and described in a

separate part. One part would contain the license review policy for all

list-based license requirements; another part would provide for the

requirements and review policies of licenses based on the end-use or

end-user involved in a proposed export or reexport; and the list-based

license requirements would be contained in the Commerce Control List

(CCL) indicating the reason for control and the Country Chart

indicating the country scope of each reason for control.

The Country Groups used in the existing regulations would

be revised in favor of Groups which better reflect post-Cold War

circumstances.

The CCL would be redesigned to state the reasons for

control more specifically within each Export Control Classification

Number (ECCN).

The redesigned CCL would be used in tandem with a new

Country Chart that would indicate whether a license is required for any

ECCN to any country in the world and the reason or reasons for control.

Over 80 commenters responded to the proposed rule. Many commenters

recommended that BXA take sufficient time to draft an interim rule to

ensure ample opportunity to review and discuss with industry their

comments on the May 11 proposed rule, and incorporate them into an

interim rule. BXA has taken the time necessary to thoroughly review,

analyze, and discuss industry comments on the proposed rule. In

addition, BXA conducted 18 town-hall style fora (hereafter referred to

as town-hall fora) that reached over 1,000 industry representatives,

and met with the RPTAC and other interested

[[Page 12715]]

public to discuss their comments and concerns in more detail.

Following is a detailed part-by-part description of this interim

rule, and a review of comments received pursuant to the May 11 proposed

rule:

Implementation

This interim rule will become effective April 24, 1996; however,

final compliance with this interim rule is not compelled until November

1, 1996. During the period between the effective date and the final

compliance date of this interim rule, you must comply with the

provisions of either the existing Export Administration Regulations

(EAR) (redesignated 15 CFR 768A through 799A by this interim rule)

including any amendments thereto that are published in the Federal

Register or the provisions of this interim rule including any

amendments thereto that are published in the Federal Register.

Notwithstanding the general effective date of this interim rule,

the repeal of the importer statement requirement for General License

GCT is effective immediately, and the Special Comprehensive License

provisions in part 752 are effective immediately. For up to March 25,

1997, holders of issued and outstanding special licenses may continue

to use those special licenses according to their terms and conditions

and according to the special license provisions of the existing EAR.

The majority of the commenters requested a 90 day delayed effective

date plus an additional six to twelve months during which one must

comply with either the existing Export Administration Regulations or

this interim rule. The cost of changes to internal information systems

and the time to train personnel on the new system were the main reasons

cited for requesting a delayed effective date and a transition period.

Several large companies said that their computer systems will require

substantial reprogramming for the new License Exception group symbols,

the new Destination Control Statement (DCS), and the renumbering of

entries on the Commerce Control List in part 774 to conform to the

European Union numbering system.

Some firms indicated that implementation costs would be reduced if

they were allowed a span of time in which to implement the changes made

by this interim rule. Costs would be higher if a single implementation

date were required because their information systems departments would

not have flexibility regarding scheduling and might be required to hire

additional temporary employees or pay overtime. Many large firms cannot

implement the computer changes on one given day. After receiving the

above comments in writing and during the town-hall fora, BXA made

additional contacts with several firms. All acknowledge that they can

efficiently implement the changes required by this interim rule within

six months. Since those discussions, BXA has determined to modify the

Destination Control Statement (DCS) as noted below to closely following

the existing DCS widely used by many firms. BXA is hopeful that this

decision will further reduce the costs of implementation of this

interim rule.

BXA is sensitive to the costs of implementation, and that is the

reason this interim rule provides for a rather long implementation

period. Through this mechanism, BXA hopes to reduce the marginal costs

of implementation by reducing necessary overtime, contracting, and

training beyond that regularly scheduled. BXA will also assist the

business community in training for this interim rule. BXA has already

announced a substantial program to conduct training sessions around the

United States to make it convenient for firms to train their personnel.

The new Multipurpose Application Form, BXA-748P, will replace the

Application for Export License (BXA-622P) and the Request for Reexport

Authorization (BXA-699P). It will also serve as an application for the

Special Comprehensive License. Additionally, the BXA-748P will

accommodate Commerce Classification Requests, thus allowing item

classifications to be handled electronically.

BXA will not accept the new forms listed in this paragraph for

applications and requests received before June 15. BXA will not accept

existing forms listed in this paragraph for applications and requests

received on or after June 15. The existing Form BXA-622P Application

for Export License, existing Form BXA-685P, Request for Amendment

Action, and existing Form BXA-699P, Request for Reexport Authorization

will all be replaced by new Form BXA 748P, Multipurpose Application.

The existing Form BXA-622P-A, Commodity Description Supplement will be

replaced by new Form BXA-748P-A, Item Appendix. Existing Form 622P-B,

End-user Supplement will be replaced by new Form 748P-B, End-user

Appendix. Form BXA-6052P, Statement by Foreign Consignee in Support of

Special License Application will be replaced by Form BXA-752P,

Statement by Consignee in Support of Special Comprehensive License.

Existing Form BXA-629P, Statement by Ultimate Consignee and

Purchaser will be replaced by new Form BXA-711, Statement by Ultimate

Consignee and Purchaser. However, Form BXA-629P may be used until

November 1, 1996.

Use of Existing Form BXA 686-P, Statement by Foreign Importer of

Aircraft or Vessel Repair Parts and Form BXA 6026-P, Service Supply

(SL) Statement by U.S. Exporter will be discontinued on March 25, 1996,

because the Aircraft and Vessel Repair Station Procedure at Sec. 773A.8

and the Service Supply (SL) Procedure at Sec. 773A.7 of the existing

EAR will be replaced by the Special Comprehensive License in part 752

of this interim rule.

BXA will stop issuing BXA Form-648P, Notification of Delivery

Verification Requirement on June 15, 1996. For licenses issued on or

after that date, the delivery verification requirement will be printed

on the license itself.

The Knowledge Standard

One step is being taken in this interim rule that changes language

in many parts of the EAR, but without changing the intended meaning.

Several commenters noted that the proposed rule continued use in the

EAR of differing expressions as to knowledge, such as ``know'' or

``know or have reason to know''. Three commenters called for the

removal of the term ``reason to know'' and one commenter requested a

uniform adoption of ``know or have reason to know''. BXA has decided to

adopt the term ``knowledge'' (together with variants, such as ``know''

or ``knowing'') as the standard usage and defines this term in the EAR.

This definition is added to part 772--Definitions. Variants, such as

``reason to believe'' are being retained in the EAR where they are used

to follow statutory wording. This definition confirms the intention of

BXA that ``know'' and terms such as ``know or have reason to know'' be

given the same meaning and that this meaning include more than positive

knowledge. This definition is not being applied to part 760--

Restrictive Practices and Boycotts, leaving the interpretation of such

terms in this distinct part of the EAR to be independent of export

control usage.

Part-by-Part Analysis

Part 730--General Information

Part 730 provides a general introduction to the EAR. It is intended

for the first-time reader and is not regulatory.

Seven of the public comments referred to part 730. There was broad

[[Page 12716]]

support for the listing of other control agencies, together with

telephone and fax numbers for obtaining information. Four commenters

noted that similar information was provided in a supplement to the

scope part of the proposed rule, with duplication and some

inconsistency. BXA has eliminated that supplement and includes the

agency information in this part 730. Three commenters requested that

the listing be broadened, and noted the absence of reference to certain

controls of other agencies listed in the existing EAR. This listing has

been updated and extended. BXA is not, however, acting on requests to

add more detailed information on controls administered by other

agencies, nor on areas of possible overlap, as this would unduly

complicate this brief introduction to the EAR.

Three commenters called for combining part 730 with the Steps part

in some way. BXA concluded that a merger of the two parts is not

advisable, as the amount of detail needed in steps would obscure the

more general introductory information offered in part 730. Many

comments on the two parts called for flow charts and wiring diagrams.

BXA has recently received authorization from the Office of the Federal

Register to include such additional aids, and BXA will develop those

materials for inclusion in the EAR at a later date.

Two commenters questioned the basic, non-regulatory, approach taken

in part 730, citing such elements as the Sec. 730.6 reference to the

benefits from multilateral controls and the Sec. 730.8 explanation of

why the EAR are lengthy and detailed. BXA continues to believe that

this kind of introduction to the EAR will be helpful to persons new to

the field.

Part 732--Steps

By cross-references to the relevant provisions, part 732 describes

the suggested steps for you to determine applicability of (1) the scope

of the EAR described in part 734, (2) each of the general prohibitions

in part 736, (3) the License Exceptions in part 740, and (4) other

requirements such as clearing the U.S. Customs Service, keeping

records, and completing license applications. This part 732 describes

the organization of the EAR, informs you of the relationship among the

parts and provisions, and describes the appropriate order in which to

consider the various provisions of the EAR by cross-referencing those

provisions. Supplement No. 1 to this part 732, contains the ``Know Your

Customer'' Guidance, which has been moved from part 744--Control

Policy--End-user and End-use Based Control. In this interim rule, BXA

has also added examples of Red Flags referred to in the ``Know Your

Customer'' Guidance.

Over thirty commenters referred to the part on steps in the

proposed rule, and all but one supported the inclusion of steps to

guide the reader. Of these commenters, more than half stated that the

steps part should be relocated so that it could serve as a type of

road-map in the use of the entire EAR. The proposed rule provided for

steps at part 736 after the parts on scope and general prohibitions.

BXA agrees that the steps part is more useful if relocated closer to

the beginning of the EAR. Therefore, in this interim rule, the steps

part is renumbered as part 732; and it precedes the part on scope that

is renumbered as part 734 and the part on prohibitions that is

renumbered as part 736.

About one quarter of the commenters on this part urged some type of

restructuring or reordering of the steps within the part; however, the

comments were varied. Based upon these written comments and a

substantial number of oral comments made during the town-hall fora, BXA

believes that it is useful to organize the steps in categories

regarding the scope of the EAR, the ten general prohibitions, the

License Exceptions, and additional requirements such as keeping

records, documentation for clearing the U.S. Customs Service, and

completing license applications. In addition, one commenter urged that

the steps regarding prohibitions at part 736 make clear the distinction

between the first three prohibitions that are shaped by product

parameters on the Commerce Control List versus the last seven

prohibitions that address certain types of activities without regard to

the product parameters on the Commerce Control List. Another common

suggestion was to give greater prominence and clarity to the

determination of the proper ECCN for items, a process referred to as

classification. This interim rule adopts those recommendations.

One commenter suggested that the steps part in the proposed rule

included too many cross-references to the other parts and required the

reader to flip too many pages. Several other commenters recommended

additional cross-references in the EAR. BXA believes that the part on

steps should continue to contain cross-references for fundamental

reasons. The part on steps is not a substitute for the language of

other parts of the EAR and the part on steps would be much too long if

it contained a complete explanation or repetition of every other

provision of the EAR. Rather, it is a type of road-map, guide, or

written decision tree that helps the reader understand the order in

which to read the various provisions and to determine which provisions

are relevant to a given transaction or activity. By this means, the

part on steps serves the purpose of describing the relationship among

the provisions of the EAR, something that was not done in the EAR

before the proposed rule. When these steps are followed in the proper

order, the reader will consider those provisions of the EAR necessary

to determine his or her rights and duties.

It would be impossible to develop a useful series of steps without

use of cross-references to the various provisions of the EAR; however,

BXA is sensitive to a reader's understandable desire for steps that may

be read with an easy flow and with no more cross-referencing than

necessary to specify the language that creates regulatory rights and

obligations. To this end, where possible, we have inserted brief

explanatory references that give the reader an indication of the

substance of the referenced provision. One comment made often by the

public is that the steps part must contain guidance and not create

additional regulatory duties. BXA agrees that part 732 is not

controlling for purposes of describing the requirements of the EAR; the

parts of the EAR referenced in the steps are controlling. For this

reason, part 732 must reference the regulatory provisions in the other

parts of the EAR.

An organization of trade associations, supported by several other

commenters, suggested several additional drafting changes to improve

the part on steps. Nearly all of those recommendations are included in

this interim rule.

Part 734--Scope

This part establishes the rules for determining whether

commodities, software, technology, software and activities of U.S. and

foreign persons are subject to the EAR. ``Subject to the EAR'' is a

term used to identify the items and activities that BXA regulates under

the EAR. Those items and activities not so identified are not regulated

under the EAR.

The term ``subject to the EAR'' does not imply that a license is

required for any particular item or activity. Licensing requirements

are spelled out in other parts of the EAR. The term does define the

bounds of the authority that BXA has exercised under the EAR. The term

is particularly useful to define the limits of the recordkeeping

requirements, certain denial orders, and the end use and end user

obligations related to proliferation controls.

[[Page 12717]]

This part also provides certain key terms and principles used

throughout this interim rule. These include definitions for the terms

``export'' and ``reexport.'' A comprehensive listing of definitions is

included in part 772.

In addition to a change in designation from part 732 in the

proposed rule to part 734 in this interim rule, this interim rule makes

substantial changes in part 734 as a result of comments received on the

proposed rule. BXA received 31 comments on this part. BXA has adopted

many of the recommendations contained in the public comments and they

are reflected in the interim rule.

Section 734.1 has been substantially revised. The proposed rule

included a list of all the contents to part 734 with specificity. One

commenter urged that this listing amounted to a table of contents and

recommended deletion. This interim rule follows this recommendation

and, and includes an introduction that explains the contents of this

part and how it fits into the overall structure of the EAR.

Certain commenters recommended that definitions be included in part

772, Definitions, rather than in this part. This interim rule removes

the definitions for the terms ``item'' and ``you'', and moves them to

part 772. Because the terms ``export'' and ``reexport'' are so key to

the EAR, these terms have been retained in this section, with certain

modifications. Section 732.2(d) of the proposed rule defined exports

and reexports of technology and software, but did not include a

definition of exports and reexports of commodities. This interim rule

amends the definition of ``export'' and ``reexport'' to apply to

commodities, technology, and software.

A number of commenters also noted that, as written in the proposed

rule, the reexport in a foreign country of technology by release by one

foreign national to another foreign national could be read to include

release of foreign-origin technology, with no United States nexus. This

interim rule limits this provision to ``items subject to the EAR'' and

thereby limits the provision to U.S.-origin technology.

This interim rule adds three additional provisions to part 734.

Section 734.2(d)(5) reflects the principle that exports that will

transit a country on their way to a third country or are intended to be

reexported to a third country are deemed under the EAR to be exports to

the third country. This principle was not included in the proposed

rule, except as it relates to Canada (Sec. 732.12 of the proposed

rule). Section 734.2(d)(6) reflects the principle that appeared in

Sec. 732.15 of the proposed rule that an export to a territory,

possession, or department of a country is deemed under the EAR to be an

export to that country. Finally Sec. 734.2(d)(7) clarifies that

shipments among the states of the United States and its territories,

dependencies, and possessions do not constitute exports or reexports.

A significant number of commenters indicated that the provision

regarding Canada in Sec. 732.15 of the proposed rule was misleading and

tended to confuse the distinction between the scope of the EAR and

licensing requirements with respect to Canada. BXA agrees, and this

interim rule omits this provision. The minimal number of instances

where licenses are required for Canada is reflected on the CCL and does

not need to be recited in this part. As noted above, the in-transit and

intended reexport principles contained in the Canada provision are

retained in this interim rule and are made applicable to all

destinations. Finally, any License Exceptions that apply to Canada are

reflected in part 740, License Exceptions.

In the proposed rule, BXA invited comments on the implementation of

a de minimis rule for software and technology. In particular, BXA said

that we were considering a requirement for a one-time report on

calculations under the de minimis rule. Throughout the comment period,

BXA made clear at the town-hall fora that there are three criteria of

concern in carrying out the proposal without a reporting requirement.

First, for transfers between related parties, the export price of the

software or technology exported from the United States must reflect an

arms-length price or fair market value. Second, estimates of future

sales of foreign-made software must be reasonable. Third, selection of

the scope of foreign technology for measuring U.S.-content must be

reasonable.

BXA sought comments and suggestions on a one-time report. This was

to determine how to avoid the potential misuse of the above criteria

without requiring a one-time report. BXA also sought comments on

whether the calculations should be made only under United States-based

generally accepted accounting principles. From the outset, BXA

concluded that strict accounting standards would be useful to prevent

misuse of the rule through unreasonably low transfer prices for U.S.

software or technology transferred to related parties. BXA also

believed there is no need to create a new U.S. accounting standard for

implementation of this rule.

No commenter offered a solution to avoid misuses in the choice

amortization assumptions for software and the selection of an

appropriate universe to measure U.S.-content in foreign commingled

technology. All comments on the report opposed its requirement.

Commenters supported the rule with the hope that the de minimis

exclusion might be granted by BXA without requiring a report. However,

many of these same firms acknowledge that they and foreign parents,

subsidiaries and customers will invariably make de minimis calculations

on valuation assumptions most likely to result in a finding that U.S.

content is below the relevant de minimis level. The tenor of the

comments also suggests that most commenters did not fully appreciate

that the de minimis relief could not likely be granted without either a

one-time report or some other means to avoid the potential misuses of

the criteria.

Some commenters called the report a burden almost as heavy as the

license requirement. Some of those commenters stated expresses a belief

that the existing rule is simply not enforced and likely is not

enforceable. They also concluded that compliance with the existing

commingled rule is weak. However, some commenters acknowledged that

without a report requirement in this interim rule, they would

nonetheless submit advisory requests before relying on the de minimis

exclusions. Such advisory requests would require the same information

as the report required by this interim rule. Therefore for such

companies, the report requirement of this interim rule does not add

costs for use of the relief granted by this interim rule.

Almost all foreign commenters on the de minimis rule opposed a

requirement for U.S. accounting standards. They argued that they should

be permitted to use their home-country accounting standards and that

use of U.S. accounting standards would be too costly.

BXA has determined to require a one-time report and to permit

various accounting standards so long as the export price is not

depreciated or otherwise reduced by accounting conventions. With the

requirement of a one-time report, there is far less need for a single,

strict accounting standard.

The report will require a description of the nature and export

price of the item exported from the United States, the estimate of

future software sales in units and value along with the basis for those

estimates within the relevant market category, and a description of the

technology and its value for

[[Page 12718]]

purposes of determining the U.S.-content of technology. The report will

not require information regarding destinations and end-users for

reexport.

BXA has concluded after interagency consultations and review of all

the comments that the so-called amortization problem exists for

software and does not exist for commodities. Several commenters have

asked why.

Unlike parts incorporated into end products, the cost of U.S.

software code will be attributed or allocated to the future sales of

foreign-made software incorporating the U.S. code. In making this

calculation for foreign software, you must make an estimate of future

software sales of that software if it is commingled with or

incorporated with the U.S. code. Unless there is a one-time report

revealing the assumptions of such calculations, foreign firms may

misuse the de minimis rule and make unrealistic assumptions of large

future sales. Such a misuse can result in U.S.-content that is unfairly

estimated to be below the de minimis level.

BXA has concluded after interagency consultations and review of all

the comments that the so-call universe problem exists for technology

and not for commodities. Several commenters have asked why.

There is the risk that foreign firms will select excessively large

categories of foreign technology for division into the U.S.-origin

technology content. There is no regulatory criteria or standard that is

sufficient to describe the scope of foreign technology that must be

divided into the U.S. technology to determine the percentage of U.S.-

content. The possible choices of a universe by the reexporter are many

and varied.

Some commenters wanted BXA to select one U.S. transfer pricing

standard such as the standard of the Internal Revenue Service found in

section 482 of the Internal Revenue Code. One software producer

indicated that it will have very difficult decisions to make in the

calculation of U.S.-content for purposes of foreign-made software and

asked BXA how it would be done. In this interim rule, we indicate that

accepted accounting standards such as section 482, its implementing

rules, and related ruling provide one option the exporter or reexport

may follow. The Organization for Economic Cooperation and Development

(OECD) is considering uniform transfer pricing rules, and such

international standards would present an attractive option in the

future. However, it will likely be at least a year before they put such

OECD standards in place. Other commenters said that their firms do not

maintain adequate records to perform calculations of U.S.-content. Of

course, for such firms, any value-based de minimis rule will not

relieve existing burdens regardless of the report requirement.

For decades, all reexport controls under the EAR extended to

foreign software and technology incorporating any level of U.S.-

content. BXA refers to this as the commingled rule. In 1988, BXA

proposed giving some relief from the commingled rule with a type of

shifting of presumptions regarding country of origin after a period of

time. With one exception, commenters opposed that proposed rule and

urged a value-based de minimis exclusion. BXA addressed the issue in

its February 1994 proposed renewal of the Export Administration Act.

That proposal would have compelled a de minimis exclusion from the

commingled rule and reserved the authority of the Executive Branch to

require a one-time report.

BXA believes that it is appropriate to put reasonable limits on the

reach of U.S. reexport controls for foreign-made software and

technology. This is to recognize the sensitivities of other nations and

to put some outer limits on the obligations of foreign firms doing

business with U.S. firms. However, it is not the purpose of this

exercise to eliminate reexport controls on software and technology.

Reexport controls remain tools of the EAR to prevent diversion contrary

to vital national security, nonproliferation, and foreign policy

interests of the United States.

BXA understands that some foreign firms will benefit from the

relief offered in this interim rule and will use this relief by filing

the necessary report. For such firms, the de minimis rule and related

report is not a new licensing requirement. Rather, it is a means for

BXA to assure that the above described three criteria are not misused

in a given set of calculations and assumptions. The report is required

under a ``report and wait'' procedure. If the reporting firm does not

hear from BXA within thirty days, then the reporting firm may

thereafter rely upon its reported calculations, and its foreign

technology or software described in the filed report is not subject to

the EAR.

For those reexporters without the desire or ability to take

advantage of the de minimis rule, their position under the EAR remains

unchanged in any respect by this interim rule. The commingled rule

continues to apply as it has for decades. One commenter said that the

report requirement would make enforcement easier for BXA than under the

existing rule. BXA does not believe that to be true. The existing rule

is clear.

Reexporters should also be mindful that many authorities for

permissive reexports remain available to overcome reexport

prohibitions. The de minimis exclusion from the commingle rule

determines whether foreign technology or software is subject to the

EAR. If certain commingled foreign technology or software is subject to

the EAR, then the general prohibitions and License Exceptions define

the obligations of the holder of that technology and software.

This interim rule also makes several changes to Sec. 734.3, Items

Subject to the EAR. In the proposed rule, foreign made products subject

to the EAR were separately in Sec. 732.4. These provisions dealing with

foreign made products are now included in Sec. 734.3, together with

other items subject to the EAR. This interim rule consolidates all

related principles in one section.

A number of commenters questioned whether BXA intended to limit the

coverage of items subject to the EAR only to ``U.S.-origin'' items as

reflected in Sec. 732.2(a) of the proposed rule. This interim rule

clarifies the intent of the proposed rule and the BXA practice related

to this issue. Specifically, this interim rule has asserted

jurisdiction over all items subject to the EAR exported from the United

States, whether of U.S. or foreign origin, but in practice has limited

other controls, such as reexport controls, over EAR-controlled items to

those of U.S. origin. Section 734.3(a) of this interim rule reflects

these provisions. Section 734.3 also applies to all covered items in

the United States, and to all such items that are of U.S.-origin,

wherever located.

This interim rule also specifically states that foreign origin

items in-transit through the United States and in U.S. foreign trade

zones are subject to the EAR. For any special licensing treatment that

may be accorded such shipments on their export from the United States,

exporters should look at the License Exceptions in part 740.

This interim rule makes five changes to the proposed rule that are

reflected in the provisions of Sec. 734.3(b), which lists the

exclusions from items subject to the EAR.

1. In proposed Sec. 732.3(a)(1), BXA excluded items exclusively

controlled for export or reexport by other agencies which maintain

controls for national security or foreign policy purposes. The agencies

were identified in Supplement No. 2 to proposed part 732. To reduce

cross-referencing, the agencies are now listed in part 734, and the

Supplement has been removed.

2. This interim rule also adds a new provision that excludes from

the definition of ``items subject to the EAR''

[[Page 12719]]

items included in ECCN 0A98 in the existing EAR, such as films,

records, books, and periodicals. This provision was not included in the

proposed rule. Under the existing EAR, items included in that ECCN do

not require authorization to any destination. This interim rule has the

same result.

3. Section 732.2(a)(3) of the proposed rule excluded security-

classified technology and software from the coverage of items ``subject

to the EAR.'' This provision was based on the theory that classified

items are controlled by the Nuclear Regulatory Commission and the

Department of State's Office of Defense Trade Controls. One commenter

observed that because these agencies control the export of classified

items as part of their ``exclusive'' jurisdiction, no specific

provision needs to appear for classified items. To avoid confusion,

this interim rule omits the reference to classified items. The

provision is already implicitly included in part 734 because items

controlled exclusively for export by another agency are not subject to

the EAR (Sec. 734.3(b)(1)).

4. This interim rule also adopts the term ``publicly available

information'' to refer to all information included in General License

GTDA of the existing EAR. Such information is listed in

Sec. 734.3(b)(3). In the proposed rule, the term ``publicly available''

applied solely to information that was ``generally accessible to the

interested public in any form''. This interim rule adopts the term

``published information'' to represent such generally accessible

information.

5. A number of commenters objected to the use of the term ``Not on

List'' or ``NOL'' to designate and clear for export those items which

are subject to the EAR but which do not appear on the CCL. This interim

rule drops this term, which will be discussed in greater detail under

part 758, General Export Clearance Requirements. However, in response

to written comments and audience comments at the town-hall fora, BXA

will designate such items under ``EAR99.'' This designation, discussed

in Sec. 734.3(c) of this interim rule, will be used for classification

and reference purposes only, and will not be required for clearing

exports.

One commenter recommended that items subject to the EAR be

specifically limited to exports and reexports because BXA's statutory

authority relates to controlling exports and reexports. This interim

rule does not adopt this recommendation because the term ``subject to

the EAR'' defines the scope of EAR jurisdiction. The prohibition on

exports and reexports of such items based on BXA's statutory authority

is reflected in part 736, Prohibitions.

Finally, this interim rule expands Supplement No. 2 to include a

requirement for the submission of a report to be submitted to BXA if an

exporter uses the de minimis for technology or software.

Part 736--General Prohibitions

Part 736 includes ten general prohibitions. These are the

prohibitions that may apply to items subject to the scope of the EAR as

described in part 734, Scope. General Prohibitions One, Two, and Three

are product controls. The Commerce Control List in Supplement No. 1 to

part 774 and the Country Chart in Supplement No. 1 to part 738 are used

together to define the product scope and destinations for the license

requirements of General Prohibitions One, Two, and Three. General

Prohibitions Four through Ten describe certain activities that are not

permitted without authorization from BXA.

Several commenters recommended liberalization of the existing

reexport controls. For example, one commenter suggested a license free

zone for all members of the former Coordinating Committee on Export

Controls (COCOM), the Missile Technology Control Regime (MTCR), the

Nuclear Suppliers Group (NSG), and the Australia Group (AG). BXA notes

that a provision in the Export Administration Act of 1979 compels

individual validated licenses for items controlled cooperatively by

members of the MTCR. BXA is aware of the interest of the exporting

community in the further expansion of license free zones. However, this

interim rule is not intended to address such fundamental policy

decisions and is not an appropriate vehicle to make such changes.

Some commenters urged BXA to create a separate part for reexport

controls or a separate guideline for reexports. Others supported this

view and indicated that it was convenient for them to photocopy newly

designated part 774A and send this to firms abroad. BXA believes that

part 774A of the EAR does not describe all the duties of reexporters;

and reliance upon a reading of only that portion of the regulations

could well lead to violations of other portions of the EAR. In response

to these comments, BXA has taken care in this interim rule to indicate

which requirements of the EAR apply to reexporters and which

requirements do not. Part 732, Steps contains explicit indications of

applicability of various provisions to reexporters. As suggested by

several commenters, part 732, Steps has been substantially expanded to

present a road map for the use of these provisions by reexporters.

The foreign-produced direct product control described in General

Prohibition Three reflects a policy prompted by the Cold War. The

Regulations and Procedures Technical Advisory Committee (RPTAC)

recommended that BXA not revise this policy during the drafting period

that led to the proposed rule. After publication of this interim rule,

BXA will initiate a policy review of the foreign-produced direct

product rule.

All ten general prohibitions in this part 736 apply to firms abroad

under some circumstances. Part 734, Scope defines the scope of the

regulations for foreign as well as domestic firms. The key factors that

make all ten general prohibitions applicable to foreign firms are the

scope of the parts and components rule, the foreign-produced direct

product rule, and the general prohibition regarding reexports of U.S.-

origin items. These are described in detail in part 732, Steps; part

734, Scope; and part 736, General Prohibitions with specific references

to reexporters.

One commenter asked if we would add a provision regarding the

applicability of License Exceptions to General Prohibition Eight

concerning the unlading of goods in certain countries. The structure of

this prohibition is that it applies only to exports and reexports that

require a license. By definition, if you properly use a License

Exception authorized by the EAR, General Prohibition Eight does not

apply. Rather, it is a prohibition against unlading items that are

shipped under a license. Exporters and carriers should note that BXA

plans to conduct a policy review of the country scope of General

Prohibition Eight following the publication of this interim rule.

Several commenters stated that the proposed rule continued to

present a complex set of requirements, and many commenters suggested

fundamental decontrols and elimination of longstanding regulatory

requirements. Such recommendations would necessary entail changes to

the general prohibitions. However, the Regulation Reform exercise was

not intended to address such fundamental policy decisions, and this

interim rule is not an appropriate vehicle to make such changes.

Supplement No. 1 to part 736 on General Prohibitions provides for

certain General Orders. At this time, Supplement No. 1 is reserved.

Supplement No. 2 to part 736 provides

[[Page 12720]]

for three Administrative Orders. These Administrative Orders continue

polices of the existing regulations regarding the technical advisory

committees, business conduct before BXA, and certain confidentiality

provisions.

Part 738--Commerce Control List Overview and Country Chart

Part 738 provides an overview of the Commerce Control List (CCL)

and the Country Chart. The complete CCL is contained in Supplement No.

1 to part 774, while the Country Chart is contained in this part.

A significant change to the proposed rule as it relates to the CCL

is the modification of the numbering system used to identify Export

Control Classification Numbers (ECCNs) to conform with the European

Union (EU) numbering system as described in the supplementary

information regarding the CCL. This part provides an overview of the

new CCL structure and ECCN numbering system along with a thorough

discussion of the components that make up an ECCN.

This interim rule eliminates the use of the term ``License

Alternative'' and the ``Special Comprehensive License'' reference as

described in the proposed rule. In addition, this interim rule adopts

the revised reasons for control as identified in the proposed rule

(i.e., use of the broad term ``FP'' has been discontinued). New

``Related Definition'' and ``Related Controls'' sections contained in

the proposed rule have also been adopted in this interim rule.

Several commenters described use of the Country Chart column

identifier in the ``License Requirement'' section of each ECCN as a

rational model and fundamental to simplifying the task of determining

licensing requirements. This interim rule retains this very valuable

tool with few modifications.

The Country Chart, as described in the proposed rule, has been

modified to incorporate columns for destinations eligible for General

License GCT and GNSG under the existing EAR. General License GCT

eligibility is now determined by NS Column 2, while NP Column 1 now

reflects General License GNSG eligibility. NP Column 2 is retained in

its original format as reflected in the proposed rule. Accordingly,

references to License Exceptions CSR and NSG in the ``License

Exceptions'' section within each entry on the Commerce Control List do

not appear in this interim rule.

A few commenters noted that the proposed title to part 738,

Commerce Control List and Country Chart implies that the entire CCL is

contained in part 738. The title to this part has been modified to

state this part contains an overview of the CCL structure and its

relationship to the Country Chart, rather than the actual CCL.

Two commenters noted that the cross-reference to part 742, Control

Policy--CCL Based Controls should be clarified. This interim rule

contains a more descriptive cross-reference to part 742 and is placed

in a more appropriate location.

A few commenters expressed confusion over the use of UN Column 1.

This interim rule removes UN Column 1, because of its limited scope of

control and for added clarity. In addition, this interim rule revises

the two instances in which the Country Chart is not consulted to

determine license requirements. This interim rule expands the proposed

list of ECCNs in which the Country Chart cannot be used from 5A80D

(5A980) to include 1A988, 2A994, 2D994, 2E994, 2B985, 0A983, 0A986, and

0A988.

This interim rule does not adopt the request made by a few

commenters that the Country Chart be expanded to incorporate the

Country Group identification as described in part 740, License

Exceptions. These two lists were developed for separate purposes and

allow for systematic licensing determinations (e.g., Country Groups are

not reviewed unless a license is required by the Country Chart). In

addition, incorporation increases the possibility that readers will

make incorrect license determinations.

This interim rule expands the example for using the CCL and Country

Chart to illustrate more complex fact patterns, as requested by a

commenter.

Part 740--License Exceptions

Part 740 provides for exceptions from license requirements similar

to the General Licenses contained in the existing regulations. In

addition to License Exceptions for commodities, this part contains

License Exceptions for software and technology and permissive

reexports. Previously, both technical data and reexports had separate

parts. License Exceptions for short supply commodities appear in part

754.

Eligibility for License Exceptions may be based on the item to be

exported or reexported, the country of ultimate destination, the end-

use of the item, or the end-user. If a License Exception is available

for a particular transaction, the exporter or reexporter may proceed

with the export or reexport without a license. However, the exporter or

reexporter is required to meet all the terms of the License Exception;

in using a License Exception, the exporter or reexporter will be

certifying that all terms, conditions, and provisions for the use of

that License Exception have been met.

The most significant departure in this interim rule from the

proposed rule is the changed relationship between the determination of

the applicability of a License Exception to a particular transaction

and the documenting of that transaction for export clearance purposes.

Previously, each License Exception bore a three-character symbol that

transferred directly to shipping documents to certify that the

transaction did not require a license and that it met the terms and

condition of the stated License Exception. In this interim rule, each

three-character symbol that will be used on shipping documents

represents a group of License Exceptions rather than a single License

Exception. This change means that a few symbols will cover a large

percentage of shipments from the United States. Each symbol bears an

intuitive relationship to its group of License Exceptions; for example,

those based on the Commerce Control List bear the symbol ``LST.'' Some

commenters wished to retain the old General License symbols, but a

preponderance of exporters preferred intuitive symbols and expressed

that preference at the numerous town-hall fora held around the country.

Many commenters on the proposed rule protested that certain

existing General Licenses--specifically GLR and GTDU--had been

needlessly fragmented. In this interim rule, these License Exceptions

have been consolidated into Servicing and Replacement (RPL) and

Technology and Software--Unrestricted (TSU), respectively. General

Licenses GCT and GNSG in the existing EAR, which appeared as License

Exceptions CSR and NSG in the proposed rule, have in this interim rule

been incorporated into the Country Chart in part 738.

Changes made in General Licenses in the intervening period between

publication of the proposed rule and this interim rule, including G-

BETA for beta test software, G-CTP for computers, and a modification of

GCG (shipments to cooperating governments), are reflected in part 740.

The former Humanitarian License Procedure, which was included in the

Embargo part of the proposed rule, has become a License Exception for

humanitarian donations.

Part 742--Control Policy--CCL-Based Controls

If you have determined that a license application must be filed

after reviewing the Country Chart in part 738 and the Commerce Control

List (CCL) in part 774, this part 742 provides the licensing

[[Page 12721]]

policy that BXA will apply in reviewing your application. This part

contains licensing review policies for all items listed on the CCL

except items controlled for ``short supply'' reasons or to implement

``U.N. Sanctions.'' It consolidates most of newly designated part 785A,

Special Country Policies, portions of newly designated part 776A,

Special Commodity Policies and all the CCL-based controls described in

newly designated part 778A, Proliferation Controls. It also includes

control policies for items included on the CCL but not reflected in the

Country Chart. Specifically, these items are high performance

computers, implements of torture, and communications intercepting

devices.

Part 742 does not include controls and licensing polices that apply

to exports and reexports to embargoed destinations (currently, Cuba,

Libya, North Korea, Iraq, Iran, and the Bosnian-Serb controlled areas

of Bosnia-Herzegovina), except a description of anti-terrorism controls

applicable to Iran (Sec. 742.8) and other terrorist-designated

countries (Supplement No. 2 to part 742). Part 746, Embargoes and Other

Special Controls, covers the licensing policies for embargoed

destinations.

This part is structured to assist exporters to easily retrieve

licensing information related to the reason for control for each item

listed on the CCL. Each ``Reason for Control'' column on the Country

Chart in part 738 has a counterpart section in part 742. The sections

in this part appear consecutively in the same order as the columns on

the chart, reading from left to right. In addition, each section is

similarly structured:

--Paragraph (a) lists the licensing requirements as stated on the CCL;

--Paragraph (b) provides the licensing policy for specific controls on

the CCL;

--Paragraph (c) describes any contract sanctity dates that apply to

particular controls; and

--paragraph (d) provides information concerning any multilateral

cooperation that may apply to a particular control.

BXA believes that the structure and organization of this part is a

significant improvement over the existing EAR. It enables an exporter

to retrieve specific licensing information relevant to each ECCN on the

CCL without having to review extraneous material.

Changes were made in Sec. 742.1, Introduction, to accurately

describe the structure of this interim rule. Paragraph (c) was added to

make clear that controls on embargoed destinations, other than anti-

terrorism controls, are covered in part 746, Embargoes and Other

Special Controls and do not appear in this part 742. Paragraph (d)

generally describes anti-terrorism controls maintained by BXA.

Paragraph (e) reminds the reader that items not listed on the CCL are

nonetheless subject to the end-use and end-user provisions described in

part 744, Control Policy--End-user/End-use Based.

In addition, this interim rule contains changes that implement

regulations which were issued by BXA but were not reflected in the

proposed rule. The interim rule also reflects changes made in response

to public comments on the proposed rule.

On May 6, 1995, the President issued Executive Order 12959,

imposing a virtual embargo on exports of any goods, technology or

devices to Iran and on certain reexports of U.S.-origin goods or

technology. (The Treasury Department, Office of Foreign Assets Control

(OFAC), has principal responsibility for implementing E.O. 12959.)

Because of the virtual embargo on exports to Iran, provisions dealing

with Iran, except anti-terrorism controls, have been shifted to part

746, Embargoes and Other Special Controls. In this interim rule,

Sec. 742.8 describes anti-terrorism controls on exports and reexports

to Iran that BXA continues to maintain while the comprehensive embargo

administered by OFAC is in effect.

This interim rule also includes new anti-terrorism controls on

Sudan, described in Sec. 742.10 and in Supplement No. 2 to part 742.

The Department will also publish these controls in the format of newly

designated part 785A and related parts. The items controlled for anti-

terrorism reasons to Sudan include explosive device detectors, which

have been moved into a new ECCN. The anti-terrorism control on

explosive device detectors also applies to Syria and Iran.

Since the publication of the proposed rule, the Department has

issued a new regulation on exports of specially designed implements of

torture (60 FR 58512). This regulation moved specially designed

implements of torture from Export Commerce Control Number (ECCN) 0A82C

to a new ECCN, 0A83D, and required a license to all destinations,

including Canada. The changes made by that regulation are reflected in

the interim rule. Proposed Sec. 742.7 (Crime Control) is revised to

eliminate references to implements of torture, and a new Sec. 742.11

(Specially Designed Implements of Torture) is added to this interim

rule.

The President announced a revision of U.S. export controls on

computers on October 6, 1995 that affects the supercomputer controls

contained in part 742 (Sec. 742.12) of the proposed rule. The

Department published the revised regulations on January 25, 1996 (61 FR

2099). Section 742.12 has been retitled ``High performance computers''

in this interim rule and describes the license requirements and

licensing policies applicable to four ``tiers'' of countries.

Supplement No. 3 to part 742 describes licensing safeguard conditions

that may be imposed on exports of high performance computers to certain

destinations.

Twelve commenters included comments on part 742 in their

submissions. A number of commenters pointed out technical mistakes and

omissions in part 742. These are corrected in this interim rule.

Following is a discussion of other comments submitted.

Two commenters questioned the appropriateness of continuing

controls on exports to members of a given multilateral control regime

of items controlled by that regime. No License Exceptions are available

for items controlled for missile technology reasons because a provision

in the Export Administration Act requires individual validated licenses

to all destinations. Section 742.2(a)(2) of this interim rule states

that licenses are not required for exports of the listed chemicals to

Australia Group member countries. This interim rule revises

Sec. 742.3(a)(1) to inform the exporter that no license is required for

exports of certain nuclear proliferation controlled items to Nuclear

Suppliers Group (NSG) member countries. Finally, this interim rule

describes, in Sec. 742.4(a), a new national security control level,

denoted by ``NS Column 2'' in the Country Chart, which indicates that

no license is required for exports to Country Group A:1 and cooperating

countries.

One commenter noted that proposed Supplement No. 2, listing

countries that are party to the Treaty on the Nonproliferation of

Nuclear Weapons and to the Treaty for the Prohibition of Nuclear

Weapons in Latin America, required updating. Because the list of

countries party to these treaties is constantly changing, BXA decided

to remove this Supplement rather than risk publishing an inaccurate or

outdated list. BXA will maintain and make available to interested

persons a current list of the countries party to these treaties.

One commenter suggested that part 738, Commerce Control List

Overview; part 742, Control Policy--CCL Based

[[Page 12722]]

Controls; and part 774, The Commerce Control List be combined, since

they all concern the Commerce Control List. BXA did not adopt this

recommendation. Each of the three parts provides a view of controls

from a different vantage point: Part 738 by country; part 742 by type

of control; and part 774 by type of item. BXA believes that

consolidating the three parts into one would make the interim rule more

unwieldy and difficult to use.

Two commenters recommended that contract sanctity provisions be

established for nuclear nonproliferation, national security, regional

stability, crime control or computer controls. BXA did not establish

contract sanctity in this interim rule. Decisions on contract sanctity

dates are made when new controls are imposed. This interim rule does

not impose any new controls. Accordingly, no changes have been made in

contract sanctity provisions.

Two commenters stated that Sec. 742.2(d) (chemical and biological

weapons), Sec. 742.4(d) (national security) and Sec. 742.5(d) (missile

technology) incorrectly state that U.S. controls are consistent with

multilateral agreements. BXA does not agree with this comment. The only

change that BXA is making in this interim rule is to reserve

Sec. 742.4(d). On December 19, 1995, the United States and twenty-seven

other countries, including its NATO allies and Russia, agreed to

establish a new multilateral export control arrangement. The Wassenaar

Arrangement for Export Controls for Conventional Arms and Dual-use

Goods and Technologies (``Wassenaar Arrangement'') is expected to be

operational later in 1996. Any EAR changes that may be needed to carry

out the Wassenaar Arrangement will be made at the appropriate time.

A commenter suggested that License Exception NSG be extended to

South Korea, Taiwan and Mexico. License Exception NSG has been removed

in this interim rule. Instead, items on the CCL with ``NP Column 1'' in

the Country Chart column of the ``License Requirements'' section of an

ECCN do not require a license to NSG member countries. The commenter's

suggestion has not been adopted by BXA for Taiwan and Mexico because

the regulations simplification initiative was not intended to make

substantive changes in license requirements. However, recent regulatory

changes have extended such treatment to South Korea, and that change is

incorporated into this interim rule.

One commenter questioned why ECCN 5A80 (communications intercepting

devices) of the proposed rule is not included in Sec. 742.7 (Crime

Control). These items are regulated under separate statutory authority

and licensing criteria. Items controlled under Sec. 742.7 are those

agreed to pursuant to section 6(n) of the Export Administration Act.

Controls on communications intercepting devices are maintained in

accordance with the Omnibus Crime Controls and Safe Streets Act of

1968, and are therefore separately controlled under Sec. 742.13.

Part 744--Control Policy--End-User/End-Use Based

This part contains prohibitions against exports, reexports, and

activities related to certain end-uses and end-users. Specifically,

Sec. 744.2 prohibits exports and reexports of items subject to the EAR,

without a license, if at the time of the export or reexport you know

that the item will be used in nuclear explosive, or other safeguarded

or unsafeguarded nuclear activities. Section 744.3 prohibits the export

or reexport, without a license, of certain items to be used for missile

end-uses. Similarly, Sec. 744.4 prohibits the export or reexport of

items with certain chemical and biological weapon end-uses. Next,

Sec. 744.5 prohibits the export or reexport of items to be used for

specified nuclear maritime end-uses.

Section 744.6 places restrictions on certain proliferation-related

activities of U.S. persons. For purposes of this prohibition the term

``U.S. person'' means citizens, permanent resident aliens, or protected

individuals as defined in the immigration laws; any juridical person

organized under the laws of the United States or any U.S. jurisdiction;

and any person physically in the United States. This part also contains

prohibitions against exports, reexports, and certain transfers to

specified end-users. Section 744.7 imposes restrictions on certain

exports to and for the use of certain foreign vessels or aircraft, and

Sec. 744.8 places restrictions on certain exports to all countries for

Libyan aircraft.

Commenters urged BXA to publish a positive list of items and limit

the applicability of the nonproliferation related end-use restrictions

to items on such a positive list. In addition, commenters asked BXA to

publish certain names of end-users as to which individual exporters

have been ``informed'' that a license is required by reason of

Sec. 744.2(b), Sec. 744.3(b), Sec. 744.4(b), and Sec. 744.6(b). BXA is

working within the Administration toward these objectives; however,

these are major policy initiatives, they are not part of this interim

rule, and they are not necessary to achieve the goals of the

Regulations Reform exercise.

Commenters suggested that under Sec. 744.2(b) the discretion of BXA

to inform an exporter of the trustworthiness of certain end users

should be a duty of BXA rather than an option of BXA. The U.S.

Government will retain this discretion because of the overriding

interests in protecting sources and methods of intelligence gathering

and the interests in law enforcement objectives that on occasion

require flexibility on the part of the government.

One commenter urged BXA to make clearer the treatment of technology

that historically was authorized for export under General License GTDA.

In the proposed rule, BXA excluded such information from the scope of

the EAR. That approach is retained in this interim rule and clarified

in the steps that have been added to part 732, Steps to suggest methods

for using part 734, Scope of the EAR. Items not subject to the scope of

the EAR are not subject to any prohibition of the EAR.

Section 744.2(b) contains provisions designed to standardize the

procedure for informing exporters that a particular party may present

an unacceptable risk of diversion contrary to nuclear policies. Some

commenters applauded this addition, and one opposed it. BXA will

maintain this provision because the procedural discipline it provides

should prove useful for both BXA and exporters. This provision does not

change BXA's substantive authorities under the EAR.

One commenter suggested additional cross-references to the license

review policies for items subject to, for example, missile technology

controls identified on the CCL based upon product parameters rather

than a prohibited end-use. In the proposed rule and in this interim

rule, the license review standard for applications required by reason

of the product parameters designated on the CCL are listed in part 742,

Control Policy--CCL Based Controls. The license review standards for

license requirements defined by end-uses described in part 744 are

contained in part 744. Because of the criticism of some commenters that

the proposed rule contained too many cross-references, BXA has

concluded in this instance that additional cross-references are not

advisable.

This interim rule continues existing policy regarding the country

scope of the nuclear end-use prohibition. A new Supplement No. 3 is

added to the part and referenced at Sec. 744.2(a) to exempt designated

countries from this prohibition, and those are the same countries that

are exempt under the

[[Page 12723]]

existing EAR. This is a change from the proposed rule.

One commenter suggested that BXA remove from Sec. 744.6 words that

indicate defined activities are prohibited in the United States. This

interim rule accepts this recommendation. One commenter complained that

Sec. 744.6 applies to less than all countries in Country Group D:1. The

exclusion of Romania and China is consistent with current policy, and

is maintained in this interim rule. BXA recognizes that such policy

decisions make the use of the Country Groups and the EAR itself more

complex. BXA hopes reviewing of provisions of the EAR in the order

recommended by the steps in part 732 will minimize this problem. BXA

intends to further address such issues in the future. However, policy

making in export controls will always present trade offs for exporters

when petitioning the government for fairness and precision of export

control policy on the one hand versus simplicity and ease of

administration for the public on the other.

The proposed Sec. 744.6(a)(2) prohibited certain U.S. person

activities related to nuclear explosives devices. It was removed from

this interim rule because such activity is prohibited under the

International Traffic in Arms Regulations (22 CFR 120-130), which

regulate defense services for all destinations.

Part 746--Embargoes and Other Special Controls

Part 746 of the proposed rule contained controls for Cuba, Libya,

Iraq, North Korea, and the Federal Republic of Yugoslavia (Serbia and

Montenegro), indicating where jurisdiction was divided between BXA and

the Department of the Treasury's Office of Foreign Assets Control. It

also contained controls implementing U.N. sanctions resulting in

additional EAR controls on Rwanda.

Controls on Iran, embargoed because of Executive Order 12959 of May

6, 1995, have been added to part 746 in this interim rule. With the

suspension of the embargo on the Federal Republic of Yugoslavia (Serbia

and Montenegro), controls on that country, as well as on certain areas

of Croatia and Bosnia-Herzgovina, have been shifted to a Supplement to

part 746. Commenters pointed out that ECCN 0A95, which released food

and medical supplies to Libya from reexport control, was unaccounted

for in the proposed rule; that oversight has been corrected. The former

Humanitarian License Procedure, which was included in the Embargo part

of the proposed rule, has become a License Exception for humanitarian

donations and is in part 740 of this interim rule.

Finally, this part includes Supplements containing general

information on embargoes and sanctions administered by other federal

agencies.

Part 748--Applications (Classification, Advisory, and License) and

Documentation

Part 748 describes the procedures for submitting license

applications, classification requests and advisory opinions. This

interim rule places information from throughout the existing EAR into

one part. It is intended to provide the reader with all information

necessary to submit an application to BXA.

This interim rule adopts use of the new Form BXA-748P for the

submission of license applications and classification requests, but not

advisory opinions. Most commenters favored the use of one form for both

exports and reexports. This interim rule clarifies the definition of

advisory opinions and states they must be submitted in writing via

letter. Commenters were evenly split regarding the proposal to require

use of Form BXA-748P for advisory opinions. One commenter proposed

adopting the form for use when submitting end-user requests. This

suggestion along with one recommending the elimination of unit and

total price boxes are not adopted in this interim rule. A number of

commenters also queried whether BXA intends to republish the Forms

Supplement contained in the existing loose leaf EAR subscription. BXA

will republish the Forms Supplement in the subscription to the EAR

offered by the National Technical Information Service (NTIS). The Forms

Supplement is not published in the Code of Federal Regulations.

Sections in part 748 have been redesignated to better describe each

section's contents. The addresses in Sec. 748.2 and Sec. 748.14 have

been placed in one section. Procedures for submitting applications

electronically have been placed in a separate section for easier

access. For continuity, the unique license requirements for specific

items or transactions have been placed in a separate Supplement No. 2

to this part. This change will allow readers to determine quickly

whether the unique requirements apply to their transaction, and if not,

to continue quickly with sections relating to support documents.

Instructions for completing Form BXA-748P contained in Supplement No. 1

to part 748 have been clarified in response to comments posed by both

the public and BXA employees.

On the suggestion of one commenter, a reminder that information

submitted under the Export Administration Act will be treated in

accordance with provisions stated in section 12(c) of the act has been

added in this interim rule in Sec. 748.1(c).

The section on license application support documents has been

revised to eliminate one step in the decision tree. The questions

contained in Sec. 748.10(a)(3) in the proposed rule have been combined

into one question in this interim rule. Some commenters noted that

exceptions for obtaining support documents have decreased in certain

circumstances. The changes announced in the proposed rule were due

largely to the changing export control environment and proliferation

credentials of various countries. Accordingly, this interim rule adopts

the requirements contained in the proposed rule with a few

modifications. This interim rule also adopts the two year validity

period for the Statement by Ultimate Consignee and Purchaser.

A few commenters noted that though the development of decision

trees will assist in determining support document requirements, BXA

should consider the development of a matrix or chart similar to that

contained in part 775 of the existing rule. Though a chart has not been

included in this interim rule, BXA will explore development of a new

matrix/chart based on the support document decision tress in this part.

This interim rule also eliminates the last letter in the Export Control

Classification Number contained in the existing rule. This letter had

been used previously to designate support document requirements, but is

no longer necessary.

A few commenters requested additional guidance on what constitutes

an emergency and clarification of validity periods as they relate to

licenses approved under emergency processing. This interim rule

clarifies the validity period by cross-referencing the appropriate

section in part 750, but does not provide additional language to be

used by applicants when submitting emergency requests. In order to

retain the emergency nature of these requests, this interim rule does

not adopt the suggestion by one commenter to increase the validity

period from 30 to 60 days for applications involving reexports.

Commenters were evenly split regarding the elimination of Form BXA-

685P for amendments with a few stating the elimination of this form is

long overdue. This interim rule adopts the intent to eliminate Form

BXA-685P along with Form BXA-648. Changes not

[[Page 12724]]

listed in Sec. 750.7(c) will require the submission of a Replacement

application. One commenter stated the time period for the return of

Delivery Verifications to BXA was reduced with elimination of Form BXA-

648. The existing rule states the time frame as ``a reasonable time

after the last shipment'' while the instructions contained in the

existing Form BXA-648 stated the time frame as ``90 days after the last

shipment''. This interim rule eliminates this inconsistency by

establishing a 90 day time frame.

Form BXA-711 along with its written counterpart is adopted in this

interim rule. Commenters stated the ability to use a form or letter was

a good idea.

Part 750--Application Processing, Issuance and Denial

Part 750 describes the processing procedures and time frames for

classification requests, advisory opinion requests and license

applications. Once an applicant has prepared documents in accordance

with part 748, this part describes how the application will be handled

by BXA. The time frames detailed in this interim rule are drawn from

Executive Order No. 12981 of December 6, 1995 and the draft 1994 Export

Administration Act bill written by the Clinton Administration.

This interim rule provides a detailed description of the

relationship between all agencies and departments involved in the

license review process as well as a description of the interagency

dispute resolution process. This part also addresses actual issuance,

validity periods, denial, revocations, suspensions, transfers,

duplicates, and shipping tolerances.

This interim rule also eliminates the proposed exceptions to the

license processing time frames and limits all license applications to a

90 day processing time frame. A number of commenters made

recommendations for revising the time frames for the processing of

license applications as well as the types of applications subject to

Congressional notification. This interim rule incorporates the

processing time frames provided in Executive Order No. 12981.

Accordingly, recommendations to establish different time frames have

not been adopted. In addition, congressional notification requirements

for crude oil and refined petroleum products have not been adopted

since they no longer apply to the types of licenses reviewed by the

Department.

Most commenters supported the clarification of the license

processing system and time frames. These commenters agreed that BXA has

met the goal of making the process more transparent for the exporter.

A number of commenters requested that applicants be given the

opportunity to express their views during the license escalation

process. These commenters also requested clarification of the term

``registration'' to include language that would require prompt action

by BXA upon receipt of a license application. Both of these

recommendations have been adopted in this interim rule.

One commenter suggested that part 756, Appeals, be combined with

this part 750 since most appeals involve license applications. This

recommendation was not adopted because the appeals process is open to

all administrative actions, not only those relating to license

applications.

One commenter recommended simplification in the provisions for

shipping tolerances. While this recommendation has merit and may be

considered at a later date, it was not adopted in this interim rule.

Part 752--Special Comprehensive License

Part 752 describes the provisions of the Special Comprehensive

License (SCL). The SCL consolidates the activities authorized under the

Project, Distribution, Service Supply, Service Facilities, Aircraft and

Vessel Repair Station Procedure, and Special Chemical Licenses, and

provides for additional flexibility to BXA in shaping appropriate SCLs

and internal control programs (ICPs). For example, the Project License

and Service Supply Procedure authorize exports and reexports to

countries of the former Soviet Union, Eastern Europe, and the People's

Republic of China, but the Distribution License, which includes an

extensive mandatory ICP that is not required for the Project License or

the Service Supply Procedure, does not allow exports and reexports for

distribution in these countries. This interim rule conforms item and

country eligibility under the SCL. All items subject to the EAR are

also eligible for export and reexport under the SCL, except a few

specified items. Form BXA-686P, Statement by Foreign Importer of

Aircraft or Vessel Repair Parts, which was used for certain exports

under the Aircraft and Vessel Repair Station Procedure, and Form BXA-

6026P, Service Supply License Statement by U.S. Exporter, are not used

under the SCL.

BXA received fourteen comments on part 752. Overall, several

commenters stated that the SCL is a significant improvement over the

existing special license eligibility because it provides broader

authority to allow exports of items such as software and technology.

Five commenters suggested that existing special license holders

retain the right to use existing special licenses until they expire,

but apply for amendments to take advantage of the increased item and

country scope of the SCL.

This interim rule makes the SCL effective March 25, 1996. All

existing special licenses will expire on March 25, 1997, unless the

special license expires before that time by its own terms. BXA will not

grant extensions to existing special licenses. Existing special license

holders who want to take advantage of the SCL benefits, must apply for

an SCL according to part 752. BXA will not accept amendments to

outstanding special licenses.

Eight commenters provided comments on item scope for the SCL. Most

commenters stated that the proposed rule would not authorize exports

under the SCL of items eligible for a License Exception. The proposed

rule allowed exports under the SCL of all items subject to the EAR,

including items eligible for a License Exception. However, to prevent

confusion, the interim rule specifically states in Sec. 752.1 that you

may apply for an SCL, when appropriate, in lieu of a license described

in part 748 or a License Exception described in part 740.

Two commenters stated that the SCL should not exclude any items

because it defeats the purpose of the SCL, which is designed to allow

greater flexibility in return for increased monitoring of each shipment

by the SCL holder and consignees. One commenter added that other

agencies have the right to review the applications for an SCL, and

restrictions may be placed on a license on a case-by-case basis.

However, two commenters stated that there should be no ad-hoc

restrictions, adding that the only item restrictions should be those

published in the Federal Register, which would be applicable to all

companies.

This interim rule retains the list of items not eligible for the

SCL in Sec. 752.3 to ensure that potential applicants are aware of the

few item restrictions before they consider applying for an SCL. If BXA

determines that an item must be added to the list to protect national

security, nonproliferation, or foreign policy interests, or determines

that an item need no longer be prohibited under the SCL, BXA will

publish a change in the Federal Register, at which time the change will

become effective and apply to all SCL and potential SCL holders.

Another commenter was concerned about the general policy of denial

for

[[Page 12725]]

exports to destinations in Country Group D:2 of items controlled for

nuclear nonproliferation reasons, and suggested that the SCL

specifically state that items controlled for nuclear nonproliferation

reasons be authorized on a case-by-case basis provided that the

exporter has appropriate controls in place to screen for proscribed

end-uses or end-users. The Internal Control Procedures (ICPs) required

for most activities authorized under the SCL include screening elements

for proliferation end-uses. This interim rule revises the policy of

denial language found in Sec. 752.3(b) of the proposed rule to a policy

of case-by-case review. In addition, this rule retains the discretion

to deny or limit the export or reexport of all items, including those

controlled for nonproliferation reasons.

Most commenters applauded the expansion of country scope to include

the newly independent states and Russia. However, several commenters

requested clarification that the SCL is eligible for countries such as

Slovenia, Rwanda, Bosnia, and Croatia, which are eligible under

existing special licenses . One commenter stated that when BXA declares

a country ineligible to receive items under the SCL, BXA should

simultaneously list the country in the EAR, and remove it from all

SCLs.

It is not BXA's intent to roll-back special license country

eligibility. This interim rule therefore clarifies that all countries

are eligible to receive items under the SCL except Cuba, Iran, Iraq,

Libya, North Korea, Syria, and Sudan. If BXA determines that additional

countries should become ineligible to receive items under the SCL, it

will publish the change in the Federal Register, and notify all SCL

holders.

Four commenters suggested consolidating Sec. 752.2 into one generic

paragraph that describes the representative activities. Another

commenter stated that the SCL should not prohibit the export of service

parts or upgrades as long as it does not exceed the limits of the SCL

parameters. Section 752.2 is intended to provide illustrative examples

of the types of activities that may be approved under the SCL. It is

not intended to be an inclusive list, and other activities may be

approved on a case-by-case basis. This interim rule revises Sec. 752.2

to provide a general description of the types of activities that BXA

may approve the under the SCL. These activities fall under the general

categories of ``service'', ``end-user'', ``distribution'', and

``other'' activities.

Four commenters provided comments on the requirement for a letter

of assurance for exports under the SCL of certain technology. One

commenter stated that the SCL expands the scope of the existing letter

of assurance required for exports under General License GTDR because it

would require the letter of assurance from each new recipient overseas.

One commenter specifically requested that the letter of assurance be

required from only one party overseas. The proposed rule did not expand

current policy. Under the existing EAR, any transfers of technical data

covered by a letter of assurance would require such assurances from any

new recipient of the technology. Two commenters indicated that

assurances are not required for exports of technology under a validated

license. But, if an assurance must be required, the assurance should be

included in the SCL certifications.

This interim rule removes the letter of assurance requirement from

Sec. 752.5. BXA intends to review requests to export controlled

software and technology under the SCL on a case-by-case basis, and

impose conditions or restrictions as appropriate. Depending upon the

level of software or technology requested for export under the SCL,

this may include restrictions on reexport of software or technology, or

exports of direct products of the technology.

Comments on Sec. 752.5, steps you must follow to apply for an SCL,

focused on the comprehensive narrative statement. Many commenters

stated that much of the information required in the comprehensive

narrative statement is already required on Form BXA-748P, Multipurpose

Application, or Form BXA-752, Statement by Consignee in Support of

Special Comprehensive License. Five commenters specifically requested

that the requirement to state the ratio and dollar volumes of

controlled items to those not subject to the EAR be removed, because it

is impractical to calculate and fundamentally unreliable. BXA agrees

that SCL applicants should not be required to repeat information in a

comprehensive narrative statement that is also required on Form BXA-

748P or Form BXA-752. Therefore, this interim rule includes major

revisions to the comprehensive narrative statement requirements,

limiting that statement to the information that is not required

elsewhere. This interim rule also removes the requirement to list the

items eligible for a License Exception that will be exported under the

SCL because the ICP requirements assure that appropriate controls are

in place to prevent diversion.

One commenter stated that the application stage was too early to

provide BXA a copy of the proposed ICP, and to do so conflicts with the

certification requirements that an ICP must be in place upon approval

of the SCL. This interim rule retains, under Sec. 752.5(c)(3), the

requirement that applicants and consignees submit ICPs at the time of

application. This information is necessary for BXA to determine whether

to approve the items, activities, or countries requested on the SCL

application, or to modify your proposed ICP depending upon the nature

of the request.

One commenter stated that BXA should not require an SCL holder to

inform all consignees of license conditions. Certain conditions may

only have relevance to one or two consignees. BXA agrees, and has

clarified in Sec. 752.9(a)(4) to state that the SCL holder must inform

all relevant consignees of all license conditions prior to making any

shipments under the SCL. Four commenters objected to the language that

refers to prior reporting of exports of certain items, which is was

included in Sec. 752.9(a)(4). This interim rule retains this language.

Exporters should note that the list of the special conditions that may

be placed on your SCL included in this section only provides examples,

and such conditions may not be included on your SCL.

Section 752.11 describes the elements of the Internal Control

Programs (ICPs) that the SCL holder and consignee must implement upon

approval of the SCL to assure that exports and reexports are not made

contrary to the EAR. Two commenters stated that the ICP requirements

included in the proposed rule should be clear and defined, not

generalized. Three commenters suggested that EPCI screening be limited

to certain countries. Two commenters requested that BXA clarify when

the parties to the application must submit the ICP to BXA. One

commenter also requested that upon publication of the SCL, BXA publish

guidelines that further define ICP requirements.

This interim rule also restructures Sec. 752.11 to consolidate the

elements of all three ICPs into one list, and to remove the different

levels of ICPs. This simplifies the text, and makes it more user-

friendly. This interim rule does not place country limits on screens

against customers who are known to have, or suspected of having,

unauthorized dealings with specially designated regions and countries

for which nonproliferation controls apply. Any such limits must be

approved by BXA, and are dependent upon the specific nature of your SCL

request. This interim rule also includes information in

Sec. 752.11(a)(2) on where you may obtain

[[Page 12726]]

guidelines to assist you in developing an adequate ICP.

This interim rule also makes several other editorial changes to

part 752 to consolidate provisions and simplify the text. Section

752.10, Changes to the SCL, has been revised to clearly define the

requirements for changing an SCL. Detailed instructions on how to

complete Forms BXA-748P, Multipurpose Application, and Form BXA-752,

Statement by Consignee in Support of Special Comprehensive License, and

other forms related to applying for an SCL are included in supplements

to part 752. The servicing provision in Sec. 752.4(b) has been revised

to conform with the standard used throughout the EAR. This provision

prohibits you from servicing, under the SCL, any item when you know

that the item is owned or controlled by, or under the lease or charter

of, entities in countries not eligible for the SCL, or any nationals of

such countries. Finally, the recordkeeping provisions of Sec. 752.12

have been clarified by providing the appropriate cross-references to

part 762, which applies to all transactions subject to the EAR.

Part 754--Short Supply

This part implements section 7 of the EAA and similar provisions in

other laws that authorize or require restrictions on exports for

reasons dealing with adequacy of supply of commodities in the United

States, as opposed to reasons based on foreign policy, national

security, or nonproliferation considerations. Specifically, this part

implements controls on exports of crude oil restricted under the EAA

and a number of other laws; on exports of petroleum products produced

or derived from the Naval Petroleum Reserves; on exports of western red

cedar as required by provisions in the EAA; and on exports of horses by

sea for the purpose of slaughter. It also provides information relating

to two provisions contained in EAA section 7: The registration of

agricultural commodities for exemption from short supply controls, and

the filing of petitions for the imposition of controls on recyclable

metallic materials.

Consistent with the revised structure of the proposed and interim

rules, this part contains all of the requirements that apply uniquely

to commodities controlled for short supply reasons. It sets forth all

of the licensing requirements, licensing policy, License Exceptions,

and other unique requirements that apply to commodities controlled for

short supply reasons on the CCL. Short supply controlled commodities

are identified with ``SS'' under ``Reason for Control'' in each

relevant ECCN on the CCL. Other requirements of the EAR that are not

unique to short supply controls, such as recordkeeping in part 762,

also apply to items covered by this part.

Six commenters provided comments on this part. A number of

revisions have been made to implement the recommendations contained in

the comments. Additional revisions were made to incorporate the heavy

California crude oil rule published in the Federal Register but not

included in the proposed rule.

Commenters recommended that the definition of ``crude oil'' in

Sec. 754.2 be moved to the front of this section from paragraph (g).

The definition of ``crude oil'' is now included in paragraph (a).

Section 754.2(b) deals with licensing policy for crude oil. It has

been revised significantly to distinguish BXA's licensing policy for

shipments of crude oil which have already been found to be in the

national interest, by Presidential decision or otherwise, e.g., crude

oil from Cook Inlet or California heavy crude, and those which will be

approved if BXA makes the necessary findings on a case-by-case review

of applications. In the proposed rule all crude oil applications would

be reviewed by BXA and approved if the crude oil was not subject to

certain statutory restrictions and BXA made a finding that the export

was in the national interest and consistent with the purposes of the

Energy Policy and Conservation Act. In this interim rule, paragraph

(b)(1) of Sec. 754.2 lists the exports that have already been found to

be in the national interest and paragraph (b)(2) lists the exports for

which BXA must make the necessary findings.

Section 754.2(b)(2) also reflects a revision relating to the kinds

of transactions that BXA will find to be in the national interest. The

proposed rule had cited examples of crude-for-crude and crude-for-

product exchanges that would be found to be in the national interest.

The language of the proposed rule, however, could have been interpreted

as limiting the national interest to these examples. The interim rule

makes clear that the cited exchanges are only examples.

This interim rule also adds a new paragraph (g) to Sec. 754.2,

reflecting regulations that were published in the Federal Register (60

FR 15669, March 27, 1995).

Finally, this interim rule creates two new License Exceptions which

apply to the exports of crude oil. Section 754.2(h) implements a new

License Exception SS-SPR, intended to permit the export of foreign

origin oil stored for emergency use by a foreign government in the

Strategic Petroleum Reserves (SPR). License Exception SS-SPR permits

the export even if the foreign origin oil is commingled with other SPR

oil, provided that the Department of Energy certifies that the crude

oil being exported is of the same quantity and of comparable quality as

the foreign origin oil imported by the foreign government for storage

in the SPR.

Section 754.2(i) of this interim rule creates a new License

Exception, SS-SAMPLE, to permit limited quantities of crude oil for

analytical or testing purposes. This revision implements

recommendations included in the public comments. Under this License

Exception you may ship up to ten barrels of crude oil to any one end-

user annually, up to a cumulative limit of 100 barrels per exporter

annually. This License Exception codifies a BXA licensing policy for

sample shipments that has been in effect for several years. This

licensing policy has been included in BXA's annual report to the

Congress, but has not been reflected in the EAR. Such de minimis sample

shipments have no measurable effect on U.S. oil supplies.

Section 754.3 of this interim rule reflects a significant change in

the way that the Naval Petroleum Reserves Production Act (NPRPA)

restriction on non-crude oil products are implemented. The NPRPA

prohibits the export of petroleum origination or derived from the Naval

Petroleum Reserve (NPR), unless the President approves the export.

Under existing EAR, licenses are required for all petroleum products,

and General License G-NNR authorizes shipments of all such product of

non-NPR origin or derivation. The proposed rule continued this approach

and provided License Exception SS-NPR.

Commenters noted that if all NPR crude oil produced in fiscal year

1994 were refined, it would amount to less than one percent of all the

crude oil refined in the United States. The commenters recommended that

the existing approach be changed to require a license only for

petroleum products which were NPR produced or derived. BXA adopted this

recommendation and this provision reflects the change.

The relevant ECCNs on the CCL have been revised to apply only to

petroleum products that were produced or derived from the NPR or became

available for export as a result of an exchange of any NPR produced or

derived commodities. With this change, General License SS-NNR is no

longer necessary and is removed.

[[Page 12727]]

Section 754.4, unprocessed western red cedar, has been reorganized

consistent with a recommendation included in the comments. In the

proposed rule, Sec. 754.4(a)(2) contained instructions for filing a

license application, and preceded provisions on license policy and

exceptions. A commenter noted that an exporter will first look for

licensing policy and license exceptions before looking for information

on how to fill out a license application. The commenter observed that

there is no point in instructing the exporter how to complete a license

application if subsequent text informs the exporter either that a

license will not be approved or is not necessary. This interim rule

adopts this comment and has restructured Sec. 754.4 accordingly.

Part 756--Appeals

This part describes the procedures applicable to appeals from

administrative actions taken by BXA. An administrative action is any

action (not including an administrative enforcement proceeding) taken

under the EAA or EAR with respect to a particular person, including

denial of a license application, return of a license application for

other than procedural deficiencies or additional information, or

classification of an appellant's item. Essentially, any person directly

and adversely affected by an administrative action would be allowed to

appeal to the Under Secretary for Export Administration for

reconsideration of that administrative action.

No substantial comments were received on this part 756. One

commenter suggested the possibility of combining this part with part

748, Applications. This interim rule does not adopt the suggestion.

With the exception of minor editorial revisions and clarifications,

the provisions of part 756 remain unchanged from the proposed rule.

Part 758--General Export Clearance Requirements

This part deals with requirements imposed on exporters and others

regarding the movement of items subject of the Export Administration

Regulations (EAR) out of the United States. The purpose of this part is

to assure that the movement of items subject to these EAR conforms to

the requirements of the export license or other authorization for their

export.

This part imposes specific responsibilities on the different

persons involved in export transactions to ensure compliance with other

provisions of the EAR and of the Foreign Trade Statistics Regulations

(FTSR) (15 CFR Part 30), including exporters, freight forwarders,

exporters' agents, carriers and all other persons. It prohibits any

person from engaging in certain proscribed conduct. This part governs

some of the same conduct that is governed by the FTSR.

This part imposes specific responsibilities for assuring that

Shipper's Export Declarations (SEDs), bills of lading and air waybills

are accurately filled out and are consistent with the export license or

other authorization for the export to which they correspond. It

restricts the conduct of exporters, forwarders, carriers and others to

assure that the delivery abroad of items subject to the EAR is in

accordance with the terms of the export license, exception to the

licensing requirement or other authorization. In some cases, it imposes

duties on parties to the transaction to return the items to the United

States or take steps to prevent them from entering the commerce of a

foreign country.

The proposed rule made several changes to this part. Approximately

25 commenters made comments on the proposed part 758.

A majority of those who commented on part 758 recommended that we

eliminate the requirement to place the symbol ``NOL'' on Shippers

Export Declarations (SEDs) for transactions involving items not on the

CCL. Most of those commenters suggested that we adopt a single symbol

``NLR'' for all transactions where the export does not require a

license either because it is on the CCL but does not require a license

to the destination in question or because it is not on the CCL. Several

commenters went further and recommended that we authorize the use of

the symbol ``NLR'' for transactions that are authorized by a License

Exception instead of requiring that the License Exception symbol be

listed on the SED. We adopted the suggestion to eliminate the symbol

``NOL''. However, this interim rule includes a designator (EAR99) for

items that in the proposed rule were subject to the EAR but not on the

CCL, that will be used by BXA in responding to classification requests

and by exporters for their management systems. The designator will not

be used on SEDs. We have also reduced the number of License Exception

symbols from which parties filling out SEDs must choose. As noted above

in the discussion of License Exceptions, we have created a small number

of symbols for various groups of License Exceptions, and it is these

symbols for groups of License Exceptions that must appear on the SED.

Several commenters suggested that the choice of Destination Control

Statements (DCSs) in the proposed rule was unduly complex. In addition,

some commenters suggested that the proposed rule on DCSs did not make

it clear that the most restrictive DCS could be used for any

transaction. This interim rule adopts a single simplified DCS.

A number of commenters raised the issue of what information should

be shown on SEDs for items which in the proposed rule were not subject

to the EAR, but which in the existing EAR are eligible for general

license GTDA. In response to these comments this interim rule creates

an optional designator TSPA which exporters may use on SEDs for

software or technology that the proposed rule and this interim rule

define as outside the scope of the EAR.

The proposed rule eliminated some information about authority and

status of forwarding agents and procedures for correcting SEDs on the

grounds that those points are covered in the FTSR (15 CFR part 30) and

including them in the EAR was redundant of the FTSR. Some trade

associations recommended that we retain these procedures. We did not

adopt this suggestion because the FTSR applies to all exports from the

United States including those subject to the EAR and those that are

not. These procedures need to be in the FTSR because exporters who have

no transactions subject to the EAR must follow them. Retaining

duplicate language in a regulation that applies to only a portion of

the exports from the United States would be redundant and creates the

burden of keeping two different sets of regulations identical whenever

amendments are adopted.

Two commenters suggested that proposed Sec. 758.1 was too long and

portions were redundant. They suggested breaking it up into several

sections. We did not adopt this suggestion in this interim rule. The

section has been shortened because of the elimination of the NOL

provisions.

Several commenters suggested that the use of the word ``you'' in

the proposed rule under Sec. 758.1(a)(1) shifted responsibility from

exporters to forwarders. This interim rule does not change that

language. The proposed rule, by its terms makes those who obtain

licenses from BXA or rely on License Exceptions in their export

transactions responsible for the proper use of that license or License

Exception. This is a reasonable policy and is retained in this interim

rule.

Two commenters proposed that forwarding agents not be required to

keep a record of the delegation of authority to them unless the

[[Page 12728]]

responsibility to do so was delegated by the exporter. This interim

rule does not adopt this suggestion. The proposed rule and this interim

rule conform with the existing EAR and with the FTSR on this issue.

Two commenters stated that the use of the phrase ``exporter and the

person submitting the document'' in the proposed Secs. 758.3(e) and

758.3(l)(1) expands the scope of the persons making representations to

the U.S. Government to include forwarders in instances where the

existing EAR does not impose responsibility on forwarders. We accepted

this recommendation. This interim rule adopts language from the

existing EAR. However, other sections of this interim rule, like the

existing EAR, impose liability on forwarders who make

misrepresentations to the government.

Two commenters recommended that the HTSUS numbers be permitted on

SEDs in lieu of Schedule B numbers. We did not adopt this

recommendation in this interim rule. The FTSR (15 CFR part 30) which

govern all exports from the United States require Schedule B numbers.

To the extent that there are differences between the HTSUS and the

Schedule B numbers, errors in compiling foreign trade statistics would

occur if either classification numbering system were permitted for

exports subject to the EAR.

One commenter recommended that this rule eliminate the

responsibility of exporters and forwarders who file summary monthly

reports in lieu of SEDs to ensure that carriers place the destination

control statement on bills of lading and air waybills. We did not adopt

this suggestion. The proposed rule and this interim rule follow the

existing EAR which was designed to assure that exports made under the

privileged monthly procedure were totally in compliance with the EAR.

Two commenters recommended that the regulations impose a limit on

the time that the Government may hold up export shipments for

inspection. We did not adopt that suggestion because it was beyond the

scope of the regulations reform exercise. Input from a number of other

government agencies would be necessary to develop a rational time

limit.

One commenter recommended that when the government orders a carrier

to return or unload a shipment that the government be required to

notify the exporter. We did not adopt this suggestion. In some cases

the exporter may be the target of an investigation and a notification

requirement could jeopardize legitimate law enforcement activities.

More than one agency has authority to order return or unloading and

developing a rule would require the coordinated input of several

agencies. That coordination would be beyond the scope of the

regulations reform exercise.

One commenter recommended that we require that exporters show the

Export Control Classification Number (ECCN) on the SED for all exports.

We did not adopt this suggestion. Although exporters need to determine

the proper ECCN in order to determine whether they need an export

license, requiring them to show that number on SED's for all exports

would unduly increase the paperwork burden.

To assist in defining parties to an export transaction, one

association recommended we adopt as a guide a Power of Attorney

utilized by Customs. We did not adopt this recommendation. The EAR

defines parties to a transaction in an adequate manner. Parties to

transactions additionally are free to adopt any Power of Attorney

arrangement that addresses pertinent roles and is not inconsistent with

the EAR or other applicable regulations.

One commenter questioned the proposed requirement to place the

various EAR authorizations for each item being exported under its

corresponding line item description. This commenter pointed out that

the FTSR requires that same information to be placed in blocks 21 and

22 on the SED form or continuation sheet. This interim rule adopts the

FTSR procedure and eliminates the requirement to repeat the

authorization under the line item description.

This same commenter also recommended that the ``Conformity''

provisions in Sec. 758.4(c)(2)(iii) be changed to allow a name of a

party other that the licensee/shipper on the SED to be shown on the

bill of lading as shipper. We did not adopt this recommendation. These

provisions are designed to assure that new parties are not introduced

in transactions contrary to the EAR and that exports are completed in

an orderly and legal manner. Additionally, the situation described may

be appropriately addressed in the application for license process, by

showing the foreign subsidiary as exporter/licensee and the United

States affiliated/related company as agent for the exporter.

Two commenters recommended eliminating the proposed rule

requirements concerning commodity descriptions on the SED

(Sec. 758.3(g)(2)(ii)) and the requirement that a copy of the

commercial invoice with a DCS be sent to the ultimate consignee

(Sec. 758.6(c)(4)). They claimed that these were new requirements. We

did not adopt the recommendations in this interim rule because the

proposed rule merely retained the requirements of the existing EAR.

Part 760--Restrictive Trade Practices or Boycotts

This part revises the existing part 769. The recordkeeping

requirement found in Sec. 760.5(b)(8) of this interim rule requires the

recipient of records relating to a reportable boycott request to keep

those records for five years after receipt of the request. The existing

EAR Sec. 769.6(b)(8) requires the recipient of records relating to a

reportable boycott request to keep those records for three years after

receipt of the request.

Two sections that were reserved in the existing EAR (769.5 and

769.7) have been removed. As a result of this change, Sec. 769.6 in the

existing EAR has been renumbered as Sec. 760.5 in this interim rule. In

addition two grace period provisions in the existing EAR have been

removed. They are; Sec. 760.2(f)(11) (along with its accompanying

example xi) in which certain actions to implement letters of credit

prior to the expirations of grace periods and Sec. 769.8 which

established a grace period for agreements entered into on or before May

16, 1977 could be complied with. The last such grace period expired on

December 31, 1978. Supplement No. 14 which relates to U.S. sanctions

against South Africa that have been repealed has also been removed and

subsequent supplements renumbered.

A new Supplement No. 16 interpreting antiboycott policy in light of

recent developments in Jordan has been added by this interim rule.

None of the changes made to this part by this interim rule were

published in the proposed rule.

Part 762--Recordkeeping

In this interim rule, this part has been reorganized and revised to

eliminate the requirement that regulated persons obtain BXA approval

prior to destroying original documents and replacing them with

electronic, magnetic, photographic or other images. This interim rule

also makes it clear that persons required to keep records may always

keep the records in the form in which that person receives or creates

it. It extends the recordkeeping period to five years to coincide with

the applicable statute of limitations and sets standards of legibility

and retrievability for reproductions that are kept in lieu of

originals.

Several commenters objected to the extension of the recordkeeping

requirement to five years in the

[[Page 12729]]

proposed rule. This interim rule adopts the five year record retention

period. A record retention period that coincides with the applicable

statute of limitations is needed to promote effective enforcement. In

addition, such a retention period benefits firms that comply with the

regulations because the EAR require that those who export under a

License Exception justify the use of that exception. Such persons will

need the records of the transaction to do so.

Three commenters suggested that recordkeeping requirements be

eliminated for certain categories of exports that do not require a

license from BXA. We did not adopt this suggestion. Many transactions

that are subject to the EAR do not require a license from BXA.

Comprehensive records are necessary for effective enforcement and

administration of the EAA and EAR.

One commenter objected to a requirement in the proposed rule that

records which are the subject of a request for production of records by

the government may not be destroyed even if the record retention period

has otherwise expired. This provision is a requirement under the

existing EAR and is retained in this interim rule. Enforcement and

compliance efforts would be undermined if parties were allowed to

destroy records after they have been notified that those records are

wanted in connection with an audit or investigation.

Several commenters recommended that we eliminate the specific

requirements for legibility and retrievability of reproduced records

that are kept in lieu of originals that appeared in the proposed rule.

We did not adopt this suggestion. This interim rule does not impose any

requirements of legibility on original records. However, standards of

legibility and retrievability are necessary when the originals are

destroyed and copies are retained in lieu thereof. BXA will continue to

review this issue to ascertain if the standards might be simplified

without compromising record integrity.

Two commenters recommended that the EAR specifically state that

records of certain activities of U.S. persons in connection with the

proliferation controls described in Secs. 734.2(b)(7) and 744.6 are

subject to the recordkeeping requirement. Although the proposed rule

stated that all transactions that are subject to the EAR are subject to

these recordkeeping requirements, we adopted this suggestion to make

more explicit the fact that activities subject to the proliferation

controls are covered.

Part 764--Enforcement

Eleven of the commenters dealt with part 764. This interim rule

makes numerous changes to the proposed rule based upon these comments.

This interim rule accepts the suggestion of one commenter and

revises Sec. 764.2(e) expressly to limit the offense of acting with

knowledge of a violation to actions that are connected with an item

that is the object of the violation of the EAA or EAR.

Section 764.2(j) is revised to remove from the list of violations a

number of actions characterized as ``trafficking and advertising export

control documents''. BXA accepted the suggestion that some of the

restrictions on the creation of an interest in a licensed transaction

are inconsistent with normal trade practice in financing and insuring

exports. BXA is eliminating other parts of this section as unnecessary

because limitations on license transfer and use are effectively covered

by other EAR provisions, such as Sec. 750.10, and concerns regarding

disclosure of a person's relationship to a transaction are covered by

provisions such as Sec. 764.2(g). This interim rule limits

Sec. 764.2(j) to the offense of license, other export control documents

or other alteration.

Some commenters called for distinguishing between ``substantive''

and ``minor'' violations. BXA did not adopt this suggestion. BXA

concludes that such distinctions are not feasible or appropriate with

respect to the type of activity covered by the EAR.

Some commenters urged BXA to list factors that would mitigate

sanctions for violations. BXA did not adopt this suggestion. BXA notes

that its practice shows that it is open to the consideration of a wide

range of mitigating factors, and it does not believe that a listing of

such factors is needed to enhance compliance or to ensure that

sanctions will be appropriate.

Some commenters called for BXA to include in the EAR a

comprehensive denial list that would include the names not only of

persons denied export privileges by BXA, but of persons covered by

denial orders or designations by other agencies. This interim rule does

not contain such a list. BXA cannot make its regulations an official

repository of legal action by other agencies. BXA will work with other

agencies to try to improve coordination of and access to the lists.

This interim rule describes certain measures such as license

suspensions and temporary denial orders and places them in a new

Sec. 764.6, entitled ``protective administrative measures''. These

measures are not punitive, but are intended to protect against activity

contrary to the purposes of the EAR. Although these measures were

included in the existing EAR and in the proposed rule, they were not

all in a single section. Placing these measures in a single section

distinguishes them from the sanctions which are covered elsewhere in

part 764.

Part 766--Administration Enforcement Proceedings

Five commenters specifically addressed part 766. Three of these

commenters addressed substantially the same points.

Three commenters called for changes to protect the interests of

persons BXA seeks to add to a denial order on the basis of relationship

to the respondent. This interim rule makes three such changes. It

revises Sec. 766.23 to clarify that prevention of evasion is the basis

for making an order applicable to a related person, to provide more

specifically and uniformly for notice to persons that BXA seeks to have

named as related, and provides that such persons may oppose or appeal

not only the issue of relationship, but also whether the order is

justified to prevent evasion. These commenters suggested, further, that

related persons be allowed to challenge the order on the merits, that

is, as to whether or not there has been a violation or a temporary

denial order is necessary in the public interest in order to prevent an

imminent violation. BXA did not adopt this suggestion. BXA believes

that it is proper to limit contests on the merits to respondents, as it

is the alleged conduct of respondents that is the basis for the order.

One commenter expressed concern that having the Under Secretary

decide appeals from Administrative Law Judge (ALJ) decisions in

enforcement proceedings raises doubts about impartiality, due process

and fairness. This commenter called for direct appeal from the ALJ to

the U.S. Court of Appeals. No such change has been made, as it would be

contrary to specific EAA provisions and to general administrative law

practice that makes final agency action subject to judicial review. An

ALJ decision cannot be final agency action under 50 U.S.C. app. 2412(c)

or (d). Moreover, BXA believes that its conduct of administrative

proceedings has been marked by fairness and the careful observance of

due process.

Three commenters called for stating that ``clear and convincing

evidence'' is required to sustain an administrative enforcement case.

BXA did not adopt this suggestion. The EAA (50 U.S.C.

[[Page 12730]]

app. 2412(c)) makes the Administrative Procedure Act (5 U.S.C. 556)

evidence standard (``reliable, probative, and substantial'')

applicable. BXA does not believe that any different EAR standard is

needed.

Three commenters called for detailed provisions on how much

evidence is needed to support a summary decision under Sec. 766.8.

BXA did not adopt this suggestion. BXA concludes that the use of

the standard ``there is no genuine issue as to any material fact'' is

proper and sufficient.

Another commenter stated that Sec. 766.24(b) should be revised to

define the ``imminent violation'' criterion for issuance of a temporary

denial order as requiring a showing of imminence both in nearness of

time and in likelihood of occurrence. BXA did not adopt this

suggestion. BXA retains its longstanding definition from the existing

EAR, consistent with the legislative history of the 1985 amendments to

the EAA, that either time or probability imminence will support the

issuance or renewal of a temporary denial order.

This interim rule adopts many improvements in drafting clarity and

precision that were suggested in the comments, along with numerous

others that BXA developed. This interim rule revises Sec. 766.7 to make

default procedures available in antiboycott proceedings. There were no

public comments suggesting this change, but it makes the procedures for

imposing administrative sanctions and other measures in antiboycott

cases more consistent with other proceedings under the EAR. Finally,

BXA decided to remove from this interim rule one provision that

appeared in the proposed rule even though no comments on it were

received. This interim rule eliminates a provision from Sec. 766.18 of

the proposed rule that would have barred reference in a settlement

order to a finding of a violation, as the content of such an order is

consensual. This deletion makes this interim rule consistent with the

existing EAR.

Part 768--Foreign Availability

Part 768 reflects the provisions described in part 791A of the

existing EAR. It implements section 5(h) of the Export Administration

Act (EAA) and contains procedures and criteria relating to

determinations of foreign availability for national security controlled

items. It is substantively unchanged from the existing part 791A. This

revised version contains several technical changes, such as use of the

term ``claimant'' instead of ``applicant,'' intended to make part 768

easier to read and understand.

Only three commenters mentioned this part in their submissions,

possibly because the Federal Register notice soliciting comments had

stated that BXA did not intend to make any significant changes in this

part.

One commenter questioned why Cuba is included in the definition of

``controlled countries'' for foreign availability purposes under

Sec. 768.1(d) and not for general purposes by inclusion in Country

Group D:1, as described in Supplement No. 1 to part 740. Cuba is a

``controlled country'' pursuant to determination made by BXA under

section 5(b) of the EAA. (See Export Administration Annual Report 1994,

at II-8.) Country Group D:1 does not include countries subject to broad

based embargoes, such as Cuba and North Korea, even though they are

controlled countries. This interim rule adds a clarifying notation

stating that since virtually all exports to Cuba and North Korea

currently are subject to an embargo, the foreign availability

procedures do not apply to these two controlled countries. A similar

notation is included in Supplement No. 1 to part 740.

Another commenter suggested that Sec. 768.7(d) be revised to

clearly reflect the provision of section 5(f)(3) of the EAA that ``the

Secretary shall accept the representations of applicants * * *

supported by reasonable evidence, unless contradicted by reliable

evidence * * *''. BXA did not make any revisions because Sec. 768.7

paragraphs (c), (d)(1), (d)(2), and (d)(3) of this interim Rule already

implement this provision.

One comment suggested that the provision in Sec. 768.7(f)((1)(i)(C)

for submitting foreign availability determinations to COCOM or a

successor regime was unnecessary and should be deleted. When COCOM

ceased functioning on March 31, 1994, the United States and other

member countries agreed to maintain the control lists that were in

place at that time until a successor regime was in place. A change has

been made in this interim rule to reflect BXA's intention to conduct

any necessary consultations with former member countries.

Another commenter questioned why foreign availability procedures do

not apply to foreign policy controlled items. Foreign availability is

always taken into account whenever foreign policy controls are imposed,

expanded, or extended. Because the purposes of foreign policy controls

vary, strict procedures for conducting assessments have not been deemed

to be warranted. Finally, one commenter suggested that part 768 be

revised to reflect the expanded role of the Strategic Industries and

Economic Security Office's Economic Analysis Division in considering

unfair impact, effectiveness of controls, and foreign availability, and

to discuss how exporters may contribute to this work and analysis. BXA

will consider such an addition to the EAR in future revisions.

Part 770--Interpretations

Part 770 contains certain interpretations concerning commodities,

software, technology, and de minimis exceptions for chemical mixtures.

These are designed to clarify the scope of the controls. BXA intends to

add interpretations to this part over time to aid you in interpreting

the EAR. Since the publication of the proposed rule, BXA has issued

certain interpretations on the application of the de minimis exclusion

for certain mixtures of chemicals. Those interpretations are added to

part 770 in this interim rule.

Some commenters suggested that the part numbers of this chapter and

others will overlap with the part numbers of different chapters in

earlier versions of the EAR and therefore BXA should use both odd and

even numbers for the parts of this interim rule. BXA does not believe

that using only even numbers for the parts of this interim rule will

cause confusion. BXA further believes that is it useful to retain only

even numbers in this interim rule so as to leave room for future parts

that cannot now be anticipated.

Certain commenters urged BXA to add interpretations of certain

issues; and BXA will review those recommendations for inclusion in the

future.

Commenters also asked BXA to include an interpretation of the

phrase ``specially designed.'' BXA is not responding to this

recommendation due to pending criminal enforcement action and for other

reasons.

This part contains certain interpretations regarding the de minimis

content of certain chemical mixtures. These reflect amendments to the

EAR adopted after the publication of the proposed rule.

Part 772--Definitions

This part defines terms as used in the EAR.

In response to comments, this interim rule combines the definitions

part from the proposed rule with the multilaterally-agreed definitions

found on the Commerce Control List that are found in Supplement No. 3

to Sec. 799A.1 of the existing EAR. These definitions may be

distinguished from other definitions by the fact that they appear in

quotation marks.

[[Page 12731]]

Part 774--The Commerce Control List

On May 11, 1995, BXA published an advance notice of public

rulemaking in the Federal Register, (60 FR 25480), soliciting comments

from industry and interested public on whether and how to conform the

numbering system used to identify items controlled by the Export

Administration Regulations, or Export Control Classification Numbers

(ECCNs), with the numbering system used by the European Union (EU) to

identify such items.

BXA received a total of eighteen responses to the May 11 notice.

Ten commenters responded directly to this notice, while the remaining

commenters included comments on the May 11 notice with their comments

on the proposed rule. Additional verbal comments were also provided at

the town-hall fora conducted throughout the United States by BXA.

Overall, industry supports harmonizing the U.S. ECCN system with

the EU numbering system. The following is an analysis of the responses

to the five questions posed by BXA in the Federal Register notice,

followed by other general comments.

1. Should the U.S. Harmonize the ECCNs With the EC Numbers and

Encourage Other Countries To Adopt a Uniform Numbering System?

Most commenters stated that they were very supportive of adopting

the EU numbering system. Four stated that if such a change were to be

made, there should be a grace period during which either the ECCN or EU

number could be used. One of these commenters stated that the grace

period should be six months, and another stated that a minimum of nine

months should be allowed for a smooth transition to the new system. One

company stated that it would be less costly to plan for such a change

now rather than sometime in the ``years ahead''. Another commenter

stated that although the initial computerization of the new numbers

could be costly, they will be able to use the information to process

export declarations electronically, which will make processing the

information much more timely.

One foreign-based company stated that they do not support

converting the ECCNs to the EU numbering system because the U.S.-based

ECCN automatically shows that the item is U.S.-origin, and that there

are just too many discrepancies between the items controlled by ECCNs

and the corresponding EU numbers. Another commenter who does not

support conversion to the EU numbering system stated that the use of a

common ECCN has little benefit in the export documentation and should

not be considered an advantage to exporters. This commenter further

stated that it was only recently that they incurred costs of

administering the changes BXA made to the ECCNs to implement the

Coordinating Committee on Multilateral Export Control's (COCOM) ``Core

List'' in 1991 (56 FR 42824, August 29, 1991), and would not want to do

it again. Another commenter stated that the ECCN system is a good

system that works and that they see no advantage of a world-wide system

in this area.

One commenter, that supported the conversion of ECCNs to the EU

system, stated that BXA should not require conversion to the EU system

until the differences between the existing ECCNs and the numbering

system used by the EU are resolved, and also until the COCOM successor

regime and control lists are finalized and all export destinations

agree to adopt the system. Another commenter echoed this opinion, and

added that the new U.S. ECCNs should only be developed for U.S.-

controlled items now controlled by the EU. One commenter stated that

unless the U.S. and EU numbers are identical, there will still be a

need for exporters to classify U.S. and EU separately.

BXA agrees that complete harmonization between the new ECCN system

and the EU system is desirable. Without such harmonization, any

resulting list may be confusing for industry and difficult to

implement. For multilaterally controlled items, the new ECCNs described

in this interim rule are renumbered according to the comparable entry

on the EU list. The scope of such controls are generally the same on

both lists, however the style of the text may be different.

It is important to note that the EU list provides guidance to

member states on the control parameters for items controlled by on the

Industrial List, the International Atomic Energy List, Missile

Technology Control Regime Annex, the Nuclear Supplier's Group, and the

list of items controlled by the Australia Group. Each EU member

publishes its own national list to implement such controls and any

other unilateral controls. Many national lists are therefore different

from the EU list, except for the scope of multilateral controls. The

U.S. also uses discretion in developing its national list, the CCL, for

dual-use items. Certain entries on the CCL have been created for those

items that are not controlled multilaterally on the EU list. Such items

are identified an unilateral controls. In those few instances where the

multilateral entries differ, the U.S. will ask its trading partners to

adopt the CCL.

2. What are the Specific Implications If We Change the ECCNs To Conform

With the EC Numbering System? For Example, if You Currently Have

Computer Programs That Aid in Facilitating Exports and Reexports, What

Will be the Programming Implications for Your Firm if We Make This

Change?

Most of the commenters stated that the reprogramming of computer

systems would be a significant undertaking to convert to a EU numbering

system. One commenter stated that they estimate it would take

approximately 2 person years of effort and $300,000 to change the data

base and ancillary associated systems worldwide. The time for

performing this effort would be approximately three to four months. Two

commenters stated that consideration would need to be given to the

diversion of human resources from current tasks to the review of entire

product lines against the proposed new classification numbers. This

would involve the review of several thousand product part numbers and

the time required to enter each new EU-based number into the computer

system. Three commenters remarked on the export control personnel

retraining requirements requisite to use of the new numbering system.

Another commenter stated that changes to their current system would be

minimal, but they are now in the process of upgrading relevant programs

and processes, and would like to see a change in numbering system now.

One commenter stated that they currently give dual classifications

(ECCN and EU number) to items on their product matrices, and that the

matrices are computerized. Changes to the matrices will be required for

the implementation of the EAR simplification project, so it would be

beneficial if the ECCN harmonization could be carried out at the same

time.

BXA is sympathetic to the time and cost involved in implementing a

new numbering system. However, as many companies have stated, the

benefits of a global numbering system far outweigh the costs of

implementing such a system. The new ECCNs identified in this interim

rule implement the first steps toward a global control list.

[[Page 12732]]

3. What Problems Have You Had in the Past in Tracking Two or More

Numbering Systems for Identical Items Controlled by Two or More

Countries?

One commenter stated that a uniform numbering system would

eliminate a potential area for misunderstanding or confusion in

references to a specific item while another stated that the current

need to track multiple numbering systems adds cost and unnecessary

complexity to their compliance programs. This latter commenter also

stated that there is added confusion caused by changes on different

dates by different countries to the various lists. Another commenter

stated that the lack of correlation between the various lists has made

it all but impossible to develop a computerized correlation between the

various numbers that may apply to one unique product. This commenter

also stated there is no correlation in the EU numbering system for

ECCNs designated for unilateral controls.

4. What Are the Specific Ways in Which a Uniform Numbering System Would

Help Your Company?

Five commenters responded to this question. One commenter stated

that it would simplify their product matrices, while another two stated

that it would streamline their training procedures. One of these

commenters also stated that it would also increase their ability to

maintain high levels of export control compliance. Another commenter

agreed that standardization would allow the company to avoid building

and maintaining cross-reference tables as they communicate order

requirements and status on U.S. export orders with importing foreign

entities.

Another commenter also cited simplification as the major benefit of

a uniform system, and highlighted the specific benefit of consistency

in classification of items. Only one commenter stated that a uniform

numbering system would not benefit their company, but provided no

further explanation as to why it would not be beneficial.

5. Are There Numbering Systems of Other Countries That You Prefer to

the EC System? If So, State Which Ones and Exactly How You Would

Reconcile Any Differences in Scope?

Two of the ten commenters supported maintaining the current ECCN

system. Of the seven commenters that specifically supported a unified

numbering system, none identified a system other than the EU as

preferable.

Four commenters provided additional comments other than those

supporting the four specific questions posed in the May 11 Federal

Register notice. One commenter, who did not support a conversion to the

EU numbering system, stated that the fourth and fifth digits of the EU

number do not provide any real benefit or added clarity. This commenter

further stated that the alpha-character used at the end of the current

ECCNs has been useful in internal control procedures. For example, an

``A'' at the end of a ECCN easily indicates a highly sensitive item,

while a ``G'' indicates greater range of exportability.

Two commenters, who were supportive of the EU numbering system,

also supported the elimination of basket categories. One of these

commenters stated that the continued use of such categories would

conflict with the objective of harmonizing the ECCNs with the EU list.

Another commenter stated that elimination of the ``G'' level basket

categories was not favorable.

One commenter also stated that there should be no interim or

intermediate changes to the ECCN numbering system, and future changes

to the control list should be effective on the same date in all

countries that are a party to the control regimes using the list. The

EU provides guidance to member states for drafting national control

lists. Each state is responsible for implementing changes to

multilateral control lists based upon agreements reached by the

Wassenaar Arrangement, the Missile Technology Control Regime, the

Nuclear Suppliers Group, and the Australia Group. BXA will continue to

implement agreements reached by each of the regimes through prompt

publication in the Federal Register.

Another commenter suggested that if the United States were to adopt

the EU numbering system, BXA should clarify whether new control numbers

(not included on the EU control list) represent new controls, and if

so, what items are being suggested for control and the policy basis for

such controls. A comprehensive cross-reference will be included in

Supplement No. 3 to this part. The Supplement will provide cross-

references for both new format to old format and old to new, so that

readers will be able to locate new numbers based on their current

ECCNs. In this manner, readers will be able to determine the origin of

all numbers that do not currently appear on the EU list. Further, the

revised CCL implements recent multilateral agreements that have not yet

been incorporated in the EU list, such as the NSG revisions published

February 1, 1996 (61 FR 3555).

Under the new numbering system adopted by this interim rule, it

will be easy to identify whether an item is controlled multilaterally

(e.g., for national security, missile technology, nuclear

nonproliferation, or chemical and biological reasons) or unilaterally,

based upon the third digit of the number. ECCNs having a ``9'' as their

third digit (i.e., 5A980, surreptitious listening devices) are controls

unique to the United States, just as other countries may have their own

unique controls. Further, Category 10 has been renumbered, and will

appear as Category 0 in conformance with the EU list. Titles of the

various categories have also been revised in conformance with the EU.

This interim rule retains one ``basket'' entry (EAR99), referenced

at the end of each category in the Commerce Control List, which

contains all the items that used to be classified under those ECCNs

ending with ``96G'' and were thus eligible for General License G-DEST

to most destinations. Items classified as EAR99 are those items not

specified on the CCL, but still subject to the EAR. Therefore,

exporters first must determine that their items are not, in fact, on

the CCL; only then may they classify their items as EAR99.

As in the existing EAR, terms enclosed in quotation marks (i.e.,

``aircraft'' or ``production'') are those with multilaterally agreed

definitions that appear throughout the CCL. These definitions, found in

Supplement No. 3 to part 799A of the existing EAR, are in this interim

rule integrated into part 772 (Definitions). By contrast, definitions

or parameters not enclosed in quotation marks and identified by the

Related Definitions header in individual ECCNs are unique to particular

entries, and therefore appear only in those entries.

Administrative Exception Notes, denoting ``favorable

consideration'' of licenses for certain items to certain destinations

in the existing Supplement No. 1 to part 799A, became meaningless when

COCOM disbanded, and they have been removed from the CCL in this

interim rule.

With the harmonization of the CCL and the EU list, most items will

need to be reclassified. Exporter and reexporters may submit requests

for reclassification beginning on the effective date of this interim

rule. BXA will publish a list of those ECCNs where reclassification is

not necessary prior to November 1, 1996.

Forms Supplement

The new Multipurpose Application Form, BXA-748P, will replace the

Application for Export License (BXA-622P) and the Request for Reexport

Authorization (BXA-699P). It will also

[[Page 12733]]

serve as an application for the Special Comprehensive License.

Additionally, the BXA-748P will accommodate Commerce Classification

Requests, thus allowing item classifications to be handled

electronically.

The BXA-711P replaces BXA-629P, Statement by Ultimate Consignee and

Purchaser. A letter from the ultimate consignee or purchaser may now be

substituted for this form, provided the letter contains the same

information. The BXA-752P will be required as support documentation for

the Special Comprehensive License, replacing the Statement by Foreign

Consignee in Support of Special License Application (BXA-6052P).

The International Import Certificate (BXA-645P/ATF-4522/DSP-53),

the Delivery Verification Certificate (BXA-647P), and the Notification

of Delivery Verification Requirement (BXA-648P) remain unchanged.

Applicants will now submit replacement licenses rather than amendment

requests when their situations change; therefore, the Request for

Amendment Action (BXA-685P) will be discontinued.

Exporters and reexporters may find instructions for completing

forms in part 748, while applicants for the Special Comprehensive

License may find instructions in part 752.

Applicants must begin using the new forms as of June 15, 1996. Due

to the requirements of electronic submission and processing systems,

there will be no transition period during which either version of each

form may be used. Old forms received after the changeover date will be

returned without action to the applicant. Forms may be obtained from

U.S. Department of Commerce District Offices or from: Exporter

Counselling Division, Bureau of Export Administration, Room 1099, U.S.

Department of Commerce, 14th Street and Pennsylvania Avenue, NW.,

Washington, DC 20230. Telephone (202) 482-4811.

Rulemaking Requirements

1. For purposes of Executive Order 12866, this interim rule has

been determined to be significant.

2. Notwithstanding any other provision of law, no person is

required to respond to nor shall a person be subject to a penalty for

failure to comply with a collection of information subject to the

requirements of the Paperwork Reduction Act unless that collection of

information displays a currently valid OMB Control Number. This interim

rule contains five new collections of information subject to the

requirements of the Paperwork Reduction Act, 44 U.S.C. ch. 35, which

were cleared by the Office of Management and Budget. The new

``Multipurpose Application'' is cleared under OMB Control Number 0694-

0088, the ``Special Comprehensive License'' is cleared under OMB

Control Number 0694-0089, five year record retention is cleared under

OMB Control Number 0694-0096, the one-time report on calculations under

the de minimis rule for software and technology is cleared under OMB

Control Number 0694-0101, requests for appointment of a Technical

Advisory Committee is cleared under OMB Control Number 0694-0100,

miscellaneous activities are cleared under OMB Control Number and 0694-

0102. All other collections of information contained in the rulemaking

have been previously approved by OMB. Supplement No. 2 to part 730 of

the EAR contains a table of the current OMB Control Numbers. The public

reporting burdens for the new collections of information are estimated

to average 45 minutes for the Multipurpose Application, between 20 and

40 hours for the Special Comprehensive License, 10 seconds for

recordkeeping, 25 hours for the one-time report, 5 hours for requests

for appointment of Technical Advisory Committee, and 5 hours for

petitions covered under miscellaneous activities. These estimates

include the time for reviewing instructions, searching existing data

sources, gathering and maintaining the data needed, and completing and

reviewing the collections of information. Send comments regarding these

burden estimates or any other aspect of these collections of

information, including suggestions for reducing the burden, to Larry E.

Christensen, Director, Regulatory Policy Division, Bureau of Export

Administration, U.S. Department of Commerce, Washington, D.C. 20230.

3. For purposes of Executive Order 12612, this interim rule does

not contain policies with Federalism implications sufficient to warrant

preparation of a Federalism Assessment.

4. Pursuant to authority at 5 U.S.C. 553(a)(1) and section 13(a) of

the Export Administration Act, 50 U.S.C. 2401-2420 et seq., though

prior notice and an opportunity for public comment are provided, such

procedures are not required for this regulatory action. As such, no

Initial or Final Regulatory Flexibility Analysis is required under

sections 3 and 4 of the Regulatory Flexibility Act, 5 U.S.C. 603(a) and

604(a), and none has been prepared.

5. Although the Export Administration Act expired on August 20,

1994, the President invoked his authority under the International

Emergency Economic Powers Act, through Executive Order 12924, August

19, 1994, as extended on August 15, 1995, and determined that, to the

extent permitted by law, the provisions of the Export Administration

Act shall be extended so as to continue in full force and effect and

amend, as necessary, the export control system previously implemented,

as the Export Administration Regulations, pursuant to the Export

Administration Act.

However, because of the importance of the issues raised by these

regulations, this rule is issued in interim form and comments will be

considered in the development of final regulations. Accordingly, the

Department encourages interested persons who wish to comment to do so

at the earliest possible time to permit the fullest consideration of

their views.

The period for submission of comments will close May 24, 1996. The

Department will consider all comments received before the close of the

comment period in developing final regulations. Comments received after

the end of the comment period will be considered if possible, but their

consideration cannot be assured. The Department will not accept public

comments accompanied by a request that a part or all of the material be

treated confidentially because of its business proprietary nature or

for any other reason. The Department will return such comments and

materials to the person submitting the comments and will not consider

them in the development of final regulations. All public comments on

these regulations will be a matter of public record and will be

available for public inspection and copying. In the interest of

accuracy and completeness, the Department requires comments in written

form.

Oral comments must be followed by written memoranda, which will

also be a matter of public record and will be available for public

review and copying. Communications from agencies of the United States

Government or foreign governments will not be made available for public

inspection.

The public record concerning these regulations will be maintained

in the Bureau of Export Administration Freedom of Information Records

Inspection Facility, Room 4525, Department of Commerce, 14th Street and

Pennsylvania Avenue, N.W., Washington, DC 20230. Records in this

facility, including written public comments and memoranda summarizing

the substance of oral communications, may be inspected and copied in

accordance with regulations published in Part 4 of Title 15 of the Code

of Federal Regulations.

[[Page 12734]]

Information about the inspection and copying of records at the facility

may be obtained from Margaret Cornejo, Bureau of Export Administration

Freedom of Information Officer, at the above address or by calling

(202) 482-5653.

List of Subjects

15 CFR Part 730

Administrative practice and procedure, Advisory committees,

Exports, Foreign trade, Reporting and recordkeeping requirements,

Strategic and critical materials.

15 CFR Part 732

Administrative practice and procedure, Exports, Foreign trade,

Reporting and recordkeeping requirements.

15 CFR Part 734

Administrative practice and procedure, Exports, Foreign trade.

15 CFR Part 736

Exports, Foreign trade.

15 CFR Part 738

Exports, Foreign trade.

15 CFR Part 740

Administrative practice and procedure, Exports, Foreign trade,

Reporting and recordkeeping requirements.

15 CFR Part 742

Exports, Foreign trade.

15 CFR Part 744

Exports, Foreign trade, Reporting and recordkeeping requirements.

15 CFR Part 746

Embargoes, Exports, Foreign trade, Reporting and recordkeeping

requirements.

15 CFR Part 748

Administrative practice and procedure, Exports, Foreign trade,

Reporting and recordkeeping requirements.

15 CFR Part 750

Administrative practice and procedure, Exports, Foreign trade,

Reporting and recordkeeping requirements.

15 CFR Part 752

Administrative practice and procedure, Exports, Foreign trade,

Reporting and recordkeeping requirements.

15 CFR Part 754

Exports, Foreign trade, Forests and forest products, Petroleum,

Reporting and recordkeeping requirements.

15 CFR Part 756

Administrative practice and procedure, Exports, Foreign trade,

Penalties.

15 CFR Part 758

Administrative practice and procedure, Exports, Foreign trade,

Reporting and recordkeeping requirements.

15 CFR Part 760

Boycotts, Exports, Foreign trade, Reporting and recordkeeping

requirements.

15 CFR Part 762

Administrative practice and procedure, Business and industry,

Confidential business information, Exports, Foreign trade, Reporting

and recordkeeping requirements.

15 CFR Part 764

Administrative practice and procedure, Exports, Foreign trade, Law

enforcement, Penalties.

15 CFR Part 766

Administrative practice and procedure, Confidential business

information, Exports, Foreign trade, Law enforcement, Penalties.

15 CFR Part 768

Administrative practice and procedure, Exports, Foreign trade,

Reporting and recordkeeping requirements.

15 CFR Part 770

Exports, Foreign trade.

15 CFR Part 772

Exports, Foreign trade.

15 CFR Part 774

Exports, Foreign trade.

Under authority set forth at 50 U.S.C. 2401 et seq., and for the

reasons set forth in the preamble, Subchapter C, Chapter 7 of Title 15,

Code of Federal Regulations is amended as follows:

1. In Subchapter C, the following parts are redesignated with an A

as set forth in the table below:

------------------------------------------------------------------------

Old part New part

------------------------------------------------------------------------

768....................................... 768A

769....................................... 769A

770....................................... 770A

771....................................... 771A

772....................................... 772A

773....................................... 773A

774....................................... 774A

775....................................... 775A

776....................................... 776A

777....................................... 777A

778....................................... 778A

779....................................... 779A

785....................................... 785A

786....................................... 786A

787....................................... 787A

788....................................... 788A

789....................................... 789A

790....................................... 790A

791....................................... 791A

799....................................... 799A

------------------------------------------------------------------------

2. All internal references appearing in newly designated parts 768A

through 779A, 785A through 791A, and 799A are revised as set forth in

the redesignation table set forth above.

3. Effective November 1, 1996, the newly designated parts are

removed.

4. Newly designated Sec. 771A.25(d) is removed effective March 25,

1996.

5. Parts 730, 732, 734, 736, 738, 740, 742, 744, 746, 748, 750,

752, 754, 756, 758, 760, 762, 764, 766, 768, 770, 772, and 774 are

added to read as follows:

PART 730--GENERAL INFORMATION

Sec.

730.1 What these regulations cover.

730.2 Statutory authority.

730.3 Dual use exports.

730.4 Other control agencies and departments.

730.5 Coverage of more than exports.

730.6 Control purposes.

730.7 License requirements and exceptions.

730.8 How to proceed and where to get help.

730.9 How the Bureau of Export Administration is organized.

730.10 Advisory information.

Supplement No. 1 to Part 730--Information Collection Requirements Under

the Paperwork Reduction Act: OMB Control Numbers

Supplement No. 2 to Part 730--Technical Advisory Committees

Supplement No. 3 to Part 730--Other U.S. Government Departments and

Agencies With Export Control Responsibilities

Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;

10 U.S.C. 7420; 10 U.S.C. 7430(e); 18 U.S.C. 2510 et seq.; 22 U.S.C.

287c; 22 U.S.C. 3201 et seq.; 22 U.S.C. 6004; Sec. 201, Pub. L. 104-

58, 109 Stat. 557 (30 U.S.C. 185(s)); 30 U.S.C. 185(u); 42 U.S.C.

2139a; 42 U.S.C. 6212; 43 U.S.C. 1354; 46 U.S.C. app. 466c; 50

U.S.C. app. 5; E.O. 11912, 3 CFR, 1976 Comp., p. 114; E.O. 12002, 3

CFR, 1977 Comp., p. 133; E.O. 12058, 3 CFR, 1978 Comp., p. 179; E.O.

12214, 3 CFR, 1980 Comp., p. 256; E.O. 12851, 3 CFR, 1993 Comp., p.

608; E.O. 12867, 3 CFR, 1993 Comp., p. 649; E.O. 12918, 3 CFR, 1994

Comp., p. 899; E.O. 12924, 3 CFR, 1994 Comp., p. 917; E.O. 12938, 3

CFR, 1994 Comp., p. 950; Notice of

[[Page 12735]]

August 15, 1995 (60 FR 42767, August 17, 1995); E.O. 12981, 60 FR

62981.

Sec. 730.1 What these regulations cover.

In this part, references to the Export Administration Regulations

(EAR) are references to 15 CFR chapter VII, subchapter C. The EAR are

issued by the United States Department of Commerce, Bureau of Export

Administration (BXA) under laws relating to the control of certain

exports, reexports, and activities. In addition, the EAR implement

antiboycott law provisions requiring regulations to prohibit specified

conduct by United States persons that has the effect of furthering or

supporting boycotts fostered or imposed by a country against a country

friendly to United States. Supplement No. 1 to part 730 lists the

control numbers assigned to information collection requirements under

the EAR by the Office of Management and Budget pursuant to the

Paperwork Reduction Act of 1995.

Sec. 730.2 Statutory authority.

The EAR have been designed primarily to implement the Export

Administration Act of 1979, as amended, 50 U.S.C. app. 2401-2420 (EAA).

There are numerous other legal authorities underlying the EAR. These

are listed in the Federal Register documents promulgating the EAR and

at the beginning of each part of the EAR in the Code of Federal

Regulations (CFR). From time to time, the President has exercised

authority under the International Emergency Economic Powers Act with

respect to the EAR (50 U.S.C. 1701-1706 (IEEPA)). The EAA is not

permanent legislation, and when it has lapsed, Presidential executive

orders under IEEPA have directed and authorized the continuation in

force of the EAR.

Sec. 730.3 Dual use exports.

The convenient term ``dual use'' is sometimes used to distinguish

the types of items covered by the EAR from those that are covered by

the regulations of certain other U.S. government departments and

agencies with export licensing responsibilities. In general, the term

dual use serves to distinguish EAR-controlled items that can be used

both in military and other strategic uses (e.g., nuclear) and

commercial applications. In general, the term dual use serves to

distinguish EAR-controlled items that can be used both in military and

other strategic uses and in civil applications from those that are

weapons and military related use or design and subject to the controls

of the Department of State or subject to the nuclear related controls

of the Department of Energy or the Nuclear Regulatory Commission. Note,

however, that although the short-hand term dual use may be employed to

refer to the entire scope of the EAR, the EAR also apply to some items

that have solely civil uses.

Sec. 730.4 Other control agencies and departments.

In addition to the departments and agencies mentioned in Sec. 730.3

of this part, other departments and agencies have jurisdiction over

certain narrower classes of exports and reexports. These include the

Department of Treasury's Office of Foreign Assets Control (OFAC), which

administers controls against certain countries that are the object of

sanctions affecting not only exports and reexports, but also imports

and financial dealings. For your convenience, Supplement No. 3 to part

730 identifies other departments and agencies with regulatory

jurisdiction over certain types of exports and reexports. This is not a

comprehensive list, and the brief descriptions are only generally

indicative of the types of controls administered and/or enforced by

each agency.

Sec. 730.5 Coverage of more than exports.

The core of the export control provisions of the EAR concerns

exports from the United States. You will find, however, that some

provisions give broad meaning to the term ``export'', apply to

transactions outside of the United States, or apply to activities other

than exports.

(a) Reexports. Commodities, software, and technology that have been

exported from the United States are generally subject to the EAR with

respect to reexport. Many such reexports, however, may go to many

destinations without a license or will qualify for an exception from

licensing requirements.

(b) Foreign products. In some cases, authorization to export

technology from the United States will be subject to assurances that

items produced abroad that are the direct product of that technology

will not be exported to certain destinations without authorization from

BXA.

(c) Scope of ``exports''. Certain actions that you might not regard

as an ``export'' in other contexts do constitute an export subject to

the EAR. The release of technology to a foreign national in the United

States through such means as demonstration or oral briefing is deemed

an export. Other examples of exports under the EAR include the return

of foreign equipment to its country of origin after repair in the

United States, shipments from a U.S. foreign trade zone, and the

electronic transmission of non-public data that will be received

abroad.

(d) U.S. person activities. To counter the proliferation of weapons

of mass destruction, the EAR restrict the involvement of ``United

States persons'' anywhere in the world in exports of foreign-origin

items, or in providing services or support, that may contribute to such

proliferation.

Sec. 730.6 Control purposes.

The export control provisions of the EAR are intended to serve the

national security, foreign policy, nonproliferation, and short supply

interests of the United States and, in some cases, to carry out its

international obligations. Some controls are designed to restrict

access to dual use items by countries or persons that might apply such

items to uses inimical to U.S. interests. These include controls

designed to stem the proliferation of weapons of mass destruction and

controls designed to limit the military and terrorism support

capability of certain countries. The effectiveness of many of the

controls under the EAR is enhanced by their being maintained as part of

multilateral control arrangements. Mult

This text is long and has been trimmed here. Open the source document for the complete record.