[Federal Register Volume 80, Number 231 (Wednesday, December 2, 2015)]
[Proposed Rules]
[Pages 75438-75442]
[FR Doc No: 2015-30421]

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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. 80, No. 231 / Wednesday, December 2, 2015 /
Proposed Rules

DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 701

[Docket No. 150825780-5780-01]
RIN 0694-AG38

Export Control Reform: Conforming Change to Defense Sales Offset
Reporting Requirements

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would require reporting of offsets
agreements in connection with sales of items controlled in ``600
series'' Export Control Classification Numbers (ECCNs) on the Commerce
Control List (CCL) except for certain submersible and semi-submersible
cargo transport vessels and related items that are not on control lists
of any of the multilateral export control regimes of which the United
States is a member. Since the early 1990s, BIS has required reporting
of offsets agreements in connection with sales of items controlled on
the United States Munitions List (USML). Those reporting requirements
would continue, unchanged by this rule. Beginning on October 15, 2013,
some items have been removed from the USML and added to 600 series
ECCNs as part of the Administration's Export Control Reform Initiative.
These items were subject to offsets reporting requirements prior to
being added to 600 series ECCNs. In addition, as part of that same
initiative, some items that were subject to the Export Administration
Regulations (EAR) have also been added to 600 series ECCNs. These items
were not subject to offsets reporting requirements prior to being added
to 600 series ECCNs. This proposed rule would require reporting of
offsets agreements in connection with sales of items controlled in 600
series ECCNs regardless of whether the item was added to a 600 series
ECCN simultaneously with its removal from the USML or was subject to
the EAR prior to its inclusion in a 600 series ECCN.
    BIS is proposing this action because, except for the vessels and
related items noted above, items controlled in 600 series ECCNs are of
a military nature. BIS believes that collecting information regarding
offsets requirements in connection with the sale of such items is
necessary to make a report to Congress mandated by the Defense
Production Act complete.

DATES: Comments must be received no later than February 1, 2016.

ADDRESSES: You may submit comments by either of the following methods:
     By the Federal eRulemaking Portal: http://www.regulations.gov. The identification number for this rulemaking is
BIS-2015-0045.
     By email directly to<EMAIL_ADDRESS>Include
RIN 0694-AG38 in the subject line.

FOR FURTHER INFORMATION CONTACT: Ronald DeMarines, Strategic Analysis
Division, Office of Strategic Industries and Economic Security, 202-
482-3755, or<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Background

    Part 701 of Title 15, Code of Federal Regulations--Reporting of
Offsets Agreements in Sales of Weapon Systems or Defense-Related Items
to Foreign Countries or Foreign Firms--(herein the Offsets Reporting
Regulations) requires that U.S. firms report certain offset agreements
to BIS annually. BIS uses the information so reported to develop a
``detailed annual report on the impact of offsets on the defense
preparedness, industrial competitiveness, employment, and trade of the
United States'' (herein ``the offset report to Congress''), that is
submitted to the Committee on Banking, Housing, and Urban Affairs of
the Senate, and the Committee on Financial Services of the House of
Representatives, as required by Section 723 of the Defense Production
Act of 1950, as amended (DPA) (50 U.S.C. app. 2172(a)(1). An offset for
purposes of the Offsets Reporting Regulations is compensation required
by the purchaser as a condition of the purchase in government-to-
government or commercial sales of defense articles or services. This
compensation can take a variety of forms, including: Co-production,
technology transfer, subcontracting, credit assistance, training,
licensed production, investment, and purchases. An agreement to provide
offsets with a value exceeding $5,000,000 must be reported to BIS.
Performance of an existing offset commitment for which offset credit of
$250,000 or more has been claimed must also be reported to BIS.
    The Defense Production Act describes the items for which the offset
report to Congress must be submitted as ``weapon system[s] or defense-
related item[s].'' (See section 723 of the DPA) (50 U.S.C. app.
2172(c)(1). The Offsets Reporting Regulations currently require
reporting of offsets in connection with ``defense articles and/or
defense services'' as defined by the Arms Export Control Act and the
International Traffic in Arms Regulations (22 CFR parts 120-130)
(ITAR). See 15 CFR 701.2(a). The ITAR includes the USML (22 CFR part
121), which describes the defense articles that it regulates. Beginning
on October 15, 2013, as part of the Administration's Export Control
Reform Initiative, a series of rules removed a number of defense
articles from the USML and added them to the CCL (15 CFR part 774,
Supp. No. 1). BIS created a new series of ECCNs in the EAR, identified
as the ``600 series'' because the third character in the ECCN is the
numeral ``6,'' for those defense articles. The 600 series items
formerly controlled on the USML were subject to offsets reporting
requirements before being added to the 600 series.
    Simultaneously with adding former USML defense articles to the 600
series ECCNs, BIS added to those ECCNs some items that are of a
military nature but that were already subject to the EAR. BIS took this
step to provide consistent treatment for all military items that are
subject to the EAR. Some of these items were in existing ECCNs. Others
were subject to the EAR, but not set forth in any ECCN. Such items are
designated under the EAR as EAR99 items. Items that were subject to the
EAR prior to being added to 600 series ECCNs were not subject to
offsets reporting requirements.
    This proposed rule would require reporting of offsets agreements in
connection with sales of all items controlled in 600 series ECCNs,
except for certain submersible and semi-

submersible cargo transport vessels and related items that are not on
control lists of any of the multilateral export control regimes of
which the United States is a member, regardless of whether the item was
controlled on the USML or subject to the EAR prior to being controlled
under a 600 series ECCN.

Nature of 600 Series ECCNs

    600 series ECCNs control items of a military nature. They are
structured in the same manner as other ECCNs. That structure is
described in detail at 15 CFR 738.2. However, a brief overview is given
here. An ECCN has five characters. The first character identifies the
category on the CCL to which the ECCN belongs. There are ten categories
numbered 0 through 9. The second character identifies the product group
and is one of the letters A through E. In the 600 series ECCNs, the
third character identifies the ECCN as part of the 600 series. The
fourth and fifth characters identify the category on the Wassenaar
Arrangement Munitions List to which the ECCNs most closely relate.
These last two characters also serve to identify related ECCNs across
different product groups. The product groups and illustrative examples
of their application in the 600 series are as follows:
    Product Group A--End items, equipment, accessories, attachments,
parts, components, and systems. For example, ECCN 0A606 applies to
ground vehicles and related commodities.
    Product Group B--Test, inspection and production equipment. For
example, 0B606 applies to equipment specially designed for the
development, production, repair, overhaul, or refurbishing of
commodities enumerated in ECCN 0A606 or USML Category VII (the USML
category that applies to ground vehicles).
    Product Group C--Materials. For example 0C606 applies to materials
specially designed for commodities controlled by ECCN 0A606 not
elsewhere specified in the USML. In some instances a product group C
ECCN may apply to materials for its related product group B ECCN as
well as to its related product group A ECCN.
    Product Group D--Software. For example, ECCN 0D606 applies to
software specially designed for the development, production, operation,
or maintenance of ground vehicles and related commodities controlled by
ECCNs 0A606, 0B606, or 0C606. A software ECCN may apply to software for
any or all of the items in its related product groups A, B or C.
    Product Group E--Technology. For example, ECCN 0E606 applies to
technology required for the development, production, operation,
installation, maintenance, repair, overhaul, or refurbishing of ground
vehicles and related commodities in 0A606, 0B606, 0C606, or software in
0D606. A technology ECCN may apply to technology for items in any or
all of its related product groups A, B, C or D.
    For brevity, the discussions of ECCNs below generally will refer to
``related'' test, inspection and production equipment, materials,
software or technology rather than spell out the full relationship in
terms such as ``required,'' ``specially designed,'' ``development,''
``production,'' etc. Detailed terms will be used only where necessary
to draw accurate distinctions between the items being discussed.
Readers who desire a fuller description of the relationship than that
provided above may refer to the full text of the ECCNs in 15 CFR part
774, Supplement No. 1.

600 Series ECCNs

    Most of the items controlled in the 600 series ECCNs were, prior to
the creation of those ECCNs, subject to the ITAR. Those items that were
subject to the EAR prior to inclusion in a 600 series ECCN will be
discussed separately below.
    Military explosive devices: ECCNs 0A604, 0B604, 0D604 and 0E604.
These ECCNs control commodities related to military explosive devices
and parts, components, accessories and attachments therefor; related
test, inspection and production equipment; related software and related
technology. These ECCNs became effective on July 1, 2014.
    Ground vehicles: ECCNs 0A606, 0B606, 0C606, 0D606 and 0E606. These
ECCNs control ground vehicles and parts, components, accessories, and
attachments therefor; related test, inspection and production
equipment; related materials; related software and related technology.
These ECCNs became effective on January 6, 2014.
    Military training equipment: ECCNs 0A614, 0B614, 0D614 and 0E614.
These ECCNs control military training equipment and parts, components,
accessories and attachments therefor; related test, inspection and
production equipment; related software and related technology. These
ECCNs became effective on July 1, 2014.
    Miscellaneous military equipment: ECCNs 0A617, 0B617, 0C617, 0D617
and 0E617. These ECCNs control miscellaneous military equipment and
parts, components, accessories and attachments therefor; related test,
inspection and production equipment; related materials; related
software and related technology. These ECCNs became effective on
January 6, 2014.
    Energetic materials: ECCNs 1B608, 1C608, 1D608 and 1E608. These
ECCNs control energetic materials and related commodities; related
test, inspection and production equipment; related materials; related
software and related technology. These ECCNs became effective on July
1, 2014.
    Armored and protective equipment: ECCNs 1A613, 1B613, 1D613 and
1E613. These ECCNs control armored and protective equipment and parts,
components, accessories and attachments therefor; inspection and
production equipment; related software and related technology. These
ECCNs became effective on July 1, 2014.
    Surface vessels: ECCNs 8A609, 8B609, 8C609, 8D609 and 8E609. These
ECCNs control surface vessels of war and parts, components, accessories
and attachments therefor; related test, inspection and production
equipment; related materials; related software and related technology.
These ECCNs became effective on January 6, 2014.
    Submersible vessels: ECCNs 8A620, 8B620, 8D620, 8E620. These ECCNs
control submersible vessels, oceanographic and associated commodities
and parts, components, accessories and attachments therefor; related
test, inspection and production equipment; related software and related
technology. These ECCNs became effective on January 6, 2014.
    Launch vehicles, missiles, and rockets: ECCNs 9A604, 9B604, 9D604,
9E604: These ECCNs control commodities related to launch vehicles,
missiles, and rockets and parts, components, accessories and
attachments therefor; related test, inspection and production
equipment; related software and related technology. These ECCNs became
effective on July 1, 2014.
    Military aircraft: ECCNs 9A610, 9B610, 9C610, 9D610 and ECCN 9E610.
These ECCNs control military aircraft and parts, components,
accessories, and attachments therefor; related test, inspection and
production equipment; related materials; related software and related
technology. These ECCNs became effective on October 15, 2013.
    Military gas turbine engines: ECCNs 9A619, 9B619, 9D619 and 9E619.
These ECCNs control military gas turbine engines and parts, components,
accessories and attachments therefor; related test, inspection and
production equipment; related software and related

technology. These ECCNs became effective on October 15, 2013.
    Military electronics: ECCNs 3A611, 3B611, 3D611 and 3E611. These
ECCNs control military electronics and parts, components accessories
and attachments therefor; related test, inspection and production
equipment; related software and related technology. These ECCNs became
effective on December 30, 2014.
    Cryogenic and superconducting equipment for vehicles: ECCNs 9A620,
9B620, 9D620, 9E620: These ECCNs control cryogenic and superconducting
equipment for military vehicles (land, sea or air); related test,
inspection and production equipment; related software and related
technology. These ECCNs became effective on December 20, 2014.
    All of the items in the 600 series ECCNs discussed above were on
the USML, and therefore subject to offsets reporting requirements,
prior to the dates on which the ECCNs became effective except the items
discussed below.

Items Controlled in 600 Series ECCNs That Previously Were Subject to
the EAR

    Certain unarmed armored vehicles that are derived from civilian
vehicles are controlled under ECCN 0A606.b. Prior to the effective date
of ECCN 0A606, these vehicles were controlled under ECCN 9A018.b.
    Induction hardening machines for tank turret rings and sprockets
are controlled within the general paragraph 0B606.a. Prior to the
effective date of ECCN 0A606, these machines were controlled under ECCN
2B018.m. Related software for these machines is controlled in ECCN
0D606. Prior to the effective date of ECCN 0D606, this software was
EAR99. Related technology for these machines is controlled in ECCN
0E606. Prior to the effective date of ECCN 0E606, this software was
EAR99.
    Construction equipment built to military specifications, including
equipment specially designed for airborne transport; and specially
designed parts and accessories for such construction equipment,
including crew protection kits used as protective cabs, is controlled
in ECCN 0A617.y.1 and .y.2. Prior to the effective date of ECCN 0A617,
this equipment was controlled in ECCN 0A018.m. Related test, inspection
and production equipment, software and technology were EAR99. The
related software and technology for the test, inspection and production
equipment was also EAR99.
    Power controlled searchlights controlled in ECCN 0A617.y.5 were,
prior to the effective date of ECCN 0A617, controlled in 0A918.a.
Related test, inspection and production equipment, related software and
related technology were EAR99. Related software and technology for the
test, inspection and production equipment was also EAR99.
    Test, inspection and production equipment in ECCN 1B608.a (related
to energetic materials in ECCN 1C608.a) prior to the effective date of
ECCN 1B608 were controlled in ECCN 1B018.a, .b and .x. Related software
for 1B608.a was EAR99. Related technology for development and
production of equipment in ECCN 1B608.a was controlled in ECCN 1E001.
Related technology for operation, installation, maintenance, repair,
overhaul or refurbishing of energetic materials in ECCN 1C608.a was
EAR99.
    Energetic materials and related commodities in ECCN 1C608.b through
.m were controlled under ECCN 1C018.b through .m prior to the effective
date of ECCN 1C608. Related technology for the development and
production of equipment in 1B608.a was controlled in ECCN 1E001.
Related software for the energetic materials in ECCN 1C608.b through .m
was EAR99. Related technology for the development and production of
energetic materials in ECCN 1C608.b through .m was controlled in ECCN
1E001. Related technology for operation, installation, maintenance,
repair, overhaul or refurbishing of energetic materials in ECCN 1C608.b
through .m was EAR99.
    Military helmets providing less than National Institute of Justice
(NIJ) level III protection controlled in ECCN 1A613.c and conventional
military steel helmets controlled in ECCN 1A613.y were controlled under
ECCN 0A018 prior to the effective date of ECCN 1A613. Related test,
inspection and production equipment for these helmets controlled in
ECCN 1B613, and related software controlled in 1D613 for the helmets
and the test, inspection and production equipment was EAR99. Related
technology controlled in 1E613 for the helmets, the test, inspection
and production equipment and the software was also EAR99.
    Diesel engines controlled in ECCN 8A609.b were controlled in ECCN
8A018.b.3 prior to the effective date of ECCN 8A609. Related test,
inspection and production equipment for those engines controlled in
ECCN 8B609, related materials for those engines controlled in ECCN
8C609, related software for those engines controlled in ECCN 8D609 and
related technology controlled in ECCN 8E609 for those engines were
EAR99. Additionally, related software controlled in ECCN 8D609 for the
test, inspection and production equipment and the materials was EAR99.
Related technology controlled in 8E609 for the test, inspection and
production equipment, the materials and the software was EAR99.
    Submarine and torpedo nets controlled in ECCN 8A620.e, and closed
circuit and semi-closed circuit rebreathing apparatus controlled in
ECCN 8A620.f were controlled in ECCN 8A018.b.4 and 8A018.a,
respectively, prior to the effective date of ECCN 8A620. Test,
inspection and production equipment for those nets and rebreathing
apparatus was EAR99. Software for those nets, rebreathing apparatus and
test, inspection and production equipment was EAR99. Technology for
those nets, rebreathing apparatus, test inspection and production
equipment was EAR99.
    Ground equipment for aircraft controlled in ECCN 9A610.f,
pressurized breathing equipment controlled in ECCN 9A610.g and military
parachutes, canopies, harnesses, platforms and electronic release
mechanisms controlled in ECCN 9A610.h were controlled in ECCN 9A018.c,
.d and .e, respectively, prior to the effective date of ECCN 9A610.
Related test, inspection and production equipment controlled in ECCN
9B610 for that ground equipment, pressurized breathing equipment, and
those military parachutes, canopies, harnesses, platforms and
electronic release mechanisms were EAR99 prior to the effective date of
ECCN 9B610. Related materials controlled in ECCN 9C610 for that ground
equipment, pressurized breathing equipment, those military parachutes,
canopies, harnesses, platforms and electronic release mechanisms, and
that test, inspection and production equipment was EAR99 prior to the
effective date of ECCN 9C610. Related software controlled in ECCN 9D610
for the development or production of that ground equipment, pressurized
breathing equipment, and those military parachutes, canopies,
harnesses, platforms and electronic release mechanisms was controlled
in ECCN 9D018 prior to the effective date of ECCN 9D610, and related
software for the operation or maintenance of those commodities was
EAR99. Related software for that test, inspection and production
equipment and those materials was EAR99. Related technology controlled
in ECCN 9E610 for the use of that ground equipment, pressurized
breathing equipment, those military parachutes, canopies, harnesses,
platforms and electronic

release mechanisms was controlled in ECCN 9E018 prior to the effective
date of ECCN 9E610. Related technology controlled in ECCN 9E610 for the
operation, installation, maintenance, repair, overhaul or refurbishing
of those commodities was EAR99 prior to the effective date of ECCN
9E610. Related technology controlled in ECCN 9E610 for the test,
inspection and production equipment; materials and software was EAR99
prior to the effective date of ECCN 9E610.

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, distributive impacts, and equity). This rule
does not impose any regulatory burden on the public and is consistent
with the goals of Executive Order 13563. This rule has been determined
to be not significant for purposes of Executive Order 12866.
    2. Notwithstanding any other provision of law, no person is
required to respond to, nor shall any person be 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 Office of Management and Budget (OMB) Control Number. The
collection of offset reports has been approved by OMB under control
number 0694-0084. The estimated number of annual responses is 30 and
the estimated number of burden hours is 360. BIS believes that this
rule would not materially change the number of responses or burden
hours authorized under 0694-0084 because the primary impact of this
rule is to restore reporting requirements that have lapsed since those
estimates were made, and to retain reporting requirements that
otherwise would lapse in the coming months. Although this rule would
create new reporting requirements for some items that were subject to
Department of Commerce export control jurisdiction prior to being added
to 600 series ECCNs, the impact of those additions on the burden is
likely to be insignificant because those items are primarily low value
items such as military ground vehicles designed for non-combat use,
which are not usually the subject of offset agreements. The higher
value items that typically trigger offset requirements by the foreign
government purchaser, such as combat aircraft, strategic airlifter
aircraft, ships, missiles and missile defense systems, are remaining on
the USML and their offset reporting requirements have not changed. In
addition, any increase in the reporting burden by the imposition of
offsets reporting requirements on items that have moved to 600 series
ECCNs is likely to be offset by a reduction in that burden resulting
from the removal of items from the USML and additions to non-600 series
ECCNs, which are not subject to offsets reporting requirements. Those
items are: commercial spacecraft including satellites and related
items, and certain energetic materials. Send comments regarding this
burden estimate or any other aspect of these collections of
information, including suggestions for reducing the burden, to Jasmeet
K. Seehra, Office of Management and Budget, by email at
<EMAIL_ADDRESS>or by fax to<PHONE_NUMBER> and to William Arvin at
<EMAIL_ADDRESS>    3. This proposed rule does not contain policies with Federalism
implications as that term is defined under Executive Order 13132.
    4. The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C.
601 et seq., generally requires an agency to prepare a regulatory
flexibility analysis of any rule subject to the notice and comment
rulemaking requirements under the Administrative Procedure Act (5
U.S.C. 553) or any other statute, unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Under section 605(b) of the RFA, however, if
the head of an agency certifies that a rule will not have a significant
impact on a substantial number of small entities, the statute does not
require the agency to prepare a regulatory flexibility analysis.
Pursuant to section 605(b), the Chief Counsel for Regulation,
Department of Commerce, certified to the Chief Counsel for Advocacy,
Small Business Administration that this proposed rule, if promulgated,
will not have a significant impact on a substantial number of small
entities for the reasons explained below. Consequently, BIS has not
prepared a regulatory flexibility analysis.
    Small entities include small businesses, small organizations and
small governmental jurisdictions. For purposes of assessing the impact
of this proposed rule on small entities, a small entity is defined as:
(1) A small business according to the ``Table of Small Business Size
Standards Matched to North American Industry Classification System
Codes,'' effective January 22, 2014, published by the Small Business
Administration (the SBA size standards); (2) a small governmental
jurisdiction that is a government of a city, town, school district or
special district with a population of less than 50,000; and (3) a small
organization that is any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field. BIS
has determined that this proposed rule would not affect any of these
categories of small entities.
    SBA's size standards classify businesses in various North American
Industry Classification System (NAICS) codes as small based on their
annual revenue or number of employees. For example, in 2014, the
maximum annual revenue for a small business was $33.5 million and the
maximum number of employees was 1,500. Since BIS began collecting data
in 1994, virtually all of the submissions that it has received have
been from a small number of very large companies that exceed the SBA
size standards for a small business. Since 1994, the number of
companies that submitted data to BIS pursuant to this regulation has
not exceeded 26 per year. On average, the companies that submit data to
BIS have annual revenues well in excess of $1 billion. For instance, in
2013, the most recent year in which BIS collected data pursuant to this
regulation, only one of the 26 companies that submitted data had
reported revenue of less than $1 billion. That company had revenue of
$120 million.
    Some small businesses likely are involved in fulfilling offset
obligations by acting as subcontractors to the large prime contractors
that report directly to BIS, meaning that they report indirectly to BIS
pursuant to this section. However, this proposed rule will not
significantly increase the burden on such companies. The information
collected by BIS pursuant to this section is already collected by such
small businesses so that they can accurately account for their
obligations under the offset agreement (which is imposed at the behest
of the foreign buyer) and report them to the prime contractor. The only
new reporting requirement in this proposed rule is the classification
of offset agreements and transactions by NAICS code. Even
subcontractors involved in the manufacture of defense articles are
likely to conduct business with the U.S. government and, therefore, be
required to classify their products and services in accordance with the
NAICS (See System for Award

Management User Guide--V. 1.8, July 23, 2012, Section 3.4, page 92,
available at https://www.sam.gov/sam/transcript/SAM_User_Guide_v1.8.pdf). In addition, the U.S. government takes steps
to facilitate selection of the correct NAICS code by private parties.
The U.S. Census Bureau posts instructions on its Web site on how to
properly classify products and services in accordance with the NAICS.
BIS has included illustrative examples in Sec.  701.4(c)(1)(iii) and
Sec.  701.4(c)(2)(iv) on classifying military export sales and offset
transactions by NAICS codes.
    In addition, small governmental entities and small organizations
are not likely to be involved in international defense trade, and would
therefore have no reason to submit data to BIS pursuant to this
regulation. Consequently, this proposed rule, if promulgated, will not
have a significant impact on a substantial number of small entities.

List of Subjects in 15 CFR Part 701

    Administrative practice and procedure, Arms and munitions, Business
and industry, Exports, Government contracts, Reporting and
recordkeeping requirements.

    Accordingly, 15 CFR part 701 is proposed to be amended as follows:

PART 701--[AMENDED]

0
1. The authority citation for 15 CFR part 701 is revised to read as
follows:

    Authority:  50 U.S.C. app. 2061 et. seq., E.O. 13603, 77 FR
16651, 3 CFR, 2012 Comp., p. 225.

0
2. Revise paragraphs (a) and (b) of Sec.  701.2 to read as follows:

Sec.  701.2  Definitions.

    (a) Offsets--Compensation practices required as a condition of
purchase in either government-to-government or commercial sales of:
    (1) Defense articles and/or defense services as defined by the Arms
Export Control Act and the International Traffic in Arms Regulations;
or
    (2) Items controlled under an Export Control Classification Number
(ECCN) that has the numeral ``6'' as its third character in the
Commerce Control List found in Supplement No. 1 to part 774 of this
chapter other than semi-submersible and submersible vessels specially
designed for cargo transport and parts, components, accessories and
attachments specially designed therefor controlled under ECCN 8A620.b;
test, inspection and production equipment controlled in ECCN 8B620.b,
software controlled in ECCN 8D620.b and technology controlled in ECCN
8E620.b.
    (b) Military Export Sales--Exports that are either Foreign Military
Sales (FMS) or commercial (direct) sales of:
    (1) Defense articles and/or defense services as defined by the Arms
Export Control Act and International Traffic in Arms Regulations; or
    (2) Items controlled under an Export Control Classification Number
(ECCN) that has the numeral ``6'' as its third character in the
Commerce Control List found in Supplement No. 1 to part 774 of this
chapter other than semi-submersible and submersible vessels specially
designed for cargo transport and parts, components, accessories and
attachments specially designed therefor controlled under ECCN 8A620.b;
test, inspection and production equipment controlled in ECCN 8B620.b;
software controlled in ECCN 8D620.b; and technology controlled in ECCN
8E620.b.
* * * * *
0
3. Revise paragraph (a) of Sec.  701.3 to read as follows:

Sec.  701.3  Applicability and scope.

    (a) This part applies to U.S. firms entering contracts that are
subject to an offset agreement exceeding $5,000,000 in value and that
are for the sale to a foreign country or foreign firm of: (1) Defense
articles and/or defense services as defined by the Arms Export Control
Act and International Traffic in Arms Regulations; or
    (2) Items controlled under an Export Control Classification Number
(ECCN) that has the numeral ``6'' as its third character in the
Commerce Control List found in Supplement No. 1 to part 774 of this
chapter other than semi-submersible and submersible vessels specially
designed for cargo transport and parts, components, accessories and
attachments specially designed therefor controlled under ECCN 8A620.b;
test, inspection and production equipment controlled in ECCN 8B620.b;
software controlled in ECCN 8D620.b and technology controlled in ECCN
8E620.b.
* * * * *

    Dated: November 24, 2015.
Kevin J. Wolf,
Assistant Secretary for Export Administration.
[FR Doc. 2015-30421 Filed 12-1-15; 8:45 am]
 BILLING CODE 3510-JT-P


[Federal Register Volume 83, Number 124 (Wednesday, June 27, 2018)]
[Notices]
[Pages 30208-30209]
[FR Doc No: 2018-13762]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33134; 812-14846]

Impact Shares Trust I, et al.

June 21, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1
under the Act, under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act. The requested order would permit (a) index-
based series of certain open-end management investment companies
(``Funds'') to issue shares redeemable in large aggregations only
(``Creation Units''); (b) secondary market transactions in Fund shares
to occur at negotiated market prices rather than at net asset value
(``NAV''); (c) certain Funds to pay redemption proceeds, under certain
circumstances, more than seven days after the tender of shares for
redemption; (d) certain affiliated persons of a Fund to deposit
securities into, and receive securities from, the Fund in connection
with the purchase and redemption of Creation Units; (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the Funds (``Funds
of Funds'') to acquire shares of the Funds; and (f) certain Funds
(``Feeder Funds'') to create and redeem Creation Units in-kind in a
master-feeder structure.
    Applicants: Impact Shares, Corp. (the ``Initial Adviser''), a
nonprofit corporation formed under the laws of the State of Texas that
is registered as an investment adviser under the Investment Advisers
Act of 1940, Impact Shares Trust I, (the ``Trust''), a Delaware
statutory trust registered under the Act as an open-end management
investment company with multiple series, and SEI Investments
Distribution Co., a broker-dealer registered under the Securities
Exchange Act of 1934.
    Filing Dates: The application was filed on November 28, 2017, and
amended on March 21, 2018, May 16, 2018 and May 24, 2018.
    Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on July 16, 2018, and should be accompanied by proof of
service on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-1090; Applicants: Impact Shares, Corp., 2189
Broken Bend, Frisco, Texas 75034, Impact Shares Trust I, Corporation
Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, and SEI
Investments Distribution Co., 1 Freedom Valley Drive, Oaks,
Pennsylvania 19456.

FOR FURTHER INFORMATION CONTACT: Erin C. Loomis, Senior Counsel, at
(202) 551-6721, or Parisa Haghshenas, Branch Chief, at<PHONE_NUMBER>
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling<PHONE_NUMBER>.

Summary of the Application

    1. Applicants request an order that would allow Funds to operate as
index exchange traded funds (``ETFs'').\1\ Fund shares will be
purchased and redeemed at their NAV in Creation Units only. All orders
to purchase Creation Units and all redemption requests will be placed
by or through an ``Authorized Participant,'' which will have signed a
participant agreement with the Distributor. Shares will be listed and
traded individually on a national securities exchange, where share
prices will be based on the current bid/offer market. Certain Funds may
operate as Feeder Funds in a master-feeder structure. Any order
granting the requested relief would be subject to the terms and
conditions stated in the application.
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    \1\ Applicants request that the order apply to the initial
series of the Trust (``Initial Funds'') and any additional series of
the Trust, and any other existing or future open-end management
investment company or existing or future series thereof (``Future
Funds'' and together with the Initial Funds, ``Funds''), each of
which will operate as an ETF and will track a specified index
comprised of domestic and/or foreign equity securities and/or
domestic and/or foreign fixed income securities (each, an
``Underlying Index''). Any Fund will (a) be advised by the Initial
Adviser or an entity controlling, controlled by, or under common
control with the Initial Adviser (each of the foregoing and any
successor thereto, an ``Adviser'') and (b) comply with the terms and
conditions of the application. For purposes of the requested order,
a ``successor'' is limited to an entity or entities that result from
a reorganization into another jurisdiction or a change in the type
of business organization.
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    2. Each Fund will hold investment positions selected to correspond
generally to the performance of an Underlying Index. In the case of
Self-Indexing Funds, an affiliated person, as defined in section
2(a)(3) of the Act (``Affiliated Person''), or an affiliated person of
an Affiliated Person (``Second-Tier Affiliate''), of the Trust or a
Fund, of the Adviser, of any sub-adviser to or promoter of a Fund, or
of the Distributor will compile, create, sponsor or maintain the
Underlying Index.\2\
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    \2\ Each Self-Indexing Fund will post on its website the
identities and quantities of the investment positions that will form
the basis for the Fund's calculation of its NAV at the end of the
day. Applicants believe that requiring Self-Indexing Funds to
maintain full portfolio transparency will help address, together
with other protections, conflicts of interest with respect to such
Funds.
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    3. Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Except where the purchase or redemption
will include cash under the limited circumstances specified in the
application, purchasers will be required to purchase Creation Units by
depositing specified instruments (``Deposit Instruments''), and
shareholders redeeming their shares will receive specified instruments
(``Redemption Instruments''). The Deposit Instruments and the
Redemption Instruments will each correspond pro rata to the positions
in the Fund's portfolio (including cash positions) except as specified
in the application.
    4. Because shares will not be individually redeemable, applicants
request an exemption from section 5(a)(1) and section 2(a)(32) of the
Act that would permit the Funds to register as open-end management
investment companies and issue shares that are redeemable in Creation
Units only.
    5. Applicants also request an exemption from section 22(d) of the
Act and rule 22c-1 under the Act as secondary market trading in shares
will

take place at negotiated prices, not at a current offering price
described in a Fund's prospectus, and not at a price based on NAV.
Applicants state that (a) secondary market trading in shares does not
involve a Fund as a party and will not result in dilution of an
investment in shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants represent that share market prices will
be disciplined by arbitrage opportunities, which should prevent shares
from trading at a material discount or premium from NAV.
    6. With respect to Funds that effect creations and redemptions of
Creation Units in kind and that are based on certain Underlying Indexes
that include foreign securities, applicants request relief from the
requirement imposed by section 22(e) in order to allow such Funds to
pay redemption proceeds within fifteen calendar days following the
tender of Creation Units for redemption. Applicants assert that the
requested relief would not be inconsistent with the spirit and intent
of section 22(e) to prevent unreasonable, undisclosed or unforeseen
delays in the actual payment of redemption proceeds.
    7. Applicants request an exemption to permit Funds of Funds to
acquire Fund shares beyond the limits of section 12(d)(1)(A) of the
Act; and the Funds, and any principal underwriter for the Funds, and/or
any broker or dealer registered under the Exchange Act, to sell shares
to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act.
The application's terms and conditions are designed to, among other
things, help prevent any potential (i) undue influence over a Fund
through control or voting power, or in connection with certain
services, transactions, and underwritings, (ii) excessive layering of
fees, and (iii) overly complex fund structures, which are the concerns
underlying the limits in sections 12(d)(1)(A) and (B) of the Act.
    8. Applicants request an exemption from sections 17(a)(1) and
17(a)(2) of the Act to permit persons that are Affiliated Persons, or
Second Tier Affiliates, of the Funds, solely by virtue of certain
ownership interests, to effectuate purchases and redemptions in-kind.
The deposit procedures for in-kind purchases of Creation Units and the
redemption procedures for in-kind redemptions of Creation Units will be
the same for all purchases and redemptions, and Deposit Instruments and
Redemption Instruments will be valued in the same manner as those
investment positions currently held by the Funds. Applicants also seek
relief from the prohibitions on affiliated transactions in section
17(a) to permit a Fund to sell its shares to and redeem its shares from
a Fund of Funds, and to engage in the accompanying in-kind transactions
with the Fund of Funds.\3\ The purchase of Creation Units by a Fund of
Funds directly from a Fund will be accomplished in accordance with the
policies of the Fund of Funds and will be based on the NAVs of the
Funds.
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    \3\ The requested relief would apply to direct sales of shares
in Creation Units by a Fund to a Fund of Funds and redemptions of
those shares. Applicants, moreover, are not seeking relief from
section 17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an Affiliated Person, or a
Second-Tier Affiliate, of a Fund of Funds because an Adviser or an
entity controlling, controlled by or under common control with an
Adviser provides investment advisory services to that Fund of Funds.
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    9. Applicants also request relief to permit a Feeder Fund to
acquire shares of another registered investment company managed by the
Adviser having substantially the same investment objectives as the
Feeder Fund (``Master Fund'') beyond the limitations in section
12(d)(1)(A) and permit the Master Fund, and any principal underwriter
for the Master Fund, to sell shares of the Master Fund to the Feeder
Fund beyond the limitations in section 12(d)(1)(B).
    10. Section 6(c) of the Act permits the Commission to exempt any
persons or transactions from any provision of the Act if such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities, or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Section 17(b) of the Act authorizes the Commission to grant an order
permitting a transaction otherwise prohibited by section 17(a) if it
finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13762 Filed 6-26-18; 8:45 am]
 BILLING CODE 8011-01-P