International Trade Law News

Published by Jacobson Burton Kelley PLLC

The extremely well-attended breakout session on the EAR/ITAR Commodity Jurisdiction (CJ) process showed that there is a great deal of interest by industry in this important topic.

The program began with an introduction on the Defense Department's (DoD) role in the CJ process. Mercedes Beffa, an export control analyst with the Defense Technology Security Administration (DTSA) noted that DTSA reviews BIS commodity classifications and CJs when requested by BIS or the State Department's Directorate of Defense Trade Controls (DDTC). She noted that in making a CJ:

• precedent is important;
• performance equivalents are very important; and
• capability of a product is extremely important.

Ms. Beffa provided some important CJ-related tips, including that it is important to remember that while DoD and BIS provide input on the process, DDTC is ultimately responsible for designating defense articles. She also noted that the criteria that is evaluated for determining whether something is covered by the USML is whether the product is for a "military application", not just "for the military".

Next, Gene Christiansen, a senior engineer with BIS’s Office of National Security and Technology Transfer Controls first discussed the important distinction between commodity jurisdictions and commodity classifications. He noted that commodity or licensing jurisdiction is the first step in determining whether the item is subject to the jurisdiction of the State Department (ITAR) or the Department of Commerce (EAR). Whereas, the commodity classification process is specific to dual-use items that are subject to the EAR and involves matching the technical characteristics of the item with the control parameter of an Export Control Classification Number (ECCN) on the Commerce Control List (CCL).

Establishing jurisdiction is, of course, critical since the Departments of State and Commerce have different licensing requirements. Once jurisdiction has been established the exporter is responsible for obtaining an export license, if required, from the appropriate agency.

Thus, submitting a CJ request to DDTC under the guidelines set forth in the ITAR (22 CFR 120.4) is the first step if an exporter is uncertain whether the product is subject to the EAR or ITAR.

After discussing the jurisdiction legal requirements set forth in section 120.3 of the ITAR, Mr. Christiansen noted the following thing to remember regarding the CJ process:

• There is no requirement to submit CJ, unless directed to seek an official jurisdiction ruling
• Once a CJ request has been submitted, the item is under DDTC’s jurisdiction until ruled otherwise
• The ITAR has no de minimis provisions and DDTC follows the “see through” rule [Editor’s note: Under the see-through rule, wherever an ITAR item is incorporated into a civilian item, the civilian item becomes subject to the DDTC’s export licensing jurisdiction].

If an exporter is unsure as to what agency has jurisdiction (BIS or DDTC) then a CJ request is suggested. All exporters should include the following information in CJ requests:

1. Original intent of the design
2. Who funded the development of the product
3. Unique characteristics of the design
4. Current market for the item
5. Performance equivalents
6. If originally under Department of State jurisdiction, how has item been modified and for what specific end-use
7. Relevant jurisdiction history, if applicable
8. Civil Certification Status of item and identification on whether there are civil applications of the item.

Mr. Christiansen noted that items from a military production line continue to be subject to the ITAR until they have been determined not to satisfy military requirements, have been renamed or officially reviewed for jurisdiction.

It was also noted that certifications made under section 17(c) of the Export Administration Act (EAA) are not always recognized by DDTC. However, DDTC and BIS are working with the FAA on the 17(c) issue [Editors Note: Section 17(c) of the EAA provides that the Commerce Department is to have jurisdiction over standard parts and components certified by the FAA for use in civil aircraft. However, there has been an ongoing turf battle on which agency has jurisdiction over certain aircraft parts].

To help expedite a CJ request, it is important that all supporting documentation is consistent with the request itself. It is equally important that all information is given in the initial request as well for the exporter to stay involved in the process.

Mr. Christiansen also reminded conference participants that if an item that a company manufactures is deemed to be subject to the ITAR, it is important to inform suppliers because they may need to register with the DDTC. Customers also deserve to know since it will impact the jurisdiction of the end-item.

Next, Ann Ganzer, Director of DDTC’s Office of Defense Trade Controls Policy (the office that oversees the CJ process), reviewed the procedural process for reviewing CJ requests. She noted that the interagency process is sophisticated and eventually makes a recommendation on the product. DDTC reviews the recommendation to ensure that it is consistent with prior CJs and that is consistent with ITAR 120.3. DDTC also determines if there is any other information needed for the agency to make an educated decision. While the CJ is vetted through other agencies, DDTC works toward interagency consensus. If, however, there is interagency disagreement, the CJ application can be escalated to the Director of Defense Trade Controls Policy, to the Assistant Secretary and to the Under Secretary. There is a right of escalation to the President of the United States, although this has never occurred.

Ms. Ganzer noted there has been a significant increase in number of CJs submitted during the past few years and provided the following CJ statistics for calendar year 2006:

CJ applications received = 368

CJ applications closed = 412

Of the CJ determinations issued, 24% were USML, 66% were CCL, 6% were split CCL/USML jurisdiction and 3% were returned without action.

The median processing time for DDTC to issue a CJ determination is currently 63 days, while the average time to issue a CJ determination is 120 days. Both of which are an improvement from previous processing times. DTSA’s current review time is 28.6 days. Companies should currently allow at least 90 days for DDTC to issue a CJ determination.

Ms. Ganzer stressed that ECCNs are determined by the CCL list. She also stated that is it not important to include the ECCN in a CJ request. Finally, she noted that CJs have no expiration dates and that it is important for exporters to keep records related to CJs as DDTC only keeps records for 15 years.

The panelists then answered questions that had been previously submitted prior to Update and questions from the audience. Some of the answers provided are as follows:

*For commodities that are manufactured from a mix of technical data controlled by the ITAR and EAR and the end use is commercial, it still may be necessary to obtain a CJ to determine the jurisdiction of the product with certainty.

*It is a good idea to get a CJ on products produced from DARPA funded products.

*DDTC tries not to issue CJs where the applicant is not the manufacturer. DDTC prefers that the manufacturer submit the CJ or at least be involved in the process.

*Government agencies can and do submit CJs.

*DDTC is in the process of implementing an electronic CJ submission process. However, there is no definitive date yet on when the system will be implemented.

*CJs are confidential and will not be made public.

[Editor's note: Special thanks to Amy Stanley for her assistance in drafting this post. Ms. Stanley is a recent law school graduate with an interest in export controls and international trade issues. Ms. Stanley can be reached at amyjstanley@gmail.com.]

Labels: BIS Update Conference