Unintended Consequences Of Export Reform: Has DDTC Opened An Alternative To The CJ?

On October 15, 2013, Export Control Reform ("ECR") took an important step. On that date, articles and technology previously included in Category VIII of the United States Munitions List ("USML") officially moved to the newly created 600 Series of the Commerce Department's Commerce Control List ("CCL").1 The full effect of this first transition continues to be felt by industry, the U.S. government, the supply chain, and foreign parties. As the first of what is expected to be many transitions, the consequences of this shift provide valuable lessons for those yet to come.

The many challenges involved in the transition of thousands of defense articles from the USML to the CCL include the arduous task (for companies and government) of determining which items are now within the jurisdiction of the Department of Commerce ("Commerce") and which remain under the jurisdiction of the Department of State ("State"). To assist affected parties, both the Directorate of Defense Trade Controls ("DDTC") and the Bureau of Industry and Security ("BIS") have issued rules and written guidance documents, and both agencies have created web-based tools designed to assist with product classification under the new rules (the latter focusing on assisting parties with the difficult task of determining, where applicable, whether their products and services meet the new definitions of "specially designed" under the International Traffic in Arms Regulations ("ITAR")2 and the Export Administration Regulations ("EAR").3 Despite all of the assistance and guidance provided, as well as the question of whether such guidance is legally binding given the pronouncements in the Lachman cases,4 export classification remains a dicey proposition. Because misclassification can result in a succession of systemic violations, parties continue to voice concerns about "getting it right" under the new rules. Since the inception of the Arms Export Control Act ("AECA"),5 DDTC has considered the commodity jurisdiction ("CJ") process to be the sole mechanism for assessing the legally binding export jurisdiction of items and technology—i.e., whether it is ITAR controlled or not.

The commodity classification ("CCATS") process at BIS provided exporters export classification guidance once the item was determined not to be subject to ITAR controls. Under recent practices at DDTC to meet the needs of ECR, however, questions exist whether this remains the case.

CJ Versus Licensing Decision

Both DDTC and BIS issued "transition plans" in their respective April 16, 2013 final rule notices. These plans address a number of issues that the agencies expect will arise as a result of the ECR transitions. While the plans were not intended to address every conceivable question and answer—a process that would evolve as the agencies and exporters gained experience implementing the transfers from State to Commerce—the issues surrounding how to deal with CJ determinations and their effectiveness were raised in the submitted comments and responded to by DDTC and BIS. The DDTC rule of April 16, 2013 devoted a section of the transition plan to the use, effectiveness, and compliance implications of CJs within the ECR process:

Commodity Jurisdiction Determinations

Previously issued commodity jurisdiction (CJ) determinations for items deemed to be subject to the EAR shall remain valid. Previously issued CJ determinations for items deemed to be USML but that are subsequently transitioning to the CCL pursuant to a published final rule will be superseded by the newly revised lists. Exporters are encouraged to review each revised USML category along with its companion CCL category to...