By Bruce Leeds, Senior Counsel , Braumiller Law Group
Let’s assume you are the export control person for Acme Electronics (Acme), a producer of high tech and aerospace products. Acme has just landed a major contract with a foreign customer. Under the contract Acme will be exporting products and technical data and providing training and operational support to the foreign customer.
Based on the assumption that the articles to be exported are controlled under the International Traffic in Arms Regulations (ITAR), you spend considerable time rounding up documents and preparing both a DSP-5 export license application and a draft Technical Assistance Agreement (TAA) along with a transmittal letter. When the applications are complete you submit them to the Directorate of Defense Trade Controls (DDTC) for review and approval.
Instead of approval, DDTC returns the DSP-5 and TAA without action. The DDTC response says that the articles are no longer controlled under the ITAR and are instead subject to the Export Administration Regulations (EAR). Other than having to go back to square one and start over on the approval process, what other harm has this caused? For one, there is the time and expense spent obtaining documents and drafting the applications. Second is the time that has been lost. Until an appropriate license is approved, Acme cannot ship product or exchange technical data with the foreign customer. The contract delivery schedule could now be behind – all due to you. Third and final, is the damage to your reputation within the company. Will people trust and believe you after this?
Now let’s take a look at the opposite scenario. You assume that the articles and data to be exported to the foreign customer are controlled under the EAR. You spend time drafting a license application to submit to the Bureau of Industry & Security (BIS) or obtaining information and documents to qualify the exports under a license exception, such as STA. You submit the application to BIS and they return it, stating that the articles are controlled under the ITAR.
Now what? The same as before, you have to start over, consuming time and resources on drafting a DSP-5, TAA and a transmittal letter. The contract deliveries are now behind schedule. If Acme made deliveries to the foreign customer under a license exception, you will now need to draft a voluntary self-disclosure to DDTC and Bureau of Census. While you are at it you may have to start drafting a new resume.
How can you prevent or minimize these problems of commodity jurisdiction? The first step is to have access to the latest versions of the ITAR and EAR and the U.S. Munitions List (USML) and Commerce Control List (CCL) contained within them. Stay on top of Export Control Reform because that can dramatically affect how your products are controlled. Both the DDTC and BIS web sites have Order of Review tools that will help you determine the jurisdiction and classification of your products. Always keep a record of the results or notes on your reasoning of how you classified the product. After you are promoted to Vice President, your replacement will appreciate the information.
Can you get it in writing from the government? Yes, there are some ways to do this. If you already know for sure that the product is controlled under the EAR you can apply to BIS through the SNAP-R tool for a commodity classification. This will tell you what CCL provision (or maybe EAR99) applies to the article. However, this tool called a CCATS, will only tell you where something falls on the CCL , and cannot be used to determine whether the commodity jurisdiction is ITAR or EAR.
If you are not sure whether something is controlled under the ITAR or EAR the method to use is a Commodity Jurisdiction Determination – usually called a “CJ” in the business. To do a CJ go to the DDTC website (pmddtc.state.gov) and look under Commodity Jurisdiction on the left side menu. There you will find the DS-4076 form and submission instructions. The form is now electronic and is submitted online. You do not need to be registered with DDTC to submit a CJ, and a prospective exporter or attorney can draft and submit it. We won’t go into detail about what goes on the form, but some of the most important information includes:
- A good description and perhaps an illustration of the article to be exported so that the government reviewers will understand exactly what it is
- Development and funding history – was it developed or derived from Department of Defense funding?
- Foreign availability – Is the same or similar product available from foreign sources?
- Export history – has the same or similar product been exported? Under what jurisdiction did the exports take place?
The completed DS-4076 form is sent to DDTC. They get together with BIS and other U.S. Government agencies, such as Department of Defense, NASA or National Security Agency to decide what regulations (ITAR or EAR) will apply to the article. If under the EAR, the CJ determination will often cite the applicable CCL provision (ECCN) that applies.
The response normally takes about 60 days or less. DDTC publishes summaries of CJ determinations at its website under the same Commodity Jurisdiction tab. Unlike Customs rulings published in CROSS, some of the details of the determinations are not published.
Once you have the CJ you must follow it in applying for licenses or exceptions. What if you disagree with the determination? You can ask for reconsideration, but will need new information and arguments to do so.
Is the CJ determination good forever? No, if there is a change to the USML or CCL due to Export Control Reform or legislation, it could render the determination obsolete, which is another reason to stay on top of things.
The CJ process is a good tool for determining license jurisdiction and can add certainty to the process. It has become more popular and is used more widely as a result of Export Control Reform. The price is right (free!) so take advantage of it.