``Specially Designed'' Definition, 36409-36419 [2012-14475]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security

[Federal Register Volume 77, Number 118 (Tuesday, June 19, 2012)]
[Proposed Rules]
[Pages 36409-36419]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14475]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 77, No. 118 / Tuesday, June 19, 2012 / 
Proposed Rules

[[Page 36409]]



DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 772 and 774

[Docket No. 120403245-1034-01]
RIN 0694-AF66


``Specially Designed'' Definition

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Proposed rule.

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SUMMARY: As part of the President's Export Control Reform (ECR) 
Initiative, this proposed rule, and a separate proposed rule from the 
Department of State, Directorate of Defense Trade Controls, being 
published in conjunction with this document, sets forth, as much as 
possible, a common definition of the term ``specially designed'' for 
use in the Export Administration Regulations (EAR) and the 
International Traffic in Arms Regulations (ITAR). The term ``specially 
designed'' is used widely in the Commerce Control List (CCL) and would 
play an important role in the ``600 series'' that the Bureau of 
Industry and Security (BIS) has proposed to create to control less 
sensitive defense articles transferred from the United States Munitions 
List (USML) to the Commerce Control List (CCL). The revisions in this 
rule are part of Commerce's retrospective plan under EO 13563 completed 
in August 2011. Commerce's full plan can be accessed at: https://open.commerce.gov/news/2011/08/23/commerce-plan-retrospective-analysis-existing-rules.

DATES: Comments must be received by BIS no later than August 3, 2012.

ADDRESSES: Comments on this rule may be submitted to the Federal 
rulemaking portal (www.regulations.gov). The regulations.gov ID for 
this rule is: BIS-2012-0021. Comments may also be submitted via email 
to publiccomments@bis.doc.gov or on paper to Regulatory Policy 
Division, Bureau of Industry and Security, Room 2099B, U.S. Department 
of Commerce, 14th St. and Pennsylvania Ave. NW., Washington, DC 20230. 
Please refer to RIN 0694-AF66 in all comments and in the subject line 
of email comments. All comments must be in writing. All comments 
(including any personal identifiable information) will be available for 
public inspection and copying. Those wishing to comment anonymously may 
do so by submitting their comment via regulations.gov and leaving the 
fields for identifying information blank.

FOR FURTHER INFORMATION CONTACT: Timothy Mooney, Regulatory Policy 
Division, Bureau of Industry and Security, Department of Commerce, 
Phone: (202) 482-2440, Fax: (202) 482-3355, Email: 
timothy.mooney@bis.doc.gov.

SUPPLEMENTARY INFORMATION: The revisions in this proposed rule are part 
of Commerce's retrospective plan under EO 13563 completed in August 
2011.
    Elsewhere in this issue of the Federal Register, BIS publishes an 
advanced notice of proposed rulemaking, Feasibility of Enumerating 
``Specially Designed'' Components, requesting comments on the 
feasibility of positively identifying ``specially designed'' components 
on the CCL. That proposal is a part of a longer term project the U.S. 
Government intends to undertake with the multilateral export control 
regimes.

Background

    On July 15, 2011, BIS proposed a single definition of the term 
``specially designed'' as it would be used in the proposed ``600 
series'' and the rest of the Commerce Control List (CCL) (the ``July 15 
proposed rule'') (76 FR 41958). This action would revise that proposed 
definition. Additionally, the State Department is concurrently 
publishing a proposed rule to create, to the extent possible, a common 
definition of ``specially designed'' in the International Traffic in 
Arms Regulations (ITAR). After reviewing comments received in response 
to both proposed rules, the Departments of Commerce and State plan to 
publish final rules amending the Export Administration Regulations 
(EAR) and ITAR so that they have, to the extent possible, common 
definitions of the term. The revisions in this rule are part of 
Commerce's retrospective plan under EO 13563 completed in August 2011. 
Commerce's full plan can be accessed at: https://open.commerce.gov/news/2011/08/23/commerce-plan-retrospective-analysis-existing-rules.
    All references to the United States Munitions List (USML) in this 
rule are to the list of defense articles that are controlled for 
purposes of export pursuant to the ITAR, 22 CFR Parts 120 et seq., and 
not to the list of defense articles on the United States Munitions 
Import List (USMIL) controlled by the Bureau of Alcohol, Tobacco, 
Firearms and Explosives (ATF) for purposes of import, under its 
regulations at 27 CFR Part 447. Pursuant to section 38(a)(1) of the 
Arms Export Control Act (AECA), all defense articles controlled for 
export or import are part of the USML under the AECA, but, for the sake 
of clarity, the list of defense articles controlled by ATF for purposes 
of import are on the USMIL. The transfer of defense articles from the 
ITAR's USML to the EAR's CCL for purposes of export controls does not 
affect the list of defense articles controlled on the USMIL under the 
AECA for purposes of import controls.
    A common definition of the term ``specially designed'' that is as 
clear and objective as possible is vital to the Administration's ECR 
Initiative. Many of the controls in the CCL use the term. Most of the 
new ``600 series'' ECCNs that have been proposed to control items the 
President determines no longer warrant control under the ITAR pursuant 
to AECA section 38(f) use the term. Several of the USML categories the 
State Department proposes to revise use the term as well.
    The State Department has decided to revise the USML to make it more 
``positive.'' A ``positive'' list uses more objective parameters to 
describe the items controlled. As described in the ANPR referenced in 
the summary of this rule, BIS plans to continue the process of revising 
the CCL so that it is more ``positive'' as well.
    BIS cannot, however, immediately remove all references to the term 
in the CCL and replace them with lists of specific items that warrant 
control because the lists of items controlled by the multilateral 
export control regimes rely on the term extensively. Most of the CCL is 
based on and implements these regime lists. Moreover, BIS has not 
developed lists of which specific items would be ``specially 
designed.'' Such an

[[Page 36410]]

effort would take many years to complete and would require BIS to 
prepare and submit proposals to the regimes and then receive approval 
of those proposals to change the relevant control text.
    In addition, the new ``600 series'' ECCNs that have been proposed 
to control items that the President determines no longer warrant 
control on the USML must use a catch-all ``specially designed'' term to 
avoid inadvertently de-controlling items other than common, single 
unassembled parts that are now ITAR-controlled as ``specifically 
designed, modified or configured'' for a military application. As the 
State Department has described in its previous ANPR and proposed rules, 
much of the ITAR now relies upon catch-all controls. For example, the 
control for military electronic components, parts, components, 
accessories, and associated equipment is in USML Category XI(c), which 
controls ``[c]omponents, parts, accessories, attachments, and 
associated equipment specifically designed or modified for use with 
equipment in paragraphs (a) and (b) of this category, except for such 
items as are in normal commercial use.'' No other detail is provided. 
USML (22 CFR Part 121) Category XI(a) similarly uses a broad catch-all 
control phrase to control ``[e]lectronic equipment not included in 
Category XII of the [USML] which is specifically designed, modified or 
configured for military applications.'' The examples provided in the 
rule are not an exhaustive list of controlled items. USML Category 
VIII(h) similarly controls all ``[c]omponents, parts, accessories, 
attachments and associated equipment (including ground support 
equipment) specifically designed or modified for the articles in 
paragraphs (a) through (d) of [Category VIII], excluding aircraft tires 
and propellers used with reciprocating engines,'' other than the parts 
and components that are standard equipment in civil aircraft as 
described in the ``Note'' to USML Category VIII. Similarly, USML 
Category XII(e) controls ``[c]omponents, parts, accessories, 
attachments and associated equipment specifically designed or modified 
for the [fire control, range finding, optical, night vision and other 
articles enumerated in] paragraphs (a) through (d) of this category, 
except for such items as are in normal commercial use.''
    The ``specially designed'' definition proposed here would capture 
the items currently captured under the ITAR ``specifically designed, 
modified or configured'' for a military application catch-all. BIS 
understands that the issues associated with catch-all control text 
would largely be transferred from one set of regulations to another. 
However, the Administration believes that industry and government would 
benefit from adopting this new definition because doing so would 
confine the term's use to a single set of regulations for a large 
volume of parts, components, and other items that do not warrant the 
worldwide and collateral controls of the ITAR. Moreover, this action 
would objectively define the catch-all term ``specially designed'' for 
such items, consistently apply the ``normal commercial use'' carve-outs 
described above, and also implement the statement of policy in ITAR 
section 120.3, consistent with the AECA. Under that policy, the ITAR, 
and by implication, the new ``600 series'' ECCNs, should not control 
items that (a) have predominant civil applications and performance 
equivalents to those used for civil applications and (b) do not have 
significant military or intelligence applicability such that control 
under the ITAR (or a new ``600 series'' ECCN) is warranted.
    This proposed definition would also provide the public with an as 
objective as possible basis for determining whether any other item on 
the CCL is ``specially designed,'' thus responding to a common industry 
suggestion for improving the CCL. In addition, the proposed definition 
responds to a common industry request to clarify that ``specially 
designed'' does not mean merely ``capable of use in'' or ``capable of 
use for'' another item. For example, non-application specific general 
purpose integrated circuits that are not designed for a particular 
application would not be ``specially designed'' items, even if they are 
used in controlled end items. Rather, the extent of the controls on 
such circuits would be described by the technical and other parameters 
in Category 3 of the CCL.
    Although BIS does not propose to remove references to ``specially 
designed'' that are part of multilateral control texts, it does have 
the discretion to define the term so long as the definition is not 
inconsistent with how the regimes define the term. The Missile 
Technology Control Regime (MTCR) is the only one of the four 
multilateral export control regimes to define the term. BIS believes 
that the proposed definition is not inconsistent with the MTCR 
definition, which is in EAR Sec.  772.1. BIS asks the public to comment 
in particular on whether this proposed definition would result in 
specific items that are not now controlled for Missile Technology (MT) 
reasons on the CCL to become controlled for MT reasons. We also ask for 
public comments on whether this definition would remove from control 
items that are now controlled for MT reasons on the CCL as a result of 
the application of the MTCR definition. Additionally, as in the July 15 
proposed rule, BIS asks the public to test this proposed definition to 
determine its ease of use, whether it meets the nine objectives 
identified for the term, and how it corresponds to what the public 
considers ``specially designed'' items.

Objectives for the ``Specially Designed'' Definition

    The July 15 proposed rule included nine objectives for the revised 
``specially designed'' definition. These objectives have not changed. 
The U.S. Government is committed to adopting a ``specially designed'' 
definition under the EAR and ITAR that would achieve these objectives. 
The nine objectives are to:
    (i) Preclude multiple or overlapping controls of similar items 
within and across the two control lists;
    (ii) Be easily understood and applied by exporters, prosecutors, 
juries, and the U.S. Government--e.g., by using objective, knowable, 
and clear requirements that do not rely upon a need to investigate and 
divine the intentions of the original designer of a part or the 
predominant market applications for such items;
    (iii) Be consistent with definitions used by the multilateral 
export control regimes;
    (iv) Not include any item specifically enumerated on either the 
USML or the CCL and, in order to avoid a definitional loop, do not use 
``specially designed'' as a control criterion;
    (v) Be capable of excluding from control simple or multi-use parts 
such as springs, bolts, and rivets, and other types of items the U.S. 
Government determines do not warrant significant export controls;
    (vi) Apply to both descriptions of end items that are ``specially 
designed'' to have particular characteristics and to parts and 
components that were ``specially designed'' for particular end items;
    (vii) Apply to materials and software because they are ``specially 
designed'' to have a particular characteristic or for a particular type 
of end item;
    (viii) Not increase the current control level to ``600 series'' 
control or other higher end controls of items (i.e., not move items 
currently subject to a lower control status to a higher level control 
status), particularly current EAR99 items, which are now controlled at 
lower levels; and

[[Page 36411]]

    (ix) Not, merely as a result of the definition, cause historically 
EAR-controlled items to become ITAR controlled.
    BIS believes that this proposed definition, and its counterpart 
published by the State Department, achieves these nine objectives. 
However, we invite public comments and ideas for how to define the term 
to meet or exceed all these objectives, and to provide additional 
objectives for such a term.
    BIS received many responses to the proposed ``specially designed'' 
definition in the July 15 proposed rule. The comments, along with the 
additional review of this issue the U.S. Government conducted in 
conjunction with BIS's Technical Advisory Committees (TACs) and State's 
Defense Trade Advisory Group (DTAG), identified additional changes 
necessary to achieve the nine objectives for ``specially designed.'' 
This rule proposes a revised definition of ``specially designed'' to 
allow this term to play the key role envisioned for it under the ECR 
Initiative.
    Similar to the July 15 proposed definition, this proposed 
definition adopts a ``catch and release'' approach. Paragraph (a) of 
the definition contains broad bases for items to be ``specially 
designed''--the ``catch''--and paragraph (b) contains various 
exceptions to an item's being ``specially designed''--the ``release.'' 
BIS believes that this structure creates an objective and common 
definition for both the EAR and ITAR, which nonetheless can be tailored 
and refined over time as necessary. This definition also simultaneously 
meets the nine objectives defined above while, with respect to the 
``600 series'' items, also remains consistent with the policy standards 
set out in ITAR section 120.3 and the carve-outs in various USML 
categories that do not control items ``in normal commercial use.'' BIS 
believes that this approach more readily lends itself to analysis in a 
decision tree format, i.e., with a series of ``yes'' and ``no'' 
questions leading to a conclusion about whether an item is ``specially 
designed.'' BIS further believes that this format will contribute to a 
more orderly and efficient determination about whether an item is 
``specially designed.'' This change would, then, eventually facilitate 
enhanced public understanding of the definition of the term.

Summary of Public Comments on ``Specially Designed''

    Generally, public comments on the July 15 proposed rule supported 
the overall ECR Initiative and the proposed rule. In particular, 
commenters supported creating the ``600 series,'' which most commenters 
characterized as a sensible approach to addressing a fairly complicated 
problem. However, most commenters expressed concerns about the proposed 
``specially designed'' definition, along with transition-related 
concerns that are being addressed in a separate proposed rule to be 
published in the Federal Register. For example, commenters felt that 
the new definition was difficult to understand and would capture items 
that should not be considered ``specially designed.'' The comments are 
discussed in greater detail below in regards to the specific concerns 
with the July 15 proposed rule. The comments can be reviewed at: https://efoia.bis.doc.gov/pubcomm/records-of-comments/record_of_comments_usml.pdf.
    BIS took into account the comments from the July 15 proposed rule 
when developing the revised definition of ``specially designed'' 
proposed here. BIS intends this revised definition to be evaluated on 
its own merits, and the public need not review the July 15 proposed 
rule to understand this action. Once the public comments on this rule 
are reviewed and responded to, BIS intends to publish a final 
``specially designed'' definition.
    However, a general summary of the July 15 definition and the 
responses to it provides context for this proposed definition. In the 
July 15 proposed rule, BIS suggested defining ``specially designed'' in 
four paragraphs. Paragraph (a) would have identified what items would 
be ``specially designed'' except for ``parts'' and ``components.'' 
Paragraph (b) would have identified which ``parts'' and ``components'' 
would be ``specially designed.'' The paragraph (c) and (d) exclusion 
paragraphs would have identified certain items that would not be 
``specially designed.'' Most commenters supported paragraph (a) of the 
proposed definition. The majority of commenters suggested also adopting 
paragraph (a) for ``parts'' and ``components.'' Additionally, the 
majority of comments received indicated the public could understand and 
apply the paragraph (a) criteria, so BIS decided to include the same 
type of criteria as part of the proposed paragraph (a)(1) criteria 
included in this rule's proposed definition of ``specially designed.'' 
However, a small number of commenters indicated that the proposed 
paragraph (a) could result in confusion over whether an item was 
``specially designed,'' because the definition still relied on design 
intent. This proposed ``specially designed'' definition addresses that 
concern by adopting a single paragraph (a) for determining what items 
are ``specially designed.'' Under the proposed structure, an item 
meeting one of the three listed criteria would be considered 
``specially designed.''
    Most of the concerns with the definition related to paragraphs (b), 
(c), and (d), which defined non-specific ``parts'' or ``components'' 
could be considered ``specially designed.'' Of the commenters 
criticizing these paragraphs, most believed the exclusions in 
paragraphs (c) and (d) were difficult to understand and, once 
understood, would have resulted in items that they had not historically 
considered to be ``specially designed'' to become controlled as a 
result of the definition. In particular, the definition would have 
caused non-specific ``parts'' and ``components'' designed for 
controlled and uncontrolled applications or no particular application 
to become ``specially designed,'' and therefore subject to control. 
Thus, the definition would have resulted in some items' control status 
being undefined until the items first were used in a controlled, or 
uncontrolled item. BIS believes the paragraphs (b)(4) and (b)(5) 
proposed here address those concerns.

I. Proposed Adoption of a Revised ``Specially Designed'' Definition

A. Discussion of Each Element of the Proposed Definition and Its Notes

    The definition begins with introductory text to provide guidance on 
the proper steps for analyzing the definiton. This brief introductory 
text would assist the public in understanding that they must follow the 
sequential analysis set forth below. Specifically, the public is to 
begin with paragraph (a)(1) and proceed through each subsequent 
paragraph. This introductory text would also specify that commodities 
subject to the EAR described in any paragraph (b) subparagraph are not 
``specially designed'' under this definition.
1. Paragraph (a) Identifies ``Specially Designed'' Items
    Paragraph (a) begins with the phrase ``Except for items described 
in (b), an `item' is `specially designed' if, as a result of 
`development,' it [is within the scope of any one of three 
subparagraphs discussed below].'' It is the beginning of the ``catch'' 
in the ``catch and release'' structure of the definition. With respect 
to ECCNs containing the term ``specially designed,'' an item is 
``caught'' as ``specially designed'' if any of the three

[[Page 36412]]

elements of paragraph (a) apply and none of the elements of paragraph 
(b) apply. The word ``items'' refers to how the term is defined in the 
EAR, i.e., any ``commodity,'' ``software,'' or ``technology.''
    Paragraph (a) is limited by the phrase ``if, as a result of 
`development.''' The EAR defines ``development'' as ``related to all 
stages prior to serial production, such as: design, design research, 
design analyses, design concepts, assembly and testing of prototypes, 
pilot production schemes, design data, process of transforming design 
data into a product, configuration design, integration design, 
layouts.'' Determining whether an item is ``a result of development'' 
is a threshold question for whether an item is ``specially designed;'' 
an item is considered to be ``specially designed'' under this paragraph 
only if someone engaged in any of these ``development'' activities with 
respect to that item.
    Thus, there are three questions an exporter, reexporter or 
transferor must ask to determine if an item is within the scope of 
paragraph (a):
    1. Does the item, as a result of ``development,'' have properties 
``peculiarly responsible for'' achieving or exceeding the performance 
levels, characteristics, or functions described in the relevant ECCN or 
USML paragraph?
    2. If the item is a part or component, is it, as a result of 
``development,'' necessary for an enumerated or referenced commodity or 
defense article to function as designed?
    3. If the item is an accessory or attachment, is it, as a result of 
``development,'' used with an enumerated or referenced commodity or 
defense article to enhance its usefulness or effectiveness?
    If the answer to all three questions is ``no,'' then the item is 
not ``specially designed'' and no further analysis of paragraph (b) is 
necessary. If the answer to any one of the questions is ``yes,'' then 
the exporter, reexporter or transferor must determine whether any one 
of the five paragraph (b) exclusions applies. If any one of the five 
paragraph (b) exclusions apply, then the item is not ``specially 
designed.'' If none do, then the item is ``specially designed.''
    Paragraph (a)(1). Paragraph (a)(1) would capture an item if, as a 
result of ``development,'' it ``has properties peculiarly responsible 
for achieving or exceeding the performance levels, characteristics, or 
functions described in the relevant ECCN or U.S. Munitions List (USML) 
paragraph.'' This criterion is essentially the same as the one that was 
proposed in the July 15 rule. Based on the comments, the public found 
this part of the definition clear. The positive response was, perhaps, 
due to the fact that it is taken from the EAR's current definition of 
``required'' at Sec.  772.1. Although that definition, by its terms, 
applies only to technology and software, BIS believes that the 
principle of that definition--which is that items are not controlled 
merely because they are somehow capable of use with a controlled item--
equally applies to commodities for purposes of the proposed definition. 
Therefore, even if something is capable of being used with a controlled 
item, it is not captured by this part of paragraph (a) unless someone 
did something during the item's development so that it would achieve or 
exceed the performance levels, characteristics, or functions described 
in a referenced ECCN or USML paragraph.

    Example for paragraph (a)(1): ECCN 1A007 controls equipment and 
devices specially designed to initiate charges and devices 
containing energetic materials, by electrical means. If a piece of 
equipment or device, as a result of ``development,'' has properties 
peculiarly responsible for initiating energetic materials by 
electrical means, such equipment or device would be ``specially 
designed'' under paragraph (a)(1) of the proposed definition. For 
example, if the equipment was designed to communicate electronically 
with devices containing energetic materials, such as sending a 
detonation signal and having safety features to ensure other 
electronic equipment could not detonate the device containing the 
energetic material, such equipment or device would be ``specially 
designed'' under this proposal.

    Note to paragraph (a)(1).  This rule would add a note to 
paragraph (a)(1) to provide an example of an item that would, as a 
result of ``development,'' meet the paragraph (a)(1) criterion. This 
note would also include an example of an item that would not, as a 
result of ``development,'' meeting the paragraph (a)(1) criterion. 
In addition to providing two concrete examples under ECCN 2B007, 
this note would also specify that similar to the definition of 
``required'' the peculiarly responsible for criterion in paragraph 
(a)(1) would not be limited to exclusive use.

    Paragraph (a)(2). Paragraph (a) would capture a part or component 
if, as a result of ``development,'' it ``is necessary for an enumerated 
or referenced commodity or defense article to function as designed.'' 
This element is similar to (a)(1), but it must be listed separately 
because not all descriptions of commodities on the USML and the CCL 
include performance levels, characteristics, or functions as a basis 
for control. Paragraph (a)(2) would capture parts and components that 
are necessary for another item on the CCL or the USML to function ``as 
designed.'' If an item would function ``as designed'' without the part 
or component at issue, then that part or component is not captured by 
paragraph (a)(2).
    BIS has deliberately separated the terms `enumerated' and 
`referenced' in paragraph (a)(2), which are unique to the EAR's 
definition of the term. As described below, an `enumerated' item is one 
that is controlled on the USML or the CCL (except for AT-only items) 
for reasons other than being ``specially designed.'' The CCL, however, 
contains notes that exclude from control parts and components 
``specially designed'' for uncontrolled items. Such uncontrolled items 
are merely `referenced' but not `enumerated.' Note 2 to ECCN 1A002 
provides an example of items excluded from control based on being 
``specially designed'' for a referenced item. Under Note 2 to 1A002, if 
the semi-finished item was ``specially designed'' for a referenced 
sporting goods item, such as a golf club designated as EAR99, such a 
semi-finished item is excluded from 1A002.

    Example for paragraph (a)(2): ECCN 7A001.b controls angular or 
rotational accelerometers specified to function at linear 
acceleration levels exceeding 100 g and, according to the heading, 
specially designed components therefor. The heading of 7A001 is an 
example of a catch-all control for ``specially designed'' components 
for the accelerometers subject to control in 7A001.b. In this case, 
if a component, as a result of ``development,'' is necessary for an 
accelerometer enumerated in 7A001.b to function as designed, such 
component would be considered ``specially designed'' as a result of 
paragraph (a)(2), unless the component was excluded from ``specially 
designed'' on the basis of paragraph (b) of the proposed definition.

    Paragraph (a)(3). Paragraph (a)(3) would capture an accessory or 
attachment if, as a result of ``development,'' it ``is used with an 
enumerated or referenced commodity or defense article to enhance its 
usefulness or effectiveness.'' BIS takes this phrase from the ITAR's 
current and the EAR's proposed definition of ``accessory'' and 
``attachment.''

    Example for paragraph (a)(3): ECCN 3B001 controls specific types 
of equipment for manufacturing semiconductor devices or materials, 
and specially designed components and accessories therefor. ECCN 
3B001.i controls imprint lithography templates designed for 
integrated circuits by 3A001. If, as a result of ``development,'' an 
accessory is used with equipment enumerated in 3B001.i to enhance 
its usefulness or effectiveness, such an accessory would be 
``specially designed'' under the catch-all control for ``specially 
designed'' accessory included in the heading of 3B001, unless the 
accessory was excluded from ``specially designed'' on the basis of 
paragraph (b) of the proposed definition.

[[Page 36413]]

2. Paragraph (b) Identifies Exclusions From ``Specially Designed''
    BIS proposes adopting a simplified, single paragraph structure for 
excluding certain parts, components, accessories and attachments from 
the ``specially designed'' definition. Under this proposal, any 
``part,'' ``component,'' ``accessory,'' or ``attachment'' described in 
an exclusion paragraph under (b)(1), (b)(2), (b)(3), (b)(4) or (b)(5), 
would not be controlled by a `catch-all' provision of an ECCN.
    The five exclusions under paragraph (b) would refine the set of 
``parts,'' ``components,'' ``accessories'' and ``attachments'' that 
would be subject to the `catch-all' controls on the CCL. In this way, 
paragraph (a) and (b) are inextricably linked and together identify the 
``parts,'' ``components,'' ``accessories,'' and ``attachments'' that 
are ``specially designed'' for purposes of the `catch-all' controls on 
the CCL.
    Paragraph (a), described above, would create objective tests for 
what ``items,'' as a result of ``development,'' would be ``specially 
designed'' based on the criteria identified in (a)(1), (a)(2) or 
(a)(3). Paragraph (b) would create objective tests for what ``parts,'' 
``components,'' ``accessories,'' and ``attachments'' are excluded from 
``specially designed'' under the exclusion criteria identified in 
(b)(1), (b)(2), (b)(3), (b)(4) or (b)(5). Together, the objective 
criteria identified in paragraph (a) and the objective exclusion 
criteria identified in paragraph (b) allow the proposed ``specially 
designed'' definition to achieve the nine objectives identified above 
for the definition.
    Paragraph (b) codifies the principle in ITAR section 120.3 that, in 
general, a commodity should not be ITAR controlled if it has a 
predominant civil application or has performance equivalent (defined by 
form, fit, and function) to articles used for civil applications. If 
such an article nonetheless warrants control under the ITAR because it 
provides the U.S. with a critical military or intelligence advantage or 
for another reason, then it is or should be enumerated on the USML, as 
described in the ``bright line,'' ``positive list'' objectives listed 
in the Department of State's December 10, 2010 Federal Register notice, 
Revisions to the United States Munitions List (75 FR 76935).
    Another purpose of paragraph (b) is to apply the ITAR concept of 
``in normal commercial use'' equally and consistently to all non-
specific, catch-all controls with respect to the ``600 series.'' Under 
the current USML, this concept of exclusions for certain items ``in 
normal commercial use'' is variously worded in multiple catch-all 
paragraphs in the current USML. For example, Category XI(c), by its 
terms, does not control electronic components, parts, accessories, 
attachments or associated equipment specifically designed or modified 
for military electronics if they are ``in normal commercial use.'' 
Similarly, Category XII(e) does not control components, parts, 
accessories, attachments or associated equipment specifically designed 
or modified for fire control systems, military lasers, ITAR-controlled 
night vision equipment, military inertial navigation equipment, and 
other items controlled by Category XII(a) through (d) that are ``in 
normal commercial use.'' Categories XVI(b) and XIV(n)(2) have similar 
carve-outs for items in normal commercial use. In addition, Category 
VIII(h), by virtue of a note, does not control parts, components, 
accessories, or attachments specifically designed or modified for 
military aircraft or engines if they are, among other things, standard 
equipment in certain civil aircraft.
    These five exclusions under paragraph (b) play an important role in 
the proposed ``specially designed'' definition and are described below 
in greater detail. The description below includes examples of parts, 
components, accessories and attachments that would be excluded from 
``specially designed'' under each of the respective paragraph (b) 
exclusions.
    Exclusion paragraph (b)(1). Paragraph (b)(1) would exclude any 
``part,'' ``component,'' ``accessory,'' or ``attachment'' from a 
`catch-all' provision of an ECCN if the ``part,'' ``component,'' 
``accessory'' or ``attachment'' is enumerated in a USML paragraph. This 
exclusion also addresses an important concept regarding how the USML 
and CCL relate to each other, and the correct order in which the public 
should review the two control lists. When determining an item's proper 
jurisdiction and classification, before reviewing the CCL, a person 
must examine the ITAR to determine that the item is not subject to the 
ITAR, or to the exclusive jurisdiction of any of the other departments 
or agencies of the U.S. Government identified in Sec.  734.3(b)(1)(i) 
of the EAR.
    Paragraph (b)(1) would clarify that any ``part,'' ``component,'' 
``accessory,'' or ``attachment'' enumerated on the USML, is excluded 
from the definition of ``specially designed,'' because it would remain 
subject to the ITAR and would not be controlled under a catch-all 
provision of an ECCN. Under the current USML, most of its categories 
end with a broad catch-all control on ``parts,'' ``components,'' 
``accessories,'' and ``attachments'' that were specifically designed or 
modified for the particular USML category. Under the USML categories 
being proposed under the USML-to-CCL process, in most cases these broad 
catch-all controls would no longer be used. Instead, these items would 
be enumerated on the revised USML's ``positive'' control list. This 
change will make the paragraph (b)(1) exclusion more useful by more 
clearly defining the line between control under the USML and CCL. The 
items in former `catch-all' controls found at the end of most of the 
USML categories would be added to the CCL under the ``600 series'' .x 
paragraphs that are being created under the USML-to-CCL process and 
would include ``specially designed'' criteria.

    Example of a ``component'' excluded under paragraph (b)(1): On 
December 6, 2011, the Department of State proposed a rule, Amendment 
to the International Traffic in Arms Regulations: Revision of U.S. 
Munitions List Category VII (76 FR 76100) that, among other things, 
would control ground vehicle components, parts, accessories, 
attachments, and associated equipment identified in paragraphs 
(g)(1)-(14) of the rule. Under proposed paragraph (g)(5), reactive 
armor parts and components would be controlled under USML Category 
VII. If a company uses reactive armor components enumerated on the 
USML in producing the EAR item, such a component would not be 
captured under a `catch-all' control on the CCL, because the 
reactive armor components would be enumerated on the USML and would 
therefore be subject to the ITAR, not the EAR. Paragraph (b)(1) of 
this proposed rule would make this existing policy explicit by 
excluding such USML enumerated ``parts,'' ``components,'' 
``accessories,'' or ``attachments'' from the definition of 
``specially designed.''

    Exclusion paragraph (b)(2). Paragraph (b)(2) would exclude any 
single unassembled ``part'' that is of a type commonly used in multiple 
types of commodities not enumerated on the USML or the CCL. The 
paragraph (b)(2) exclusion would include an illustrative list of the 
types of ``parts'' excluded under this paragraph. These ``parts'' 
include threaded fasteners (e.g., screws, bolts, nuts, nut plates, 
studs, inserts), other fasteners (e.g., clips, rivets, pins), basic 
hardware (e.g., washers, spacers, insulators, grommets, bushings, 
springs), wire, and solder.
    In preparing this proposed rule, BIS evaluated the merits of 
expanding the scope of this exclusion to cover minor components, but 
ultimately determined that the expansion would not be

[[Page 36414]]

warranted, particularly in light of the other exclusions and the 
proposed criterion in paragraph (a)(2). However, BIS determined it 
should clarify the illustrative list of single unassembled ``parts'' 
that would be excluded from the definition of ``specially designed'' on 
the basis of the exclusion paragraph (b)(2).
    Paragraph (b)(2) would adopt the phrase ``used in multiple types of 
commodities not enumerated on the CCL or the USML'' instead of the 
phrase ``used in multiple types of civil items.'' BIS believes the 
former phrase is more specific than the latter, and would clarify this 
exclusion. BIS also proposes to change the illustrative list of single 
unassembled ``parts'' that may be excluded from ``specially designed'' 
on the basis of paragraph (b)(2). BIS further proposes using the term 
``basic hardware'' instead of the term ``common hardware,'' and to 
include the term ``springs'' in the parenthetical examples of basic 
hardware. Finally, BIS proposes to add the term ``solder'' as another 
type of ``part'' that would be within the scope of this exclusion 
paragraph (b)(2).

    Example of a ``part'' excluded under paragraph (b)(2): ECCN 
8A992 controls vessels, marine systems or equipment, not controlled 
by 8A001, 8A002 or 8A018, and specially designed parts therefor. A 
company developing a new vessel that would be controlled under 8A992 
needs to modify nut plates for use in it. The modified nut plate is 
an example of a single unassembled ``part'' that meets the necessary 
criteria in paragraph (a)(2). However, if the modified nut plate is 
of a type commonly used in multiple types of commodities not 
enumerated on the USML or the CCL, it would not be ``specially 
designed'' on the basis of paragraph (b)(2). Although, as a result 
of ``development'' the ``part'' may have some unique characteristic, 
such as being a cut-to-length nut plate, substantively the ``part'' 
is common to multiple types of commodities not enumerated on the 
USML or the CCL. For example, a similar type of nut plate may also 
be used for assembling self-assembled furniture designated as EAR99.

    Exclusion paragraph (b)(3). Under paragraph (b)(3), a ``part,'' 
``component,'' ``accessory,'' or ``attachment'' that would otherwise be 
controlled by a `catch-all' provision of an ECCN would not be 
controlled if it has the same performance capabilities as a ``part,'' 
``component,'' ``accessory,'' or ``attachment'' used in or with a 
commodity that (i) is or was in ``production'' (i.e., not in 
``development'') and (ii) is either not enumerated on the CCL or USML, 
or is enumerated in an ECCN controlled only for Anti-Terrorism (AT) 
reasons. In the context of paragraph (b)(3), an item in an ECCN 
controlled only for AT reasons is considered enumerated provided it is 
not controlled in a `catch-all' paragraph.
    Proposed paragraph (b)(3) would use the phrase ``performance 
capabilities'' instead of the term ``function,'' which was in the July 
15 proposal. Several comments to the July 15 proposed rule suggested 
using this alternative term because performance capabilities is a well 
understood concept under the EAR, and is easier to understand than 
function. BIS agrees.
    In addition, paragraph (b)(3)(i) would simplify the exclusion by 
removing the term ``serial production,'' and substituting the EAR-
defined term ``production,'' along with a parenthetical explanation 
that if an item is in ``production'' it is no longer in 
``development.'' Some of the comments in response to the July 15 
proposed rule did not see a sufficient distinction between serial 
production and ``production'' to warrant adding a new EAR definition 
and creating another concept the public would need to understand to 
apply the ``specially designed'' definition. After further 
consideration, BIS agrees that this suggested change would clarify the 
intent of exclusion paragraph (b)(3) and further simplify the 
definition.
    Paragraph (b)(3)(ii) would expand the scope of what was included in 
the July 15 proposed rule with the second criterion extending to ECCNs 
controlled only for Anti-Terrorism (AT) reasons. The July 15 exclusion 
was limited to EAR99 items. BIS made this change because such a 
``part,'' ``component,'' accessory'' or ``attachment'' crosses over 
into broader commercial applicability and thus does not warrant being 
treated as ``specially designed.'' This crossing over into broader 
commercial applicability occurs when a ``part,'' ``component,'' 
``accessory,'' or ``attachment'' has the same form, fit and performance 
capabilities as a ``part,'' ``component,'' ``accessory,'' or 
``attachment'' used in or with an item that is either not enumerated on 
the CCL or USML or is only controlled for AT reasons. If such an item 
nonetheless warranted control because of certain capabilities or 
potential uses of concern for national security, foreign policy, or 
other reasons, then the item would be enumerated on either the USML or 
the CCL.

    Note to paragraph (b)(3). This proposed rule would add a note to 
clarify the applicability of paragraph (b)(3). This note would 
specify that commodities in ``production'' that are subsequently 
subject to ``development'' activities, such as those pertaining to 
quality improvements, cost reductions, or feature enhancements, 
remain in ``production.'' However, any new models or versions of 
such commodities developed from such efforts that change the basic 
performance or capability of the commodity are in ``development'' 
until and unless they enter into ``production.'' This proposed rule 
would use the term ``production'' instead of ``serial production'' 
to conform to the use of ``production'' in paragraph (b)(3).

    This Note to paragraph (b)(3) further clarifies the relationship 
between ``production'' and ``development'' in the context of this 
exclusion. When an item enters ``production,'' there may still be some 
peripheral ``development'' activities for the next generation of the 
item in which the ``part,'' ``component,'' ``accessory,'' or 
``attachment'' is used. This note would provide guidance on when the 
exclusion would no longer apply and when a separate determination would 
need to be made regarding whether a particular ``part,'' ``component,'' 
``accessory,'' or ``attachment'' would no longer be excluded.

    Example of excluded component under paragraph (b)(3): A company 
manufactures a fire truck designated as EAR99. The manufacturer uses 
a radiator originally designed in the 1980s for use in large 
military transport vehicles. The cost of the original 1980s radiator 
has now dropped significantly, so the company incorporates that same 
radiator into a fire truck that went into ``production'' in 2010. 
Under this example, although the radiator is not a ``specially 
designed'' ``component'' because it is necessary for large military 
transport vehicles to function as designed, it might nonetheless be 
caught by the criteria in paragraph (a)(2). However, because the 
``component'' with the same form, fit and performance capabilities 
is used in the ``production'' of an EAR99 fire truck, it would be 
excluded from the ``specially designed'' definition by paragraph 
(b)(3). If, for some reason, such radiators warranted control for 
national security, foreign policy, or other reasons, then it would 
be enumerated on either the USML or the CCL. It would thus be 
controlled regardless of its use in a civil or military end item.

    Exclusion paragraph (b)(4) and (b)(5). This proposed rule would add 
paragraphs (b)(4) and (b)(5) to address aspects of unintended 
overreaching identified in the definition of ``specially designed'' in 
the July 15 proposed rule. The comments identified one unintended 
result of eliminating design intent from the criteria used to identify 
a ``specially designed'' ``component'' or ``part'' is that the first 
use of a part or component could result in a part or component being 
considered ``specially designed'' under the rule. This result could 
occur even if the ``part'' or ``component'' had been originally 
developed for a general purpose that was not specific to the 
`enumerated' item for which the ``part'' or

[[Page 36415]]

``component'' would have been ``specially designed'' under the July 15 
definition.
    To address this unintended overreach, BIS decided that some element 
of design intent should be included in the proposed ``specially 
designed'' definition. Through paragraph (b)(4), this rule proposes 
excluding ``parts,'' ``components,'' ``accessories'' and 
``attachments'' if they were or are being developed with a reasonable 
expectation of (i) use in or with commodities described on the CCL and 
commodities not enumerated on the CCL or the USML, or (ii) use in or 
with commodities not enumerated on the CCL or the USML. As discussed 
below, through paragraph (b)(5), this rule proposes excluding 
``parts,'' ``components,'' ``accessories,'' and ``attachments'' if they 
were or are being developed for no particular application.
    Although these exclusion concepts under paragraphs (b)(4) and 
(b)(5) are new to the proposed definition of ``specially designed,'' 
they are little more than a restatement of BIS's application of the 
term ``specially designed'' now. BIS had not included these two 
exclusions in the July 15 proposed rule in an effort to avoid overtly 
design-intent based aspects of the definition. The public comments, 
however, as noted above made it clear that without such carve-outs 
proposed in this rule under (b)(4) and (b)(5), the EAR would likely 
over-control items based on their first uses. Thus, the proposed 
paragraphs (b)(4) and (b)(5) are intended to allow people who know or 
who can determine the design intent of their ``part,'' ``component,'' 
``accessory,'' or ``attachment'' to exclude it from the definition of 
``specially designed'' when it was or is being developed for the items 
identified in (b)(4)(i), or (ii), or (b)(5). These exclusion paragraphs 
(b)(4) and (b)(5) would not create a burden to know the original design 
intent, but they would allow those who know the original design intent 
to exclude those ``parts,'' ``components,'' ``accessories,'' or 
``attachments'' from being controlled as ``specially designed.'' This 
change is not a departure from the current BIS position on the subject. 
It is, however, a specific, precise written articulation of the 
practice that would become part of the EAR.

    Example of a ``component'' excluded under paragraph (b)(4)(i):  
An example of a component that would not be ``specially designed'' 
and excluded under (b)(4)(i) is one that was or is being developed 
to be interchangeable between a military vehicle enumerated in ECCN 
0A606.a and also a vehicle that is not described on the USML or the 
CCL, such as an EAR99 civilian vehicle. One example would be a 
component that a company designs that is used in both military 
vehicles as well as in firetrucks. Another example of a component 
that would not be ``specially designed'' as a result of (b)(4)(i) is 
one that was or is being developed to be interchangeable between a 
military aircraft enumerated in ECCN 9A610.a and also a civilian 
aircraft that is controlled for AT-only reasons in ECCN 9A991.b, 
such as an aircraft actuator developed for use in military aircraft 
in ECCN 9A610.a and civil transport aircraft in 9A991.b.

    Even though a component may be used interchangeably and meet the 
paragraph (b)(4) exclusion and thus not be ``specially designed,'' it 
does not necessarily mean that the component is exempt from export 
controls. The component may, for example, be positively identified on 
the USML and ITAR controlled, regardless of whether it is common to a 
vehicle or aircraft not enumerated on the CCL. The jurisdictional and 
classification status of any particular component must be determined by 
reviewing the full scope of the control lists to determine the 
appropriate jurisdiction and classification. Paragraph (b)(4)(i) merely 
states that such a component would not be within the scope of a `catch-
all' paragraph of an ECCN (i.e., would not be ``specially designed)'' 
based on its commonality with components not identified on the CCL or 
controlled for AT-only reasons.

    Example of a ``part'' excluded under paragraph (b)(4)(ii): An 
example of a ``part'' that would not be ``specially designed'' as a 
result of (b)(4)(ii) is one that was or is being developed for use 
in or with commodities not enumerated on the CCL or the USML, such 
as a ``part'' being developed for use in a mining truck designated 
as EAR99. Again, the application of (b)(4)(ii) does not necessarily 
mean that such a part is uncontrolled. As a result of its 
characteristics or capabilities it may be positively listed on the 
USML or CCL and, as such, controlled by the applicable provisions. 
The jurisdictional and classification status of any particular 
component must be determined by reviewing the full scope of the 
control lists to determine the appropriate jurisdiction and 
classification. Paragraph (b)(4)(ii) merely states that such a part 
would not be within the scope of a `catch-all' paragraph of an ECCN 
(i.e., would not be ``specially designed)'' based on its development 
for use in or with commodities not enumerated on the CCL or the 
USML.

    Exclusion paragraph (b)(5). As noted above, this rule would also 
add a paragraph (b)(5) to address another aspect of the unintended 
overreach identified in the definition of ``specially designed'' in the 
July 15 proposed rule. This paragraph (b)(5) exclusion is intended to 
address potential overreach that could occur even if the ``part'' or 
``component'' had been originally developed for a general purpose that 
was not specific to the `enumerated' item for which the ``part'' or 
``component'' would have been ``specially designed'' under the July 15 
definition. BIS would address this by excluding from ``specially 
designed'' on the basis of paragraph (b)(5) ``parts,'' ``components,'' 
``accessories'' and ``attachments'' if they were or are being developed 
with no reasonable expectation of use for a particular application.

    Example of a ``component'' excluded under paragraph (b)(5): An 
example of a component that would not be ``specially designed'' as a 
result of (b)(5) is one that was developed for general or multi-
purpose applications. For example, many catalog electronic 
components are designed as basic building blocks for other 
equipment, regardless of whether the equipment is military or 
civilian, controlled or uncontrolled. Again, application of (b)(5) 
does not necessarily mean that such a component is uncontrolled, and 
as result of its characteristics or capabilities it may be 
positively listed on the USML or CCL and, as such, controlled by the 
applicable provisions. The jurisdictional and classification status 
of any particular component must be determined by reviewing the full 
scope of the control lists to determine the appropriate jurisdiction 
and classification. Paragraph (b)(5) merely states that such a 
component would not be within the scope of a `catch-all' paragraph 
of an ECCN (i.e., would not be ``specially designed)'' based on its 
not having been designed for a particular application.


    Note to paragraph (b)(4) and (b)(5): This proposed rule would 
also add a note to paragraph (b)(4) and (b)(5) to specify for a 
commodity not to be ``specially designed'' on the basis of paragraph 
(b)(4) or (b)(5), documents contemporaneous with its 
``development,'' in their totality, must establish the elements of 
paragraph (b)(4) or (b)(5). The proposed note would also provide an 
illustrative list of documents that may be pointed to to demonstrate 
the applicability of the exclusions under (b)(4) or (b)(5). Such 
documents may include concept design information, marketing plans, 
declarations in patent applications, or contracts. Lastly, the note 
would specify that absent such documents, the ``commodity'' may not 
be determined to be excluded from the definition of ``specially 
design'' by virtue of paragraphs (b)(4) or (b)(5).


    Proposed paragraphs (b)(4) and (b)(5) would create an incentive for 
parties responsible for making jurisdictional and classification 
determinations to maintain such documents for the life of the product 
in order to be able to demonstrate without ambiguity that it was or was 
not ``specially designed'' for a controlled item or application. The

[[Page 36416]]

creation of such incentives would help national security by emphasizing 
the need for those responsible for making jurisdictional and 
classification self-determinations to do so in a reliable, consistent, 
documented way that is consistent with the relevant export control 
regulations. The creation of such incentives would also help make U.S. 
exporters more reliable and predictable because they would be able to 
make and demonstrate with more certainty determinations regarding 
whether a commodity is or is not controlled by virtue of a ``specially 
designed'' catch-all in the regulations.

    Note to paragraph (b)(5): This rule would also add another note 
to paragraph (b)(5) to specify that if one has ``knowledge'' that 
the commodity was or is being developed for a particular 
application, one cannot rely on paragraph (b)(5) to determine that a 
commodity was not ``specially designed.'' BIS would use the EAR 
defined term ``knowledge'' in this note to paragraph (b)(5) to 
establish a clear standard for when the commodity would not be 
eligible for being excluded from ``specially designed'' on the basis 
of paragraph (b)(5).


    Note 1: This proposed rule would also add a new Note 1 to define 
`enumerated' for purposes of the proposed ``specially designed'' 
definition. This note would read: `Enumerated' means any item (i) on 
either the USML or CCL not controlled in a `catch-all' paragraph and 
(ii) when on the CCL, controlled for more than AT-only reasons, 
except in the context of paragraph (b)(3), where an item in an ECCN 
controlled only for AT reasons is considered enumerated when it is 
not controlled in a `catch-all' paragraph.

    Examples of enumerated items: The law enforcement end items 
controlled in the heading of ECCN 0A978 are examples of enumerated 
commodities on the CCL. ECCN 0A978 specifies that it controls law 
enforcement striking weapons and includes six examples for the types 
of law enforcement striking weapons that are subject to control 
under 0A978. The fiber optic hull penetrators and connectors 
controlled in ECCN 8A002.c are additional examples of enumerated 
commodities on the CCL. The ECCN specifies the hull penetrators 
controlled are limited to fiber optic hull penetrators or 
connectors.

    Note 2: This proposed rule would also add a Note 2 to define 
`catch-all' for purposes of the proposed ``specially designed'' 
definition. This note would read as follows: A `catch-all' paragraph 
is one that does not refer to specific types of parts, components, 
accessories, or attachments but rather controls non-specific 
``parts,'' ``components,'' ``accessories,'' or ``attachments'' 
because they were ``specially designed'' for an enumerated item. BIS 
is aware that the term `catch-all' has also been used informally by 
the public to refer to the part 744 end-use and end-user controls 
that impose a license requirement on all items subject to the EAR. 
In preparing this proposed rule, BIS considered adding a new part 
772 definition to clarify the two different contexts under which the 
term `catch-all' would be used, but decided simply noting this in 
the preamble of this proposed rule would be sufficient.

    Examples of catch-all controls: The phrase ``and specially 
designed components therefor'' in the heading of ECCN 1A005 is an 
example of a catch-all control on the CCL; it reaches all components 
that have been ``specially designed'' for the body armor enumerated 
in 1A005. The phrase ``and specially designed components therefor'' 
used in ECCN 3A001.c is another example of a catch-all control on 
the CCL. That catch-all control reaches all components that have 
been ``specially designed'' for the acoustic wave devices enumerated 
in 3A001.c.
3. Guidance for ``Specially Designed'' in the Context of De-Control 
Notes
    Some ECCNs, such as 1A002, state that an item is not controlled if 
it is ``specially designed'' for a particular type of item, purpose, or 
application. As indicated by the introduction to paragraph (b) 
explained above, an item that would be ``specially designed'' under 
paragraph (a) and would not be controlled as a result of such a de-
control provision in an ECCN nonetheless remains ``specially designed'' 
and, thus, uncontrolled regardless of whether any aspect of paragraph 
(b) would apply to it. The basis for this conclusion is that paragraph 
(b) states that it only applies to items that ``would be controlled by 
a catch-all provision of an ECCN.''

II. Other Definition To Assist Public's Review of the ``Specially 
Designed'' definition

    This rule proposes to revise the definition of ``end item'' 
included in the July 15 proposed rule by proposing a definition that 
would more closely correspond with the ITAR definition of end item, 
although be EAR specific. BIS made this change because several 
commenters indicated that the July 15 definition, with the inclusion of 
the term `stand-alone,' would cause confusion over whether an item was 
an ``end item'' or a ``component.'' BIS determined the best and 
simplest approach would be to revise the definition to more closely 
correspond to the ``end item'' definition used in the ITAR. This rule 
proposes defining ``end item'' as follows:
    End item. This is an assembled commodity ready for its intended 
use. Only ammunition, fuel or other energy source is required to place 
it in an operating state. Examples of end items include ships, 
aircraft, firearms, and milling machines.
    This rule also proposes splitting the proposed definition of 
``accessories and attachments'' included in the July 15 proposed rule 
into separate but identical definitions for the terms ``accessories'' 
and ``attachments.'' As there will be locations in the EAR where either 
``accessories'' or ``attachments'' but not both will be used, this 
change would avoid any potential confusion as to whether the definition 
applies to the terms when used separately. While ``accessories'' and 
``attachments'' would have the same definitions, both would include a 
note at the end of each definition to indicate that the definition of 
``accessories'' and ``attachments'' are the same. This rule proposes 
defining ``accessories'' and ``attachments'' as follows:
    Accessories. These are associated items for any ``component,'' 
``end item,'' or ``system,'' and which are not necessary for their 
operation, but which enhance their usefulness or effectiveness. For 
example, for a riding lawnmower, accessories and attachments will 
include the bag to capture the cut grass, and a canopy to protect the 
operator from the sun and rain. For purposes of this definition, 
accessories and attachments are the same.
    Attachments. These are associated items for any ``component,'' 
``end item,'' or ``system,'' and which are not necessary for their 
operation, but which enhance their usefulness or effectiveness. For 
example, for a riding lawnmower, accessories and attachments will 
include the bag to capture the cut grass, and a canopy to protect the 
operator from the sun and rain. For purposes of this definition, 
attachments and accessories are the same.
    As with the proposed ``specially designed'' definition, BIS 
requests comments on the proposed definitions of ``end item,'' 
``accessories,'' and ``attachments.'' Any comments received on these 
three proposed definitions will be considered and addressed in the 
final rule adding these three definitions to the EAR.
    BIS does not propose here to re-define the terms ``part,'' and 
``component,'' that were included in the July 15 proposed rule.
    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 
Export Administration Act, as

[[Page 36417]]

appropriate and to the extent permitted by law, pursuant to Executive 
Order 13222.

Rulemaking 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,'' but 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). Total 
burden hours associated with the PRA and OMB control numbers 0694-0088 
and 0694-0137 are not expected to increase as a result of this rule. As 
part of the President's Export Control Reform (ECR) Initiative, this 
proposed rule, and a separate proposed rule from the Department of 
State, Directorate of Defense Trade Controls being published in 
conjunction with this rule, sets forth, as much as possible, a common 
definition of ``specially designed'' for use in the EAR and the ITAR. 
This proposed rule would not move any items from the USML to the CCL, 
although the revised definition included here would play an important 
role in the ``600 series'' that would be used to control items 
transitioned from the USML to the CCL.
    As stated in the July 15 proposed rule (76 FR 41958), BIS believed 
that the combined effect of all rules to be published adding items to 
the 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 submitted by approximately 16,000 
annually. As the review of the USML has progressed, the interagency 
group has gained more specific information about the number of items 
that would come under BIS jurisdiction whether those items would be 
eligible for export under license exception. As of June 19, 2012, BIS 
believes the increase in license applications may be 30,000 annually, 
resulting in an increase in burden hours of 8,500 (30,000 transactions 
at 17 minutes each) under control number 0694-0088.
    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 Regulations, 
Department of Commerce, submitted a memorandum to the Chief Counsel for 
Advocacy, Small Business Administration, certifying that proposed rule 
published on July 15, 2011, will not have a significant impact on a 
substantial number of small entities.
    This proposed rule re-proposes, with certain changes, the 
definitions of ``specially designed,'' of ``end item,'' and of 
``accessories and attachments'' that BIS originally proposed in the 
July 15 proposed rule. The changes proposed here do not impact the 
original certification. 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 rule will not have a significant impact on a small number of 
entities, and in fact will reduce the burden on small entities by 
facilitating enhanced public understanding of a key term used 
extensively on the Commerce Control List (CCL). This rule proposes a 
single definition for the term ``special designed'' and slightly 
revised definitions for the terms ``end item,'' ``accessories,'' and 
``attachments'' BIS proposed in the July 15 proposed rule.
    The proposed definition of ``specially designed'' would provide 
clear guidance to small entities, and all other entities, on the 
meaning of this term wherever it is used on the CCL. The term 
``specially designed'' is used extensively throughout the CCL, but up 
to this point the only definition included in the EAR has been under 
the Missile Technology Control Regime (MTCR) context. Outside of the 
MTCR context, the First Circuit's ruling in United States v. Lachman, 
387 F.3d 42, 52-53 (2004) provides a definition of the term ``specially 
designed,'' but for small entities, and all other entities, this 
requires reviewing the Lachman decision to understand the court-
provided definition outside the MTCR context.
    BIS is aware that some small entities, and other entities, instead 
of relying on the Lachman definition for the term ``specially 
designed'' outside the MTCR context have simply decided to submit 
classification requests to BIS for ECCNs where the term ``specially 
designed'' is used. Others have made subjective determinations of which 
types of items are ``special'' to or for a controlled end item. The CCL 
is intended to allow exporters to self-classify their items. If the 
status quo, where the term is not defined in the regulations, creates 
an incentive for the public to submit additional classification 
requests or make self-determinations that expose exporters to 
compliance risks, then the rule places a burden on all entities, large 
and small. All entities should be able to confidently self-classify 
their items on the CCL. BIS believes it should take steps to alleviate 
any concerns the public may have with self-classifying their items, 
including providing definitions for key terms used on the CCL, which is 
being done in this proposed rule and not making small entities and 
other entities to consult outside legal decisions in order to determine 
the meaning of a key term used under the EAR.
    This proposed rule would reduce burdens on small entities and all 
other entities by proposing a single definition

[[Page 36418]]

of the term ``specially designed'' to part 772 that would apply 
wherever the term is used. In the past, small entities, and other 
entities, have urged BIS to add a single definition of the term 
``specially designed'' to the EAR. This proposed definition is 
consistent with the scope of the other two definitions of the term 
``specially designed'' that are currently in use. Specifically, this 
rule's proposed definition is consistent with the ``specially 
designed'' MTCR definition defined at Sec.  772.1 of the EAR, and with 
the Lachman decision. BIS believes this rule's proposed ``specially 
designed'' definition comes closest to encompassing the scope and 
intent of both the Lachman and the MTCR definitions, while also 
allowing this term to play the key role envisioned for it under the 
larger Export Control Reform (ECR) Initiative. This proposed rule 
identifies nine objectives for the term ``specially designed'' and 
encourages the public to submit comments on whether they agree with BIS 
that this proposed definition best achieves the nine objectives and 
whether the public may have any alternative that would better achieve 
the nine stated objectives.
    The ECR Initiative is making fundamental changes to the U.S. export 
control system. These fundamental changes will protect and enhance U.S. 
national security interests, while at the same time also easing the 
burdens on small entities and all other entities. One of the key 
objectives of the ECR Initiative is to draw a bright-line between the 
USML and the CCL, including transitioning items that no longer warrant 
ITAR control to the CCL.
    A bright-line between the two control lists will be a key benefit 
to small entities and all other entities. When small entities, and 
other entities, have difficulty in determining the jurisdiction and/or 
classification of their item, it creates a burden on such entities. The 
proposed definition of ``specially designed'' included in this rule is 
a key term being used to develop the bright-line between the USML and 
the CCL. Using this proposed ``specially designed'' definition in the 
``600 series'' .x and .y paragraphs is a key structural element that 
will create a more ``positive'' USML and ensure that munitions items 
transitioned from the USML to the CCL are appropriately controlled in 
the applicable ``600 series'' ECCNs.
    This rule is based on a simple catch-and-release concept. The 
proposed definition would allow for small entities, and all other 
entities, to use a simple set of ``yes/no'' questions to make 
determinations whether an item is or is not ``specially designed.'' The 
``release'' portion of the proposed definition will also allow for 
items that no longer warrant being considered ``specially designed'' to 
be removed from ``specially designed'' once they have crossed over into 
broader commercial applicability. The five proposed paragraph (b) 
exclusions included in the proposed rule would allow the public to 
objectively know when an item would no longer be ``specially 
designed.''

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 the benefits that will occur with the fundamental 
changes being made to the U.S. export control system under the Export 
Control Reform Initiative and the USML-to-CCL process, which the 
definition of ``specially designed'' will be an important role. In 
addition, any burdens would be offset by the benefits of defining this 
key term used extensively on the CCL. For these reasons, the Chief 
Counsel for Regulations 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 772

    Exports.

15 CFR Part 774

    Exports, Reporting and recordkeeping requirements.

    Accordingly, parts 772 and 774 of the Export Administration 
Regulations (15 CFR parts 730-774) are proposed to be amended as 
follows:

PART 772--[AMENDED]

    1. The authority citation for 15 CFR part 772 continues to read as 
follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; 
E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; Notice of August 
12, 2011, 76 FR 50661 (August 16, 2011).

    2. Section 772.1 is amended:
    a. By revising the definition of ``specially designed;'' and
    b. By adding definitions for the terms ``accessories,'' 
``attachments,'' and ``end item''.
    The revision and additions read as follows:


Sec.  772.1  Definitions of terms as used in the Export Administration 
Regulations (EAR).

* * * * *
    Accessories. These are associated items for any ``component,'' 
``end item,'' or ``system,'' and which are not necessary for their 
operation, but which enhance their usefulness or effectiveness. For 
example, for a riding lawnmower, accessories and attachments will 
include the bag to capture the cut grass, and a canopy to protect the 
operator from the sun and rain. For purposes of this definition, 
accessories and attachments are the same.
* * * * *
    Attachments. These are associated items for any ``component,'' 
``end item,'' or ``system,'' and which are not necessary for their 
operation, but which enhance their usefulness or effectiveness. For 
example, for a riding lawnmower, accessories and attachments will 
include the bag to capture the cut grass, and a canopy to protect the 
operator from the sun and rain. For purposes of this definition, 
attachments and accessories are the same.
* * * * *
    End item. This is an assembled commodity ready for its intended 
use. Only ammunition, fuel or other energy source is required to place 
it in an operating state. Examples of end items include ships, 
aircraft, firearms, and milling machines.
* * * * *
    Specially designed. When applying this definition, follow this 
sequential analysis: Begin with paragraph (a)(1) of this definition and 
proceed through each subsequent paragraph. If an item would not be 
controlled as a result of the application of the standards in paragraph 
(a) of this definition, then it is not necessary to work through 
paragraph (b) of this definition. If an item would be controlled as a 
result of paragraph (a), then it is necessary to work through each of 
the elements of paragraph (b). Items subject to the EAR described in 
any of paragraphs (b)(1) through (5) of this definition are not 
``specially designed'' items subject to the EAR.
    (a) Except for items described in (b) of this definition, an 
``item'' is ``specially designed'' if, as a result of ``development,'' 
it:
    (1) Has properties peculiarly responsible for achieving or 
exceeding the performance levels, characteristics, or functions in the 
relevant ECCN or U.S. Munitions List (USML) paragraph;
    (2) Is a part or component necessary for an enumerated or 
referenced

[[Page 36419]]

commodity or defense article to function as designed; or
    (3) Is an accessory or attachment used with an enumerated or 
referenced commodity or defense article to enhance its usefulness or 
effectiveness.
    (b) A ``part,'' ``component,'' ``accessory,'' or ``attachment'' 
that would be controlled by paragraph (a) of this paragraph is not 
``specially designed'' if it:
    (1) Is enumerated in a USML paragraph;
    (2) Is a single unassembled ``part'' that is of a type commonly 
used in multiple types of commodities not enumerated on the CCL or the 
USML, such as threaded fasteners (e.g., screws, bolts, nuts, nut 
plates, studs, inserts), other fasteners (e.g., clips, rivets, pins), 
basic hardware (e.g., washers, spacers, insulators, grommets, bushings, 
springs), wire, and solder;
    (3) Has the same form, fit, and performance capabilities as a part, 
component, accessory, or attachment used in or with a commodity that:
    (i) Is or was in ``production'' (i.e., not in ``development''); and
    (ii) Is either not enumerated on the CCL or USML, or is enumerated 
in an ECCN controlled only for Anti-Terrorism (AT) reasons;
    (4) Was or is being developed with a reasonable expectation of:
    (i) Use in or with commodities described on the CCL and commodities 
not enumerated on the CCL or the USML; or
    (ii) Use in or with commodities not enumerated on the CCL or the 
USML; or
    (5) Was or is being developed with no reasonable expectation of use 
for a particular application.

    Note 1: `Enumerated' means any item (i) on either the USML or 
CCL not controlled in a `catch-all' paragraph and (ii) when on the 
CCL, controlled by an ECCN for more than AT-only reasons, except in 
the context of paragraph (b)(3), where an item in an ECCN controlled 
only for AT reasons is considered enumerated when it is not 
controlled in a `catch-all' paragraph. An example of an `enumerated' 
ECCN is 2A226, which controls valves with the following three 
characteristics: a ``nominal size'' of 5 mm or greater; having a 
bellows seal; and wholly made of or lined with aluminum, aluminum 
alloy, nickel, or nickel alloy containing more than 60% nickel by 
weight. The CCL also contains notes excluding from control parts and 
components ``specially designed'' for uncontrolled items. Such 
uncontrolled items are merely `referenced' and are not `enumerated.' 
Note 2 to ECCN 1A002 is an example of items excluded from control 
based on being ``specially designed'' for a referenced item.


    Note 2: A `catch-all' paragraph is one that does not refer to 
specific types of parts, components, accessories, or attachments but 
rather controls non-specific ``parts,'' ``components,'' 
``accessories,'' or ``attachments'' because they were ``specially 
designed'' for an enumerated item. For example, ECCN paragraph 
9A610.x is a catch-all, because it controls ``parts,'' 
``components,'' ``accessories,'' and ``attachments'' ``specially 
designed'' for military aircraft, but does not identify specific 
types of parts, components, accessories, or attachments within its 
control. Another example of a `catch-all' is the heading of 7A102, 
which controls ``specially designed'' components for the gyros 
enumerated in 7A102, but does not identify the specific types of 
components within its control.


    Note to paragraph (a)(1): Items that as a result of 
``development'' have properties peculiarly responsible for achieving 
or exceeding the performance levels, functions or characteristics in 
a relevant ECCN paragraph may have properties shared by different 
products. For example, ECCN 2B007.a controls ``robots'' capable in 
real time of full three-dimensional image processing or full-three 
dimensional `scene analysis' to generate or modify ``programs'' or 
to generate or modify numerical program data [and specially designed 
controllers and ``end effectors'' therefor]. An example of a 
component not meeting the peculiarly responsible standard under 
paragraph (a)(1) is a component that as a result of ``development'' 
has properties that allow the component to conduct 2D image 
processing for use in a ``robot.'' This component is not ``specially 
designed'' for purposes of 2B007.a because the component even if 
used in a ``robot'' does not have properties peculiarly responsible 
for a ``robot'' achieving or exceeding the performance levels, 
functions or characteristics in 2B207.a. Conversely, another 
component that as a result of ``development,'' has properties that 
allow the component to perform in real time of full three-
dimensional image processing for use in a ``robot,'' is an example 
of a component that is peculiarly responsible because as a result of 
``development'' the component has a direct and proximate causal 
relationship in the ``robot'' that is central or special for 
achieving or exceeding the performance levels, functions or 
characteristics identified in 2B207.a.


    Note to paragraph (b)(3): Commodities in ``production'' that are 
subsequently subject to ``development'' activities, such as those 
pertaining to quality improvements, cost reductions, or feature 
enhancements, remain in ``production.'' However, any new models or 
versions of such commodities developed from such efforts that change 
the basic performance or capability of the commodity are in 
``development'' until and unless they enter into ``production.''


    Note to paragraph (b)(4) and (b)(5): For a commodity not to be 
``specially designed'' on the basis of paragraphs (b)(4) or (b)(5), 
documents contemporaneous with its ``development,'' in their 
totality, must establish the elements of paragraphs (b)(4) or 
(b)(5). Such documents may include concept design information, 
marketing plans, declarations in patent applications, or contracts. 
Absent such documents, the ``commodity'' may not be excluded from 
being ``specially designed'' by either paragraph (b)(4) or (b)(5).


    Note to paragraph (b)(5): If you have ``knowledge'' that the 
commodity was or is being developed for a particular application, 
you may not rely on paragraph (b)(5) to conclude that the commodity 
was or is not ``specially designed.''

* * * * *

PART 774--[AMENDED]

    3. The authority citation for 15 CFR part 774 continues to read as 
follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; 
10 U.S.C. 7420; 10 U.S.C. 7430(e); 22 U.S.C. 287c, 22 U.S.C. 3201 et 
seq., 22 U.S.C. 6004; 30 U.S.C. 185(s), 185(u); 42 U.S.C. 2139a; 42 
U.S.C. 6212; 43 U.S.C. 1354; 15 U.S.C. 1824a; 50 U.S.C. app. 5; 22 
U.S.C. 7201 et seq.; 22 U.S.C. 7210; E.O. 13026, 61 FR 58767, 3 CFR, 
1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 
783; Notice of August 12, 2011, 76 FR 50661 (August 16, 2011).

Supplement No. 1 to Part 774 [Amended]

    4. In Supplement No. 1 to part 774 (the Commerce Control List) 
wherever the term ``specially designed'' occurs, add quotation marks 
around the term ``specially designed.''

    Dated: June 6, 2012.
Kevin J. Wolf,
Assistant Secretary for Export Administration.
[FR Doc. 2012-14475 Filed 6-15-12; 11:15 am]
BILLING CODE 3510-33-P