By: Curt Dombek and Mark Jensen
On June 19, The U.S. Department of State, Directorate of Defense Trade Controls (DDTC) and U.S. Department of Commerce, Bureau of Industry and Security (BIS) proposed a joint, largely standardized definition of “specially designed” that would apply to items on both the Commerce Control List (CCL) and U.S. Munitions List (USML). The definition represents a major step in the functional merger of the two lists. Once implemented, it should ease the administrative burden of U.S. export compliance on companies whose work touches both areas and clarify the status of a large number of items. One thing it will not do (and which may never be done) is remove ambiguity from the lists altogether.
The newly proposed definition of “specially designed” is part of the overall Export Control Reform effort aimed at unifying the U.S. export controls system, the most significant part of which is administered by BIS and DDTC. The amendment of the CCL and USML is a major component of this effort, one which will result in the interim in moving items from the USML and into newly created categories on the CCL, with an ultimate goal of merging them into one list.
Both the CCL and the USML have existing concepts similar to “specially designed.” Those concepts not only appear broadly throughout the CCL and USML, but they can lead to controls based on the intended use of an item regardless of its technical capabilities. As a result, the classification of many items is not objectively quantifiable. The subjective nature of the current definition is reflected in the decision of the First Circuit Court of Appeals in United States v. Lachman, 387 F.3d 42 (1st Cir. 2004).
The extreme level of generality in the current text of the USML “catch all” categories is an issue that DDTC and BIS have both noted, and the State Department has determined to revise the USML to make it more positive, using more objective parameters to describe controlled objects. See 77 Fed. Reg. 36,409 (June 19, 2012). All told, the U.S. government created nine objectives for the specially designed definition to meet, two of which were being easily understood and applied, and being capable of excluding from control simple parts that do not warrant significant government control. Id. at 36,410. BIS has stated that a key aim of the new rule is to allow exporters to self-classify their items, in part by providing understandable definitions for key terms on the CCL. See id. at 36,417.
The Proposed Rule
The new definition is split into two paragraphs. There are minor variations in the DDTC and BIS definitions that largely track terminology used in the pertinent regulations (e.g. “item” in the EAR and “commodity” in the ITAR) – although they follow the same structure and general definitions. Paragraph (a) describes the conditions under which an item will be considered to be “specially designed”. Those conditions are met where an item is, by result of development (as defined by the EAR): (1) peculiarly responsible for achieving or exceeding the performance levels of a classification number or USML paragraph, (2) is a part or component necessary for an enumerated or referenced commodity, or is (3) an accessory or attachment used to enhance the usefulness or effectiveness of a controlled commodity. See id. at 36,418-19.
Paragraph (b) then limits the scope of paragraph (a) by removing parts, components, accessories, and attachments from the coverage of the definition in the EAR – and in the case of the ITAR, from any “catch-all” USML paragraphs referencing those parts and accessories — when they (1) are enumerated in a USML paragraph (i.e., not a “catch-all” USML paragraph); (2) are a single part commonly used in multiple types of non-controlled commodities; (3) have the same form, fit, and performance capabilities as a part, component, accessory or attachment that is or was not in development and is controlled for Anti-Terrorism purposes (in the BIS definition) or not at all; (4) were being developed with a reasonable expectation of use in both controlled and non-controlled commodities; or (5) were being developed with no reasonable expectation of use for a particular application. Id. at 36,419; 77 Fed. Reg. 36,428, 36,432 (June 19, 2012). BIS has stated that the second section of the rule is aimed at codifying the principle that a commodity should not be ITAR controlled if it has a predominant civil application. 77 Fed. Reg. at 36,413.
In its structure, the first section of the proposed rule has some parallels to the way that the term “required” is currently used for technology in the Technology Note to the CCL, 15 C.F.R. Part 774, Supp. 2. Thus, the definition seeks to isolate those items that are “necessary for” or “peculiarly responsible for” or “enhance” the functioning of the material beyond a certain threshold. BIS notes that (a)(2), using the “necessary” definition, is meant to have the same effect for those classifications not using technical thresholds. Id. at 36,412. Those provisions, and the first provisions in part (b), serve to create definitions that should help clarify the application of the definition to large numbers of parts and components, thereby easing the burden of export control uncertainty in legal interpretation and implementation.
However, some subjectivity remains. The third point in the first paragraph concerning the enhancing of usefulness or effectiveness leaves some room for interpretation – the intent does not seem to be to capture simple attachments or accessories that do not enhance the technological functionality that gives rise to the control, but even such simple attachments or accessories might be said to enhance the usefulness or effectiveness of an item in a very general sense. The government limits the potential expansiveness of that term somewhat by requiring that it be as the “result of development,” although this again introduces some subjectivity since even the slightest dimensional adjustment to an attachment could be said to be the result of development. It seems, therefore, that the intent behind an item – the design, design research, and other activities that are enumerated in the definition of “development” in the EAR, will remain relevant in the classification of some items. See id. at 36,412. This issue recurs in subparagraphs (4) and (5) of part (b), where the new definition refers to knowledge that a commodity was being developed for a particular application. To its credit, the government has recognized that the new definition does not achieve perfect objectivity, although it is an important advance to have reduced and consolidated the remaining subjectivity in a definition whose basic elements are uniform as between the EAR and the ITAR. See id. at 36,410. Overall, the new definition does a good job of moving the remaining subjectivity more to the margins of the definition. This should help clear the way for the more coherent administration of our export control laws and reduce the number of classification decisions for which subject intent is the decisive factor.