Export Control Reform

New Definitions of “End-Items” and “Systems” Create More Headaches

Many exporters will struggle to determine commodity jurisdiction under the definition of “specially designed” created by the President’s Export Control Reform Initiative (“ECR”). Unfortunately, exporters must also now contend with another obstacle to self-classification: ECR’s new definitions for “end-items” and “systems” in the International Traffic in Arms Regulations (“ITAR”).

The structure of ITAR U.S. Munitions List (“USML”) categories generally starts with an end-item followed by subparagraphs for systems, equipment, parts, components, accessories, and attachments. Proper classification of the subparagraph into which an article falls is critical to correctly determining specific controls and requirements.

Prior to ECR, the scope of what was considered end-items, components, accessories, attachments, parts, firmware, software, and systems was clearly defined at former ITAR Section 121.8, which, among other things:

defined an “end-item” as “an assembled article ready for its intended use;” and

defined a “system” as “a combination of end-items, components, parts, accessories, attachments, firmware or software, specifically designed, modified or adapted to operate together to perform a specialized military function.”

These definitions worked together to provide that a combination of end-items could meet the definition of a system. Unfortunately, eliminating such clarity has become the hallmark of ECR.

Over the last two years, the ECR Task Force made a series of changes to the definitions of “end-item” and “system,” added a new definition for “equipment” and moved former Section 121.8 to ITAR Section 120.45. [F/N 1] The new Section 120.45 now:

defines an “end-item” as “a system, equipment, or an assembled article ready for its intended use…;”

defines a “system” as “a combination of parts, components, accessories, attachments, firmware, software, equipment, or end-items that operate together to perform a function;” and

defines “equipment” as “a combination of parts, components, accessories, attachments, firmware, or software that operate together to perform a function of, as, or for an end-item or system….”

These new definitions are overlapping, circular, and confusing. As a result, basic questions like the following are now riddles:

Is a combination of components that operate together to perform a function defined as equipment or a system?

Is a combination of equipment that operates together to perform a function, and which is ready for its intended use, defined as a system or an end-item?

Like many other substantive changes being made by ECR, the new definitions for “end-item” and “system” were slipped into other changes being made in final rules, without an opportunity for public comment. Hopefully, the Department of State’s Directorate of Defense Trade Controls (“DDTC”) will listen to industry feedback on the new definitions outside of the formal rulemaking process and correct the definitions. In the meantime, many exporters may find it difficult, if not impossible, to determine which USML subparagraph applies to an article and can seek confirmation of the appropriate classification from DDTC.

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[F/N 1] See “Amendment to the International Traffic in Arms Regulations: Revision of U.S. Munitions List Category XI and Definition for ‘‘Equipment,”” 77 Fed. Reg. 70958 (November 28, 2012) (proposing new definition for “equipment”); “Amendment to the International Traffic in Arms Regulations: Initial Implementation of Export Control Reform,” 78 FR 22740 (April 16, 2013) (adding new definition for “system” in final rule); “Amendment to the International Traffic in Arms Regulations: Third Rule Implementing Export Control Reform,” 79 Fed. Reg. 34 (January 2, 2014) (Adding new definition for ‘‘equipment’’ and changing definition for “end-items” in final rule.); “Amendment to the International Traffic in Arms Regulations: Corrections, Clarifications, and Movement of Definitions,” 79 Fed. Reg. 61228 (October 10, 2014) (moving Section 121.8 to new Section 120.45).

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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 October 28, 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

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