In the following, David Llorente of Arent Fox LLP provides his notes of the September 11th Regulations and Procedures Technical Advisory Committee (RPTAC) meeting and the September 12th Transportation and Related Equipment Technical Advisory Committee (TRANSTAC) meeting. Of particular interest may be the notes on the continuing AES audits, and new attempts by BIS and Congress to use section 17(c) of the Export Administration Act to resolve jurisdictional issues between BIS and the State Department on parts that are FAA certified for use in commercial aircraft.

Report on RPTAC Meeting

On Tuesday, September 11, 2007, I attended the quarterly meeting of the Regulations and Procedures Technical Advisory Committee (RPTAC) at the Department of Commerce. The Committee advises the Office of the Assistant Secretary for Export Administration on implementation of the Export Administration Regulations (EAR) and provides for continuing review to update the EAR as needed. Below is a summary of the meeting.

1. Matthew S. Borman, Deputy Assistant Secretary of Commerce for Export

A. The recommendations of the Coalition for Security and Competitiveness' (CSC) for reforming export control regulations and procedures are being reviewed by the National Security Council (please see attached Adobe PDFs).

B. Status of Country Group C (Destinations of Diversion Concern) -- there is no further decision as to countries to be listed here but Country C remains an option.

C. BIS is working on the CSC recommendations related to encryption controls.

D. Screening Denied Parties: BIS will work with other agencies with the goal of attaining a standardized format for the various restricted party lists.

E. The review of the Commerce Control List (CCL) -- Federal Register (FR): Vol. 72, No. 172 (72 FR 51213-51214) -- is awaiting comments from the public. The comment period has been extended to 11/17/07

F. The first list of Chinese Validated End Users (VEU) is "coming soon". Note: VEUs are Chinese end-users that have been approved for exports otherwise requiring a license. (see Arent Fox alert on the China Rule LINK)

2. Hillary Hess, Bureau of Industry & Security Director of Regulatory Policy Division, summarized recent regulations:

A. Anti-boycott Program, FR: Vol. 72, No. 136 (27 FR 38999-39009) set forth:

1. BIS policy concerning voluntary self-disclosures of violations of part 760 (Restrictive Trade Practices or Boycotts) of the EAR and violations of part 762 (Recordkeeping) of the EAR that related to part 760 and
2. the factors that the BIS considers when deciding whether to purse administrative charges or settle allegations of such violations as well as the factors that BIS considers when deciding what level of penalty to seek in an administrative anti-boycott case.

The revisions to the antiboycott regulations were effective August 16, 2007

B. ITAR: amending the text of the United States Munitions List (USML) Category XV--Spacecraft Systems and Associated Equipment to clarify the coverage and to alter one of the five performance characteristics that define radiation-hardened microelectronic circuits that are subject to the licensing jurisdiction of the International Traffic in Arms Regulations (ITAR).
FR: Vol. 72, No. 136 (72 FR 39010-39011)

C. Addition to Entity List in July (744.1 Supplement 4)

1. 5 New Entities from Iran added July 12, 2007
   1. Atomic Energy Organization of Iran ( aka Sazeman-E Energy Atomi)
   2. Kala Electric Company (aka Kalaye Electric Company)
   3. Mesbah Energy Company (aka MEC)
   4. Shahid Bakeri Industrial Group (aka SBIG)
   5. Shahid Hemmeat Industrial Group (aka SHIG)

D. Revised Legal Authorities
FR: Vol. 72, No. 171 (72 FR 50869-50871)

1. updates the Code of Federal Regulations legal authority citations for the EAR to include the citation to the President’s Notice of August 15, 2007 – Continuation of Emergency Regarding Export Control Regulations.
2. Effective September 5, 2007

E. Public comments on Foreign Policy based export controls review (the yearly review)
FR: Vol. 72, No. 171 (72 FR 50912-50913)

1. BIS is reviewing the foreign policy-based export controls in the EAR to determine whether they should be modified, rescinded or extended.
2. BIS is seeking comments on how existing foreign policy-based export controls have affected exporters and the general public.
3. Comments must be received by October 5, 2007

F. Questions:

1. China Rule: A member of the audience asked if BIS is expecting to draft a regulation providing guidance for standard of care on KNOW YOUR CUSTOMER GUIDELINES. Ms. Hess said BIS is not looking to publish a regulation on the subject but it will look into due diligence aspects.
2. Party Screening on Domestic Transactions: A member asked if party screening is required for domestic transactions. The answer was that it is not required by regulations and not a violation if you do not screen, but it could be a violation if one has knowledge of illegal export by domestic customer.

3. Working Groups:

A. Encryption group: Encryption recommendations being worked on with regarding to CSC.

B. Enforcement: promised an update in December.

C. Other Groups: NONE

4. William Bostick, Jr., Bureau of Census, Foreign Trade Division provided the Automated Export System (AES) Update and Compliance Review:

A. Data sharing with foreign governments is still the biggest point of contention with Department of Homeland Security

B. In the ongoing Census audit of AES compliance, 42 companies have scored below the 80% compliant mark. Yet, a third of those companies has met or exceed 95% compliance within a month of the visit. The government is providing 90 days to come into compliance with a possible 30 day extension, if the merits of the extension are valid.

C. Census will visit 5 to 7 companies in September 2007.

D. New software added by companies is increasing compliance

E. Based on its AES audit, Census will post a Summary of Best AES Practices this week on its web page and the Best Practices will be mentioned in its newsletter.

F. Voluntary Disclosures for AES errors are being promoted.

1. Main reasons to do a Voluntary Disclosure:
   1. large value difference in correction
   2. change in end country
   3. late shipments.
2. Patterns/trends for Voluntary Disclosures are
   1. lack personnel on export compliance
   2. training
   3. access to reference materials and documentation issues.

G. Question:

1. Kazakhstan Issue: Kazakhstan recently passed new law that requires US exporters give Shipper's Export Declarations (SED) to Kazakhstan Customs to pass shipments. AES, ITA, and USTR have written letters to Kazakhstan Customs and government officials stating that the law requires US exporters to violate US law. There was a similar situation with Costa Rica in the past - the Department is using that experience as a model.

Report on TRANSTAC Meeting

On Wednesday September 12, 2007, I attended the Transportation and Related Equipment Technical Advisory Committee (TRANSTAC) meeting at the Department of Commerce. The Committee advises the Office of the Assistant Secretary for Export Administration with respect to technical questions that affect the level of export controls applicable to transportation and related equipment or technology. Below is a summary of the meeting.

Summary of Transportation and Related Equipment Technical Advisory Committee will meeting on 9/12/07

1. Working Groups Commerce Control List Review:

A. General Information - Working groups are assessing each ECCN, providing reasoning and substantiation for whether each ECCN is:

1. an empty box (no longer applicable)
2. okay as is
3. recommended to loosening or removing control
4. recommended tightening or adding controls

B. Time Table

1. Identify members by 10/2007 (some groups need additional members, if they cannot find volunteers they will publish the request in the Federal Register)
2. Provide recommendation for each ECCN and review Public Comments around 11/2007
3. Select top priority ECCN modifications 1/2008
4. Submit Proposals for top priority modifications (using Wassenaar proposal format) 5/2008 (prefer March or April)
5. Submit proposals for remaining modifications 9/2008

C. Groups

1. Composites
   1. Would like to see changes from specifically designed definition to technical differential for ECCN 1E001.
2. Engine Hot Section - Combustors and Turbines
   1. Working on several proposals on defining heat measurement for 9A003, 9A004 and 9A005 (ex: average hottest temperature of engine versus temperature on a standard day. The team is struggling with language usage)
3. Helicopter Power Transfer Systems
   1. Working on new proposal regarding transmissions with unlimited loss (Honeywell)
4. Flight Controls and HUD
   1. 3D displays flight control paper will be distributed to the Committee next week
   2. HUD paper will be forthcoming (Honeywell is leading the preparation)
5. Inertial -- No information was provided
6. Marine
   1. 10 ECCNs with 51 items need to be reviewed. The team needs additional people for the group especially with submarine technology experience.

2. Matthew S. Borman, Deputy Assistant Secretary of Commerce for Export Administration

A. discussed Jurisdiction issues related to section 17 (c) of the Export Administration Act of 1979 ("EAA") and in particular the possibility of using section 17(c) to resolve the jurisdictional issues arising with the State Department on aircraft parts.

1. Section 17(c) states, in part, that “standard equipment certified by the Federal Aviation Administration (FAA), in civil aircraft and is an integral part of such aircraft, and which is to be exported to a country other than a controlled country, shall be subject to export controls exclusively under this Act. Any such product shall not be subject to controls under Section 28 (b) (2) [licensing requirements] of the Arms Export Control Act.”
2. Mr. Borman supports using Interpretation 9 (please see attached Adobe PDF) to assert jurisdiction over items the State Dept considers ITAR but have been certified by the FAA for civil aircraft. He asked TRANSTAC to assist BIS by creating an annotated version of Interpretation 9 for inter-agency discussions and list of certification agreements that may be applicable to aircraft parts, such as the FAA's Technical Standard Orders (TSOs). The TRANSTAC will work with Aerospace Industries Association (AIA) on this project.
3. The possibility of using section 17(c) of the EAA to resolve aircraft part jurisdiction issues has also be rained by Congress. On September 13, 2007, members of Congress sent the following letter to the President regarding Section 17 (c) (See letter below)

September 13, 2007

The President
The White House
Washington, DC 20500

Dear Mr. President:

As Members of Congress who support export control policies that advance U.S. national security and foreign policy interests, strengthen the U.S. industrial base, ensure defense cooperation with our allies, and reduce impediments to legitimate trade, we respectfully request your leadership in providing clearer direction to the aerospace industry regarding the export of civil aircraft, parts, and components.

As you may know, when Congress passed the Export Administration Act (EAA) of 1979, it included section 17(c), a provision that expressly placed Federal Aviation Administration (FAA) certified parts and components under the jurisdiction of the Department of Commerce. In the report to accompany the bill, the stated intent of the conferees was to transfer civil training aircraft below 600 horsepower and "larger aircraft with certain integral components" from the jurisdiction of the Department of State to that of the Department of Commerce.

Over the last several years, however, this jurisdiction has not been recognized by the Department of State, making the treatment of civil aircraft parts and components increasingly problematic. The resulting uncertainty has had a number of deleterious effects on U.S. industry, particularly small business. These include the need to seek time consuming and expensive determinations on commodity jurisdiction for many, sometimes antiquated, aircraft parts and components if exporters are to be certain that their product is not controlled by the Department of State.

This circumstance places an enormous additional task on an already overburdened export control system and allocates scarce resources to what would appear to be low-risk areas. Likewise, it has created an unpredictable environment for manufacturers, suppliers, and operators that has the potential to suddenly and unexpectedly disrupt airline operations as well as the global supply chain for the commercial aviation industry. In short, we are concerned that the unpredictable treatment of civil aircraft parts and components could lead to the loss of competitiveness of the top net exporting industry in the United States.

This jurisdictional uncertainty would not exist if 17(c) was being properly applied. Though the EAA lapsed in 2001, Executive Order 13222 declares that the EAA and therefore all of its provisions, continues to operate in force. Section 1 specifically states: "To the extent permitted by law, the provisions of the Export Administration Act of 1979, as amended, and the provisions for administration of the Export Administration Act of 1979, as amended, shall be carried out under this order so as to continue in full force and effect and amend, as necessary, the export control system heretofore maintained by the Export Administration Regulations issued under the Export Administration Act of 1979, as amended."

As Assistant Secretary of Commerce for Export Administration Christopher Padilla testified before the Foreign Affairs Committee just last week, section 17c of the EAA, as continued in force by the International Emergency Economic Powers Act, is "black letter law. The provision of the EAA is quite clear."

On the basis of section 17(c) of the EAA and its accompanying report language and your Executive Order, we believe the law is clear. If there are sensitive civil aircraft items that warrant additional control, we ask that you direct the Department of Commerce to work with the Department of State to provide clear guidance to industry by promulgating appropriate regulations in a way that addresses U.S. national security interests. Similarly, it is our firm expectation that other relevant national security or foreign policy-based controls on the exports of these commodities would continue to remain in effect.

Your leadership in resolving this important export control matter and helping to provide clarity and predictability to this vital sector of the American economy is greatly appreciated.

With kindest regards,

Donald A. Manzullo Joseph Crowley
Ileana Ros-Lehtinen Earl Blumenauer
Howard L. Berman Dan Burton
Gary L. Ackerman Edward R. Royce
Eni Faleomavaega Ron Paul
Brad Sherman Jeff Flake
Robert Wexler Joe Wilson
Eliot L. Engel John Boozman
Gregory W. Meeks Michael T. McCaul
Adam Smith Russ Carnahan
Norman D. Dicks John L. Mica
Todd Tiahrt Ellen O. Tauscher
Brian Baird Jay Inslee
Rick Larsen W. Todd Akin
Michael M. Honda Cathy McMorris Rodgers
Ted Poe Connie Mack
David Scott Phil Hare

cc: Secretary Condoleezza Rice
Secretary Robert M. Gates
Secretary Carlos M. Gutierrez