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Trade Compliance: Transfer of Lower-Level Defense Articles to Commerce Department Jurisdiction

After several years of preparatory work, the ECRI made concrete changes in late 2013 to the U.S. export control system. On October 15, export control responsibility for numerous lower-level defense articles was transferred from the State Department to the Commerce Department. Historically, the Commerce Department was responsible only for regulating the export of dual-use articles (items with both commercial and military utility), while the State Department was responsible for regulating the export of defense articles. With the recent transfer of certain less sensitive defense articles to the Commerce Control List, the Commerce Department now has jurisdiction over both dual-use articles and certain lower-level defense articles.

The ECRI changes offer more licensing flexibility for those items transferred to Commerce Department jurisdiction, but they also present new compliance challenges:

  1. Exporters will need to make a threshold determination as to whether their products have been transferred to Commerce jurisdiction or are to remain with the State Department. Existing State Department export licenses for transferred items will continue to be valid for two years or until their expiration date, whichever occurs first, but applications for new licenses must be submitted to the Commerce Department. Submission of a license application to the wrong agency will result in the return of the application without action, and may add several weeks to the time required to obtain the required license.
  2. For items assigned one of the new Export Control Classification Numbers (ECCN) based on the Commerce Department regulations, classification within the proper paragraph will be crucial in determining the proper export authorization. Items classified in one paragraph of an ECCN may be eligible for export to many destinations without a license or under a license exception, while items classified in a different paragraph might require a license.
  3. Exporters accustomed to working solely within the State Department regulatory system will need to learn the Commerce Department system. Additionally, changes to company IT systems may be required to accommodate a different classification scheme and export documentation marking requirements.
  4. Since changes are being made on an incremental basis (i.e., items from different U.S. Munitions List categories are being transferred to Commerce jurisdiction at different times), companies may find that, for an interim period, they have to deal with both licensing systems for items that may seem similar.

In order to deal with these challenges, exporters should focus on several key areas. First, there is no substitute for knowledge of the regulations. A strong understanding of the revised regulations is essential to compliance, and companies should ensure that compliance staff is provided with appropriate training and resources to address the jurisdictional, classification, and export clearance issues presented by export reform.

Second, companies should establish and document a process for reviewing  products to determine if and how they are affected by export control reform. Since classification under the Commerce regulations generally requires an assessment of technical specifications and capabilities, it is important to involve engineers in the jurisdiction/classification review process.

Third, it is important to involve IT early in the process. Changes to internal systems will likely need to be made so as to accommodate new classifications and revised documentation requirements.

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