U.S.. Department of Commerce, Bureau of Industry and Security Export Control Reform: Implementing the Transition Kevin J. Kurland Director, Office of Enforcement Analysis Massachusetts Export Center Export Expo December 11, 2012

Massachusetts Exports Bureau of Industry and Security, Export Enforcement Value % of 2010 Massachusetts’s Exports Licensed Dual-Use Exports$171,959, % Licensed Munitions Exports$1,071,046, % Total Controlled Trade$1,243,005, % Total BIS License Applications (2010): 1202 Approved  9,161 companies exported; 90% were SMEs  28% of manufacturing workers depend on exports

Bureau of Industry and Security, Export Enforcement Export Control Reform Initiative In August 2009, the President directed a broad-based interagency review of the U.S. export control system to build: “Higher walls…around fewer, more critical items.” Secretary of Defense Robert M. Gates, April 20, 2010 The Administration determined that fundamental reform of the current system is necessary to enhance our national security by: (i) focusing resources on the threats that matter most (ii) increasing interoperability with our Allies (iii) strengthening the U.S. defense industrial base by reducing incentives for foreign manufacturers to design out and avoid using U.S. parts and components

Key Goal Is to Leverage Existing Flexibilities USMLCCL License requirementWorldwide license - CanadaRanges from worldwide license to license exceptions to no license required Exemptions/exceptionsLimitedGOV, STA, TSU, TMP, RPL, etc. De minimisNone25% / 10% RegistrationYesNo ProhibitionsITAR 126.1T-5; end-use/user controls Temporary Import ControlsAll USML itemsNone EnforcementICE, FBIBIS, ICE, FBI Bureau of Industry and Security, Export Enforcement

Step 1: Focus on Fewer, More Critical Items via Regulatory Reforms Bureau of Industry and Security, Export Enforcement

Military or Intelligence Advantage Foreign Availability Tier 1CriticalAlmost none Tier 2SubstantialRegime members Tier 3SignificantWorldwide Establishing a “bright line” between items controlled on the USML and CCL by identifying items in a “positive” manner is the key deliverable of ECR Bureau of Industry and Security, Export Enforcement

Regulatory Impacts: Dual-Use License Exception STA  Two groups of countries: 36 and 8 eligible destinations  Safeguards  First step in tiering the CCL  $41 million in exports impacted to date 7 CountryECCNECCN/Description ECCN Value China3B001Equipment for the Manufacturing of Semiconductor Devices$18,268,509 Qatar3A101Electronic Equipment, Devices and Components$17,879,113 Taiwan3C003Organo-inorganic Compounds$13,940,827 Taiwan3C001Hetero-epitaxial Materials$9,946,351 Great Britain 9A004Space Launch Vehicles and Space-craft$9,118,253 Top 5 Dual-Use Licensed Exports from Mass. by Destination (2010) STA Eligible

Regulatory Impacts: Dual-Use Bureau of Industry and Security, Export Enforcement Encryption  Replaced 30 day technical review period and sales reports for most items eligible for License Exception ENC and mass market products with registration and self-classification report 0Y521  Creation of Export Control Classification Number (ECCN) 0Y521 (April 13, 2012)  Items that warrant control on the CCL but not identified in an existing ECCN  E.g., emerging technologies  Currently 9 items identified for 0Y521 controls

Regulatory Impacts: USML Positive List  Identify what items require USML control  Inherent military function; critical military/intelligence advantage  Convert USML into a “positive list”  Establish objective technical parameters rather than design intent to control items on USML  Items not meeting criteria “positive” USML criteria would be transferred to new “600 series” on CCL* and include:  End-items, parts, components, accessories, and attachments * Requires congressional notification 9

xY6zz Regulatory Impacts: Anatomy of a New “600 series” ECCN CCL Category 0-9 Product Group A-E The “600 series” derives its name from the 3 rd character (i.e., number) of the ECCN. Last two characters (i.e. numbers) will generally track the Wassenaar Arrangement

Anatomy of a “600 Series” ECCN (cont’d)  Items controlled  Enumerated end items  Enumerated parts and components  “Specially designed” parts and components (“.x”)  Enumerated insignificant parts and components (“.y”) 11

USML – Aircraft and Related Articles Federal Register Proposed Rules Bombers Fighters, fighter bombers, and fixed-wing attack aircraft Jet-powered trainers used to train pilots Attack helicopters Unmanned aerial vehicles (UAV’s) Military intelligence, surveillance, and reconnaissance aircraft Electronic warfare, airborne warning, and control aircraft Air refueling aircraft and Strategic airlift aircraft Target drones Aircraft equipped with any mission systems controlled under this subchapter; or, Aircraft capable of being refueled in flight including hover-in-flight refueling Launching and recovery equipment Developmental aircraft and “specially designed” parts, components, accessories, and attachments therefore developed under a contract with the DoD Aircraft components, parts, accessories, attachments, and associated equipment as follows: ‒ Components, parts, accessories, attachments, and equipment “specially designed” for the following U.S.-origin aircraft: B-1B, B-2, F-5SE, F/A18E/F/G, F-22, F-35 (and variants thereof), F- 117, or U.S. Government technology demonstrators Illustrative list only Reference Federal Register / Volume 76, No. 215 / Monday, November 7, 2011 / Proposed rules, page 68697

USML F-16 Systems/Components/Parts F-16 Specific USML Items Other Aircraft USML Items Assembled engines Weapons pylons Mission systems Bomb racks Missile launchers Fire control computer Radar Radar warning receiver Radar jammer Laser/Missile warning system Countermeasures dispensing system Aerial refueling receptacle Helmet mounted displays/sights Aircraft wing folding systems, parts, and components Tail hooks and arresting gear, and parts and components Missile rails, weapon pylons, pylon-to launcher adapters, UAV launching systems, and external stores support systems and parts and components Damage/failure-adaptive flight control systems Threat-adaptive autonomous flight control systems Air-to-air refueling systems and hover-in-flight refueling (HIFR) systems and parts and components UAV flight control systems and vehicle management systems with swarming capability Illustrative list only Reference Federal Register / Volume 76, No. 215 / Monday, November 7, 2011 / Proposed rules, page 68697

Commerce “600 Series” Systems/Components/Parts for the F-16 Wings, Rudder, Fin, Panels Fuselage – forward, center, aft Cockpit structure Forward equipment bay Horizontal stabilizer Conformal fuel tank Cartridge Actuated Device, Propellant Actuated Device (CAD / PAD) Control surfaces, activation and control systems Internal and exterior fuel tanks Engine inlets and ducting Wing box Flaperon Static structural members Exterior skins, fairings, radomes, access doors, leading edge flap Landing gear Technology associated with above items Illustrative list only Reference Federal Register / Volume 76, No. 215 / Monday, November 7, 2011 / Proposed rules, page 68689

“600 Series” “.y” Parts for F-16 Cockpit gauges and indicators Fuel lines Hydraulics F-16 Specific.y Items Other Aircraft.y Items Aircraft tires Analog cockpit gauges and indicators Hydraulic System Filters Check valves Hydraulic and Fuel hoses, Fittings, Clips, Couplings, Nut plates, Brackets Cockpit mirrors Beacons Urine collection systems Cockpit panel knobs, Switches, Buttons, Dials Audio selector panels Check valves for hydraulic and pneumatic systems Crew rest equipment Ejection seat mounted survival aids Energy dissipating pads for cargo (for pads made from paper or cardboard) Filters and filter assemblies for hydraulic, oil, and fuel systems Steel brake wear pads (does not include sintered mix) Propellers, propeller systems, and propeller blades used with reciprocating engines Illustrative list only Reference Federal Register / Volume 76, No. 215 / Monday, November 7, 2011 / Proposed rules, page Tires

Technology Controls F-16 Example  Technology controls follow the end-item, part, or component:  Technical data and services for aircraft-level design, development, engineering, manufacture, testing, and modification also remain on the USML  Technology required for design, development, and manufacture of F-16 major components, minor components, parts, accessories, and attachments that move to the “600 Series” (e.g., fuselage, wings, tail sections), also moves to Commerce controls

License Requirements for “600 Series”  End items: License required for export or reexport to all countries except Canada  Parts + components: STA for ultimate government end-use  “.y” items: no license required except to China and terrorist supporting countries  ITAR countries subject to State Dept. licensing policy

 License validity periods  General Order 5 and DDTC grandfather rules  BIS extension to 4 years  Double licensing issues  License exceptions  STA (ultimate gov’t end use), GOV, RPL, TSU, TMP  ITAR carve-out  License review standard and consensus  Foreign direct product rule  MDE reporting  AES requirements  No post-departure filing  Special “600 series” filing requirements  ECCN requirement on DCS Other Transition Rule Issues

Benefits of “600 Series”  Focus controls and compliance (incl. resources)  Security of supply with allies and partners  Avoid design-out  Eliminate MLAs/TAAs  Eliminate registration requirements 19 USML “defense articles” CCL “600 series” items End-itemsWorldwide license - Canada Identified P+CWorldwide license - Canada License Exception STA Specifically/specially designed P+C Worldwide license - Canada (“.x”) License Exception STA Insignificant P+CWorldwide license - Canada (“.y”) NLR except T-5 + China De minimisNone25% except ITAR countries RegistrationYesNo ProhibitionsITAR Exemptions/ exceptions limitedGOV, STA (ultimate government end-use), TSU, TMP, RPL Temporary Import Controls All USML itemsNone

Impact Analysis  BIS processed ~25,000 licenses in 2011  State processed ~85,000 licenses in 2011  BIS estimates that approximately 50% of State licenses will contain items moving to the 600 series  Of that 40,000, at least 50% are estimated to be eligible for License Exception STA  Total Mass. munitions exports (2010): $1,071,046,451 Bureau of Industry and Security, Export Enforcement CategoryDescriptionValue CAT IFirearms $26,820,263 CAT III Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs and Mines $241,111,540 CAT VIIIAircraft and Associated Equipment $221,361,942 CAT XIMilitary Electronics $135,941,982 CAT XII Fire Control, Range Finder, Optical and Guidance and Control Equipment $146,891,041 CAT XXII Miscellaneous Articles $13,431,461 Sample of Munitions Exports from Mass (2010)

Step 2: Erecting Higher Walls Bureau of Industry and Security, Export Enforcement

 Targeted outreach  OEE permanent law enforcement authorities  Focused evaluation of STA  Desk audits  One-time reviews  Daily AES checks to interdict  Enhanced end-use checks  Information Triage Unit (dedicated IC assets)  BIS-DDTC coordination  Export Enforcement Coordination Center  International cooperation Higher Walls: Enhanced Compliance & Enforcement

Other ECR Actions  Single form; harmonized definitions  USXports  Consolidated screening list  Follow along on  priorities 23

ECR Success = Bureau of Industry and Security, Export Enforcement  Focus on what is important  Clearer regulations  More harmonized implementation  Enhanced compliance and enforcement  Greater interoperability with allies  More competitive U.S. industrial base …and  Increased U.S. national security!

Contact Info Bureau of Industry and Security, Export Enforcement Presenter: Kevin J. Kurland Director, Office of Enforcement Analysis, BIS Outreach Assistance: Bernie Kritzer Director, Office of Exporter Services, BIS 600 Series Licensing: Todd Willis Director, Munition Controls Division, BIS Local BIS Enforcement POC: John McKenna Special Agent-in-Charge, OEE Boston Field Office, BIS