Export Control: Reform Efforts Making Progress

The nation’s healthcare system isn’t the only thing on President Obama’s reform agenda. In August 2009, he launched an initiative to reform the US export control system. From Skadden Arps:

“… President Obama’s Export Control Reform Initiative has proposed a number of changes designed to streamline and reduce the burdens imposed by the current U.S. export control system, which is administered by multiple federal government agencies through complex export control regulations and licensing regimes. Ultimately, the Export Control Reform Initiative seeks to create a single, unified list — the ‘Single Control List’ — that will identify, classify and govern all items subject to U.S. export controls.”

It’s a daunting effort that will require the cooperation of a number of government agencies. Attorney Michael Volkov:

“It is about time that someone tackled this mess… The U.S. export control system is made up of different regulatory regimes:

(1) State Department’s Directorate of Defense Trade Controls administers the International Traffic in Arms Regulations, which applies to military use items;

(2) Commerce Department, Bureau of Industry and Security, under the Export Administration Regulations, administers dual use items – those items which can be used either for civilian and military use;

(3) Treasury Department Office of Foreign Assets Control enforces economic sanctions and embargoes; and

(4) Other government agencies, such as the Energy Department, Nuclear Regulatory Commission, and the Food and Drug Administration, also administer export controls specific to their regulatory focus.”

Earlier this month, regulators announced important progress in the reform effort. Skadden:

“In the latest chapter of these on-going efforts, the Directorate of Defense Trade Controls (DDTC) of the U.S. Department of State and the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce have now proposed transition plans to handle various issues that will arise from the proposed transfer of certain items with military applications from the U.S. Munitions List (USML) to the Commerce Control List (CCL). The agencies have also jointly proposed a single definition of the term ‘specially designed’ which will apply to the classification of certain items under both the USML and the CCL.”

The proposed new plans are the first step in a three-part process to reform the system, writes Volkov:

“The Administration has outlined three phases to this initiative: Phase I, which is basically been completed, is for each agency to revise and streamline the licensing process, and to establish a coordinated export enforcement center. In Phase II, the agencies will complete the restructuring of the USML and CCL, and finalize the lists of USML items to be transferred to the CCL, and implement a uniform single IT system. Phase III requires Congressional legislation to merge the USML and CCL into a single control list, stand-up a single licensing agency and complete implementation of a uniform IT system.”

But the length of the reform process doesn’t mean that businesses governed by export control regulations should wait to respond to the latest changes. Again, Skadden:

“All companies involved in the design, manufacture, sale, export, and re-export of items covered by the USML and CCL should be aware of these changes and begin to prepare now to ensure that the transition to the new export control regime is as smooth as possible. Waiting for the proposed rules to be finalized before assessing their impact on business operations and export compliance procedures may have significant negative legal and commercial consequences.”

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