Export Reforms to Fundamentally Overhaul National Security Controls on Technology

April 16, 2013 - via Kaye Scholer

WASHINGTON--(BUSINESS WIRE)--The Obama Administration today published more than 400 pages of final rules that implement export control reform. Starting with aircraft and gas turbine engines, these new regulations are the first major steps toward completely restructuring how the government regulates the export of goods and services, according to Kaye Scholer’s Brandt Pasco. Pasco was a founding member of the National Security Council Task Force on Export Control Reform, and an author of the reforms. “Many thousands of items are moving off the U.S. Munitions List, and will no longer be subject to the International Traffic in Arms Regulations. Instead, companies manufacturing and exporting these items will be subject to the more permissive rules of the Department of Commerce.”

“a smaller yard with a higher fence”

Impact of Export Reform on US Economy
“The Obama Administration announced plans to overhaul export controls in 2009, but the process has been a long one. Many companies didn’t think it would happen, gave up, or have simply not been paying attention,” said Pasco. “But I can tell you that change is here, and this is change you can believe in.”

The reforms will take effect 180 days from publication in the Federal Register, on October 16, 2013. Following on the heels of this first tranche of new rules, 72 additional export control regulations are scheduled for publication by the end of the year. “The scope of industry impacted by these reforms will be huge,” says Pasco.

“Export reform affects everything from domestic and foreign manufacturing, plant visits, domestic employment of foreign nationals and overseas employment of U.S. citizens, and even surprisingly ordinary activities like email,” said Pasco. “These reforms were designed to meet U.S. national security objectives, but they will also lift a huge burden from industry, creating new markets for American business and jobs for U.S. workers.”

Companies Must Act Now to Determine if They’re ITAR Exempt
By removing items from the U.S. Munitions List that do not warrant such strict levels of control, and transitioning these items to the Commerce Control List, the new regulations will provide a more favorable licensing environment for many companies. “These benefits are not necessarily automatic,” says Pasco. “You need to carefully examine the regulations to understand how the rules have changed. Many products, and entire companies, that were previously regulated by the Department of State will now be under the jurisdiction of the Department of Commerce.”

“The key,” says Pasco, “is knowing which system you fall under.” “The State Department’s policy is that if you are ‘certain’ your item has transitioned from the U.S. Munitions List to the Commerce Control List, you can take advantage of the more flexible Commerce licensing system. In many cases, however, it won’t be 100 percent certain which agency has jurisdiction. If jurisdiction is not certain, it is necessary to ask the government for a ruling on which agency has jurisdiction over your commodity,” Pasco explains. “This uncertainty creates risks, and the benefits of the new system will go to those who manage those risks effectively.”

Last year the State Department ruled on about 1000 such Commodity Jurisdiction determinations. “The system isn’t staffed to process a huge increase in numbers and whoever has their Commodity Jurisdiction request in early will have priority in the review. The others may have to wait until regulatory jurisdiction is clarified, ceding the market to competitors for an extended period of time,” says Pasco. “In the best of times, a Commodity Jurisdiction takes 30 - 60 days, but in some cases it takes over a year. As applications spike, delays could become substantial.” The largest benefit of the new system will go to companies who are prepared and get to the front of the line.”

Pasco observes that the Commodity Jurisdiction process is already picking up, with the State Department having received as many Commodity Jurisdiction requests in recent weeks as they normally receive in a month.

Impact of Export Control Reforms on National Security
Likening the export reforms to “a smaller yard with a higher fence,” Pasco explains, “The impact of these reforms on export is actually only secondary. These new regulations are designed to enhance national security by focusing on areas that truly warrant control. As the Secretary of Defense expressed, we’ve been controlling our technology so tightly that it undercuts our efforts to control items that are truly critical, impedes our ability to engage with allies in coalition warfare, and makes it more difficult to support our troops in the field. This has been negatively impacting the health of both our military and industrial base.”

External link: http://www.businesswire.com/news/home/20130416006137/en/Export-Reforms-Fundamentally-Overhaul-National-Security-Controls

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Author:Brandt Pasco

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