BIS

ECR and ITAR Country-based Exemptions

A reader recently asked why the Administration did not seek country-based exemptions to the International Traffic in Arms Regulations (“ITAR”) instead of “jumbling the entire system” by transferring military items to control under the Export Administration Regulations (“EAR”) and establishing the new Strategic Trade Authorization exception (“STA”).  This is a great question that goes back to H.R. 6018, a bill discussed in previous DTL posts.  The question was also raised by an attendee at the 2012 BIS Update who asked:

Why not just add ten percent De Minimis Rule to the ITAR, create a country exceptions, zero for 126.1 countries and call it a day? [1]

An ECR Task Force representative responded that Section 38(j) of the Arms Export Control Act prevented the establishment of country-based exemptions in the ITAR:

If we could, we would.  The Arms Export Control Act doesn’t permit the creation of country exemptions, Section 38(j).  The Arms Export Control Act requires that Defense articles be treated as Defense articles.  It doesn’t create or allow for exemptions. [2]

Despite the ECR Task Force claim that the Arms Export Control Act “doesn’t create or allow for exemptions,” Section 38(j) of the Act expressly allows the President to create country-based ITAR license exemptions, clearly stating, “[t]he President may utilize the regulatory or other authority pursuant to this chapter to exempt a foreign country from the licensing requirements of this chapter with respect to exports of defense items only if the United States Government has concluded a binding bilateral agreement with the foreign country.” [3]

So the real kicker is that Section 38(j) requires the implementation of bilateral agreements, as well as some Presidential certifications to Congress, as preconditions to the establishment of new ITAR country-based exemptions. [4] These requirements serve as some of the many checks on the foreign affairs powers conferred to the President by Congress, a primary purpose of the Arms Export Control Act.

Establishing the bilateral agreements required by Section 38(j) takes a lot more than just another executive order or agency notice of rulemaking.  Rather it takes significant effort by the U.S. Government and its allies. So it is not surprising that Section 38(j) is cited by the Administration as justification for its decision not to seek new country-based exemptions in the ITAR.  As noted in previous DTL posts, this decision by the Administration has thus far resulted in destabilizing list transfers, the need for Department of State licensing jurisdiction over certain items transferred to the EAR, new Congressional notification requirements in the EAR, a new interagency classification review process, a new division inside Commerce, new license exceptions, and many other complexities, nearly all of which could have been avoided by amending the Arms Export Control Act to allow country-based exemptions similar to EAR license exception STA.  Such an amendment to the Act was indeed possible.

As frequent readers of this blog are by now aware, the Foreign Relations Authorization Act for Fiscal Year 2013 (H.R. 6018), a bipartisan measure that passed the House and was pending in the Senate at the time of the ECR amendments to the National Defense Reauthorization Act for Fiscal Year 2013, would have allowed the President to establish country-based exemptions to the ITAR for the export of replacement components, parts, accessories, attachments, equipment, firmware, software or technology not designated as major defense equipment or significant military equipment to the North Atlantic Treaty Organization, any member country of that Organization, and certain other countries. [5]

Pursuing change through Congress is not easy.  Still, the change offered by H.R. 6018, amendment of Section 38(j) or other measures adjusting the Arms Export Control Act to permit country-based exemptions for parts, components, accessories, and attachments without the need for bilateral agreements would have avoided the lion’s share of complexity that now characterizes U.S. export control reform.  With such ITAR exemptions in place, the Administration could have still positively enumerated items on agency control lists, transferred commercial communication satellites to EAR control, harmonized differing agency definitions, removed outdated sections, clarified regulatory requirements, consolidated enforcement responsibilities and IT systems, and made other changes to improve the existing framework.

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[FN 1] “U.S. Munitions List to Commerce Control List Open Forum Part 2,” Transcript from Update 2012, U.S. Department of Commerce Bureau of Industry and Security, July 17, 2012.

[FN 2] Ibid.; see also “ECR – License Exception Strategic Trade Authorization,” Transcript from Update 2012, U.S. Department of Commerce Bureau of Industry and Security, July 17, 2012 (“And because of the limitations of the Arms Export Control Act and the prohibitions on particular country exceptions and section 38J of the Act, the only way in which to satisfy the 38F requirements of the Arms Export Control Act is to go through the items, determine those that don’t warrant USML control and then by definition control the rest on the existing regulatory structure which is the EAR and the commerce control list.”).

[FN 3] 28 U.S.C. § 2778(j)(1)(A).

[FN 4] 28 U.S.C. § 2778(j)(2) and 3).

[FN 5] The Foreign Relations Authorization Act for Fiscal Year 2013 (H.R. 6018) proposed to amend the Arms Export Control Act by adding “38(l) SPECIAL EXPORT LICENSING FOR UNITED STATES ALLIES,” which provided:

The President may establish special licensing procedures for the export of replacement components, parts, accessories, attachments, equipment, firmware, software or technology that are not designated as major defense equipment or significant military equipment to the North Atlantic Treaty Organization, any member country of that Organization, or any other country described in section 36(c)(2)(A) of this Act.

The bill passed the House on July 17, 2012 and was pending at the Senate at the time ECR provisions were added to the National Defense Reauthorization Act for Fiscal Year 2013.

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*The above is not intended as an exhaustive list of restrictions that may apply to a particular transaction nor advice for a specific transaction because the specifics of an individual case may implicate application of other U.S. laws as well as foreign laws that carry added or different requirements.  In addition, U.S. export control and sanctions laws are frequently subject to change.  Such changes can affect the continued validity of the information above, which is based on U.S. law existing as of February 17, 2014. For these reasons, assistance from a qualified attorney competent to advise on such matters is highly recommended.

Matthew A. Goldstein is an International Trade Attorney in Washington D.C. licensed to practice in the District of Columbia.  He can be reached at (202) 550-0040 and Matthew@GoldsteinPLLC.com.