II. Export Jurisdiction issues and the Commodity Jurisdiction Process: Off-the-Record Comments by John P. Priecko.

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Prudence Smith
8 years ago
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1 Subject: NCITD Meeting Report Following is a report on the meeting of the Trade Compliance Committee of the National Council for international Trade Development (NCITD) held in Washington, D.C. on May 12, MKT comments are in [square brackets]. The principal author of this report is Ms. Dana Townsend, and the reviewer is Terence Murphy. I. NCITD Business The NCITD Trade Compliance Committee submitted comments to the Census regulation to require export reporting via the Automated Export System, or AES (70 FR 8200). The comments are available on the Census Bureau web site, II. Export Jurisdiction issues and the Commodity Jurisdiction Process: Off-the-Record Comments by John P. Priecko. Under a contract with the U.S. Army, Mr. Priecko reviews all Commodity Jurisdiction requests that are referred to the Army. [MKT: Commodity Jurisdiction requests are requests for official U.S. Government guidance on whether the International Traffic in Arms Regulations, or ITAR, regulate the export of an item. CJ requests are submitted by the manufacturer or another party to the Department of State. Items not subject to the ITAR are subject to the Export Administration Regulations, or EAR, unless another set of regulations apply. For items subject to the EAR, the Commerce Department has a separate Commodity Classification process to advise exporters where an item is listed on the Commodity Control List, or CCL.] Mr. Priecko also advises the major advisory committees to the U.S. Government on export control matters: the Commerce Department s Regulations and Procedures Technical Advisory Committee (RPTAC), the President s Export Counsel Subcommittee on Export Administration (PECSEA) and the State Department s Defense Trade Advisory Group (DTAG). Mr. Priecko said that he reviews all Commodity Jurisdiction requests, or CJs, that are referred to the Army. This workload amounts to CJs per month,

NCITD Business The NCITD Trade Compliance Committee submitted comments to the Census regulation to require export reporting via the Automated Export System, or AES (70 FR 8200).

2 Page 2 representing about half of all CJs submitted to the State Department. Mr. Priecko indicated he also reviews for the Army the smaller number of Government Jurisdiction requests, or GJs, in which a U.S. Government agency (generally Customs) requests the State Department s guidance on commodity jurisdiction. He said that in most cases he sees, the proper jurisdiction is clear. Of the several CJs completed in 2004: - 34% were found subject to the EAR; - 41% were found subject to the ITAR; - 2% were returned without action (generally because the information submitted was incomplete); - 1% were withdrawn; and - the remainder [22%] were split decisions. [MKT: A CJ has a split decision when some items listed are found subject to the ITAR and some are not.] The average processing time in the Army for a CJ is 10 days, and the average processing time for the entire Department of Defense review is currently 43 days. Mr. Priecko noted that few cases take 10 days: cases that are not staffed, i.e., referred to another organization within the Army average only 4 days processing time, and staffed cases average 14 days. But he said that all cases involving chemical/biological materials or equipment or night vision products are staffed to other organizations within the Army. Mr. Priecko noted that the total processing time for a CJ is much longer than the DOD s own processing time, although the State Department has cleared out many old cases over the last couple of years. Mr. Priecko said that a large number of CJs involve products that incorporate ITAR-controlled content, and that such CJs can be successful [MKT: exporters can obtain U.S. Government agreement that the end-item should be subject to the EAR] if the item is designed so that removal of the ITAR-controlled components would disable or destroy them. Mr. Priecko commented that since 9/11, the CJ reviewers in the U.S. Government have been cautious in removing items from ITAR control. If an item has been modified for a military purpose, Mr. Priecko said, Government reviewers approach it with a presumption that it should be subject to the ITAR, at least until there is evidence of significant commercial sales.

Government agency (generally Customs) requests the State Department s guidance on commodity jurisdiction. He said that in most cases he sees, the proper jurisdiction is clear.

3 Page 3 One of the criteria in the ITAR defining a defense article is that it not have predominant civil applications. Mr. Priecko said he does not believe there is a strict line defining what proportion of commercial sales would constitute predominant civil applications; once such example that he used to illustrate the analysis was an item with 80% of sales to the civil sector and which was determined to be an EAR-controlled item. Mr. Priecko stated that the State Department s licensing officers also review CJ requests, but do not have much technical expertise. Mr. Priecko said that most production equipment for military items is dual-use, and is controlled under the EAR rather than the ITAR. Foreign availability is one factor considered in deciding CJs, but not the major factor. He explained that most U.S. Government reviewers believe that in most cases the U.S. product is superior, and therefore that the foreign product is not a true equivalent. [MKT: That may be a cultural rather than a political preference.] Mr. Priecko noted that he does check manufacturers web sites, and, if he finds an item described as intended for military use when a CJ request states otherwise, he alerts enforcement agencies because he then is concerned about other possible false statements by the exporter in the CJ request. Mr. Priecko commented that the State Department has been asked to publish CJs, but has consistently refused to do so; it cites confidentiality grounds. Mr. Priecko believes that the proprietary information in CJ requests could be removed and a redacted or blanked-out version could be published. Mr. Priecko added that fewer than 10% of the cases he sees were received electronically at the State Department, and he stated that the electronic submission system is not working well. Turning to licensing, Mr. Priecko noted that his views on what provisos [MKT: license conditions] are appropriate are often in line with those of the State Department, but that his views differ from those of other Defense Department agencies, particularly the Defense Technology Security Administration, or DTSA. [MKT: This is the DOD agency that manages DOD review of dual-use and munitions export licenses.] Mr. Priecko favors provisos that he believes clarify the authorization, such as no technical data on a license for export of hardware. DTSA s current view is that provisos should not repeat either the regulations or information provided by the applicant. DDTC s view at the State Department is closer to Mr. Priecko s views for the Army, and DDTC frequently does include provisos that the Army recommends, even when DTSA itself does not recommend them. Mr. Priecko distributed several supporting documents, including the checklist used in the Army in its consideration of CJs. The Army has also shared the checklist with other DOD agencies, which have developed their own, slightly different versions. Copies of Mr. Priecko s presentation and other materials he distributed will be forwarded with the hard-copy version of this report.

analysis was an item with 80% of sales to the civil sector and which was determined to be an EAR-controlled item. Mr.

4 Page 4 III. International Trade Certification Programs: Off-the-Record Remarks by Dr. Donald N. Burton, President, International Import-Export Institute Dr. Burton reported on what he terms Mega Trends in export compliance and on the activities of the International Import-Export Insitute. With increasing international trade and outsourcing of component manufacture, companies are realizing that they need to pay better attention to compliance. Mr. Burton argued that export compliance had been viewed in the past as a clerical/paper-pushing function, but that more companies are realizing that compliance is a serious matter. One sign of this trend is the establishment of Corporate Governance Councils at major firms, notably Boeing. Dr. Burton argued that the export compliance function should be centralized, because compliance failures could harm an entire corporation. However, he noted, a fully-integrated compliance program [MKT: fully integrated with all activities throughout the organization] is elusive; violations generally do not originate within the Compliance Department itself. Dr. Burton believed that export compliance training in most organizations is spotty. There is a danger that the export compliance staff will become an island within the organization and will not have high-level support when it is necessary to say no to a proposed project or export. Outside forces can also play a role, and compliance officers must now how to handle pressure from outside the company (e.g., from suppliers) for unethical acts. The greatest export compliance risk that Dr. Burton sees is lack of communication. Many organizations have decentralized certain compliance functions, which creates a risk to the entire corporation. The Sarbanes-Oxley Act of 2002 provides key support to export compliance, because it requires that export compliance risks be among those cited in annual reports, and senior corporate officers must personally certify that annual reports are truthful. This provision makes it more difficult for senior managers to argue that they did not know about violations. Dr. Burton turned to the activities of the Certification Board of Governors and the International Import-Export Institute, or IIEI ( of which he is the President. The Certification Board of Governors is an independent organization that manages a certification procedure for international trade professionals. IIEI administers six international business programs and the certification exams. About 450 individuals (including Mr. Priecko) have completed the program and passed the exam to receive the designation Certified Export Compliance Officer.

With increasing international trade and outsourcing of component manufacture, companies are realizing that they need to pay better attention to compliance. Mr.

5 Page 5 The classes are held on line. Dr. Burton said that the certification exam is very difficult..

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