Published in the Daily Bugle, January 8, 2024
On December 8, BIS published a Proposed Rule to Enhance and Simplify license exception Strategic Trade Authorization (STA). BIS noted that STA is chronically underused, and wants to make adjustments to address that.
I’m a great believer in License Exceptions (Commerce) and Exemptions (State). Not asking for permission saves of time and trouble, and NOTHING cements your Wizard status like pulling a license exception out of a hat to solve a Friday At 4:30 Panic. BIS and State like them, too, as it means fewer licenses and authorizations to process.
A key to exceptions and exemptions is they reflect fact patterns where if it were an authorization, it would certainly be granted. Stick a pin in that thought.
The proposed rule helps reduce the barriers to using STA, even if most barriers are incorrect assumptions by the Trade Community™. The preamble speaks generously to how it is part of a broad effort to liberalize controls, facilitates trade and military interoperability, and lauds the strong export controls of our closest allies and partners.
It then asks for comments on the removal of STA eligibility for several ECCNs to those same closest allies and partners, with strong export controls, standing shoulder to shoulder against our enemies, eligibility available for 12 years now without the collapse of Western Civilization[1]. Comments are due by February 6.
While a tirade of Welsh insults might therapeutic, detailed, fact-based comments are more effective. Let’s take a look at some of the proposed STA eligibility changes, in case you feel the need to take up a pen and submit comments. I strongly suggest you do.
Please be sure to comment favorably on the good portions. Just because you don’t throw a brick doesn’t mean BIS assumes you liked something. The clarifications on in-country transfers, deemed exports/reexports, PCS clarification, and the elimination of a need for a previous authorization for said deemed activities are most welcome.
The proposed removal of STA eligibility for A:5 countries is ripe for comment, given that no rationale was provided. At least when this came up in 2021, there was an attempt at a rationale that was savaged in the public comments.
The A:5 country group comprise our closest allies and partners, and the U.S. doesn’t have a monopoly on technical skill and expertise – we trade with A:5 countries because they’ve got good stuff to offer. And did I mention they’re allies? For example, the rule proposes limiting STA for 7D004 to A:5 countries, which includes software for “fly-by-wire” systems. FBW not only has been in commercial aircraft since the last century, the first major commercial use was from Airbus, based in the heart of A:5. When it comes to making the new supersonic civil engine control (9E003.k) ineligible to A:5, please remind me again what country group fielded the first production civil supersonic airliners.
The “come here, come here, get away, get away” dichotomy in the proposed rule is, shockingly[2], because USG policymakers are not monolithic. There are many different voices speaking in the proposed rule. Public comments are a good way to guide policy, because well-grounded comments stand up well against handwaving arguments[3].
The removal of STA to A:5 for various ECCNs, which has been available since 2011, is problematic from an administrative standpoint. First, what do we do about all that technology that’s already been released? Ask for it back? Second, those companies utilizing STA for the past decade are suddenly going to need licenses to keep ongoing projects, well, ongoing. It’s reasonable to ask if the USG will provide a delayed implementation period to give companies time to apply for and receive licenses so as not to interrupt business, and to ask for a grandfathering policy of granting them without conditions, given that the stuff is already there.
A number of the technologies proposed to be restricted from STA eligibility are for NS2 commodities (1C materials, 6A/6B equipment, 9B001 tools, etc.) that don’t require a license to A:5 countries. But it’s often necessary to export some limited “development” or “production” technology, to support incoming inspection, product integration, certification, etc. This would necessitate licenses to ship NLR items. Not good.
Harkening back to the third paragraph in this manifesto, license exceptions are for fact patterns where a license is certain to be granted. If we now need to apply for a license, that means the USG may deny or hobble it with conditions. It’s reasonable to discuss the supply chain impact if a present supplier is denied a license and you need to spend two years certifying a new source. And if they aren’t going to be denied, then why make the change in the first place? What changed?
Has BIS provided an estimate of how many new licenses will be needed due to the A:5 restriction? Are they staffed for it? Asking for a friend.
A few other things to point out in comments:
The 1E001 change also now includes 1C007.d as a barred ECCN. Remind BIS that 1C007.d (i.e., “Reserved”) hasn’t been used since 2017, when it was moved to 1C007.c.2. And while at it, remove the reference to 1C012, which is nowhere to be found in the CCL. Hey, I know, the EAR is big and messy and mistakes happen – here’s your chance to help with the cleanup in aisle nine.
The rule proposes further restricting STA for 6D002 software for “use” of 6A008 and 6B008 equipment. Spoiler alert – 6D002 is an empty box, retained for conformity with our Wassenaar Arrangement partners[4]. Since almost no software meets all six elements, 6D002 only impacts entities that don’t properly apply the EAR interpretation of “use[5].” Limiting the application of STA to an empty box may not be harmful, but it is silly and confusing.
Bottom line – making STA more useful and clearer is good. Restricting the use of STA to our closest allies and partners is bad, especially sans a rational rationale. If you’re not using STA, please do; it’s easy and fun. Viable license exceptions are a powerful tool to keep business going; even if you’re not using STA now, keep that option open, because who knows what you may need next Friday afternoon. So please comment – praise the good parts and point out the bad parts (Welsh insults optional.)
Got J&C questions? – please reach out to me at ArtOfJC@arinovis.com
[1] OK, the jury is still out on that one, but not because of STA.
[2] Caution: Sarcasm In Use.
[3] Caution: Optimism in Use.
[4] Many of whom interpret “use” disjunctively.
[5] Shameless plug for the September 15, 2023 column “Conjunctivitis.”