Does your company know all the different ways a person anywhere in the world has used your product? If not, it may be among the many companies encountering difficulty with subparagraph (a)(2) of the new “specially designed” definition.
Specially Designed Refresher
As part of President Obama’s Export Control Reform Initiative (“ECR”), the ECR Task Force implemented a new definition of “specially designed,” reportedly to address differing interpretations of the term highlighted in the case of U.S. v. Lachman. [F/N 1]
The Task Force promotes specially designed as an improved control standard, but the new definition is long, complex, and subject to varying interpretations. The EAR definition of the term, with clarifying notes, is over 1700 words in length, principally divided between two core paragraphs: paragraph (a), with two subparagraphs that “catch” an item as specially designed, and paragraph (b), with six subparagraphs that “release” an item from being specially designed. The paragraphs provide:
“(a) Except for items described in (b), an “item” is “specially designed” if it:
(1) As a result of “development” has properties peculiarly responsible for achieving or exceeding the performance levels, characteristics, or functions in the relevant ECCN or U.S. Munitions List (USML) paragraph; or
(2) Is a “part,” “component,” “accessory,” “attachment,” or “software” for use in or with a commodity or defense article ‘ enumerated’ or otherwise described on the CCL or the USML.
(b) A “part,” “component,” “accessory,” “attachment,” or “software” that would be controlled by paragraph (a) is not “specially designed” if it:
[six release subparagraphs omitted] [FN/2]
Subparagraph (a)(1) applies to all items while subparagraph (a)(2) and paragraph (b) only apply to parts, components, accessories, attachments, and software. Therefore, determining whether an item is “specially designed” requires a sequential analysis of:
- whether an item is caught in subparagraph (a)(1) or
- if the item is a part component, accessory, attachment or software, whether the item is caught by any of the two catch subparagraphs in paragraph (a) of the definition and, if so, whether any one of the six release subparagraphs in paragraph (b) of the definition apply.
If an item is not caught by paragraph (a), it is not specially designed. Even if caught by paragraph (a), however, it is still not specially designed if it is a part component, accessory, attachment or software that is released by any one of the six subparagraphs in paragraph (b).
Task Force Interpretation of Subparagraph (a)(2)
As noted in previous DTL Blog posts, the actual text of the specially designed definition is cryptic on whether the paragraph (a) catches are based on design intent. This is particularly the case in subparagraph (a)(2)’s use of the term “for use in or with” because the word “for” is defined by the Merriam-Webster Dictionary as a preposition “used to indicate the thing that something is meant to be used with.” [F/N 3]
So, if your designers “meant” that an item be used in or with a particular product, isn’t that the same thing as design intent?
At least informally, ECR Task Force representatives have answered “No” to this question. They state that subparagraph (a)(2) is not an intent-based standard and interpret this catch to apply when an item has been or is actually “for use in or with” a controlled item. [F/N 4] The Task Force further notes:
“And this we believe is a much simpler approach than asking a question about what was in the mind of the engineer or the company which designed it because all you’re asking is, is it for use in or with.” [F/N 5]
This Task Force reasoning lacks logic because, while determining original design intent of a product can be difficult, it is certainly much easier than determining all the different ways a product was ever used. In most cases, the people responsible for designing your product are known, whereas the universe of all possible users of your product is unknown. Moreover, in most cases, there are only a few people to question when establishing design intent, whereas there may be a few to hundreds of thousands of people that have used and currently use your product.
More Key Interpretations Hidden from the Public
Another problem with the Task Force’s interpretation of subparagraph (a)(2) is that it is not codified in the regulations. As a result, the interpretation is now among many other Task Force interpretations effectively hidden from the general public.
Outside of the problems that uncodified rules raise under formal rulemaking requirements, informal interpretations impose great uncertainties upon industry. This is especially true in the area of export controls, where informal advisements can and often do differ between agency representatives and tend to change over time, especially with high government agency employee turnover. In fact, it was the difference in agency interpretations over time that caused the confusion in U.S. v. Lachman, the very case that the Task Force cited for the need to create the “specially designed” definition.
So what to do if your company does not know all the different ways a person has used your product? One option is to see if you can perform the sequential specially designed analysis without having to address subparagraph (a)(2). To do this for parts, components, accessories, attachments or software, you must first determine whether your item is released under paragraph (b). If it is released under paragraph (b), it is not controlled under specially designed. If not released under paragraph (b), you must next determine whether the product is caught under subparagraph (a)(1). If caught under subparagraph (a)(1) and not released by paragraph (b), the item is controlled under the “specially designed” definition. If your product is not caught under subparagraph (a)(1) and it is not released under paragraph (b), you must assess whether it is caught under subparagraph (a)(2). Here, you can submit a formal commodity jurisdiction or commodity classification request to the relevant agency, whichever is appropriate, for agency guidance on whether your product is “specially designed” under subparagraph (a)(2).
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[F/N 1] United States v. Lachman et al., 387 F. 3d 42 (1st Cir. 2004).
[F/N 2] 15 CFR 772.1(a); see also similar ITAR definition at 22 CFR 120.41(a).
[F/N 3] See http://www.merriam-webster.com/dictionary/for
[F/N 4] See Webinar Transcript No. NWX-DOC ITA, U.S. Department of Commerce Bureau of Industry and Security,April 17, 2013, pp. 46-47.
[F/N 5] Ibid.
*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 July 21, 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.