Tax & Accounting Blog

Updates to the Commerce Control List Effective July 7, 2017

Blog, Checkpoint, Global Trade, ONESOURCE July 14, 2017

Exporters of products covered under the multi-lateral Missile Technology Control Regime (MTCR) need to be aware of revisions to the U.S. Commerce Control List (CCL) related to the changes agreed upon in March and October of 2016.  While many of the edits are for clarification purposes, exporters should review the changes to make sure they fully understand what it means to their existing export obligations.

Exporters should also understand that if the regulatory changes result in an export license exception no longer being available for a given product, it will now require a license if it is not exported or re-exported before midnight on August 7, 2017 and “…were on dock for loading, on lighter, laden aboard an exporting or reexporting carrier, or enroute aboard a carrier to a port of export or reexport, on July 7, 2017, pursuant to actual orders for export or reexport to a foreign destination…” (See Federal Register Notice).

For those unfamiliar with the MTCR, it is an export control arrangement agreed to by 35 nations, including most of the world’s suppliers of missiles, missile-related equipment and materials, and associated software and technology (see list of countries here).

The MTCR establishes an agreed upon list of controlled items (the Annex) and a common export control policy (the Guidelines) implemented through the individual countries’ own export control programs.

The main purpose of the MTCR is to limit the proliferation of WMD’s (Weapons of Mass Destruction) by controlling the export of products, technologies, and software that contributes to WMD delivery systems.

Overall, there are revisions to thirteen Export Control Classification Numbers (ECCNs), one additional ECCN created, and revisions to two Export Administration Regulation (EAR) defined terms.  The following is an abbreviated summary of the changes:

ECCN 1C107 – This final rule amends ECCN 1C107 by revising the introductory text of paragraph d. and adding a paragraph d.3 in the List of Items Controlled section. This final rule also adds a Note and a Technical Note to ECCN 1C107.d.3 to clarify the scope of paragraph d.3. Specifically, in the introductory text of ECCN 1C107.d, this final rule removes the phrase ”silicon carbide materials” and adds in its place the phrase ”high-temperature materials.” This final rule also adds a note to 1C107.d.3 to make clear that the Ultra High Temperature Ceramics (UHTC) materials that do not have fiber reinforcement are not caught under this control.  Additionally, this rule adds a technical note to 1C107.d to provide examples of UHTCs which are included.

ECCN 1C111 – This final rule amends ECCN 1C111 by revising paragraphs b.2 in the List of Items Controlled section to add a CAS (Chemical Abstract Service) Number, (CAS 69102-90-5) after the material ”Hydroxy-terminated polybutadiene (including hydroxyl-terminated polybutadiene) (HTPB).”

ECCN 2B018 – This final rule amends ECCN 2B018 by revising the ”MT” paragraph in the table in the License Requirements section by revising the term ”ballistic missile systems” to remove the term ”systems” and add an ”s” to the term ”missile.” In addition, in the same ”MT” paragraph, this final rule revises the term ”cruise missile systems” to remove the term ”systems” and add an ”s” to the term “missile. Lastly, this final rule makes conforming changes in the same ”MT” paragraph by replacing the term ”unmanned air vehicles” with ”unmanned aerial vehicles”.

Substantively, there is no difference between the old and revised terms. This is a clarification and will not change any scope of control.

ECCN 2B109 – This final rule amends ECCN 2B109 by revising the list of examples included in the second technical note.

This final rule expands the list of examples to include interstages, because interstages can also be manufactured using the flow forming machines described in ECCN 2B109.

ECCN 5A101 – This final rule amends the heading of ECCN 5A101 by revising the term ”ballistic missile systems” to remove the word ”systems” and add an ”s” to ”missile.”

The final rule revises the heading by revising the term ”cruise missile systems” to remove the word ”systems” and add an ”s” after ”missile.” In addition, this final rule revises the heading of ECCN 5A101 to create a separate parenthetical phrase for the illustrative list of examples that are unmanned aerial vehicles.

These are clarifications and will not change any scope of control.

ECCN 7A103 – This final rule amends ECCN 7A103 by adding a definition for ”inertial measurement equipment and systems” for purposes of ECCN 7A103. In addition, this final rule revises ”items” paragraph ”a” and adds Note 3 in the List of Items Controlled section. This final rule makes these changes to remove the ambiguous term ”other equipment.” Instead, the locally defined term ”inertial measurement equipment or systems” that the final rule adds to ECCN 7A103, along with an illustrative list of such equipment and systems, clarifies which types of equipment containing the specified accelerometers or gyros are caught by this entry. This final rule also removes the phrase ”and systems incorporating such equipment” because this phrase has been removed from the MTCR Annex. The changes to ECCN 7A103 clarify the control while ruling out items not strictly used for navigation purposes.

Lastly, this final rule updates and amends ECCN 7A103 by removing Related Controls paragraph (2), which is no longer accurate after changes were made to the EAR to correspond with changes made to USML that became effective December 31, 2016.

ECCNs 9A101, 9E101, and 9E102 – This final rule amends ECCN 9E101 by revising the Related Controls paragraph in the List of Items Controlled section to make a conforming change for the use of the term ”unmanned air vehicles,” which this final rule changes to ”unmanned aerial vehicles.” This conforming change also applies to the headings of ECCN 9E101 and ECCN 9E102.

Substantively, there is not a difference in the two formulations of the term, but for consistency with how the term is used in other parts of the EAR, this final rule makes these conforming changes. This is a clarification and will not change any scope of control.

New ECCN 9B104 and Related Conforming Amendments to 9D101, 9E001, and 9E002 – This final rule adds new ECCN 9B104 to control certain aerothermodynamic test facilities. The facilities controlled under this new ECCN 9B104 are those that are usable for rockets, missiles, or unmanned aerial vehicles capable of achieving a ”range” equal to or greater than 300 km and their subsystems, and having an electrical power supply equal to or greater than 5 MW or a gas supply total pressure equal to or greater than 3 MPa.  As a conforming change to the addition of ECCN 9B104, this final rule adds 9B104 to the heading of ECCN 9D101 and revises the ”MT” paragraph in the table in the License Requirements section of ECCNs 9E001 and 9E002 to add 9B104.

These changes are expected to result in an increase of no more than 1 application received annually by BIS, because such systems and their software and technology are exported infrequently.

ECCN 9D104 – This final rule amends ECCN 9D104 by adding a note to the List of Items Controlled section. This note clarifies that ECCN 9D104 also includes specific software for the conversion of manned aircraft to an unmanned aerial vehicle.

This change is expected to result in an increase of 1 to 2 applications received annually by BIS, because, although this software was already controlled here, the note will clarify the scope of ECCN 9D104.

Exporters or re-exporters of goods covered under the above ECCN’s should at a minimum review the changes to validate whether they can continue to ship their products under their current processes for export classification and export licensing/export license exception determination.  If their products are captured by these changes, they should pay special attention to the enroute shipping restrictions mentioned above.

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