Export Control Reform

Ghosts of ECR Past, Present, and Future

DS_NorthPoleAs we turn to the final year of the President’s Export Control Reform (ECR) Initiative, government officials continue to tout success of the reform. But, as shown from the past, present, and expectations for the future, ECR is a tale of unfulfilled goals and inadvertent consequences of complex regulatory changes to what was already an overly complex system.


After assuming office in 2009, President Obama initiated a review of the U.S. export control system to identify areas in need of reform. In early 2010, his Administration announced that “fundamental reform” of the system was needed with transformation to a Single Control List, Single Information Technology (IT) System, and a Single Licensing Agency. Over six years later, with millions of taxpayer dollars spent and publication of over sixty Federal Register notices, the Administration has not established any of these goals.

The Phased Approach

The Administration adopted a three-phased approach to the reform.

  • As originally announced, Phase I would establish control criteria for a new tiered control list structure, harmonize differing agency definitions under the Department of State International Traffic in Arms Regulations (ITAR) and Department of Commerce Export Administration Regulations (EAR), create a single point of entry for export license applications, and streamline agency licensing processes.
  • Phase II would restructure the ITAR United States Munitions List (USML) and EAR Commerce Control List (CCL) to reflect the identically tiered structures, notify Congress of items being transferred from the USML to the CCL, and remove items subject to unilateral controls that the Administration deemed no longer necessary.
  • Phase III would merge the USML and CCL along the corresponding control tiers, implement legislation establishing a single agency to maintain the unified list and to process export license requests, and implement a single IT system for licensing and enforcement.

The three-tiered approach was key to the fundamental change promised by the Administration.  It made sense—as the tiered level of an item increased, so too would the restrictiveness of controls and licensing policy. Tiering would also operate as the key to merging the USML and CCL.

Status of a Single Control List

The Administration abandoned the tiered approach in 2011, citing conflicting justifications. Thereafter, instead of creating a Single Control List, it kept the USML and CCL and added another list, now known as the “Commerce Munitions List.” This new list is confusing because it removed the established commodity jurisdiction standard, largely replacing it with the Administration’s new definition for “specially designed”— an untested definition that is over 900 words long and subject to varying interpretations. Further confusing, the regulations now provide Department of Commerce control over many military items, which, in certain situations, still require Department of State authorization to export.

In contradicting statements, the Administration continues to claim its eventual goal is to create a single list, but that it will not establish a single list before leaving office. Moreover, following abandonment of the tiered-approach, there is no way for the next administration to merge the USML and CCL without large-scale rewrites to match disparate controls and licensing policies.

Status of a Single IT System

As promoted by the Administration in 2010, the Single IT System would reduce confusion by creating a single U.S. Government point of entry for exporters at Phase I of the reform. But the Administration would later qualify this goal, stating that it required agency migration to the USXPORTS licensing platform. Years later, in 2014, the Department of Commerce Office of the Inspector General (OIG) reported delays in the USXPORTS migration project, with millions in associated costs.

At the 2015 Update Conference on Export Controls and Policy in Washington D.C., the Administration announced that internal work on a common IT system for license applications was essentially done. However, barely a month earlier, on October 6, 2015, the OIG issued a second report discussing status of the Single IT System—stating that BIS had not yet migrated to USXPORTS and had instead entered into an agreement with the Defense Department to develop a USXPORTS “Interagency Referral Sub-System.” As explained in the OIG report, while the Referral Sub-System will enable transfer of data and documents from BIS to USXPORTS—”it does not fulfill BIS’ original commitment to use USXPORTS as its system for processing export licenses.” 

Status of a Single Agency

The Administration drafted legislation to establish a single licensing agency at the start of the reform. However, instead of pursuing the legislation—or unifying functions of the Department of State and Commerce Licensing Divisions through administrative alignments, the Administration maintained existing agency licensing structures and created a new Munitions Division and a new Information Triage Unit inside the Department of Commerce. These new units now serve to further decentralize the very functions that the Administration promised to unite under a Single Licensing Agency.


There were over 33,000 telephone and email inquiries to Department of Commerce export counseling staff for assistance last year. Confusion is growing, and industry is now coming to terms with the problems and increased compliance burdens caused by ECR. Industry is not alone in its discontent and even agency personnel have expressed displeasure with impact of the reform. As noted in a June 2015 State Department OIG report:

“Participants in pre-inspection surveys and interviews shared with the OIG team perceptions of unfairness, favoritism, and lack of transparency in hiring. In DDTC, the ongoing reorganization and the unfolding effects of the Export Control Reform Initiative on office structure and staff allocation has contributed to these concerns.”

In November 2015, the Department of State Defense Trade Advisory Group (DTAG), a Federal Advisory Committee Act committee comprised of industry experts in the area of defense trade controls, held a public session to report the findings of a DTAG working group on the reform. As discussed at the public session, the DTAG working group found that application of the Administration’s new definitions of “specially designed” and “equipment” leads to inconsistent results and that use of license exception STA is often impracticable.

Also at the end of this year, the Administration proposed that the Departments of Commerce and State administer a common set of export control regulations. The proposal, made in official remarks at the 2015 Update Conference on Export Controls and Policy under a “Common Set of Regulations Idea,” calls for a ground-up, zero based regulatory drafting effort to create a new export control system that is efficient, minimally burdensome, constantly improving, and informed by the open exchange of ideas with stakeholders and the public. Of course, this was precisely the type of fundamental reform industry expected from the start.


The reform has carried a high price in terms of taxpayer dollars and industry costs of compliance. But there are also significant opportunity costs as overly complex controls impede U.S. industry from competing with foreign partners and participating in the global exchange of ideas necessary to maintain cutting edge technologies. As a result, many multinational companies are looking to offshore U.S.-based operations.

Of course, there are some benefits from the reform. The more positive enumeration of items subject to control, transfer of various commercial spacecraft technologies to the EAR, and availability of EAR exceptions for exports of various parts, components, accessories, and attachments formerly subject to ITAR control, were steps in the right direction. But, as explained in previous DTL posts, each of these changes could have occurred without the list transfers and other complex changes brought about by the reform.

While the Administration continues to claim that the list transfers were required to implement country-based exceptions for exports in support of allied operations, few members of the public know that Congress offered to amend the Arms Export Control Act to address this obstacle at the start of reform.  Specifically, although Section 38(j) of the Arms Export Control Act prohibits country-based exemptions to the ITAR without respective bilateral defense trade treaties, Congress offered to amend the Act to allow country-based exemptions in the ITAR for the export of replacement components, parts, accessories, attachments, equipment, firmware, software or technology to the North Atlantic Treaty Organization, any member country of that organization, and certain other countries.

With such ITAR exemptions in place, the Administration could have still positively enumerated items on agency control lists, transferred commercial spacecraft to EAR control, harmonized differing agency definitions, clarified regulatory requirements, sought consolidated IT systems, and made other changes to improve the existing framework.  However, the Administration did not support the proposed Congressional amendment.


The Administration is not expected to establish a Single Control List, Single IT System, or a Single Licensing Agency, and it does not plan to complete its common set of regulations idea. Instead, its plans for 2016 are expected to focus on finalizing previously proposed rules—leaving the task of fundamental reform to the incoming administration to address.

Second Proposed Rule Revising USML Category XII

Many industry members complained that the Administration’s proposed revision of USML Category XII (Fire Control, Range Finder, Optical and Guidance and Control Equipment) maintains ITAR control over items with widespread commercial availability in foreign markets, transfers jurisdiction over certain EAR-controlled technologies to the ITAR, fails to draw a bright line between EAR and ITAR control, and that the proposal will severely hinder the ability of U.S. companies to compete internationally—effectively ceding the U.S. competitive edge to well-established companies in countries that do not control commercial optics as munitions. The Administration agreed to submit a second proposed rule. However, despite decades of interagency squabbles over specific control parameters for Category XII, the next proposal is expected to add the “specially designed” catchall term throughout proposed control listings instead of positively describing the items subject to control.

Second Proposed Rule Revising USML Category XIV

USML Category XIV (Toxicological Agents, Including Chemical Agents, Biological Agents, and Associated Equipment) has largely been an empty box due to United States obligations under the Biological Weapons Convention, which prohibits member countries from developing, producing, stockpiling or otherwise acquiring or retaining biological agents in quantities that have no justification for prophylactic, protective or other peaceful purposes. Specifically, and consistent with U.S. obligations under convention, subparagraph (n)(2) of XIV(b) presently excludes biological agents subjected to “modifications made only for civil applications (e.g., medical or environmental use)” from the definition of munitions.

The Administration’s proposed rule to amend Category XIV seeks to remove subparagraph (n)(2) and, at the same time, subject certain genetically modified biological agents and related technical information to ITAR control. Among other things, this new biological munitions list will control certain genetically modified biological agents where the agents are subjected to non-naturally occurring genetic modifications which result in an increase in “[p]ersistence in a field environment (e.g., resistance to oxygen, UV damage, temperature extremes, or arid conditions).”

Although the types of modifications at issue may sound scary, they are often necessary steps to the preparation of test samples used in laboratories for the development of vaccines and new drugs. As such, universities oppose removal of subparagraph (n)(2) and concerns have been raised on the Administration’s control of biological agents as munitions. Nevertheless, the Administration is expected to proceed to a final rule in 2016. Uncertain, however, is how, if at all, the State Department will define the term “persistence in a field environment” under the new rule.  Considering the high percentage of foreign national graduate students and other foreign researchers involved in biomedical research, an expansive interpretation can substantially impact public health research and the consequent ability to respond to threats posed by the listed agents.

Proposed Changes to USML Categories I-III

Significant transfers of USML categories I (Firearms, Close Assault Weapons and Combat Shotguns), II (Guns and Armament), and III (Ammunition/Ordnance) to the CCL are unlikely due to the Administration’s gun control agenda and the history of interagency disagreements on the scope of transfers.  But this has not stopped some members of Congress from leaning on the Administration for action and a recent letter from several members of Congress requests the date by which the Administration anticipates publishing proposed revisions to categories I-III.

More Changes to Other USML Categories

The Administration may issue more changes to USML categories VI (Surface Vessels of War and Special Naval Equipment), VII (Ground Vehicles), XIII (Materials and Miscellaneous Articles), and XX (Submersible Vessels and Related Articles), which were subject to previous reform amendments.

Second Proposed “Harmonization” Rule

The Administration’s proposed rule to “harmonize” core ITAR and EAR definitions drew unprecedented industry opposition. DDTC received approximately 12,787 comments to its version of the rule, 2,000 of which have been withheld from public inspection. Most industry opposition is to the proposed definitions for “Public Domain,” “Defense Services,” and “Fundamental Research.” The Administration agreed to publish a second proposed rule to address these concerns.

  • Public Domain: The vast majority of public comments oppose the Administration’s proposal to maintain a prior restraint on public speech under the ITAR, as proposed in the rule. Despite this overwhelming opposition, as expressed in thousands of the public comments and in letters of concern signed by 30 Senators, and despite prior legal advisements from the Justice Department dating back to 1978 that imposing a prior restraint under the ITAR violates the First Amendment, despite removal of a prior ITAR provision thought to impose a prior restraint in 1984 to address First Amendment concerns, despite pending lawsuits against the State Department in federal courts, and despite the State Department’s previous official position in federal court that the regulations are not applied to regulate the means by which information is placed in the public domain, State Department officials are applying the ITAR against public speech on the Internet and other public forums.
  • Defense Services:  With so many parts, components, accessories, and attachments now subject to EAR-control, industry is in dire need of clear guidance on when services related to those items constitute defense services requiring DDTC approval. The Administration’s third attempt to properly define the scope of “defense services” was a significant change from its prior attempts. In two prior proposed rules, DDTC expressly acknowledged that the definition of defense service is overly broad, capturing certain forms of assistance or services that do not warrant ITAR control. To address this overbreadth, the Administration proposed to narrow the scope of defense services to the furnishing of assistance using “other than public domain data,” integrating items into defense articles, or training of foreign forces in the employment of defense articles. However, the Administration’s most recent proposal abandons earlier proposals to exclude services using only public domain information from the definition of “defense service.” It also seeks to control assistance provided to foreign persons in various activities related to a defense article, “by a U.S. person or foreign person in the United States, who has knowledge of U.S.-origin technical data directly related to the defense article that is the subject of the assistance, prior to performing the service.” The proposal is confusing, highly subjective, and generally opposed by industry in public comments.
  • Fundamental Research: As proposed, the Administration’s revisions to the EAR would remove the availability of the fundamental research exclusion for software, remove guidance on scope of the fundamental research exclusion presently provided at Supplement No. 1 to EAR Part 734, remove university specific guidance on scope of the exclusion currently provided at EAR Section 734.8(b), and impose a definition of “Applied Research” based on only part of the definition currently used in the Defense Federal Acquisition Regulations. Not surprisingly, the vast majority of university public comments oppose these changes. The Administration has since retreated from its position on software. The next proposed rule is therefore expected to address university comments on application of the exclusion to software. But the Administration has expressed little interest in addressing other key issues on scope of the fundamental research exclusion, such as when, if ever, initial transfers of controlled technology to researchers to perform research is covered by the exclusion.

Another Definition of “Equipment”

The Administration’s reform included a series of changes to the definitions of “end-item” and “system” and added a new definition for “equipment.” These new definitions are circular and confusing.  As described in public comments from the Aerospace Industries Association:

“‘Equipment’ can be hardware or software, it can be an end-item or not, it can be a system or parts, pieces, components of a system or it can be a separate accessory or attachment to a system.”

The DTAG also identified the new definition of equipment as a problem at its November 2015 public session and other industry groups have requested that the term be better defined.  As a result, the Administration may propose another new definition for the term in 2016.

More Correction Rules

The Administration has published a parade of “correction” rules following initial implementation of ECR and may publish more in 2016 to fix errors. These rules generally make conforming changes to fit other changes made in reform, update cross-references, correct grammar and punctuation mistakes, and fix typographical errors. However, industry should watch for correction rules in 2016 because even changes to simple scrivener errors, such as the addition of quotation marks or a comma, can substantively impact the scope of control listings. In addition, the Administration announced plans to update EAR Country Group listings, which may take the form of correction rules.

More Changes to STA

License Exception STA and the new specially designed definition are the pillars of the Administration’s reform. Both are complex and create significant compliance burdens. Worsening this situation, the Administration has amended STA 16 times since initial implementation of the exception in June 2011. Given the frequency by which changes to STA are made, the Administration may issue one or more rules touching STA in 2016. Alternatively, it may seek to avoid the rulemaking process by adding to interpretations of the exception posted on the BIS website.

More Cyber Uncertainty

The DTAG recommended against ITAR controls over cybersecurity at its November 2015 public session. However, the ITAR remains unclear on the scope of cybersecurity software and technologies subject to control and, given the difficulties presented by the proposed definition of defense services, the Administration is unlikely to issue any rule in 2016 that clearly identifies what, if any, cybersecurity related services constitute defense services under the ITAR.

For the EAR, the Administration proposed new controls on threat penetration testing software commonly used by cybersecurity professionals to secure commercial computer networks. The proposal, which is reportedly intended to target the use of hacking tools by oppressive regimes, is extremely broad, restrictive, and prohibits the use of virtually all license exceptions. It received significant industry opposition. And while the Administration cites Wassanaar multilateral control regime changes as a basis for the proposal, the Wassenaar does not require the specific level of control proposed by the Administration. The Administration recently admitted that it agreed to the new Wassenaar control without a solid sense for the impacts on industry and agreed not to proceed directly to a final rule.  However, it is being unclear on the specific actions it intends to take, if any, to address industry concerns.

Finally, although the Administration had earlier announced its plan to simplify EAR encryption regulations, it recently announced that it was deferring discussing plans for encryption export reform to the end of 2016.


ECR has created great confusion and controversy, but has done little to accomplish its primary goals. With the window closing, the Administration will invariably crank out as many changes as it can in 2016 before leaving office. Following this time, the increased confusion and inadvertent consequences of reform will rattle industry for years to come unless corrected by the incoming administration. Most of this confusion results from conflicting ITAR and EAR definitions and requirements that were of little significance before the reform because the companies, technologies, and compliance obligations rarely overlapped. This has changed with the reform list transfers. As a result, many more companies must now address two complex regulatory schemes in situations where only one would have previously applied.

Presidential candidates are unlikely to include detailed positions on export control reform in their platforms due to the complexity of issues involved. However, the incoming administration is not bound to the path taken by the present Administration and will have several options to clear the fog of reform.

One option is for the incoming administration to take Congress up on its earlier offer to amend the Arms Export Control Act to allow limited country-based exemptions to the ITAR without the need for bilateral defense trade treaties. Following such an amendment, EAR 600 series items can be transferred back to the USML where they belong—thereby maintaining benefits of the more positive enumeration of controls, transfer of commercial spacecraft to the EAR, and other beneficial changes made in reform. The incoming administration can also work with Congress to obtain any legislative authority required to create a Single Licensing Agency and begin the fundamental regulatory changes that industry was promised in 2010.


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 December 21, 2015. 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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