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18-0524 Thursday “Daily Bugle”

18-0524 Thursday “Daily Bugle”

Thursday, 24 May 2018

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The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, DOE/NRC, Customs, NISPOM, EAR, FACR/OFAC, FAR/DFARS, FTR/AES, HTSUS, and ITAR), plus news and events.  Subscribe 
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  1. President Prohibits Certain Additional Transactions with Respect to Venezuela 
  2. Commerce/BIS Seeks Comments on Control of Firearms, Guns, Ammunition and Related Articles the President Determines No Longer Warrant Control Under the USML 
  3. State Seeks Comments on Proposed USML Categories I, II, and III Revisions 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS Publishes Speeches Delivered at 2018 Annual Conference on Export Controls and Policy
  3. DHS/CBP Releases Notice Concerning Entry Summary Changes
  4. DoD/DSS Knowledge Center PCL inquiries Closed on 31 May, Open on 25 May
  5. State/DDTC: (No new postings.)
  6. UK OFSI Releases Guidance Concerning Breaches of Financial Sanctions
  1. American Shipper: “CBP Exploring ‘Known Shipper’ E-Commerce Concept”
  2. BBC News: “Iran Nuclear Deal: Khamenei Lists Demands for European Powers”
  3. The New York Times: “A Bid to Increase Gun Exports, Stalled After Sandy Hook, Moves Ahead”
  4. Reuters: “Ukraine Adds Russian Tycoons and News Agency RIA to Sanctions List”
  5. Reuters: “U.S. Targets Airlines in Latest Iran Sanctions Move”
  6. ST&R Trade Report: “ACE Enhancements Include De Minimis, Importer ID, CEEs, Broker Permits”
  7. WorldECR News Alert 24 May 2018
  1. International Trade Compliance Update: “EU Blocking Regulation”
  2. J. Reeves & K. Heubert: “A Primer on the Export Administration Regulations”
  3. L. Luo: “Minefields in the U.S. Export Control System” (Part II of II)
  4. Gary Stanley’s EC Tip of the Day
  1. ECS Presents “ITAR/EAR Boot Camp (Seminar Level I)” on 12-13 Sep in Annapolis, MD
  1. Bartlett’s Unfamiliar Quotations 
  2. The Daily Bugle Updates Privacy Policy to Comply with EU’s GDPR 
  3. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (12 Apr 2018), DOD/NISPOM (18 May 2016), EAR (17 May 2018), FACR/OFAC (19 Mar 2018), FTR (24 Apr 2018), HTSUS (4 May 2018), ITAR (14 Feb 2018) 
  4. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1.
President Prohibits Certain Additional Transactions with Respect to Venezuela
(Source: 
Federal Register, 24 May 2018.)
 
83 FR 24001-24002: Prohibiting Certain Additional Transactions with Respect to Venezuela
By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code, I, DONALD J. TRUMP, President of the United States of America, in order to take additional steps with respect to the national emergency declared in Executive Order 13692 of March 8, 2015, and relied upon for additional steps taken in Executive Order 13808 of August 24, 2017 and Executive Order 13827 of March 19, 2018, particularly in light of the recent activities of the Maduro regime, including endemic economic mismanagement and public corruption at the expense of the Venezuelan people and their prosperity, and ongoing repression of the political opposition; attempts to undermine democratic order by holding snap elections that are neither free nor fair; and the regime’s responsibility for the deepening humanitarian and public health crisis in Venezuela, hereby order as follows:
 
Section 1. 
  (a) All transactions related to, provision of financing for, and other dealings in the following by a United States person or within the United States are prohibited:
(i) the purchase of any debt owed to the Government of Venezuela, including accounts receivable;
(ii) any debt owed to the Government of Venezuela that is pledged as collateral after the effective date of this order, including accounts receivable; and
(iii) the sale, transfer, assignment, or pledging as collateral by the Government of Venezuela of any equity interest in any entity in which the Government of Venezuela has a 50 percent or greater ownership interest.
  (b) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted before the effective date of this order.
 
Sec. 2.
  (a) Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.
  (b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.
 
Sec. 3. For the purposes of this order:
  (a) The term “person” means an individual or entity;
  (b) The term “entity” means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;
  (c) the term “United States person” means any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches of such entities), or any person within the United States; and
 (d) the term “Government of Venezuela” means the 
Government of Venezuela, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and Petroleos de Venezuela, S.A. (PdVSA), and any person owned or controlled by, or acting for or on behalf of, the Government of Venezuela.
 
Sec. 4. The Secretary of the Treasury, in consultation with the Secretary of State, is hereby authorized to take such actions, including promulgating rules and regulations, and to employ all powers granted to the President by IEEPA as may be necessary to implement this order. The Secretary of the Treasury may, consistent with applicable law, re-delegate any of these functions to other officers and executive departments and agencies of the United States Government. All agencies of the United States Government shall take all appropriate measures within their authority to carry out the provisions of this order.
 
Sec. 5. This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
 
Sec. 6. This order is effective at 12:30 p.m. eastern daylight time on May 21, 2018.
                
  (Presidential Sig.)
THE WHITE HOUSE,
May 21, 2018.

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EXIM_a2

2.
Commerce/BIS Seeks Comments on Control of Firearms, Guns, Ammunition and Related Articles the President Determines No Longer Warrant Control Under the USML
(Source: 
Federal Register, 24 May 2018.) [Excerpts.]
 
83 FR 24166-24195: Control of Firearms, Guns, Ammunition and Related Articles the President Determines No Longer Warrant Control Under the United States Munitions List (USML)
* AGENCY: Bureau of Industry and Security, Department of Commerce.
* ACTION: Proposed rule.
* SUMMARY: This proposed rule describes how articles the President determines no longer warrant control under United States Munitions List (USML) Category I–Firearms, Close Assault Weapons and Combat Shotguns; Category II–Guns and Armament; and Category III–Ammunition/Ordnance would be controlled under the Commerce Control List (CCL). This proposed rule is being published simultaneously with a proposed rule by the Department of State that would revise Categories I, II, and III of the USML to describe more precisely the articles warranting continued control on that list.
* DATES: Comments must be received by
July 9, 2018.
* ADDRESSES: You may submit comments by any of the following methods:
    – Submit comments via Federal eRulemaking Portal: 
http://www.regulations.gov. You canfind this proposed rule by searching on its regulations.gov docket number, which is BIS-2017-0004.
    – By mail or delivery to Regulatory Policy Division, Bureau of Industry and Security, U.S. Department of Commerce, Room 2099B, 14th Street and Pennsylvania Avenue NW, Washington, DC 20230. Refer to RIN 0694-AF47.
* FOR FURTHER INFORMATION CONTACT: Steven Clagett, Office of Nonproliferation Controls and Treaty Compliance, Nuclear and Missile Technology Controls Division, tel. (202) 482-1641 or email 
* SUPPLEMENTARY INFORMATION: …
    The changes described in this proposed rule and in the State Department’s companion proposed rule on Categories I, II, and III of the USML are based on a review of those categories by the Department of Defense, which worked with the Departments of State and Commerce in preparing the amendments. The review was focused on identifying the types of articles that are now controlled on the USML that are either (i) inherently military and otherwise warrant control on the USML or (ii) if of a type common to non-military firearms applications, possess parameters or characteristics that provide a critical military or intelligence advantage to the United States, and are almost exclusively available from the United States. If an article satisfies one or both of those criteria, the article remains on the USML. If an article does not satisfy either criterion, it has been identified in the new Export Control Classification Numbers (ECCNs) included in this proposed rule. Thus, the scope of the items described in this proposed rule is essentially commercial items widely available in retail outlets and less sensitive military items. …
    In this proposed rule, items that are currently controlled in Category II of the USML would be controlled on the CCL under four new “600 series” ECCNs. Placement of the items currently in USML Category II into the CCL’s 600 series would be consistent with existing BIS practice of using 600 series ECCNs to control items of a military nature.
    Items currently controlled in Categories I and III of the USML would be controlled in new ECCNs in which the third character is a “5.” These items are not appropriate for 600 series control because, for the most part, they have civil, recreational, law enforcement, or other non- military applications. As with 600 series ECCNs, the first character would represent the CCL category, the second character would represent the product group, and the final two characters would represent the WAML category that covers items that are the same or similar to items in the ECCN.
    This proposed rule does not deregulate the transferred items. BIS would require licenses to export, or reexport to any country a firearm or other weapon currently on the USML that would be added to the CCL by this proposed rule. BIS would also require licenses for the export or reexport of guns and armament that would be controlled under new ECCN 0A602, such as guns and armaments manufactured between 1890 and 1919 to all destinations except Canada. As compared to decontrolling firearms and other items, in publishing this proposed rule, BIS, working with the Departments of Defense and State, is trying to reduce the procedural burdens and costs of export compliance on the U.S. firearms industry while allowing the U.S. Government to enforce export controls for firearms appropriately and to make better use of its export control resources. BIS encourages comments from the public on this aspect of the proposed rule. …
    BIS believes the control of these firearms under the EAR is justified because the firearms described in this proposed rule are either not inherently military or do not warrant the obligations that are imposed under the ITAR pertaining to such items. After review, the Defense Department, in conjunction with the Departments of State and Commerce, concluded that the firearms in this proposed rule also do not provide a critical military or intelligence advantage to the United States, are not the types of weapons that are almost exclusively available from the United States, and are manufactured from “technology” that is widely available. Moreover, the firearms have commercial and other non-military characteristics that distinguish them from other articles controlled under the ITAR. There is a significant worldwide market for firearms in connection with civil and recreational activities such as hunting, marksmanship, competitive shooting, and other non-military activities. Because of the popularity of shooting sports in the United States, for example, many large chain retailers carry a wide inventory of the firearms described in the new ECCNs for sale to the general public. Firearms available through U.S. retail outlets include rim fire rifles, pistols, modern sporting rifles, shotguns, and large caliber bolt action rifles, as well as their “parts,” “components,” “accessories” and “attachments.”
    An additional justification for the change in the jurisdictional status of the items described in this rule is that the current ITAR controls burden U.S. industry without any proportionate benefits to United States national security or foreign policy objectives. Similar to the challenges faced by other industries, the firearms trade has been negatively affected by the incentives the ITAR creates for foreign manufacturers to avoid U.S.-origin content. Currently, under the ITAR, any part, component, accessory, or attachment for any of the firearms described in this proposed rule remains ITAR controlled, regardless of its significance, when incorporated into foreign-made items or reexported to any third country. Under the EAR, the de minimis provisions may, in certain cases, mean a foreign item that incorporates U.S.-origin content may not be subject to the EAR, provided the U.S.-origin items meet the applicable de minimis level for the country of reexport. Similarly, a technical drawing of such part, component, accessory or attachment is ITAR controlled, as is the provision of a “defense service” to a foreign person concerning those items, such as the application of protective coatings. Moreover, a U.S. person engaged in manufacturing or exporting these items or providing related defense services must register with the State Department under the ITAR. Thus, even if a U.S. company can manufacture or service these items at a lower cost in the United States as compared to the cost for a U.S. or foreign company to manufacture or service the items outside of the United States, the ITAR’s restrictions may render the items unattractive or uncompetitive for foreign manufacturers. The EAR does not include a concept of “defense services,” and the “technology” related controls are more narrowly focused and apply in limited contexts as compared to the ITAR.
    The EAR also includes well-established and well understood criteria for excluding certain information from the scope of what is “subject to the EAR.” (See part 734 of the EAR.) Items that would move to the CCL would be subject to existing EAR concepts of jurisdiction and controls related to “development” and “production,” as well operation, installation, and maintenance “technology.” While controlling such “technology,” as well as other “technology” is important, the EAR includes criteria in part 734 that would exclude certain information and software from control. For example, if a gun manufacturer posts a firearm’s operation and maintenance manual on the internet, making it publicly available to anyone interested in accessing it and without restrictions on further dissemination (i.e., unlimited distribution), the operation and maintenance information included in that published operation and maintenance manual would no longer be “subject to the EAR.” (See Sec. Sec. 734.3(b) and 734.7(a).) Non-proprietary system descriptions, including for firearms and related items, are another example of information that would not be subject to the EAR. (See Sec. 734.3(b)(3)(v).) …
    In addition, this rule would clarify the scope of some ECCNs currently on the CCL. This rule would also renumber these ECCNs to place certain firearms-related items currently on the CCL in closer proximity to the firearms-related items that would be removed from the USML and added to the CCL to make it easier to identify and classify such items.
    BIS is interested in comments in response to this proposed rule as 
to whether the public find this reorganization helpful. In some instances, the juxtapositions resulting from this reorganization highlight different license requirements and licensing policies for various firearms and related items. The public is invited to comment on the appropriateness of these license requirements and licensing policies. The public is also encouraged to comment on whether or not the proposed rule describes items that are not widely available in commercial outlets.
 
Detailed Description of Changes Proposed by This Rule …
 
   Dated: May 4, 2018.
Richard E. Ashooh, Assistant Secretary for Export Administration.

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EXIM_a3

3.
State Seeks Comments on Proposed USML Categories I, II, and III Revisions
(Source: 
Federal Register, 24 May 2018.) [Excerpts.]
 
83 FR 24198-24205: International Traffic in Arms Regulations: U.S. Munitions List Categories I, II, and III
* AGENCY: Department of State.
* ACTION: Proposed rule.
* SUMMARY: The Department of State (the Department) proposes to amend the International Traffic in Arms Regulations (ITAR) to revise Categories I (firearms, close assault weapons and combat shotguns), II (guns and armament) and III (ammunition and ordnance) of the U.S. Munitions List (USML) to describe more precisely the articles warranting export and temporary import control on the USML. Items removed from the USML would become subject to the Export Administration Regulations (EAR).
* DATES: The Department will accept comments on this proposed rule until
July 9, 2018.
* ADDRESSES: Interested parties may submit comments within 45 days of the date of publication by one of the following methods:
    – Email:
DDTCPublicComments@state.gov with the subject line, “ITAR Amendment–Categories I, II, and III.”
    – Internet: At
www.regulations.gov, search for this notice using Docket DOS-2017-0046.
    Comments received after that date will be considered if feasible, but consideration cannot be assured. Those submitting comments should not include any personally identifying information they do not desire to be made public or information for which a claim of confidentiality is asserted, because those comments and/or transmittal emails will be made available for public inspection and copying after the close of the comment period via the Directorate of Defense Trade Controls website at 
www.pmddtc.state.gov. Parties who wish to comment anonymously may do so by submitting their comments via www.regulations.gov, leaving the fields that would identify the commenter blank and including no identifying information in the comment itself.
* FOR FURTHER INFORMATION CONTACT: Robert Monjay, Office of Defense Trade Controls Policy, Department of State, telephone (202) 663-2817; email 
DDTCPublicComments@state.gov. ATTN: Regulatory Change, USML Categories I, II, and III.
* SUPPLEMENTARY INFORMATION: …
    The Department of State is engaged in an effort to revise the U.S. Munitions List so that its scope is limited to those defense articles that provide the United States with a critical military or intelligence advantage or, in the case of weapons, are inherently for military end use. The articles now controlled by USML Categories I, II, and III that would be removed from the USML under this proposed rule do not meet this standard, including many items which are widely available in retail outlets in the United States and abroad.
 
Revision of Category I

    This proposed rule revises USML Category I, covering firearms and related articles, to control only defense articles that are inherently military or that are not otherwise widely available for commercial sale. In particular, the revised category will not include non-automatic and semi-automatic firearms to caliber .50 (12.7mm) inclusive, currently controlled under paragraph (a), and all of the parts, components, accessories, and attachments specially designed for those articles. Such items will be subject to the new controls in Export Control Classification Numbers 0A501, 0A502, 0A503, 0A504, 0A505, 0B501, 0B505, 0D501, 0D505, 0E501, and 0E502. Such controls in Category 0 of the CCL will be published in a separate rule by the Department of Commerce.
    Paragraph (a) of USML Category I will cover firearms that fire caseless ammunition. Paragraph (b) will continue to cover fully automatic firearms to caliber .50 (12.7mm) inclusive. Paragraph (c) will cover firearms specially designed to integrate fire control, automatic tracking, or automatic firing systems, and all weapons previously described in paragraph (c) that remain on the USML will be covered by paragraph (a), (b) or (c) of this category or by Category II. Paragraph (d) will cover fully automatic shotguns. Paragraph (e) will continue to cover silencers, mufflers, sound suppressors, and specially designed parts and components; flash suppressors will be subject to the EAR. Paragraph (f) will be reserved, as riflescopes and other firearms sighting devices may be controlled in USML Category XII if they have night vison or infrared capabilities, and other riflescopes will be subject to the EAR. Paragraph (g) will continue to cover barrels, receivers (frames), bolts, bolt carriers, slides, or sears, specially designed for the firearms in Category I. Paragraph (h) will cover high capacity (greater than 50 rounds) magazines, and parts and components to convert a semi-automatic firearm into a fully automatic firearm, and accessories or attachments specially designed to automatically stabilize aim (other than gun rests) or for automatic targeting. Paragraph (i) will continue to cover the technical data and defense services.
    A new (x) paragraph will be added to USML Category I, allowing ITAR licensing for commodities, software, and technology subject to the EAR, provided those commodities, software, and technology are to be used in or with defense articles controlled in USML Category I and are described in the purchase documentation submitted with the license application.
    The note to Category I will be retained, with conforming revisions. A new second note will be added to clarify the terms “firearm,” “fully automatic,” and “caseless ammunition”.
 
Revision of Category II

    This proposed rule revises USML Category II, covering guns and armament, establishing a bright line between the USML and the CCL for the control of these articles.
    Most significantly, paragraph (j), controlling parts and components, will be revised to enumerate the articles controlled therein.
    Paragraph (a) will be revised to enumerate the articles controlled in that paragraph. The articles currently covered in paragraph (c) (apparatus and devices for launching or delivering ordnance) still warranting control on the ITAR will be included in new paragraph (a)(4). A new paragraph (a)(5) will be added for developmental guns and armaments funded by the Department of Defense and the specially designed parts and components of those developmental guns and armaments. The articles currently controlled in paragraph (f), engines for self-propelled guns and howitzers in paragraph (a), will be on the CCL in ECCN 0A606. Tooling and equipment for the production of articles controlled in USML Category II, currently in paragraph (g), will be on the CCL in ECCN 0B602. Test and evaluation equipment, currently in paragraph (h), will be on the CCL in ECCN 0B602. Certain autoloading systems controlled in paragraph (i) will be moved to paragraphs (j)(9) and (11).
    A new (x) paragraph will be added to USML Category II, allowing ITAR licensing for commodities, software, and technology subject to the EAR, provided those commodities, software, and technology are to be used in or with defense articles controlled in USML Category II and are described in the purchase documentation submitted with the application.
 
Revision of Category III

    This proposed rule revises USML Category III, covering ammunition and ordnance, to establish a bright line between the USML and the CCL for the control of these articles and to be consistent with the changes to Category I.
    Most significantly, paragraphs (a) and (d) will be revised to remove broad catch-alls and enumerate the articles to be controlled therein. For example, paragraph (a), which controls ammunition for articles in USML Categories I and II, will be revised to specifically list the ammunition that it controls. A new paragraph (a)(10) will be added for developmental ammunition funded by the Department of Defense and the parts and components specially designed for such developmental ammunition. Ammunition not enumerated in paragraph (a) will be subject to the EAR. Likewise, revised paragraph (d), which controls parts and components, will enumerate the articles it controls; those articles not identified but currently captured via the catch-all will be subject to the EAR.
    Additionally, paragraph (c), which controls production equipment and tooling, will be removed and placed into reserve. The articles currently covered by this paragraph will be subject to the EAR.
    A new (x) paragraph will be added to USML Category III, allowing ITAR licensing for commodities, software, and technology subject to the EAR, provided those commodities, software, and technology are to be used in or with defense articles controlled in USML Category III and are described in the purchase documentation submitted with the application.
 
Conforming ITAR Changes

    Additionally, conforming changes will be made to several sections of the ITAR that refer to the current controls in USML Category I(a). These sections will be amended because they all refer to firearms that will be controlled on the CCL. Section 123.16(b)(2) will be revised to remove reference to the firearms exemptions at Sec.  123.17(a) through (e), which describe the firearms exemptions, because the paragraphs will be removed as a consequence of the control of non-automatic and semi-automatic firearms on the CCL. For the same reason, Sec. 123.16(b)(6) will be revised to describe only the remaining exemption at Sec.  123.17 (personal protective gear), and Sec.  123.16(b)(7) will be reserved. Section 123.17 will be amended to remove paragraphs (a) through (e), consistent with changes made to the USML. Section 123.18, as it describes exemptions for firearms that will be controlled for export by the Department of Commerce, will be removed and placed into reserve. Revision of Sec.  124.14(c)(9) will remove the example of “sporting firearms for commercial resale.” The policy guidance on Zimbabwe in Sec.  126.1(s) will be revised to remove reference to the firearms exemption in Sec. 123.17.
    Section 129.1(b) of the ITAR will be revised to clarify that the regulations on brokering activities in part 129 apply to those defense articles and defense services designated as such on the USML and those items described on the USMIL (27 CFR 447.21). Section 129.4 of the ITAR will also be revised to clarify brokering requirements for items on the USMIL that are subject to the brokering requirements of the AECA. The items that will move to the CCL for export control purposes, yet are on the USMIL for permanent import purposes, remain subject to the brokering requirements of part 129 with respect to all brokering activities, including facilitation in their manufacture, export, permanent import, transfer, reexport, or retransfer. The revisions also clarify that foreign defense articles that are on the USMIL require brokering authorizations.
 
Request for Comments

  The Department welcomes comments from the public and specifically requests input on the following matters:
    (1) A key goal of this rulemaking is to ensure the USML and the CCL together control all the items that meet Wassenaar Arrangement commitments embodied in its Munitions List Categories 1, 2 and 3 (WA-ML1, WA-ML2 and WA-ML3). Readers are asked to identify any potential gap in coverage brought about by the changes for USML Categories I, II and III contained in this notice and the new Category 0, 0x5zz ECCNs published separately by the Department of Commerce when reviewed together.
    (2) The Department seeks to establish clear distinctions between the USML and the CCL for the control of firearms, large guns, armaments, ordnance and ammunition. The public should provide any specific examples of firearms (or parts, components, accessories thereof), large guns, armaments, ordnance or ammunition whose jurisdiction is unclear based on this revision.
    (3) The Department has, in the past, adopted a delayed effective date of 180 days for rules revising entire categories of the USML and moving items to the CCL. The Department seeks to allow industry sufficient time to implement this rule, including time to make changes to IT systems, technology controls plans, and other business processes. The public should provide input on the time necessary to implement any final rule for these categories, as well as a description of any increased burden that, in the view of the commenter, would be imposed on businesses or individuals should this rule be adopted. …

* * * * * * * * * * * * * * * * * * * * 

OGSOTHER GOVERNMENT SOURCES

OGS_a14. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

* DHS/CBP; NOTICES: Agency Information Collection Activities; Proposals, Submissions, and Approvals: 
  – Application for Allowance in Duties; and 
  – Petition for Remission or Mitigation of Forfeitures and Penalties Incurred [Publication Dates: 24 May 2018.]
 
* ITA; NOTICES; Generalized System of Preferences: Possible Modifications, 2017 Review [Publication Date: 24 May 2018.]
 
* Treasury/OFAC; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 24 May 2018.]

* * * * * * * * * * * * * * * * * * * *

OGS_abc25. 
Commerce/BIS Publishes Speeches Delivered at 2018 Annual Conference on Export Controls and Policy

(Source: 
Commerce/BIS, 15 May 2018.) 
 
BIS has posted on its website the following remarks delivered at its 2018 Annual Conference on Export Controls and Policy in Washington, DC, on 14-15 May 2018:
 

  – Remarks of the Secretary of Commerce Wilbur Ross, 14 May 2018

* * * * * * * * * * * * * * * * * * * *

(Source: 
CSMS# 18-000358, 23 May 2018.) 
 
CBP plans to deploy Entry Summary changes to CERT for Tariff Rate Adjustment validations (see CSMS Message #: 18-000349) on 5/24/2018, with the new functionality being available for testing by 10:00 AM ET on 5/24/2018.

* * * * * * * * * * * * * * * * * * * *

(Source: 
DoD/DSS, 23 May 2018.)

Personnel Security (PCL) inquiries (option #2) to include e-QIP authentication resets of the DSS Knowledge Center will not be closed on Friday, 25 May. The DSS Knowledge Center will be closed Thursday, 31 May, from 8 a.m. to noon, for the purpose conducting internal training to deliver the highest quality customer service to Industry and Government callers. Normal operations for PCL and e-QIP inquiries will resume at 12:01 p.m. on 31 May.  
 

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* * * * * * * * * * * * * * * * * * * * 

(Source: 
UK OFSI, 22 May 2018.) [Excerpts.] 
 
If you suspect that a breach of financial sanctions has occurred, you need to contact the Office of Financial Sanctions Implementation (OFSI) at the earliest opportunity.
 
You are legally obliged to report to OFSI if, as a relevant institution, business or profession, you know or suspect that a breach of financial sanctions has occurred, that a person is a designated person, or you hold frozen assets and that knowledge or suspicion came to you while conducting your business. You must contact OFSI at the earliest opportunity.
 
EU regulations require individuals, entities and bodies to supply OFSI as soon as practicable with any information that would ‘facilitate compliance’ with the regulations. Any information provided will only be used for the purposes for which it was provided or received. This requirement applies to natural and legal persons, entities and bodies in the UK or under UK jurisdiction.
 
UK regulations, which enforce EU regulations, set out additional specific reporting obligations for a ‘relevant institution’ and a ‘relevant business or profession’. All relevant institutions, businesses and professions are required, under UK law, to report information about designated persons, frozen assets or suspected breaches to OFSI if the information on which the knowledge or suspicion is based came to it in the course of carrying on its business. These reports are essential to help OFSI detect and address illegal activity. … 
 
The guidance is available 
here.

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NWSNEWS

(Source: 
American Shipper, 23 May 2018.) [Excerpts.] 
 
Commissioner Kevin McAleenan said officials are looking to balance trade enforcement and trade facilitation by incentivizing private-sector partnerships.
 
U.S. Customs and Border Protection (CBP) is exploring a sort of “known shipper” approach for according trade-processing benefits to e-commerce “partners in compliance” as well as for holding transacting parties accountable for low-value shipment violations, CBP Commissioner Kevin McAleenan said Tuesday during the U.S. Chamber of Commerce’s Sixth Annual Global Supply Chain Summit.

  “We want to explore trade benefit incentives in the e-commerce marketplace, not unlike the voluntary Customs-Trade Partnership Against Terrorism [CTPAT] approach,” he said. “That way, we can focus on non-compliant trade while offering processing benefits to compliant importers. This kind of known shipper program could be a win-win for CBP and stakeholders in the e-commerce arena.” … 

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(Source: 
BBC News, 23 May 2018.) [Excerpts.] 
 
Iran’s Supreme Leader Ali Khamenei has set out several conditions for staying in the nuclear deal with world powers. … 
 
U.S. President Donald Trump has said he is withdrawing from the deal, and on Monday Secretary of State Mike Pompeo said sanctions lifted after the 2015 deal would be re-imposed. … 
 
The UK, France and Germany, meanwhile, have been trying to keep the deal alive, and Iran says it will restart its nuclear program unless its concerns are met.
 
What Are Ayatollah Khamenei’s Main Conditions?
 
  – European powers should protect Iranian oil sales from the US sanctions and continue buying Iranian crude
  – European banks should safeguard trade with Iran
  – The UK, France and Germany should pledge not to seek negotiations on Iran’s ballistic missile program and regional activities, both demanded by Washington … 

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NWS_a312. 
The New York Times: “A Bid to Increase Gun Exports, Stalled After Sandy Hook, Moves Ahead”
(Source: 
The New York Times, 23 May 2018.) [Excerpts.] 
 
The Trump administration wants to streamline the process for exporting American firearms, a change sought for years by domestic gun companies as a way to increase sales.
 

proposed rule expected to be published in the Federal Register on Thursday would transfer jurisdiction of consumer gun exports from the State Department, where the licensing process is expensive and extensive, to the Commerce Department, which has a simpler application process.
 
Publication of the rule kicks off a 45-day comment period, after which departments including State and Commerce will review corrections and suggestions and then send a revised draft to Congress before final publication.
 

Gun industry groups said that the shift, which was first conceived during the Obama administration but halted after the Sandy Hook school shooting in 2012, would pare down a bureaucratic process that currently discourages American firearms companies from sending their products abroad. …  

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NWS_a413. 
Reuters: “Ukraine Adds Russian Tycoons and News Agency RIA to Sanctions List”
(Source: 
Reuters, 24 May 2018.) [Excerpts.] 
 
Ukraine has put Russian businessman Oleg Deripaska, whose company Rusal owns a large alumina plant in the country, and other prominent Russians on an expanded sanctions list, a document on the president’s website showed on Thursday.
 
It was not clear what effect the blacklisting would have as many Russian companies have already sought to wind up their Ukraine-linked activities due to earlier sanctions.
 
But restrictions on Deripaska could affect the operations of the Mykolaiv plant in southern Ukraine, which is the second-largest alumina asset of his aluminum business Rusal. … 
 
Kiev first implemented sanctions against hundreds of Russian companies and entities after Moscow’s annexation of Crimea in 2014 and over its support for a pro-Russian separatist uprising in eastern Ukraine.
 
Earlier in May it expanded these restrictions to mirror those of the United States, which blacklisted officials and businesspeople around President Vladimir Putin in April. This was one of Washington’s most aggressive moves to punish Moscow for its alleged meddling in the 2016 U.S. election and other “malign activity”.
 
Ukraine’s updated list was published online on Thursday, confirming sanctions on Deripaska as well as on other Russian tycoons such as Viktor Vekselberg, owner of Renova holding group, and Alexei Miller, the CEO of Russia’s gas exporter Gazprom.
 
The additions to the list also include the Ukraine operations of Russian state news agency RIA Novosti. … 

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NWS_a514. 
Reuters: “U.S. Targets Airlines in Latest Iran Sanctions Move”
(Source: 
Reuters, 24 May 2018.) 
 
The United States on Thursday imposed sanctions on several Iranian and Turkish companies and a number of aircraft in a move targeting four Iranian airlines.
 
The companies targeted were linked to Mahan Air and Meraj Air, the U.S. Treasury Department said in a statement. It also said it was targeting a number of their aircraft, as well as aircraft from Caspian Airlines and Pouya Air.
 
The United States said the airlines had ferried weapons, fighters and money to proxies in Syria and Lebanon. Washington also threatened sanctions against those granting landing rights and providing services to the aircraft.
 
  “The deceptive practices these airlines employ to illegally obtain services and U.S. goods is yet another example of the duplicitous ways in which the Iranian regime has operated,” U.S. Treasury Secretary Steven Mnuchin said in a statement.
 
The airlines were not immediately available for comment.
 
Washington also targeted three individuals, one from Turkey and two from Iran, who it said were linked to the airlines and aviation firms.
 
The sanctions were the latest in the United States’ efforts to economically strangle Iran with the hopes of blocking the country’s efforts to develop nuclear weapons.
 
Earlier this month, the United States withdrew from a 2015 nuclear accord that had lifted sanctions on Iran in exchange for curbs to its nuclear program, dismaying U.S. allies who want to preserve it.
 
The United Nations’ International Atomic Energy Agency has said that Iran is compliant with the deal, but U.S. President Donald Trump said the entire accord is flawed because restrictions lapse over time and it does not address Iran’s ballistic missile program or Tehran’s role in regional conflicts.
 
On Tuesday, the United States imposed sanctions on five Iranians it said had provided Yemen’s Houthi movement with weaponry and expertise to launch missiles at cities and oil infrastructure in Saudi Arabia.
 
Iran’s supreme leader has laid out a number of conditions for Tehran to stay in the deal, and senior officials from the countries still in it – China, France, Germany, Iran, Russia and the United Kingdom – are meeting in Vienna on Friday to discuss the next steps.  

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NWS_a615. 
ST&R Trade Report: “ACE Enhancements Include De Minimis, Importer ID, CEEs, Broker Permits” 

(Source: 
Sandler, Travis & Rosenberg Trade Report, 24 May 2018.) [Excerpts.]
 
Enhancements to the Automated Commercial Environment for de minimis shipments, the importer ID form, foreign-trade zone entries, Centers of Excellence and Expertise, and customs broker national permits are among those that U.S. Customs and Border Protection anticipates making in fiscal year 2018 thanks to a congressional appropriation of $30 million. CBP states that a development and deployment schedule will be released later and that it will engage the trade community to refine trade-facing technical requirements and implementation plans.
 
Section 321 Entries. Under section 321 of the Trade Facilitation and Trade Enforcement Act, the maximum value of goods that can be imported free of duty and tax by one person on one day (the so-called de minimis value) was increased from $200 to $800 as of February 2016. CBP currently clears such goods off the manifest but is working to automate data collection on these shipments, which would create an additional pathway to clearance via development of an entry type 86 for ABI submission. This filing option will be optional for all filers but required for entries with partner government agency data.
 
Importer ID Input Record. CBP Form 5106 collects data used to establish bond coverage, release and entry of goods, liquidation, and the issuance of bills and refunds. CBP states that automating and updating the data elements captured in ACE for this form will (a) enable the collection of more detailed importer information to support more advanced risk analysis, (b) further improve revenue functions, and (c) provide for more streamlined processing for importers, brokers, sureties, and others through the ability to create, edit, and update importer information.
 
FTZs. The current process provides an electronic document to request the entry of cargo into a foreign-trade zone and electronic messaging when a cargo exam is required and goods have been authorized for a permit to transfer into an FTZ. The e214 redesign will enable the submission of PGA data simultaneously with the e214 via the PGA message set or the document image system when reporting FTZ admissions.
 
CEEs. CBP will create unique identifiers for its ten Centers of Excellence and Expertise that will be added to all post-release workflow in ACE. CBP states that designating the CEE code in entry summary, reconciliation, and protest transaction submissions will aid the transition to account-based processing.
 
Broker National Permits. In line with a forthcoming proposed rule that will update the customs broker regulations in 19 CFR 111, ACE will be enhanced to transition all brokers to a single national permit and eliminate multiple district permits and waivers. Brokers will be able to conduct entry via remote location filing at any port nationwide and will no longer have to pay the initial $100 permit fee and the annual $141.70 permit user fee per local permit.
 
Truck Processing. CBP will deploy drive-through multi-energy portal imaging systems to the Laredo World Trade Bridge and the Brownsville Veterans Bridge and allow non-intrusive inspections, which currently occur at secondary, to take place in pre-primary. CBP states that these capabilities are essential components of the cargo “model port” project for which initial pilots are slated this summer.
 
GSP. This enhancement will address mandatory updates related to the renewal of the Generalized System of Preferences and allow quicker payment of retroactive refunds when GSP expires and is later reinstated.
 
Manifest. CBP states that collecting shipper phone numbers as an optional data element on the manifest will help improve and strengthen the targeting of e-commerce shipments.
 
Vessel Management. This enhancement will allow for electronic receipts for vessel entry fees and the addition of an online payment option for vessel agents and owner operators.

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NWS_a716. 
WorldECR News Alert 24 May 2018

(Source: 
WorldECR, 24 May 2018.)
 
(1) EU to use Blocking Regulation in response to US withdrawal from the JCPOA
(2) Russian parliament considers counter-sanctions bills
(3) US strengthens sanctions on Venezuela
(4) Japan’s METI revises its End User List
(5) OFSI updates its monetary penalty guidance and compliance reporting form
 

[Editor’s Note: 
Click here to find information on how to subscribe to WorldECR, the journal of export controls and sanctions.]

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COMMCOMMENTARY

COMM_a0117. 
International Trade Compliance Update: “EU Blocking Regulation”

(Source: 
International Trade Compliance Update, 22 May 2018.)
 
The European Commission has started the process by which it would add U.S. sanctions measures on Iran to the so-called Blocking Regulation (formerly Regulation 2271/96). This is in direct response to the U.S. President’s withdrawal of his waiver relating to the JCPOA. The effect of the withdrawal was to reintroduce US sanctions that were in force prior to the JCPOA. U.S. sanctions on Iran not only impact US companies and persons, but can, in certain circumstances be applied to non-U.S. persons. The most important extension of U.S. jurisdiction relates to non-U.S. subsidiaries of U.S. companies. However, the U.S. also has powers to place so-called “secondary sanctions” on non-U.S. persons. These can be placed on any person (i.e., including non-US persons acting wholly outside U.S. jurisdiction) engaging in certain “sanctionable activities,” as defined by the relevant U.S. laws and regulations.  These “sanctionable activities” are detailed in OFAC’s recent FAQ document available 
here.  The U.S. Government has a considerable degree of discretion in determining whether to impose “secondary sanctions” on non-U.S. persons engaging in these “sanctionable activities,” and this will likely depend in part on the nature and scope of the activities, the parties involved, etc.
 
Most countries, and all the other signatories of the JCPOA (UK, Russia, China, France and Iran) plus Germany have reaffirmed their adherence to the JCPOA.
 
What does the Blocking Regulation do?
 
The Blocking Regulation has four main elements.
 
First, it requires any EU person to notify the Commission of any effects on the economic and/or financial interests of that person caused by a measure blocked in the Annex.
 
Second, no judgment of a court or tribunal, and no decision of an administrative authority located outside the EU that gives effect, directly or indirectly, to the measure in the Annex, or to actions based thereon or resulting there from, shall be recognized or be enforceable in the EU in any manner. This is the main blocking measure.
 
Third, no EU person shall comply, whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission, with any requirement or prohibition, including requests of foreign courts, based on or resulting, directly or indirectly, from the measures specified in the Annex or from actions based thereon or resulting therefrom. EU persons may be authorized, in accordance with the procedures provided in Articles 7 and 8, to comply fully or partially to the extent that non-compliance would seriously damage their interests or those of the Community.
 
Finally, an EU person shall be entitled to recover any damages, including legal costs, caused to that person by the application of the measures specified in the Annex or by actions based thereon or resulting therefrom. This is sometimes referred as the “clawback” measure.
 
What is the process now being undertaken?
 
Based on a 2014 amendment to Regulation 2271/96, the Commission now has power, delegated to it from the Council, to add measures to the Annex of 2271/96. The process by which it is to do this is as follows:
 
As soon as it adopts a delegated act, the Commission notifies it to the European Parliament and to the Council. That delegated act can only enter into force only if:
 
  – no objection has been expressed either by the European Parliament or the Council within a period of two months of notification of that act to the European Parliament and to the Council; or
  – before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object.
 
The two-month period shall be extended by four months at the initiative of the European Parliament or of the Council.
 
We assume that the Commission has notified the Parliament and Council of the measures to be added to the Annex, and unless either party objects, or both agree to the proposal sooner, the additions will take effect after 2 months
 
What is the practical implication of the Blocking Regulation?
 
The reinvigoration of the Blocking Regulation is an unwelcome development as it is intended to put EU businesses between a rock and hard place. Unfortunately, the U.S. rock is far more compelling than the EU hard place, and very few EU businesses will rely on the Blocking Regulation to guarantee their ability to keep doing business in the U.S. and Iran.
 
The Blocking Regulation was of very little use in curtailing U.S. policy on Cuba, and almost certainly will not curtail U.S. policy on Iran. The U.S. financial system is now so important to global and EU businesses that it cannot easily be avoided. Even during the U.S. adherence to the JCPOA, all Western banks were reluctant to do business with Iran, because of the risks posed under U.S. law. This reluctance has now turned into positive dislike.
 
As noted above, the U.S. is also stressing the possibility of secondary sanctions, which in principle force non-U.S. businesses to choose between doing business in the U.S. and doing business in Iran. The revivification of the Blocking Regulation will not affect that choice. 

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COMM_a2
18.
J. Reeves & K. Heubert: “A Primer on the Export Administration Regulations” 

(Source: Reeves & Dola LLP Alert, 23 May 2018. Available via 
jreeves@reevesdola.com.) 
 
* Authors: Johanna Reeves, Esq., 
jreeves@reevesdola.com, 202-715-994; and Katherine Heubert, Esq., 202-715-9940, 
kheubert@reevesdola.com. Both of Reeves & Dola LLP. 
 
On May 14, 2018, the U.S. Department of State 
posted on its website proposed rules to transition most firearms and ammunition off the International Traffic in Arms Regulations (ITAR) control list, known as the U.S. Munitions List (USML), over to the U.S. Department of Commerce’s export control list, known as the Commerce Control List (CCL). The reason for the change is to revise the scope of the ITAR to control only those articles that provide the United States with a critical military or intelligence advantage or, in the case of weapons, are inherently for military end use. Such items will remain on the USML, while items no longer warranting control under the ITAR will be transitioned to the CCL and be subject to the licensing provisions of the Export Administration Act (EAR), administered and enforced by the U.S. Department of Commerce, Bureau of Industry and Security (BIS).
 
In anticipation of the official publication of the proposed rules, scheduled for May 24, 2018, we thought it advisable to offer an overview of the EAR. Once the rules publish on May 24, we will circulate an in-depth 3-part review of the proposed amendments to the ITAR and to the EAR and the potential impacts on industry. 
 
The following overview of the EAR is intentionally broad, and is intended to serve only as a backdrop to the proposed rules to transition most firearms and ammunition, along with certain parts, components, attachments and accessories, from ITAR controls to EAR controls.
 
Scope of Controls – Subject to the EAR
 
Items – the Commerce Control List
 
While the Department of State controls over exports, reexports, and temporary imports are confined to “defense articles” and “defense services” listed on the USML, the Department of Commerce controls over exports and reexports are much broader. The EAR, found in 
15 C.F.R. Pts. 730-780, control the export and reexport of “items” (commodities, software, and technology, each term separately defined in the EAR) and certain activities that are NOT exclusively controlled for export or reexport by another agency of the U.S. government which regulates exports or reexports for national security or foreign policy purposes, such as the U.S. Department of State.
 
Items subject to the EAR consist of the items listed on the 
CCL in Part 774 of the EAR, and all other items that meet the definition of “subject to the EAR” in section 734.3. The CCL is made up of ten Categories that are further broken into Export Control Classification Numbers (ECCNs). An ECCN is an alpha-numeric code that describes an item or types of items and shows the controls on that item and available license exceptions. The ECCN is not a Harmonized Tariff Schedule (HTS) number, and is not a Schedule B number. To determine whether an item requires an export license from BIS, the exporter must know how the item is classified on the CCL.
 
As noted above, the CCL is divided into 10 categories, with each category subdivided into five groups, designated by the letters A through E as follows: (A) Equipment, assemblies and components; (B) Test, inspection and production equipment; (C) Materials; (D) Software; and (E) Technology. Within each group is where you will find the ECCNs that enumerate the items that are controlled on the CCL. The firearms and ammunition currently classified on the USML in Categories I, II and III that have been selected to transition to the EAR will be enumerated in new ECCNs created under Category 0 (nuclear materials, facilities and equipment, and miscellaneous items) and product groups A, B, D and E. We will review the proposed rules and the new ECCNs in detail in our forthcoming alerts.
 
Items subject to the EAR which are not listed on the CCL are generally designated as “EAR99.” Often, items classified as EAR99 do not require an export license, but EAR99 is a classification, not a license exemption! Further, EAR99 does not automatically mean that no license is required. If the export violates any of the general prohibitions listed in EAR section 736.2, such as prohibited end-user, end-use, or sanctioned or embargoed country, a license is required.
 
The above discussion relates only to the question of what is subject to the EAR. Being subject to the EAR does not automatically mean a license is required for an export or reexport. This is a separate analysis that we will examine below.
 
Parts and Components – De Minimis
 
Foreign-made commodities that incorporate controlled U.S.-origin commodities may also be subject to the EAR if they have de minimis level of U.S. content. What constitutes the de minimis level depends on the commodity and the destination country for the reexport, and may range from no de minimis levels (for items subject to higher controls), to 10% or 25% de minimis.  The rules for calculating de minimis levels are found in 
section 734.4 of the EAR.
 
Technology
 
The EAR defines “technology” as “information necessary for the “development,” “production,” “use,” operation, installation, maintenance, repair, overhaul, or refurbishing (or other terms specified in ECCNs on the CCL that control “technology”) of an item. Each of the quoted terms are defined in 
Part 772 of the EAR.
 
EAR controls over “technology” are more narrowly focused than the ITAR controls over technical data, and apply in limited contexts. To determine whether the technology for an ECCN is also enumerated on the CCL, the corresponding “E” ECCN for the platform should be reviewed. For example, in the proposed rules for firearms currently in USML CAt. I, there will be a new ECCN 0E501 that controls technology for firearms and certain related items. However, the technology controlled would be that which is required for the “development” and “production” of firearms other than shotguns. This new ECCN also would apply the anti-terrorism and United Nations reasons for control (see below) to “technology” “required” for the operation, installation, maintenance, repair, or overhaul of such firearms. As the proposed Commerce rule explains, “controlling this “technology” under the EAR rather than the ITAR is appropriate because the “technology” for the “development,” “production,” operation, installation, maintenance, repair, and overhaul of the firearms to be described in 0A501 is widely available throughout the world and its possession does not confer a significant military or intelligence advantage on the United States.”
 
It is important to point out that the EAR’s carve-out from controls for published works or information in the public domain is much broader in scope compared to the ITAR carve-out for public domain. In section 734.7, “published” technology or software is carved out from EAR controls “when it has been made available to the public without restrictions upon its further dissemination….” For example, subscriptions available without restriction, libraries or other public collections open to the public and from which the public can obtain tangible or intangible documents, unlimited distributions at a conference, seminar, trade, show, or exhibition generally accessible to the public, public/unlimited distribution in any form, 
including posting on the Internet on sites available to the public. Many may rejoice over this, as the ITAR still does not recognize the Internet as being in the “public domain.”
 
As further illustration of technology not controlled under the EAR, the BIS proposed rule cites the example of a gun manufacturer posting a firearm’s operation and maintenance manual on the Internet, making it publicly available to anyone interested in accessing it and without restrictions on further dissemination. According to the proposed rule explanation, such operation and maintenance information included in that published manual would no longer be “subject to the EAR.” Nonproprietary system descriptions, including for firearms and related items, are another example of information that would not be subject to the EAR.
 
Reasons for Control
 
The reasons for control for exports under the EAR include the following:
 
  – CB (Chemical & Biological Weapons)
  – NP (Nuclear Proliferation)
  – NS (National Security)
  – MT (Missile Technology)
  – RS (Regional Stability)
  – CC (Crime Control)
  – AT (Anti-Terrorism)
  – UN (United Nations)
  – EI (Encryption Item)
  – CW (Chemical Weapons Convention)
 
The specific reasons for control for a particular item is identified within each specific ECCN. Unlike the blanket ITAR requirement for a license to anywhere in the world, BIS license requirements are unique to each individual ECCN. Whether a license is required for a particular export will depend on the destination country.  
 
Licensing Under the EAR
 
Each ECCN is made up of four sections: a 
heading(description of the items controlled), the 
license requirements(including all possible reasons for control, such as AT, UN, NS, CC, and RS) the available 
license exceptions, and 
list of items controlled.
 
To determine the export and reexport license requirements for most items on the CCL, you must identify the reasons for control in the relevant ECCN and consult the 
Commerce Country Chart in Supp. No. 1 to Part 738 to see whether the applicable reasons for control are checked for the specific country. If so, then a license is required unless a license exception applies. Whether a license exception is available will depend on the ECCN and the 
Country Groups in Supplement No. 1 to Pt. 740.
 
Unlike the ITAR, the EAR does not require registration of exporters (so no registration fee), and there are no fees to apply for licenses through the SNAP-R. In addition, unlike the ITAR, the EAR does not include a concept of “defense services,” so there is no registration or licensing for the provision of defense services like there is under the ITAR.
 
The process for establishing a SNAP-R account is relatively easy, and no digital signature certificate is required. Further, unlike the ITAR, which contains several license forms depending on the transaction, the EAR prescribes one single form for each type of export (permanent, retransfer, reexport).
 
Covering Items Subject to the EAR on DDTC Licenses
 
With the rewrite of Categories I, II, and III, DDTC will add a “Paragraph (x)” to each of the revised categories. This paragraph has been added to all other USML Categories as they have gone through the rewrite process, and allows for the export of items subject to the EAR under ITAR licenses so long as the conditions of paragraph (x) are met (see ITAR §§ 120.5(b) and 126.6(c)). These conditions include:
 
  (1) An ITAR license may only include items subject to the EAR that are for use in or with the listed defense articles;
  (2) The purchase documentation must specify both the defense articles with the items subject to the EAR (no separate purchase orders breaking out the defense articles from the EAR items);  
  (3) The exporter must ship the EAR items together with the ITAR articles; and
  (4) Items subject to the EAR that are included on an ITAR license do not lose their jurisdictional status as EAR-controlled items and remain subject to the EAR for any subsequent transactions. 
 
In light of the last requirement, it is incumbent on the U.S. exporter to properly educate its customers and end-users when using an ITAR license for both defense articles and EAR items to be used in or with the defense articles. In the event the end-user need reexport approval, the approval must come from BIS for items subject to the EAR, not DDTC.
 
Below is a reference chart comparing some aspects of the EAR to the ITAR.
 
ITAR
EAR
Statutory Authority
Arms Export Control Act
Export Administration Act of 1979 50 USC 4601-4623 [lapsed]
Federal Agency
U.S. Department of State, Directorate of Defense Trade Controls
U.S. Department of Commerce, Bureau of Industry and Security
Citation
22 C.F.R. Pts. 120-130
15 C.F.R. Pts. 730 – 774
What is Covered
Export, reexport, and temporary import of “defense articles” and “defense services”
Items subject to the EAR
Control List
U.S. Munitions List
22 C.F.R. 121.1
Commerce Control List
15 C.F.R. Pt. 774
Registration Required?
Yes – manufacturers, exporters, temporary importers, and brokers of defense articles and defense services. Annual fees apply. Manufacturers of defense articles must register regardless of export activity.
No
License Portal
D-Trade
SNAP-R
Fee for Licenses
Yes – rolled into registration fee
No
Types of Licenses/ Authorization
Several types/forms – permanent export, temporary export, temporary import, agreements, brokering
One form for export, Reexport, In-Country Transfer
Brokering?
Yes – 22 C.F.R. Pt. 129
No – but see proposed rules for Cats. I-III
Technology Controls
Yes – “technical data” licensing and “defense services” licensing
Yes, but not as broad as ITAR; EAR controls only transmission
 of technology, so no EAR concept of defense service
 
This overview of the EAR is the first installment of a four-part series on the proposed rules to transition firearms and ammunition from the USML to the CCL. Our next alert will examine the transition of certain firearms and their parts, components, accessories and attachments from USML Cat. I items to the CCL. Please stay tuned.

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COMM_a3
19. 
L. Luo: “Minefields in the U.S. Export Control System” (Part II of II)
(Source: 
King & Wood Mallesons, 14 May 2018.) 
 
* Author: Laura Luo, Partner, 
Laura.Luo@us.kwm.com, King & Wood Mallesons, New York.
 
[Editor’s Note: due to space limitations, this item has been divided into two parts.  Part 1 was published in the Daily Bugle of Wednesday, 23 May 2018.]
 
On 15 April 2018, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a denial order against a Chinese telecommunications company (hereinafter referred to as “Company Z”), and added the company to the “Denied Persons List.” The case of Company Z’s violation of U.S. export control, which has lasted for years, again came into the spotlight and raised public concern over the U.S. export control system in China.
 
The Export Administration Act (hereinafter referred to as “EAA”) came into force in 1979. Since then, the U.S. has adopted the most rigorous export control system in the world. Meanwhile, for a long time, many Chinese enterprises lacked awareness of the U.S. export control system, which made them key subjects of U.S. export control investigations. In the United States, China became the second target country of criminal investigation on export control as early as in 2014, just after Iran. [FN/1] In view of this, the Customs and Trade Compliance Team of King & Wood Mallesons (hereinafter referred to as “KWM”) will enumerate key issues in the U.S. export control system that concern Chinese enterprises based on the in-effect statutes of U.S. export control and published PRC-related cases. As the first of a series of articles, we will review the “minefields” in U.S. export control frequently encountered by PRC enterprises. … 
 
How to Cross the “Minefield”
 
In front of the rigorous export control system of U.S. and the multitudinous risks from it, we suggest that Chinese enterprises could take the following three solutions to cross the minefields: 
 
Plan A: Clearing the Minefield in Advance — Establishing a Comprehensive Export Control Compliance System
 
Subject to the strict U.S. export control system, the tricks for circumvention always invite humiliation to itself. In order to mitigate the risks, the best approach is to improve the internal export control regulatory system and operate it effectively. In general, a comprehensive export control regulatory system shall cover the following aspects:
Know your products
Know your activities 
 Know your Customer
 judge whether your products are U.S. items;
Judge whether your products are listed-control items;
 Judge whether your activity is export, deemed export activity;


 judge whether your activity is re-export or transfer in country activity;


 Judge whether your activity is assistance to client’s export
 Judge whether your client is sanctioned or controlled;


 Judge whether the destinations of the commodity is a sanction area;


 Judge whether the end use of the commodities is controlled
In the event the enterprise is not able to make such judgement, or the circumstance is in emergency, pursuant to the relevant regulation of EAR [FN/11], the enterprise may communicate with BIS to seek for supports and guidance from U.S. authorities.
 
Plan B: Self-Rescue After Stepping Into the Minefield — Voluntary Disclosure
 
Once the enterprise realizes the risk of violation of U.S. export control occurs, don’t be flustered. Pursuant to the relevant regulation of EAR, BIS encourages voluntary disclosure of violations. [FN/12]
 
Typically, the exporters shall submit an initial notification to OEE prior to OEE discovers such violation facts. Within 180 days of the initial notification date, the export shall submit a narrative account to OEE. After received the narrative account, OEE will exercise its discretion based on the disclosed facts on the following issues:
 
  (1) Whether the disclosed the activities violate the EAR;
  (2) Whether the disclosed parties have adopted corrective measures.
 
In most cases, OEE will only issue a warning letter, especially for negligence violations and mild compliance defects without of aggravating circumstance, such as intentionally violation. According to the statistics of BIS, in fiscal year 2015, BIS accepted 382 voluntary disclosure reports, while only less than 1% of them were settled by administrative punishment. [FN/13] Even if the administrative punishment is inflicted, the voluntary disclosed exporter still could enjoy a 50% reduction of punishment on fines granted by OEE in general. Under some circumstances, fines and other administrative punishments during the probationary period will be further reduced or suspended in consideration of the voluntary disclosure.
 
Plan C: A Shortcut for Escaping the Minefields — VEU Program
 
In 2007, BIS established the “Authorization Validated End-User” (VEU) program for China and India companies in particular. The authorized VEU in China are permitted to accept certain controlled items from U.S. by means of export, re-export and transfer without a license. Pursuant to the relevant regulations of EAR, [FN/14] any entity in China or India may apply for VEU status, but the applicant shall satisfy the following criteria:
 
  (1) Having a comprehensive internal export control system;
  (2) Having a strict management of the operation place of controlled items;
  (3) Complying with the record-keeping requirement set forth in EAR;
  (4) The controlled items shall only for self-use purpose;
  (5) The re-export or transfer of controlled items shall be approved by BIS.
 
As of now, there are 11 authorized VEU enterprises in China. [FN/15] 
 
Although authorized VEU enterprises may face some restriction in daily operation, such as items controlled by MT and CC reason are not allowed to export under VEU, the import-controlled item shall be used in certain eligible place, etc., it is still a fast pass for Chinese enterprises to cross the minefield of U.S. export control system comparing with the heavy work on application, verification and assessment for export control license application to other enterprises.
 
Conclusion
 
Indeed, the export control system is an important tool for the United States to implement its global strategy and it bothers a large number of Chinese enterprises participating in International trade and foreign investment. But on the other hand, it is also a touchstone for Chinese enterprises to enhance their awareness of trade compliance. In June 2017, MOFCOM issued an exposure draft of the Export Control Law of PRC, wherein many principles that have been implemented in the U.S. for years were introduced into China for the first time such as catch-all rules, country assessment chart, control list management and end-user verification, etc.  A perfect statutory system of export control will undoubtedly be a major driving force for China to initiative the Belt and Road strategy, and enterprises with a competitive trade compliance system have a head start in this new era.
 
———– 
  [FN/1] See 
here. … 
  [FN/11] 15 C.F.R. Part 748.3.
  [FN/12] 15 C.F.R. Part 764.5(a).
  [FN/13] “An introduction to the Consequences of Violating US Export Control Law”.
  [FN/14] 15 C.F.R. Part 748.15.
  [FN/15] See 
here
.

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COMM_a4
20. Gary Stanley’s EC Tip of the Day
(Source: Defense and Export-Import Update; 23 May 2018. Available by subscription from gstanley@glstrade.com.)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059, gstanley@glstrade.com.
 

ITAR § 125.5(c) provides that a license is not required for the disclosure to a foreign person of unclassified technical data during the course of a plant visit (either classified or unclassified) approved by the Directorate of Defense Trade Controls or a cognizant U.S. Government agency provided the technical data does not contain information in excess of that approved for disclosure. This exemption does not apply to technical data which could be used for design, development, production or manufacture of a defense article.

* * * * * * * * * * * * * * * * * * * * 

TECEX/IM TRAINING EVENTS & CONFERENCES

TEC_a121.
ECS Presents “ITAR/EAR Boot Camp (Seminar Level I)” on 12-13 Sep in Annapolis, MD
(Source: S. Palmer, 
spalmer@exportcompliancesolutions.com
.)
 
* What: Seminar Level I: ITAR/EAR Boot Camp, Annapolis, MD
* When: 12-13 September 2018
* Sponsor: Export Compliance Solutions (ECS)
* ECS Speaker Panel:  Suzanne Palmer, Mal Zerden
* Register:
Here
 or by calling 866-238-4018 or e-mail

* * * * * * * * * * * * * * * * * * * *

ENEDITOR’S NOTES

 


Benjamin N. Cardozo (Benjamin Nathan Cardozo; 24 May 1870 – 9 Jul 1938; was an American lawyer and jurist who served as an Associate Justice of the Supreme Court of the United States. Cardozo is remembered for his significant influence on the development of American common law in the 20th century, in addition to his philosophy and vivid prose style.  At age 15, Cardozo entered Columbia University, where he was elected to Phi Beta Kappa, and then went on to Columbia Law School in 1889. When Cardozo entered Columbia Law School, the program was only two years long; in the midst of his studies, however, the faculty voted to extend the program to three years. Cardozo declined to stay for an extra year, and thus left law school without a law degree.)
  
– “The Constitution overrides a statute, but a statute, if consistent with the Constitution, overrides the law of judges. In this sense, judge-made law is secondary and subordinate to the law that is made by legislators.”
  – “There are vogues and fashions in jurisprudence as in literature and art and dress.”

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EN_a0223

The Daily Bugle
 
Updates Privacy Policy to Comply with EU’s GDPR
 

(Source: Editor, 24 May 2018.)
 
On Friday,
 25 May 2018, EU Council Regulation 2016/679, the EU General Data Protection Regulation
 (“GDPR”),
 will come into effect.  This Regulation
 requires new
 rules concerning the processing of personal information of natural persons within the European Union (“EU”). 
 
To comply with the GDPR, Full Circle Compliance (“FCC”) 
has updated and extended its Editorial Policy and Privacy Policy. 
Our updated policies outline what data we use and for what purpose. We encourage you to take a look at our updated
 
Editorial Policy
 
and
 
Privacy Policy
.
 
The GDPR requires us to receive your permission to
 subscribe to or continue to receive the Daily Bugle. If you have not yet given us your
 permission to use your personal information to provide you with mailings from FCC, you will be notified by email from FCC with an option to continue to receive the Daily Bugle by giving FCC explicit permission to use your personal  information. Unless we receive
 your explicit permission, we will need to
 delete your personal data
 and remove your personal information from our subscriber list. You will then no longer receive the Daily Bugle. 
 
You may
 ask
 FCC to remove your personal information at any time by sending an email to email to 
GDPR@fullcirclecompliance.eu, which will remove you from the Daily Bugle subscribers list. 

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EN_a324
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. 
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 12 Apr 2018: 83 FR 15736-15740: CBP Decision No. 18-04; Definition of Importer Security Filing Importer (ISF Importer)
 
DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M

  – Last Amendment: 18 May 2016: Change 2
: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and cancelled Supp. 1 to the NISPOM (Summary 
here
.)


EXPORT ADMINISTRATION REGULATIONS (EAR)
: 15 CFR Subtit. B, Ch. VII, Pts. 730-774

  – Last Amendment: 17 May 2018: 83 FR 22842-22846: Revisions to the Unverified List (UVL)

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

  – Last Amendment: 19 Mar 2018:
83 FR 11876-11881: Inflation Adjustment of Civil Monetary Penalties 

 
*
FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30
  – Last Amendment: 24 Apr 2018: 3 FR 17749-17751: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (30 Apr 2018) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and approximately 250 footnotes containing case annotations, practice tips, Census/AES guidance, and explanations of the numerous errors contained in the official text. Subscribers receive revised copies in Microsoft Word every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance websiteBITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR. Government employees (including military) and employees of universities are eligible for a 50% discount on both publications at www.FullCircleCompiance.eu.  
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jan 2018: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – 
Last Amendment: 4 May 2018: Harmonized System Update 1807, containing 289 ABI records and 60 harmonized tariff records.
  – HTS codes for AES are available 
here.
  – HTS codes that are not valid for AES are available 
here.

 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.

  – Last Amendment: 14 Feb 2018: 83 FR 6457-6458: Amendment to the International Traffic in Arms Regulations: Addition of South Sudan [Amends ITAR Part 126.] 

  – The only available fully updated copy (latest edition: 25 Apr 2018) of the ITAR with all amendments is contained in Bartlett’s Annotated 
ITAR

(“BITAR”)
, by James E. Bartlett III. The BITAR contains all ITAR amendments to date, plus a large Index, over 800 footnotes containing amendment histories, case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text. Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.
 The BITAR is available by annual subscription from the Full Circle Compliance
 
website
. BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please
contact us

to receive your discount code. 

* * * * * * * * * * * * * * * * * * * *

EN_a0325
Weekly Highlights of the Daily Bugle Top Stories

(Source: Editor) 

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published 
here

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, John Bartlett. The Ex/Im Daily Update is emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOE/NRC, DOJ/ATF, DoD/DSS, DoD/DTSA, FAR/DFARS, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission, provided attribution is given to “The Export/Import Daily Bugle of (date)”. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.


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