Export Control Blog

The recent flurry of Federal Register notices from BIS continued unabated yesterday with the publication of a final rule expanding the scope of chemical and biological weapons (CBW) end-user and end-use controls.

These prohibitions are what are commonly known as "catch-all" controls -- even when an item wouldn't ordinarily require an export license to be shipped to a certain destination you're obliged to seek a license from BIS if you know the item will be used in the design, development, production, stockpiling, or use of CBW.  It's not entirely clear how far the government might go in enforcing this rule.  But conceivably if Kazakhstan called up Rubbermaid and asked for some 32 gallon bins to help store the remnants of their Soviet-era chemical weapons stockpile, Rubbermaid would need to get a license from BIS first even though the bins are otherwise classified EAR99 and could ordinarily be exported to other end-users without a license.

Similar end-use and end-user restrictions are in place on nuclear, rocket, UAV, and maritime nuclear propulsion activities (see EAR Part 744).

What Wednesday's regulation does is widen the scope of these controls by eliminating the exemption to them for members of the Australia Group, an informal international arrangement that seeks to limit the proliferation of CBW-related materials and technology.  Now US exporters will need to scrutinize orders from AG countries such as the Czech Republic, Japan, and Switzerland for CBW end-use with the same level of care they've been required to exercise for some time when it came to the rest of the world.

BIS says that the new rule is consistent with the AG Guidelines, but the guidelines themselves are silent as to whether or not the catch-all rule should be applied to other AG participants.

The venerable muckrakers at Mother Jones deserve a lot of credit for this piece on the case of Israeli/South African businessman Asher Karni and his alleged exports of triggered spark gaps to Pakistan.  It reads less like a dry recounting of a regulatory violation and more like something from John le Carre or even Graham Green, complete with ambiguity and foreign intrigue.

Spark gaps have a legitimate medical use, but they can also be used to help set off nuclear explosions.  For that reason, they're listed by the US on the Commerce Control List (ECCN 3A228.b) and you'll need a license to export them to any country that is not a member of the Nuclear Suppliers Group, including Pakistan, Israel, India and most of the rest of the world.

The Australian Strategic Policy Institute, which gets its funding from the Department of Defence, recommends in a new report that the government introduce controls on the provision of defense services.  From the report's executive summary:

There is an increasing number of unregulated firms providing both paramilitary security services and military training or advice for profit. Without regulation, there’s no guarantee that such firms will act in Australia’s national interest. Consequently, the government should introduce a regulatory regime to control the provision of military, paramilitary and policing services, training and support akin to the export control regime for arms and military technology. The UK is exploring options to regulate firms operating from its jurisdiction, and the US—arguably the world’s most laissez faire economy—already requires export licences for firms providing such services.

I earlier mentioned the developments in the UK here.  The Age has more.

Be sure to check out Steve Whitaker's new International Trade Blog.  Steve's writing about another side to international trade policy making -- customs, imports, tariffs, etc.  In other words, what BIS, DDTC, and OFAC are to this blog, USTR, CBP, and ITC are to his.

As a former USTR and ITA intern myself, I look forward to reading more of what Steve has to say.

Check out the new links to nearly forty corporate export control sites I've added to the blog.  They're down and to your right under the Corporate ExCon heading.

These are companies who have chosen to make certain export compliance information, like ECCNs, USML categories, or CTP easily available to their customers and business partners.  And that's great for folks who need access this sort of info, but it can still sometimes be tough to find these sites since they're often buried deep within massive corporate websites.

So hopefully the list I've assembled will be of some help.  And if you know of any other sites to add to the list, get in touch.

One last note: Of course I can't guarantee the accuracy of every listed site, but I've already eliminated some sites from consideration because they are woefully out of date or otherwise seriously inaccurate.  If you're looking at a site that mentions the Bureau of Export Administration you should ask yourself how current everything else on that site is.  BXA changed their name to the Bureau of Industry and Security nearly three years ago now.  And if a corporate export site mentions something called "G-DEST" (pdf), well, just run away very quickly.

Fred writes to ask:

[I]f I am sending software licenses (just the paper agreement authorizing the user to increase their capacity or usage) via e-mail or post, how should they be classified?

I contacted the BIS with my enquiry and was told the software license was just a piece of paper and was not classified. However, that does not seem right as these software licenses authorize the use of various software classified as ECCN 5D002, 5D992, 4D994 and EAR99...

Would the classifications for software licenses also be applicable to the service and maintenance performed? For example, if someone goes on-site to perform the service etc. and I send a billing invoice for that, would I use the same classifications?...If the service or maintenance is on a 5D002 item, do I have to report it in the semi-annual reports?

Would the software license classifications be applicable for the user manuals also? If so, does that mean that the manuals sent independently of the software would have to be reported to BIS in the semi-annual reports?

Sorry for all the questions, when I started typing I thought I only had one question.  This thing just seems to be getting bigger and bigger.  I don’t understand why the EAR just doesn’t list these things with the proper ECCN and License Exception.

I feel your pain, Fred.  And, indeed, it is unlikely that the Export Administration Regulations will win an award for transparency or simplicity in federal regulation (if there is such a distinction) any time soon.  But if we seek hard enough and know where to look in the regs we can find satisfactory answers to most of your questions.

First things first -- are we even talking about an item subject to the EAR?  Let's assume that the software to which you refer was developed in the US and that the code itself is indeed subject to the EAR.  You want to know if the software license, not the code itself, is subject to the EAR and, if so, what restrictions might exist on exporting it.  Well, what is a software license?  It's an agreement, memorialized on a piece of paper in this case, in which the software's maker grants certain rights to a licensee.

I've actually asked a BIS licensing officer the same question that you did and received a similar response.  A piece of paper with some legalese on it isn't software.  It doesn't matter if it grants rights for software that's classified 4D994, 5D002, 5D992, or something else.  There's no entry on the Commerce Control List for a piece of paper that licenses someone to use a certain software product.

Unfortunately, there's another potential problem here.  I don't know the particulars of your situation, but let's say that your company's software is readily available in piratical versions around the world -- people can download it from unauthorized websites or even pick it up on the street for the equivalent of a buck or two.  Or maybe distributing the code for free is part of your business model.  Then, for whatever reason (sudden crisis of conscience or, more likely, government intellectual property crackdown) one of these folks who obtained the code comes to you and asks to purchase a license authorizing them to continue to use the software.  If the software itself was illegally exported, then BIS might consider that license sale a violation of General Prohibition Ten which prohibits you to "sell...any item subject to the EAR and exported...with knowledge that a violation of the Export Administration Regulations...has occurred...in connection with the item" (see Part 736.2(b)(10)).

As to your other questions, the classification of a service provided on an item really depends on the technology inherent in providing the service.  In the case of servicing encryption software classified 5D002, the first place I would look would be 5E002 since that technology is subject to some of the more strict controls, but it's only a jumping-off point.  And if you're exporting technology as part of a service arrangement or in a manual you may indeed need to report that if the technology is exported under License Exception ENC, depending of course on the details of what you're exporting and to whom (see Part 740.17(e)).

Finally, a sure sign that we've reached a turning point in the debate on the EU's arms embargo on China -- Richard Gere has weighed in (via Reuters):

"I so agree with your prime minister that the European Union should not remove the ban against selling arms to China," he said. "I agree with him totally."

Gere's comments Monday came a day after visiting French President Jacques Chirac tried to mollify Japanese Prime Minister Junichiro Koizumi by saying that lifting the arms embargo would not result in an increase in weapons sales to China.

"They should not be rewarded for this anti-secession legislation that's in now," Gere said, referring to a new Chinese law that sanctions the use of force against Taiwan.

BIS is considering some changes to the "deemed export rule" (i.e. technology transfers to foreign nationals within the US) in response to a report (pdf) by the Commerce Department's inspector general.  (For more background on deemed export, see this FAQ.)

From my quick read of the notice, the overall impact of adopting the report's recommendations would be to tighten up the rules in a few important respects:

• A modification of the definition of "use" which has the effect of expanding the definition.
• A proposal to look at a foreign national's country of birth, rather than their country of most recent citizenship/permanent residency in determining if a technology transfer to that individual requires a license.  For example, under the current regulations the transfer of technology within the US to a Pakistani-born engineer with Danish citizenship would be evaluated like an export of that technology to Denmark.  The Commerce IG wants BIS to treat it like an export to the foreign national's country of birth, Pakistan in this example, apparently regardless of how long the foreign national has lived in Denmark.
• Clarifications to two parts of the Q&A in the regulations both of which have the effect of being more restrictive.

BIS is accepting comments on these proposals through May 27, after which they will publish a final rule.

I'd be surprised if large sectors of industry who struggle to cope with the deemed export rule as it stands today aren't mightily annoyed at some of these changes which will only make compliance that much tougher, more burdensome, and time consuming.  If this is a significant issue for your organization, I encourage you to read the entire IG report (pdf).  Take an especially close look at the BIS response to each recommendation (which begins on page 51) for a sense of what other measures the agency will be taking outside the regulatory changes discussed in yesterday's notice.

From the Department of Very Minor Corrections, via the BIS email notification service:

On Friday, March 25, 2005, e-mail notices were sent that incorrectly stated that Uni-Arab Engineering and Oil Field Services, Jaime Radi Mustafa (also known as Radi Mustafa) and Nureddin Shariff Sehweil (also known as Dean Sehweil) at their various addresses were added to the List of persons denied export privileges (DPL) under the Export Administration Regulations (EAR)and, that the denial orders imposed against these Respondents were then suspended. In fact, the denial orders issued against Uni-Arab Engineering, Mustafa and Sehweil were suspended upon issuance. As part of a settlement agreement relating to alleged violations of the EAR, the Respondents agreed to suspended denial orders and the payment of monetary fines. For questions, please call the Office of Chief Counsel at (202) 482-5301.

This email was sent at your request, based upon your subscription to the BIS Email Notification service.

The BIS Web Site Team

Jeffrey Lewis at ArmsControlWonk injects some useful facts into the debate on the EU's arms embargo on China in a recent post. He's also bewildered by my opposition to lifting the embargo.

I'll have more to say on this subject within the next few days, but for now I'll just add that although I basically agree with all three of Jeffrey's points I still think there's a case to be made that ending what's admittedly a rather ersatz embargo could do more harm than good.