Date: May 14, 2012
The U.S. State and Commerce Departments have issued proposed rules that would ease the export restrictions on certain chemicals used to make propellants and explosives. While some companies would benefit from the new proposals, many more companies, such as those that make or use chemicals noted below, will likely conclude the proposals don't go far enough. Companies that make or use chemicals that would remain subject to particularly restrictive export licensing requirements have an opportunity to try to expand the proposed rules to their benefit by submitting comments along the lines suggested below.
The chemicals at issue are regulated under the International Traffic in Arms Regulations ("ITAR"). The government has decided to move some of them to the jurisdiction of the Export Administration Regulations ("EAR") as part of ongoing export control reforms. Those reforms aim to limit the more restrictive export licensing requirements under the ITAR to those items that have the greatest military significance. Items subject to either the ITAR or the EAR often cannot be exported to many if not all destinations without a license. The EAR's requirements, however, are far less restrictive, especially when friendly countries are involved.
The main benefits of having a chemical be subject to the EAR instead of the ITAR are (1) more license exceptions are available, (2) complicated agreements covering the provision of services relating to an ITAR chemical are not be required and (3) far fewer foreign-made items that contain controlled U.S.-origin chemicals are subject to U.S. licensing requirements. The government's guiding principle in determining which ITAR chemicals should become subject to the EAR is that a chemical should remain subject to the ITAR only if it is inherently military in nature or it is of critical military significance and is almost exclusively available in the United States. Many companies might have a good argument, however, that more chemicals should move from the ITAR to the EAR by applying this test.
The chemicals that would move from the ITAR to the EAR under the proposals would be certain propellants, explosives and related items described in Category V of the U.S. Munitions List. (Rules on Category XIV chemical agents should come soon). The Category V items would move to a new ECCN 1C608 or existing ECCN 1C111 on the Commerce Control List. Related equipment, software and technology would also move to new ECCNs. The government's proposals, however, would actually move only a few chemicals out of the ITAR. Those include certain aluminum powders, hydrazine and certain hydrazine derivatives.
On the other hand, the proposals would clarify that certain chemicals are subject to the ITAR even though the ITAR do not specifically indicate they are. The proposals also indicate that a number of chemicals would remain subject to the ITAR. The chemicals that would now be specifically identified as subject to the ITAR's restrictions include:
Certain of the following types of chemicals would also remain subject to the ITAR:
Pyrotechnics and Related Substances
Manufacturers and users of these chemicals could likely argue that at least some of these chemicals should not be subject to the ITAR's restrictive export licensing requirements because they either are not inherently military, they do not have a particular military significance or, even if they do, they are readily available outside the United States.
If any of the foregoing is true, manufacturers and users of the chemicals noted above could benefit significantly by submitting comments on whether additional chemicals would be more appropriately subject to the export licensing jurisdiction of the Export Administration Regulations. Comments are due on June 18th. 77 Fed. Reg. 25,932 (proposal regarding EAR), 25,944 (proposal regarding ITAR) (May 2, 2012).