January 5, 1996
See introductory and explanatory information for each of the four revisions to this original version of March 25, 1996: Licenses, December 4, 1996; Key Recovery, December 13, 1996; Computers, December 23, 1996; and Encryption Transfer, December 30, 1996.
Return to EAR Table of Contents
[[61 FR 12713]]
PART 730, et al
[Federal Register: March 25, 1996 (Volume 61, Number 58)]
[Rules and Regulations]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
_______________________________________________________________________
Part II
Department of Commerce
_______________________________________________________________________
Bureau of Export Administration
_______________________________________________________________________
15 CFR Part 730, et al.
Export Administration Regulation; Simplification of Export
Administration Regulations; Final Rule
[[Page 12714]]
DEPARTMENT OF COMMERCE
Bureau of Export Administration
15 CFR Parts 730, 732, 734, 736, 738, 740, 742, 744, 746, 748, 750,
752, 754, 756, 758, 760, 762, 764, 766, 768, 770, 772, and 774,
768A, 769A, 770A, 771A, 772A, 773A, 774A, 775A, 776A, 777A, 778A,
779A, 785A, 786A, 787A, 788A, 789A, 790A, 791A, 799A
[Docket No. 950407094-6022-02]
RIN 0694-AA67
Export Administration Regulation; Simplification of Export
Administration Regulations
AGENCY: Bureau of Export Administration, Commerce.
ACTION: Interim rule.
-----------------------------------------------------------------------
SUMMARY: This interim rule restructures and reorganizes the Export
Administration Regulations (EAR), the regulatory regime through which
the Bureau of Export Administration imposes export and reexport
controls on those items and activities within its jurisdiction. This
interim rule clarifies the language of the EAR, simplifies their
application, and generally makes the export control regulatory regime
more user-friendly.
DATES: Effective Dates: This interim rule is effective April 24, 1996,
except part 752, which shall be effective March 25, 1996. Removal of
newly designated Sec. 771A.25(d) shall be effective March 25, 1996.
Removal of newly designated parts 768A through 779A, 785A through 791A,
and 799A will be effective November 1, 1996.
COMMENTS: Comments on this rule must be received on or before May 24,
1996.
USE OF FORMS: On June 15, 1996 BXA will begin requiring applicants to
submit certain new forms to implement this interim rule. The new Form
BXA-748P, Multipurpose Application will be effective June 15, 1996.
Before June 15, 1996 BXA will not accept Form BXA-748P. After June 15,
1996 BXA will not accept existing Forms BXA-622P or BXA-699P. See
SUPPLEMENTARY INFORMATION for guidance on which forms to use before
June 15, 1996, and which forms to use after that date.
ADDRESSES: Written comments should be sent to Cecil Hunt, Deputy Chief
Counsel for Export Administration, United States Department of
Commerce, Bureau of Export Administration, Fourteenth Street and
Constitution Avenue, N.W., Room 3839, Washington, D.C. 20230.
FOR FURTHER INFORMATION CONTACT: Larry E. Christensen, Director,
Regulatory Policy Division, Bureau of Export Administration, (202) 482-
2440.
SUPPLEMENTARY INFORMATION:
Background
On September 30, 1993, the Secretary of Commerce submitted to the
Congress a report of the Trade Promotion Coordinating Committee (TPCC),
entitled Toward a National Export Strategy. The report included the
following among its goals:
Undertake a comprehensive review of the Export Administration
Regulations to simplify, clarify, and make the regulations more
user-friendly.
In November 1993, BXA organized a Task Group, drawn from several of
its offices, to carry out the TPCC recommendation. The Task Group
launched its review project by publishing an advance notice of proposed
rulemaking (ANPRM) in the Federal Register on February 10, 1994 (59 FR
6528). This notice was designed to solicit comments from industry and
the interested public. The ANPRM asked for suggestions concerning
improvements BXA could make to the EAR and described several specific
issues on which BXA was particularly interested in receiving public
input.
Over seven months during the development of a proposed rule with
request for comments that was published in the Federal Register on May
11, 1995, titled ``Export Administration Regulations; Simplification of
Export Administration Regulations'' (60 FR 25268) (hereafter referred
to as proposed rule), BXA shared four discussion packages with and
sought comments from the Regulations & Procedures Technical Advisory
Committee (RPTAC), an advisory committee consisting of industry
representatives intimately familiar with the private sector's role in
using the EAR. The packages were also made available to other
interested members of the public, with the last two being made
available electronically on FedWorld. The four discussion packages were
dated August 2, 1994, September 29, 1994, January 12, 1995, and
February 28, 1995.
The May 11 proposed rule reflected several new features based upon
the comments received from the public pursuant to the ANPRM, and the
RPTAC, and BXA's own assessment of how the EAR could be improved. Such
features include:
<bullet> No license or other authorization would be required for
any transaction under BXA jurisdiction unless the regulations
affirmatively state the requirement. (Existing regulations state that
all exports are prohibited unless an applicable general license has
been established or a validated license or other authorization has been
granted by BXA.)
<bullet> The terms ``general'' license and ``validated'' license
would be dropped. The term ``license'' would be used to refer only to
authorization issued by BXA upon application. The proposed regulations
would convert the many existing general licenses into a smaller number
of ``exceptions'' to require the obligation to seek a license when the
Commerce Control list indicates that the particular item going to the
stated country generally requires a license.
<bullet> The parts of the EAR would be arranged to give the reader
a logical path to follow.
<bullet> The affirmative statements of the need to obtain a
license, scattered throughout various parts of the existing EAR, would
be consolidated into ten general prohibitions and described in a
separate part. One part would contain the license review policy for all
list-based license requirements; another part would provide for the
requirements and review policies of licenses based on the end-use or
end-user involved in a proposed export or reexport; and the list-based
license requirements would be contained in the Commerce Control List
(CCL) indicating the reason for control and the Country Chart
indicating the country scope of each reason for control.
<bullet> The Country Groups used in the existing regulations would
be revised in favor of Groups which better reflect post-Cold War
circumstances.
<bullet> The CCL would be redesigned to state the reasons for
control more specifically within each Export Control Classification
Number (ECCN).
<bullet> The redesigned CCL would be used in tandem with a new
Country Chart that would indicate whether a license is required for any
ECCN to any country in the world and the reason or reasons for control.
Over 80 commenters responded to the proposed rule. Many commenters
recommended that BXA take sufficient time to draft an interim rule to
ensure ample opportunity to review and discuss with industry their
comments on the May 11 proposed rule, and incorporate them into an
interim rule. BXA has taken the time necessary to thoroughly review,
analyze, and discuss industry comments on the proposed rule. In
addition, BXA conducted 18 town-hall style fora (hereafter referred to
as town-hall fora) that reached over 1,000 industry representatives,
and met with the RPTAC and other interested
[[Page 12715]]
public to discuss their comments and concerns in more detail.
Following is a detailed part-by-part description of this interim
rule, and a review of comments received pursuant to the May 11 proposed
rule:
Implementation
This interim rule will become effective April 24, 1996; however,
final compliance with this interim rule is not compelled until November
1, 1996. During the period between the effective date and the final
compliance date of this interim rule, you must comply with the
provisions of either the existing Export Administration Regulations
(EAR) (redesignated 15 CFR 768A through 799A by this interim rule)
including any amendments thereto that are published in the Federal
Register or the provisions of this interim rule including any
amendments thereto that are published in the Federal Register.
Notwithstanding the general effective date of this interim rule,
the repeal of the importer statement requirement for General License
GCT is effective immediately, and the Special Comprehensive License
provisions in part 752 are effective immediately. For up to March 25,
1997, holders of issued and outstanding special licenses may continue
to use those special licenses according to their terms and conditions
and according to the special license provisions of the existing EAR.
The majority of the commenters requested a 90 day delayed effective
date plus an additional six to twelve months during which one must
comply with either the existing Export Administration Regulations or
this interim rule. The cost of changes to internal information systems
and the time to train personnel on the new system were the main reasons
cited for requesting a delayed effective date and a transition period.
Several large companies said that their computer systems will require
substantial reprogramming for the new License Exception group symbols,
the new Destination Control Statement (DCS), and the renumbering of
entries on the Commerce Control List in part 774 to conform to the
European Union numbering system.
Some firms indicated that implementation costs would be reduced if
they were allowed a span of time in which to implement the changes made
by this interim rule. Costs would be higher if a single implementation
date were required because their information systems departments would
not have flexibility regarding scheduling and might be required to hire
additional temporary employees or pay overtime. Many large firms cannot
implement the computer changes on one given day. After receiving the
above comments in writing and during the town-hall fora, BXA made
additional contacts with several firms. All acknowledge that they can
efficiently implement the changes required by this interim rule within
six months. Since those discussions, BXA has determined to modify the
Destination Control Statement (DCS) as noted below to closely following
the existing DCS widely used by many firms. BXA is hopeful that this
decision will further reduce the costs of implementation of this
interim rule.
BXA is sensitive to the costs of implementation, and that is the
reason this interim rule provides for a rather long implementation
period. Through this mechanism, BXA hopes to reduce the marginal costs
of implementation by reducing necessary overtime, contracting, and
training beyond that regularly scheduled. BXA will also assist the
business community in training for this interim rule. BXA has already
announced a substantial program to conduct training sessions around the
United States to make it convenient for firms to train their personnel.
The new Multipurpose Application Form, BXA-748P, will replace the
Application for Export License (BXA-622P) and the Request for Reexport
Authorization (BXA-699P). It will also serve as an application for the
Special Comprehensive License. Additionally, the BXA-748P will
accommodate Commerce Classification Requests, thus allowing item
classifications to be handled electronically.
BXA will not accept the new forms listed in this paragraph for
applications and requests received before June 15. BXA will not accept
existing forms listed in this paragraph for applications and requests
received on or after June 15. The existing Form BXA-622P Application
for Export License, existing Form BXA-685P, Request for Amendment
Action, and existing Form BXA-699P, Request for Reexport Authorization
will all be replaced by new Form BXA 748P, Multipurpose Application.
The existing Form BXA-622P-A, Commodity Description Supplement will be
replaced by new Form BXA-748P-A, Item Appendix. Existing Form 622P-B,
End-user Supplement will be replaced by new Form 748P-B, End-user
Appendix. Form BXA-6052P, Statement by Foreign Consignee in Support of
Special License Application will be replaced by Form BXA-752P,
Statement by Consignee in Support of Special Comprehensive License.
Existing Form BXA-629P, Statement by Ultimate Consignee and
Purchaser will be replaced by new Form BXA-711, Statement by Ultimate
Consignee and Purchaser. However, Form BXA-629P may be used until
November 1, 1996.
Use of Existing Form BXA 686-P, Statement by Foreign Importer of
Aircraft or Vessel Repair Parts and Form BXA 6026-P, Service Supply
(SL) Statement by U.S. Exporter will be discontinued on March 25, 1996,
because the Aircraft and Vessel Repair Station Procedure at Sec. 773A.8
and the Service Supply (SL) Procedure at Sec. 773A.7 of the existing
EAR will be replaced by the Special Comprehensive License in part 752
of this interim rule.
BXA will stop issuing BXA Form-648P, Notification of Delivery
Verification Requirement on June 15, 1996. For licenses issued on or
after that date, the delivery verification requirement will be printed
on the license itself.
The Knowledge Standard
One step is being taken in this interim rule that changes language
in many parts of the EAR, but without changing the intended meaning.
Several commenters noted that the proposed rule continued use in the
EAR of differing expressions as to knowledge, such as ``know'' or
``know or have reason to know''. Three commenters called for the
removal of the term ``reason to know'' and one commenter requested a
uniform adoption of ``know or have reason to know''. BXA has decided to
adopt the term ``knowledge'' (together with variants, such as ``know''
or ``knowing'') as the standard usage and defines this term in the EAR.
This definition is added to part 772--Definitions. Variants, such as
``reason to believe'' are being retained in the EAR where they are used
to follow statutory wording. This definition confirms the intention of
BXA that ``know'' and terms such as ``know or have reason to know'' be
given the same meaning and that this meaning include more than positive
knowledge. This definition is not being applied to part 760--
Restrictive Practices and Boycotts, leaving the interpretation of such
terms in this distinct part of the EAR to be independent of export
control usage.
Part-by-Part Analysis
Part 730--General Information
Part 730 provides a general introduction to the EAR. It is intended
for the first-time reader and is not regulatory.
Seven of the public comments referred to part 730. There was broad
[[Page 12716]]
support for the listing of other control agencies, together with
telephone and fax numbers for obtaining information. Four commenters
noted that similar information was provided in a supplement to the
scope part of the proposed rule, with duplication and some
inconsistency. BXA has eliminated that supplement and includes the
agency information in this part 730. Three commenters requested that
the listing be broadened, and noted the absence of reference to certain
controls of other agencies listed in the existing EAR. This listing has
been updated and extended. BXA is not, however, acting on requests to
add more detailed information on controls administered by other
agencies, nor on areas of possible overlap, as this would unduly
complicate this brief introduction to the EAR.
Three commenters called for combining part 730 with the Steps part
in some way. BXA concluded that a merger of the two parts is not
advisable, as the amount of detail needed in steps would obscure the
more general introductory information offered in part 730. Many
comments on the two parts called for flow charts and wiring diagrams.
BXA has recently received authorization from the Office of the Federal
Register to include such additional aids, and BXA will develop those
materials for inclusion in the EAR at a later date.
Two commenters questioned the basic, non-regulatory, approach taken
in part 730, citing such elements as the Sec. 730.6 reference to the
benefits from multilateral controls and the Sec. 730.8 explanation of
why the EAR are lengthy and detailed. BXA continues to believe that
this kind of introduction to the EAR will be helpful to persons new to
the field.
Part 732--Steps
By cross-references to the relevant provisions, part 732 describes
the suggested steps for you to determine applicability of (1) the scope
of the EAR described in part 734, (2) each of the general prohibitions
in part 736, (3) the License Exceptions in part 740, and (4) other
requirements such as clearing the U.S. Customs Service, keeping
records, and completing license applications. This part 732 describes
the organization of the EAR, informs you of the relationship among the
parts and provisions, and describes the appropriate order in which to
consider the various provisions of the EAR by cross-referencing those
provisions. Supplement No. 1 to this part 732, contains the ``Know Your
Customer'' Guidance, which has been moved from part 744--Control
Policy--End-user and End-use Based Control. In this interim rule, BXA
has also added examples of Red Flags referred to in the ``Know Your
Customer'' Guidance.
Over thirty commenters referred to the part on steps in the
proposed rule, and all but one supported the inclusion of steps to
guide the reader. Of these commenters, more than half stated that the
steps part should be relocated so that it could serve as a type of
road-map in the use of the entire EAR. The proposed rule provided for
steps at part 736 after the parts on scope and general prohibitions.
BXA agrees that the steps part is more useful if relocated closer to
the beginning of the EAR. Therefore, in this interim rule, the steps
part is renumbered as part 732; and it precedes the part on scope that
is renumbered as part 734 and the part on prohibitions that is
renumbered as part 736.
About one quarter of the commenters on this part urged some type of
restructuring or reordering of the steps within the part; however, the
comments were varied. Based upon these written comments and a
substantial number of oral comments made during the town-hall fora, BXA
believes that it is useful to organize the steps in categories
regarding the scope of the EAR, the ten general prohibitions, the
License Exceptions, and additional requirements such as keeping
records, documentation for clearing the U.S. Customs Service, and
completing license applications. In addition, one commenter urged that
the steps regarding prohibitions at part 736 make clear the distinction
between the first three prohibitions that are shaped by product
parameters on the Commerce Control List versus the last seven
prohibitions that address certain types of activities without regard to
the product parameters on the Commerce Control List. Another common
suggestion was to give greater prominence and clarity to the
determination of the proper ECCN for items, a process referred to as
classification. This interim rule adopts those recommendations.
One commenter suggested that the steps part in the proposed rule
included too many cross-references to the other parts and required the
reader to flip too many pages. Several other commenters recommended
additional cross-references in the EAR. BXA believes that the part on
steps should continue to contain cross-references for fundamental
reasons. The part on steps is not a substitute for the language of
other parts of the EAR and the part on steps would be much too long if
it contained a complete explanation or repetition of every other
provision of the EAR. Rather, it is a type of road-map, guide, or
written decision tree that helps the reader understand the order in
which to read the various provisions and to determine which provisions
are relevant to a given transaction or activity. By this means, the
part on steps serves the purpose of describing the relationship among
the provisions of the EAR, something that was not done in the EAR
before the proposed rule. When these steps are followed in the proper
order, the reader will consider those provisions of the EAR necessary
to determine his or her rights and duties.
It would be impossible to develop a useful series of steps without
use of cross-references to the various provisions of the EAR; however,
BXA is sensitive to a reader's understandable desire for steps that may
be read with an easy flow and with no more cross-referencing than
necessary to specify the language that creates regulatory rights and
obligations. To this end, where possible, we have inserted brief
explanatory references that give the reader an indication of the
substance of the referenced provision. One comment made often by the
public is that the steps part must contain guidance and not create
additional regulatory duties. BXA agrees that part 732 is not
controlling for purposes of describing the requirements of the EAR; the
parts of the EAR referenced in the steps are controlling. For this
reason, part 732 must reference the regulatory provisions in the other
parts of the EAR.
An organization of trade associations, supported by several other
commenters, suggested several additional drafting changes to improve
the part on steps. Nearly all of those recommendations are included in
this interim rule.
Part 734--Scope
This part establishes the rules for determining whether
commodities, software, technology, software and activities of U.S. and
foreign persons are subject to the EAR. ``Subject to the EAR'' is a
term used to identify the items and activities that BXA regulates under
the EAR. Those items and activities not so identified are not regulated
under the EAR.
The term ``subject to the EAR'' does not imply that a license is
required for any particular item or activity. Licensing requirements
are spelled out in other parts of the EAR. The term does define the
bounds of the authority that BXA has exercised under the EAR. The term
is particularly useful to define the limits of the recordkeeping
requirements, certain denial orders, and the end use and end user
obligations related to proliferation controls.
[[Page 12717]]
This part also provides certain key terms and principles used
throughout this interim rule. These include definitions for the terms
``export'' and ``reexport.'' A comprehensive listing of definitions is
included in part 772.
In addition to a change in designation from part 732 in the
proposed rule to part 734 in this interim rule, this interim rule makes
substantial changes in part 734 as a result of comments received on the
proposed rule. BXA received 31 comments on this part. BXA has adopted
many of the recommendations contained in the public comments and they
are reflected in the interim rule.
Section 734.1 has been substantially revised. The proposed rule
included a list of all the contents to part 734 with specificity. One
commenter urged that this listing amounted to a table of contents and
recommended deletion. This interim rule follows this recommendation
and, and includes an introduction that explains the contents of this
part and how it fits into the overall structure of the EAR.
Certain commenters recommended that definitions be included in part
772, Definitions, rather than in this part. This interim rule removes
the definitions for the terms ``item'' and ``you'', and moves them to
part 772. Because the terms ``export'' and ``reexport'' are so key to
the EAR, these terms have been retained in this section, with certain
modifications. Section 732.2(d) of the proposed rule defined exports
and reexports of technology and software, but did not include a
definition of exports and reexports of commodities. This interim rule
amends the definition of ``export'' and ``reexport'' to apply to
commodities, technology, and software.
A number of commenters also noted that, as written in the proposed
rule, the reexport in a foreign country of technology by release by one
foreign national to another foreign national could be read to include
release of foreign-origin technology, with no United States nexus. This
interim rule limits this provision to ``items subject to the EAR'' and
thereby limits the provision to U.S.-origin technology.
This interim rule adds three additional provisions to part 734.
Section 734.2(d)(5) reflects the principle that exports that will
transit a country on their way to a third country or are intended to be
reexported to a third country are deemed under the EAR to be exports to
the third country. This principle was not included in the proposed
rule, except as it relates to Canada (Sec. 732.12 of the proposed
rule). Section 734.2(d)(6) reflects the principle that appeared in
Sec. 732.15 of the proposed rule that an export to a territory,
possession, or department of a country is deemed under the EAR to be an
export to that country. Finally Sec. 734.2(d)(7) clarifies that
shipments among the states of the United States and its territories,
dependencies, and possessions do not constitute exports or reexports.
A significant number of commenters indicated that the provision
regarding Canada in Sec. 732.15 of the proposed rule was misleading and
tended to confuse the distinction between the scope of the EAR and
licensing requirements with respect to Canada. BXA agrees, and this
interim rule omits this provision. The minimal number of instances
where licenses are required for Canada is reflected on the CCL and does
not need to be recited in this part. As noted above, the in-transit and
intended reexport principles contained in the Canada provision are
retained in this interim rule and are made applicable to all
destinations. Finally, any License Exceptions that apply to Canada are
reflected in part 740, License Exceptions.
In the proposed rule, BXA invited comments on the implementation of
a de minimis rule for software and technology. In particular, BXA said
that we were considering a requirement for a one-time report on
calculations under the de minimis rule. Throughout the comment period,
BXA made clear at the town-hall fora that there are three criteria of
concern in carrying out the proposal without a reporting requirement.
First, for transfers between related parties, the export price of the
software or technology exported from the United States must reflect an
arms-length price or fair market value. Second, estimates of future
sales of foreign-made software must be reasonable. Third, selection of
the scope of foreign technology for measuring U.S.-content must be
reasonable.
BXA sought comments and suggestions on a one-time report. This was
to determine how to avoid the potential misuse of the above criteria
without requiring a one-time report. BXA also sought comments on
whether the calculations should be made only under United States-based
generally accepted accounting principles. From the outset, BXA
concluded that strict accounting standards would be useful to prevent
misuse of the rule through unreasonably low transfer prices for U.S.
software or technology transferred to related parties. BXA also
believed there is no need to create a new U.S. accounting standard for
implementation of this rule.
No commenter offered a solution to avoid misuses in the choice
amortization assumptions for software and the selection of an
appropriate universe to measure U.S.-content in foreign commingled
technology. All comments on the report opposed its requirement.
Commenters supported the rule with the hope that the de minimis
exclusion might be granted by BXA without requiring a report. However,
many of these same firms acknowledge that they and foreign parents,
subsidiaries and customers will invariably make de minimis calculations
on valuation assumptions most likely to result in a finding that U.S.
content is below the relevant de minimis level. The tenor of the
comments also suggests that most commenters did not fully appreciate
that the de minimis relief could not likely be granted without either a
one-time report or some other means to avoid the potential misuses of
the criteria.
Some commenters called the report a burden almost as heavy as the
license requirement. Some of those commenters stated expresses a belief
that the existing rule is simply not enforced and likely is not
enforceable. They also concluded that compliance with the existing
commingled rule is weak. However, some commenters acknowledged that
without a report requirement in this interim rule, they would
nonetheless submit advisory requests before relying on the de minimis
exclusions. Such advisory requests would require the same information
as the report required by this interim rule. Therefore for such
companies, the report requirement of this interim rule does not add
costs for use of the relief granted by this interim rule.
Almost all foreign commenters on the de minimis rule opposed a
requirement for U.S. accounting standards. They argued that they should
be permitted to use their home-country accounting standards and that
use of U.S. accounting standards would be too costly.
BXA has determined to require a one-time report and to permit
various accounting standards so long as the export price is not
depreciated or otherwise reduced by accounting conventions. With the
requirement of a one-time report, there is far less need for a single,
strict accounting standard.
The report will require a description of the nature and export
price of the item exported from the United States, the estimate of
future software sales in units and value along with the basis for those
estimates within the relevant market category, and a description of the
technology and its value for
[[Page 12718]]
purposes of determining the U.S.-content of technology. The report will
not require information regarding destinations and end-users for
reexport.
BXA has concluded after interagency consultations and review of all
the comments that the so-called amortization problem exists for
software and does not exist for commodities. Several commenters have
asked why.
Unlike parts incorporated into end products, the cost of U.S.
software code will be attributed or allocated to the future sales of
foreign-made software incorporating the U.S. code. In making this
calculation for foreign software, you must make an estimate of future
software sales of that software if it is commingled with or
incorporated with the U.S. code. Unless there is a one-time report
revealing the assumptions of such calculations, foreign firms may
misuse the de minimis rule and make unrealistic assumptions of large
future sales. Such a misuse can result in U.S.-content that is unfairly
estimated to be below the de minimis level.
BXA has concluded after interagency consultations and review of all
the comments that the so-call universe problem exists for technology
and not for commodities. Several commenters have asked why.
There is the risk that foreign firms will select excessively large
categories of foreign technology for division into the U.S.-origin
technology content. There is no regulatory criteria or standard that is
sufficient to describe the scope of foreign technology that must be
divided into the U.S. technology to determine the percentage of U.S.-
content. The possible choices of a universe by the reexporter are many
and varied.
Some commenters wanted BXA to select one U.S. transfer pricing
standard such as the standard of the Internal Revenue Service found in
section 482 of the Internal Revenue Code. One software producer
indicated that it will have very difficult decisions to make in the
calculation of U.S.-content for purposes of foreign-made software and
asked BXA how it would be done. In this interim rule, we indicate that
accepted accounting standards such as section 482, its implementing
rules, and related ruling provide one option the exporter or reexport
may follow. The Organization for Economic Cooperation and Development
(OECD) is considering uniform transfer pricing rules, and such
international standards would present an attractive option in the
future. However, it will likely be at least a year before they put such
OECD standards in place. Other commenters said that their firms do not
maintain adequate records to perform calculations of U.S.-content. Of
course, for such firms, any value-based de minimis rule will not
relieve existing burdens regardless of the report requirement.
For decades, all reexport controls under the EAR extended to
foreign software and technology incorporating any level of U.S.-
content. BXA refers to this as the commingled rule. In 1988, BXA
proposed giving some relief from the commingled rule with a type of
shifting of presumptions regarding country of origin after a period of
time. With one exception, commenters opposed that proposed rule and
urged a value-based de minimis exclusion. BXA addressed the issue in
its February 1994 proposed renewal of the Export Administration Act.
That proposal would have compelled a de minimis exclusion from the
commingled rule and reserved the authority of the Executive Branch to
require a one-time report.
BXA believes that it is appropriate to put reasonable limits on the
reach of U.S. reexport controls for foreign-made software and
technology. This is to recognize the sensitivities of other nations and
to put some outer limits on the obligations of foreign firms doing
business with U.S. firms. However, it is not the purpose of this
exercise to eliminate reexport controls on software and technology.
Reexport controls remain tools of the EAR to prevent diversion contrary
to vital national security, nonproliferation, and foreign policy
interests of the United States.
BXA understands that some foreign firms will benefit from the
relief offered in this interim rule and will use this relief by filing
the necessary report. For such firms, the de minimis rule and related
report is not a new licensing requirement. Rather, it is a means for
BXA to assure that the above described three criteria are not misused
in a given set of calculations and assumptions. The report is required
under a ``report and wait'' procedure. If the reporting firm does not
hear from BXA within thirty days, then the reporting firm may
thereafter rely upon its reported calculations, and its foreign
technology or software described in the filed report is not subject to
the EAR.
For those reexporters without the desire or ability to take
advantage of the de minimis rule, their position under the EAR remains
unchanged in any respect by this interim rule. The commingled rule
continues to apply as it has for decades. One commenter said that the
report requirement would make enforcement easier for BXA than under the
existing rule. BXA does not believe that to be true. The existing rule
is clear.
Reexporters should also be mindful that many authorities for
permissive reexports remain available to overcome reexport
prohibitions. The de minimis exclusion from the commingle rule
determines whether foreign technology or software is subject to the
EAR. If certain commingled foreign technology or software is subject to
the EAR, then the general prohibitions and License Exceptions define
the obligations of the holder of that technology and software.
This interim rule also makes several changes to Sec. 734.3, Items
Subject to the EAR. In the proposed rule, foreign made products subject
to the EAR were separately in Sec. 732.4. These provisions dealing with
foreign made products are now included in Sec. 734.3, together with
other items subject to the EAR. This interim rule consolidates all
related principles in one section.
A number of commenters questioned whether BXA intended to limit the
coverage of items subject to the EAR only to ``U.S.-origin'' items as
reflected in Sec. 732.2(a) of the proposed rule. This interim rule
clarifies the intent of the proposed rule and the BXA practice related
to this issue. Specifically, this interim rule has asserted
jurisdiction over all items subject to the EAR exported from the United
States, whether of U.S. or foreign origin, but in practice has limited
other controls, such as reexport controls, over EAR-controlled items to
those of U.S. origin. Section 734.3(a) of this interim rule reflects
these provisions. Section 734.3 also applies to all covered items in
the United States, and to all such items that are of U.S.-origin,
wherever located.
This interim rule also specifically states that foreign origin
items in-transit through the United States and in U.S. foreign trade
zones are subject to the EAR. For any special licensing treatment that
may be accorded such shipments on their export from the United States,
exporters should look at the License Exceptions in part 740.
This interim rule makes five changes to the proposed rule that are
reflected in the provisions of Sec. 734.3(b), which lists the
exclusions from items subject to the EAR.
1. In proposed Sec. 732.3(a)(1), BXA excluded items exclusively
controlled for export or reexport by other agencies which maintain
controls for national security or foreign policy purposes. The agencies
were identified in Supplement No. 2 to proposed part 732. To reduce
cross-referencing, the agencies are now listed in part 734, and the
Supplement has been removed.
2. This interim rule also adds a new provision that excludes from
the definition of ``items subject to the EAR''
[[Page 12719]]
items included in ECCN 0A98 in the existing EAR, such as films,
records, books, and periodicals. This provision was not included in the
proposed rule. Under the existing EAR, items included in that ECCN do
not require authorization to any destination. This interim rule has the
same result.
3. Section 732.2(a)(3) of the proposed rule excluded security-
classified technology and software from the coverage of items ``subject
to the EAR.'' This provision was based on the theory that classified
items are controlled by the Nuclear Regulatory Commission and the
Department of State's Office of Defense Trade Controls. One commenter
observed that because these agencies control the export of classified
items as part of their ``exclusive'' jurisdiction, no specific
provision needs to appear for classified items. To avoid confusion,
this interim rule omits the reference to classified items. The
provision is already implicitly included in part 734 because items
controlled exclusively for export by another agency are not subject to
the EAR (Sec. 734.3(b)(1)).
4. This interim rule also adopts the term ``publicly available
information'' to refer to all information included in General License
GTDA of the existing EAR. Such information is listed in
Sec. 734.3(b)(3). In the proposed rule, the term ``publicly available''
applied solely to information that was ``generally accessible to the
interested public in any form''. This interim rule adopts the term
``published information'' to represent such generally accessible
information.
5. A number of commenters objected to the use of the term ``Not on
List'' or ``NOL'' to designate and clear for export those items which
are subject to the EAR but which do not appear on the CCL. This interim
rule drops this term, which will be discussed in greater detail under
part 758, General Export Clearance Requirements. However, in response
to written comments and audience comments at the town-hall fora, BXA
will designate such items under ``EAR99.'' This designation, discussed
in Sec. 734.3(c) of this interim rule, will be used for classification
and reference purposes only, and will not be required for clearing
exports.
One commenter recommended that items subject to the EAR be
specifically limited to exports and reexports because BXA's statutory
authority relates to controlling exports and reexports. This interim
rule does not adopt this recommendation because the term ``subject to
the EAR'' defines the scope of EAR jurisdiction. The prohibition on
exports and reexports of such items based on BXA's statutory authority
is reflected in part 736, Prohibitions.
Finally, this interim rule expands Supplement No. 2 to include a
requirement for the submission of a report to be submitted to BXA if an
exporter uses the de minimis for technology or software.
Part 736--General Prohibitions
Part 736 includes ten general prohibitions. These are the
prohibitions that may apply to items subject to the scope of the EAR as
described in part 734, Scope. General Prohibitions One, Two, and Three
are product controls. The Commerce Control List in Supplement No. 1 to
part 774 and the Country Chart in Supplement No. 1 to part 738 are used
together to define the product scope and destinations for the license
requirements of General Prohibitions One, Two, and Three. General
Prohibitions Four through Ten describe certain activities that are not
permitted without authorization from BXA.
Several commenters recommended liberalization of the existing
reexport controls. For example, one commenter suggested a license free
zone for all members of the former Coordinating Committee on Export
Controls (COCOM), the Missile Technology Control Regime (MTCR), the
Nuclear Suppliers Group (NSG), and the Australia Group (AG). BXA notes
that a provision in the Export Administration Act of 1979 compels
individual validated licenses for items controlled cooperatively by
members of the MTCR. BXA is aware of the interest of the exporting
community in the further expansion of license free zones. However, this
interim rule is not intended to address such fundamental policy
decisions and is not an appropriate vehicle to make such changes.
Some commenters urged BXA to create a separate part for reexport
controls or a separate guideline for reexports. Others supported this
view and indicated that it was convenient for them to photocopy newly
designated part 774A and send this to firms abroad. BXA believes that
part 774A of the EAR does not describe all the duties of reexporters;
and reliance upon a reading of only that portion of the regulations
could well lead to violations of other portions of the EAR. In response
to these comments, BXA has taken care in this interim rule to indicate
which requirements of the EAR apply to reexporters and which
requirements do not. Part 732, Steps contains explicit indications of
applicability of various provisions to reexporters. As suggested by
several commenters, part 732, Steps has been substantially expanded to
present a road map for the use of these provisions by reexporters.
The foreign-produced direct product control described in General
Prohibition Three reflects a policy prompted by the Cold War. The
Regulations and Procedures Technical Advisory Committee (RPTAC)
recommended that BXA not revise this policy during the drafting period
that led to the proposed rule. After publication of this interim rule,
BXA will initiate a policy review of the foreign-produced direct
product rule.
All ten general prohibitions in this part 736 apply to firms abroad
under some circumstances. Part 734, Scope defines the scope of the
regulations for foreign as well as domestic firms. The key factors that
make all ten general prohibitions applicable to foreign firms are the
scope of the parts and components rule, the foreign-produced direct
product rule, and the general prohibition regarding reexports of U.S.-
origin items. These are described in detail in part 732, Steps; part
734, Scope; and part 736, General Prohibitions with specific references
to reexporters.
One commenter asked if we would add a provision regarding the
applicability of License Exceptions to General Prohibition Eight
concerning the unlading of goods in certain countries. The structure of
this prohibition is that it applies only to exports and reexports that
require a license. By definition, if you properly use a License
Exception authorized by the EAR, General Prohibition Eight does not
apply. Rather, it is a prohibition against unlading items that are
shipped under a license. Exporters and carriers should note that BXA
plans to conduct a policy review of the country scope of General
Prohibition Eight following the publication of this interim rule.
Several commenters stated that the proposed rule continued to
present a complex set of requirements, and many commenters suggested
fundamental decontrols and elimination of longstanding regulatory
requirements. Such recommendations would necessary entail changes to
the general prohibitions. However, the Regulation Reform exercise was
not intended to address such fundamental policy decisions, and this
interim rule is not an appropriate vehicle to make such changes.
Supplement No. 1 to part 736 on General Prohibitions provides for
certain General Orders. At this time, Supplement No. 1 is reserved.
Supplement No. 2 to part 736 provides
[[Page 12720]]
for three Administrative Orders. These Administrative Orders continue
polices of the existing regulations regarding the technical advisory
committees, business conduct before BXA, and certain confidentiality
provisions.
Part 738--Commerce Control List Overview and Country Chart
Part 738 provides an overview of the Commerce Control List (CCL)
and the Country Chart. The complete CCL is contained in Supplement No.
1 to part 774, while the Country Chart is contained in this part.
A significant change to the proposed rule as it relates to the CCL
is the modification of the numbering system used to identify Export
Control Classification Numbers (ECCNs) to conform with the European
Union (EU) numbering system as described in the supplementary
information regarding the CCL. This part provides an overview of the
new CCL structure and ECCN numbering system along with a thorough
discussion of the components that make up an ECCN.
This interim rule eliminates the use of the term ``License
Alternative'' and the ``Special Comprehensive License'' reference as
described in the proposed rule. In addition, this interim rule adopts
the revised reasons for control as identified in the proposed rule
(i.e., use of the broad term ``FP'' has been discontinued). New
``Related Definition'' and ``Related Controls'' sections contained in
the proposed rule have also been adopted in this interim rule.
Several commenters described use of the Country Chart column
identifier in the ``License Requirement'' section of each ECCN as a
rational model and fundamental to simplifying the task of determining
licensing requirements. This interim rule retains this very valuable
tool with few modifications.
The Country Chart, as described in the proposed rule, has been
modified to incorporate columns for destinations eligible for General
License GCT and GNSG under the existing EAR. General License GCT
eligibility is now determined by NS Column 2, while NP Column 1 now
reflects General License GNSG eligibility. NP Column 2 is retained in
its original format as reflected in the proposed rule. Accordingly,
references to License Exceptions CSR and NSG in the ``License
Exceptions'' section within each entry on the Commerce Control List do
not appear in this interim rule.
A few commenters noted that the proposed title to part 738,
Commerce Control List and Country Chart implies that the entire CCL is
contained in part 738. The title to this part has been modified to
state this part contains an overview of the CCL structure and its
relationship to the Country Chart, rather than the actual CCL.
Two commenters noted that the cross-reference to part 742, Control
Policy--CCL Based Controls should be clarified. This interim rule
contains a more descriptive cross-reference to part 742 and is placed
in a more appropriate location.
A few commenters expressed confusion over the use of UN Column 1.
This interim rule removes UN Column 1, because of its limited scope of
control and for added clarity. In addition, this interim rule revises
the two instances in which the Country Chart is not consulted to
determine license requirements. This interim rule expands the proposed
list of ECCNs in which the Country Chart cannot be used from 5A80D
(5A980) to include 1A988, 2A994, 2D994, 2E994, 2B985, 0A983, 0A986, and
0A988.
This interim rule does not adopt the request made by a few
commenters that the Country Chart be expanded to incorporate the
Country Group identification as described in part 740, License
Exceptions. These two lists were developed for separate purposes and
allow for systematic licensing determinations (e.g., Country Groups are
not reviewed unless a license is required by the Country Chart). In
addition, incorporation increases the possibility that readers will
make incorrect license determinations.
This interim rule expands the example for using the CCL and Country
Chart to illustrate more complex fact patterns, as requested by a
commenter.
Part 740--License Exceptions
Part 740 provides for exceptions from license requirements similar
to the General Licenses contained in the existing regulations. In
addition to License Exceptions for commodities, this part contains
License Exceptions for software and technology and permissive
reexports. Previously, both technical data and reexports had separate
parts. License Exceptions for short supply commodities appear in part
754.
Eligibility for License Exceptions may be based on the item to be
exported or reexported, the country of ultimate destination, the end-
use of the item, or the end-user. If a License Exception is available
for a particular transaction, the exporter or reexporter may proceed
with the export or reexport without a license. However, the exporter or
reexporter is required to meet all the terms of the License Exception;
in using a License Exception, the exporter or reexporter will be
certifying that all terms, conditions, and provisions for the use of
that License Exception have been met.
The most significant departure in this interim rule from the
proposed rule is the changed relationship between the determination of
the applicability of a License Exception to a particular transaction
and the documenting of that transaction for export clearance purposes.
Previously, each License Exception bore a three-character symbol that
transferred directly to shipping documents to certify that the
transaction did not require a license and that it met the terms and
condition of the stated License Exception. In this interim rule, each
three-character symbol that will be used on shipping documents
represents a group of License Exceptions rather than a single License
Exception. This change means that a few symbols will cover a large
percentage of shipments from the United States. Each symbol bears an
intuitive relationship to its group of License Exceptions; for example,
those based on the Commerce Control List bear the symbol ``LST.'' Some
commenters wished to retain the old General License symbols, but a
preponderance of exporters preferred intuitive symbols and expressed
that preference at the numerous town-hall fora held around the country.
Many commenters on the proposed rule protested that certain
existing General Licenses--specifically GLR and GTDU--had been
needlessly fragmented. In this interim rule, these License Exceptions
have been consolidated into Servicing and Replacement (RPL) and
Technology and Software--Unrestricted (TSU), respectively. General
Licenses GCT and GNSG in the existing EAR, which appeared as License
Exceptions CSR and NSG in the proposed rule, have in this interim rule
been incorporated into the Country Chart in part 738.
Changes made in General Licenses in the intervening period between
publication of the proposed rule and this interim rule, including G-
BETA for beta test software, G-CTP for computers, and a modification of
GCG (shipments to cooperating governments), are reflected in part 740.
The former Humanitarian License Procedure, which was included in the
Embargo part of the proposed rule, has become a License Exception for
humanitarian donations.
Part 742--Control Policy--CCL-Based Controls
If you have determined that a license application must be filed
after reviewing the Country Chart in part 738 and the Commerce Control
List (CCL) in part 774, this part 742 provides the licensing
[[Page 12721]]
policy that BXA will apply in reviewing your application. This part
contains licensing review policies for all items listed on the CCL
except items controlled for ``short supply'' reasons or to implement
``U.N. Sanctions.'' It consolidates most of newly designated part 785A,
Special Country Policies, portions of newly designated part 776A,
Special Commodity Policies and all the CCL-based controls described in
newly designated part 778A, Proliferation Controls. It also includes
control policies for items included on the CCL but not reflected in the
Country Chart. Specifically, these items are high performance
computers, implements of torture, and communications intercepting
devices.
Part 742 does not include controls and licensing polices that apply
to exports and reexports to embargoed destinations (currently, Cuba,
Libya, North Korea, Iraq, Iran, and the Bosnian-Serb controlled areas
of Bosnia-Herzegovina), except a description of anti-terrorism controls
applicable to Iran (Sec. 742.8) and other terrorist-designated
countries (Supplement No. 2 to part 742). Part 746, Embargoes and Other
Special Controls, covers the licensing policies for embargoed
destinations.
This part is structured to assist exporters to easily retrieve
licensing information related to the reason for control for each item
listed on the CCL. Each ``Reason for Control'' column on the Country
Chart in part 738 has a counterpart section in part 742. The sections
in this part appear consecutively in the same order as the columns on
the chart, reading from left to right. In addition, each section is
similarly structured:
--Paragraph (a) lists the licensing requirements as stated on the CCL;
--Paragraph (b) provides the licensing policy for specific controls on
the CCL;
--Paragraph (c) describes any contract sanctity dates that apply to
particular controls; and
--paragraph (d) provides information concerning any multilateral
cooperation that may apply to a particular control.
BXA believes that the structure and organization of this part is a
significant improvement over the existing EAR. It enables an exporter
to retrieve specific licensing information relevant to each ECCN on the
CCL without having to review extraneous material.
Changes were made in Sec. 742.1, Introduction, to accurately
describe the structure of this interim rule. Paragraph (c) was added to
make clear that controls on embargoed destinations, other than anti-
terrorism controls, are covered in part 746, Embargoes and Other
Special Controls and do not appear in this part 742. Paragraph (d)
generally describes anti-terrorism controls maintained by BXA.
Paragraph (e) reminds the reader that items not listed on the CCL are
nonetheless subject to the end-use and end-user provisions described in
part 744, Control Policy--End-user/End-use Based.
In addition, this interim rule contains changes that implement
regulations which were issued by BXA but were not reflected in the
proposed rule. The interim rule also reflects changes made in response
to public comments on the proposed rule.
On May 6, 1995, the President issued Executive Order 12959,
imposing a virtual embargo on exports of any goods, technology or
devices to Iran and on certain reexports of U.S.-origin goods or
technology. (The Treasury Department, Office of Foreign Assets Control
(OFAC), has principal responsibility for implementing E.O. 12959.)
Because of the virtual embargo on exports to Iran, provisions dealing
with Iran, except anti-terrorism controls, have been shifted to part
746, Embargoes and Other Special Controls. In this interim rule,
Sec. 742.8 describes anti-terrorism controls on exports and reexports
to Iran that BXA continues to maintain while the comprehensive embargo
administered by OFAC is in effect.
This interim rule also includes new anti-terrorism controls on
Sudan, described in Sec. 742.10 and in Supplement No. 2 to part 742.
The Department will also publish these controls in the format of newly
designated part 785A and related parts. The items controlled for anti-
terrorism reasons to Sudan include explosive device detectors, which
have been moved into a new ECCN. The anti-terrorism control on
explosive device detectors also applies to Syria and Iran.
Since the publication of the proposed rule, the Department has
issued a new regulation on exports of specially designed implements of
torture (60 FR 58512). This regulation moved specially designed
implements of torture from Export Commerce Control Number (ECCN) 0A82C
to a new ECCN, 0A83D, and required a license to all destinations,
including Canada. The changes made by that regulation are reflected in
the interim rule. Proposed Sec. 742.7 (Crime Control) is revised to
eliminate references to implements of torture, and a new Sec. 742.11
(Specially Designed Implements of Torture) is added to this interim
rule.
The President announced a revision of U.S. export controls on
computers on October 6, 1995 that affects the supercomputer controls
contained in part 742 (Sec. 742.12) of the proposed rule. The
Department published the revised regulations on January 25, 1996 (61 FR
2099). Section 742.12 has been retitled ``High performance computers''
in this interim rule and describes the license requirements and
licensing policies applicable to four ``tiers'' of countries.
Supplement No. 3 to part 742 describes licensing safeguard conditions
that may be imposed on exports of high performance computers to certain
destinations.
Twelve commenters included comments on part 742 in their
submissions. A number of commenters pointed out technical mistakes and
omissions in part 742. These are corrected in this interim rule.
Following is a discussion of other comments submitted.
Two commenters questioned the appropriateness of continuing
controls on exports to members of a given multilateral control regime
of items controlled by that regime. No License Exceptions are available
for items controlled for missile technology reasons because a provision
in the Export Administration Act requires individual validated licenses
to all destinations. Section 742.2(a)(2) of this interim rule states
that licenses are not required for exports of the listed chemicals to
Australia Group member countries. This interim rule revises
Sec. 742.3(a)(1) to inform the exporter that no license is required for
exports of certain nuclear proliferation controlled items to Nuclear
Suppliers Group (NSG) member countries. Finally, this interim rule
describes, in Sec. 742.4(a), a new national security control level,
denoted by ``NS Column 2'' in the Country Chart, which indicates that
no license is required for exports to Country Group A:1 and cooperating
countries.
One commenter noted that proposed Supplement No. 2, listing
countries that are party to the Treaty on the Nonproliferation of
Nuclear Weapons and to the Treaty for the Prohibition of Nuclear
Weapons in Latin America, required updating. Because the list of
countries party to these treaties is constantly changing, BXA decided
to remove this Supplement rather than risk publishing an inaccurate or
outdated list. BXA will maintain and make available to interested
persons a current list of the countries party to these treaties.
One commenter suggested that part 738, Commerce Control List
Overview; part 742, Control Policy--CCL Based
[[Page 12722]]
Controls; and part 774, The Commerce Control List be combined, since
they all concern the Commerce Control List. BXA did not adopt this
recommendation. Each of the three parts provides a view of controls
from a different vantage point: Part 738 by country; part 742 by type
of control; and part 774 by type of item. BXA believes that
consolidating the three parts into one would make the interim rule more
unwieldy and difficult to use.
Two commenters recommended that contract sanctity provisions be
established for nuclear nonproliferation, national security, regional
stability, crime control or computer controls. BXA did not establish
contract sanctity in this interim rule. Decisions on contract sanctity
dates are made when new controls are imposed. This interim rule does
not impose any new controls. Accordingly, no changes have been made in
contract sanctity provisions.
Two commenters stated that Sec. 742.2(d) (chemical and biological
weapons), Sec. 742.4(d) (national security) and Sec. 742.5(d) (missile
technology) incorrectly state that U.S. controls are consistent with
multilateral agreements. BXA does not agree with this comment. The only
change that BXA is making in this interim rule is to reserve
Sec. 742.4(d). On December 19, 1995, the United States and twenty-seven
other countries, including its NATO allies and Russia, agreed to
establish a new multilateral export control arrangement. The Wassenaar
Arrangement for Export Controls for Conventional Arms and Dual-use
Goods and Technologies (``Wassenaar Arrangement'') is expected to be
operational later in 1996. Any EAR changes that may be needed to carry
out the Wassenaar Arrangement will be made at the appropriate time.
A commenter suggested that License Exception NSG be extended to
South Korea, Taiwan and Mexico. License Exception NSG has been removed
in this interim rule. Instead, items on the CCL with ``NP Column 1'' in
the Country Chart column of the ``License Requirements'' section of an
ECCN do not require a license to NSG member countries. The commenter's
suggestion has not been adopted by BXA for Taiwan and Mexico because
the regulations simplification initiative was not intended to make
substantive changes in license requirements. However, recent regulatory
changes have extended such treatment to South Korea, and that change is
incorporated into this interim rule.
One commenter questioned why ECCN 5A80 (communications intercepting
devices) of the proposed rule is not included in Sec. 742.7 (Crime
Control). These items are regulated under separate statutory authority
and licensing criteria. Items controlled under Sec. 742.7 are those
agreed to pursuant to section 6(n) of the Export Administration Act.
Controls on communications intercepting devices are maintained in
accordance with the Omnibus Crime Controls and Safe Streets Act of
1968, and are therefore separately controlled under Sec. 742.13.
Part 744--Control Policy--End-User/End-Use Based
This part contains prohibitions against exports, reexports, and
activities related to certain end-uses and end-users. Specifically,
Sec. 744.2 prohibits exports and reexports of items subject to the EAR,
without a license, if at the time of the export or reexport you know
that the item will be used in nuclear explosive, or other safeguarded
or unsafeguarded nuclear activities. Section 744.3 prohibits the export
or reexport, without a license, of certain items to be used for missile
end-uses. Similarly, Sec. 744.4 prohibits the export or reexport of
items with certain chemical and biological weapon end-uses. Next,
Sec. 744.5 prohibits the export or reexport of items to be used for
specified nuclear maritime end-uses.
Section 744.6 places restrictions on certain proliferation-related
activities of U.S. persons. For purposes of this prohibition the term
``U.S. person'' means citizens, permanent resident aliens, or protected
individuals as defined in the immigration laws; any juridical person
organized under the laws of the United States or any U.S. jurisdiction;
and any person physically in the United States. This part also contains
prohibitions against exports, reexports, and certain transfers to
specified end-users. Section 744.7 imposes restrictions on certain
exports to and for the use of certain foreign vessels or aircraft, and
Sec. 744.8 places restrictions on certain exports to all countries for
Libyan aircraft.
Commenters urged BXA to publish a positive list of items and limit
the applicability of the nonproliferation related end-use restrictions
to items on such a positive list. In addition, commenters asked BXA to
publish certain names of end-users as to which individual exporters
have been ``informed'' that a license is required by reason of
Sec. 744.2(b), Sec. 744.3(b), Sec. 744.4(b), and Sec. 744.6(b). BXA is
working within the Administration toward these objectives; however,
these are major policy initiatives, they are not part of this interim
rule, and they are not necessary to achieve the goals of the
Regulations Reform exercise.
Commenters suggested that under Sec. 744.2(b) the discretion of BXA
to inform an exporter of the trustworthiness of certain end users
should be a duty of BXA rather than an option of BXA. The U.S.
Government will retain this discretion because of the overriding
interests in protecting sources and methods of intelligence gathering
and the interests in law enforcement objectives that on occasion
require flexibility on the part of the government.
One commenter urged BXA to make clearer the treatment of technology
that historically was authorized for export under General License GTDA.
In the proposed rule, BXA excluded such information from the scope of
the EAR. That approach is retained in this interim rule and clarified
in the steps that have been added to part 732, Steps to suggest methods
for using part 734, Scope of the EAR. Items not subject to the scope of
the EAR are not subject to any prohibition of the EAR.
Section 744.2(b) contains provisions designed to standardize the
procedure for informing exporters that a particular party may present
an unacceptable risk of diversion contrary to nuclear policies. Some
commenters applauded this addition, and one opposed it. BXA will
maintain this provision because the procedural discipline it provides
should prove useful for both BXA and exporters. This provision does not
change BXA's substantive authorities under the EAR.
One commenter suggested additional cross-references to the license
review policies for items subject to, for example, missile technology
controls identified on the CCL based upon product parameters rather
than a prohibited end-use. In the proposed rule and in this interim
rule, the license review standard for applications required by reason
of the product parameters designated on the CCL are listed in part 742,
Control Policy--CCL Based Controls. The license review standards for
license requirements defined by end-uses described in part 744 are
contained in part 744. Because of the criticism of some commenters that
the proposed rule contained too many cross-references, BXA has
concluded in this instance that additional cross-references are not
advisable.
This interim rule continues existing policy regarding the country
scope of the nuclear end-use prohibition. A new Supplement No. 3 is
added to the part and referenced at Sec. 744.2(a) to exempt designated
countries from this prohibition, and those are the same countries that
are exempt under the
[[Page 12723]]
existing EAR. This is a change from the proposed rule.
One commenter suggested that BXA remove from Sec. 744.6 words that
indicate defined activities are prohibited in the United States. This
interim rule accepts this recommendation. One commenter complained that
Sec. 744.6 applies to less than all countries in Country Group D:1. The
exclusion of Romania and China is consistent with current policy, and
is maintained in this interim rule. BXA recognizes that such policy
decisions make the use of the Country Groups and the EAR itself more
complex. BXA hopes reviewing of provisions of the EAR in the order
recommended by the steps in part 732 will minimize this problem. BXA
intends to further address such issues in the future. However, policy
making in export controls will always present trade offs for exporters
when petitioning the government for fairness and precision of export
control policy on the one hand versus simplicity and ease of
administration for the public on the other.
The proposed Sec. 744.6(a)(2) prohibited certain U.S. person
activities related to nuclear explosives devices. It was removed from
this interim rule because such activity is prohibited under the
International Traffic in Arms Regulations (22 CFR 120-130), which
regulate defense services for all destinations.
Part 746--Embargoes and Other Special Controls
Part 746 of the proposed rule contained controls for Cuba, Libya,
Iraq, North Korea, and the Federal Republic of Yugoslavia (Serbia and
Montenegro), indicating where jurisdiction was divided between BXA and
the Department of the Treasury's Office of Foreign Assets Control. It
also contained controls implementing U.N. sanctions resulting in
additional EAR controls on Rwanda.
Controls on Iran, embargoed because of Executive Order 12959 of May
6, 1995, have been added to part 746 in this interim rule. With the
suspension of the embargo on the Federal Republic of Yugoslavia (Serbia
and Montenegro), controls on that country, as well as on certain areas
of Croatia and Bosnia-Herzgovina, have been shifted to a Supplement to
part 746. Commenters pointed out that ECCN 0A95, which released food
and medical supplies to Libya from reexport control, was unaccounted
for in the proposed rule; that oversight has been corrected. The former
Humanitarian License Procedure, which was included in the Embargo part
of the proposed rule, has become a License Exception for humanitarian
donations and is in part 740 of this interim rule.
Finally, this part includes Supplements containing general
information on embargoes and sanctions administered by other federal
agencies.
Part 748--Applications (Classification, Advisory, and License)
and Documentation
Part 748 describes the procedures for submitting license
applications, classification requests and advisory opinions. This
interim rule places information from throughout the existing EAR into
one part. It is intended to provide the reader with all information
necessary to submit an application to BXA.
This interim rule adopts use of the new Form BXA-748P for the
submission of license applications and classification requests, but not
advisory opinions. Most commenters favored the use of one form for both
exports and reexports. This interim rule clarifies the definition of
advisory opinions and states they must be submitted in writing via
letter. Commenters were evenly split regarding the proposal to require
use of Form BXA-748P for advisory opinions. One commenter proposed
adopting the form for use when submitting end-user requests. This
suggestion along with one recommending the elimination of unit and
total price boxes are not adopted in this interim rule. A number of
commenters also queried whether BXA intends to republish the Forms
Supplement contained in the existing loose leaf EAR subscription. BXA
will republish the Forms Supplement in the subscription to the EAR
offered by the National Technical Information Service (NTIS). The Forms
Supplement is not published in the Code of Federal Regulations.
Sections in part 748 have been redesignated to better describe each
section's contents. The addresses in Sec. 748.2 and Sec. 748.14 have
been placed in one section. Procedures for submitting applications
electronically have been placed in a separate section for easier
access. For continuity, the unique license requirements for specific
items or transactions have been placed in a separate Supplement No. 2
to this part. This change will allow readers to determine quickly
whether the unique requirements apply to their transaction, and if not,
to continue quickly with sections relating to support documents.
Instructions for completing Form BXA-748P contained in Supplement No. 1
to part 748 have been clarified in response to comments posed by both
the public and BXA employees.
On the suggestion of one commenter, a reminder that information
submitted under the Export Administration Act will be treated in
accordance with provisions stated in section 12(c) of the act has been
added in this interim rule in Sec. 748.1(c).
The section on license application support documents has been
revised to eliminate one step in the decision tree. The questions
contained in Sec. 748.10(a)(3) in the proposed rule have been combined
into one question in this interim rule. Some commenters noted that
exceptions for obtaining support documents have decreased in certain
circumstances. The changes announced in the proposed rule were due
largely to the changing export control environment and proliferation
credentials of various countries. Accordingly, this interim rule adopts
the requirements contained in the proposed rule with a few
modifications. This interim rule also adopts the two year validity
period for the Statement by Ultimate Consignee and Purchaser.
A few commenters noted that though the development of decision
trees will assist in determining support document requirements, BXA
should consider the development of a matrix or chart similar to that
contained in part 775 of the existing rule. Though a chart has not been
included in this interim rule, BXA will explore development of a new
matrix/chart based on the support document decision tress in this part.
This interim rule also eliminates the last letter in the Export Control
Classification Number contained in the existing rule. This letter had
been used previously to designate support document requirements, but is
no longer necessary.
A few commenters requested additional guidance on what constitutes
an emergency and clarification of validity periods as they relate to
licenses approved under emergency processing. This interim rule
clarifies the validity period by cross-referencing the appropriate
section in part 750, but does not provide additional language to be
used by applicants when submitting emergency requests. In order to
retain the emergency nature of these requests, this interim rule does
not adopt the suggestion by one commenter to increase the validity
period from 30 to 60 days for applications involving reexports.
Commenters were evenly split regarding the elimination of Form BXA-
685P for amendments with a few stating the elimination of this form is
long overdue. This interim rule adopts the intent to eliminate Form
BXA-685P along with Form BXA-648. Changes not
[[Page 12724]]
listed in Sec. 750.7(c) will require the submission of a Replacement
application. One commenter stated the time period for the return of
Delivery Verifications to BXA was reduced with elimination of Form BXA-
648. The existing rule states the time frame as ``a reasonable time
after the last shipment'' while the instructions contained in the
existing Form BXA-648 stated the time frame as ``90 days after the last
shipment''. This interim rule eliminates this inconsistency by
establishing a 90 day time frame.
Form BXA-711 along with its written counterpart is adopted in this
interim rule. Commenters stated the ability to use a form or letter was
a good idea.
Part 750--Application Processing, Issuance and Denial
Part 750 describes the processing procedures and time frames for
classification requests, advisory opinion requests and license
applications. Once an applicant has prepared documents in accordance
with part 748, this part describes how the application will be handled
by BXA. The time frames detailed in this interim rule are drawn from
Executive Order No. 12981 of December 6, 1995 and the draft 1994 Export
Administration Act bill written by the Clinton Administration.
This interim rule provides a detailed description of the
relationship between all agencies and departments involved in the
license review process as well as a description of the interagency
dispute resolution process. This part also addresses actual issuance,
validity periods, denial, revocations, suspensions, transfers,
duplicates, and shipping tolerances.
This interim rule also eliminates the proposed exceptions to the
license processing time frames and limits all license applications to a
90 day processing time frame. A number of commenters made
recommendations for revising the time frames for the processing of
license applications as well as the types of applications subject to
Congressional notification. This interim rule incorporates the
processing time frames provided in Executive Order No. 12981.
Accordingly, recommendations to establish different time frames have
not been adopted. In addition, congressional notification requirements
for crude oil and refined petroleum products have not been adopted
since they no longer apply to the types of licenses reviewed by the
Department.
Most commenters supported the clarification of the license
processing system and time frames. These commenters agreed that BXA has
met the goal of making the process more transparent for the exporter.
A number of commenters requested that applicants be given the
opportunity to express their views during the license escalation
process. These commenters also requested clarification of the term
``registration'' to include language that would require prompt action
by BXA upon receipt of a license application. Both of these
recommendations have been adopted in this interim rule.
One commenter suggested that part 756, Appeals, be combined with
this part 750 since most appeals involve license applications. This
recommendation was not adopted because the appeals process is open to
all administrative actions, not only those relating to license
applications.
One commenter recommended simplification in the provisions for
shipping tolerances. While this recommendation has merit and may be
considered at a later date, it was not adopted in this interim rule.
Part 752--Special Comprehensive License
Part 752 describes the provisions of the Special Comprehensive
License (SCL). The SCL consolidates the activities authorized under the
Project, Distribution, Service Supply, Service Facilities, Aircraft and
Vessel Repair Station Procedure, and Special Chemical Licenses, and
provides for additional flexibility to BXA in shaping appropriate SCLs
and internal control programs (ICPs). For example, the Project License
and Service Supply Procedure authorize exports and reexports to
countries of the former Soviet Union, Eastern Europe, and the People's
Republic of China, but the Distribution License, which includes an
extensive mandatory ICP that is not required for the Project License or
the Service Supply Procedure, does not allow exports and reexports for
distribution in these countries. This interim rule conforms item and
country eligibility under the SCL. All items subject to the EAR are
also eligible for export and reexport under the SCL, except a few
specified items. Form BXA-686P, Statement by Foreign Importer of
Aircraft or Vessel Repair Parts, which was used for certain exports
under the Aircraft and Vessel Repair Station Procedure, and Form BXA-
6026P, Service Supply License Statement by U.S. Exporter, are not used
under the SCL.
BXA received fourteen comments on part 752. Overall, several
commenters stated that the SCL is a significant improvement over the
existing special license eligibility because it provides broader
authority to allow exports of items such as software and technology.
Five commenters suggested that existing special license holders
retain the right to use existing special licenses until they expire,
but apply for amendments to take advantage of the increased item and
country scope of the SCL.
This interim rule makes the SCL effective March 25, 1996. All
existing special licenses will expire on March 25, 1997, unless the
special license expires before that time by its own terms. BXA will not
grant extensions to existing special licenses. Existing special license
holders who want to take advantage of the SCL benefits, must apply for
an SCL according to part 752. BXA will not accept amendments to
outstanding special licenses.
Eight commenters provided comments on item scope for the SCL. Most
commenters stated that the proposed rule would not authorize exports
under the SCL of items eligible for a License Exception. The proposed
rule allowed exports under the SCL of all items subject to the EAR,
including items eligible for a License Exception. However, to prevent
confusion, the interim rule specifically states in Sec. 752.1 that you
may apply for an SCL, when appropriate, in lieu of a license described
in part 748 or a License Exception described in part 740.
Two commenters stated that the SCL should not exclude any items
because it defeats the purpose of the SCL, which is designed to allow
greater flexibility in return for increased monitoring of each shipment
by the SCL holder and consignees. One commenter added that other
agencies have the right to review the applications for an SCL, and
restrictions may be placed on a license on a case-by-case basis.
However, two commenters stated that there should be no ad-hoc
restrictions, adding that the only item restrictions should be those
published in the Federal Register, which would be applicable to all
companies.
This interim rule retains the list of items not eligible for the
SCL in Sec. 752.3 to ensure that potential applicants are aware of the
few item restrictions before they consider applying for an SCL. If BXA
determines that an item must be added to the list to protect national
security, nonproliferation, or foreign policy interests, or determines
that an item need no longer be prohibited under the SCL, BXA will
publish a change in the Federal Register, at which time the change will
become effective and apply to all SCL and potential SCL holders.
Another commenter was concerned about the general policy of denial
for
[[Page 12725]]
exports to destinations in Country Group D:2 of items controlled for
nuclear nonproliferation reasons, and suggested that the SCL
specifically state that items controlled for nuclear nonproliferation
reasons be authorized on a case-by-case basis provided that the
exporter has appropriate controls in place to screen for proscribed
end-uses or end-users. The Internal Control Procedures (ICPs) required
for most activities authorized under the SCL include screening elements
for proliferation end-uses. This interim rule revises the policy of
denial language found in Sec. 752.3(b) of the proposed rule to a policy
of case-by-case review. In addition, this rule retains the discretion
to deny or limit the export or reexport of all items, including those
controlled for nonproliferation reasons.
Most commenters applauded the expansion of country scope to include
the newly independent states and Russia. However, several commenters
requested clarification that the SCL is eligible for countries such as
Slovenia, Rwanda, Bosnia, and Croatia, which are eligible under
existing special licenses . One commenter stated that when BXA declares
a country ineligible to receive items under the SCL, BXA should
simultaneously list the country in the EAR, and remove it from all
SCLs.
It is not BXA's intent to roll-back special license country
eligibility. This interim rule therefore clarifies that all countries
are eligible to receive items under the SCL except Cuba, Iran, Iraq,
Libya, North Korea, Syria, and Sudan. If BXA determines that additional
countries should become ineligible to receive items under the SCL, it
will publish the change in the Federal Register, and notify all SCL
holders.
Four commenters suggested consolidating Sec. 752.2 into one generic
paragraph that describes the representative activities. Another
commenter stated that the SCL should not prohibit the export of service
parts or upgrades as long as it does not exceed the limits of the SCL
parameters. Section 752.2 is intended to provide illustrative examples
of the types of activities that may be approved under the SCL. It is
not intended to be an inclusive list, and other activities may be
approved on a case-by-case basis. This interim rule revises Sec. 752.2
to provide a general description of the types of activities that BXA
may approve the under the SCL. These activities fall under the general
categories of ``service'', ``end-user'', ``distribution'', and
``other'' activities.
Four commenters provided comments on the requirement for a letter
of assurance for exports under the SCL of certain technology. One
commenter stated that the SCL expands the scope of the existing letter
of assurance required for exports under General License GTDR because it
would require the letter of assurance from each new recipient overseas.
One commenter specifically requested that the letter of assurance be
required from only one party overseas. The proposed rule did not expand
current policy. Under the existing EAR, any transfers of technical data
covered by a letter of assurance would require such assurances from any
new recipient of the technology. Two commenters indicated that
assurances are not required for exports of technology under a validated
license. But, if an assurance must be required, the assurance should be
included in the SCL certifications.
This interim rule removes the letter of assurance requirement from
Sec. 752.5. BXA intends to review requests to export controlled
software and technology under the SCL on a case-by-case basis, and
impose conditions or restrictions as appropriate. Depending upon the
level of software or technology requested for export under the SCL,
this may include restrictions on reexport of software or technology, or
exports of direct products of the technology.
Comments on Sec. 752.5, steps you must follow to apply for an SCL,
focused on the comprehensive narrative statement. Many commenters
stated that much of the information required in the comprehensive
narrative statement is already required on Form BXA-748P, Multipurpose
Application, or Form BXA-752, Statement by Consignee in Support of
Special Comprehensive License. Five commenters specifically requested
that the requirement to state the ratio and dollar volumes of
controlled items to those not subject to the EAR be removed, because it
is impractical to calculate and fundamentally unreliable. BXA agrees
that SCL applicants should not be required to repeat information in a
comprehensive narrative statement that is also required on Form BXA-
748P or Form BXA-752. Therefore, this interim rule includes major
revisions to the comprehensive narrative statement requirements,
limiting that statement to the information that is not required
elsewhere. This interim rule also removes the requirement to list the
items eligible for a License Exception that will be exported under the
SCL because the ICP requirements assure that appropriate controls are
in place to prevent diversion.
One commenter stated that the application stage was too early to
provide BXA a copy of the proposed ICP, and to do so conflicts with the
certification requirements that an ICP must be in place upon approval
of the SCL. This interim rule retains, under Sec. 752.5(c)(3), the
requirement that applicants and consignees submit ICPs at the time of
application. This information is necessary for BXA to determine whether
to approve the items, activities, or countries requested on the SCL
application, or to modify your proposed ICP depending upon the nature
of the request.
One commenter stated that BXA should not require an SCL holder to
inform all consignees of license conditions. Certain conditions may
only have relevance to one or two consignees. BXA agrees, and has
clarified in Sec. 752.9(a)(4) to state that the SCL holder must inform
all relevant consignees of all license conditions prior to making any
shipments under the SCL. Four commenters objected to the language that
refers to prior reporting of exports of certain items, which is was
included in Sec. 752.9(a)(4). This interim rule retains this language.
Exporters should note that the list of the special conditions that may
be placed on your SCL included in this section only provides examples,
and such conditions may not be included on your SCL.
Section 752.11 describes the elements of the Internal Control
Programs (ICPs) that the SCL holder and consignee must implement upon
approval of the SCL to assure that exports and reexports are not made
contrary to the EAR. Two commenters stated that the ICP requirements
included in the proposed rule should be clear and defined, not
generalized. Three commenters suggested that EPCI screening be limited
to certain countries. Two commenters requested that BXA clarify when
the parties to the application must submit the ICP to BXA. One
commenter also requested that upon publication of the SCL, BXA publish
guidelines that further define ICP requirements.
This interim rule also restructures Sec. 752.11 to consolidate the
elements of all three ICPs into one list, and to remove the different
levels of ICPs. This simplifies the text, and makes it more user-
friendly. This interim rule does not place country limits on screens
against customers who are known to have, or suspected of having,
unauthorized dealings with specially designated regions and countries
for which nonproliferation controls apply. Any such limits must be
approved by BXA, and are dependent upon the specific nature of your SCL
request. This interim rule also includes information in
Sec. 752.11(a)(2) on where you may obtain
[[Page 12726]]
guidelines to assist you in developing an adequate ICP.
This interim rule also makes several other editorial changes to
part 752 to consolidate provisions and simplify the text. Section
752.10, Changes to the SCL, has been revised to clearly define the
requirements for changing an SCL. Detailed instructions on how to
complete Forms BXA-748P, Multipurpose Application, and Form BXA-752,
Statement by Consignee in Support of Special Comprehensive License, and
other forms related to applying for an SCL are included in supplements
to part 752. The servicing provision in Sec. 752.4(b) has been revised
to conform with the standard used throughout the EAR. This provision
prohibits you from servicing, under the SCL, any item when you know
that the item is owned or controlled by, or under the lease or charter
of, entities in countries not eligible for the SCL, or any nationals of
such countries. Finally, the recordkeeping provisions of Sec. 752.12
have been clarified by providing the appropriate cross-references to
part 762, which applies to all transactions subject to the EAR.
Part 754--Short Supply
This part implements section 7 of the EAA and similar provisions in
other laws that authorize or require restrictions on exports for
reasons dealing with adequacy of supply of commodities in the United
States, as opposed to reasons based on foreign policy, national
security, or nonproliferation considerations. Specifically, this part
implements controls on exports of crude oil restricted under the EAA
and a number of other laws; on exports of petroleum products produced
or derived from the Naval Petroleum Reserves; on exports of western red
cedar as required by provisions in the EAA; and on exports of horses by
sea for the purpose of slaughter. It also provides information relating
to two provisions contained in EAA section 7: The registration of
agricultural commodities for exemption from short supply controls, and
the filing of petitions for the imposition of controls on recyclable
metallic materials.
Consistent with the revised structure of the proposed and interim
rules, this part contains all of the requirements that apply uniquely
to commodities controlled for short supply reasons. It sets forth all
of the licensing requirements, licensing policy, License Exceptions,
and other unique requirements that apply to commodities controlled for
short supply reasons on the CCL. Short supply controlled commodities
are identified with ``SS'' under ``Reason for Control'' in each
relevant ECCN on the CCL. Other requirements of the EAR that are not
unique to short supply controls, such as recordkeeping in part 762,
also apply to items covered by this part.
Six commenters provided comments on this part. A number of
revisions have been made to implement the recommendations contained in
the comments. Additional revisions were made to incorporate the heavy
California crude oil rule published in the Federal Register but not
included in the proposed rule.
Commenters recommended that the definition of ``crude oil'' in
Sec. 754.2 be moved to the front of this section from paragraph (g).
The definition of ``crude oil'' is now included in paragraph (a).
Section 754.2(b) deals with licensing policy for crude oil. It has
been revised significantly to distinguish BXA's licensing policy for
shipments of crude oil which have already been found to be in the
national interest, by Presidential decision or otherwise, e.g., crude
oil from Cook Inlet or California heavy crude, and those which will be
approved if BXA makes the necessary findings on a case-by-case review
of applications. In the proposed rule all crude oil applications would
be reviewed by BXA and approved if the crude oil was not subject to
certain statutory restrictions and BXA made a finding that the export
was in the national interest and consistent with the purposes of the
Energy Policy and Conservation Act. In this interim rule, paragraph
(b)(1) of Sec. 754.2 lists the exports that have already been found to
be in the national interest and paragraph (b)(2) lists the exports for
which BXA must make the necessary findings.
Section 754.2(b)(2) also reflects a revision relating to the kinds
of transactions that BXA will find to be in the national interest. The
proposed rule had cited examples of crude-for-crude and crude-for-
product exchanges that would be found to be in the national interest.
The language of the proposed rule, however, could have been interpreted
as limiting the national interest to these examples. The interim rule
makes clear that the cited exchanges are only examples.
This interim rule also adds a new paragraph (g) to Sec. 754.2,
reflecting regulations that were published in the Federal Register (60
FR 15669, March 27, 1995).
Finally, this interim rule creates two new License Exceptions which
apply to the exports of crude oil. Section 754.2(h) implements a new
License Exception SS-SPR, intended to permit the export of foreign
origin oil stored for emergency use by a foreign government in the
Strategic Petroleum Reserves (SPR). License Exception SS-SPR permits
the export even if the foreign origin oil is commingled with other SPR
oil, provided that the Department of Energy certifies that the crude
oil being exported is of the same quantity and of comparable quality as
the foreign origin oil imported by the foreign government for storage
in the SPR.
Section 754.2(i) of this interim rule creates a new License
Exception, SS-SAMPLE, to permit limited quantities of crude oil for
analytical or testing purposes. This revision implements
recommendations included in the public comments. Under this License
Exception you may ship up to ten barrels of crude oil to any one end-
user annually, up to a cumulative limit of 100 barrels per exporter
annually. This License Exception codifies a BXA licensing policy for
sample shipments that has been in effect for several years. This
licensing policy has been included in BXA's annual report to the
Congress, but has not been reflected in the EAR. Such de minimis sample
shipments have no measurable effect on U.S. oil supplies.
Section 754.3 of this interim rule reflects a significant change in
the way that the Naval Petroleum Reserves Production Act (NPRPA)
restriction on non-crude oil products are implemented. The NPRPA
prohibits the export of petroleum origination or derived from the Naval
Petroleum Reserve (NPR), unless the President approves the export.
Under existing EAR, licenses are required for all petroleum products,
and General License G-NNR authorizes shipments of all such product of
non-NPR origin or derivation. The proposed rule continued this approach
and provided License Exception SS-NPR.
Commenters noted that if all NPR crude oil produced in fiscal year
1994 were refined, it would amount to less than one percent of all the
crude oil refined in the United States. The commenters recommended that
the existing approach be changed to require a license only for
petroleum products which were NPR produced or derived. BXA adopted this
recommendation and this provision reflects the change.
The relevant ECCNs on the CCL have been revised to apply only to
petroleum products that were produced or derived from the NPR or became
available for export as a result of an exchange of any NPR produced or
derived commodities. With this change, General License SS-NNR is no
longer necessary and is removed.
[[Page 12727]]
Section 754.4, unprocessed western red cedar, has been reorganized
consistent with a recommendation included in the comments. In the
proposed rule, Sec. 754.4(a)(2) contained instructions for filing a
license application, and preceded provisions on license policy and
exceptions. A commenter noted that an exporter will first look for
licensing policy and license exceptions before looking for information
on how to fill out a license application. The commenter observed that
there is no point in instructing the exporter how to complete a license
application if subsequent text informs the exporter either that a
license will not be approved or is not necessary. This interim rule
adopts this comment and has restructured Sec. 754.4 accordingly.
Part 756--Appeals
This part describes the procedures applicable to appeals from
administrative actions taken by BXA. An administrative action is any
action (not including an administrative enforcement proceeding) taken
under the EAA or EAR with respect to a particular person, including
denial of a license application, return of a license application for
other than procedural deficiencies or additional information, or
classification of an appellant's item. Essentially, any person directly
and adversely affected by an administrative action would be allowed to
appeal to the Under Secretary for Export Administration for
reconsideration of that administrative action.
No substantial comments were received on this part 756. One
commenter suggested the possibility of combining this part with part
748, Applications. This interim rule does not adopt the suggestion.
With the exception of minor editorial revisions and clarifications,
the provisions of part 756 remain unchanged from the proposed rule.
Part 758--General Export Clearance Requirements
This part deals with requirements imposed on exporters and others
regarding the movement of items subject of the Export Administration
Regulations (EAR) out of the United States. The purpose of this part is
to assure that the movement of items subject to these EAR conforms to
the requirements of the export license or other authorization for their
export.
This part imposes specific responsibilities on the different
persons involved in export transactions to ensure compliance with other
provisions of the EAR and of the Foreign Trade Statistics Regulations
(FTSR) (15 CFR Part 30), including exporters, freight forwarders,
exporters' agents, carriers and all other persons. It prohibits any
person from engaging in certain proscribed conduct. This part governs
some of the same conduct that is governed by the FTSR.
This part imposes specific responsibilities for assuring that
Shipper's Export Declarations (SEDs), bills of lading and air waybills
are accurately filled out and are consistent with the export license or
other authorization for the export to which they correspond. It
restricts the conduct of exporters, forwarders, carriers and others to
assure that the delivery abroad of items subject to the EAR is in
accordance with the terms of the export license, exception to the
licensing requirement or other authorization. In some cases, it imposes
duties on parties to the transaction to return the items to the United
States or take steps to prevent them from entering the commerce of a
foreign country.
The proposed rule made several changes to this part. Approximately
25 commenters made comments on the proposed part 758.
A majority of those who commented on part 758 recommended that we
eliminate the requirement to place the symbol ``NOL'' on Shippers
Export Declarations (SEDs) for transactions involving items not on the
CCL. Most of those commenters suggested that we adopt a single symbol
``NLR'' for all transactions where the export does not require a
license either because it is on the CCL but does not require a license
to the destination in question or because it is not on the CCL. Several
commenters went further and recommended that we authorize the use of
the symbol ``NLR'' for transactions that are authorized by a License
Exception instead of requiring that the License Exception symbol be
listed on the SED. We adopted the suggestion to eliminate the symbol
``NOL''. However, this interim rule includes a designator (EAR99) for
items that in the proposed rule were subject to the EAR but not on the
CCL, that will be used by BXA in responding to classification requests
and by exporters for their management systems. The designator will not
be used on SEDs. We have also reduced the number of License Exception
symbols from which parties filling out SEDs must choose. As noted above
in the discussion of License Exceptions, we have created a small number
of symbols for various groups of License Exceptions, and it is these
symbols for groups of License Exceptions that must appear on the SED.
Several commenters suggested that the choice of Destination Control
Statements (DCSs) in the proposed rule was unduly complex. In addition,
some commenters suggested that the proposed rule on DCSs did not make
it clear that the most restrictive DCS could be used for any
transaction. This interim rule adopts a single simplified DCS.
A number of commenters raised the issue of what information should
be shown on SEDs for items which in the proposed rule were not subject
to the EAR, but which in the existing EAR are eligible for general
license GTDA. In response to these comments this interim rule creates
an optional designator TSPA which exporters may use on SEDs for
software or technology that the proposed rule and this interim rule
define as outside the scope of the EAR.
The proposed rule eliminated some information about authority and
status of forwarding agents and procedures for correcting SEDs on the
grounds that those points are covered in the FTSR (15 CFR part 30) and
including them in the EAR was redundant of the FTSR. Some trade
associations recommended that we retain these procedures. We did not
adopt this suggestion because the FTSR applies to all exports from the
United States including those subject to the EAR and those that are
not. These procedures need to be in the FTSR because exporters who have
no transactions subject to the EAR must follow them. Retaining
duplicate language in a regulation that applies to only a portion of
the exports from the United States would be redundant and creates the
burden of keeping two different sets of regulations identical whenever
amendments are adopted.
Two commenters suggested that proposed Sec. 758.1 was too long and
portions were redundant. They suggested breaking it up into several
sections. We did not adopt this suggestion in this interim rule. The
section has been shortened because of the elimination of the NOL
provisions.
Several commenters suggested that the use of the word ``you'' in
the proposed rule under Sec. 758.1(a)(1) shifted responsibility from
exporters to forwarders. This interim rule does not change that
language. The proposed rule, by its terms makes those who obtain
licenses from BXA or rely on License Exceptions in their export
transactions responsible for the proper use of that license or License
Exception. This is a reasonable policy and is retained in this interim
rule.
Two commenters proposed that forwarding agents not be required to
keep a record of the delegation of authority to them unless the
[[Page 12728]]
responsibility to do so was delegated by the exporter. This interim
rule does not adopt this suggestion. The proposed rule and this interim
rule conform with the existing EAR and with the FTSR on this issue.
Two commenters stated that the use of the phrase ``exporter and the
person submitting the document'' in the proposed Secs. 758.3(e) and
758.3(l)(1) expands the scope of the persons making representations to
the U.S. Government to include forwarders in instances where the
existing EAR does not impose responsibility on forwarders. We accepted
this recommendation. This interim rule adopts language from the
existing EAR. However, other sections of this interim rule, like the
existing EAR, impose liability on forwarders who make
misrepresentations to the government.
Two commenters recommended that the HTSUS numbers be permitted on
SEDs in lieu of Schedule B numbers. We did not adopt this
recommendation in this interim rule. The FTSR (15 CFR part 30) which
govern all exports from the United States require Schedule B numbers.
To the extent that there are differences between the HTSUS and the
Schedule B numbers, errors in compiling foreign trade statistics would
occur if either classification numbering system were permitted for
exports subject to the EAR.
One commenter recommended that this rule eliminate the
responsibility of exporters and forwarders who file summary monthly
reports in lieu of SEDs to ensure that carriers place the destination
control statement on bills of lading and air waybills. We did not adopt
this suggestion. The proposed rule and this interim rule follow the
existing EAR which was designed to assure that exports made under the
privileged monthly procedure were totally in compliance with the EAR.
Two commenters recommended that the regulations impose a limit on
the time that the Government may hold up export shipments for
inspection. We did not adopt that suggestion because it was beyond the
scope of the regulations reform exercise. Input from a number of other
government agencies would be necessary to develop a rational time
limit.
One commenter recommended that when the government orders a carrier
to return or unload a shipment that the government be required to
notify the exporter. We did not adopt this suggestion. In some cases
the exporter may be the target of an investigation and a notification
requirement could jeopardize legitimate law enforcement activities.
More than one agency has authority to order return or unloading and
developing a rule would require the coordinated input of several
agencies. That coordination would be beyond the scope of the
regulations reform exercise.
One commenter recommended that we require that exporters show the
Export Control Classification Number (ECCN) on the SED for all exports.
We did not adopt this suggestion. Although exporters need to determine
the proper ECCN in order to determine whether they need an export
license, requiring them to show that number on SED's for all exports
would unduly increase the paperwork burden.
To assist in defining parties to an export transaction, one
association recommended we adopt as a guide a Power of Attorney
utilized by Customs. We did not adopt this recommendation. The EAR
defines parties to a transaction in an adequate manner. Parties to
transactions additionally are free to adopt any Power of Attorney
arrangement that addresses pertinent roles and is not inconsistent with
the EAR or other applicable regulations.
One commenter questioned the proposed requirement to place the
various EAR authorizations for each item being exported under its
corresponding line item description. This commenter pointed out that
the FTSR requires that same information to be placed in blocks 21 and
22 on the SED form or continuation sheet. This interim rule adopts the
FTSR procedure and eliminates the requirement to repeat the
authorization under the line item description.
This same commenter also recommended that the ``Conformity''
provisions in Sec. 758.4(c)(2)(iii) be changed to allow a name of a
party other that the licensee/shipper on the SED to be shown on the
bill of lading as shipper. We did not adopt this recommendation. These
provisions are designed to assure that new parties are not introduced
in transactions contrary to the EAR and that exports are completed in
an orderly and legal manner. Additionally, the situation described may
be appropriately addressed in the application for license process, by
showing the foreign subsidiary as exporter/licensee and the United
States affiliated/related company as agent for the exporter.
Two commenters recommended eliminating the proposed rule
requirements concerning commodity descriptions on the SED
(Sec. 758.3(g)(2)(ii)) and the requirement that a copy of the
commercial invoice with a DCS be sent to the ultimate consignee
(Sec. 758.6(c)(4)). They claimed that these were new requirements. We
did not adopt the recommendations in this interim rule because the
proposed rule merely retained the requirements of the existing EAR.
Part 760--Restrictive Trade Practices or Boycotts
This part revises the existing part 769. The recordkeeping
requirement found in Sec. 760.5(b)(8) of this interim rule requires the
recipient of records relating to a reportable boycott request to keep
those records for five years after receipt of the request. The existing
EAR Sec. 769.6(b)(8) requires the recipient of records relating to a
reportable boycott request to keep those records for three years after
receipt of the request.
Two sections that were reserved in the existing EAR (769.5 and
769.7) have been removed. As a result of this change, Sec. 769.6 in the
existing EAR has been renumbered as Sec. 760.5 in this interim rule. In
addition two grace period provisions in the existing EAR have been
removed. They are; Sec. 760.2(f)(11) (along with its accompanying
example xi) in which certain actions to implement letters of credit
prior to the expirations of grace periods and Sec. 769.8 which
established a grace period for agreements entered into on or before May
16, 1977 could be complied with. The last such grace period expired on
December 31, 1978. Supplement No. 14 which relates to U.S. sanctions
against South Africa that have been repealed has also been removed and
subsequent supplements renumbered.
A new Supplement No. 16 interpreting antiboycott policy in light of
recent developments in Jordan has been added by this interim rule.
None of the changes made to this part by this interim rule were
published in the proposed rule.
Part 762--Recordkeeping
In this interim rule, this part has been reorganized and revised to
eliminate the requirement that regulated persons obtain BXA approval
prior to destroying original documents and replacing them with
electronic, magnetic, photographic or other images. This interim rule
also makes it clear that persons required to keep records may always
keep the records in the form in which that person receives or creates
it. It extends the recordkeeping period to five years to coincide with
the applicable statute of limitations and sets standards of legibility
and retrievability for reproductions that are kept in lieu of
originals.
Several commenters objected to the extension of the recordkeeping
requirement to five years in the
[[Page 12729]]
proposed rule. This interim rule adopts the five year record retention
period. A record retention period that coincides with the applicable
statute of limitations is needed to promote effective enforcement. In
addition, such a retention period benefits firms that comply with the
regulations because the EAR require that those who export under a
License Exception justify the use of that exception. Such persons will
need the records of the transaction to do so.
Three commenters suggested that recordkeeping requirements be
eliminated for certain categories of exports that do not require a
license from BXA. We did not adopt this suggestion. Many transactions
that are subject to the EAR do not require a license from BXA.
Comprehensive records are necessary for effective enforcement and
administration of the EAA and EAR.
One commenter objected to a requirement in the proposed rule that
records which are the subject of a request for production of records by
the government may not be destroyed even if the record retention period
has otherwise expired. This provision is a requirement under the
existing EAR and is retained in this interim rule. Enforcement and
compliance efforts would be undermined if parties were allowed to
destroy records after they have been notified that those records are
wanted in connection with an audit or investigation.
Several commenters recommended that we eliminate the specific
requirements for legibility and retrievability of reproduced records
that are kept in lieu of originals that appeared in the proposed rule.
We did not adopt this suggestion. This interim rule does not impose any
requirements of legibility on original records. However, standards of
legibility and retrievability are necessary when the originals are
destroyed and copies are retained in lieu thereof. BXA will continue to
review this issue to ascertain if the standards might be simplified
without compromising record integrity.
Two commenters recommended that the EAR specifically state that
records of certain activities of U.S. persons in connection with the
proliferation controls described in Secs. 734.2(b)(7) and 744.6 are
subject to the recordkeeping requirement. Although the proposed rule
stated that all transactions that are subject to the EAR are subject to
these recordkeeping requirements, we adopted this suggestion to make
more explicit the fact that activities subject to the proliferation
controls are covered.
Part 764--Enforcement
Eleven of the commenters dealt with part 764. This interim rule
makes numerous changes to the proposed rule based upon these comments.
This interim rule accepts the suggestion of one commenter and
revises Sec. 764.2(e) expressly to limit the offense of acting with
knowledge of a violation to actions that are connected with an item
that is the object of the violation of the EAA or EAR.
Section 764.2(j) is revised to remove from the list of violations a
number of actions characterized as ``trafficking and advertising export
control documents''. BXA accepted the suggestion that some of the
restrictions on the creation of an interest in a licensed transaction
are inconsistent with normal trade practice in financing and insuring
exports. BXA is eliminating other parts of this section as unnecessary
because limitations on license transfer and use are effectively covered
by other EAR provisions, such as Sec. 750.10, and concerns regarding
disclosure of a person's relationship to a transaction are covered by
provisions such as Sec. 764.2(g). This interim rule limits
Sec. 764.2(j) to the offense of license, other export control documents
or other alteration.
Some commenters called for distinguishing between ``substantive''
and ``minor'' violations. BXA did not adopt this suggestion. BXA
concludes that such distinctions are not feasible or appropriate with
respect to the type of activity covered by the EAR.
Some commenters urged BXA to list factors that would mitigate
sanctions for violations. BXA did not adopt this suggestion. BXA notes
that its practice shows that it is open to the consideration of a wide
range of mitigating factors, and it does not believe that a listing of
such factors is needed to enhance compliance or to ensure that
sanctions will be appropriate.
Some commenters called for BXA to include in the EAR a
comprehensive denial list that would include the names not only of
persons denied export privileges by BXA, but of persons covered by
denial orders or designations by other agencies. This interim rule does
not contain such a list. BXA cannot make its regulations an official
repository of legal action by other agencies. BXA will work with other
agencies to try to improve coordination of and access to the lists.
This interim rule describes certain measures such as license
suspensions and temporary denial orders and places them in a new
Sec. 764.6, entitled ``protective administrative measures''. These
measures are not punitive, but are intended to protect against activity
contrary to the purposes of the EAR. Although these measures were
included in the existing EAR and in the proposed rule, they were not
all in a single section. Placing these measures in a single section
distinguishes them from the sanctions which are covered elsewhere in
part 764.
Part 766--Administration Enforcement Proceedings
Five commenters specifically addressed part 766. Three of these
commenters addressed substantially the same points.
Three commenters called for changes to protect the interests of
persons BXA seeks to add to a denial order on the basis of relationship
to the respondent. This interim rule makes three such changes. It
revises Sec. 766.23 to clarify that prevention of evasion is the basis
for making an order applicable to a related person, to provide more
specifically and uniformly for notice to persons that BXA seeks to have
named as related, and provides that such persons may oppose or appeal
not only the issue of relationship, but also whether the order is
justified to prevent evasion. These commenters suggested, further, that
related persons be allowed to challenge the order on the merits, that
is, as to whether or not there has been a violation or a temporary
denial order is necessary in the public interest in order to prevent an
imminent violation. BXA did not adopt this suggestion. BXA believes
that it is proper to limit contests on the merits to respondents, as it
is the alleged conduct of respondents that is the basis for the order.
One commenter expressed concern that having the Under Secretary
decide appeals from Administrative Law Judge (ALJ) decisions in
enforcement proceedings raises doubts about impartiality, due process
and fairness. This commenter called for direct appeal from the ALJ to
the U.S. Court of Appeals. No such change has been made, as it would be
contrary to specific EAA provisions and to general administrative law
practice that makes final agency action subject to judicial review. An
ALJ decision cannot be final agency action under 50 U.S.C. app. 2412(c)
or (d). Moreover, BXA believes that its conduct of administrative
proceedings has been marked by fairness and the careful observance of
due process.
Three commenters called for stating that ``clear and convincing
evidence'' is required to sustain an administrative enforcement case.
BXA did not adopt this suggestion. The EAA (50 U.S.C.
[[Page 12730]]
app. 2412(c)) makes the Administrative Procedure Act (5 U.S.C. 556)
evidence standard (``reliable, probative, and substantial'')
applicable. BXA does not believe that any different EAR standard is
needed.
Three commenters called for detailed provisions on how much
evidence is needed to support a summary decision under Sec. 766.8.
BXA did not adopt this suggestion. BXA concludes that the use of
the standard ``there is no genuine issue as to any material fact'' is
proper and sufficient.
Another commenter stated that Sec. 766.24(b) should be revised to
define the ``imminent violation'' criterion for issuance of a temporary
denial order as requiring a showing of imminence both in nearness of
time and in likelihood of occurrence. BXA did not adopt this
suggestion. BXA retains its longstanding definition from the existing
EAR, consistent with the legislative history of the 1985 amendments to
the EAA, that either time or probability imminence will support the
issuance or renewal of a temporary denial order.
This interim rule adopts many improvements in drafting clarity and
precision that were suggested in the comments, along with numerous
others that BXA developed. This interim rule revises Sec. 766.7 to make
default procedures available in antiboycott proceedings. There were no
public comments suggesting this change, but it makes the procedures for
imposing administrative sanctions and other measures in antiboycott
cases more consistent with other proceedings under the EAR. Finally,
BXA decided to remove from this interim rule one provision that
appeared in the proposed rule even though no comments on it were
received. This interim rule eliminates a provision from Sec. 766.18 of
the proposed rule that would have barred reference in a settlement
order to a finding of a violation, as the content of such an order is
consensual. This deletion makes this interim rule consistent with the
existing EAR.
Part 768--Foreign Availability
Part 768 reflects the provisions described in part 791A of the
existing EAR. It implements section 5(h) of the Export Administration
Act (EAA) and contains procedures and criteria relating to
determinations of foreign availability for national security controlled
items. It is substantively unchanged from the existing part 791A. This
revised version contains several technical changes, such as use of the
term ``claimant'' instead of ``applicant,'' intended to make part 768
easier to read and understand.
Only three commenters mentioned this part in their submissions,
possibly because the Federal Register notice soliciting comments had
stated that BXA did not intend to make any significant changes in this
part.
One commenter questioned why Cuba is included in the definition of
``controlled countries'' for foreign availability purposes under
Sec. 768.1(d) and not for general purposes by inclusion in Country
Group D:1, as described in Supplement No. 1 to part 740. Cuba is a
``controlled country'' pursuant to determination made by BXA under
section 5(b) of the EAA. (See Export Administration Annual Report 1994,
at II-8.) Country Group D:1 does not include countries subject to broad
based embargoes, such as Cuba and North Korea, even though they are
controlled countries. This interim rule adds a clarifying notation
stating that since virtually all exports to Cuba and North Korea
currently are subject to an embargo, the foreign availability
procedures do not apply to these two controlled countries. A similar
notation is included in Supplement No. 1 to part 740.
Another commenter suggested that Sec. 768.7(d) be revised to
clearly reflect the provision of section 5(f)(3) of the EAA that ``the
Secretary shall accept the representations of applicants * * *
supported by reasonable evidence, unless contradicted by reliable
evidence * * *''. BXA did not make any revisions because Sec. 768.7
paragraphs (c), (d)(1), (d)(2), and (d)(3) of this interim Rule already
implement this provision.
One comment suggested that the provision in Sec. 768.7(f)((1)(i)(C)
for submitting foreign availability determinations to COCOM or a
successor regime was unnecessary and should be deleted. When COCOM
ceased functioning on March 31, 1994, the United States and other
member countries agreed to maintain the control lists that were in
place at that time until a successor regime was in place. A change has
been made in this interim rule to reflect BXA's intention to conduct
any necessary consultations with former member countries.
Another commenter questioned why foreign availability procedures do
not apply to foreign policy controlled items. Foreign availability is
always taken into account whenever foreign policy controls are imposed,
expanded, or extended. Because the purposes of foreign policy controls
vary, strict procedures for conducting assessments have not been deemed
to be warranted. Finally, one commenter suggested that part 768 be
revised to reflect the expanded role of the Strategic Industries and
Economic Security Office's Economic Analysis Division in considering
unfair impact, effectiveness of controls, and foreign availability, and
to discuss how exporters may contribute to this work and analysis. BXA
will consider such an addition to the EAR in future revisions.
Part 770--Interpretations
Part 770 contains certain interpretations concerning commodities,
software, technology, and de minimis exceptions for chemical mixtures.
These are designed to clarify the scope of the controls. BXA intends to
add interpretations to this part over time to aid you in interpreting
the EAR. Since the publication of the proposed rule, BXA has issued
certain interpretations on the application of the de minimis exclusion
for certain mixtures of chemicals. Those interpretations are added to
part 770 in this interim rule.
Some commenters suggested that the part numbers of this chapter and
others will overlap with the part numbers of different chapters in
earlier versions of the EAR and therefore BXA should use both odd and
even numbers for the parts of this interim rule. BXA does not believe
that using only even numbers for the parts of this interim rule will
cause confusion. BXA further believes that is it useful to retain only
even numbers in this interim rule so as to leave room for future parts
that cannot now be anticipated.
Certain commenters urged BXA to add interpretations of certain
issues; and BXA will review those recommendations for inclusion in the
future.
Commenters also asked BXA to include an interpretation of the
phrase ``specially designed.'' BXA is not responding to this
recommendation due to pending criminal enforcement action and for other
reasons.
This part contains certain interpretations regarding the de minimis
content of certain chemical mixtures. These reflect amendments to the
EAR adopted after the publication of the proposed rule.
Part 772--Definitions
This part defines terms as used in the EAR.
In response to comments, this interim rule combines the definitions
part from the proposed rule with the multilaterally-agreed definitions
found on the Commerce Control List that are found in Supplement No. 3
to Sec. 799A.1 of the existing EAR. These definitions may be
distinguished from other definitions by the fact that they appear in
quotation marks.
[[Page 12731]]
Part 774--The Commerce Control List
On May 11, 1995, BXA published an advance notice of public
rulemaking in the Federal Register, (60 FR 25480), soliciting comments
from industry and interested public on whether and how to conform the
numbering system used to identify items controlled by the Export
Administration Regulations, or Export Control Classification Numbers
(ECCNs), with the numbering system used by the European Union (EU) to
identify such items.
BXA received a total of eighteen responses to the May 11 notice.
Ten commenters responded directly to this notice, while the remaining
commenters included comments on the May 11 notice with their comments
on the proposed rule. Additional verbal comments were also provided at
the town-hall fora conducted throughout the United States by BXA.
Overall, industry supports harmonizing the U.S. ECCN system with
the EU numbering system. The following is an analysis of the responses
to the five questions posed by BXA in the Federal Register notice,
followed by other general comments.
1. Should the U.S. Harmonize the ECCNs With the EC Numbers and
Encourage Other Countries To Adopt a Uniform Numbering System?
Most commenters stated that they were very supportive of adopting
the EU numbering system. Four stated that if such a change were to be
made, there should be a grace period during which either the ECCN or EU
number could be used. One of these commenters stated that the grace
period should be six months, and another stated that a minimum of nine
months should be allowed for a smooth transition to the new system. One
company stated that it would be less costly to plan for such a change
now rather than sometime in the ``years ahead''. Another commenter
stated that although the initial computerization of the new numbers
could be costly, they will be able to use the information to process
export declarations electronically, which will make processing the
information much more timely.
One foreign-based company stated that they do not support
converting the ECCNs to the EU numbering system because the U.S.-based
ECCN automatically shows that the item is U.S.-origin, and that there
are just too many discrepancies between the items controlled by ECCNs
and the corresponding EU numbers. Another commenter who does not
support conversion to the EU numbering system stated that the use of a
common ECCN has little benefit in the export documentation and should
not be considered an advantage to exporters. This commenter further
stated that it was only recently that they incurred costs of
administering the changes BXA made to the ECCNs to implement the
Coordinating Committee on Multilateral Export Control's (COCOM) ``Core
List'' in 1991 (56 FR 42824, August 29, 1991), and would not want to do
it again. Another commenter stated that the ECCN system is a good
system that works and that they see no advantage of a world-wide system
in this area.
One commenter, that supported the conversion of ECCNs to the EU
system, stated that BXA should not require conversion to the EU system
until the differences between the existing ECCNs and the numbering
system used by the EU are resolved, and also until the COCOM successor
regime and control lists are finalized and all export destinations
agree to adopt the system. Another commenter echoed this opinion, and
added that the new U.S. ECCNs should only be developed for U.S.-
controlled items now controlled by the EU. One commenter stated that
unless the U.S. and EU numbers are identical, there will still be a
need for exporters to classify U.S. and EU separately.
BXA agrees that complete harmonization between the new ECCN system
and the EU system is desirable. Without such harmonization, any
resulting list may be confusing for industry and difficult to
implement. For multilaterally controlled items, the new ECCNs described
in this interim rule are renumbered according to the comparable entry
on the EU list. The scope of such controls are generally the same on
both lists, however the style of the text may be different.
It is important to note that the EU list provides guidance to
member states on the control parameters for items controlled by on the
Industrial List, the International Atomic Energy List, Missile
Technology Control Regime Annex, the Nuclear Supplier's Group, and the
list of items controlled by the Australia Group. Each EU member
publishes its own national list to implement such controls and any
other unilateral controls. Many national lists are therefore different
from the EU list, except for the scope of multilateral controls. The
U.S. also uses discretion in developing its national list, the CCL, for
dual-use items. Certain entries on the CCL have been created for those
items that are not controlled multilaterally on the EU list. Such items
are identified an unilateral controls. In those few instances where the
multilateral entries differ, the U.S. will ask its trading partners to
adopt the CCL.
2. What are the Specific Implications If We Change the ECCNs To Conform
With the EC Numbering System? For Example, if You Currently Have
Computer Programs That Aid in Facilitating Exports and Reexports, What
Will be the Programming Implications for Your Firm if We Make This
Change?
Most of the commenters stated that the reprogramming of computer
systems would be a significant undertaking to convert to a EU numbering
system. One commenter stated that they estimate it would take
approximately 2 person years of effort and $300,000 to change the data
base and ancillary associated systems worldwide. The time for
performing this effort would be approximately three to four months. Two
commenters stated that consideration would need to be given to the
diversion of human resources from current tasks to the review of entire
product lines against the proposed new classification numbers. This
would involve the review of several thousand product part numbers and
the time required to enter each new EU-based number into the computer
system. Three commenters remarked on the export control personnel
retraining requirements requisite to use of the new numbering system.
Another commenter stated that changes to their current system would be
minimal, but they are now in the process of upgrading relevant programs
and processes, and would like to see a change in numbering system now.
One commenter stated that they currently give dual classifications
(ECCN and EU number) to items on their product matrices, and that the
matrices are computerized. Changes to the matrices will be required for
the implementation of the EAR simplification project, so it would be
beneficial if the ECCN harmonization could be carried out at the same
time.
BXA is sympathetic to the time and cost involved in implementing a
new numbering system. However, as many companies have stated, the
benefits of a global numbering system far outweigh the costs of
implementing such a system. The new ECCNs identified in this interim
rule implement the first steps toward a global control list.
[[Page 12732]]
3. What Problems Have You Had in the Past in Tracking Two or More
Numbering Systems for Identical Items Controlled by Two or More
Countries?
One commenter stated that a uniform numbering system would
eliminate a potential area for misunderstanding or confusion in
references to a specific item while another stated that the current
need to track multiple numbering systems adds cost and unnecessary
complexity to their compliance programs. This latter commenter also
stated that there is added confusion caused by changes on different
dates by different countries to the various lists. Another commenter
stated that the lack of correlation between the various lists has made
it all but impossible to develop a computerized correlation between the
various numbers that may apply to one unique product. This commenter
also stated there is no correlation in the EU numbering system for
ECCNs designated for unilateral controls.
4. What Are the Specific Ways in Which a Uniform Numbering System Would
Help Your Company?
Five commenters responded to this question. One commenter stated
that it would simplify their product matrices, while another two stated
that it would streamline their training procedures. One of these
commenters also stated that it would also increase their ability to
maintain high levels of export control compliance. Another commenter
agreed that standardization would allow the company to avoid building
and maintaining cross-reference tables as they communicate order
requirements and status on U.S. export orders with importing foreign
entities.
Another commenter also cited simplification as the major benefit of
a uniform system, and highlighted the specific benefit of consistency
in classification of items. Only one commenter stated that a uniform
numbering system would not benefit their company, but provided no
further explanation as to why it would not be beneficial.
5. Are There Numbering Systems of Other Countries That You Prefer to
the EC System? If So, State Which Ones and Exactly How You Would
Reconcile Any Differences in Scope?
Two of the ten commenters supported maintaining the current ECCN
system. Of the seven commenters that specifically supported a unified
numbering system, none identified a system other than the EU as
preferable.
Four commenters provided additional comments other than those
supporting the four specific questions posed in the May 11 Federal
Register notice. One commenter, who did not support a conversion to the
EU numbering system, stated that the fourth and fifth digits of the EU
number do not provide any real benefit or added clarity. This commenter
further stated that the alpha-character used at the end of the current
ECCNs has been useful in internal control procedures. For example, an
``A'' at the end of a ECCN easily indicates a highly sensitive item,
while a ``G'' indicates greater range of exportability.
Two commenters, who were supportive of the EU numbering system,
also supported the elimination of basket categories. One of these
commenters stated that the continued use of such categories would
conflict with the objective of harmonizing the ECCNs with the EU list.
Another commenter stated that elimination of the ``G'' level basket
categories was not favorable.
One commenter also stated that there should be no interim or
intermediate changes to the ECCN numbering system, and future changes
to the control list should be effective on the same date in all
countries that are a party to the control regimes using the list. The
EU provides guidance to member states for drafting national control
lists. Each state is responsible for implementing changes to
multilateral control lists based upon agreements reached by the
Wassenaar Arrangement, the Missile Technology Control Regime, the
Nuclear Suppliers Group, and the Australia Group. BXA will continue to
implement agreements reached by each of the regimes through prompt
publication in the Federal Register.
Another commenter suggested that if the United States were to adopt
the EU numbering system, BXA should clarify whether new control numbers
(not included on the EU control list) represent new controls, and if
so, what items are being suggested for control and the policy basis for
such controls. A comprehensive cross-reference will be included in
Supplement No. 3 to this part. The Supplement will provide cross-
references for both new format to old format and old to new, so that
readers will be able to locate new numbers based on their current
ECCNs. In this manner, readers will be able to determine the origin of
all numbers that do not currently appear on the EU list. Further, the
revised CCL implements recent multilateral agreements that have not yet
been incorporated in the EU list, such as the NSG revisions published
February 1, 1996 (61 FR 3555).
Under the new numbering system adopted by this interim rule, it
will be easy to identify whether an item is controlled multilaterally
(e.g., for national security, missile technology, nuclear
nonproliferation, or chemical and biological reasons) or unilaterally,
based upon the third digit of the number. ECCNs having a ``9'' as their
third digit (i.e., 5A980, surreptitious listening devices) are controls
unique to the United States, just as other countries may have their own
unique controls. Further, Category 10 has been renumbered, and will
appear as Category 0 in conformance with the EU list. Titles of the
various categories have also been revised in conformance with the EU.
This interim rule retains one ``basket'' entry (EAR99), referenced
at the end of each category in the Commerce Control List, which
contains all the items that used to be classified under those ECCNs
ending with ``96G'' and were thus eligible for General License G-DEST
to most destinations. Items classified as EAR99 are those items not
specified on the CCL, but still subject to the EAR. Therefore,
exporters first must determine that their items are not, in fact, on
the CCL; only then may they classify their items as EAR99.
As in the existing EAR, terms enclosed in quotation marks (i.e.,
``aircraft'' or ``production'') are those with multilaterally agreed
definitions that appear throughout the CCL. These definitions, found in
Supplement No. 3 to part 799A of the existing EAR, are in this interim
rule integrated into part 772 (Definitions). By contrast, definitions
or parameters not enclosed in quotation marks and identified by the
Related Definitions header in individual ECCNs are unique to particular
entries, and therefore appear only in those entries.
Administrative Exception Notes, denoting ``favorable
consideration'' of licenses for certain items to certain destinations
in the existing Supplement No. 1 to part 799A, became meaningless when
COCOM disbanded, and they have been removed from the CCL in this
interim rule.
With the harmonization of the CCL and the EU list, most items will
need to be reclassified. Exporter and reexporters may submit requests
for reclassification beginning on the effective date of this interim
rule. BXA will publish a list of those ECCNs where reclassification is
not necessary prior to November 1, 1996.
Forms Supplement
The new Multipurpose Application Form, BXA-748P, will replace the
Application for Export License (BXA-622P) and the Request for Reexport
Authorization (BXA-699P). It will also
[[Page 12733]]
serve as an application for the Special Comprehensive License.
Additionally, the BXA-748P will accommodate Commerce Classification
Requests, thus allowing item classifications to be handled
electronically.
The BXA-711P replaces BXA-629P, Statement by Ultimate Consignee and
Purchaser. A letter from the ultimate consignee or purchaser may now be
substituted for this form, provided the letter contains the same
information. The BXA-752P will be required as support documentation for
the Special Comprehensive License, replacing the Statement by Foreign
Consignee in Support of Special License Application (BXA-6052P).
The International Import Certificate (BXA-645P/ATF-4522/DSP-53),
the Delivery Verification Certificate (BXA-647P), and the Notification
of Delivery Verification Requirement (BXA-648P) remain unchanged.
Applicants will now submit replacement licenses rather than amendment
requests when their situations change; therefore, the Request for
Amendment Action (BXA-685P) will be discontinued.
Exporters and reexporters may find instructions for completing
forms in part 748, while applicants for the Special Comprehensive
License may find instructions in part 752.
Applicants must begin using the new forms as of June 15, 1996. Due
to the requirements of electronic submission and processing systems,
there will be no transition period during which either version of each
form may be used. Old forms received after the changeover date will be
returned without action to the applicant. Forms may be obtained from
U.S. Department of Commerce District Offices or from: Exporter
Counselling Division, Bureau of Export Administration, Room 1099, U.S.
Department of Commerce, 14th Street and Pennsylvania Avenue, NW.,
Washington, DC 20230. Telephone (202) 482-4811.
Rulemaking Requirements
1. For purposes of Executive Order 12866, this interim rule has
been determined to be significant.
2. Notwithstanding any other provision of law, no person is
required to respond to nor shall a person be subject to a penalty for
failure to comply with a collection of information subject to the
requirements of the Paperwork Reduction Act unless that collection of
information displays a currently valid OMB Control Number. This interim
rule contains five new collections of information subject to the
requirements of the Paperwork Reduction Act, 44 U.S.C. ch. 35, which
were cleared by the Office of Management and Budget. The new
``Multipurpose Application'' is cleared under OMB Control Number 0694-
0088, the ``Special Comprehensive License'' is cleared under OMB
Control Number 0694-0089, five year record retention is cleared under
OMB Control Number 0694-0096, the one-time report on calculations under
the de minimis rule for software and technology is cleared under OMB
Control Number 0694-0101, requests for appointment of a Technical
Advisory Committee is cleared under OMB Control Number 0694-0100,
miscellaneous activities are cleared under OMB Control Number and 0694-
0102. All other collections of information contained in the rulemaking
have been previously approved by OMB. Supplement No. 2 to part 730 of
the EAR contains a table of the current OMB Control Numbers. The public
reporting burdens for the new collections of information are estimated
to average 45 minutes for the Multipurpose Application, between 20 and
40 hours for the Special Comprehensive License, 10 seconds for
recordkeeping, 25 hours for the one-time report, 5 hours for requests
for appointment of Technical Advisory Committee, and 5 hours for
petitions covered under miscellaneous activities. These estimates
include the time for reviewing instructions, searching existing data
sources, gathering and maintaining the data needed, and completing and
reviewing the collections of information. Send comments regarding these
burden estimates or any other aspect of these collections of
information, including suggestions for reducing the burden, to Larry E.
Christensen, Director, Regulatory Policy Division, Bureau of Export
Administration, U.S. Department of Commerce, Washington, D.C. 20230.
3. For purposes of Executive Order 12612, this interim rule does
not contain policies with Federalism implications sufficient to warrant
preparation of a Federalism Assessment.
4. Pursuant to authority at 5 U.S.C. 553(a)(1) and section 13(a) of
the Export Administration Act, 50 U.S.C. 2401-2420 et seq., though
prior notice and an opportunity for public comment are provided, such
procedures are not required for this regulatory action. As such, no
Initial or Final Regulatory Flexibility Analysis is required under
sections 3 and 4 of the Regulatory Flexibility Act, 5 U.S.C. 603(a) and
604(a), and none has been prepared.
5. Although the Export Administration Act expired on August 20,
1994, the President invoked his authority under the International
Emergency Economic Powers Act, through Executive Order 12924, August
19, 1994, as extended on August 15, 1995, and determined that, to the
extent permitted by law, the provisions of the Export Administration
Act shall be extended so as to continue in full force and effect and
amend, as necessary, the export control system previously implemented,
as the Export Administration Regulations, pursuant to the Export
Administration Act.
However, because of the importance of the issues raised by these
regulations, this rule is issued in interim form and comments will be
considered in the development of final regulations. Accordingly, the
Department encourages interested persons who wish to comment to do so
at the earliest possible time to permit the fullest consideration of
their views.
The period for submission of comments will close May 24, 1996. The
Department will consider all comments received before the close of the
comment period in developing final regulations. Comments received after
the end of the comment period will be considered if possible, but their
consideration cannot be assured. The Department will not accept public
comments accompanied by a request that a part or all of the material be
treated confidentially because of its business proprietary nature or
for any other reason. The Department will return such comments and
materials to the person submitting the comments and will not consider
them in the development of final regulations. All public comments on
these regulations will be a matter of public record and will be
available for public inspection and copying. In the interest of
accuracy and completeness, the Department requires comments in written
form.
Oral comments must be followed by written memoranda, which will
also be a matter of public record and will be available for public
review and copying. Communications from agencies of the United States
Government or foreign governments will not be made available for public
inspection.
The public record concerning these regulations will be maintained
in the Bureau of Export Administration Freedom of Information Records
Inspection Facility, Room 4525, Department of Commerce, 14th Street and
Pennsylvania Avenue, N.W., Washington, DC 20230. Records in this
facility, including written public comments and memoranda summarizing
the substance of oral communications, may be inspected and copied in
accordance with regulations published in Part 4 of Title 15 of the Code
of Federal Regulations.
[[Page 12734]]
Information about the inspection and copying of records at the facility
may be obtained from Margaret Cornejo, Bureau of Export Administration
Freedom of Information Officer, at the above address or by calling
(202) 482-5653.
List of Subjects
15 CFR Part 730
Administrative practice and procedure, Advisory committees,
Exports, Foreign trade, Reporting and recordkeeping requirements,
Strategic and critical materials.
15 CFR Part 732
Administrative practice and procedure, Exports, Foreign trade,
Reporting and recordkeeping requirements.
15 CFR Part 734
Administrative practice and procedure, Exports, Foreign trade.
15 CFR Part 736
Exports, Foreign trade.
15 CFR Part 738
Exports, Foreign trade.
15 CFR Part 740
Administrative practice and procedure, Exports, Foreign trade,
Reporting and recordkeeping requirements.
15 CFR Part 742
Exports, Foreign trade.
15 CFR Part 744
Exports, Foreign trade, Reporting and recordkeeping requirements.
15 CFR Part 746
Embargoes, Exports, Foreign trade, Reporting and recordkeeping
requirements.
15 CFR Part 748
Administrative practice and procedure, Exports, Foreign trade,
Reporting and recordkeeping requirements.
15 CFR Part 750
Administrative practice and procedure, Exports, Foreign trade,
Reporting and recordkeeping requirements.
15 CFR Part 752
Administrative practice and procedure, Exports, Foreign trade,
Reporting and recordkeeping requirements.
15 CFR Part 754
Exports, Foreign trade, Forests and forest products, Petroleum,
Reporting and recordkeeping requirements.
15 CFR Part 756
Administrative practice and procedure, Exports, Foreign trade,
Penalties.
15 CFR Part 758
Administrative practice and procedure, Exports, Foreign trade,
Reporting and recordkeeping requirements.
15 CFR Part 760
Boycotts, Exports, Foreign trade, Reporting and recordkeeping
requirements.
15 CFR Part 762
Administrative practice and procedure, Business and industry,
Confidential business information, Exports, Foreign trade, Reporting
and recordkeeping requirements.
15 CFR Part 764
Administrative practice and procedure, Exports, Foreign trade, Law
enforcement, Penalties.
15 CFR Part 766
Administrative practice and procedure, Confidential business
information, Exports, Foreign trade, Law enforcement, Penalties.
15 CFR Part 768
Administrative practice and procedure, Exports, Foreign trade,
Reporting and recordkeeping requirements.
15 CFR Part 770
Exports, Foreign trade.
15 CFR Part 772
Exports, Foreign trade.
15 CFR Part 774
Exports, Foreign trade.
Under authority set forth at 50 U.S.C. 2401 et seq., and for the
reasons set forth in the preamble, Subchapter C, Chapter 7 of Title 15,
Code of Federal Regulations is amended as follows:
1. In Subchapter C, the following parts are redesignated with an A
as set forth in the table below:
------------------------------------------------------------------------
Old part New part
------------------------------------------------------------------------
768....................................... 768A
769....................................... 769A
770....................................... 770A
771....................................... 771A
772....................................... 772A
773....................................... 773A
774....................................... 774A
775....................................... 775A
776....................................... 776A
777....................................... 777A
778....................................... 778A
779....................................... 779A
785....................................... 785A
786....................................... 786A
787....................................... 787A
788....................................... 788A
789....................................... 789A
790....................................... 790A
791....................................... 791A
799....................................... 799A
------------------------------------------------------------------------
2. All internal references appearing in newly designated parts 768A
through 779A, 785A through 791A, and 799A are revised as set forth in
the redesignation table set forth above.
3. Effective November 1, 1996, the newly designated parts are
removed.
4. Newly designated Sec. 771A.25(d) is removed effective March 25,
1996.
5. Parts 730, 732, 734, 736, 738, 740, 742, 744, 746, 748, 750,
752, 754, 756, 758, 760, 762, 764, 766, 768, 770, 772, and 774 are
added to read as follows: