[Federal Register Volume 78, Number 73 (Tuesday, April 16, 2013)]
[Rules and Regulations]
[Pages 22659-22740]
[FR Doc No: 2013-08352]

Vol. 78

Tuesday,

No. 73

April 16, 2013

Part III

Department of Commerce

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Bureau of Industry and Security

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15 CFR Parts 730, 732, 734, et al.

Department of State

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22 CFR Parts 120, 121, and 123

Revisions to the Export Administration Regulations: Initial
Implementation of Export Control Reform; Amendment to the International
Traffic in Arms Regulations: Initial Implementation of Export Control
Reform; Final Rules

Federal Register / Vol. 78 , No. 73 / Tuesday, April 16, 2013 / Rules
and Regulations

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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 730, 732, 734, 736, 738, 740, 742, 743, 744, 746, 748,
750, 756, 758, 762, 764, 770, 772, and 774

[Docket No. 120403246-2657-01]
RIN 0694-AF65

Revisions to the Export Administration Regulations: Initial
Implementation of Export Control Reform

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Final rule.

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SUMMARY: As part of the Export Control Reform (ECR) Initiative, the
Bureau of Industry and Security (BIS), and the Directorate of Defense
Trade Controls (DDTC), Department of State, have published multiple
proposed amendments to the Export Administration Regulations (EAR) and
the International Traffic in Arms Regulations (ITAR), respectively, to
strengthen national security by fundamentally reforming the export
control system. This final rule implements the initial ECR changes by
adding a structure and related provisions to control munitions items
that the President has determined no longer warrant export control on
the U.S. Munitions List (USML) on the Commerce Control List (CCL),
specifically aircraft, gas turbine engines, and related items. This
rule is being published in conjunction with a Department of State rule
that revises the USML so that upon the effective date of both rules,
the USML and CCL and corresponding regulatory structures will be
complementary. The revisions in this final rule are also part of
Commerce's retrospective regulatory review plan under EO 13563, which
Commerce completed in August 2011.

DATES: Effective Date: This rule is effective October 15, 2013.

ADDRESSES: Commerce's full plan can be accessed at: http://open.commerce.gov/news/2011/08/23/commerce-plan-retrospective-analysis-existing-rules.

FOR FURTHER INFORMATION CONTACT: For general questions about the ``600
series'' control structure or transition related questions, contact
Hillary Hess, Regulatory Policy Division, Office of Exporter Services,
Bureau of Industry and Security, at<PHONE_NUMBER> or<EMAIL_ADDRESS>
For technical questions about the ECCNs included in this rule contact
Gene Christiansen, Office of National Security and Technology Transfer
Controls, at<PHONE_NUMBER> or<EMAIL_ADDRESS>For
questions about the definition of ``specially designed,'' contact
Timothy Mooney, Regulatory Policy Division, Office of Exporter
Services, Bureau of Industry and Security, at<PHONE_NUMBER> or
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: This final rule implements the initial ECR
changes by adding a structure and related provisions to control
munitions items that the President has determined no longer warrant
export control on the U.S. Munitions List (USML) on the Commerce
Control List (CCL). In addition to adding this control structure, this
rule creates ten new ``600 series'' Export Control Classification
Numbers (ECCNs) to control an initial tranche of items moving from the
USML to the CCL: aircraft and gas turbine engines, related parts,
components, accessories, attachments, software, and technology.
    This rule also adopts as much as possible a common definition of
``specially designed'' for use under the EAR and the ITAR, along with
other key terms used on the two control lists. In addition, this rule
addresses implementation issues related to the transition of items from
the USML to the CCL, including the continued use of DDTC-issued
licenses that include items transferred to the CCL.
    This rule implements changes that were proposed in five rules
published between July 15, 2011 and June 21, 2012 under ECR. This rule
is being published in conjunction with a Department of State rule that
revises the USML so that upon the effective date of both rules, the
USML and CCL and corresponding regulatory structures will be
complementary.

Contents

I. The Export Control Reform Initiative
    A. Background
    B. List of Proposed Rules
    C. Relationship to Other Rules Implementing ECR
II. Addition of the ``600 series'' to the CCL
    A. General Structure
    B. Reasons for Control
    C. Items Paragraph
III. Transition
    A. Delayed Effective Date
    B. Amendment to the EAR To Address Dual Licensing
    C. Transition Period and General Order No. 5
IV. Retrospective Regulatory Review
V. Part 730--General Information
VI. Part 732--Steps for Using the EAR
VII. Supplement No. 3 to Part 732--Red Flags
VIII. Part 734--Scope of the EAR
    A. Dual Licensing
    B. De Minimis
IX. Part 736--General Prohibitions
    A. Foreign-Produced Direct Product
    B. General Order No. 5
X. Part 738--CCL Overview and the Country Chart
XI. Part 740--License Exceptions
    A. Restrictions
    B. License Exception TMP
    C. License Exception RPL
    D. License Exception GOV
    E. License Exception TSU
    F. License Exception STA
    G. Other License Exception STA Changes
    H. Country Groups
XII. Part 742--Control Policy
    A. National Security (NS) Review Policy
    B. Regional Stability (RS) License Requirements
    C. RS Review Policy
XIII. Part 743--Special Reporting
    A. Conventional Arms
    B. Major Defense Equipment
XIV. Part 744--End-User and End-Use Controls
    A. ``Military End Use'' in Sec. Sec.  744.17 and 744.21
    B. China Military End-Use Control
XV. Part 746--Embargoes and Other Special Controls
    A. Iraq
    B. UN Embargoes
XVI. Part 748--Applications and Documentation
    A. Classification Requests To Confirm That Items Are Not
``Specially Designed''
    B. Unique Submission Requirements
XVII. Part 750--Application Processing, Issuance, and Denial
    A. Calculating Processing Times
    B. Shipment to Approved End Users
    C. Extended Validity
    D. Specificity on Application
XVIII. Part 756--Appeals
XIX. Part 758--Export Clearance Requirements
    A. Automated Export System (AES) Filing Regardless of Value,
Except for .y Items
    B. Furnishing of ECCNs to Consignees
    C. Removal of Obsolete References in Revised Sections
XX. Part 762--Recordkeeping
XXI. Part 764--Foreign-Produced Direct Product and Denial Orders
XXII. Part 770--Interpretations
XXIII. Part 772--Definitions (Including Specially Designed)
    A. ``Specially Designed'' Definition
    B. Other Definitions
XXIV. Part 774--The Commerce Control List
    A. Product Group Headings
    B. ECCN 0A919
    C. Aircraft and Related Items ``600 Series'' ECCNs
    D. Gas Turbine Engines and Related Items ``600 Series'' ECCNs
    E. 9Y018 ECCNs Rolled Into ``600 Series''
    F. Supplement Nos. 6 and 7--Sensitive List and Very Sensitive
List
    G. Supplement No. 4--Commerce Control List Order of Review
XXV. Procedural Amendment--Authority Citation Update

I. The Export Control Reform Initiative

A. Background

    The objective of the Export Control Reform (ECR) Initiative is to
protect and

enhance U.S. national security interests. President Obama directed the
Administration in August 2009 to conduct a broad-based review of the
U.S. export control system to identify additional ways to enhance
national security. In April 2010, then-Secretary of Defense Robert M.
Gates, describing the initial results of that effort, explained that
fundamental reform of the U.S. export control system is necessary to
enhance national security. Once the International Traffic in Arms
Regulations (ITAR) and its U.S. Munitions List (USML) are amended so
that they control only the items that provide the United States with a
critical military or intelligence advantage or otherwise warrant such
controls, and the Export Administration Regulations (EAR) are amended
to control military items that do not warrant USML controls, the U.S.
export control system will enhance national security by (i) improving
interoperability of U.S. military forces with allied countries, (ii)
strengthening the U.S. industrial base by, among other things, reducing
incentives for foreign manufacturers to design out and avoid U.S.-
origin content and services, and (iii) allowing export control
officials to focus government resources on transactions that pose
greater concern.
    On July 15, 2011, BIS published Proposed Revisions to the Export
Administration Regulations (EAR): Control of Items the President
Determines No Longer Warrant Control under the United States Munitions
List (USML) (76 FR 41958) (hereinafter ``July 15 (framework) rule'').
That rule proposed a regulatory framework to control items on the USML
that, in accordance with section 38(f) of the Arms Export Control Act
(AECA) (22 U.S.C. 2778(f)(1)), the President determines no longer
warrant export control under the AECA. These items would be controlled
under the EAR once the congressional notification requirements of
section 38(f) and corresponding amendments to the ITAR (22 CFR parts
120-130) and its USML and the EAR (15 CFR parts 730-774) and its
Commerce Control List (CCL) are completed.
    After the July 15 (framework) rule proposed this regulatory
framework, BIS published subsequent rules proposing specific changes to
the CCL, and to other parts of the EAR. Among other rules, on June 21,
2012, BIS published Proposed Revisions to the Export Administration
Regulations: Implementation of Export Control Reform; Revisions to
License Exceptions After Retrospective Regulatory Review (77 FR 37524)
(hereinafter ``June 21 (transition) rule''). That rule proposed, inter
alia, establishing a general order to facilitate the transition from
ITAR to EAR licensing jurisdiction and broadening certain EAR license
exceptions and licensing procedures to ensure they are not more
restrictive than comparable ITAR exemptions and approvals.
    This final rule implements ECR by finalizing the provisions
contained in five proposed rules published between July 15, 2011 and
June 21, 2012, which adds to the CCL military aircraft, military gas
turbine engines, and related items that the President has determined no
longer warrant export control on the USML. The Department of State made
the congressional notification required by Section 38(f) of the AECA
for removal of these items from the USML. The majority of the revisions
in this rule are specific to the munitions items that are transferred
from the USML to the CCL; however, many revisions also affect items or
transactions that were already subject to the EAR prior to the
effective date of this rule.
    Rather than adding a new paragraph to Sec.  734.3 for the Bureau of
Alcohol, Tobacco, Firearms and Explosives (ATF), as proposed, BIS is
adding a note to section 734.3(b)(1)(i) to clarify the delegations of
authority between the Departments of State and Justice with respect to
defense articles identified on the USML in the ITAR and the United
States Munitions Import List (USMIL). BIS received no comments from the
public on this issue. BIS does not believe that this change is
substantive; rather it more accurately reflects the relationship
between the USML in the ITAR and the United States Munitions Import
List.

B. List of Proposed Rules

    This rule implements amendments to the EAR proposed in the
following five rules published between July 15, 2011 and June 21, 2012
under ECR:
     Proposed Revisions to the Export Administration
Regulations (EAR): Control of Items the President Determines No Longer
Warrant Control Under the United States Munitions List (USML), (, 76 FR
41958, July 15, 2011) (RIN 0694-AF17) (``July 15 (framework) rule'');
     Revisions to the Export Administration Regulations (EAR):
Control of Aircraft and Related Items the President Determines No
Longer Warrant Control Under the United States Munitions List (USML),
(76 FR 68675, November 7, 2011) (RIN 0694-AF36) (``November 7
(aircraft) rule'');
     Revisions to the Export Administration Regulations (EAR):
Control of Gas Turbine Engines and Related Items the President
Determines No Longer Warrant Control Under the United States Munitions
List (USML), (76 FR 76072, December 6, 2011) (RIN 0694-AF41)
(``December 6 (gas turbine engines) rule'');
     ``Specially Designed'' Definition, (77 FR 36409, June 19,
2012) (RIN 0694-AF66) (``June 19 (specially designed) rule''); and
     Proposed Revisions to the Export Administration
Regulations: Implementation of Export Control Reform; Revisions to
License Exceptions After Retrospective Regulatory Review, (77 FR 37524,
June 21, 2012) (RIN 0694-AF65) (``June 21 (transition) rule'').

C. Relationship to Other Rules Implementing ECR

    This final rule is published concurrently with the Department of
State final rule, Revisions to the International Traffic in Arms
Regulations: Initial Implementation of Export Control Reform. BIS
anticipates additional final rules will be published concurrently by
both agencies moving additional munitions items from the USML to the
CCL, once the notification process is completed in accordance with
section 38(f) of the AECA and subsequent USML categories and the
corresponding Export Control Classification Numbers (ECCNs) are
published in final form.

II. Addition of the ``600 Series'' to the CCL

    In the July 15 (framework) rule, BIS proposed to add a new
``xY6zz'' control series to the CCL. This series, known as the ``600
series,'' would control most items formerly on the USML that move to
the CCL and would consolidate the thirteen existing Wassenaar
Arrangement Munitions List (WAML) entries (i.e., those entries
currently under ``xY018''). In implementing the ``600 series'' in this
rule, as discussed below, BIS took into account comments related to the
function and structure of the ``600 series'' submitted under all prior
proposed rules issued as part of ECR that would move items from the
USML to the CCL. These rules are:
     Revisions to the Export Administration Regulations (EAR):
Control of Military Vehicles and Related Items That the President
Determines No Longer Warrant Control on the United States Munitions
List, (76 FR 76085, December 6, 2011);
     Revisions to the Export Administration Regulations (EAR):
Control of Vessels of War and Related Articles the President Determines
No Longer Warrant Control Under the

United States Munitions List (USML), (76 FR 80282, December 23, 2011);
     Revisions to the Export Administration Regulations (EAR):
Control of Submersible Vessels, Oceanographic Equipment and Related
Articles That the President Determines No longer Warrant Control Under
the United States Munitions List (USML) (76 FR 80291, December 23,
2011);
     Revisions to the Export Administration Regulations (EAR):
Control of Energetic Materials and Related Articles That the President
Determines No Longer Warrant Control Under the United States Munitions
List (USML) (77 FR 25932, May 2, 2012);
     Revisions to the Export Administration Regulations:
Auxiliary and Miscellaneous Items That No Longer Warrant Control Under
the United States Munitions List and Items on the Wassenaar Arrangement
Munitions List (77 FR 29564, May 18, 2012);
     Revisions to the Export Administration Regulations (EAR):
Control of Personal Protective Equipment, Shelters, and Related Items
the President Determines No Longer Warrant Control Under the United
States Munitions List (USML) (77 FR 33688, June 7, 2012); and
     Revisions to the Export Administration Regulations (EAR):
Control of Military Training Equipment and Related Items the President
Determines No Longer Warrants Control Under the United States Munitions
List (USML) (77 FR 35310, June 13, 2012).
    These rules, as well as the rules referenced in Section I.B.,
above, published in 2011 and 2012, provided the public with extensive
notice regarding the proposed control structure and transition-related
provisions and offered a wide array of examples of proposed ``600
series'' items. The public comments BIS received in response to these
proposed rules have played an important role in helping the
Administration refine the provisions that are included in this final
rule and the corresponding Department of State final rule to achieve
initial implementation of ECR. A summary of the comments and BIS'
responses are provided below.

A. General Structure

    Under the July 15 (framework) rule, BIS proposed to add the new
``600 series'' to each applicable CCL category so that it would fall
after the 300 series (ECCNs that control items primarily for chemical
and biological weapon proliferation reasons) and before the 900 series
(ECCNs that control items for various U.S. foreign policy reasons). The
``600 series'' framework would allow for identification,
classification, and control of items transferred from the USML that,
based on their technical or other characteristics, are not classified
under an existing ECCN that is subject to controls for any reason other
than Anti-Terrorism (AT) reasons. This structure would allow for a
straightforward application of a licensing policy for items that move
to the CCL from the USML. The fourth and fifth characters of each new
``600 series'' ECCN would generally track the WAML categories for the
types of items at issue.
    BIS is adopting the general structure of the ``600 series''
proposed under the July 15 (framework) rule. Most commenters were
supportive of this structure, but some commenters were concerned that
it did not make the CCL more ``positive'' and that dual-use items may
be controlled under a ``600 series'' ECCN. BIS shares the goal of
creating a more positive control list, but maintained a goal that no
items be unintentionally decontrolled during the process of moving
items from the USML to the CCL. Since the USML contains, inter alia,
catch-all controls on parts, components, accessories, and attachments
specifically designed or modified for defense articles, most of these
catch-all controls are being moved to the CCL. BIS will continue to
work to make the CCL more positive through the multilateral regimes and
through considering public comments responding to the advance notice of
proposed rulemaking, Feasibility of Enumerating ``Specially Designed''
Components, (77 FR 36419, June 19, 2012). Also, BIS does not believe
that dual-use items or purely civil items--i.e., items that are now
subject to the EAR and not subject to the jurisdiction of the ITAR--
would be moved to a ``600 series'' entry because items in a -018 ECCN
are on the WAML and thus, even prior to this rule, are more properly
described as munitions items than dual-use or purely civil items.

B. Reasons for Control

    In proposing the ``600 series,'' the July 15 (framework) rule also
proposed the reasons for control for ``600 series'' ECCNs. Generally,
such ECCNs would be subject to National Security Column 1 (``NS1''),
Regional Stability Column 1 (``RS1''), Anti-Terrorism Column 1
(``AT1''), and United Nations Embargo (``UN'') reasons for control. In
addition, end items moving from the USML that are controlled by the
Missile Technology Control Regime, Australia Group, and Firearms
Convention would be controlled for Missile Technology Column 1
(``MT1''), Chemical and Biological Weapons Proliferation Column 1
(``CB1''), and Firearms Convention (``FC'') reasons, respectively,
under the EAR. Items that were on the CCL prior to the creation of the
``600 series'' and that move into the ``600 series'' would retain the
reasons for control to which those items were subject prior to the
creation of the ``600 series.''
    BIS is adopting the reasons for control described above in this
final rule. Some commenters were concerned that the ``600 series''
ECCNs contained too many varying controls, unilateral NS controls,
overly sensitive NS1 and RS1 controls, or could inaccurately contain MT
controls. BIS does not agree with these comments. Almost all items
moving from the USML to the ``600 series'' are also on the WAML,
particularly considering the catch-all controls in the WAML. Thus,
there is already multilateral agreement on such items and NS controls
are warranted. To the extent an item in the ``600 series'' is not on
the WAML, BIS has concluded that its inherent or unique military or
intelligence applicability warrants RS1 controls, unless the item is
specifically listed in a .y paragraph within the ECCN (see discussion
below in Section II.C for an explanation of .y paragraphs). BIS has
also determined that certain license exceptions should be available
under certain circumstances and under specific conditions in order to
better harmonize the EAR's exceptions with the exemptions in the ITAR
or to otherwise implement the national security objectives of the
reform effort as set forth above. With respect to MT controls, the
Departments of Defense, State, and Commerce have reviewed the USML to
determine which items are currently subject to MT controls. As
mentioned, BIS will continue to review the CCL to make the entries more
clear and positive, including reviewing the scope of controls on items
subject to the EAR.
    The United Nations (UN) reason for control was added to the ``600
series'' ECCNs after publication of the rule Export and Reexport
Controls to Rwanda and United Nations Sanctions Under the Export
Administration Regulations (77 FR 42973, July 23, 2012) established
this convention for identifying items controlled to UN arms-embargoed
destinations.

C. Items Paragraph

    Within each ``600 series'' ECCN, the July 15 (framework) rule
proposed that specific ``end items,'' ``parts,'' ``components,''
``accessories,'' and ``attachments'' moving from the USML would, unless
otherwise noted, be

positively enumerated in paragraphs .a through .w. Former USML
``parts,'' ``components,'' ``accessories,'' and ``attachments'' that
are not (i) enumerated in the revised, positive USML or (ii) enumerated
in a new ``600 series'' entry in paragraphs .a through .w would be
controlled in the .x paragraph of each new corresponding ``600 series''
ECCN as ``parts,'' ``components,'' ``accessories,'' and ``attachments''
``specially designed'' for items controlled elsewhere in that ECCN or
for defense articles controlled in the corresponding USML category.
    The .y paragraph of each ``600 series'' would control specific
types of ``parts,'' ``components,'' ``accessories,'' and
``attachments'' that, even if ``specially designed'' for a defense
article or ``600 series'' end item, warrant no more than AT-only
controls. Thus, one would not need to review the .x paragraph if a
``part,'' ``component,'' ``accessory,'' or ``attachment'' is described
in the .y paragraph. The .y paragraphs thus do not control the
enumerated items if they were not ``specially designed'' for a ``600
series'' item or a defense article subject to the ITAR.
    BIS received multiple comments regarding the structure of the .x
and .y paragraphs. With respect to the .x paragraph, some commenters
recommended that the descriptions of items should be more positive and
avoid the use of ``specially designed,'' while other commenters
believed that items in .x should only be subject to embargoes, end-use
controls, and end-user controls. Again, BIS shares the goal of
ultimately having a more positive list of items controlled in the ``600
series'' and the CCL generally. However, the proposed revisions must
comply with multilateral regime obligations and must not inadvertently
decontrol items that are being moved from the USML. Moreover, it would
be physically impossible and impractical to enumerate every U.S. and
foreign-origin ``part,'' ``component,'' ``accessory,'' and
``attachment'' that is or ever was ``specially designed'' for every
U.S. and foreign-origin military item. Therefore, BIS is maintaining
the use of ``specially designed'' when describing items in the .x
paragraph. Further, while items in the .x paragraph are of less
significance than the controls of the ITAR warrant, they nevertheless
warrant control beyond the requirements of parts 744 and 746 due to
their inherent military or intelligence characteristics.
    With respect to the .y paragraph, commenters expressed support for
positively enumerating items in the .y paragraph and applying an AT
control only. However, some commenters believed that .y items should be
designated EAR99, that BIS should develop a list of items that would be
controlled for AT reasons only across all ``600 series'' ECCNs, or that
.y items should be controlled under an existing ECCN subject to AT
control rather than a ``600 series'' ECCN.
    BIS does not accept these recommendations. All items described in
the .y series have been subject to the ITAR in that they, by
definition, were ``parts,'' ``components,'' ``accessories,'' or
``attachments'' specifically designed or modified for a defense
article. If such items were identified as not being ITAR controlled in
a commodity jurisdiction (CJ) determination or were not otherwise
specifically designed or modified for a defense article, then they were
not ITAR-controlled and are not now becoming subject to a .y control.
To avoid designating such items as EAR99, BIS developed the .y list
structure and is implementing the .y list structure in this final rule
to reflect the lesser military significance of such items. Also, as one
commenter alluded to, the definition of ``specially designed'' already
provides a list of ``parts'' in paragraph (b)(2) of the definition that
are militarily less significant across all categories. The .y list is
necessary for individual ``600 series'' entries because a ``part''
``specially designed'' for one end item or end use may not be
considered critical, but similar ``parts'' may be critical for a
different end item or end use. For example, ``hoses'' for military
vehicles may warrant a .y listing in the ``600 series'' controls for
military vehicles but not all ``hoses'' specially designed for military
aircraft are per se insignificant. Moreover, BIS believes that the
inherent military nature of .y items necessitates inclusion in a ``600
series'' ECCN rather than an existing ECCN with an AT reason for
control. Because different classification and marking schemes will
already be necessary for such items since they are currently subject to
the ITAR, there would be little benefit to exporters of using an
existing ECCN vis-[agrave]-vis a .y entry in a ``600 series'' ECCN
because both are subject to the same reason for control and the same
reporting requirements in the Automated Export System (AES). As
described below, part 758 is being amended to address issues pertaining
to the reporting of ``600 series'' items in AES.
    This rule does not adopt the proposal to create .y.99 paragraphs
that was first proposed in the November 7 (aircraft) rule. One
commenter raised concerns about moving items to the .y.99 paragraph if
the items were determined to be subject to the EAR under a prior CJ
determination and are not on the CCL. BIS agrees that the burden of
tracking down and analyzing whether items formally determined not to be
subject to the ITAR were also EAR99 items because they were not
identified on the CCL outweighs the once-contemplated organizational
benefits of creating the .y.99 control. Such items have already gone
through an interagency review process that concluded whether the items
were subject to the ITAR. Thus, BIS has determined that any such items
should retain EAR99 status if not otherwise identified on the CCL.
Paragraph (b)(1) of the new definition of ``specially designed'' also
reflects this understanding. An amendment to General Order No. 5 from
what was proposed in the June 21 (transition) rule, as discussed
further below in Section III.C, also addresses this issue.

III. Transition

A. Delayed Effective Date

    This rule adopts a delayed effective date of 180 days after
publication in the Federal Register. The public comments addressing the
effective date for this final rule varied. Some commenters requested a
120-day delay before the effective date while other commenters
requested a longer delay, ranging from 180 days to four years. They
cited many tasks to be performed as a result of this transition,
including classifying and marking items transferred to the CCL,
obtaining new licenses, changing internal databases, modifying
compliance practices, and training personnel. BIS and the Directorate
of Defense Trade Controls (DDTC), Department of State have taken
various steps to ease the transition from the USML to the CCL. This
final rule includes specific provisions to ease the transition process,
such as the new General Order No. 5 in Supplement No. 1 to part 736
being added to the EAR in this final rule and the provisions to address
the dual-licensing issue, that are discussed below in Sections III.B
and III.C.
    These provisions, along with the other changes included in this
final rule, are intended to ease the transition for exporters,
reexporters and transferors from the USML to the CCL and alleviate some
of the public concerns regarding the effective date of the rule. BIS
agrees that a reasonable period of transition, including a delayed
effective date for this final rule, should be provided. Therefore, this
final rule has a delayed effective date of 180 days. This approximately
six-month period will provide the regulated community a reasonable
amount of time to implement

changes to conform their export control compliance systems to the new
``600 series'' and the first ten ECCNs that are being added to the EAR
in this final rule. A longer delay, such as four years, as recommended
by one commenter, would not have been reasonable given the national
security objectives of the reform effort set out above. A 180-day
delayed effective date represents BIS's best effort to provide
sufficient time for exporters, reexporters and transferors to update
their internal systems and for BIS to provide education and outreach
services to those affected who may not have been following closely the
changes BIS has proposed over the course of the last two years.

B. Amendment to the EAR To Address Dual Licensing

    In response to the June 21 (transition) rule, many commenters
expressed concerns that the movement of items from the USML to the CCL
would result in the need to obtain a license from DDTC and a license
from BIS for many transactions that currently only require one license
from one agency. For example, exports of end items on the USML often
contain related USML parts and components in the shipment, so such
items are typically authorized under a single DDTC license, such as a
DSP-5. Since many parts and components are moving from the USML to the
CCL, this typical export scenario could require two separate
authorizations from two agencies. Further, one commenter to the June 21
(transition) rule stated that it is industry practice to include items
currently subject to the EAR in a single license application to DDTC or
under the Foreign Military Sales (FMS) program because such items will
accompany USML items in a shipment authorized under a license or
because such EAR items are included in an executed Letter of Offer and
Acceptance (LOA) under the FMS program.
    To address these issues, BIS is amending part 734 to reflect the
fact that the President has delegated to the Secretary of State the
authority to license or otherwise authorize the export, reexport or in-
country transfer of items otherwise subject to the EAR, as agreed upon
by the Secretaries of State and Commerce. (Executive Order 13637 of
March 8, 2013, Administration of Reformed Export Controls, 78 FR 16129,
March 13, 2013). The items will remain subject to the EAR, and BIS will
continue to maintain jurisdiction for licensing and enforcement.
However, applicants will be able to choose whether to use a DDTC or BIS
authorization so long as the export, reexport, or in-country transfer
meets the applicable requirements described herein.
    In accordance with new Sec.  120.5(b) of the ITAR, Sec.  734.3(e)
authorizes the export, reexport or in-country transfer of items subject
to the EAR when the items subject to the EAR will be used in or with
items subject to the ITAR and are included on the same DDTC license,
agreement, or other approval. Thus, a DDTC license, agreement, or other
approval made in accordance with Sec.  120.5(b) of the ITAR will
preclude the need for a separate license from BIS, and a BIS license
will only be required when an export, reexport, or in-country transfer
exceeds the scope of the DDTC license, agreement, or other approval or
exceeds the scope of Sec.  120.5(b) of the ITAR. DDTC added Sec.
120.5(b) to the ITAR on April 16, 2013.)
    Under this provision, DDTC has discretion in determining whether
the requirements of Sec.  120.5 have been met and whether items subject
to the EAR should be authorized under a license, agreement, or other
approval by DDTC. To provide guidance on the use of Sec.  120.5(b) of
the ITAR, items subject to the EAR may be exported, reexported, or
transferred (in-country) using a valid DDTC license, agreement, or
other approval. The following are illustrative scenarios for when such
approvals may be used:
     Parts and components subject to the EAR that will be used
in or with end items subject to the ITAR and that would otherwise
require a license from BIS may all be exported under a DDTC license,
such as a DSP-5, or reexported under a DDTC General Correspondence (GC)
approval.
     Software subject to the EAR that will be used in or with
software or an end item subject to the ITAR and that would otherwise
require a license from BIS may all be exported under a DDTC license,
such as a DSP-5, or reexported under a GC.
     Technology subject to the EAR that is used with technical
data subject to the ITAR that will be used under the terms of a
Technical Assistance Agreement (TAA) or Manufacturing License Agreement
(MLA) and that would otherwise require a license from BIS may all be
exported under the TAA or MLA.
     If a program authorized by a TAA or MLA requires that
parts and components subject to the EAR and parts and components
subject to the ITAR be shipped in furtherance of the TAA or MLA, then
DSP-5 licenses may be used. However, if the program only requires that
parts and components subject to the EAR be shipped in furtherance of
the TAA or MLA, then authorization must be obtained from BIS and DSP-5
licenses may not be used.
    One commenter also believed that another scenario would require
additional licensing--the export and subsequent installation of a ``600
series'' part or component into a foreign defense article. Under this
situation, a license may be required from BIS to export the ``600
series'' parts or components and then a TAA may be required from DDTC
to perform the defense service in order to provide the installation and
integration services with respect to a defense article. However, this
scenario differs from those above because two authorizations would
already be required under the ITAR. For instance, if the part or
component to be exported is currently on the USML, then the applicant
would need to apply for a TAA for the exchange of technical data
pursuant to providing the installation and integration service
regarding a defense article, while also applying for a separate DSP-5
license for the export of the part or component. If the part or
component is currently subject to the EAR or would become subject to
the EAR as a ``600 series'' item, then a TAA would still be required
from DDTC and a license or other authorization would be required from
BIS for the export of the part or component. Since the number of
authorizations would remain the same, this scenario would not be
eligible for the provision described above.
    Section 734.3(e) authorizes the export, reexport or in-country
transfer of items subject to the EAR when those items are subject to
licenses, agreements, or other approvals issued by DDTC to authorize
items subject to the EAR that will be exported, reexported, or
transferred (in-country) under the FMS program. Items subject to the
EAR that are included in an executed Letter of Offer and Acceptance
under the FMS program may be identified in a DSP-94 submitted in
accordance with Sec.  126.6(c) of the ITAR. The DSP-94 and use of Sec.
126.6(c) will serve as authorization for items subject to the EAR, and
no separate authorization from BIS will be required. However, any
export, reexport, or in-country transfer of an item subject to the EAR
that is outside the scope of the LOA or DSP-94 must adhere to the
requirements of the FMS case. In addition, no separate authorization
from BIS is required to supplement actions taken on FMS cases by the
Department of State's Office of Regional Security and Arms Transfers
(RSAT). Questions regarding Sec. Sec.  120.5(b) or 126.6(c) of the
ITAR; the use of any DDTC license, agreement, or other approval; or FMS

cases should be directed to DDTC or RSAT, as appropriate.

C. Transition Period and General Order No. 5

    In the June 21 (transition) rule, BIS proposed creating General
Order No. 5 in Supplement No. 1 to part 736 to describe the transition
process for items moving from the USML to the CCL upon the publication
of the pertinent final rules. The proposed general order described the
grandfathering of DDTC licenses and agreements, the use of BIS
authorizations, and the submission of disclosures to BIS and DDTC
related to the transition of items from the USML to the CCL. In
response to the proposed general order, BIS received public comments
regarding: the timing for submitting a license application to BIS,
clarification of when to submit a disclosure to BIS and when to submit
a disclosure to DDTC, a recommendation to include some form of a ``safe
harbor'' for violations when a DDTC approval is used for items subject
to the EAR, and guidance on shipping documentation.
1. Timeline for Applications, Amendments, and Grandfathering
    Because BIS and DDTC are adopting a six-month delay in the
implementation of this final rule, BIS has made corresponding
amendments to General Order No. 5 regarding the earliest date that BIS
will accept license applications for items moving from the USML to the
CCL under this final rule and under future final rules. For those
wishing to export under the authority of the EAR as soon as possible
for items moving from the USML to the CCL, applicants may submit
license applications immediately after the publication of the final
rule adding such items to the CCL. Thus, applicants may, in effect,
pre-position license applications early to facilitate processing of the
license application. Such a pre-positioned license application will be
processed in accordance with Sec.  750.4 of the EAR, but if BIS
completes processing the application prior to the effective date of the
applicable final rule, BIS will hold the application without action
(HWA), until the effective date of that final rule. Applications for
transitioned items received after the effective date of the applicable
final rule will be processed as described in Sec.  750.4 of the EAR.
    Existing holders of DDTC licenses, agreements, or other approvals,
may maintain existing authorizations or obtain new authorizations for
items moving from the USML to the CCL in accordance with DDTC's
transition plan. Proposed General Order No. 5 has been amended to more
closely correspond to DDTC's finalized transition plan. Questions
regarding the continued use of DDTC licenses, agreements, or other
approvals should be directed to DDTC.
2. Submission of Voluntary Self-Disclosures
    BIS is amending the prior guidance in proposed General Order No. 5
with respect to submitting disclosures to BIS or DDTC. The amendment
makes clear the existing recommended practice will continue to apply.
For potential violations of the EAR, persons are recommended to submit
a voluntary self-disclosure to BIS; for potential violations of the
ITAR, persons are recommended to submit a voluntary disclosure to DDTC;
and for potential violations of both the EAR and ITAR, persons are
recommended to submit disclosures to both agencies. One commenter
suggested inserting a ``safe harbor'' provision for those who use a
DDTC authorization for items subject to the EAR. BIS believes that the
addition of Sec.  734.3(e) addresses that commenter's concerns, because
it removes the dual licensing requirement that gave rise to those
concerns (see Section III.B., above). Also, if a person uses a DDTC
authorization for an item subject to the EAR that does not fall within
the circumstances described in Sec.  734.3(e), BIS will exercise
discretion in reviewing and responding to those who filed disclosures
involving such scenarios.
3. Miscellaneous Issues
    Because of the six-month implementation period for this final rule,
BIS believes that the public will have adequate time to adjust USML and
CCL notations for shipping documents. BIS, therefore, is not adding
provisions related to export clearance in General Order No. 5. BIS is,
however, amending the proposed General Order No. 5 to add a paragraph
(c) to address the removal of the proposed .y.99 paragraph for ``600
series'' ECCNs by clarifying that if the U.S. Department of State has
previously determined that an item is not subject to the ITAR and the
item is not listed on the CCL, then the item will remain designated as
EAR99.

IV. Retrospective Regulatory Review

    On January 18, 2011, President Barack Obama issued Executive Order
13563, affirming general principles of regulation and directing
government agencies to conduct retrospective reviews of existing
regulations. Although ECR did not originate with Executive Order 13563,
it is consistent in spirit and substance. On August 5, 2011, BIS issued
a notice soliciting public comment on streamlining its regulations
pursuant to that executive order (76 FR 47527). In response to public
comments received on the August 5, 2011 notice, and consistent with
BIS's internal analysis, the June 21 (transition) rule proposed
revisions to license exceptions for government uses (GOV, Sec.  740.11)
and temporary exports (TMP, Sec.  740.9) that streamlined and updated
unduly complex or outmoded provisions. At the same time, BIS broadened
certain provisions within these license exceptions to implement ECR.
One commenter to the June 21 (transition) rule stated that it
appreciated BIS's efforts to streamline this regulatory text.
    BIS intends to address other proposed changes to the EAR in
accordance with the executive order in separate Federal Register
notices. BIS received a number of comments, particularly on license
exceptions in response to the June 21 (transition) rule, that require
extensive consideration, possibly including additional proposals
seeking public comment. BIS intends to address these comments in future
rules as part of BIS's continuing retrospective review of the EAR.
    Commerce's full retrospective regulatory review plan under
Executive Order 13563 can be accessed at: http://open.commerce.gov/news/2011/08/23/commerce-plan-retrospective-analysis-existing-rules.

V. Part 730--General Information

    This rule revises the heading of Sec.  730.3 from ``Dual use
exports'' to ````Dual use'' and other types of items subject to the
EAR'' to reflect the scope of items subject to export controls under
the EAR. Similarly, the revised text notes that while the term ``dual
use'' is often used to describe the types of items subject to the EAR,
more precisely, any item that is not exclusively controlled for export
or reexport by another agency of the U.S. Government or excluded from
the EAR pursuant to Sec.  734.3(b), is subject to the EAR.
    One commenter recommended deletion of part 730, because it is not
regulatory, but guidance. BIS has not adopted this recommendation,
because it was outside the scope of this rule. The part exists for the
benefit of those new to exporting.

VI. Part 732--Steps for Using the EAR

    BIS is amending Sec. Sec.  732.2 (Steps regarding scope of the EAR)
and 732.3 (Steps regarding the ten general prohibitions) to remove text
that is redundant to that found in Sec.  736.2(b)(3)--General
Prohibition Three. BIS received one comment in

response to the July 15 (framework) rule's part 732 proposal. The
commenter recommended deletion of parts 730 and 732, because the
commenter believes those provisions are guidance and not regulatory in
nature. For reasons described in discussion to part 730 above, BIS has
decided to keep parts 730 and 732 for the benefit of those new to
exporting. However, BIS agreed with the recommendation to add a
disclaimer to part 732 stating that part 732 should only be used as a
general overview of the EAR. This disclaimer is in new Sec.
732.1(a)(3). BIS also agreed that repeating regulatory text concerning
General Prohibition Three in Sec. Sec.  732.2 and 732.3 is not useful;
therefore, the repeated text is deleted and replaced by a brief
explanation of the direct product rule (General Prohibition Three) and
a reference to Sec.  736.2(b)(3) is added to Sec.  732.2(f). Although
the June 21 (transition) rule proposed revisions to the direct product
rule, it did not propose corresponding revisions to the steps. This
final rule makes that conforming change.
    The order of review in Sec.  732.3(b) (Step 7: Classification) is
revised to add a reference to Supplement No. 4 to part 774--Commerce
Control List Order of Review. The July 15 (framework) rule proposed to
add a cross reference in Step 22 (Terms and Conditions of the License
Exceptions), Sec.  732.4(b)(3)(iv). The reference alerts exporters
that, if they are exporting under License Exceptions LVS, TMP, RPL,
STA, or GOV and their item is classified in the ``600 series,'' they
should review Sec.  743.4 of the EAR to determine the applicability of
certain reporting requirements for conventional arms exports. This rule
implements that proposal.
    The July 15 (framework) rule also proposed to revise Step 26
(license applications) to add a paragraph describing the process of
requesting License Exception STA eligibility for export, reexport or
in-country transfer of an aircraft controlled under ECCN 9A610.a. While
the July 15 (framework) rule proposed eligibility requests for ``end
items'' generally, ships, vehicles, and aircraft were the ``end items''
items identified in subsequent technical reviews as requiring a
determination of eligibility for License Exception STA, and of those,
only aircraft are included in this final rule. A reference is also
added to Step 26 to Supplement No. 2 to part 748, paragraph (w)
(License Exception STA eligibility requests), which contains
instructions for how to request in an application that subsequent
exports of such end items be eligible for License Exception STA. The
revisions to Step 26 also indicate that exporters, reexporters and
transferors may review the list of such end items that have already
been approved for License Exception STA pursuant to Sec.  740.20(g) in
the License Exceptions paragraph of ECCN 9A610. Lastly, to alert
exporters, reexporters, and transferors who wish to use License
Exception STA in such cases in which License Exception STA has been
approved, a new Note was proposed to Sec.  734.4(b)(7)(ii) to remind
them to review paragraphs (a) and (b) to determine the steps needed in
using license exceptions. BIS did not receive any comments regarding
these specific proposals.

VII. Supplement No. 3 to Part 732--Red Flags

    This rule expands the EAR's ``Know Your Customer'' Guidance and Red
Flags to provide compliance guidance for License Exception STA and the
``600 series.''
    The July 15 (framework) rule proposed creating two new red flags,
designated as numbers 13 and 14 in Supplement No. 3 to part 732, that
would be specific to ``600 series'' items in addition to the existing
12 red flags in that supplement that apply to EAR transactions
generally.
    One such proposed red flag (number 13) would address a proposed
transaction involving ``parts'' of ``600 series'' items where the
country of destination has no apparent need for the ``parts'' or for
the quantity ordered. One commenter stated this proposed red flag
overlaps with two existing red flags that address item suitability and
quantity for transactions subject to the EAR. This commenter proposed
generalizing the proposed new red flag to make it applicable to all
transactions subject to the EAR, not just ``600 series'' items. Another
commenter recommended that the phrase ``You receive an order'' in this
red flag be changed to read ``An order received'' and that the term
``components'' be added to the red flag to make the red flag consistent
with other red flags. Finally, one commenter recommended that this red
flag not apply to .y items because such application would place an
unreasonable requirement on the exporter.
    The second proposed red flag would address a proposed transaction
in which the customer indicates that the ``600 series'' items are
destined for an arms embargoed country. One commenter suggested that
this red flag be expanded to include customer indications of shipment
to destinations or end users that would be prohibited or restricted for
transactions involving all items subject to the EAR with a specific
reference to ``600 series'' items and arms embargoed destinations.
    One commenter recommended that both proposed red flags not be
adopted because they would not be applicable to any of the items
proposed for the ``600 series'' in the July 15 (framework) rule.
    This final rule makes one change to the new proposed red flags in
response to these comments. It adds the term ``components'' to red flag
number 13 because BIS believes the additional term more completely
describes the transactions that this red flag is intended to address,
although the listing of ``parts'' and ``components'' is not intended to
be an exhaustive listing of items that may fall within the scope of
this red flag because other ``600 series'' items, such as
``accessories'' and ``attachments'' could also be used in this
scenario. This final rule also makes a non-substantive clarification,
by changing references from ``item'' to ``end item'' to create greater
consistency with how the term ``end item'' is being used in the context
of this new red flag 13. Lastly, to conform to the changes being made
in this final rule, BIS is replacing the reference to arms embargoed
countries in new red flag 14, with a reference to destinations listed
in Country Group D:5 (see Supplement No. 1 to part 740 of the EAR),
which as described below, is a new country group being added to the EAR
in this final rule.
    BIS did not adopt any of the other recommendations concerning the
red flags for the following reasons. Generalizing red flags 13 and 14
to apply to the entire EAR would dilute their effect in highlighting
the military nature of the ``600 series'' items and the precautions
appropriate for such items, including the various provisions being
added to the EAR in this final rule to implement an appropriate control
structure under the EAR for these munitions items. Adopting the phrase
``An order received,'' would be only a minor stylistic change from the
proposed text that does not provide additional clarity. Excluding .y
items from red flag 13 would be inappropriate because, even though the
.y items require a license to fewer destinations than ``600 series''
items generally, they are ``specially designed'' ``parts'' and
``components'' for military items and, as such, deserve inclusion.
    Several commenters in response to the July 15 (framework) rule also
noted that exporters who will be new to the EAR because their items
were previously only subject to the ITAR would benefit by having
outreach

materials developed specifically for them to assist them in
understanding the EAR and the new ``600 series.'' Red flags in this
supplement, including the new red flags 13 and 14 being added in this
final rule, are and will be an important part of BIS's outreach
program. The BIS outreach program focuses on assisting persons involved
in transactions that are subject to the EAR in understanding their
responsibilities and what steps they can take to avoid being involved
in transactions that may violate the EAR. BIS believes the two new red
flags described above will assist those persons involved in
transactions that are subject to the EAR involving ``600 series''
items, in particular those exporters, reexporters and transferors who
will be new to the EAR.

VIII. Part 734--Scope of the EAR

A. Dual Licensing

    As described above under section III.B., BIS is amending part 734
to note the authority of DDTC to authorize certain exports of items
subject to the EAR to address public comments regarding dual licensing
concerns.

B. De Minimis

    Section 734.4 of the EAR sets forth the de minimis provisions,
which provide that foreign-made items incorporating less than de
minimis levels of U.S. content are not subject to the EAR. The July 15
(framework) rule proposed to add special restrictions for de minimis
applicability for ``600 series'' items. That rule proposed amending
Sec.  734.4 (De minimis U.S. content) by adding paragraph (b)(3) and
making a conforming change to paragraph (c). The rule proposed
restricting the scope of de minimis for ``600 series'' ``parts,''
``components,'' and other items subject to the EAR (i.e., those
classified under xB6zz, xC6zz, xD6zz and xE6zz entries). The rule also
proposed that when foreign-made items that incorporate such controlled
U.S.-origin ``600 series'' items are to be exported from abroad or
reexported to any country they are subject to the 10% de minimis rule
for U.S.-origin content rather than the 25% de minimis rule.
    Fourteen commenters found the July 15 (framework) rule proposal
regarding a revised de minimis rule for ``600 series'' items too
complex and unworkable. Commenters stated that having a 10% de minimis
rule for ``600 series'' items and a 25% de minimis rule for all other
items subject to the EAR would be extremely burdensome, if not
impossible, for the commenters to calculate.
    The June 21 (transition) rule proposal addressed the calculation
concerns of the commenters to the July 15 (framework) rule by proposing
to maintain the EAR's 25 percent de minimis rule for reexports to most
countries; and would carry forward the ITAR's zero percent de minimis
rule with respect to reexports of foreign-made items containing ``600
series'' content to countries subject to U.S. arms embargoes (Country
Group D:5 of Supplement No. 1 to part 740 of the EAR).
    BIS received eight comments to the June 21 (transition) rule. Four
commenters agreed with this approach. Four commenters disagreed with
this approach, generally suggesting that the arms embargoed countries
be subject to the same 10% de minimis threshold that applies to
countries in Country Group E:1. These commenters provided two reasons.
First, they stated that foreign manufacturers determine de minimis at
development stage and use the lowest possible threshold. The
possibility of a 0% threshold may lead to designing out EAR content.
Second, these commenters stated that three de minimis thresholds would
make determining whether an item produced outside the United States is
subject to the EAR unduly complex. BIS does not accept the
recommendations to replace the 0% with a 10% U.S. content for foreign-
made items containing ``600 series'' items destined to U.S. arms
embargoed destinations (Country Group D:5 of Supplement No. 1 to part
740). BIS also does not agree with the comments that the approach would
be unduly complex. All legal trade in defense articles is now with
countries that are not subject to U.S. arms or other embargoes, and all
such defense articles are subject to a 0% de minimis rule for all such
destinations. Thus, for example, a foreign party's transfer of a
foreign-made end item containing even one U.S.-origin ITAR-controlled
component of any value from one NATO member to another NATO member
requires State Department authorization. This naturally creates dis-
incentives to purchase U.S.-origin content even for end items to be
sold to allies of the United States. This rule changes this current 0%
de minimis rule of the ITAR for all such items to the standard 25% de
minimis rule of the EAR for all such items. Contrary to the comments,
this change is a dramatic reduction in complexity and will
significantly reduce the current incentives for buyers in such
countries to avoid purchasing what were ITAR-controlled parts and
components and what will, with this rule and successive implementations
of additional categories, become ``600 series'' items subject to the
EAR. It will at the same time maintain the status quo with respect to
the 0% de minimis rule for trade in items with countries subject to
U.S. arms embargoes. This is a simple rule--trade in foreign-made items
with non-arms embargoed countries containing U.S.-origin military items
is subject to the same rule as all other items subject to the EAR and
trade in such items with countries subject to arms embargoes is
prohibited, as is the case today. This furthers the twin U.S. policy
objectives of removing unnecessary barriers in trade with most of the
world and discouraging or indeed prohibiting trade in military items
containing controlled U.S.-origin content with arms embargoed
destinations.
    One commenter asked that BIS clarify the de minimis provisions of
the EAR by rewriting Supplement No. 2 to part 734 and by eliminating
the one-time reporting requirement that applies to technology. BIS is
not addressing this comment because it is outside the scope of any of
the proposed rules being addressed by this final rule. Two commenters
pointed out that Sec.  123.9 of the ITAR contains an exemption for
U.S.-origin components incorporated into a foreign defense article to a
government of a NATO country, or the governments of Australia, Japan,
New Zealand, South Korea and Israel without prior written approval from
DDTC. License Exception GOV is equivalent to this ITAR exemption, and
other license exceptions in part 740 may also be available, e.g.,
License Exception STA, for such transactions. One comment suggested BIS
clarify the method of calculating the de minimis value by rewriting
Supplement No. 2 to part 734 of the EAR; this recommendation falls
outside the scope of this final rule.
    In sum, this rule furthers U.S. national security and foreign
policy interests by prohibiting the reexport of foreign-made items
containing ``600 series'' content to countries subject to U.S. arms
embargoes (Country Group D:5 in Supplement No. 1 to part 740), while
removing the incentive the ITAR creates for foreign buyers to avoid
such U.S.-origin content with respect to trade by and between other
countries.

IX. Part 736--General Prohibitions

A. Foreign-Produced Direct Product

    Prior to the effective date of this rule, certain foreign-produced
direct products of U.S. technology were subject to the EAR: national
security controlled items that were direct products of U.S.

national security-controlled technology, or of a plant that is the
direct product of national security-controlled technology, when those
products were destined to countries of concern for national security
reasons (Country Group D:1) or terrorist-supporting countries (Country
Group E:1). The June 21 (transition) rule proposed to expand these
provisions by adding an additional country and product scope. Foreign-
produced direct products of U.S.-origin ``600 series'' technology, or
of a plant or major component of a plant that is a direct product of
U.S.-origin ``600 series'' technology, that are ``600 series'' items
are now subject to the EAR when reexported or exported from abroad to
countries listed in Country Groups D:1 (national security countries of
concern), D:3 (chemical and biological countries of concern), D:4
(missile technology countries of concern), D:5 (U.S. arms embargo
countries) or E:1 (countries that support terrorism) in Supplement No.
1 to part 740. Foreign-made items subject to the EAR because of this
rule are subject to the same license requirements to the new country of
destination as if they were of U.S. origin.
    BIS received three comments opposing the expanded country scope
``to include countries of concern due to nuclear proliferation or
missile technology reasons'' for ``600 series'' items on the grounds
that ``600 series'' items are controlled for national security and
regional stability reasons. BIS is not making the suggested changes and
is adopting the expansion of the country scope to countries of concern
for missile or chemical and biological weapon proliferation reasons,
because some ``600 series'' items are or likely will be only controlled
for missile technology or chemical and biological reasons. BIS does not
anticipate that any ``600 series'' items will be controlled for nuclear
nonproliferation reasons, so BIS did not propose expansion of the
foreign-produced direct product rule for ``600 series'' items to
countries of concern for nuclear proliferation and does not adopt such
an approach in this final rule.

B. General Order 5

    As described above in section III.C., BIS is amending part 736 to
add General Order No. 5 to Supplement No. 1.

X. Part 738--CCL Overview and the Country Chart

    This rule implements changes proposed in the July 15 (framework)
rule to paragraph (b) of Sec.  738.2 (Commerce Control List (CCL)
structure) by adding the new terms ``end items,'' ``attachments,''
``parts'' and ``systems'' to the description for Product Group A in
order to describe the scope of items within CCL Product Group A with
the more precise terms that are added to part 772 by this rule.
    BIS also adopts revisions to paragraph (c) of Sec.  738.2 (Order of
review) to provide a cross reference to the new Supplement No. 4 to
part 774--Commerce Control List Order of Review that is also being
added in this final rule. This new Supplement No. 4 sets forth the
steps that should be followed in classifying items that are ``subject
to the EAR'' and provides new guidance for how to classify items in
light of the addition of the ``600 series'' of ECCNs to the CCL and the
new definition of ``specially designed'' also being added with this
final rule.
    BIS had proposed in the July 15 (framework) rule to add to
paragraph (d)(1) of Sec.  738.2 (Commerce Control List (CCL) structure)
a reference to items warranting national security or foreign policy
controls at the determination of the Department of Commerce under ECCN
0Y521. BIS received one comment suggesting that the descriptor for
ECCNs that have ``5'' as their third digit should be, ``Items subject
to license requirements described in Sec.  742.6(a)(7).'' BIS does not
accept this suggestion to allow broader applicability than the items
described in Sec.  742.6(a)(7). Another commenter recommended adding
``Unilateral National Security or Foreign Policy Reasons'' as a revised
reason for control for ECCNs that have ``5'' as their third digit. This
recommendation is also not accepted. BIS notes that in the final rule
implementing the 0Y521 series, (4/13/12, 77 FR 22191) the EAR indicates
that the determination to control ECCNs that have ``5'' as their third
digit was made by the Department of Commerce, and the term ``Items
warranting national security or foreign policy controls at the
determination of the Department of Commerce'' provides a more precise
descriptor for these ECCNs.
    In Sec.  738.2(d)(1), the July 15 (framework) rule proposed to add
a reference to the ``600 series'' to indicate that items in which the
third character is a ``6'' are ``600 series'' items and controlled
because they are Wassenaar Arrangement Munitions List (WAML) and
formerly USML items subject to the jurisdiction of the EAR. As
described in Section XXIII (part 772--Definitions (including Specially
Designed)) in this rule, this rule also adds a definition of ``600
series'' to provide additional information to the public regarding this
control series. To explain the meaning of the last two numbers in ``600
series'' ECCNs, this rule adds a new paragraph (d)(1)(iv) that
indicates that the last two characters of each ``600 series'' ECCN,
with few exceptions, track the WAML categories for the types of items
at issue. In order to stay consistent with the general structure of the
groups within the CCL Categories, the Wassenaar Arrangement ML21
(``software'') and ML22 (``technology''), however, are rolled into the
existing D (``software'') and E (``technology'') CCL product groups.
The WAML numbering structure for the last two characters is generally
used rather than the USML numbering structure because the majority of
items to be transferred are subject to the WAML, although the ``600
series'' is not limited to items on the WAML. Thus, the numbering
scheme is generally consistent with such controls. BIS, however,
deviated from this scheme with respect to the new controls on military
aircraft engines and related items that fall under new ECCNs 9A619,
9B619, 9C619, 9D619, and 9E619. WAML Category 19 controls directed
energy weapons, but BIS has used the ``19'' ECCN suffix in order to
track the new USML category XIX that identifies the military aircraft
engines and related items that were formerly controlled under USML
Category VIII(b).
    This structure makes it easier to see that the United States
continues to control all WAML items. In addition, multinational
companies that must deal with both the USML system and the numbering
system of most other allied countries (which generally track the WAML)
should find compliance and tracking of controlled items somewhat
easier.
    BIS received one comment suggesting that the ``600 series''
descriptor should be ``Commerce Munitions List.'' BIS did not accept
the suggestion because it is not creating a new list of controlled
items but rather incorporating items formerly subject to the ITAR into
the existing Commerce Control List.
    This rule revises Sec.  738.2(d)(2)(ii) to state that in some ``600
series'' ECCNs, the STA license exception paragraph or a note to the
License Exceptions section contains additional information about
License Exception STA applicability to that ECCN. This sentence is
needed to distinguish the role of STA paragraphs in the License
Exception sections of ``600 series'' ECCNs from the role of those
paragraphs in other ECCNs where the STA paragraph only denotes
ineligibility of STA for destinations listed in Sec.  740.20(c)(2).
Upon the effective date of this final rule, those destinations will be
listed in Supplement No. 1 to part 740, Country Group A:6. As described
below in more

detail and briefly mentioned above, Country Group A:6 is one of the new
country groups added to the EAR in this final rule. BIS proposed this
revision to the text of Sec.  738.2(d)(2)(ii) in the November 7
(aircraft) rule and received no comments. This final rule adopts the
proposed text without change. As a conforming change, BIS is also
replacing the phrase ``eight destinations listed in Sec.  740.20(c)(2)
of the EAR'' where it appears in ECCN entries in part 774 with the
phrase ``destinations listed in Country Group A:6 (see Supplement No. 1
to part 740 of the EAR).''

XI. Part 740--License Exceptions

    License Exceptions are published authorizations set forth in part
740 of the EAR that allow exports, reexports, and in-country transfers
that would otherwise require a license to proceed without one if
certain conditions are met. License Exceptions operate under the EAR
the same way exemptions operate under the ITAR.
    A general principle underlying the incorporation of the ``600
series'' into the EAR is that, because items subject to the EAR are
less militarily significant than those subject to the ITAR, EAR
exceptions should not be more restrictive than comparable ITAR
exemptions. BIS recognizes that several commenters to the June 21
(transition) rule agreed with this principle. The June 21 (transition)
rule proposed to harmonize the provisions of several EAR license
exceptions with several ITAR exemptions, as set out in detail below,
but only insofar as they are permitted by law and otherwise relevant to
``600 series'' items and other items subject to the EAR. In particular,
BIS has no authority to change the scope of license exceptions
available for items controlled for MT reasons because of statutory
restrictions. See section (6)(l) of the Export Administration Act of
1979, as amended, 50 U.S.C. app. Sec.  2405(l).
    When a license exception authorizes reexports under certain terms
and conditions, there is no national security or foreign policy
objective met by restricting in-country transfers that also meet those
terms and conditions. In the June 21 (transition) rule, BIS proposed
revising License Exceptions TMP and GOV (Sec. Sec.  740.9 and 740.11,
respectively) to explicitly provide authorization for in-country
transfers.
    One commenter responding to the July 15 (framework) rule stated
that ``no limitation should be placed on in-country transfers of
licensable items.'' The commenter continued, ``[t]he prospect that an
item exported to an entity in a foreign country may be transferred to
another entity in the same licensed country is inherent in the
assessment of an export transaction. Accordingly, part 740 of the EAR
should be revised to exclude all mentions of ``transfers (in-
country).'' BIS does not agree with this comment. The EAR's end-use and
end-user controls evidence a longstanding policy that an assessment of
an export transaction involves more than the country of destination.
Further, conditions on most licenses restrict subsequent transfer of
the licensed items. Rather than include in-country transfers in some
license exceptions and not in others when the policy rationale is the
same, this rule revises Sec.  740.1 to state that, when a license
exception authorizes reexports, in-country transfers meeting the terms
and conditions of the reexport are also authorized. While this specific
revision was not proposed in the June 21 (transition) rule, it is a
logical outgrowth of BIS's original proposal that stems from reviewing
the related public comment and further thinking about how in-country
transfers are addressed in part 740.

A. Restrictions

    Section 740.2 describes restrictions on all license exceptions, and
this rule adds certain restrictions specific to ``600 series'' items in
new paragraphs (a)(12) through (a)(16).
    In the July 15 (framework) rule, BIS proposed adding to Sec.  740.2
new paragraphs (a)(12) (restricting the use of license exceptions to
countries subject to a United States arms embargo) and (a)(13)
(restricting the use of license exceptions for ``600 series'' items
destined to countries other than those listed in proposed (a)(12)). In
the June 21 (transition) rule, BIS proposed that in addition to items
destined to arms-embargoed countries, items shipped from or
manufactured in those destinations also be restricted from license
exceptions. With this final rule, BIS adopts the (a)(12) proposal with
an additional change. Rather than list the countries in (a)(12), they
are being identified in a new Country Group D:5 (Supplement No. 1 to
part 740 of the EAR), as explained below in the Country Groups
discussion (Section XI.H). The restriction on using license exceptions
for ``600 series'' items destined to, shipped from, or manufactured in
a destination subject to a United States arms embargo as described in
Sec.  126.1 of the ITAR remains set forth in paragraph (a)(12). One
commenter recommended deleting Yemen from the (a)(12) list of countries
to reflect an amendment to the ITAR; BIS agrees with this comment, and
this rule does so in Country Group D:5. Further comments received on
paragraph (a)(12) are described below, as part of the discussion of
Country Groups in Section XI.H.
    Paragraph (a)(13) is adopted as set forth in the July 15
(framework) rule. The license exceptions available for ``600 series''
items are listed in paragraph (a)(13). Each exception is available
according to the terms and conditions set forth in its section and
subject to the restrictions in Sec.  740.2.
    Finally, in the June 21 (transition) rule, BIS proposed adding to
Sec.  740.2 two new paragraphs (a)(15) and (a)(16) restricting the
availability of license exceptions for certain ``600 series'' exports
for which prior notification to Congress will be made. This rule
changes BIS's original proposal, as explained below in the discussion
of ``600 Series Major Defense Equipment'' in Section XIII.B.

B. License Exception TMP

    This rule revises Sec.  740.9, License Exception Temporary imports,
exports and reexports (TMP) paragraphs (a) (Temporary exports and
reexports) and (b) (Exports of items temporarily in the United States)
to streamline the existing exception consistent with the retrospective
review and regulatory improvement directed in E.O. 13563, and to
broaden the exception to correspond to certain ITAR exemptions. BIS
proposed these revisions in the transition rule.
    BIS received three comments stating that, to correspond to the
ITAR, TMP should provide for the return or disposal of items within
four years rather than the current one year, and a further five
comments stating that when authorization to retain the item abroad
beyond one year is requested, that authorization be valid for four
years rather than a one-time extension of six months.
    BIS does not agree that the term of TMP should be four years in
order to correspond to the ITAR. Under the ITAR, most exemptions for
temporary export require some other form of authorization to be in
place for the exemption to be available. These requirements mean that
simply extending TMP to a four-year term generally would be
significantly more expansive than the ITAR exemptions. However, to
better approximate ITAR controls, this rule revises TMP to provide
that, when authorization to retain the item abroad beyond one year is
requested, the term of the authorization may be for a total of four
years rather than just an additional six months.

    Four commenters questioned the term ``order to acquire,'' seeking
clarification on whether a purchase order would be considered an
example of an order to acquire an item. BIS confirms that a purchase
order would be one such example, and adds that example in this final
rule. Four commenters asked for clarification that the term ``U.S.
persons and their employees'' referred to employees of foreign
branches. BIS is maintaining the existing definition in License
Exception TMP of ``U.S. persons,'' which does not include foreign
branches. Thus, no regulatory change is required.
    Seven commenters stated that Sec.  740.9(a)(3)(i)(B), as proposed
in the June 21 (transition) rule, introduces ``additional recordkeeping
requirements'' for a temporary export of technology as a tool of trade
by a non-U.S. person. In fact, prior to publication of that proposed
rule, that requirement existed in the EAR in Sec.
740.9(a)(3)(iv)(A)(2). It was originally published on December 12, 2007
(72 FR 70509) in a rule that established the ability to temporarily
export technology as a tool of trade under License Exception TMP, which
had previously been limited to commodities and software. This 2007
expansion of TMP was based in part on Sec.  125.4(b)(9) of the ITAR,
which allows certain exports of technical data by U.S. persons. The
2007 rule also required that the employers of non-U.S. persons document
the need to travel, as a safeguard to the expansion of the tools of
trade provision of TMP beyond U.S. persons. This restriction does not
impose additional requirements on any permanent release of technology,
because License Exception TMP does not authorize any new (i.e.,
previously unauthorized) release of technology. It authorizes temporary
exports of that technology as a tool of trade. BIS believes the
commenters misconstrued this provision, and this final rule adopts it
as proposed in the June 21 (transition) rule.
    In the June 21 (transition) rule, BIS proposed that temporary
exports under License Exception TMP to a U.S. person's foreign
subsidiary, affiliate, or facility abroad would no longer be limited to
exports to Country Group B countries in order to make TMP consistent
with Sec.  123.16(b)(9) of the ITAR. Three commenters recommended
adding ``materials'' to the types of items eligible for this provision.
BIS did not make this change. Materials are unlikely to be returned in
the form received and are inappropriate for this provision.
    Four commenters recommended replacing the country scope ``E:2,
Sudan and Syria'' with ``E:1'' throughout TMP. BIS agrees that this
expression is clearer and has made this change.
    One commenter requested that the requirement for personal
inspection of body armor be dropped. In this final rule, BIS has
dropped the entire paragraph relating to body armor. The issue will be
addressed in a future final rule that will address controls on personal
protective equipment.
    This rule updates the provision authorizing certain tools of the
trade for Sudan by removing outdated technical parameters and ECCN
paragraph references that no longer exist.
    Consistent with Sec.  123.19 of the ITAR, this rule adds a note to
the temporary imports paragraph of License Exception TMP stating that a
shipment originating in Canada or Mexico that incidentally transits the
United States en route to a delivery point in the same country does not
require a license. BIS did not receive public comments on this note and
adopts it as proposed in the June 21 (transition) rule. A note
regarding shipments from one location in the United States to another
location in the United States via a foreign country, also proposed in
the June 21 (transition) rule, was not adopted in this final rule. BIS
received no comments on this note, but, upon further review and
interagency consultation, BIS determined that the concept is already
implicit in Sec.  734.2(b)(8). Therefore, BIS deleted the proposed
note.
    An additional note explaining that defense articles on the USMIL
are controlled by the Bureau of Alcohol, Tobacco, Firearms and
Explosives (ATF) for purposes of permanent import under its regulations
at 27 CFR part 447, proposed in the June 21 (transition) rule, was not
adopted because it duplicates the USMIL description added to part 734
(described above).
    Three commenters requested confirmation that Sec.  740.9 (b)(3)
applies to technology. BIS confirms that it does; technology is a
component of the definition of ``items,'' as defined in Sec.  772.1.

C. License Exception RPL

    In the July 15 (framework) rule and the June 21 (transition) rule,
BIS proposed changes to Sec.  740.10 (Servicing and replacement of
parts and equipment (RPL)). The July 15 (framework) rule proposals all
related directly to servicing and replacement of ``600 series'' items.
The June 21 (transition) rule proposals were related to a similar ITAR
exemption.
    In the July 15 (framework) rule, BIS proposed revising RPL to: (1)
Add ``600 series'' ``parts,'' ``components,'' ``accessories,'' and
``attachments'' to the scope of this authorization; (2) impose
restrictions on the use of License Exception RPL for the export or
reexport of ``parts,'' ``components,'' ``accessories,'' and
``attachments'' classified in ``600 series'' ECCNs; (3) authorize
exports and reexports of certain items ``subject to the EAR'' to or for
a defense article described in an export or reexport authorization
issued under the authority of the AECA; and (4) exclude from
authorization the export or reexport of ``parts,'' ``components,''
accessories,'' or ``attachments'' that are defense articles identified
on the USML (22 CFR Sec. Sec.  120.6 and 121.1). In this final rule,
BIS adopts all of these proposals.
    One commenter to the July 15 (framework) rule suggested that
``accessories'' and ``attachments'' be removed from License Exception
RPL, as they are by definition not necessary for items' operation. BIS
does not agree with this suggestion, as servicing and replacement of
``accessories'' and ``attachments'' may be within the scope of
transactions conducted under this license exception and thus should be
authorized.
    The June 21 (transition) rule proposed to revise RPL to allow
export or reexport of spares up to $500 in total value, and to remove
the requirement that the ability to return serviced commodities and
software or replace defective or unacceptable U.S.-origin equipment be
limited to the original exporters. BIS is not adopting these proposals
at this time, for the reasons explained below.
    Six commenters addressed this proposal, most requesting
clarification of the relationship between the shipment of spares under
proposed revised RPL and low-value shipments under existing License
Exception LVS. Two commenters proposed different ways of valuing the
spares or suggested placing a value limit on the item shipped or the
transaction rather than the shipment. One comment recommended
restructuring the exception into separate paragraphs for spares as
distinguished from one-for-one replacement parts, and another comment
recommended numerous changes, amounting to a thorough revision of the
license exception. Additionally, in response to the July 15 (framework)
rule, BIS received a comment recommending that RPL define enhancement
resulting from servicing or replacement of parts or components as
``affecting a controlled characteristic of an end item.''
    Unlike License Exceptions TMP and GOV, BIS did not propose a
wholesale clarification and streamlining of RPL in

the June 21 (transition) rule. Based on public comments and internal
analysis, however, BIS has concluded that a completely revised RPL
should be proposed separately as part of a retrospective regulatory
review, using public comments already received as part of the basis for
the new proposal. While the June 21 (transition) rule proposal to amend
RPL was related to a similar ITAR exemption, it was not specific to the
``600 series.'' As such, and because BIS plans to propose comprehensive
revisions to RPL, this final rule adopts only the changes to RPL
proposed in the July 15 (framework) rule. It does not adopt changes
proposed in the June 21 (transition) rule or address comments received
in response to those proposed changes in this final rule.

D. License Exception GOV

    Consistent with the retrospective review and regulatory improvement
directed in Executive Order 13563, the June 21 (transition) rule
proposed to completely revise Sec.  740.11, License Exception GOV
(Governments; International Organizations; International Inspections
under the Chemical Weapons Convention; and the International Space
Station). Prior to the effective date of this rule, License Exception
GOV contained references to items on the Wassenaar Arrangement's
Sensitive and Very Sensitive Lists, which necessitated annual
regulatory revisions and was so lengthy that it required a supplement
to the section. The June 21 (transition) rule proposed shortening and
simplifying License Exception GOV by including the Sensitive and Very
Sensitive Lists as supplements to part 774, described below in Section
XXIV.F. BIS received no public comments on this simplification, and
this final rule adopts it without change.
    The July 15 (framework) rule proposed restricting certain ``600
series'' items' eligibility for License Exception GOV, and the November
7 (aircraft) rule proposed changes with respect to restricting certain
aircraft-related software and technology as listed in a proposed
Supplement No. 4 to part 740. The December 6 (gas turbine engines) rule
added restrictions on certain engine-related software and technology to
Supplement No. 4 to part 740. This final rule, however, does not adopt
the proposal to include Supplement No. 4 to part 740, and instead
incorporates these restrictions into the relevant ECCNs for ease of
use, as described below in Sections XXIV.C and .D.
    As proposed in the June 21 (transition) rule, this rule expands GOV
to authorize items consigned to non-governmental end users, such as
U.S. Government contractors, acting on behalf of the U.S. Government in
certain situations, subject to written authorization from the
appropriate agency and additional export clearance requirements. One
commenter on the June 21 (transition) rule noted its agreement with
BIS's proposal to extend GOV to U.S. Government contractors. Two
commenters on the June 21 (transition) rule suggested that the
requirement for written authorization be deleted in favor of relying on
the actual contract, noting that certification is a burden on both the
exporter and on the Department of Defense, and that OFAC's Sudanese
Sanctions Regulations (31 CFR part 538) are less restrictive with a
similar purpose. Another commenter requested confirmation that the
exception includes subcontractors under certain contract clauses, and
asked that the final rule include examples and scenarios. This final
rule adopts as proposed the requirement for written authorization and
does not allow use of the license exception by subcontractors. Given
the broad scope of items authorized under the GOV license exception,
written authorization and a direct relationship between the exporter
and the U.S. Government is necessary to ensure proper use of the
exception. BIS does not include examples in this final rule, but will
attempt to generate such scenarios to include in outreach efforts. Four
commenters recommended that references to A:1 countries, a narrow group
of close allies, be replaced with ``Wassenaar member countries,'' a
broader group. Another commenter recommended expanding the provisions
available for cooperating governments to include all of Country Group
B. Given the broad scope of items authorized under the GOV license
exception, BIS considers the suggested changes to the country scopes
too broad, and therefore does not accept them.
    One commenter recommended deletion of the requirement for a
statement that the U.S. Government owned the property being exported
because it was too broad. BIS agrees and has limited the requirement to
Government Furnished Equipment. In response to a request for
clarification of the scope of a provision describing programs related
to capacity-building and counterterrorist operations, BIS determined
that the provision was subsumed by a less specific provision describing
cooperative efforts with foreign governments or international
organizations, and deleted the unclear provision.
    This rule also adopts provisions for exports made under the
direction of the U.S. Department of Defense consistent with Sec. Sec.
125.4(b)(1), 125.4(b)(3) and 126.6(a) of the ITAR. This provision was
proposed in the June 21 (transition) rule and received no comments.
    The June 21 (transition) rule proposal to add a note regarding
authorization of Foreign Military Sales is not adopted in this final
rule. Authorization of Foreign Military Sales is addressed above in
section III.B.
    This rule adopts provisions in the June 21 (transition) rule that
expands the scope of countries eligible to receive items on the
Sensitive List under Sec.  740.11(a) (International Safeguards) and (c)
(Cooperating Governments) to include the governments of those 36
countries listed in new Country Group A:5, discussed below in Section
XI.H. BIS received no comments on this proposal.
    This rule makes one correction to GOV as proposed in the June 21
(transition) rule. Section 740.11(b)(2)(iii)(G) has been amended to
remove ``defense articles'' from the parenthetical in that paragraph
since BIS does not have jurisdiction over items subject to the ITAR.

E. License Exception TSU

    This rule implements revisions proposed in the June 21 (transition)
rule to Sec.  740.13 License Exception Technology and Software--
Unrestricted (TSU) that would include training information in the
operation technology authorized, as it is in Sec.  125.4(b)(5) of the
ITAR. This rule also adds TSU authorization for the release of software
source code and technology in the United States by U.S. universities to
their bona fide and full-time regular foreign national employees to
correspond with a similar authorization in Sec.  125.4(b)(10) of the
ITAR. Further, this rule amends TSU to add an authorization
corresponding to Sec.  125.4(b)(4) of the ITAR for copies of technology
previously authorized for export to the same recipient.
    Two commenters stated that the revised TSU for university employees
should not be subject to the end-use and end-user restrictions in part
744 of the EAR because such restrictions do not now exist in the
comparable ITAR exemption at Sec.  125.4(b)(10). In addition, the
commenters said that TSU should not preclude the unlicensed release of
encryption-related software controlled for ``EI'' and other software
and technology controlled for ``MT'' (Missile Technology) reasons
because ITAR Sec.  125.4(b)(10) does not now preclude the release of
such software and

technology to bona fide university employees under the exemption. This
rule does not make the suggested revisions. While license exceptions
under the EAR should not be more restrictive than corresponding
exemptions under the ITAR, license exceptions must be implemented
within the framework of the EAR. The restrictions proposed in the
transition rule are consistent with those imposed on other license
exceptions for national security and foreign policy reasons, and
restrictions on MT items are statutory. Another commenter recommended
that the provision be extended to entities other than universities. BIS
does not accept this recommendation. This provision broadened TSU to
correspond with an ITAR exemption for university employees; its
expansion to other entities would exceed that rationale.
    One commenter suggested that the university employee's requirement
not to transfer technology survive his employment at the university;
BIS agrees, because export controls on technology exist independently
of nondisclosure or other agreements. Another commenter suggested
striking the prohibition on ``establishing or producing items,''
because the phrase is not uniquely defined in the EAR and does not
provide clarity about what it excludes. BIS agrees with this analysis
and has made this revision.
    With respect to paragraph (g), one commenter suggested deleting
``copies'' from the heading and revising the text accordingly. BIS does
not accept this recommendation. ``Copies'' is an accurate description
of the intended scope of the provision.

F. License Exception STA

    This final rule describes how and under what circumstances License
Exception STA may be used for ``600 series'' items. This rule
implements the proposals regarding License Exception STA that appeared
in the July 15 (framework) rule, the November 7 (aircraft) rule and the
June 21 (transition) rule. Generally, License Exception STA will be
available for exports, reexports and transfers (in-country) of ``600
series'' items to any of the 36 destinations currently listed in Sec.
740.20(c)(1) (which this rule will move to a new Country Group A:5 in
Supplement No. 1 to part 740), but not to the destinations currently in
Sec.  740.20(c)(2) of the EAR (which this rule will move to a new
Country Group A:6 in that supplement). As with all license exceptions
in the EAR, its use is optional. If an exporter, for example, prefers
to export an item otherwise eligible to be exported under License
Exception STA under the authority of a license, then the exporter may
apply for such a license.
    License Exception STA may not be used for any ``600 series'' items
identified in the relevant ECCN as not being eligible for export under
STA. It may not be used to export, reexport, or transfer (in-country)
``600 series'' items to persons, whether non-governmental or
governmental, unless those persons are in and, if natural persons,
nationals of a country listed in Country Group A:5 or the United States
and either (a) the ultimate end user for such items is the armed
forces, police, paramilitary, law enforcement, customs, correctional,
fire, or a search and rescue agency of a government of one of the
countries listed in Country Group A:5 or the United States Government,
or (b) are for the ``development'' or ``production'' of an item in one
of the countries listed in Country Group A:5 or the United States that
will ultimately be used by any such government agencies, the United
States Government, or a person in the United States. It may not be used
to export, reexport, or transfer (in-country) end item aircraft
described in ECCN 9A610.a until after BIS has approved their export
under STA under the procedures set out in Sec.  740.20(g) of the EAR.
It may not be used to export, reexport, or transfer (in-country) ``600
series'' items ``subject to the EAR'' if they are ``600 Series Major
Defense Equipment'' and the value of such items in the contract
requiring their export exceeds $25,000,000. This rule also will add
provisions to the License Exception STA consignee statement that will
apply only to shipments containing ``600 series'' items. The consignee
will have to acknowledge the end-use and consignee restrictions that
apply to ``600 series'' shipments under License Exception STA and
consent to U.S. Government post-shipment verifications.
    BIS is implementing these changes to License Exception STA with
respect to ``600 series'' items because such items are, by definition,
military items or specially designed for military applications and thus
warrant controls beyond those dual-use and civil items eligible for
export under STA. This revised License Exception STA will enhance
national security because it will, with respect to such items, (a)
allow for greater interoperability between the United States and its
NATO and other multi-regime allies because it will permit more
efficient and quick trade in such items than is now possible under the
ITAR, (b) enhance the United States industrial base by reducing the
incentive for buyers in such countries to avoid or design out such
U.S.-origin content and, thus, create more opportunities to be regular,
predictable suppliers to buyers in such countries, (c) allow the
government to focus its limited licensing resources on transactions of
concern rather than those that are routinely approved, and (d) allow
for greater enforcement- and compliance-related visibility into such
transactions.
    BIS received several comments concerning License Exception STA as
it applies to ``600 series'' items. The comments and BIS's responses
are summarized below.
    One commenter noted that, in some instances, ``600 series''
``components'' could be sent to an STA eligible destination for
incorporation into an end item that would be exported to a non-STA
eligible destination. One commenter requested that BIS ``pre-approve''
such end items for de minimis treatment. Another commenter stated its
belief that License Exception STA may not be used to export a part that
will be incorporated into an end item that will be shipped to a non STA
eligible destination. This commenter asked that BIS clarify that the
exporter of the ``600 series'' part could list the manufacturer of the
end item as the end user on a license application because the end item
would not be subject to the EAR.
    License Exception STA states that ``600 series'' items must be for
ultimate government end-use to be eligible. If a ``600 series'' part or
component to be exported is destined for ultimate end use by a
government that is not among the STA-36 or the United States, then a
license is required to export the part or component. However, there may
be a third scenario in which items are not destined for end use in an
STA-36 country but are destined for an end use that has been explicitly
authorized by the U.S. Government. To address this scenario, BIS has
made a change to STA as discussed below in Section XI.G.
    One commenter stated that paragraph (c)(1) in License Exception STA
appears to exclude from STA all ECCNs that have antiterrorism as a
reason for control. This same commenter expressed a belief that only
governments would be eligible recipients of ``600 series'' items under
License Exception STA. The commenter noted that the latter limit could
seriously disrupt supply chain activity because licenses would be
needed to supply vendors who supply STA eligible governments.
    BIS believes that this commenter misconstrues the terms of License
Exception STA as proposed in the July 15 (framework) rule, the November
7 (aircraft) rule and the June 21

(transition) rule. Paragraph (c)(1) of Sec.  740.20 refers to
``Exports, reexports and in country transfers in which the only
applicable reason for control is . . ..'' This text in the June 21
(transition) rule is unchanged from the current text of paragraph
(c)(1), except in that it identifies the authorized destinations and
nationals by Country Group A:5. BIS has consistently construed the
phrase ``applicable reason for control'' to mean the reasons for
control that would impose a license requirement on the export, reexport
or in country transfer at issue, not every reason for control that
appears in the ECCN that covers the item being shipped. In accordance
with part 742, AT controls do not apply to any destination for which
License Exception STA is available. As proposed in the July 15
(framework) rule and the November 7 (aircraft) rule, this rule makes
private sector parties eligible recipients of ``600 series'' items
exported under License Exception STA if the ``600 series'' item is for
ultimate end use by a designated agency of an eligible government or
for development, production, operation, installation, maintenance,
repair, overhaul, or refurbishing in an eligible country or the United
States for use by such a government agency or by the United States
Government. Because ``600 series'' ECCNs do not specify controls on
``use'' software or technology, the term ``use'' does not appear for
those items in this license exception.
    The June 21 (transition) rule contained a note 2 to paragraph (c)
providing that License Exception STA may authorize export, reexport or
in country transfer of ``600 series'' items only if the purchaser,
intermediate consignee, ultimate consignee and end user have previously
been approved on a license issued by BIS or the Directorate of Defense
Trade Controls. This proposal elicited a number of questions and
comments.
    Commenters wanted to know whether the previous license had to be
for the same commodity as will be shipped under License Exception STA,
whether the validity of the prior license for purposes of STA
eligibility continues after the name of the party changes and whether
the prior license for a party authorized use of License Exception STA
for all locations of that party within one country.
    The purpose of this requirement is to provide some assurance that
the foreign parties in transactions involving ``600 series'' items
under License Exception STA are reliable as evidenced by the fact that
either BIS or DDTC have approved licenses for transactions in which
that party was involved. Plans to export under License Exception STA a
different item than that under previous licenses do not alter the fact
that the U.S. Government had vetted through the licensing process the
foreign parties at issue in the transaction. Also not affecting the
conclusion that the U.S. Government has vetted a foreign party through
the licensing process is if the company changes its name or has offices
at various addresses. Because the approval must have been for the party
that will receive items under STA, an approval for a different entity,
even if it is related to or affiliated with that party, would not meet
the requirements for note 2 to paragraph (c)(1). BIS believes that no
changes are needed to the text proposed in the June 21 (transition)
rule to implement these points.
    One commenter asked whether exporters would be required to provide
the information about approved parties and, if so, specifically what
information would have to be provided and how often would it have to be
provided. The commenter suggested that the exporter should be required
to provide the information only for the initial export under License
Exception STA to the party.
    The June 21 (transition) rule did not propose any requirement that
the exporter report to BIS information about the prior licenses. As
with other license exceptions, by entering STA (or the corresponding
AES license code) into AES, the exporter represents to the United
States Government, subject to penalties for false statements, that all
of the requirements of License Exception STA have been met. In
addition, parties to transactions that are subject to the EAR must
provide BIS or other authorized U.S. Government agency with documents
relating to the transaction upon request. BIS believes that no change
to the text as proposed in the June 21 (transition) rule is needed on
this point.
    Some commenters noted that parties wishing to use STA would not
have access to licensing records from which they could determine
whether the party to which they wish to ship under License Exception
STA had previously been on an approved license. These commenters
recommended several changes to address this issue. One recommendation
was to remove the requirement because ordinary screening of customers
as part of company compliance programs should be adequate and,
especially with exports to close allies, additional measures should not
be needed. Another recommendation was that the government, which has
all the licensing records needed to determine whether a party was on a
previously approved license, could provide the information (including
known name changes) on a Web site. Additionally, the government could
implement a procedure whereby AES could notify an exporter who wishes
to use License Exception STA for a ``600 series'' item that the
consignee is not an eligible recipient. Such a notice could be based on
the fact the consignee has not previously appeared on an approved
license or on other non-public information that the government
possesses.
    Items in the ``600 series'' are military items or items that are
designed for military application. Although they are less significant
military items that the President has determined do not warrant control
on the USML, they nonetheless, as military items, warrant export under
more extensive safeguards against diversion than are applied to some of
the other items that are subject to the EAR. The presence of a party on
a previous license provides such a safeguard for such items because it
indicates that the United States Government has reviewed that party and
approved a transaction in which that party participated. Although
providing access to the information obtained in connection with a
license application about the identity of parties on approved licenses
to the public via a Web site would likely make use of License Exception
STA for ``600 series'' items easier, Section 12(c) of the Export
Administration Act precludes such disclosure absent a finding that
doing so is in the national interest. Given the widespread access to
items posted on public Web sites, including access by persons not
intending to use License Exception STA, such a finding would be
unlikely. Attempting to modify AES in the way suggested is not yet
feasible. Moreover, AES filings for ``600 series'' items will take
place shortly before the time of export. An exporter relying on AES to
screen out ineligible consignees would have done all of the work
necessary for an STA shipment including furnishing the ECCN(s) to and
obtaining the required statement from the consignee only to find out
almost at the moment of shipment that the consignee is not eligible.
BIS expects that, in most instances, a consignee that is willing to
make the commitments and certifications required under License
Exception STA will also be willing to confirm to the potential
exporter, reexporter or transferor whether it has been a party on any
approved licenses. Accordingly, BIS is making no substantive changes to
the note to

paragraph (c)(1) in response to these comments. (See Section XX below
for recordkeeping requirements.)
    The June 21 (transition) rule would require consignees of ``600
series'' items to state that the items are for ultimate end use (or
will be used in development, production, use, operation, installation,
maintenance, repair, overhaul, or refurbishing of an item for ultimate
end use) by an authorized government agency or a person in the United
States; and to consent to an end-use check. One commenter questioned
whether a private consignee would be able to consent to an end-use
check on a government end user.
    BIS agrees that a private party should not be expected to make a
commitment on behalf of a government. In addition, the governments
eligible to ultimately receive ``600 series'' items under License
Exception STA were selected because of their status as NATO allies of
the United States or multi-regime members. Therefore, this final rule
revises the requirement to make clear that only a non-government
consignee is required to consent to an end-use check. In such an
instance, BIS recognizes that because a condition of STA is that ``600
series'' items must ultimately go to an authorized government end user
or a user in the United States, the items may no longer be on the
consignee's premises. Nevertheless, an end use check at the consignee's
premises may provide information that would help confirm the ultimate
disposition of the items.

G. Other License Exception STA Changes

    The November 7 (aircraft) rule proposed creating a new Supplement
No. 4 to part 740 that would list certain ``600 series'' items that are
not eligible for License Exception STA. Both the November 7 (aircraft)
rule and the December 6 (gas turbine engines) rule proposed items for
inclusion in this new supplement. Upon reflection, BIS has concluded
that listing these ineligible items in the ECCNs to which they apply
will make the ineligible items more readily apparent to readers than
will listing them in a separate supplement. Accordingly, this rule does
not list these items in a supplement as proposed, but in ECCNs 9D610,
9E610, 9D619 and 9E619. This change is purely one of format. The
ineligible items listed in those four ECCNs are the same as those
proposed in the November 7 (aircraft) rule and the December 6 (gas
turbine engines) rule.
    The conditions under which License Exception STA may be used have
been revised to allow for situations where the United States would, for
national security, foreign policy, or other reasons, explicitly
authorize its use in circumstances not yet contemplated. In response to
the June 21 (transition) rule, commenters requested that BIS allow for
the use of STA to authorize certain exports in situations in which the
exporter knows that the items may be reexported to both STA-36 and non-
STA-36 destinations. This new provision is designed to give the U.S.
Government, through the normal interagency license review process,
flexibility to craft license authorizations and conditions to address
atypical fact patterns and allow for the use of STA in situations that
would not otherwise be authorized. For example, a foreign consignee may
receive a U.S. Government authorization to reexport from an STA-36
country a foreign-made item containing controlled U.S.-origin content.
The new provision would allow the continued use of STA for exports of
controlled items to a foreign consignee in one of the STA-36 countries
so long as the foreign consignee has a valid license authorizing such a
use of STA. The consignee would need to certify that it has such a
license and, in addition, provide a copy of it to the U.S. exporter
before License Exception STA may be used.

H. Country Groups

    This rule creates three new country groups in part 740 of the EAR
following consideration of public comments described below recommending
reorganization of various lists of countries in the EAR. Specifically,
this rule adds two new columns to Country Group A to incorporate the
lists of countries previously set forth in the text of License
Exception STA, and it adds one new column to Country Group D to
incorporate the list of countries subject to a U.S. arms embargo
proposed in the July 15 (framework) rule to be set forth in Sec.
740.2. Several commenters addressed the various groupings of countries
in the EAR and noted possible ways to reduce the number of such
groupings or highlighted areas where the current groupings and those
proposed in the June 21 (transition) rule could be simplified. One
commenter noted that many such groupings were nearly identical to each
other and to existing Country Groups in Supplement No. 1 to part 740 of
the EAR. This commenter suggested that several such groupings be
replaced by existing country groups. This commenter also recommended
that certain countries listed in Sec.  740.2(a)(12) of the transition
rule that currently are subject to limited exceptions to the policy of
denial under Sec.  126.1 of the ITAR be removed from Sec.  740.2(a)(12)
in the final rule; BIS did not accept this recommendation because BIS
believes it is appropriate to limit the use of license exceptions to
countries subject to a U.S. arms embargo as a matter of foreign policy.
One commenter suggested that the countries currently listed in Sec.
740.2(a)(6) could be combined with the countries listed in proposed
Sec.  740.2(a)(12) with a single de minimis level for both groups.
Other commenters recommended a 10% de minimis level for both Sec.
740.2(a)(6) and Sec.  740.2(a)(12) countries. A commenter also
substituted the term STA-36 for references to destinations listed in
Sec.  740.20(c)(1), demonstrating the usefulness of a shorthand
reference for this group of countries.
    BIS recognizes that a number of the country groupings in the EAR
are similar to each other and to the Country Groups in Supplement No. 1
to part 740 of the EAR. The small differences between some of these
country groupings reflect the fact that each country grouping generally
implements a policy tailored to certain destinations that do not
exactly match the broad Country Groups in Supplement No. 1 to part 740.
A comprehensive revision of country groupings in the EAR is outside the
scope of this rule, but BIS acknowledges that it is an appropriate
subject to be examined in the future as part of a retrospective review.
    In addition, the countries listed in Sec.  740.2(a)(6) are
countries that are subject to broad export controls and, in some cases,
comprehensive embargoes that encompass items of no military
significance. The countries listed in Sec.  740.2(a)(12) of the
proposed transition rule are subject to United States arms embargoes.
Moreover, paragraph (a)(6) applies to all items that are subject to the
EAR whereas paragraph (a)(12) applies to the distinctly military items
that are in ``600 series'' ECCNs. BIS believes that the distinctly
military nature of ``600 series'' items justifies a stricter de minimis
treatment compared to the broader universe of items that are subject to
the EAR, and thus BIS does not adopt the commenter's suggestion.
    Although not adopting their specific recommendations, BIS believes
that these commenters raised valid points concerning the need for
clarity in grouping countries in the EAR. Accordingly, this rule
revises Supplement No. 1 to part 740 to add new columns A:5 and A:6 to
Country Group A and to add a new column D:5 to Country Group D. Column
A:5 lists the 36 destinations that currently are in

Sec.  740.20(c)(1), Column A:6 lists the eight destinations that
currently are in Sec.  740.20(c)(2), and Column D:5 lists the
destinations subject to a United States arms embargo that were listed
in Sec.  740.2(a)(12) of the June 21 (transition) rule and July 15
(framework) rule. These changes are to format only and are not intended
to change any controls.

XII. Part 742--Control Policy

A. National Security (NS) Review Policy

    In the July 15 (framework) rule, BIS proposed revising the review
policy for license applications for items controlled for national
security reasons by adding a new paragraph (b)(1)(ii) to Sec.  742.4 of
the EAR. The proposed rule stated that in addition to the policy set
forth in existing paragraph (b)(1)(i) of Sec.  742.4, items classified
under the ``600 series'' ECCNs would be subject to a general policy of
denial when destined to a country subject to a U.S. arms embargo.
    BIS received a comment on the proposed review policy that observed
that such a policy would be more stringent than the policy for
embargoed destinations and significant items under the ITAR. BIS has
revised the proposed review policy in response to a commenter's
observation as further discussed below.
    To harmonize the EAR's policy with that of the ITAR, a new
paragraph (b)(1)(ii) to Sec.  742.4 is adopted to state that when
destined for a country listed in D:5 in Supplement No. 1 to Part 740 of
the EAR, items classified under ``600 series'' ECCNs will be reviewed
consistent with the United States arms embargo (Sec.  126.1 of the
ITAR). Although ``600 series'' items do not warrant control on the U.S.
Munitions List, they are nonetheless items specially designed for
military uses or applications or otherwise identified on the WAML and
thus the stated review policy is appropriate. The scope of the U.S.
arms embargoes is, however, not the same for each arms embargoed
country. Section 126.1 of the ITAR has a detailed description of the
policies for each such country to which BIS will defer.
    One commenter noted that the proposed transition rule listed in
Sec.  740.2(a)(12) all the countries in Sec.  126.1 of the ITAR, but
that the preamble referred only to Sec.  126.1(a) of the ITAR. Although
at one point in its text, the preamble to the transition rule referred
to Sec.  126.1 of the ITAR, in other places it referred to Sec.
126.1(a). While this comment referred to the section on restrictions on
license exceptions, the issue is more strongly related to license
review policy. BIS's intent is to apply the general policy of denial
for ``600 series'' items to all destinations that are subject to a
United States arms embargo. For this reason, BIS is not removing any
destinations that are subject to limited exceptions found in other
paragraphs of Sec.  126.1 from the list of arms embargoed destinations.
The general policy of denial provides adequate discretion to approve a
license when the interagency license application review process
pursuant to Executive Order 12981, as amended, recommends doing so in
accordance with the national security and foreign policy of the United
States and if no other law prohibits such approval. In other words, BIS
is maintaining the status quo for ``600 series'' items to such
destinations to conform to the State Department's policy and practice.

B. Regional Stability (RS) License Requirements

    The July 15 (framework) rule proposed to individually list each of
the new ``600 series'' ECCNs that would be controlled for RS Column 1
reasons in Sec.  742.6(a)(1), which currently lists in a single
sentence all ECCNs or portions thereof that are subject to the RS
Column 1 controls of that paragraph. That framework was difficult to
read and the listing of ECCNs duplicated information provided by the
combination of ECCN entries and the Commerce Country Chart in
Supplement No. 1 to part 738. This final rule simplifies and
streamlines Sec.  742.6(a)(1), which provides that a license is
required for items designated in their ECCNs as subject to RS Column 1
controls to all destinations other than Canada, which is consistent
with the format of describing other reasons for control in part 742.
This change to Sec.  742.6(a)(1) is in format only; it does not alter
the license requirements for any item that is subject to the RS Column
1 reason for control. New paragraph (a)(1) continues to exclude from
its coverage items described in paragraphs (a)(2) or (a)(3) of Sec.
742.6 because those items are subject to their own special RS Column 1
controls. To conform to this rule's removal of ECCN 9A018.a, this rule
revises Sec.  742.6(a)(4)(i) to remove three references to ECCN
9A018.a.

C. RS Review Policy

    BIS proposed in the November 7 (aircraft) rule to revise paragraph
(b)(1) of Sec.  742.6 to read that applications for ``600 series'' ECCN
items listed in paragraph (a)(1) and destined to a country subject to a
U.S. arms embargo would be reviewed in accordance with U.S. arms
embargo policies and generally would be denied. In addition, a general
policy of denial for a regional stability (``RS'') column 1 reason
would apply to license applications for ``parts,'' ``components,''
``accessories,'' ``attachments,'' software, or technology ``specially
designed'' or otherwise required for F-14 aircraft. BIS revised the
November 7 proposed license application review policy in paragraph
(b)(1) for ``600 series'' ECCN items destined to U.S. arms embargoed
countries, stating that such applications generally would be denied.
BIS adopts in this final rule the same purpose and rationale described
for the national security review policy in Section XII.A. above for the
RS review policy, which is that when destined for a country listed in
D:5 in Supplement No. 1 to Part 740 of the EAR, items classified under
``600 series'' ECCNs will be reviewed consistent with the United States
arms embargo policies (Sec.  126.1 of the ITAR).
    The June 21 (transition) rule proposed that paragraph (b)(1) of
Sec.  742.6 be further revised to add a case-by-case review to
determine whether the ``600 series'' transaction is contrary to the
national security or foreign policy interests of the United States,
while retaining all provisions as published in a final rule which
implemented the 0Y521 ECCN series, published April 13, 2012 (77 FR
22191). The June 21 (transition) rule proposal for case-by-case review
is adopted in this rule without change.

XIII. Part 743--Special Reporting

A. Conventional Arms

    The July 15 (framework) rule proposed to create a new semi-annual
reporting requirement for ``600 series'' items that would be
specifically identified in new Sec.  743.4(c)(1) as items that require
reporting under the Wassenaar Arrangement. One commenter described
addition of this conventional arms reporting as ``premature'' as it was
``unlikely'' to be applicable to any ``600 series'' items. BIS did not
agree with this comment. The framework must be established for this
reporting to abide by U.S. multilateral commitments. Section 743.4 is
adopted as it was proposed in the July 15 (framework) rule.

B. Major Defense Equipment

    As set forth in Sec.  123.15 of the ITAR, Section 36(c) of the Arms
Export Control Act requires that a certification be provided to the
Congress prior to approval of certain high-value exports of major
defense equipment, other defense articles, or firearms. Approvals may
not be granted when the Congress has

enacted a joint resolution prohibiting the export. While this process
is not statutorily required for items subject to the EAR, BIS proposed
in the June 21 (transition) rule to institute similar procedures in the
EAR for certain exports of items that were classified as Major Defense
Equipment (MDE) under the ITAR and are now subject to the EAR. BIS is
adopting these procedures for certain exports of MDE in this final
rule. ``600 Series Major Defense Equipment'' means any item listed in
ECCN 9A610.a, 9A619.a, 9A619.b or 9A619.c, which has nonrecurring
research and development costs of more than $50,000,000 or total
production cost of more than $200,000,000. The Defense Security
Cooperation Agency (DSCA) maintains a list of MDE items, currently
categorized by USML category, available online at http://www.dsca.osd.mil/samm/ESAMM/Appendix01.htm (``DSCA List'').
    This final rule adopts the July 15 (framework) rule proposal to
create a new Sec.  743.5, which provides that BIS will notify the
Congress of transactions that include ``600 Series Major Defense
Equipment''--i.e., any ``600 series'' items identified on the DSCA
List--valued in excess of $14,000,000 for destinations outside of the
new Country Group A:5 and $25,000,000 for destinations listed in the
new Country Group A:5. Notification will not be required for exports
made under License Exception GOV. When a license application is
submitted, BIS will draw the necessary information to make the
congressional notification from the license application. Section 740.2,
Restrictions on License Exceptions, discussed above, is also revised to
preclude use of license exceptions, other than License Exception GOV,
for such transactions.
    BIS received eleven comments on the congressional notification
proposal. In general, the commenters complained that notification would
be cumbersome and defeat many of the potential efficiencies of the EAR
for transitioned items. The commenters also asserted that congressional
notification is not required for items subject to the EAR. BIS does not
agree with such comments. BIS recognizes that congressional
notification procedures may impose a regulatory burden for some export
transactions. However, BIS is not requiring notification for any
transactions that would not now require notification under the ITAR and
the Arms Export Control Act. Thus, there will be no increased burden on
exporters as a result of the new notification requirements in the EAR.
    Six commenters stated that the threshold for congressional
notification should be based on the value of the ``600 series'' items
in the license application, not the total contract under which the
items are sold. BIS accepts this recommendation. BIS recognizes that
the total value of a contract that includes transitioned items may also
include substantial sums for items subject to the ITAR or subject to
the EAR, but which are not ``600 Series Major Defense Equipment.''
Therefore, to ensure that only transactions that include more than the
applicable threshold of ``600 Series Major Defense Equipment'' items
trigger the notification requirement, BIS is revising the notification
requirement threshold to the value of the ``600 Series Major Defense
Equipment'' items included in the contract.
    Five commenters requested that BIS specify that dual notification
of a transaction is not required. BIS accepts the commenters' request.
If a transaction includes more than the threshold amount of ITAR MDE or
other ITAR items triggering the ITAR congressional reporting
requirement, and also triggers the BIS requirement due to the value of
the ``600 Series Major Defense Equipment'' items, it would serve little
purpose to require that both BIS and DDTC notify the Congress for the
same transaction. Therefore, BIS is revising the notification
requirement to state that transactions that have been, or are
concurrently being, notified to the Congress by DDTC do not require
congressional notification by BIS. One commenter also suggested that
applicants must provide notice of prior notification by providing BIS
with the Congressional Notification Identification Number on their
application in SNAP-R. BIS agrees with the suggestion and has amended
the EAR accordingly. BIS, however, will not approve the license for
items subject to the EAR until the applicable period for congressional
notification has expired.
    One commenter noted that the congressional notification procedures
require that the exporter provide BIS with the written contract under
which the items are being sold, and that this requirement is unique in
the EAR. BIS acknowledges that the requirements that exporters whose
transactions meet the thresholds for congressional notification to
provide the written contract for the sale of the items is unique in the
EAR. But, BIS believes that relatively few transactions will require
congressional notification each year and that those transactions are of
such a size that it is unlikely that they will be concluded without a
written contract. Additionally, a written contract is required for
these transactions under the ITAR, so there is no increase in
regulatory burden.
    Four commenters requested that BIS include the definition of Major
Defense Equipment in part 772. BIS accepts this recommendation and has
included a definition in part 772.

XIV. Part 744--End-User and End-Use Controls

A. ``Military End Use'' in Sec. Sec.  744.17 and 744.21

    In the July 15 (framework) rule, BIS proposed amending the
definition of ``military end use'' used in Sec.  744.17 (Restrictions
on certain exports and reexports of general purpose microprocessors for
`military end uses' and to `military end users.') and Sec.  744.21
(Restrictions on certain `military end uses' in the People's Republic
of China (PRC)). In both sections, the definition of ``military end
use'' was revised to include incorporation into items classified under
``600 series'' Product Groups A, B or C ECCNs and for the ``use,''