© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 1 Countdown to Compliance October 15, 2013 Gwendolyn W. Jaramillo Foley Hoag LLP

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 2 Manufacturing Aerospace Defense/Defense Services Higher Education Professional Services Other POLL: What Industries are Represented today?

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 3 Agenda October 15, 2013 ECR Implementation  1.Movement from USML to EAR  2.New 600 Series ECCNs and restrictions  3.“Specially Designed”  4.License Exception STA and other License Exception Changes  5.General Order No. 5/Licensing Transitions  6.AES changes  7.Country Groups and De Minimis Changes Planning Ahead  8.Compliance Planning & Next Changes  9Triage

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 4 October 15, 2013 Implementation of Key Initial Changes in Export Control Reform

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 5 EAR only ITAR and EAR ITAR only ITAR/EAR and other control regimes What are “ITAR and EAR?” POLL: What regimes do you export under?

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 6 1. Movement from USML to EAR  Category VIII - Aircraft  Category XVII – Classified Articles  Category XIX - Gas Turbine Engines  Category XXXI – Articles Not Enumerated

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 7 1. Movement from USML to EAR  Category VIII –Formerly, VIII(a) controlled aircraft “specially designed, modified or equipped” for military use –New VIII contains paragraphs a(1)-(a)(13) which enumerate specific aircraft that are controlled –Category VIII(h) enumerates key parts, components, accessories, attchments and associated equipment and systems –VIII(i) provides that technical data for some items that moved to the CCL is stil controlled under ITAR –VIII(x) covers “commodities, software, and technical data subject to the EAR used in or with defense articles controlled by this  Key is to look at new definitions in ITAR/EAR  If it is not enumerated on USML, it is on the CCL!

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 8 2. New 600 Series ECCNs and restrictions

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 9 2. New 600 Series ECCNs and restrictions Within 600 Series ECCN: .a ‐.w: specifically enumerated end items, materials, parts, components, accessories, and attachments –– Some items may be “specially designed” .y: specifically enumerated parts, components, accessories, and  attachments that are “specially designed” .x: “specially designed” parts, components, accessories, and attachments that are not specifically enumerated

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | New 600 Series ECCNs and restrictions  License Exceptions Available: –LVS – –TMP – –RPL – –GOV – –TSU – –STA –  BUT – Some ECCNs excluded from all but GOV – Beware!

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | New 600 Series ECCNs and restrictions Key 600 Series Restrictions  New Red Flags (Supplement 1 Part 732) –An order for parts or components for an end item in 600 series. If you “know” these parts are more than required to possibly service the end items in destination country, or there are none there –Customer indicates a 600 series item may be reexported to a Country Group D5 destination  Reasons for control: –NS1 –RS1 –AT1 –UN  Destination Control Statements Required

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | New 600 Series ECCNs and restrictions Remember – Under the EAR:  Re-exports always subject to original destination controls  Same type of license or approval required as for initial export  Foreign parties may apply via SNAP-R

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | “Specially Designed” Catch and Release!

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | “Specially Designed”  Overview: –Similar (but not identical) new definitions for the term “specially designed” –“Catch and Release” Structure –Does not apply to technology or technical data, except software  Order of Review –1. Is the item described on the USML?/ –2. Is it “Specially Designed” per 121.1(d)? –3. Is it subject to the EAR?  How can I tell if Item is Subject to EAR? –1. Identify Category and Group –2. Is item in 600-series in category that does not use “specially designed”? –3. Is item a “specially designed” 600-series item? –4 Is item listed in a non-600-series ECCN?  Handy decision tree tools at BIS website make this somewhat less painful:

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | “Specially Designed”  (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.

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | “Specially Designed”  (b) A ‘‘part,’’ ‘‘component,’’ ‘‘accessory,’’ ‘‘attachment,’’ or ‘‘software’’ that would be controlled by paragraph (a) is not ‘‘specially designed’’ if it: –(1) Has been identified to be in an ECCN paragraph that does not contain ‘‘specially designed’’ as a control parameter or as an EAR99 item in a commodity jurisdiction (CJ) determination or interagency- cleared commodity classification (CCATS) pursuant to § 748.3(e); –(2) Is, regardless of ‘form’ or ‘fit,’ a fastener (e.g., screw, bolt, nut, nut plate, stud, insert, clip, rivet, pin), washer, spacer, insulator, grommet, bushing, spring, wire, solder; –(3) Has the same function, performance capabilities, and the same or ‘equivalent’ form and fit, as a commodity or software used in or with an item that: (i) Is or was in ‘‘production’’ (i.e., not in ‘‘development’’); and (ii) Is either not ‘enumerated’ on the CCL or USML, or is described in an ECCN controlled only for Anti-Terrorism (AT) reasons;

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | “Specially Designed” –(4) Was or is being developed with ‘‘knowledge’’ that it would be for use in or with commodities or software (i) described in an ECCN and (ii) also commodities or software either not ‘enumerated’ on the CCL or the USML (e.g., EAR99 commodities or software) or commodities or software described in an ECCN controlled only for Anti-Terrorism (AT) reasons; –(5) Was or is being developed as a general purpose commodity or software, i.e., with no ‘‘knowledge’’ for use in or with a particular commodity (e.g., an F/A–18 or HMMWV) or type of commodity (e.g., an aircraft or machine tool); or –(6) Was or is being developed with ‘‘knowledge’’ that it would be for use in or with commodities or software described (i) in an ECCN controlled for AT-only reasons and also EAR99 commodities or software; or (ii) exclusively for use in or with EAR99 commodities or software.

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | “Specially Designed”  (a)(1) – The design Catch  Catches any item that as a result of development has properties peculiarly responsible for achieving or exceeding performance levels, characteristics, or functions of the relevant USML paragraph or ECCN –Peculiarly responsible = direct and proximate causal relationship that is centrail or special for achieving or exceeding performance levels resulting from development, meaning design, research, concepts, etc  (a)(2) – The use Catch  Catches any part, component, accessory, attachment or software used in or with an enumerated commodity or defense article on either CCL or USML (except EAR99)  Use need not result from development

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | “Specially Designed”  (b)(1) – CJ or CCATS – CJ (past or future) that: States BIS (EAR) export jurisdiction and Identifies an ECCN that does not contained “specially designed” or is EAR99 –Future CCATS states BIS jurisdiction and Establishes ECCN of EAR99 or nonspecially designed ECCN  (b)(2) – Fasteners Only –Part is released if an enumerated kind of fastener – EAR99 –Regardless of form or if mondified for ITAR controlled article –ONLY APPLIES TO THOSE TYPES OF PARTS  (b)(3) – Equivalency Analysis –If the part is identical in form, function and fit to an item in production for non-USML, AT-only item, item is not specially designed. Analysis required for review of “specially designed” status under new process

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | “Specially Designed”  (b)(4) – Developed for dual use –Releases Items that were knowingly developed for use in or with both USML and non USML item; or only a USML specially designed item; or both CCL and specially designed or AT only item States BIS (EAR) export jurisdiction and Identifies an ECCN that does not contained “specially designed” or is EAR99 –Future CCATS states BIS jurisdiction and Establishes ECCN of EAR99 or nonspecially designed ECCN  (b)(5) – General Purpose –Releases items developed for general purpose, for no particular use –Requires absence of knowledge for use in or with particular commodity  (b)(6) – EAR Only –If not released by (b)(1)-(5), released if knowingly developed for use in EAR99 AND AT only ECCN, or only for EAR99 commodities/software  These Releases Require Proof!!

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | License Exception STA and other License Exception Changes  License Exception STA –Applies the same way for all EAR jurisdiction items EXCEPT some additional requirements for 600-series items –Process: Provide consignee with ECCN Obtain consignee statement Notify consignee that export is taking place under License Exception STA KEEP RECORDS showing which exports go to which consignees –Consignee statement must acknowledge: Export occurring under STA ECCN for each item being exported under STA No subsequent license except APR (a) or (b) shipments Consignee will not transfer items in violation of EAR Consignee will provide records/documents to BIS on request

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | License Exception STA and other License Exception Changes  STA Requirements for 600 Series Items –Must be for end use by US government or foreign government in Country Group A:5 (the “STA 36 countries”) or –For return to US; or –Otherwise authorized by competent US government authority; or –Under a previously approved DDTC or BIS license for non-US parties –Consignee must agree to ultimate end-user restrictions and end-use check –Eligibility request required for end item aircraft  NOTE – BIS has announced intention to audit/scrutinize use of STA!

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | License Exception STA and other License Exception Changes  License Exception TMP: –removes Group B limitation on exports to US person’s foreign affiliates  License Exception GOV: – limits in GOV have been adjusted –May be used to send items to US government contractors in some circumstances, but needs written authorization from relevant agency –Authorizes exports under direction of USDoD consistent with ITAR exemptions  License Exception TSU: –Permits US universities to release source code and technology in US to bona fide, full time regular foreign national employees (similar to ITAR) –Authorizes export of copies of technology previously authorized for export (similar to ITAR)

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | General Order No. 5/Licensing Transitions  Pre-October 15 Transactions: –Existing DDTC licenses, agreements or approvals remain valid until dates stated on approvals even if items no longer ITAR controlled –Pre-positioning/submission of BIS license applications permitted; to be issued on October 15  Post-October 15 Transactions –Obtain and utilize BIS license if required –Use BIS license exception if applicable –May obtain a license instead of using STA, eg  If Items are Transitioning: –DSP5, Technical Assistance Agreement, Manufacturing License Agreement, Warehouse Distribution Agreements: If all items are transitioning to CCL, use for 2 years post October 15 or expiration/exhaustion If some but not all items are transitioning, valid until expiration date on license or when expended/exausted

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | General Order No. 5/Licensing Transitions  Other Situations: –DSP-61 and DSP73 valid until expiration on date of license –If you choose to obtain an BIS license instead of DDTC authorization, must terminate in accordance with applicable requirements  BIS License Validity Periods –Most will be 4 years instead of 2  SNAP-R Applications for 600 Series Items –In block 24, enter any precedent DDTC approved licenses or approvals. If these meet requirements in Supplement 1 to Part 748, application should be processed faster

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | Country Groups and De Minimis  New Country Groups: –A:5 – may receive all STA-eligible items under License Exception STA –A:6 – may receive only certain STA-eligible items under License Exception STA –D:5 – May not receive 600 series items (same as ITAR arms embargo list)

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | Country Groups and De Minimis  Basic EAR De Minimis Rule –In EAR, de minimis based on percentage of US content in foreign-made item –EAR controls apply when de minimis threshold exceeded –25% or less except to Group D:5 countries –10% or less to Group E:1 countries –Please note many exceptions apply especially in realm of software – do your homework!!  De Minimis Update for 600 Series Items –ITAR – zero de minimis “see-through” rule applies to defense articles on USML –EAR: 0% de minimis rule for 600 series items to new D:5 country group –D:5 Group = IAR countries  Direct Product Rules Much Stricter For 600 Series –Re-exports of foreign made items the direct product of U.S. origin 600 series technology/software require prior approval under EAR to: D:1, D:3, D:4, D:5, E:1

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | AES Changes  October weekend: AES Update scheduled *pre- shutdown* - apparently went ahead as scheduled  ECCNs 9A610, 9A619, 9B610, 9B619, 9C610, 9C619, 9D610, 9D619, 9E610 and 9E619 to be added to AES ECCN reference table  New “600 series” ECCNs to be added as additional items from USML categories transition to the CCL  Use of STA for “600 Series” will be permitted  AES Filing Required: –For all exports of “600 series” items enumerated in paragraphs.a through.x of a “600 series” ECCN regardless of value or destination, including exports to Canada –For all exports under License Exception Strategic Trade Authorization (STA)

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | AES Changes  AES Creating New License Type DY6 (C60) –Required for.y paragraph “600 series” items only –Low value and Canadian exemptions apply to DY6 (C60) –ECCNs are allowed but not required –License Number “DY6” is required  EAR Items Licensed under ITAR –State Department may license an item subject to EAR on an ITAR approval –ITAR section 120.5(b) –AES filer must report the ECCN or EAR99 in the ECCN field –Including for license type S05 (DSP-5)

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 30 Planning Ahead

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | Compliance Planning & Next Changes Compliance Planning/Best Practices 1. Review of Products and Software –Update existing catalogues for new classifications –Training of staff on new regulations/need for review –Documentation of reviews/self-classifications 2. Documentation of Development –Crucial to properly evaluate “specially designed” items in the future –Do your R&D team and engineering units know how to document for the new regime? 3. Policies and Procedures –Update customer/distributor information and forms –Assess changes to services provided –Implement changes for ITAR to EAR transition items 4. Training –Identify key departments/business units for training –Initial training for first ECR changes must be followed by continuing updates during successive ECR rollouts

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | Compliance Planning & Next Changes Compliance Planning/Best Practices 5. Review use of license exceptions under EAR 6. Parts, Parts, Parts! –Review of classification of parts and components under new regulations 7. Communication with Supply Chain –Regarding classifications of items produced –Regarding documentation required by one or both parties under new regime  Plan for ITAR authorization expirations  Pre-position BIS licenses if required  Submit Specially Designed review requests, CJ’s and CCATs requests if necessary

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | Compliance Planning & Next Changes Next ECR Rollouts:  October 25, 2013: New ITAR Brokering Rule. –rule requires that brokering activities be "on behalf of another," specifically covers activities such as soliciting or promoting defense articles or defense services. –Specifically excludes certain activities, including activities by regular employees acting on behalf of their employer; basic administrative activities; promoting company goodwill at trade shows; and activities by an attorney that do not extend beyond the provision of legal advice to clients. –Specifically excludes from the definition of "brokering activities" those activities performed by an affiliate on behalf of another affiliate. In the new rule, foreign subsidiaries of U.S. parent companies who promote their parents' defense products and services are no longer considered to be engaged in brokering activities. Foreign subsidiaries of U.S. parent companies that promote the defense products and services of third parties would be required to register. –Comments were due October 10, 2013, so stay tuned for a final final rule.

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | Compliance Planning & Next Changes Next ECR Rollouts:  January 6, 2014: –Category VI - Vessels –Category VII - Vehicles –Category XIII – Auxiliary Military Equipment –Category XX – Submersibles

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | Triage  Everyone: Review new definitions in both sets of regulations  Everyone: Review specially designed: was any item decontrolled or moved to CCL from USML?  ITAR only exporters: start with the October 15 updates. Was anything decontrolled?  ITAR only exporters: When do your existing authorizations expire? Can you start to migrate to BIS licenses/license exceptions (and be thankful you can operate under existing authorizations while we wait for the government to reopen)  EAR only exporters: check to see if any items ending in “018” migrated to the new 600 series. Update your records and AES entries, etc, accordingly!

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | Triage  All exporters: check AES submissions and update responsible personnel to ensure that no invalid/outdated entries are occurring  EAR exporters (including new EAR exporters!): review changes to License Exceptions to ensure that exports still comply  Exporters under STA: Review changes; prepare appropriate consignee/end user documentation  Everyone: Don’t Panic! They’re from the government and they’re here to help.

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 37 The Wildcard (or, “Thanks - great timing!”)

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 38 What we know as of 10/14…  BIS –Not accepting new export license applications. – Not processing classification requests. – No encryption reviews or registrations. – No advisory opinions issued. – SNAP-R application on BIS’s Website is not available and will not reopen until the shutdown ends. –Applicants may request emergency processing of export license applications for national security reasons. Submit requests to Deputy Assistant Secretary for Export Administration Matthew Borman at –Subject line of the should read "Request for Emergency License“; the must identify the applicant (including point of contact), intermediate and ultimate consignees, and end user(s), items, end use, and national security justification for the emergency processing

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 39 POLL: Do you have pending requests/license applications with BIS? Yes, my company has pre-positioned license applications We have submitted CCATs or CJs for review under the new regulations None at all

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 40 What we know as of 10/14…  Census –AES Direct is functional –AES Filing assistance ONLY at –AES Update has reportedly occurred –Website is down for FTR and Schedule B  Customs –Operational but reports of delays at ports  DDTC –Open and doing their best –Emergency export license application processing for military, humanitarian or other emergencies: Lisa Aguirre at Subject line of should read “Request for Emergency License” and the message must include the applicant name and registration code, the end- use/end-user, justification for needing an emergency license, and a point of contact

© 2013 Foley Hoag LLP. All Rights Reserved.Countdown to Compliance | 41 Questions?