Despite Reforms, U.S. Export Control Rules Remain Complicated

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WASHINGTON — As revised U.S. export control regulations for satellites and related components take effect in November, one lawyer familiar with the effort cautioned that with the changes come complexities and greater chances for companies to run afoul of the new rules.

“It’s a little bit like moving the deck chairs on the Titanic, because the changes that have happened have, in essence, made the regime more complicated and more dense,” Giovanna Cinelli, a partner at law firm Jones Day, said at the 3rd annual Space and Satellite Regulatory Colloquium here Oct. 23.

Cinelli was referring to the Obama administration’s overall export control reform effort, which includes a revision of Category 15 of the U.S. Munitions List (USML) that covers satellites and related components. In May, the U.S. State Department published a final rule that moved many items that had previously been on the list to the less-restrictive Commerce Control List. The final rule takes effect Nov. 10.

The space industry has been largely pleased with the revisions to the Munitions List, since it means many commercial spacecraft systems no longer will be subject to the International Traffic in Arms Regulations (ITAR). However, Cinelli said companies have had to spend considerable time and effort to update their internal export control compliance systems.

“Things that are complex and dense have a tendency to go horribly wrong,” she said. “All the good intentions are buried within the complexity and the denseness, and it’s much easier to make mistakes.”

Coupled with that greater potential to make mistakes are concerns in industry that the Commerce Department, which oversees the Commerce Control List, was stepping up its export control enforcement efforts. That, she said, may be a reaction to some political perceptions that export control reform was an effort to “decontrol” some technologies entirely.

“In order to address some of those issues, the Department of Commerce decided they were going to emphasize how much enforcement they were going to do,” she said. That includes a greater emphasis on enforcement actions against individuals, rather than businesses, involved with export control violations.

Other issues involved with moving components from one export control list to another may trip up companies, Cinelli said. For example, the definition of “public domain” information under ITAR differs from “publicly available” information in Commerce’s Export Administration Regulations. The latter, she said, allows for organizations to self-publish information to make it publicly available, while the former does not yet recognize information available on the Internet as being in the public domain.

“There is a disconnect between these two definitions, and there needs to be some kind of correlation,” she said. “What this does from a compliance perspective is it creates enormous difficulty in implementing a consistent program.”

The reform effort also created some unintended consequences. Cinelli noted a clause in the fiscal year 2006 defense authorization act that prohibits companies with Defense Department contracts from procuring any item on the USML from Chinese companies affiliated with that nation’s military.

With the removal of many satellites and related components from the USML, it raises questions about whether such those items could be procured from Chinese companies for use on space systems for the Defense Department. “Is the DoD going to have to accept that, if you’re giving them a [Commerce Control List] 500-series satellite, you can go ahead and put Chinese parts and components on that?” she asked.

That, she said, would run counter to many other government policies about the use of Chinese components. However, because the law explicitly mentions the USML, the problem has to be fixed with legislation. The administration has been aware of the issue since 2012, she said, but has yet to propose a solution or offer other guidance to companies.