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  1. 1. Vol. 78 Tuesday,No. 73 April 16, 2013Part IIIDepartment of CommerceBureau of Industry and Security15 CFR Parts 730, 732, 734, et al.Department of State22 CFR Parts 120, 121, and 123Revisions to the Export Administration Regulations: Initial Implementation ofExport Control Reform; Amendment to the International Traffic in ArmsRegulations: Initial Implementation of Export Control Reform; Final RulesVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  2. 2. 22660 Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and RegulationsDEPARTMENT OF COMMERCEBureau of Industry and Security15 CFR Parts 730, 732, 734, 736, 738,740, 742, 743, 744, 746, 748, 750, 756,758, 762, 764, 770, 772, and 774[Docket No. 120403246–2657–01]RIN 0694–AF65Revisions to the Export AdministrationRegulations: Initial Implementation ofExport Control ReformAGENCY: Bureau of Industry andSecurity, Commerce.ACTION: Final rule.SUMMARY: As part of the Export ControlReform (ECR) Initiative, the Bureau ofIndustry and Security (BIS), and theDirectorate of Defense Trade Controls(DDTC), Department of State, havepublished multiple proposedamendments to the ExportAdministration Regulations (EAR) andthe International Traffic in ArmsRegulations (ITAR), respectively, tostrengthen national security byfundamentally reforming the exportcontrol system. This final ruleimplements the initial ECR changes byadding a structure and relatedprovisions to control munitions itemsthat the President has determined nolonger warrant export control on theU.S. Munitions List (USML) on theCommerce Control List (CCL),specifically aircraft, gas turbine engines,and related items. This rule is beingpublished in conjunction with aDepartment of State rule that revises theUSML so that upon the effective date ofboth rules, the USML and CCL andcorresponding regulatory structures willbe complementary. The revisions in thisfinal rule are also part of Commerce’sretrospective regulatory review planunder EO 13563, which Commercecompleted in August 2011.DATES: Effective Date: This rule iseffective October 15, 2013.ADDRESSES: Commerce’s full plan can beaccessed at: http://open.commerce.gov/news/2011/08/23/commerce-plan-retrospective-analysis-existing-rules.FOR FURTHER INFORMATION CONTACT: Forgeneral questions about the ‘‘600 series’’control structure or transition relatedquestions, contact Hillary Hess,Regulatory Policy Division, Office ofExporter Services, Bureau of Industryand Security, at 202–482–2440 orrpd2@bis.doc.gov. For technicalquestions about the ECCNs included inthis rule contact Gene Christiansen,Office of National Security andTechnology Transfer Controls, at 202–482–2984 orgene.christiansen@bis.doc.gov. Forquestions about the definition of‘‘specially designed,’’ contact TimothyMooney, Regulatory Policy Division,Office of Exporter Services, Bureau ofIndustry and Security, at 202–482–2440or timothy.mooney@bis.doc.gov.SUPPLEMENTARY INFORMATION: This finalrule implements the initial ECR changesby adding a structure and relatedprovisions to control munitions itemsthat the President has determined nolonger warrant export control on theU.S. Munitions List (USML) on theCommerce Control List (CCL). Inaddition to adding this controlstructure, this rule creates ten new ‘‘600series’’ Export Control ClassificationNumbers (ECCNs) to control an initialtranche of items moving from the USMLto the CCL: aircraft and gas turbineengines, related parts, components,accessories, attachments, software, andtechnology.This rule also adopts as much aspossible a common definition of‘‘specially designed’’ for use under theEAR and the ITAR, along with other keyterms used on the two control lists. Inaddition, this rule addressesimplementation issues related to thetransition of items from the USML to theCCL, including the continued use ofDDTC-issued licenses that include itemstransferred to the CCL.This rule implements changes thatwere proposed in five rules publishedbetween July 15, 2011 and June 21, 2012under ECR. This rule is being publishedin conjunction with a Department ofState rule that revises the USML so thatupon the effective date of both rules, theUSML and CCL and correspondingregulatory structures will becomplementary.ContentsI. The Export Control Reform InitiativeA. BackgroundB. List of Proposed RulesC. Relationship to Other RulesImplementing ECRII. Addition of the ‘‘600 series’’ to the CCLA. General StructureB. Reasons for ControlC. Items ParagraphIII. TransitionA. Delayed Effective DateB. Amendment to the EAR To AddressDual LicensingC. Transition Period and General Order No.5IV. Retrospective Regulatory ReviewV. Part 730—General InformationVI. Part 732—Steps for Using the EARVII. Supplement No. 3 to Part 732—Red FlagsVIII. Part 734—Scope of the EARA. Dual LicensingB. De MinimisIX. Part 736—General ProhibitionsA. Foreign-Produced Direct ProductB. General Order No. 5X. Part 738—CCL Overview and the CountryChartXI. Part 740—License ExceptionsA. RestrictionsB. License Exception TMPC. License Exception RPLD. License Exception GOVE. License Exception TSUF. License Exception STAG. Other License Exception STA ChangesH. Country GroupsXII. Part 742—Control PolicyA. National Security (NS) Review PolicyB. Regional Stability (RS) LicenseRequirementsC. RS Review PolicyXIII. Part 743—Special ReportingA. Conventional ArmsB. Major Defense EquipmentXIV. Part 744—End-User and End-UseControlsA. ‘‘Military End Use’’ in §§ 744.17 and744.21B. China Military End-Use ControlXV. Part 746—Embargoes and Other SpecialControlsA. IraqB. UN EmbargoesXVI. Part 748—Applications andDocumentationA. Classification Requests To Confirm ThatItems Are Not ‘‘Specially Designed’’B. Unique Submission RequirementsXVII. Part 750—Application Processing,Issuance, and DenialA. Calculating Processing TimesB. Shipment to Approved End UsersC. Extended ValidityD. Specificity on ApplicationXVIII. Part 756—AppealsXIX. Part 758—Export ClearanceRequirementsA. Automated Export System (AES) FilingRegardless of Value, Except for .y ItemsB. Furnishing of ECCNs to ConsigneesC. Removal of Obsolete References inRevised SectionsXX. Part 762—RecordkeepingXXI. Part 764—Foreign-Produced DirectProduct and Denial OrdersXXII. Part 770—InterpretationsXXIII. Part 772—Definitions (IncludingSpecially Designed)A. ‘‘Specially Designed’’ DefinitionB. Other DefinitionsXXIV. Part 774—The Commerce Control ListA. Product Group HeadingsB. ECCN 0A919C. Aircraft and Related Items ‘‘600 Series’’ECCNsD. Gas Turbine Engines and Related Items‘‘600 Series’’ ECCNsE. 9Y018 ECCNs Rolled Into ‘‘600 Series’’F. Supplement Nos. 6 and 7—Sensitive Listand Very Sensitive ListG. Supplement No. 4—Commerce ControlList Order of ReviewXXV. Procedural Amendment—AuthorityCitation UpdateI. The Export Control Reform InitiativeA. BackgroundThe objective of the Export ControlReform (ECR) Initiative is to protect andVerDate Mar<15>2010 19:41 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  3. 3. 22661Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationsenhance U.S. national security interests.President Obama directed theAdministration in August 2009 toconduct a broad-based review of theU.S. export control system to identifyadditional ways to enhance nationalsecurity. In April 2010, then-Secretaryof Defense Robert M. Gates, describingthe initial results of that effort,explained that fundamental reform ofthe U.S. export control system isnecessary to enhance national security.Once the International Traffic in ArmsRegulations (ITAR) and its U.S.Munitions List (USML) are amended sothat they control only the items thatprovide the United States with a criticalmilitary or intelligence advantage orotherwise warrant such controls, andthe Export Administration Regulations(EAR) are amended to control militaryitems that do not warrant USMLcontrols, the U.S. export control systemwill enhance national security by (i)improving interoperability of U.S.military forces with allied countries, (ii)strengthening the U.S. industrial baseby, among other things, reducingincentives for foreign manufacturers todesign out and avoid U.S.-origin contentand services, and (iii) allowing exportcontrol officials to focus governmentresources on transactions that posegreater concern.On July 15, 2011, BIS publishedProposed Revisions to the ExportAdministration Regulations (EAR):Control of Items the PresidentDetermines No Longer Warrant Controlunder the United States Munitions List(USML) (76 FR 41958) (hereinafter ‘‘July15 (framework) rule’’). That ruleproposed a regulatory framework tocontrol items on the USML that, inaccordance with section 38(f) of theArms Export Control Act (AECA) (22U.S.C. 2778(f)(1)), the Presidentdetermines no longer warrant exportcontrol under the AECA. These itemswould be controlled under the EARonce the congressional notificationrequirements of section 38(f) andcorresponding amendments to the ITAR(22 CFR parts 120–130) and its USMLand the EAR (15 CFR parts 730–774)and its Commerce Control List (CCL) arecompleted.After the July 15 (framework) ruleproposed this regulatory framework, BISpublished subsequent rules proposingspecific changes to the CCL, and toother parts of the EAR. Among otherrules, on June 21, 2012, BIS publishedProposed Revisions to the ExportAdministration Regulations:Implementation of Export ControlReform; Revisions to License ExceptionsAfter Retrospective Regulatory Review(77 FR 37524) (hereinafter ‘‘June 21(transition) rule’’). That rule proposed,inter alia, establishing a general order tofacilitate the transition from ITAR toEAR licensing jurisdiction andbroadening certain EAR licenseexceptions and licensing procedures toensure they are not more restrictive thancomparable ITAR exemptions andapprovals.This final rule implements ECR byfinalizing the provisions contained infive proposed rules published betweenJuly 15, 2011 and June 21, 2012, whichadds to the CCL military aircraft,military gas turbine engines, and relateditems that the President has determinedno longer warrant export control on theUSML. The Department of State madethe congressional notification requiredby Section 38(f) of the AECA forremoval of these items from the USML.The majority of the revisions in this ruleare specific to the munitions items thatare transferred from the USML to theCCL; however, many revisions alsoaffect items or transactions that werealready subject to the EAR prior to theeffective date of this rule.Rather than adding a new paragraphto § 734.3 for the Bureau of Alcohol,Tobacco, Firearms and Explosives(ATF), as proposed, BIS is adding a noteto section 734.3(b)(1)(i) to clarify thedelegations of authority between theDepartments of State and Justice withrespect to defense articles identified onthe USML in the ITAR and the UnitedStates Munitions Import List (USMIL).BIS received no comments from thepublic on this issue. BIS does notbelieve that this change is substantive;rather it more accurately reflects therelationship between the USML in theITAR and the United States MunitionsImport List.B. List of Proposed RulesThis rule implements amendments tothe EAR proposed in the following fiverules published between July 15, 2011and June 21, 2012 under ECR:• Proposed Revisions to the ExportAdministration Regulations (EAR):Control of Items the PresidentDetermines No Longer Warrant ControlUnder the United States Munitions List(USML), (, 76 FR 41958, July 15, 2011)(RIN 0694–AF17) (‘‘July 15 (framework)rule’’);• Revisions to the ExportAdministration Regulations (EAR):Control of Aircraft and Related Itemsthe President Determines No LongerWarrant Control Under the UnitedStates Munitions List (USML), (76 FR68675, November 7, 2011) (RIN 0694–AF36) (‘‘November 7 (aircraft) rule’’);• Revisions to the ExportAdministration Regulations (EAR):Control of Gas Turbine Engines andRelated Items the President DeterminesNo Longer Warrant Control Under theUnited States Munitions List (USML),(76 FR 76072, December 6, 2011) (RIN0694–AF41) (‘‘December 6 (gas turbineengines) rule’’);• ‘‘Specially Designed’’ Definition,(77 FR 36409, June 19, 2012) (RIN 0694–AF66) (‘‘June 19 (specially designed)rule’’); and• Proposed Revisions to the ExportAdministration Regulations:Implementation of Export ControlReform; Revisions to License ExceptionsAfter Retrospective Regulatory Review,(77 FR 37524, June 21, 2012) (RIN 0694–AF65) (‘‘June 21 (transition) rule’’).C. Relationship to Other RulesImplementing ECRThis final rule is publishedconcurrently with the Department ofState final rule, Revisions to theInternational Traffic in ArmsRegulations: Initial Implementation ofExport Control Reform. BIS anticipatesadditional final rules will be publishedconcurrently by both agencies movingadditional munitions items from theUSML to the CCL, once the notificationprocess is completed in accordance withsection 38(f) of the AECA andsubsequent USML categories and thecorresponding Export ControlClassification Numbers (ECCNs) arepublished in final form.II. Addition of the ‘‘600 Series’’ to theCCLIn the July 15 (framework) rule, BISproposed to add a new ‘‘xY6zz’’ controlseries to the CCL. This series, known asthe ‘‘600 series,’’ would control mostitems formerly on the USML that moveto the CCL and would consolidate thethirteen existing WassenaarArrangement Munitions List (WAML)entries (i.e., those entries currentlyunder ‘‘xY018’’). In implementing the‘‘600 series’’ in this rule, as discussedbelow, BIS took into account commentsrelated to the function and structure ofthe ‘‘600 series’’ submitted under allprior proposed rules issued as part ofECR that would move items from theUSML to the CCL. These rules are:• Revisions to the ExportAdministration Regulations (EAR):Control of Military Vehicles and RelatedItems That the President Determines NoLonger Warrant Control on the UnitedStates Munitions List, (76 FR 76085,December 6, 2011);• Revisions to the ExportAdministration Regulations (EAR):Control of Vessels of War and RelatedArticles the President Determines NoLonger Warrant Control Under theVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  4. 4. 22662 Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and RegulationsUnited States Munitions List (USML),(76 FR 80282, December 23, 2011);• Revisions to the ExportAdministration Regulations (EAR):Control of Submersible Vessels,Oceanographic Equipment and RelatedArticles That the President DeterminesNo longer Warrant Control Under theUnited States Munitions List (USML) (76FR 80291, December 23, 2011);• Revisions to the ExportAdministration Regulations (EAR):Control of Energetic Materials andRelated Articles That the PresidentDetermines No Longer Warrant ControlUnder the United States Munitions List(USML) (77 FR 25932, May 2, 2012);• Revisions to the ExportAdministration Regulations: Auxiliaryand Miscellaneous Items That NoLonger Warrant Control Under theUnited States Munitions List and Itemson the Wassenaar ArrangementMunitions List (77 FR 29564, May 18,2012);• Revisions to the ExportAdministration Regulations (EAR):Control of Personal ProtectiveEquipment, Shelters, and Related Itemsthe President Determines No LongerWarrant Control Under the UnitedStates Munitions List (USML) (77 FR33688, June 7, 2012); and• Revisions to the ExportAdministration Regulations (EAR):Control of Military Training Equipmentand Related Items the PresidentDetermines No Longer Warrants ControlUnder the United States Munitions List(USML) (77 FR 35310, June 13, 2012).These rules, as well as the rulesreferenced in Section I.B., above,published in 2011 and 2012, providedthe public with extensive noticeregarding the proposed control structureand transition-related provisions andoffered a wide array of examples ofproposed ‘‘600 series’’ items. The publiccomments BIS received in response tothese proposed rules have played animportant role in helping theAdministration refine the provisionsthat are included in this final rule andthe corresponding Department of Statefinal rule to achieve initialimplementation of ECR. A summary ofthe comments and BIS’ responses areprovided below.A. General StructureUnder the July 15 (framework) rule,BIS proposed to add the new ‘‘600series’’ to each applicable CCL categoryso that it would fall after the 300 series(ECCNs that control items primarily forchemical and biological weaponproliferation reasons) and before the 900series (ECCNs that control items forvarious U.S. foreign policy reasons). The‘‘600 series’’ framework would allow foridentification, classification, and controlof items transferred from the USML that,based on their technical or othercharacteristics, are not classified underan existing ECCN that is subject tocontrols for any reason other than Anti-Terrorism (AT) reasons. This structurewould allow for a straightforwardapplication of a licensing policy foritems that move to the CCL from theUSML. The fourth and fifth charactersof each new ‘‘600 series’’ ECCN wouldgenerally track the WAML categories forthe types of items at issue.BIS is adopting the general structureof the ‘‘600 series’’ proposed under theJuly 15 (framework) rule. Mostcommenters were supportive of thisstructure, but some commenters wereconcerned that it did not make the CCLmore ‘‘positive’’ and that dual-use itemsmay be controlled under a ‘‘600 series’’ECCN. BIS shares the goal of creating amore positive control list, butmaintained a goal that no items beunintentionally decontrolled during theprocess of moving items from the USMLto the CCL. Since the USML contains,inter alia, catch-all controls on parts,components, accessories, andattachments specifically designed ormodified for defense articles, most ofthese catch-all controls are being movedto the CCL. BIS will continue to workto make the CCL more positive throughthe multilateral regimes and throughconsidering public commentsresponding to the advance notice ofproposed rulemaking, Feasibility ofEnumerating ‘‘Specially Designed’’Components, (77 FR 36419, June 19,2012). Also, BIS does not believe thatdual-use items or purely civil items—i.e., items that are now subject to theEAR and not subject to the jurisdictionof the ITAR—would be moved to a ‘‘600series’’ entry because items in a -018ECCN are on the WAML and thus, evenprior to this rule, are more properlydescribed as munitions items than dual-use or purely civil items.B. Reasons for ControlIn proposing the ‘‘600 series,’’ the July15 (framework) rule also proposed thereasons for control for ‘‘600 series’’ECCNs. Generally, such ECCNs wouldbe subject to National Security Column1 (‘‘NS1’’), Regional Stability Column 1(‘‘RS1’’), Anti-Terrorism Column 1(‘‘AT1’’), and United Nations Embargo(‘‘UN’’) reasons for control. In addition,end items moving from the USML thatare controlled by the MissileTechnology Control Regime, AustraliaGroup, and Firearms Convention wouldbe controlled for Missile TechnologyColumn 1 (‘‘MT1’’), Chemical andBiological Weapons ProliferationColumn 1 (‘‘CB1’’), and FirearmsConvention (‘‘FC’’) reasons,respectively, under the EAR. Items thatwere on the CCL prior to the creation ofthe ‘‘600 series’’ and that move into the‘‘600 series’’ would retain the reasonsfor control to which those items weresubject prior to the creation of the ‘‘600series.’’BIS is adopting the reasons for controldescribed above in this final rule. Somecommenters were concerned that the‘‘600 series’’ ECCNs contained too manyvarying controls, unilateral NS controls,overly sensitive NS1 and RS1 controls,or could inaccurately contain MTcontrols. BIS does not agree with thesecomments. Almost all items movingfrom the USML to the ‘‘600 series’’ arealso on the WAML, particularlyconsidering the catch-all controls in theWAML. Thus, there is alreadymultilateral agreement on such itemsand NS controls are warranted. To theextent an item in the ‘‘600 series’’ is noton the WAML, BIS has concluded thatits inherent or unique military orintelligence applicability warrants RS1controls, unless the item is specificallylisted in a .y paragraph within the ECCN(see discussion below in Section II.C foran explanation of .y paragraphs). BIShas also determined that certain licenseexceptions should be available undercertain circumstances and underspecific conditions in order to betterharmonize the EAR’s exceptions withthe exemptions in the ITAR or tootherwise implement the nationalsecurity objectives of the reform effort asset forth above. With respect to MTcontrols, the Departments of Defense,State, and Commerce have reviewed theUSML to determine which items arecurrently subject to MT controls. Asmentioned, BIS will continue to reviewthe CCL to make the entries more clearand positive, including reviewing thescope of controls on items subject to theEAR.The United Nations (UN) reason forcontrol was added to the ‘‘600 series’’ECCNs after publication of the ruleExport and Reexport Controls toRwanda and United Nations SanctionsUnder the Export AdministrationRegulations (77 FR 42973, July 23, 2012)established this convention foridentifying items controlled to UN arms-embargoed destinations.C. Items ParagraphWithin each ‘‘600 series’’ ECCN, theJuly 15 (framework) rule proposed thatspecific ‘‘end items,’’ ‘‘parts,’’‘‘components,’’ ‘‘accessories,’’ and‘‘attachments’’ moving from the USMLwould, unless otherwise noted, beVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  5. 5. 22663Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationspositively enumerated in paragraphs .athrough .w. Former USML ‘‘parts,’’‘‘components,’’ ‘‘accessories,’’ and‘‘attachments’’ that are not (i)enumerated in the revised, positiveUSML or (ii) enumerated in a new ‘‘600series’’ entry in paragraphs .a through.w would be controlled in the .xparagraph of each new corresponding‘‘600 series’’ ECCN as ‘‘parts,’’‘‘components,’’ ‘‘accessories,’’ and‘‘attachments’’ ‘‘specially designed’’ foritems controlled elsewhere in that ECCNor for defense articles controlled in thecorresponding USML category.The .y paragraph of each ‘‘600 series’’would control specific types of ‘‘parts,’’‘‘components,’’ ‘‘accessories,’’ and‘‘attachments’’ that, even if ‘‘speciallydesigned’’ for a defense article or ‘‘600series’’ end item, warrant no more thanAT-only controls. Thus, one would notneed to review the .x paragraph if a‘‘part,’’ ‘‘component,’’ ‘‘accessory,’’ or‘‘attachment’’ is described in the .yparagraph. The .y paragraphs thus donot control the enumerated items if theywere not ‘‘specially designed’’ for a‘‘600 series’’ item or a defense articlesubject to the ITAR.BIS received multiple commentsregarding the structure of the .x and .yparagraphs. With respect to the .xparagraph, some commentersrecommended that the descriptions ofitems should be more positive and avoidthe use of ‘‘specially designed,’’ whileother commenters believed that items in.x should only be subject to embargoes,end-use controls, and end-user controls.Again, BIS shares the goal of ultimatelyhaving a more positive list of itemscontrolled in the ‘‘600 series’’ and theCCL generally. However, the proposedrevisions must comply with multilateralregime obligations and must notinadvertently decontrol items that arebeing moved from the USML. Moreover,it would be physically impossible andimpractical to enumerate every U.S. andforeign-origin ‘‘part,’’ ‘‘component,’’‘‘accessory,’’ and ‘‘attachment’’ that is orever was ‘‘specially designed’’ for everyU.S. and foreign-origin military item.Therefore, BIS is maintaining the use of‘‘specially designed’’ when describingitems in the .x paragraph. Further, whileitems in the .x paragraph are of lesssignificance than the controls of theITAR warrant, they nevertheless warrantcontrol beyond the requirements ofparts 744 and 746 due to their inherentmilitary or intelligence characteristics.With respect to the .y paragraph,commenters expressed support forpositively enumerating items in the .yparagraph and applying an AT controlonly. However, some commentersbelieved that .y items should bedesignated EAR99, that BIS shoulddevelop a list of items that would becontrolled for AT reasons only across all‘‘600 series’’ ECCNs, or that .y itemsshould be controlled under an existingECCN subject to AT control rather thana ‘‘600 series’’ ECCN.BIS does not accept theserecommendations. All items describedin the .y series have been subject to theITAR in that they, by definition, were‘‘parts,’’ ‘‘components,’’ ‘‘accessories,’’or ‘‘attachments’’ specifically designedor modified for a defense article. If suchitems were identified as not being ITARcontrolled in a commodity jurisdiction(CJ) determination or were nototherwise specifically designed ormodified for a defense article, then theywere not ITAR-controlled and are notnow becoming subject to a .y control. Toavoid designating such items as EAR99,BIS developed the .y list structure andis implementing the .y list structure inthis final rule to reflect the lessermilitary significance of such items.Also, as one commenter alluded to, thedefinition of ‘‘specially designed’’already provides a list of ‘‘parts’’ inparagraph (b)(2) of the definition thatare militarily less significant across allcategories. The .y list is necessary forindividual ‘‘600 series’’ entries becausea ‘‘part’’ ‘‘specially designed’’ for oneend item or end use may not beconsidered critical, but similar ‘‘parts’’may be critical for a different end itemor end use. For example, ‘‘hoses’’ formilitary vehicles may warrant a .ylisting in the ‘‘600 series’’ controls formilitary vehicles but not all ‘‘hoses’’specially designed for military aircraftare per se insignificant. Moreover, BISbelieves that the inherent militarynature of .y items necessitates inclusionin a ‘‘600 series’’ ECCN rather than anexisting ECCN with an AT reason forcontrol. Because different classificationand marking schemes will already benecessary for such items since they arecurrently subject to the ITAR, therewould be little benefit to exporters ofusing an existing ECCN vis-a`-vis a .yentry in a ‘‘600 series’’ ECCN becauseboth are subject to the same reason forcontrol and the same reportingrequirements in the Automated ExportSystem (AES). As described below, part758 is being amended to address issuespertaining to the reporting of ‘‘600series’’ items in AES.This rule does not adopt the proposalto create .y.99 paragraphs that was firstproposed in the November 7 (aircraft)rule. One commenter raised concernsabout moving items to the .y.99paragraph if the items were determinedto be subject to the EAR under a priorCJ determination and are not on theCCL. BIS agrees that the burden oftracking down and analyzing whetheritems formally determined not to besubject to the ITAR were also EAR99items because they were not identifiedon the CCL outweighs the once-contemplated organizational benefits ofcreating the .y.99 control. Such itemshave already gone through aninteragency review process thatconcluded whether the items weresubject to the ITAR. Thus, BIS hasdetermined that any such items shouldretain EAR99 status if not otherwiseidentified on the CCL. Paragraph (b)(1)of the new definition of ‘‘speciallydesigned’’ also reflects thisunderstanding. An amendment toGeneral Order No. 5 from what wasproposed in the June 21 (transition)rule, as discussed further below inSection III.C, also addresses this issue.III. TransitionA. Delayed Effective DateThis rule adopts a delayed effectivedate of 180 days after publication in theFederal Register. The public commentsaddressing the effective date for thisfinal rule varied. Some commentersrequested a 120-day delay before theeffective date while other commentersrequested a longer delay, ranging from180 days to four years. They cited manytasks to be performed as a result of thistransition, including classifying andmarking items transferred to the CCL,obtaining new licenses, changinginternal databases, modifyingcompliance practices, and trainingpersonnel. BIS and the Directorate ofDefense Trade Controls (DDTC),Department of State have taken varioussteps to ease the transition from theUSML to the CCL. This final ruleincludes specific provisions to ease thetransition process, such as the newGeneral Order No. 5 in Supplement No.1 to part 736 being added to the EAR inthis final rule and the provisions toaddress the dual-licensing issue, that arediscussed below in Sections III.B andIII.C.These provisions, along with the otherchanges included in this final rule, areintended to ease the transition forexporters, reexporters and transferorsfrom the USML to the CCL and alleviatesome of the public concerns regardingthe effective date of the rule. BIS agreesthat a reasonable period of transition,including a delayed effective date forthis final rule, should be provided.Therefore, this final rule has a delayedeffective date of 180 days. Thisapproximately six-month period willprovide the regulated community areasonable amount of time to implementVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  6. 6. 22664 Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationschanges to conform their export controlcompliance systems to the new ‘‘600series’’ and the first ten ECCNs that arebeing added to the EAR in this finalrule. A longer delay, such as four years,as recommended by one commenter,would not have been reasonable giventhe national security objectives of thereform effort set out above. A 180-daydelayed effective date represents BIS’sbest effort to provide sufficient time forexporters, reexporters and transferors toupdate their internal systems and forBIS to provide education and outreachservices to those affected who may nothave been following closely the changesBIS has proposed over the course of thelast two years.B. Amendment to the EAR To AddressDual LicensingIn response to the June 21 (transition)rule, many commenters expressedconcerns that the movement of itemsfrom the USML to the CCL would resultin the need to obtain a license fromDDTC and a license from BIS for manytransactions that currently only requireone license from one agency. Forexample, exports of end items on theUSML often contain related USML partsand components in the shipment, sosuch items are typically authorizedunder a single DDTC license, such as aDSP–5. Since many parts andcomponents are moving from the USMLto the CCL, this typical export scenariocould require two separateauthorizations from two agencies.Further, one commenter to the June 21(transition) rule stated that it is industrypractice to include items currentlysubject to the EAR in a single licenseapplication to DDTC or under theForeign Military Sales (FMS) programbecause such items will accompanyUSML items in a shipment authorizedunder a license or because such EARitems are included in an executed Letterof Offer and Acceptance (LOA) underthe FMS program.To address these issues, BIS isamending part 734 to reflect the fact thatthe President has delegated to theSecretary of State the authority tolicense or otherwise authorize theexport, reexport or in-country transfer ofitems otherwise subject to the EAR, asagreed upon by the Secretaries of Stateand Commerce. (Executive Order 13637of March 8, 2013, Administration ofReformed Export Controls, 78 FR 16129,March 13, 2013). The items will remainsubject to the EAR, and BIS willcontinue to maintain jurisdiction forlicensing and enforcement. However,applicants will be able to choosewhether to use a DDTC or BISauthorization so long as the export,reexport, or in-country transfer meetsthe applicable requirements describedherein.In accordance with new § 120.5(b) ofthe ITAR, § 734.3(e) authorizes theexport, reexport or in-country transfer ofitems subject to the EAR when the itemssubject to the EAR will be used in orwith items subject to the ITAR and areincluded on the same DDTC license,agreement, or other approval. Thus, aDDTC license, agreement, or otherapproval made in accordance with§ 120.5(b) of the ITAR will preclude theneed for a separate license from BIS,and a BIS license will only be requiredwhen an export, reexport, or in-countrytransfer exceeds the scope of the DDTClicense, agreement, or other approval orexceeds the scope of § 120.5(b) of theITAR. DDTC added § 120.5(b) to theITAR on April 16, 2013.)Under this provision, DDTC hasdiscretion in determining whether therequirements of § 120.5 have been metand whether items subject to the EARshould be authorized under a license,agreement, or other approval by DDTC.To provide guidance on the use of§ 120.5(b) of the ITAR, items subject tothe EAR may be exported, reexported, ortransferred (in-country) using a validDDTC license, agreement, or otherapproval. The following are illustrativescenarios for when such approvals maybe used:• Parts and components subject to theEAR that will be used in or with enditems subject to the ITAR and thatwould otherwise require a license fromBIS may all be exported under a DDTClicense, such as a DSP–5, or reexportedunder a DDTC General Correspondence(GC) approval.• Software subject to the EAR thatwill be used in or with software or anend item subject to the ITAR and thatwould otherwise require a license fromBIS may all be exported under a DDTClicense, such as a DSP–5, or reexportedunder a GC.• Technology subject to the EAR thatis used with technical data subject tothe ITAR that will be used under theterms of a Technical AssistanceAgreement (TAA) or ManufacturingLicense Agreement (MLA) and thatwould otherwise require a license fromBIS may all be exported under the TAAor MLA.• If a program authorized by a TAAor MLA requires that parts andcomponents subject to the EAR andparts and components subject to theITAR be shipped in furtherance of theTAA or MLA, then DSP–5 licenses maybe used. However, if the program onlyrequires that parts and componentssubject to the EAR be shipped infurtherance of the TAA or MLA, thenauthorization must be obtained from BISand DSP–5 licenses may not be used.One commenter also believed thatanother scenario would requireadditional licensing—the export andsubsequent installation of a ‘‘600 series’’part or component into a foreign defensearticle. Under this situation, a licensemay be required from BIS to export the‘‘600 series’’ parts or components andthen a TAA may be required from DDTCto perform the defense service in orderto provide the installation andintegration services with respect to adefense article. However, this scenariodiffers from those above because twoauthorizations would already berequired under the ITAR. For instance,if the part or component to be exportedis currently on the USML, then theapplicant would need to apply for aTAA for the exchange of technical datapursuant to providing the installationand integration service regarding adefense article, while also applying fora separate DSP–5 license for the exportof the part or component. If the part orcomponent is currently subject to theEAR or would become subject to theEAR as a ‘‘600 series’’ item, then a TAAwould still be required from DDTC anda license or other authorization wouldbe required from BIS for the export ofthe part or component. Since thenumber of authorizations would remainthe same, this scenario would not beeligible for the provision describedabove.Section 734.3(e) authorizes the export,reexport or in-country transfer of itemssubject to the EAR when those items aresubject to licenses, agreements, or otherapprovals issued by DDTC to authorizeitems subject to the EAR that will beexported, reexported, or transferred (in-country) under the FMS program. Itemssubject to the EAR that are included inan executed Letter of Offer andAcceptance under the FMS programmay be identified in a DSP–94submitted in accordance with § 126.6(c)of the ITAR. The DSP–94 and use of§ 126.6(c) will serve as authorization foritems subject to the EAR, and noseparate authorization from BIS will berequired. However, any export, reexport,or in-country transfer of an item subjectto the EAR that is outside the scope ofthe LOA or DSP–94 must adhere to therequirements of the FMS case. Inaddition, no separate authorization fromBIS is required to supplement actionstaken on FMS cases by the Departmentof State’s Office of Regional Securityand Arms Transfers (RSAT). Questionsregarding §§ 120.5(b) or 126.6(c) of theITAR; the use of any DDTC license,agreement, or other approval; or FMSVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  7. 7. 22665Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationscases should be directed to DDTC orRSAT, as appropriate.C. Transition Period and General OrderNo. 5In the June 21 (transition) rule, BISproposed creating General Order No. 5in Supplement No. 1 to part 736 todescribe the transition process for itemsmoving from the USML to the CCL uponthe publication of the pertinent finalrules. The proposed general orderdescribed the grandfathering of DDTClicenses and agreements, the use of BISauthorizations, and the submission ofdisclosures to BIS and DDTC related tothe transition of items from the USMLto the CCL. In response to the proposedgeneral order, BIS received publiccomments regarding: the timing forsubmitting a license application to BIS,clarification of when to submit adisclosure to BIS and when to submit adisclosure to DDTC, a recommendationto include some form of a ‘‘safe harbor’’for violations when a DDTC approval isused for items subject to the EAR, andguidance on shipping documentation.1. Timeline for Applications,Amendments, and GrandfatheringBecause BIS and DDTC are adoptinga six-month delay in theimplementation of this final rule, BIShas made corresponding amendments toGeneral Order No. 5 regarding theearliest date that BIS will accept licenseapplications for items moving from theUSML to the CCL under this final ruleand under future final rules. For thosewishing to export under the authority ofthe EAR as soon as possible for itemsmoving from the USML to the CCL,applicants may submit licenseapplications immediately after thepublication of the final rule adding suchitems to the CCL. Thus, applicants may,in effect, pre-position licenseapplications early to facilitateprocessing of the license application.Such a pre-positioned licenseapplication will be processed inaccordance with § 750.4 of the EAR, butif BIS completes processing theapplication prior to the effective date ofthe applicable final rule, BIS will holdthe application without action (HWA),until the effective date of that final rule.Applications for transitioned itemsreceived after the effective date of theapplicable final rule will be processedas described in § 750.4 of the EAR.Existing holders of DDTC licenses,agreements, or other approvals, maymaintain existing authorizations orobtain new authorizations for itemsmoving from the USML to the CCL inaccordance with DDTC’s transition plan.Proposed General Order No. 5 has beenamended to more closely correspond toDDTC’s finalized transition plan.Questions regarding the continued useof DDTC licenses, agreements, or otherapprovals should be directed to DDTC.2. Submission of Voluntary Self-DisclosuresBIS is amending the prior guidance inproposed General Order No. 5 withrespect to submitting disclosures to BISor DDTC. The amendment makes clearthe existing recommended practice willcontinue to apply. For potentialviolations of the EAR, persons arerecommended to submit a voluntaryself-disclosure to BIS; for potentialviolations of the ITAR, persons arerecommended to submit a voluntarydisclosure to DDTC; and for potentialviolations of both the EAR and ITAR,persons are recommended to submitdisclosures to both agencies. Onecommenter suggested inserting a ‘‘safeharbor’’ provision for those who use aDDTC authorization for items subject tothe EAR. BIS believes that the additionof § 734.3(e) addresses that commenter’sconcerns, because it removes the duallicensing requirement that gave rise tothose concerns (see Section III.B.,above). Also, if a person uses a DDTCauthorization for an item subject to theEAR that does not fall within thecircumstances described in § 734.3(e),BIS will exercise discretion in reviewingand responding to those who fileddisclosures involving such scenarios.3. Miscellaneous IssuesBecause of the six-monthimplementation period for this finalrule, BIS believes that the public willhave adequate time to adjust USML andCCL notations for shipping documents.BIS, therefore, is not adding provisionsrelated to export clearance in GeneralOrder No. 5. BIS is, however, amendingthe proposed General Order No. 5 to adda paragraph (c) to address the removalof the proposed .y.99 paragraph for ‘‘600series’’ ECCNs by clarifying that if theU.S. Department of State has previouslydetermined that an item is not subjectto the ITAR and the item is not listedon the CCL, then the item will remaindesignated as EAR99.IV. Retrospective Regulatory ReviewOn January 18, 2011, President BarackObama issued Executive Order 13563,affirming general principles ofregulation and directing governmentagencies to conduct retrospectivereviews of existing regulations.Although ECR did not originate withExecutive Order 13563, it is consistentin spirit and substance. On August 5,2011, BIS issued a notice solicitingpublic comment on streamlining itsregulations pursuant to that executiveorder (76 FR 47527). In response topublic comments received on theAugust 5, 2011 notice, and consistentwith BIS’s internal analysis, the June 21(transition) rule proposed revisions tolicense exceptions for government uses(GOV, § 740.11) and temporary exports(TMP, § 740.9) that streamlined andupdated unduly complex or outmodedprovisions. At the same time, BISbroadened certain provisions withinthese license exceptions to implementECR. One commenter to the June 21(transition) rule stated that itappreciated BIS’s efforts to streamlinethis regulatory text.BIS intends to address other proposedchanges to the EAR in accordance withthe executive order in separate FederalRegister notices. BIS received a numberof comments, particularly on licenseexceptions in response to the June 21(transition) rule, that require extensiveconsideration, possibly includingadditional proposals seeking publiccomment. BIS intends to address thesecomments in future rules as part of BIS’scontinuing retrospective review of theEAR.Commerce’s full retrospectiveregulatory review plan under ExecutiveOrder 13563 can be accessed at: http://open.commerce.gov/news/2011/08/23/commerce-plan-retrospective-analysis-existing-rules.V. Part 730—General InformationThis rule revises the heading of§ 730.3 from ‘‘Dual use exports’’ to‘‘‘‘Dual use’’ and other types of itemssubject to the EAR’’ to reflect the scopeof items subject to export controls underthe EAR. Similarly, the revised textnotes that while the term ‘‘dual use’’ isoften used to describe the types of itemssubject to the EAR, more precisely, anyitem that is not exclusively controlledfor export or reexport by another agencyof the U.S. Government or excludedfrom the EAR pursuant to § 734.3(b), issubject to the EAR.One commenter recommendeddeletion of part 730, because it is notregulatory, but guidance. BIS has notadopted this recommendation, becauseit was outside the scope of this rule. Thepart exists for the benefit of those newto exporting.VI. Part 732—Steps for Using the EARBIS is amending §§ 732.2 (Stepsregarding scope of the EAR) and 732.3(Steps regarding the ten generalprohibitions) to remove text that isredundant to that found in§ 736.2(b)(3)—General ProhibitionThree. BIS received one comment inVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  8. 8. 22666 Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationsresponse to the July 15 (framework)rule’s part 732 proposal. The commenterrecommended deletion of parts 730 and732, because the commenter believesthose provisions are guidance and notregulatory in nature. For reasonsdescribed in discussion to part 730above, BIS has decided to keep parts730 and 732 for the benefit of those newto exporting. However, BIS agreed withthe recommendation to add a disclaimerto part 732 stating that part 732 shouldonly be used as a general overview ofthe EAR. This disclaimer is in new§ 732.1(a)(3). BIS also agreed thatrepeating regulatory text concerningGeneral Prohibition Three in §§ 732.2and 732.3 is not useful; therefore, therepeated text is deleted and replaced bya brief explanation of the direct productrule (General Prohibition Three) and areference to § 736.2(b)(3) is added to§ 732.2(f). Although the June 21(transition) rule proposed revisions tothe direct product rule, it did notpropose corresponding revisions to thesteps. This final rule makes thatconforming change.The order of review in § 732.3(b) (Step7: Classification) is revised to add areference to Supplement No. 4 to part774—Commerce Control List Order ofReview. The July 15 (framework) ruleproposed to add a cross reference inStep 22 (Terms and Conditions of theLicense Exceptions), § 732.4(b)(3)(iv).The reference alerts exporters that, ifthey are exporting under LicenseExceptions LVS, TMP, RPL, STA, orGOV and their item is classified in the‘‘600 series,’’ they should review § 743.4of the EAR to determine theapplicability of certain reportingrequirements for conventional armsexports. This rule implements thatproposal.The July 15 (framework) rule alsoproposed to revise Step 26 (licenseapplications) to add a paragraphdescribing the process of requestingLicense Exception STA eligibility forexport, reexport or in-country transfer ofan aircraft controlled under ECCN9A610.a. While the July 15 (framework)rule proposed eligibility requests for‘‘end items’’ generally, ships, vehicles,and aircraft were the ‘‘end items’’ itemsidentified in subsequent technicalreviews as requiring a determination ofeligibility for License Exception STA,and of those, only aircraft are includedin this final rule. A reference is alsoadded to Step 26 to Supplement No. 2to part 748, paragraph (w) (LicenseException STA eligibility requests),which contains instructions for how torequest in an application thatsubsequent exports of such end items beeligible for License Exception STA. Therevisions to Step 26 also indicate thatexporters, reexporters and transferorsmay review the list of such end itemsthat have already been approved forLicense Exception STA pursuant to§ 740.20(g) in the License Exceptionsparagraph of ECCN 9A610. Lastly, toalert exporters, reexporters, andtransferors who wish to use LicenseException STA in such cases in whichLicense Exception STA has beenapproved, a new Note was proposed to§ 734.4(b)(7)(ii) to remind them toreview paragraphs (a) and (b) todetermine the steps needed in usinglicense exceptions. BIS did not receiveany comments regarding these specificproposals.VII. Supplement No. 3 to Part 732—RedFlagsThis rule expands the EAR’s ‘‘KnowYour Customer’’ Guidance and RedFlags to provide compliance guidancefor License Exception STA and the ‘‘600series.’’The July 15 (framework) ruleproposed creating two new red flags,designated as numbers 13 and 14 inSupplement No. 3 to part 732, thatwould be specific to ‘‘600 series’’ itemsin addition to the existing 12 red flagsin that supplement that apply to EARtransactions generally.One such proposed red flag (number13) would address a proposedtransaction involving ‘‘parts’’ of ‘‘600series’’ items where the country ofdestination has no apparent need for the‘‘parts’’ or for the quantity ordered. Onecommenter stated this proposed red flagoverlaps with two existing red flags thataddress item suitability and quantity fortransactions subject to the EAR. Thiscommenter proposed generalizing theproposed new red flag to make itapplicable to all transactions subject tothe EAR, not just ‘‘600 series’’ items.Another commenter recommended thatthe phrase ‘‘You receive an order’’ inthis red flag be changed to read ‘‘Anorder received’’ and that the term‘‘components’’ be added to the red flagto make the red flag consistent withother red flags. Finally, one commenterrecommended that this red flag notapply to .y items because suchapplication would place anunreasonable requirement on theexporter.The second proposed red flag wouldaddress a proposed transaction in whichthe customer indicates that the ‘‘600series’’ items are destined for an armsembargoed country. One commentersuggested that this red flag be expandedto include customer indications ofshipment to destinations or end usersthat would be prohibited or restrictedfor transactions involving all itemssubject to the EAR with a specificreference to ‘‘600 series’’ items and armsembargoed destinations.One commenter recommended thatboth proposed red flags not be adoptedbecause they would not be applicable toany of the items proposed for the ‘‘600series’’ in the July 15 (framework) rule.This final rule makes one change tothe new proposed red flags in responseto these comments. It adds the term‘‘components’’ to red flag number 13because BIS believes the additional termmore completely describes thetransactions that this red flag isintended to address, although the listingof ‘‘parts’’ and ‘‘components’’ is notintended to be an exhaustive listing ofitems that may fall within the scope ofthis red flag because other ‘‘600 series’’items, such as ‘‘accessories’’ and‘‘attachments’’ could also be used in thisscenario. This final rule also makes anon-substantive clarification, bychanging references from ‘‘item’’ to‘‘end item’’ to create greater consistencywith how the term ‘‘end item’’ is beingused in the context of this new red flag13. Lastly, to conform to the changesbeing made in this final rule, BIS isreplacing the reference to armsembargoed countries in new red flag 14,with a reference to destinations listed inCountry Group D:5 (see Supplement No.1 to part 740 of the EAR), which asdescribed below, is a new country groupbeing added to the EAR in this finalrule.BIS did not adopt any of the otherrecommendations concerning the redflags for the following reasons.Generalizing red flags 13 and 14 toapply to the entire EAR would dilutetheir effect in highlighting the militarynature of the ‘‘600 series’’ items and theprecautions appropriate for such items,including the various provisions beingadded to the EAR in this final rule toimplement an appropriate controlstructure under the EAR for thesemunitions items. Adopting the phrase‘‘An order received,’’ would be only aminor stylistic change from theproposed text that does not provideadditional clarity. Excluding .y itemsfrom red flag 13 would be inappropriatebecause, even though the .y itemsrequire a license to fewer destinationsthan ‘‘600 series’’ items generally, theyare ‘‘specially designed’’ ‘‘parts’’ and‘‘components’’ for military items and, assuch, deserve inclusion.Several commenters in response tothe July 15 (framework) rule also notedthat exporters who will be new to theEAR because their items werepreviously only subject to the ITARwould benefit by having outreachVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  9. 9. 22667Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationsmaterials developed specifically forthem to assist them in understandingthe EAR and the new ‘‘600 series.’’ Redflags in this supplement, including thenew red flags 13 and 14 being added inthis final rule, are and will be animportant part of BIS’s outreachprogram. The BIS outreach programfocuses on assisting persons involved intransactions that are subject to the EARin understanding their responsibilitiesand what steps they can take to avoidbeing involved in transactions that mayviolate the EAR. BIS believes the twonew red flags described above will assistthose persons involved in transactionsthat are subject to the EAR involving‘‘600 series’’ items, in particular thoseexporters, reexporters and transferorswho will be new to the EAR.VIII. Part 734—Scope of the EARA. Dual LicensingAs described above under sectionIII.B., BIS is amending part 734 to notethe authority of DDTC to authorizecertain exports of items subject to theEAR to address public commentsregarding dual licensing concerns.B. De MinimisSection 734.4 of the EAR sets forth thede minimis provisions, which providethat foreign-made items incorporatingless than de minimis levels of U.S.content are not subject to the EAR. TheJuly 15 (framework) rule proposed toadd special restrictions for de minimisapplicability for ‘‘600 series’’ items.That rule proposed amending § 734.4(De minimis U.S. content) by addingparagraph (b)(3) and making aconforming change to paragraph (c). Therule proposed restricting the scope of deminimis for ‘‘600 series’’ ‘‘parts,’’‘‘components,’’ and other items subjectto the EAR (i.e., those classified underxB6zz, xC6zz, xD6zz and xE6zz entries).The rule also proposed that whenforeign-made items that incorporatesuch controlled U.S.-origin ‘‘600 series’’items are to be exported from abroad orreexported to any country they aresubject to the 10% de minimis rule forU.S.-origin content rather than the 25%de minimis rule.Fourteen commenters found the July15 (framework) rule proposal regardinga revised de minimis rule for ‘‘600series’’ items too complex andunworkable. Commenters stated thathaving a 10% de minimis rule for ‘‘600series’’ items and a 25% de minimis rulefor all other items subject to the EARwould be extremely burdensome, if notimpossible, for the commenters tocalculate.The June 21 (transition) rule proposaladdressed the calculation concerns ofthe commenters to the July 15(framework) rule by proposing tomaintain the EAR’s 25 percent deminimis rule for reexports to mostcountries; and would carry forward theITAR’s zero percent de minimis rulewith respect to reexports of foreign-made items containing ‘‘600 series’’content to countries subject to U.S. armsembargoes (Country Group D:5 ofSupplement No. 1 to part 740 of theEAR).BIS received eight comments to theJune 21 (transition) rule. Fourcommenters agreed with this approach.Four commenters disagreed with thisapproach, generally suggesting that thearms embargoed countries be subject tothe same 10% de minimis threshold thatapplies to countries in Country GroupE:1. These commenters provided tworeasons. First, they stated that foreignmanufacturers determine de minimis atdevelopment stage and use the lowestpossible threshold. The possibility of a0% threshold may lead to designing outEAR content. Second, these commentersstated that three de minimis thresholdswould make determining whether anitem produced outside the United Statesis subject to the EAR unduly complex.BIS does not accept therecommendations to replace the 0%with a 10% U.S. content for foreign-made items containing ‘‘600 series’’items destined to U.S. arms embargoeddestinations (Country Group D:5 ofSupplement No. 1 to part 740). BIS alsodoes not agree with the comments thatthe approach would be unduly complex.All legal trade in defense articles is nowwith countries that are not subject toU.S. arms or other embargoes, and allsuch defense articles are subject to a 0%de minimis rule for all suchdestinations. Thus, for example, aforeign party’s transfer of a foreign-madeend item containing even one U.S.-origin ITAR-controlled component ofany value from one NATO member toanother NATO member requires StateDepartment authorization. Thisnaturally creates dis-incentives topurchase U.S.-origin content even forend items to be sold to allies of theUnited States. This rule changes thiscurrent 0% de minimis rule of the ITARfor all such items to the standard 25%de minimis rule of the EAR for all suchitems. Contrary to the comments, thischange is a dramatic reduction incomplexity and will significantly reducethe current incentives for buyers in suchcountries to avoid purchasing whatwere ITAR-controlled parts andcomponents and what will, with thisrule and successive implementations ofadditional categories, become ‘‘600series’’ items subject to the EAR. It willat the same time maintain the status quowith respect to the 0% de minimis rulefor trade in items with countries subjectto U.S. arms embargoes. This is a simplerule—trade in foreign-made items withnon-arms embargoed countriescontaining U.S.-origin military items issubject to the same rule as all otheritems subject to the EAR and trade insuch items with countries subject toarms embargoes is prohibited, as is thecase today. This furthers the twin U.S.policy objectives of removingunnecessary barriers in trade with mostof the world and discouraging or indeedprohibiting trade in military itemscontaining controlled U.S.-origincontent with arms embargoeddestinations.One commenter asked that BIS clarifythe de minimis provisions of the EAR byrewriting Supplement No. 2 to part 734and by eliminating the one-timereporting requirement that applies totechnology. BIS is not addressing thiscomment because it is outside the scopeof any of the proposed rules beingaddressed by this final rule. Twocommenters pointed out that § 123.9 ofthe ITAR contains an exemption forU.S.-origin components incorporatedinto a foreign defense article to agovernment of a NATO country, or thegovernments of Australia, Japan, NewZealand, South Korea and Israel withoutprior written approval from DDTC.License Exception GOV is equivalent tothis ITAR exemption, and other licenseexceptions in part 740 may also beavailable, e.g., License Exception STA,for such transactions. One commentsuggested BIS clarify the method ofcalculating the de minimis value byrewriting Supplement No. 2 to part 734of the EAR; this recommendation fallsoutside the scope of this final rule.In sum, this rule furthers U.S.national security and foreign policyinterests by prohibiting the reexport offoreign-made items containing ‘‘600series’’ content to countries subject toU.S. arms embargoes (Country GroupD:5 in Supplement No. 1 to part 740),while removing the incentive the ITARcreates for foreign buyers to avoid suchU.S.-origin content with respect to tradeby and between other countries.IX. Part 736—General ProhibitionsA. Foreign-Produced Direct ProductPrior to the effective date of this rule,certain foreign-produced direct productsof U.S. technology were subject to theEAR: national security controlled itemsthat were direct products of U.S.VerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  10. 10. 22668 Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationsnational security-controlled technology,or of a plant that is the direct productof national security-controlledtechnology, when those products weredestined to countries of concern fornational security reasons (CountryGroup D:1) or terrorist-supportingcountries (Country Group E:1). The June21 (transition) rule proposed to expandthese provisions by adding anadditional country and product scope.Foreign-produced direct products ofU.S.-origin ‘‘600 series’’ technology, orof a plant or major component of a plantthat is a direct product of U.S.-origin‘‘600 series’’ technology, that are ‘‘600series’’ items are now subject to the EARwhen reexported or exported fromabroad to countries listed in CountryGroups D:1 (national security countriesof concern), D:3 (chemical andbiological countries of concern), D:4(missile technology countries ofconcern), D:5 (U.S. arms embargocountries) or E:1 (countries that supportterrorism) in Supplement No. 1 to part740. Foreign-made items subject to theEAR because of this rule are subject tothe same license requirements to thenew country of destination as if theywere of U.S. origin.BIS received three commentsopposing the expanded country scope‘‘to include countries of concern due tonuclear proliferation or missiletechnology reasons’’ for ‘‘600 series’’items on the grounds that ‘‘600 series’’items are controlled for nationalsecurity and regional stability reasons.BIS is not making the suggested changesand is adopting the expansion of thecountry scope to countries of concernfor missile or chemical and biologicalweapon proliferation reasons, becausesome ‘‘600 series’’ items are or likelywill be only controlled for missiletechnology or chemical and biologicalreasons. BIS does not anticipate that any‘‘600 series’’ items will be controlled fornuclear nonproliferation reasons, so BISdid not propose expansion of theforeign-produced direct product rule for‘‘600 series’’ items to countries ofconcern for nuclear proliferation anddoes not adopt such an approach in thisfinal rule.B. General Order 5As described above in section III.C.,BIS is amending part 736 to add GeneralOrder No. 5 to Supplement No. 1.X. Part 738—CCL Overview and theCountry ChartThis rule implements changesproposed in the July 15 (framework)rule to paragraph (b) of § 738.2(Commerce Control List (CCL) structure)by adding the new terms ‘‘end items,’’‘‘attachments,’’ ‘‘parts’’ and ‘‘systems’’to the description for Product Group Ain order to describe the scope of itemswithin CCL Product Group A with themore precise terms that are added topart 772 by this rule.BIS also adopts revisions to paragraph(c) of § 738.2 (Order of review) toprovide a cross reference to the newSupplement No. 4 to part 774—Commerce Control List Order of Reviewthat is also being added in this finalrule. This new Supplement No. 4 setsforth the steps that should be followedin classifying items that are ‘‘subject tothe EAR’’ and provides new guidancefor how to classify items in light of theaddition of the ‘‘600 series’’ of ECCNs tothe CCL and the new definition of‘‘specially designed’’ also being addedwith this final rule.BIS had proposed in the July 15(framework) rule to add to paragraph(d)(1) of § 738.2 (Commerce Control List(CCL) structure) a reference to itemswarranting national security or foreignpolicy controls at the determination ofthe Department of Commerce underECCN 0Y521. BIS received onecomment suggesting that the descriptorfor ECCNs that have ‘‘5’’ as their thirddigit should be, ‘‘Items subject to licenserequirements described in§ 742.6(a)(7).’’ BIS does not accept thissuggestion to allow broaderapplicability than the items described in§ 742.6(a)(7). Another commenterrecommended adding ‘‘UnilateralNational Security or Foreign PolicyReasons’’ as a revised reason for controlfor ECCNs that have ‘‘5’’ as their thirddigit. This recommendation is also notaccepted. BIS notes that in the final ruleimplementing the 0Y521 series, (4/13/12, 77 FR 22191) the EAR indicates thatthe determination to control ECCNs thathave ‘‘5’’ as their third digit was madeby the Department of Commerce, andthe term ‘‘Items warranting nationalsecurity or foreign policy controls at thedetermination of the Department ofCommerce’’ provides a more precisedescriptor for these ECCNs.In § 738.2(d)(1), the July 15(framework) rule proposed to add areference to the ‘‘600 series’’ to indicatethat items in which the third characteris a ‘‘6’’ are ‘‘600 series’’ items andcontrolled because they are WassenaarArrangement Munitions List (WAML)and formerly USML items subject to thejurisdiction of the EAR. As described inSection XXIII (part 772—Definitions(including Specially Designed)) in thisrule, this rule also adds a definition of‘‘600 series’’ to provide additionalinformation to the public regarding thiscontrol series. To explain the meaningof the last two numbers in ‘‘600 series’’ECCNs, this rule adds a new paragraph(d)(1)(iv) that indicates that the last twocharacters of each ‘‘600 series’’ ECCN,with few exceptions, track the WAMLcategories for the types of items at issue.In order to stay consistent with thegeneral structure of the groups withinthe CCL Categories, the WassenaarArrangement ML21 (‘‘software’’) andML22 (‘‘technology’’), however, arerolled into the existing D (‘‘software’’)and E (‘‘technology’’) CCL productgroups. The WAML numberingstructure for the last two characters isgenerally used rather than the USMLnumbering structure because themajority of items to be transferred aresubject to the WAML, although the ‘‘600series’’ is not limited to items on theWAML. Thus, the numbering scheme isgenerally consistent with such controls.BIS, however, deviated from thisscheme with respect to the new controlson military aircraft engines and relateditems that fall under new ECCNs 9A619,9B619, 9C619, 9D619, and 9E619.WAML Category 19 controls directedenergy weapons, but BIS has used the‘‘19’’ ECCN suffix in order to track thenew USML category XIX that identifiesthe military aircraft engines and relateditems that were formerly controlledunder USML Category VIII(b).This structure makes it easier to seethat the United States continues tocontrol all WAML items. In addition,multinational companies that must dealwith both the USML system and thenumbering system of most other alliedcountries (which generally track theWAML) should find compliance andtracking of controlled items somewhateasier.BIS received one comment suggestingthat the ‘‘600 series’’ descriptor shouldbe ‘‘Commerce Munitions List.’’ BIS didnot accept the suggestion because it isnot creating a new list of controlleditems but rather incorporating itemsformerly subject to the ITAR into theexisting Commerce Control List.This rule revises § 738.2(d)(2)(ii) tostate that in some ‘‘600 series’’ ECCNs,the STA license exception paragraph ora note to the License Exceptions sectioncontains additional information aboutLicense Exception STA applicability tothat ECCN. This sentence is needed todistinguish the role of STA paragraphsin the License Exception sections of‘‘600 series’’ ECCNs from the role ofthose paragraphs in other ECCNs wherethe STA paragraph only denotesineligibility of STA for destinationslisted in § 740.20(c)(2). Upon theeffective date of this final rule, thosedestinations will be listed inSupplement No. 1 to part 740, CountryGroup A:6. As described below in moreVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  11. 11. 22669Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationsdetail and briefly mentioned above,Country Group A:6 is one of the newcountry groups added to the EAR in thisfinal rule. BIS proposed this revision tothe text of § 738.2(d)(2)(ii) in theNovember 7 (aircraft) rule and receivedno comments. This final rule adopts theproposed text without change. As aconforming change, BIS is also replacingthe phrase ‘‘eight destinations listed in§ 740.20(c)(2) of the EAR’’ where itappears in ECCN entries in part 774with the phrase ‘‘destinations listed inCountry Group A:6 (see Supplement No.1 to part 740 of the EAR).’’XI. Part 740—License ExceptionsLicense Exceptions are publishedauthorizations set forth in part 740 ofthe EAR that allow exports, reexports,and in-country transfers that wouldotherwise require a license to proceedwithout one if certain conditions aremet. License Exceptions operate underthe EAR the same way exemptionsoperate under the ITAR.A general principle underlying theincorporation of the ‘‘600 series’’ intothe EAR is that, because items subject tothe EAR are less militarily significantthan those subject to the ITAR, EARexceptions should not be morerestrictive than comparable ITARexemptions. BIS recognizes that severalcommenters to the June 21 (transition)rule agreed with this principle. The June21 (transition) rule proposed toharmonize the provisions of severalEAR license exceptions with severalITAR exemptions, as set out in detailbelow, but only insofar as they arepermitted by law and otherwise relevantto ‘‘600 series’’ items and other itemssubject to the EAR. In particular, BIShas no authority to change the scope oflicense exceptions available for itemscontrolled for MT reasons because ofstatutory restrictions. See section (6)(l)of the Export Administration Act of1979, as amended, 50 U.S.C. app.§ 2405(l).When a license exception authorizesreexports under certain terms andconditions, there is no national securityor foreign policy objective met byrestricting in-country transfers that alsomeet those terms and conditions. In theJune 21 (transition) rule, BIS proposedrevising License Exceptions TMP andGOV (§§ 740.9 and 740.11, respectively)to explicitly provide authorization forin-country transfers.One commenter responding to theJuly 15 (framework) rule stated that ‘‘nolimitation should be placed on in-country transfers of licensable items.’’The commenter continued, ‘‘[t]heprospect that an item exported to anentity in a foreign country may betransferred to another entity in the samelicensed country is inherent in theassessment of an export transaction.Accordingly, part 740 of the EAR shouldbe revised to exclude all mentions of‘‘transfers (in-country).’’ BIS does notagree with this comment. The EAR’send-use and end-user controls evidencea longstanding policy that anassessment of an export transactioninvolves more than the country ofdestination. Further, conditions on mostlicenses restrict subsequent transfer ofthe licensed items. Rather than includein-country transfers in some licenseexceptions and not in others when thepolicy rationale is the same, this rulerevises § 740.1 to state that, when alicense exception authorizes reexports,in-country transfers meeting the termsand conditions of the reexport are alsoauthorized. While this specific revisionwas not proposed in the June 21(transition) rule, it is a logical outgrowthof BIS’s original proposal that stemsfrom reviewing the related publiccomment and further thinking abouthow in-country transfers are addressedin part 740.A. RestrictionsSection 740.2 describes restrictions onall license exceptions, and this ruleadds certain restrictions specific to ‘‘600series’’ items in new paragraphs (a)(12)through (a)(16).In the July 15 (framework) rule, BISproposed adding to § 740.2 newparagraphs (a)(12) (restricting the use oflicense exceptions to countries subjectto a United States arms embargo) and(a)(13) (restricting the use of licenseexceptions for ‘‘600 series’’ itemsdestined to countries other than thoselisted in proposed (a)(12)). In the June21 (transition) rule, BIS proposed that inaddition to items destined to arms-embargoed countries, items shippedfrom or manufactured in thosedestinations also be restricted fromlicense exceptions. With this final rule,BIS adopts the (a)(12) proposal with anadditional change. Rather than list thecountries in (a)(12), they are beingidentified in a new Country Group D:5(Supplement No. 1 to part 740 of theEAR), as explained below in theCountry Groups discussion (SectionXI.H). The restriction on using licenseexceptions for ‘‘600 series’’ itemsdestined to, shipped from, ormanufactured in a destination subject toa United States arms embargo asdescribed in § 126.1 of the ITARremains set forth in paragraph (a)(12).One commenter recommended deletingYemen from the (a)(12) list of countriesto reflect an amendment to the ITAR;BIS agrees with this comment, and thisrule does so in Country Group D:5.Further comments received onparagraph (a)(12) are described below,as part of the discussion of CountryGroups in Section XI.H.Paragraph (a)(13) is adopted as setforth in the July 15 (framework) rule.The license exceptions available for‘‘600 series’’ items are listed inparagraph (a)(13). Each exception isavailable according to the terms andconditions set forth in its section andsubject to the restrictions in § 740.2.Finally, in the June 21 (transition)rule, BIS proposed adding to § 740.2 twonew paragraphs (a)(15) and (a)(16)restricting the availability of licenseexceptions for certain ‘‘600 series’’exports for which prior notification toCongress will be made. This rulechanges BIS’s original proposal, asexplained below in the discussion of‘‘600 Series Major Defense Equipment’’in Section XIII.B.B. License Exception TMPThis rule revises § 740.9, LicenseException Temporary imports, exportsand reexports (TMP) paragraphs (a)(Temporary exports and reexports) and(b) (Exports of items temporarily in theUnited States) to streamline the existingexception consistent with theretrospective review and regulatoryimprovement directed in E.O. 13563,and to broaden the exception tocorrespond to certain ITAR exemptions.BIS proposed these revisions in thetransition rule.BIS received three comments statingthat, to correspond to the ITAR, TMPshould provide for the return ordisposal of items within four yearsrather than the current one year, and afurther five comments stating that whenauthorization to retain the item abroadbeyond one year is requested, thatauthorization be valid for four yearsrather than a one-time extension of sixmonths.BIS does not agree that the term ofTMP should be four years in order tocorrespond to the ITAR. Under theITAR, most exemptions for temporaryexport require some other form ofauthorization to be in place for theexemption to be available. Theserequirements mean that simplyextending TMP to a four-year termgenerally would be significantly moreexpansive than the ITAR exemptions.However, to better approximate ITARcontrols, this rule revises TMP toprovide that, when authorization toretain the item abroad beyond one yearis requested, the term of theauthorization may be for a total of fouryears rather than just an additional sixmonths.VerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  12. 12. 22670 Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and RegulationsFour commenters questioned the term‘‘order to acquire,’’ seeking clarificationon whether a purchase order would beconsidered an example of an order toacquire an item. BIS confirms that apurchase order would be one suchexample, and adds that example in thisfinal rule. Four commenters asked forclarification that the term ‘‘U.S. personsand their employees’’ referred toemployees of foreign branches. BIS ismaintaining the existing definition inLicense Exception TMP of ‘‘U.S.persons,’’ which does not includeforeign branches. Thus, no regulatorychange is required.Seven commenters stated that§ 740.9(a)(3)(i)(B), as proposed in theJune 21 (transition) rule, introduces‘‘additional recordkeepingrequirements’’ for a temporary export oftechnology as a tool of trade by a non-U.S. person. In fact, prior to publicationof that proposed rule, that requirementexisted in the EAR in§ 740.9(a)(3)(iv)(A)(2). It was originallypublished on December 12, 2007 (72 FR70509) in a rule that established theability to temporarily export technologyas a tool of trade under LicenseException TMP, which had previouslybeen limited to commodities andsoftware. This 2007 expansion of TMPwas based in part on § 125.4(b)(9) of theITAR, which allows certain exports oftechnical data by U.S. persons. The2007 rule also required that theemployers of non-U.S. personsdocument the need to travel, as asafeguard to the expansion of the toolsof trade provision of TMP beyond U.S.persons. This restriction does notimpose additional requirements on anypermanent release of technology,because License Exception TMP doesnot authorize any new (i.e., previouslyunauthorized) release of technology. Itauthorizes temporary exports of thattechnology as a tool of trade. BISbelieves the commenters misconstruedthis provision, and this final rule adoptsit as proposed in the June 21 (transition)rule.In the June 21 (transition) rule, BISproposed that temporary exports underLicense Exception TMP to a U.S.person’s foreign subsidiary, affiliate, orfacility abroad would no longer belimited to exports to Country Group Bcountries in order to make TMPconsistent with § 123.16(b)(9) of theITAR. Three commenters recommendedadding ‘‘materials’’ to the types of itemseligible for this provision. BIS did notmake this change. Materials are unlikelyto be returned in the form received andare inappropriate for this provision.Four commenters recommendedreplacing the country scope ‘‘E:2, Sudanand Syria’’ with ‘‘E:1’’ throughout TMP.BIS agrees that this expression is clearerand has made this change.One commenter requested that therequirement for personal inspection ofbody armor be dropped. In this finalrule, BIS has dropped the entireparagraph relating to body armor. Theissue will be addressed in a future finalrule that will address controls onpersonal protective equipment.This rule updates the provisionauthorizing certain tools of the trade forSudan by removing outdated technicalparameters and ECCN paragraphreferences that no longer exist.Consistent with § 123.19 of the ITAR,this rule adds a note to the temporaryimports paragraph of License ExceptionTMP stating that a shipment originatingin Canada or Mexico that incidentallytransits the United States en route to adelivery point in the same country doesnot require a license. BIS did not receivepublic comments on this note andadopts it as proposed in the June 21(transition) rule. A note regardingshipments from one location in theUnited States to another location in theUnited States via a foreign country, alsoproposed in the June 21 (transition)rule, was not adopted in this final rule.BIS received no comments on this note,but, upon further review andinteragency consultation, BISdetermined that the concept is alreadyimplicit in § 734.2(b)(8). Therefore, BISdeleted the proposed note.An additional note explaining thatdefense articles on the USMIL arecontrolled by the Bureau of Alcohol,Tobacco, Firearms and Explosives (ATF)for purposes of permanent import underits regulations at 27 CFR part 447,proposed in the June 21 (transition)rule, was not adopted because itduplicates the USMIL description addedto part 734 (described above).Three commenters requestedconfirmation that § 740.9 (b)(3) appliesto technology. BIS confirms that it does;technology is a component of thedefinition of ‘‘items,’’ as defined in§ 772.1.C. License Exception RPLIn the July 15 (framework) rule andthe June 21 (transition) rule, BISproposed changes to § 740.10 (Servicingand replacement of parts and equipment(RPL)). The July 15 (framework) ruleproposals all related directly toservicing and replacement of ‘‘600series’’ items. The June 21 (transition)rule proposals were related to a similarITAR exemption.In the July 15 (framework) rule, BISproposed revising RPL to: (1) Add ‘‘600series’’ ‘‘parts,’’ ‘‘components,’’‘‘accessories,’’ and ‘‘attachments’’ to thescope of this authorization; (2) imposerestrictions on the use of LicenseException RPL for the export or reexportof ‘‘parts,’’ ‘‘components,’’‘‘accessories,’’ and ‘‘attachments’’classified in ‘‘600 series’’ ECCNs; (3)authorize exports and reexports ofcertain items ‘‘subject to the EAR’’ to orfor a defense article described in anexport or reexport authorization issuedunder the authority of the AECA; and(4) exclude from authorization theexport or reexport of ‘‘parts,’’‘‘components,’’ accessories,’’ or‘‘attachments’’ that are defense articlesidentified on the USML (22 CFR§§ 120.6 and 121.1). In this final rule,BIS adopts all of these proposals.One commenter to the July 15(framework) rule suggested that‘‘accessories’’ and ‘‘attachments’’ beremoved from License Exception RPL,as they are by definition not necessaryfor items’ operation. BIS does not agreewith this suggestion, as servicing andreplacement of ‘‘accessories’’ and‘‘attachments’’ may be within the scopeof transactions conducted under thislicense exception and thus should beauthorized.The June 21 (transition) rule proposedto revise RPL to allow export or reexportof spares up to $500 in total value, andto remove the requirement that theability to return serviced commoditiesand software or replace defective orunacceptable U.S.-origin equipment belimited to the original exporters. BIS isnot adopting these proposals at thistime, for the reasons explained below.Six commenters addressed thisproposal, most requesting clarificationof the relationship between theshipment of spares under proposedrevised RPL and low-value shipmentsunder existing License Exception LVS.Two commenters proposed differentways of valuing the spares or suggestedplacing a value limit on the itemshipped or the transaction rather thanthe shipment. One commentrecommended restructuring theexception into separate paragraphs forspares as distinguished from one-for-onereplacement parts, and anothercomment recommended numerouschanges, amounting to a thoroughrevision of the license exception.Additionally, in response to the July 15(framework) rule, BIS received acomment recommending that RPLdefine enhancement resulting fromservicing or replacement of parts orcomponents as ‘‘affecting a controlledcharacteristic of an end item.’’Unlike License Exceptions TMP andGOV, BIS did not propose a wholesaleclarification and streamlining of RPL inVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3
  13. 13. 22671Federal Register / Vol. 78, No. 73 / Tuesday, April 16, 2013 / Rules and Regulationsthe June 21 (transition) rule. Based onpublic comments and internal analysis,however, BIS has concluded that acompletely revised RPL should beproposed separately as part of aretrospective regulatory review, usingpublic comments already received aspart of the basis for the new proposal.While the June 21 (transition) ruleproposal to amend RPL was related toa similar ITAR exemption, it was notspecific to the ‘‘600 series.’’ As such,and because BIS plans to proposecomprehensive revisions to RPL, thisfinal rule adopts only the changes toRPL proposed in the July 15(framework) rule. It does not adoptchanges proposed in the June 21(transition) rule or address commentsreceived in response to those proposedchanges in this final rule.D. License Exception GOVConsistent with the retrospectivereview and regulatory improvementdirected in Executive Order 13563, theJune 21 (transition) rule proposed tocompletely revise § 740.11, LicenseException GOV (Governments;International Organizations;International Inspections under theChemical Weapons Convention; and theInternational Space Station). Prior to theeffective date of this rule, LicenseException GOV contained references toitems on the Wassenaar Arrangement’sSensitive and Very Sensitive Lists,which necessitated annual regulatoryrevisions and was so lengthy that itrequired a supplement to the section.The June 21 (transition) rule proposedshortening and simplifying LicenseException GOV by including theSensitive and Very Sensitive Lists assupplements to part 774, describedbelow in Section XXIV.F. BIS receivedno public comments on thissimplification, and this final rule adoptsit without change.The July 15 (framework) ruleproposed restricting certain ‘‘600 series’’items’ eligibility for License ExceptionGOV, and the November 7 (aircraft) ruleproposed changes with respect torestricting certain aircraft-relatedsoftware and technology as listed in aproposed Supplement No. 4 to part 740.The December 6 (gas turbine engines)rule added restrictions on certainengine-related software and technologyto Supplement No. 4 to part 740. Thisfinal rule, however, does not adopt theproposal to include Supplement No. 4to part 740, and instead incorporatesthese restrictions into the relevantECCNs for ease of use, as describedbelow in Sections XXIV.C and .D.As proposed in the June 21(transition) rule, this rule expands GOVto authorize items consigned to non-governmental end users, such as U.S.Government contractors, acting onbehalf of the U.S. Government in certainsituations, subject to writtenauthorization from the appropriateagency and additional export clearancerequirements. One commenter on theJune 21 (transition) rule noted itsagreement with BIS’s proposal to extendGOV to U.S. Government contractors.Two commenters on the June 21(transition) rule suggested that therequirement for written authorization bedeleted in favor of relying on the actualcontract, noting that certification is aburden on both the exporter and on theDepartment of Defense, and that OFAC’sSudanese Sanctions Regulations (31CFR part 538) are less restrictive with asimilar purpose. Another commenterrequested confirmation that theexception includes subcontractorsunder certain contract clauses, andasked that the final rule includeexamples and scenarios. This final ruleadopts as proposed the requirement forwritten authorization and does notallow use of the license exception bysubcontractors. Given the broad scope ofitems authorized under the GOV licenseexception, written authorization and adirect relationship between the exporterand the U.S. Government is necessary toensure proper use of the exception. BISdoes not include examples in this finalrule, but will attempt to generate suchscenarios to include in outreach efforts.Four commenters recommended thatreferences to A:1 countries, a narrowgroup of close allies, be replaced with‘‘Wassenaar member countries,’’ abroader group. Another commenterrecommended expanding the provisionsavailable for cooperating governments toinclude all of Country Group B. Giventhe broad scope of items authorizedunder the GOV license exception, BISconsiders the suggested changes to thecountry scopes too broad, and thereforedoes not accept them.One commenter recommendeddeletion of the requirement for astatement that the U.S. Governmentowned the property being exportedbecause it was too broad. BIS agrees andhas limited the requirement toGovernment Furnished Equipment. Inresponse to a request for clarification ofthe scope of a provision describingprograms related to capacity-buildingand counterterrorist operations, BISdetermined that the provision wassubsumed by a less specific provisiondescribing cooperative efforts withforeign governments or internationalorganizations, and deleted the unclearprovision.This rule also adopts provisions forexports made under the direction of theU.S. Department of Defense consistentwith §§ 125.4(b)(1), 125.4(b)(3) and126.6(a) of the ITAR. This provision wasproposed in the June 21 (transition) ruleand received no comments.The June 21 (transition) rule proposalto add a note regarding authorization ofForeign Military Sales is not adopted inthis final rule. Authorization of ForeignMilitary Sales is addressed above insection III.B.This rule adopts provisions in theJune 21 (transition) rule that expandsthe scope of countries eligible to receiveitems on the Sensitive List under§ 740.11(a) (International Safeguards)and (c) (Cooperating Governments) toinclude the governments of those 36countries listed in new Country GroupA:5, discussed below in Section XI.H.BIS received no comments on thisproposal.This rule makes one correction toGOV as proposed in the June 21(transition) rule. Section740.11(b)(2)(iii)(G) has been amended toremove ‘‘defense articles’’ from theparenthetical in that paragraph sinceBIS does not have jurisdiction overitems subject to the ITAR.E. License Exception TSUThis rule implements revisionsproposed in the June 21 (transition) ruleto § 740.13 License ExceptionTechnology and Software—Unrestricted(TSU) that would include traininginformation in the operation technologyauthorized, as it is in § 125.4(b)(5) of theITAR. This rule also adds TSUauthorization for the release of softwaresource code and technology in theUnited States by U.S. universities totheir bona fide and full-time regularforeign national employees tocorrespond with a similar authorizationin § 125.4(b)(10) of the ITAR. Further,this rule amends TSU to add anauthorization corresponding to§ 125.4(b)(4) of the ITAR for copies oftechnology previously authorized forexport to the same recipient.Two commenters stated that therevised TSU for university employeesshould not be subject to the end-use andend-user restrictions in part 744 of theEAR because such restrictions do notnow exist in the comparable ITARexemption at § 125.4(b)(10). In addition,the commenters said that TSU shouldnot preclude the unlicensed release ofencryption-related software controlledfor ‘‘EI’’ and other software andtechnology controlled for ‘‘MT’’ (MissileTechnology) reasons because ITAR§ 125.4(b)(10) does not now precludethe release of such software andVerDate Mar<15>2010 18:40 Apr 15, 2013 Jkt 229001 PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 E:FRFM16APR3.SGM 16APR3mstockstillonDSK4VPTVN1PRODwithRULES3