News from Reeves & Dola, LLP 
*** R|D ALERT ***

May 17, 2019


In preparation for the finalization of the proposed transition of U.S. Munition List ("USML") certain Categories I, II, and III items, we take a look at the licensing process under the Department of Commerce, Bureau of Industry and Security's ("BIS") Export Administration Regulations ("EAR") in hopes of dispelling some myths and misconceptions. Unless the final rules vary widely from the proposed rules, which is unlikely but always a possibility, non-automatic and semi-automatic firearms up to and including .50 caliber currently controlled under USML Category I(a), as well as all parts, components, accessories and attachments specially designed for those firearms will move off of the USML. These items will be subject to the EAR under newly created "500 series" Export Control Classification Numbers ("ECCNs") in the Commodity Control List ("CCL").
As we have covered in previous alerts, a license still will be required under the EAR for exports of firearms and ammunition to any country in the world, including Canada. The license submission process for BIS is not so different from Department of State's DTrade system, except one critical difference is it's free of charge, as are individual license applications. Companies will need to get set up on the Simplified Network Application Process - Redesign ("SNAP-R") electronic licensing system in order to submit a license application, but this is not the same as the registration requirement on the State Department side and there is no annual fee requirement. SNAP-R allows users to submit export license applications, commodity classification requests, reexport license applications using the same form. Each different type of request has specific information that may be required. Like the DTrade system, supporting documents can be uploaded as attachments in SNAP-R.  Part 748 of the EAR provides instructions for completing a license application.
Once an application is submitted, you can track the U.S. Government review progress using the BIS System for Tracking Export License Applications ("STELA"). This internal government review process can sometimes be a mystery and seems to be where a lot of misinformation and confusion is coming from, at least as far as future BIS license applications for firearms and ammunition moving over from the USML. We have heard rumors that run the gamut about the level of scrutiny that will be given to such license applications, ranging from "there will be no interagency review outside of BIS" to "BIS will be able to overrule other agencies."  This is not accurate.
On August 13, 2018, the Export Control Reform Act of 2018 ("ECRA") became law as part of the John S. McCain National Defense Authorization Act for Fiscal Year 2019. ECRA provides permanent statutory authority for the EAR. Part I, the "Export Controls Act of 2018" ("ECA"), authorizes BIS to administer the export controls under its purview. Section 1758 of the ECA requires BIS to control the export of "emerging and foundational technologies" that are "essential to the national security of the United States."  Interestingly, Congress did not provide a definition for "emerging" or "foundational" technologies in ECRA - this is left up to BIS to define.
To assist BIS in determining what should be considered an "emerging" or "foundational" technology, BIS published an Advance Notice of Proposed Rulemaking (ANPRM) back in November 2018. In the ANPRM, BIS provided a listing of representative technologies that may be considered "emerging technology" and asked for public comment (public comment period has now closed).  However, BIS notes in the ANPRM that it will be publishing a separate Federal Register notice regarding "identification of foundational technologies that may be important to U.S. national security."  This ANPRM has yet to publish. Are they waiting for the transition rules?  We don't know for sure, but we do note it is possible certain firearms and ammunition may be added to a "foundational technology" list as part of the finalization of the transition process.  
If firearms and ammunition are identified as "foundational technology that is essential to the national security of the United States," the license review process outlined in § 1758(b)(3) of the ECA will apply to any application submitted to export firearms or ammunition. That license review process requires BIS to follow the procedures set forth in Executive Order (EO) 12981, which makes it clear that "the Departments of State, Defense, and Energy, and the Arms Control and Disarmament Agency each shall have the authority to review any export license application submitted to [BIS]." 
It is important to note that this interagency review process is not new; it has been in existence since 1995 (the issuance date of EO 12981) and is already outlined in the existing text of § 750.4 of the EAR. The ECA simply reiterates the process and formally attaches it to "emerging" or "foundational" technologies. This interagency review establishes a process by which any one of the reviewing agencies can issue a recommendation to deny a license application. If there is disagreement on the issuance of a license, it is then raised to the Operating Committee ("OC"), which includes members from the aforementioned agencies, as well as non-voting representatives of the Joint Chiefs of Staff and the Nonproliferation Center of the Central Intelligence Agency. There is an appeal process by which a reviewing agency can appeal the decision of the OC. This appeal is made to the Advisory Committee on Export Policy (''ACEP''), who's majority vote is final.
In addition to invoking the license review process of EO 12981, § 1758(b)(3)(B) of the ECA requires BIS "take into account information provided by the Director of National Intelligence regarding any threat to the national security of the United States posed by the proposed export, reexport, or transfer."  Finally, the existing language in § 750.4 of the EAR allows for pre-license checks of the proposed end-user, requests for government-to-government assurances, consultations with other governments, multilateral reviews, as well as Congressional Notifications for items that require it under the EAR.
As you can see, there is already established a robust license review process in the EAR, and the ECRA provides permanent statuary authority for it and requires it to be applied to "emerging" or "foundational" technologies. All of this together clearly debunks the myth that there are no reviews of export license applications outside of BIS or that BIS' decision is final, and underscores the potential for firearms to be placed in a subset of items that will require just as much scrutiny as they do now as USML items.

The above alert is for informational purposes only and is not intended to be construed or used as legal advice. Receipt of this alert does not establish an attorney-client relationship.     

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Reeves & Dola is a Washington, DC law firm that specializes in helping clients navigate the highly regulated and complex world of manufacturing, sales and international trade of defense and commercial products. We have a deep understanding of the Federal regulatory process, and use our expertise in working with a variety of Federal agencies to assist our clients with their transactional and regulatory needs.

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