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BIS and DDTC publish first set of ‘Final Rules’- what Australian companies need to know

On April 16, the US Bureau of Industry and Security (BIS) and the US Directorate of Defence Trade Controls (DDTC) published the first of a set of ‘final rules’ that will amend the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR) as part of the U.S.’ export control reform efforts. The final rules, published simultaneously by the DDTC and BIS will move certain items from control under the ITAR’s U.S. Munitions List (USML) to control under the EAR’s Commerce Control List (CCL). The final rules have a 180 day transition period and will take effect on 15 October 2013.usdos-logo-seal

What is being moved from the USML to the CCL

Under this set of final rules, certain items in Category VIII of the ITAR (Aircraft and associated equipment) and Category XIX (Gas turbine engines and associated equipment) will be moved from the USML to the CCL. New classifications under the EAR will apply to these items and the BIS will be responsible for licensing their export, re-export and retransfer. The amendments will also result in a revision of USML categories VIII and XIX that create a positive list of items that fall under the control of the ITAR, eliminating ‘catch all’ provisions and thereby drawing a brighter line between what is and isn’t controlled under the ITAR.

What Australian companies need to know
After October 15th, BIS and not DDTC will be the licensing authority for items that have made the transition from the USML to the CCL. However, licenses that were issued prior to 16 April 2013 will remain valid until they are amended, expire, or for two years after the transition period (15 October 2015). New license applications for transitioning items must be made to DDTC until October 14th but they can be made to BIS simultaneously in order to obtain a Commerce license as soon as possible. BIS will accept license applications but will not issue licenses until the transition period ends, i.e. after 15 October 2015.

Australian companies trading in ITAR controlled goods that fall into Categories VIII and XIX need to review the final rules to determine whether their goods will still be controlled by the ITAR after 15 October 2013, or if they will move to the CCL and fall under the control of the EAR. Where goods have been moved to the CCL, Australian companies may be able to benefit from the use of the EAR’s license exceptions, which allow for the shipment of some goods without a license. Though the need for a license for goods on the CCL is determined on a self-assessment basis, Australian companies will need to be very careful and put strong review and record-keeping procedures into place so as not to inadvertently ship a controlled item without a license. The BIS is directing more resources to its overseas outreach centres and BIS officers will in the future be conducting reviews in Australia to identify possible breaches of EAR licensing requirements.

The final rule also implements a new definition of ‘specially designed’ in the EAR and certain license exceptions under the EAR have also been revised. Australian exporters trading in US export controlled technology will need to understand how the new definition of ‘specially designed’ for EAR controlled items and will need to understand whether the revisions to license exceptions will affect their operations or procedures.

What are the advantages of US export reform for Australian companies?

Instead of continuing to use DDTC licenses for transitioned items after 15 October 2013, and thereby continuing to treat the goods as if they remain ITAR controlled, exporters and re-exporters can choose to apply for a new license from BIS for transitioned items, which will be issued after the transition period ends on 15 October 2015. This is advantageous as the new license effectively removes the goods from control of the ITAR, which may provide advantages in the trade, recordkeeping, storage and handling of the items. In fact, some goods may move from being ITAR controlled to being able to ship without a license under an EAR exception.

For more information on US export control reform and how it may affect your operations, contact Eva Galfi on 0421 506 095 or eva@internationaltradeadvisors.com.au

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