Published in the Daily Bugle, May 3, 2024
Jurisdiction and Classification seems straightforward – follow The Order Of Review, rule out what doesn’t apply, and what remains is the right answer.
Sometimes, the right answer might be more than one answer. We’d like to think the regulations are so finely crafted that can’t happen, but despite best intentions, the rich variety of real-life transactions causes problem.
The CCL tends to be a little better than the USML in this regard, what with an ample sprinkling of Not Elsewhere Specified(s) and Other Than Controlled By(s), and interestingly enough, Interpretation 2 of Part 770. The latter states that you classify an item based on the characteristics of the item, not on the parts and components inside[1]. That’s a good, solid rule, except if one of those parts meets 3A090, or it includes Cat 5 Part 2 encryption. Both of those deserve a novel-length treatment of their own, and won’t be spoke of again today.
That means a piece of equipment can be classified as EAR99, even if it has a 3A001 processor chip in it. What if that equipment contains a 600 series item (i.e., as a part or component)? The equipment is still EAR99. If the equipment is, say, a prototype (i.e., not in production) then that 600 series item remains 600 series, and you best remember that if you need to export it as a spare part, or include technical data on it as part of the export. If the equipment goes into production, then that 600 series item is eligible to leave the 600 series as per the (b)(3) release of “specially designed.”[2]
Say we incorporate a USML XI(c) component into a prototype of the equipment[3]. First, Interpretation 2 doesn’t hold, because the EAR doesn’t have jurisdiction over that ITAR component – you need to Mother May I to DDTC. But the equipment doesn’t necessarily become Cat XI, or any other USML entry if it’s not listed on the USML. For example, a development test rig for a military aircraft that would fall under 9B610.a. Instead of designing a new part, it re-uses a VIII(h)(1) pump. It’s now a VIII(h)(1) pump with a 9B610.a carrying case, but not otherwise described on the USML. If you wanted to export it, you’d license it as a VIII(h)(1) pump, and the rest of the equipment enclosing it as VIII(x). Remember, the USML (x) entries aren’t classifications; they’re essentially an “envelope” to wrap the EAR-controlled item in so that DDTC can authorize it. This one item has two classifications (VIII and 9B610[4]), and in this case, under two different jurisdictions.
Of course, there are exceptions. The second (unnumbered) Note to USML VIII(x) states certain VIII(h) equipment is licensed by BIS while incorporated into a 9A610 aircraft – but are licensed by DDTC if shipped separately. That’s licensing, not the J&C, and it remains a 9A610 aircraft with VIII(h) parts, which you’d need to explain to the License Officer (LO) – just a BIS one.
The USML doesn’t have Interpretation 2, and only seven instances of Not Elsewhere Specified. It gets a lot more complicated to come up with a Classification, especially since the USML has the two tiers of SME and non-SME. Neither can be exported willy-nilly, but we all know how much fun SME – and including Congress – adds to the party.
SME tends to be end-items, but not always; the USML has many instances where a non-SME item can incorporate SME items – in fact, the non-SME’s classification critical characteristic may be based on incorporating SME items. For example, VI(b) ships are not SME but can incorporate SME equipment (weapons, mission systems, etc.). XII(a)(9) helmet systems are not SME, yet are XII(a)(9)(ii)[5] precisely because they contain SME imaging systems.
It would seem, quite clearly, since DDTC in its infinite wisdom listed surface ships and helmet systems (to name two) as non-SME, despite clearly stating that they can (or must) incorporate SME in order to achieve USML-hood, that those items have the one (non-SME) USML classification. There it is, done and dusted, and I’m sure Congress is pleased not to have to review those transactions.[6] No way those items are SME.
Let’s just say that of the two options[7], I’ve seen the USG come squarely down on both sides, and probably a few more[8]. The right answer is that a non-SME item is not SME. And like crossing the street, exercise care even if you have right of way.
Which brings us to the most important part of all this – keep good notes and give a clear explanation in the licensing documentation. Tell the licensing officer the complete story. A Letter of Explanation (LOE) is not always required for commodity requests under the EAR or ITAR, but if the transaction is in any way complex, or could raise a question in the LO’s mind, I heartily recommend including a LOE to spell it all out. Don’t be afraid to ask for SME authorization – you may very well need to send replacement hardware that is SME, so get covered now.
Got J&C questions? – please reach out to me at ArtOfJC@arinovis.com
[1] We’re talking about the J&C of the item; Foreign Direct Product Rule and de minimis don’t impact the J&C of the item, only if it is subject to the EAR.
[2] See “One Weird Trick,” previously.
[3] To avoid complicating the discussion with (b)(3).
[4] Incorrectly listed as 9B619 in the originally published version.
[5] Incorrectly listed as VIII(a)(9)(ii) in the originally published version.
[6] Barring dollar limits, but that’s a different story.
[7] Correct, and Other.
[8] Some say the Mad Hatter’s Tea party was the transcript of a DDTC policy meeting.