Revisions to the Export Administration Regulations (EAR): Control of Gas Turbine Engines and Related Items the President Determines No Longer Warrant Control Under the United States Munitions List (USML), 76072-76085 [2011-30978]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security

[Federal Register Volume 76, Number 234 (Tuesday, December 6, 2011)]
[Proposed Rules]
[Pages 76072-76085]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30978]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 740, 742 and 774

[Docket No. 111020646-1645-01]
RIN 0694-AF41


Revisions to the Export Administration Regulations (EAR): Control 
of Gas Turbine Engines and Related Items the President Determines No 
Longer Warrant Control Under the United States Munitions List (USML)

AGENCY: Bureau of Industry and Security, Department of Commerce.

ACTION: Proposed rule.

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SUMMARY: The Bureau of Industry and Security publishes this proposed 
rule that describes how military gas turbine engines and related 
articles that the President determines no longer warrant control under 
Category VI, VII, or VIII of the United States Munitions List (USML) 
would be controlled under the Commerce Control List (CCL) in new Export 
Control Classification Numbers (ECCNs) 9A619, 9B619, 9C619, 9D619 and 
9E619. In addition, this proposed rule would control military trainer 
aircraft turbo prop engines and related items, which are currently 
controlled under ECCN 9A018.a.2 or .a.3, 9D018 or 9E018, under new ECCN 
9A619, 9D619 or 9E619.
    This rule is one of a planned series of proposed rules that are 
part of the Administration's Export Control Reform Initiative under 
which various types of articles presently controlled on the USML under 
the International Traffic in Arms Regulations (ITAR) would, instead, be 
controlled on the CCL in accordance with the requirements of the Export 
Administration Regulations (EAR), if and after the President determines 
that such articles no longer warrant control on the USML. This proposed 
rule is being published in conjunction with a proposed rule from the 
Department of State, Directorate of Defense Trade Controls that would 
consolidate in USML Category XIX the military gas turbine engines and 
related articles that would remain on the USML.

DATES: Comments must be received by January 20, 2012.

ADDRESSES: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
The identification number for this rulemaking is BIS-2011-0042.
     By email directly to: publiccomments@bis.doc.gov. Include 
RIN 0694-AF41 in the subject line.
     By mail or delivery to: Regulatory Policy Division, Bureau 
of Industry and Security, U.S. Department of Commerce, Room 2099B, 14th 
Street and Pennsylvania Avenue NW., Washington, DC 20230. Refer to RIN 
0694-AF41.

FOR FURTHER INFORMATION CONTACT: Gene Christiansen, Office of National 
Security and Technology Transfer Controls, Bureau of Industry and 
Security, U.S. Department of Commerce, Telephone: (202) 482-2984, 
Email: Gene.Christiansen@bis.doc.gov.

SUPPLEMENTARY INFORMATION:

Background

    On July 15, 2011, as part of the Administration's ongoing Export 
Control Reform Initiative, the Bureau of Industry and Security (BIS) 
published a proposed rule (76 FR 41958) (``the July 15 proposed rule'') 
that set forth a framework for how articles the President determines, 
in accordance with section 38(f) of the Arms Export Control Act (AECA) 
(22 U.S.C. 2778(f)), would no longer warrant control on the United 
States Munitions List (USML) and, instead, would be controlled on the 
Commerce Control List (CCL). The July 15 proposed rule also contained a 
proposal by BIS describing how military vehicles and related articles 
in USML Category VII that no longer warrant control under the USML 
would be controlled on the CCL.
    On November 7, 2011 (76 FR 68675), BIS published a proposed rule 
describing how aircraft and related items determined by the President 
to no longer warrant control under the USML would be controlled on the 
CCL. In that proposed rule, BIS also made several changes and additions 
to the framework proposed in the July 15 proposed rule.
    BIS plans to publish additional proposed rules describing how 
surface vessels and related articles (currently controlled under USML 
Category VI) and submersibles, submarines, and related articles 
(currently controlled by USML Category VI or XX) that the President 
determines no longer warrant control on the USML would be controlled on 
the CCL.
    BIS also plans to publish a proposed rule describing how the new 
controls described in this and similar notices would be implemented, 
such as through the use of ``grandfather'' clauses and additional 
exceptions. The goal of such provisions would be to give exporters 
sufficient time to implement the final versions of such changes and to 
avoid, to the extent possible, situations where transactions would 
require licenses from both the State Department and the Commerce 
Department.

[[Page 76073]]

    Following the structure of the July 15 and November 7 proposed 
rules, which describe the ``export control reform initiative 
framework'' for controlling on the CCL articles that the President 
determines no longer warrant control on the USML, this proposed rule 
describes BIS's proposal for how another group of items--gas turbine 
engines and related articles for military vessels, vehicles, and 
aircraft that are controlled by USML Categories VI, VII, and VIII, 
respectively--would be controlled on the CCL. The changes described in 
this proposed rule and the State Department's proposed amendment to the 
USML, which would move those items that would be retained on the USML 
into Category XIX (currently reserved), are based on a review of 
Categories VI, VII, and VIII by the Defense Department, which worked 
with the Departments of State and Commerce in preparing the proposed 
amendments. The review was focused on identifying the types of military 
gas turbine engines and related articles now controlled by these USML 
categories that are either: (i) Inherently military and otherwise 
warrant control on the USML, or (ii) if they are a type common to civil 
applications, possess parameters or characteristics that provide a 
critical military or intelligence advantage to the United States, and 
are almost exclusively available from the United States. If an article 
satisfies either or both of those criteria, the article would remain on 
the USML. If an article does not satisfy either criterion, but is 
nonetheless a type of article that is, as a result of differences in 
form and fit, ``specially designed'' for military applications, then it 
is identified in one of the new ECCNs in this proposed rule. Finally, 
if an article does not satisfy either of the two criteria and is not 
found to be ``specially designed'' for military applications, the 
article is not affected by this rule because such items already are not 
on the USML. The licensing policies and other EAR-specific controls for 
such items that are also described in this proposed rule would enhance 
our national security by: (i) Allowing for greater interoperability 
with our NATO, and other, allies while maintaining and expanding robust 
controls that, in some instances, would include prohibitions on exports 
or reexports destined for other countries or intended for proscribed 
end-users and end-uses; (ii) enhancing our defense industrial base by, 
for example, reducing the current incentives for foreign companies to 
design out or avoid U.S.-origin ITAR-controlled content, particularly 
with respect to generic, unspecified parts and components; and (iii) 
permitting the U.S. Government to focus its resources on controlling, 
monitoring, investigating, analyzing, and, if need be, prohibiting 
exports and reexports of more significant items to destinations, end 
users, and end uses of greater concern than our NATO allies and other 
multi-regime partners.
    Pursuant to section 38(f) of the AECA, the President shall review 
the USML ``to determine what items, if any, no longer warrant export 
controls under'' the AECA. The President must report the results of the 
review to Congress and wait 30 days before removing any such items from 
the USML. The report must ``describe the nature of any controls to be 
imposed on that item under any other provision of law.'' 22 U.S.C. 
2778(f)(1). This proposed rule describes how certain military gas 
turbine engines and related articles in USML Categories VI, VII, and 
VIII would be controlled by the EAR and identified on the CCL, if the 
President determines that the articles no longer warrant control on the 
USML.
    In the July 15 proposed rule, BIS proposed creating a series of new 
ECCNs to control items that: (i) Would be moved from the USML to the 
CCL or (ii) are listed on the Wassenaar Arrangement on Export Controls 
for Conventional Arms and Dual-Use Goods and Technologies Munitions 
List (Wassenaar Arrangement Munitions List or WAML) and are already 
controlled elsewhere on the CCL. The proposed rule referred to this 
series as the ``600 series'' because the third character in each of the 
new ECCNs would be a ``6.'' The first two characters of the 600 series 
ECCNs serve the same function as described for any other ECCN in Sec.  
738.2 of the EAR. The first character is a digit in the range 0 through 
9 that identifies the Category on the CCL in which the ECCN is located. 
The second character is a letter in the range A through E that 
identifies the product group within a CCL Category. In the 600 series, 
the third character is the number 6. With few exceptions, the final two 
characters identify the WAML category that covers items that are the 
same or similar to items in a particular 600 series ECCN.
    This proposed rule contains an exception to the general approach of 
tracking the numbering structure of the WAML. BIS believes that it will 
be easier for industry to identify and comply with controls on USML gas 
turbine engines and related items if they are combined into one 
category, regardless of the end item for which the engines are designed 
or modified. The suffix ``019'' was used in the proposed ECCNs to track 
the new Category XIX that would be used to control gas turbine engines 
that would remain on the USML. The Administration, however, encourages 
the public to comment about whether it would be easier and more 
convenient for industry if the controls on gas turbine engines remained 
in the categories of the end items into which the engines are 
installed. Thus, for example, BIS is soliciting public comments on 
whether it would be preferable to have gas turbine engines for 600 
series-controlled military aircraft in the same ECCN 9A610 as such 
aircraft, or in new ECCN 9A619, which is specific to gas turbine 
engines. Similarly, the State Department, in its proposed rule, asks 
comments on whether it would be preferable for controls on USML 
aircraft engines to remain in USML Category VIII(b) or for such engines 
to be placed in a new USML Category XIX.
    BIS will publish additional Federal Register notices containing 
proposed amendments to the CCL that will describe proposed controls for 
additional categories of articles the President determines no longer 
warrant control under the USML. The State Department will publish, 
concurrently, proposed amendments to the USML that correspond to the 
BIS notices. BIS will also publish proposed rules to further align the 
CCL with the WAML and the Missile Technology Control Regime Equipment, 
Software and Technology Annex.

Modifications to Provisions in the July 15 and November 7 Proposed 
Rules

    In addition to the proposals mentioned above, this proposed rule 
would make the following modifications to the July 15 proposed rule:
     Addition of new Category 9 (600 series) items to proposed 
Supplement No. 4 to Part 740; and
     Addition of the new Category 9 (600 series) ECCNs to Sec.  
742.6(a)(1).
    These modifications are described in the section ``Scope of this 
Proposed Rule.''
    Similarly, BIS will consider comments on the July 15 proposals only 
for the specific paragraph, note, and ECCNs referenced above, and only 
within the context of this proposed rule's modifications to them.

Scope of This Proposed Rule

    This proposed rule would create five new 600 series ECCNs in CCL 
Category 9--9A619, 9B619, 9C619, 9D619, and 9E619--that would control 
military gas turbine engines and related articles that the President 
determines no longer warrant control under USML Category

[[Page 76074]]

VI, VII, or VIII. Consistent with the regulatory construct identified 
in the July 15 proposed rule, this rule also would move military 
trainer aircraft turbo prop engines and related items currently 
classified under ECCN 9A018.a.2 or .a.3, 9D018, or 9E018 to new ECCN 
9A619, 9D619, or 9E619. As part of the proposed changes, these three 
018 ECCNs would cross-reference the new classifications in the 600 
series. As noted in the July 15 proposed rule, moving items from 018 
ECCNs to the appropriate 600 series ECCNs would consolidate WAML and 
formerly USML items into one series of ECCNs.
    The proposed changes are discussed in more detail, below.

New Category 9 (600 Series) ECCNs

    Certain military gas turbine engines and related articles that the 
President determines no longer warrant control in USML Category VI, 
VII, or VIII would be controlled under proposed new ECCNs 9A619, 9B619, 
9C619, 9D619, and 9E619.
    Paragraphs .a through .d of ECCN 9A619 would control, respectively: 
(i) Gas turbine engines ``specially designed'' for military use that 
would not be controlled under proposed USML Category XIX; (ii) digital 
engine controls (e.g. Full Authority Digital Engine Controls (FADEC) 
and Digital Electronic Engine Controls (DEEC)) ``specially designed'' 
for gas turbine engines in ECCN 9A619; (iii) hot section components and 
related cooled components ``specially designed'' for gas turbine 
engines in ECCN 9A619; and (iv) engine monitoring systems for gas 
turbine engines and components in ECCN 9A619. All such items would be 
``components,'' as that term is defined in the July 15 proposed rule, 
because they are items that are useful only when used in conjunction 
with an ``end item.'' The definition distinguishes between two types of 
``components'': ``major components'' and ``minor components.'' A 
``major component'' includes any assembled element which forms a 
portion of an ``end item'' without which the end item is inoperable. A 
``minor component'' includes any assembled element of a ``major 
component.''
    Paragraphs .e through .w would be reserved for possible future use. 
Paragraph .x would consist of ``parts,'' ``components,'' ``accessories 
and attachments'' (including certain unfinished products that have 
reached a stage in manufacturing where they are clearly identifiable as 
commodities controlled by paragraph .x) that are ``specially designed'' 
for a commodity in ECCN 9A619 (other than ECCN 9A619.c) or a defense 
article in proposed USML Category XIX and not elsewhere specified in 
the CCL or on the USML. Paragraph .y would consist of eight specific 
types of commodities that, if ``specially designed'' for a commodity 
subject to control in ECCN 9A619 or a defense article in proposed USML 
Category XIX, warrant less strict controls because they have little or 
no military significance. Commodities listed in paragraph .y would be 
subject to antiterrorism (AT Column 1) controls, which currently impose 
a license requirement for five countries. A license also would be 
required, in accordance with the July 15 proposed rule, if commodities 
listed in paragraph .y were destined to the People's Republic of China 
for a military end use as described in Sec.  744.21 of the EAR.
    Although including all military gas turbine engines transferred 
from the USML, or from an existing 018 ECCN, in a single 600 series 
ECCN (i.e., ECCN 9A619) would deviate slightly from the WAML numbering 
approach, BIS believes that it would be more efficient to list all 600 
series controls for engines and related items in one ECCN. New ECCN 
9A619 would correspond to a new USML Category XIX that the State 
Department is proposing, which would control USML-controlled engines 
and related articles. When BIS publishes this rule in final form, BIS 
will add cross references to proposed new ECCN 9A619 to the new 
military ground vehicle ECCN (i.e., ECCN 0A606) described in its July 
15 proposed rule and to the new military aircraft ECCN (i.e., ECCN 
9A610) described in its November 7 proposed rule. Subsequent rules in 
this series (e.g., the rules that would address military surface 
vessels, submersibles and related articles) would contain cross 
references to new ECCN 9A610, as appropriate. BIS encourages the 
submission of comments on its proposal to consolidate all military gas 
turbine engines that would be transferred from the USML to the CCL into 
a single ECCN (ECCN 9A619), as opposed to listing such engines in 
separate ECCNs that would control military vehicles, vessels (both 
surface and submersible), and aircraft, respectively, transferred from 
the USML to the CCL. Similarly, the State Department, in its proposed 
rule, asks for comments on whether it would be preferable for controls 
on USML aircraft engines to remain in USML Category VIII(b) or for such 
engines to be placed in a new USML Category XIX.
    ECCN 9B619.a would control test, inspection, and production 
``equipment'' ``specially designed'' for the ``development,'' 
``production,'' repair, overhaul or refurbishment of military gas 
turbine engines and related commodities enumerated in ECCN 9A619 
(except for items in 9A619.y) or in USML Category XIX, and ``parts,'' 
``components,'' ``accessories and attachments'' ``specially designed'' 
therefor. ECCN 9B619.b would control equipment, cells, or stands 
``specially designed'' for testing, analysis and fault isolation of 
engines, systems, ``parts,'' ``components,'' ``accessories and 
attachments'' specified in ECCN 9A619 or in Category XIX on the USML. 
ECCN 9B619.y would control test, inspection and production 
``equipment'' ``specially designed'' for the ``development'' or 
``production'' of military gas turbine engines and related commodities 
in ECCN 9A619 (except for 9A619.y) or in USML Category XIX and 
``parts,'' ``components,'' ``accessories and attachments'' ``specially 
designed'' therefor, as follows: bearing puller (see ECCN 9B619.y.1). 
Paragraphs .c through .x and paragraphs .y.2 through y.98 would be 
reserved for possible future use.
    ECCN 9C619.a would control materials ``specially designed'' for 
military gas turbine engines and related commodities enumerated in ECCN 
9A619 (except 9A619.y) that are not specified elsewhere in the CCL, 
such as in Category 1, or on the USML. Paragraphs .b through .x of ECCN 
9C619 would be reserved for possible future use. USML subcategory 
XIII(f) would continue to control structural materials ``specifically 
designed, developed, configured, modified, or adapted for defense 
articles.'' The State Department plans to publish a proposal that would 
make USML Category XIII(f) a positive list of controlled structural 
materials. BIS plans to then publish corresponding amendments to its 
controls on materials ``specially designed'' for articles in the 
relevant 600 series ECCN and corresponding USML category.
    ECCN 9D619.a would control ``software'' ``specially designed'' for 
the ``development,'' ``production,'' operation, or maintenance of 
commodities controlled by ECCN 9A619 (except 9A619.y), 9B619 (except 
9B619.y), or 9C619 (except 9C619.y). Paragraphs .b through .x of ECCN 
9D619 would be reserved for possible future use. ECCN 9D619.y would 
control specific ``software'' ``specially designed'' for the 
``development,'' ``production,'' operation, or maintenance of 
commodities controlled by ECCN 9A619, 9B619, or 9C619, as follows: 
specific ``software'' ``specially designed'' for the ``development,'' 
``production,'' operation or maintenance of commodities controlled by 
ECCN 9A619.y, 9B619.y, or 9C619.y (see ECCN

[[Page 76075]]

9D619.y.1). ECCN 9D619 also would contain a note indicating that it 
controls ``software,'' not specified elsewhere on the CCL, that is 
``specially designed'' for the ``development,'' ``production,'' 
operation, or maintenance of commodities enumerated in ECCN 9A619, 
9B619, or 9C619, even if such ``software'' is also related to an 
article on the USML, as specified in USML Category XIX(g).
    ECCN 9E619.a would control ``technology'' ``required'' for the 
``development,'' ``production,'' operation, installation, maintenance, 
repair, overhaul, or refurbishment of military gas turbine engines and 
related items controlled by ECCN 9A619 (except 9A619.y), 9B619 (except 
9B619.y), 9C619 (except 9C619.y), or 9D619 (except 9D619.y). Paragraphs 
.b through .x of ECCN 9E619 would be reserved for possible future use. 
ECCN 9E619.y would control specific ``technology'' ``required'' for the 
``development,'' ``production,'' operation, installation, maintenance, 
repair, overhaul, or refurbishment of military gas turbine engines and 
related items controlled by ECCN 9A619, 9B619, 9C619, or 9D619, as 
follows: specific ``technology'' ``required'' for the ``development,'' 
``production,'' operation, installation, maintenance, repair, overhaul, 
or refurbishment of items controlled by 9A619.y, 9B619.y, 9C619.y, or 
9D619.y (see ECCN 9E619.y.1). ECCN 9E619 also would contain a note 
indicating that it controls ``technology,'' not specified elsewhere on 
the CCL, that is ``required'' for the ``development,'' ``production,'' 
operation, installation, maintenance, repair, overhaul, or 
refurbishment of items enumerated in ECCN 9A619, 9B619, 9C619, or 
9D619, even if such ``technology'' is also related to an article on the 
USML, as specified in Category XIX(g).
    In addition, ECCNs 9A619, 9B619, 9C619, 9D619, and 9E619 would each 
contain a special paragraph designated ``.y.99.'' Paragraph .y.99 would 
control any item that meets all of following criteria: (i) The item is 
not listed on the CCL; (ii) the item was previously determined to be 
subject to the EAR in an applicable commodity jurisdiction 
determination issued by the U.S. Department of State; and (iii) the 
item would otherwise be controlled under one of these Category 9 (600 
series) ECCNs because, for example, the item was ``specially designed'' 
for a military use. Items in these .y.99 paragraphs would be subject to 
antiterrorism controls.
    This proposed rule also would move military trainer aircraft turbo 
prop engines and parts and components therefor currently controlled 
under ECCN 9A018.a.2 or .a.3 to new 600 series ECCN 9A619. In addition, 
related software and technology currently controlled under ECCNs 9D018 
and 9E018 would be moved to new 600 series ECCNs 9D619 and 9E619, 
respectively. Other items currently controlled under ECCN 9A018 (except 
ground transport vehicles controlled under ECCN 9A018.b) would be moved 
to new 600 series ECCN 9A610 by the military aircraft proposed rule 
that BIS published on November 7, 2011. The July 15 proposed rule 
published by BIS would move ground transport vehicles currently 
controlled under ECCN 9A018.b to new 600 series ECCN 0A606. In 
conjunction with the establishment of the new ECCN 9X619 entries, and 
consistent with the July 15 proposed rule's statement that 018 entries 
would remain in the CCL for a time, but only for cross-reference 
purposes, this rule would amend ECCNs 9A018, 9D018, and 9E018 to remove 
all language except cross references to the new 600 series ECCNs that 
cover the items currently in those 018 ECCNs. ECCN 9A018 would refer to 
ECCN 0A606 for ground transport vehicles (for items currently 
controlled under ECCN 9A018.b), to ECCN 9A610 for aircraft related 
commodities (i.e., for items currently controlled under ECCN 9A018.a.1, 
.a.3, .c, .d, .e, and .f), and to ECCN 9A619 gas turbine aircraft 
engines (for military trainer aircraft turbo prop engines and parts and 
components therefore currently controlled under ECCN 9A018.a.2 or 
.a.3). Similarly, ECCN 9D018 would refer to new ECCNs 0D606, 9D610, and 
9D619 for related software, and ECCN 9E018 would refer to ECCNs 0E606, 
9E610, and 9E619 for related technology.

License Exception Restrictions (STA and GOV)

    Certain software and technology related to parts and components 
covered by .x items paragraphs of 600 series ECCNs warrant more 
restrictive license exception applicability than other software and 
technology currently on the CCL. The November 7 proposed rule published 
by BIS would create a new Supplement No. 4 to part 740 (600 Series 
Items Subject to Limits Regarding License Exceptions GOV and STA) that 
would identify 600 series items that may not be exported, reexported, 
or transferred (in-country) pursuant to License Exceptions STA (Sec.  
740.20 of the EAR) or GOV (Sec.  740.11 of the EAR). The supplement 
would be structured to identify by CCL category the items for which 
license exception applicability is limited.
    This proposed rule would include in new Supplement No. 4 to part 
740 nine types of parts and components that would be classified under 
new ECCN 9A619.x and would state that License Exception STA (Sec.  
740.20 of the EAR) may not be used to export, reexport, or transfer 
(in-country) any software classified under ECCN 9D619 or technology 
classified under ECCN 9E619--other than ``build-to-print technology''--
for the production or development of any types of the listed ECCN 
9A619.x parts and components. Further, the supplement would state that 
License Exception GOV, other than the paragraphs that authorize 
shipments to U.S. government agencies for official use or U.S. 
government personnel for personal use or official use (Sec.  
740.11(b)(2)(i) and (b)(2)(ii) of the EAR), is not available for the 
export or reexport of software and technology (other than ``build-to-
print technology'') for the production or development of the ECCN 
9A619.x parts and components listed in the supplement. Similar 
restrictions would apply to 9D619 software and 9E619 technology for 
seven additional types of parts and components classified under new 
ECCN 9A619.x; however, the scope of these restrictions would also apply 
to any affected ``build-to-print'' technology controlled under ECCN 
9E619.
    In this regard, note that the November 7 proposed rule published by 
BIS would add a new definition for ``build-to-print technology'' to 
Sec.  772.1 that would define the term as it would be used in new 
Supplement No. 4 to part 740. Furthermore, the November 7 proposed rule 
would amend the License Exception STA provisions by adding a new note 
to Sec.  740.20(c)(1) and revising Sec.  740.2(a)(13) to clarify 
License Exception STA eligibility for end items and all other 600 
series items. In the July 15 proposed rule, the export of a 600 series 
item is eligible for License Exception STA if, at the time of export, 
reexport or transfer (in-country), the item is destined for ultimate 
end use by the armed forces, police, paramilitary, law enforcement, 
customs and border protection, correctional, fire, or search and rescue 
agencies of a government in one of the STA-36 countries. The November 7 
proposed rule would make 600 series items eligible for License 
Exception STA for such uses and also when exported, reexported, or 
transferred for the production or development of an item for ultimate 
end use by an STA-36 country government agency, by the United States

[[Page 76076]]

Government, or by a person in the United States.

Corresponding Amendments

    As discussed in further detail below, the July 15 proposed rule 
stated that one reason for control for items classified in the 600 
series is Regional Stability (specifically, RS Column 1). Items 
classified under proposed ECCN 9A619, other than ECCN 9A619.y items, as 
well as related technology and software classified under ECCNs 9D619 
and 9E619, would be controlled for this reason, among others. 
Correspondingly, this proposed rule would revise Sec.  742.6 of the EAR 
to apply the RS Column 1 licensing policy to commodities classified 
under ECCN 9A619, 9B619, 9C619 (except paragraphs .y of those ECCNs), 
and to related software and technology classified under ECCNs 9D619 and 
9E619. Note that the proposed rule on military aircraft and related 
items that BIS published on November 7, 2011, would amend the RS Column 
1 licensing policy to impose a general policy of denial for ``600 
series'' items if the destination is subject to a United States arms 
embargo.

Relationship to the July 15 Proposed Rule and Other Rules in This 
Series of Proposed Rules

    As referenced above, the purpose of the July 15 proposed rule is to 
establish within the EAR the framework for controlling on the CCL 
articles that the President determines no longer warrant control on the 
USML. To facilitate that goal, the July 15 proposed rule contains 
definitions and concepts that are meant to be applied across 
Categories. However, as BIS undertakes rulemakings to move specific 
types of articles from the USML to the CCL, if and after the President 
determines that such articles no longer warrant control under the USML, 
there may be unforeseen issues or complications that require BIS to 
reexamine those definitions and concepts. The comment period for the 
July 15 proposed rule closed on September 13, 2011. In the November 7 
proposed rule, BIS proposed several changes to those definitions and 
concepts. The comment period for the November 7 proposed rule will 
close on December 22, 2011.
    To the extent that this rule's proposals affect any provision in 
the July 15 proposed rule or the July 15 proposed rule's provisions 
affect this proposed rule, BIS will consider comments on those 
provisions so long as they are within the context of the changes 
proposed in this rule. For example, BIS will consider comments on how 
the movement of military gas turbine engines and related items from the 
USML to the CCL affects a definition, restriction, or provision that 
was contained in the July 15 proposed rule. BIS will also consider 
comments on the impact of a definition of a term in the July 15 
proposed rule when that term is used in this proposed rule. BIS will 
not consider comments of a general nature regarding the July 15 
proposed rule that are submitted in response to this rulemaking. BIS 
will follow a similar approach to comments received concerning the 
other proposed USML to CCL rules published in this series.
    BIS believes that the following provisions of the July 15 proposed 
rule and the November 7 proposed rule on aircraft and related items are 
among those that could affect the items covered by this proposed rule:
     De minimis provisions in Sec.  734.4;
     Restrictions on use of license exceptions in Sec. Sec.  
740.2, 740.10, 740.11, and 740.20;
     Change to national security licensing policy in Sec.  
742.4;
     Addition of 600 series items to Supplement No. 2 to Part 
744--List of Items Subject to the Military End-Use Requirement of Sec.  
744.21; and
     Definitions of terms in Sec.  772.1.
    BIS believes that the following provisions of this proposed rule 
are among those that could affect the provisions of the July 15 and 
November 7 proposed rules:
     Additional 600 series items identified in proposed 
Supplement No. 4 to part 740; and
     Additional 600 series items identified in the RS Column 
licensing policy described in Sec.  742.6.

Effects of This Proposed Rule

    BIS believes that the principal effect of this rule will be to 
provide greater flexibility for exports and reexports to NATO member 
countries and other multiple-regime-member countries of items the 
President determines no longer warrant control on the United States 
Munitions List. This greater flexibility will be in the form of: 
Application of the EAR's de minimis threshold principle for items 
constituting less than a de minimis amount of controlled U.S.-origin 
content in foreign made items; availability of license exceptions, 
particularly License Exceptions RPL and STA; elimination of the 
requirements for manufacturing license agreements and technical 
assistance agreements in connection with exports of technology; and a 
reduction in, or elimination of, exporter and manufacturer registration 
requirements and associated registration fees. Some of these specific 
effects are discussed in more detail below.

De Minimis

    Section 734.3 of the EAR provides, inter alia, that under certain 
conditions items made outside the United States that incorporate items 
subject to the EAR are not subject to the EAR if they do not exceed a 
``de minimis'' percentage of controlled U.S.-origin content. Depending 
on the destination, the de minimis percentage can be either 10 percent 
or 25 percent. If the July 15 proposed rule's amendments at Sec.  734.4 
of the EAR are adopted, the new ECCNs 9A619, 9B619, 9C619, 9D619 and 
9E619 proposed in this rule would be subject to the de minimis 
provisions set forth in the July 15 proposed rule, because they would 
be ``600 series'' ECCNs. Foreign-made items incorporating items 
controlled under the new ECCNs would become eligible for de minimis 
treatment at the 10 percent level (i.e., a foreign-made item is not 
subject to the EAR, for de minimis purposes, if the value of its U.S.-
origin controlled content does not exceed 10 percent of foreign-made 
item's value). The AECA does not permit the ITAR to have a de minimis 
treatment for these USML-listed items, regardless of the significance 
or insignificance of the U.S.-origin content or the percentage of U.S.-
origin content in the foreign-made item (i.e., USML-listed items remain 
subject to the ITAR when they are incorporated abroad into a foreign-
made item, regardless of either of these factors). In addition, 
foreign-made items that incorporate any items that are currently 
classified under an 018 ECCN and that are moved to a new 600 series 
ECCN would be subject to the EAR if those foreign-made items contained 
more than 10 percent U.S.-origin controlled content, regardless of the 
destination and regardless of the proportion of the U.S.-origin 
controlled content accounted for by the former 018 ECCN items.
    Based on the July 15 rule's proposals, foreign-made items that 
contain controlled U.S.-origin content classified under non-600 series 
ECCNs, as well as 600 series ECCNs, would potentially have to be 
evaluated in two stages to determine whether they would qualify for de 
minimis treatment. First, the value of the 600 series ECCN content 
would have to be calculated. If the value of the 600 series ECCN 
content exceeds 10 percent of the value of the foreign-made item, the 
item would not qualify for de minimis treatment and would be subject to 
the EAR. However, if the value of the 600 series ECCN content does not 
exceed 10 percent of the value

[[Page 76077]]

of the foreign-made item, then the value of all of the controlled U.S. 
origin content (including both non-600 series and 600 series ECCN 
content) would have to be calculated to determine whether the foreign-
made item's total U.S. origin controlled content exceeds the de minimis 
percentage (either 10 percent or 25 percent) applicable to the country 
of destination. BIS is reviewing comments the public submitted with 
respect to this proposal and plans to publish another proposed rule 
that addresses these comments and other related issues.

Use of License Exceptions

    The July 15 proposed rule would impose certain limits for 600 
series items moving from existing 018 controls on the CCL. BIS believes 
that, even with the July 15 and November 7 proposed restrictions on the 
use of license exceptions for 600 series items, the restrictions on 
those items currently on the USML would be reduced, particularly with 
respect to exports to NATO members and multiple-regime member 
countries, if those items are moved from the USML to proposed ECCN 
9A619. BIS also believes that, in practice, the movement of items from 
018 ECCNs to the 600 series ECCNs would have little effect on license 
exception availability for those items because existing restrictions or 
the terms of the license exceptions themselves already preclude most 
transactions that would be precluded by the July 15 and November 7 
proposed amendments to Sec.  740.2 of the EAR. However, BIS is aware of 
two situations (the use of License Exceptions GOV and STA) in which the 
movement of items from an 018 ECCN to a new 600 series ECCN could, in 
practice, impose greater limits on the use of license exceptions than 
currently is the case.
    First, the July 15 proposed rule would limit the use of License 
Exception GOV for 600 series commodities to situations in which the 
United States Government is the consignee and end user or to situations 
in which the consignee or end user is the government of a country 
listed in Sec.  740.20(c)(1). Currently, commodities classified under 
an 018 ECCN may be exported under any provision of License Exception 
GOV to any destination authorized by that provision if all of the 
conditions of that provision are met and nothing else in the EAR 
precludes such shipment.
    Second, the July 15 proposed rule would (i) Limit the use of 
License Exception STA for ``end items'' in 600 series ECCNs to those 
end items for which a specific request for License Exception STA 
eligibility (filed in conjunction with a license application) has been 
approved and (ii) require that the end item be for ultimate end use by 
a foreign government agency of a type specified in the July 15 proposed 
rule. In this regard, note that, for the purpose of this proposed rule, 
military gas turbine engines and related items enumerated in proposed 
ECCN 9A619 are ``components,'' rather than ``end items.'' The July 15 
proposed rule also would limit exports of 600 series parts, components, 
accessories, and attachments under License Exception STA for ultimate 
end use by the same set of end users. Neither restriction currently 
applies to the use of License Exception STA for commodities classified 
under an 018 ECCN. In addition, the July 15 proposed rule would limit 
the shipment of 600 series ECCN items under License Exception STA to 
destinations listed in Sec.  740.20(c)(1). Currently, commodities 
classified under an 018 ECCN may be shipped under License Exception STA 
to destinations listed in Sec.  740.20(c)(1) or (c)(2).

Making U.S. Export Controls More Consistent With the Wassenaar 
Arrangement Munitions List Controls

    The Administration has stated, since the beginning of the Export 
Control Reform Initiative, that the reforms will be consistent with the 
obligations of the United States to the multilateral export control 
regimes. Accordingly, the Administration will, in this and subsequent 
proposed rules, exercise its national discretion to implement, clarify, 
and, to the extent feasible, align its controls with those of the 
regimes. Although including all military gas turbine engines 
transferred from the USML, or from an existing 018 ECCN, in a single 
600 series ECCN (i.e., ECCN 9A619) would deviate slightly from the WAML 
numbering approach, BIS believes that it would be more efficient to 
list all 600 series controls for engines and related items in one ECCN. 
If, however, the commenters disagree and would prefer that controls on 
engines be in the same USML, or CCL, Category as the ``end-item'' (such 
as an aircraft, vehicle, or vessel) for which they were designed or 
modified, BIS would consider any comments submitted to that effect, 
along with any comments submitted in favor of consolidating all 600 
series controls for gas turbine engines and related items in a single 
CCL Category. In addition, proposed ECCN 9A619 would correspond to a 
new USML Category XIX that the State Department would propose, which 
would control USML-controlled engines and related articles. The 
proposed ECCN 9A619 tracks, to the extent possible, the wording of the 
WAML pertaining to military gas turbine engines and related items not 
subject to the ITAR. It also implements in 9A619.x the controls in WAML 
category 16 for forgings, castings, and other unfinished products; in 
9B619.a the controls in WAML category 18 for production equipment; in 
9D619 the applicable controls in WAML category 21 for software; and in 
9E619 the applicable controls in WAML category 22 for technology.

Other Effects

    Pursuant to the framework identified in the July 15 proposed rule, 
commodities classified under ECCN 9A619 (other than ECCN 9A619.y), 
along with related test inspection and production equipment, materials, 
software, and technology classified under ECCN 9B619, 9C619, 9D619 or 
9E619 (except items classified under the .y paragraphs of these ECCNs), 
would be subject to the licensing policies that apply to items 
controlled for national security reasons, as described in Sec.  
742.4(b)(1)--specifically, NS Column 1 controls. All commodities in 
ECCN 9A619 (other than those identified in 9A619.y, which are 
controlled for AT Column 1 anti-terrorism reasons only and may also be 
subject to the prohibitions described in Part 744), along with related 
test, inspection and production equipment, materials, software and 
technology classified under ECCN 9B619, 9C619, 9D619 or 9E619 (except 
items classified under the .y paragraphs of these ECCNs), would be 
subject to the regional stability licensing policies set forth in Sec.  
742.6(a)(1)--specifically, RS Column 1.
    The July 15 proposed rule would change Sec.  742.4 to apply a 
general policy of denial to 600 series items for destinations that are 
subject to a United States arms embargo. That policy would apply to all 
items controlled for national security (NS) reasons under this proposed 
rule. The November 7 proposed rule would expand that general policy of 
denial to include 600 series items subject to the licensing policies 
that apply to items controlled for regional stability reasons, as 
described in Sec.  742.6(b)(1)--specifically, RS Column 1. While this 
change might seem redundant for the items affected by this proposed 
rule, it ensures that a general denial policy would apply to any 600 
series items that are controlled for missile technology (MT) and 
regional stability (RS) reasons, but not for national security (NS) 
reasons (as would be the case for certain items affected by the 
aircraft rule).

[[Page 76078]]

Jurisdictional and Classification Status of Items Subject to Previous 
Commodity Jurisdiction Determinations

    The Administration recognizes that some items that would fall 
within the scope of the proposed new ECCNs will have been subject to 
commodity jurisdiction (CJ) determinations issued by the United States 
Department of State. The State Department will have either determined 
that the item was subject to the jurisdiction of the ITAR or that it 
was not. (See 22 CFR 120.3 and 120.4). Under this proposed rule, items 
that the State Department determined to be not subject to the ITAR and 
that are not described on the CCL would be subject to the AT-only 
controls of the ``.y99'' paragraph of a 600 series ECCN if they would 
otherwise be within the scope of the ECCN. Thus, for example, ECCN 
9A619.x would control any part, component, accessory, or attachment not 
specifically identified in the USML or elsewhere in the ECCN if it was 
``specially designed'' for a gas turbine engine controlled by either 
ECCN 9A619 or USML Category XIX. However, any part, component, 
accessory or attachment that was determined by commodity jurisdiction 
determination not to have been subject to the ITAR and is (as defined) 
``specially designed'' for a gas turbine engine controlled under ECCN 
9A619 or USML Category XIX would be controlled under 9A619.y.99 if it 
is not identified elsewhere on the CCL. If the item was identified or, 
as a matter of law or the result of a subsequent commodity 
classification (``CCATS'') determination by Commerce, controlled by 
another legacy ECCN, such as 9A991.c, that ECCN would continue to apply 
to the item. This general approach will, pending public comment, be 
repeated in subsequent proposed rules pertaining to other categories of 
items.
    If, however, the State Department had made a commodity jurisdiction 
determination that a particular item was subject to the jurisdiction of 
ITAR but that item is not described on the final, implemented version 
of a revised USML category, a new commodity jurisdiction determination 
would not be required unless there is doubt about the application of 
the new USML category to the item. (See 22 CFR 120.4). Thus, unless 
there are doubts about the jurisdictional status of a particular item, 
exporters and reexporters would be entitled to rely on the revised USML 
categories when making jurisdictional determinations, notwithstanding 
past commodity jurisdiction determinations that, under the previous 
version of the USML, the item was ITAR controlled.
    Finally, if the State Department had made a commodity jurisdiction 
determination that a particular article was subject to the jurisdiction 
of the ITAR and that article remains in the revised USML, then the 
article would remain subject to the jurisdiction of the ITAR.

Section-by-Section Description of the Proposed Changes

     Supplement No. 4 to Part 740--Additional new Category 9 
(600 series) ECCNs listed.
     Section 742.6--ECCNs 9A619, 9B619, 9C619, 9D619 and 9E619 
are added to Sec.  742.6(a)(1) to impose an RS Column 1 license 
requirement and licensing policy, including a general policy of denial 
in Section 742.6(b)(1) for applications to export or reexport ``600 
series'' items to destinations that are subject to a United States arms 
embargo.
     Supplement No. 1 to part 774--Adds ECCNs 9A619, 9B619, 
9C619, 9D619 and 9E619.

Request for Comments

    BIS seeks comments on this proposed rule. BIS will consider all 
comments received on or before January 20, 2012. All comments 
(including any personally identifying information or information for 
which a claim of confidentially is asserted either in those comments or 
their transmittal emails) will be made available for public inspection 
and copying. Parties who wish to comment anonymously may do so by 
submitting their comments via https://www.Regulations.gov, leaving the 
fields that would identify the commenter blank and including no 
identifying information in the comment itself.
    Although the Export Administration Act expired on August 20, 2001, 
the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 
2001 Comp., p. 783 (2002), as extended by the Notice of August 12, 
2011, 76 FR 50661 (August 16, 2011), has continued the Export 
Administration Regulations in effect under the International Emergency 
Economic Powers Act. BIS continues to carry out the provisions of the 
Act, as appropriate and to the extent permitted by law, pursuant to 
Executive Order 13222.

Regulatory Requirements

    1. Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distribute impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been designated a ``significant regulatory 
action,'' although not economically significant, under section 3(f) of 
Executive Order 12866. Accordingly, the rule has been reviewed by the 
Office of Management and Budget (OMB).
    2. Notwithstanding any other provision of law, no person is 
required to respond to, nor is subject to a penalty for failure to 
comply with, a collection of information, subject to the requirements 
of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), 
unless that collection of information displays a currently valid OMB 
control number. This proposed rule would affect two approved 
collections: Simplified Network Application Processing + System 
(control number 0694-0088), which includes, among other things, license 
applications, and License Exceptions and Exclusions (0694-0137).
    As stated in the proposed rules published at 76 FR 41958 (July 15, 
2011) and 76 FR 68675 (November 7, 2011), BIS believes that the 
combined effect of all rules to be published adding items to EAR that 
would be removed from the ITAR as part of the administration's Export 
Control Reform Initiative would increase the number of license 
applications to be submitted to BIS by approximately 16,000 annually, 
resulting in an increase in burden hours of 5,067 (16,000 transactions 
at 17 minutes each) under control number 0694-0088.
    Some items formerly on the USML would become eligible for License 
Exception STA under this rule. Other such items may become eligible for 
License Exception STA upon approval of a request submitted in 
conjunction with a license application. As stated in the July 15 and 
November 7 proposed rules, BIS believes that the increased use of 
License Exception STA resulting from the combined effect of all rules 
to be published adding items to EAR that would be removed from the ITAR 
as part of the administration's Export Control Reform Initiative would 
increase the burden associated with control number 0694-0137 by about 
23,858 hours (20,450 transactions @ 1 hour and 10 minutes each).
    BIS expects that this increase in burden would be more than offset 
by a reduction in burden hours associated with approved collections 
related to the ITAR. This proposed rule addresses controls on military 
gas turbine engines

[[Page 76079]]

and related parts, components, production equipment, materials, 
software, and technology. The largest impact of the proposed rule would 
be with respect to exporters of parts and components because, under the 
proposed rule, most U.S. and foreign military gas turbine engines 
currently in service would continue to be subject to the ITAR. Because, 
with few exceptions, the ITAR allows exemptions from license 
requirements only for exports to Canada, most exports to integrators 
for U.S. government equipment and most exports of routine maintenance 
parts and components for our NATO and other close allies require State 
Department authorization. In addition, the exports necessary to produce 
parts and components for defense articles in the inventories of the 
United States and its NATO and other close allies require State 
Department authorizations. Under the EAR, as proposed, a small number 
of low level parts would not require a license to most destinations. 
Most other parts, components, accessories, and attachments would become 
eligible for export to NATO and other close allies under License 
Exception STA. Use of License Exception STA imposes a paperwork and 
compliance burden because, for example, exporters must furnish 
information about the item being exported to the consignee and obtain 
from the consignee an acknowledgement and commitment to comply with the 
EAR. It is, however, the Administration's understanding that complying 
with the requirements of STA is likely to be less burdensome than 
applying for licenses. For example, under License Exception STA, a 
single consignee statement can apply to an unlimited number of 
products, need not have an expiration date and need not be submitted to 
the government in advance for approval. Suppliers with regular 
customers can tailor a single statement and assurance to match their 
business relationship rather than applying repeatedly for licenses with 
every purchase order to supply allied and, in some cases, U.S. forces 
with routine replacement parts and components.
    Even in situations in which a license would be required under the 
EAR, the burden likely will be reduced compared to the license 
requirement of the ITAR. In particular, license applications for 
exports of technology controlled by ECCN 9E619 are likely to be less 
complex and burdensome than the authorizations required to export ITAR-
controlled technology, i.e., Manufacturing License Agreements and 
Technical Assistance Agreements.
    3. This rule does not contain policies with Federalism implications 
as that term is defined under E.O. 13132.
    4. The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 
601 et seq., generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act (5 
U.S.C. 553) or any other statute, unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Under section 605(b) of the RFA, however, if 
the head of an agency certifies that a rule will not have a significant 
impact on a substantial number of small entities, the statute does not 
require the agency to prepare a regulatory flexibility analysis. 
Pursuant to section 605(b), the Chief Counsel for Regulation, 
Department of Commerce, certified to the Chief Counsel for Advocacy, 
Small Business Administration that this proposed rule, if promulgated, 
will not have a significant impact on a substantial number of small 
entities for the reasons explained below. Consequently, BIS has not 
prepared a regulatory flexibility analysis. A summary of the factual 
basis for the certification is provided below.

Number of Small Entities

    The Bureau of Industry and Security (BIS) does not collect data on 
the size of entities that apply for and are issued export licenses. 
Although BIS is unable to estimate the exact number of small entities 
that would be affected by this rule, it acknowledges that this rule 
would affect some unknown number.

Economic Impact

    This proposed rule is part of the Administration's Export Control 
Reform Initiative. Under that initiative, the United States Munitions 
List (22 CFR part 121) (USML) would be revised to be a ``positive'' 
list, i.e., a list that does not use generic, catch-all controls on any 
part, component, accessory, attachment, or end item that was in any way 
specifically modified for a defense article, regardless of the 
article's military or intelligence significance or non-military 
applications. At the same time, articles that are determined to no 
longer warrant control on the USML would become controlled on the 
Commerce Control List (CCL). Such items, along with certain military 
items that currently are on the CCL, would be identified in specific 
Export Control Classification Numbers (ECCNs) known as the ``600 
series'' ECCNs. In addition, some items currently on the Commerce 
Control List would move from existing ECCNs to the new 600 series 
ECCNs. In practice, the greatest impact of this rule on small entities 
would likely be reduced administrative costs and reduced delay for 
exports of items that are now on the USML but would become subject to 
the EAR. This rule focuses on military gas turbine engines and related 
articles currently controlled under USML Categories VI, VII, and VIII. 
Most operational military gas turbine engines currently in active 
inventory would remain on the USML. However, parts and components, 
which are more likely to be produced by small businesses than are 
complete engines, would in many cases become subject to the EAR. In 
addition, officials of the Department of State have informed BIS that 
license applications for such parts and components are a high 
percentage of the license applications for USML articles review by that 
department. Changing the jurisdictional status of USML items would 
reduce the burden on small entities (and other entities as well) 
through: (i) Elimination of some license requirements, (ii) greater 
availability of license exceptions, (iii) simpler license application 
procedures, and (iv) reduced, or eliminated, registration fees.
    In addition, parts and components controlled under the ITAR remain 
under ITAR control when incorporated into foreign-made items, 
regardless of the significance or insignificance of the item. This 
discourages foreign buyers from incorporating such U.S. content. The 
availability of de minimis treatment under the EAR may reduce the 
incentive for foreign manufacturers to refrain from purchasing U.S.-
origin parts and components.
    Eight types of parts and components, identified in ECCN 9A619.y, 
would be designated immediately as parts and components that, even if 
specially designed for a military use, have little or no military 
significance. These parts and components, which under the ITAR require 
a license to nearly all destinations, would, under the EAR, require a 
license to only five destinations and, if destined for a military end 
use, to the People's Republic of China.
    Many exports and reexports of the USML articles that would be 
placed on the CCL by this rule, particularly parts and components, 
would become eligible for license exceptions that apply to shipments to 
United States Government agencies, shipments valued at less than 
$1,500, parts and components being exported for use as replacement 
parts, temporary exports, and License

[[Page 76080]]

Exception Strategic Trade Authorization (STA), reducing the number of 
licenses that exporters of these items would need. License Exceptions 
under the EAR would allow suppliers to send routine replacement parts 
and low level parts to NATO and other close allies and export control 
regime partners for use by those governments and for use by contractors 
building equipment for those governments or for the United States 
government without having to obtain export licenses. Under License 
Exception STA, the exporter would need to furnish information about the 
item being exported to the consignee and obtain a statement from the 
consignee that, among other things, would commit the consignee to 
comply with the EAR and other applicable U.S. laws. Because such 
statements and obligations can apply to an unlimited number of 
transactions and have no expiration date, they would impose a net 
reduction in burden on transactions that the government routinely 
approves through the license application process that the License 
Exception STA statements would replace.
    Even for exports and reexports for which a license would be 
required, the process would be simpler and less costly under the EAR. 
When a USML article is moved to the CCL, the number of destinations for 
which a license is required would remain unchanged. However, the burden 
on the license applicant would decrease because the licensing procedure 
for CCL items is simpler and more flexible that the license procedure 
for UMSL articles.
    Under the USML licensing procedure, an applicant must include a 
purchase order or contract with its application. There is no such 
requirement under the CCL licensing procedure. This difference gives 
the CCL applicant at least two advantages. First, the applicant has a 
way of determining whether the U.S. government will authorize the 
transaction before it enters into potentially lengthy, complex and 
expensive sales presentations or contract negotiations. Under the USML 
procedure, the applicant must caveat all sales presentations with a 
reference to the need for government approval and is more likely to 
engage in substantial effort and expense only to find that the 
government will reject the application. Second, a CCL license applicant 
need not limit its application to the quantity or value of one purchase 
order or contract. It may apply for a license to cover all of its 
expected exports or reexports to a specified consignee over the life of 
a license (normally two years, but maybe longer if circumstances 
warrant a longer period), thus reducing the total number of licenses 
for which the applicant must apply.
    In addition, many applicants exporting or reexporting items that 
this rule would transfer from the USML to the CCL would realize cost 
savings through the elimination of some or all registration fees 
currently assessed under the USML's licensing procedure. Currently, 
USML applicants must pay to use the USML licensing procedure even if 
they never actually are authorized to export. Registration fees for 
manufacturers and exporters of articles on the USML start at $2,500 per 
year, increase to $2,750 for organizations applying for one to ten 
licenses per year and further increases to $2,750 plus $250 per license 
application (subject to a maximum of three percent of total application 
value) for those who need to apply for more than ten licenses per year. 
There are no registration or application processing fees for 
applications to export items listed on the CCL. Once the ITAR-
controlled items that are the subject to this rulemaking become subject 
to the EAR, entities currently applying for licenses from the 
Department of State would find their registration fees reduced if the 
number of ITAR licenses those entities need declines. If an entity's 
entire product line is moved to the CCL, its ITAR registration and 
registration fee requirement would be eliminated entirely.
    De minimis treatment under the EAR would become available for all 
items that this rule would transfer from the USML to the CCL. Items 
subject to the ITAR remain subject to the ITAR when they are 
incorporated abroad into a foreign-made product, regardless of the 
percentage of U.S content in that foreign made product. Foreign-made 
products incorporating items that this rule would move to the CCL would 
be subject to the EAR only if their total controlled U.S.-origin 
content exceeds 10 percent. Because including small amounts of U.S.-
origin content would not subject foreign-made products to the EAR, 
foreign manufacturers would have less incentive to refrain from 
purchasing such U.S.-origin parts and components, a development that 
potentially would mean greater sales for U.S. suppliers, including 
small entities.
    For items currently on the CCL that would be moved from existing 
ECCNs to the new 600 series, license exception availability would be 
narrowed somewhat and the applicable de minimis threshold for foreign-
made products containing those items would in some cases be reduced 
from 25 percent to 10 percent. However, BIS believes that increased 
burden imposed by those actions will be offset substantially by the 
reduction in burden attributable to the moving of items from the USML 
to CCL and the compliance benefits associated with the consolidation of 
all WAML items subject to the EAR in one series of ECCNs.

Conclusion

    BIS is unable to determine the precise number of small entities 
that would be affected by this rule. Based on the facts and conclusions 
set forth above, BIS believes that any burdens imposed by this rule 
would be offset by a reduction in the number of items that would 
require a license, increased opportunities for use of license 
exceptions for exports to certain countries, simpler export license 
applications, reduced or eliminated registration fees and application 
of a de minimis threshold for foreign-made items incorporating U.S.-
origin parts and components, which would reduce the incentive for 
foreign buyers to design out or avoid U.S.-origin content. For these 
reasons, the Chief Counsel for Regulation of the Department of Commerce 
certified to the Chief Counsel for Advocacy of the Small Business 
Administration that this rule, if adopted in final form, would not have 
a significant economic impact on a substantial number of small 
entities.

List of Subjects

15 CFR Part 740

    Administrative practice and procedure, Exports, Reporting and 
recordkeeping requirements.

15 CFR Part 742

    Exports, Terrorism.

15 CFR Part 774

    Exports, Reporting and recordkeeping requirements.

    For the reasons stated in the preamble, parts 740, 742, and 774 of 
the Export Administration Regulations (15 CFR parts 740-774) are 
proposed to be amended as follows:

15 CFR PART 740--[AMENDED]

    1. The authority citation for 15 CFR part 740 continues to read as 
follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; 
22 U.S.C. 7201 et seq.; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., 
p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783;