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Commerce Department Issues Proposed Rule to Clarify and Further Restrict License Exception STA

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On October 22, 2021, the Commerce Department’s Bureau of Industry and Security (“BIS”) published a Proposed Rule to outline potential changes it is considering making to the Export Administration Regulations (“EAR”) in an effort to clarify and expand the restrictions on the availability of License Exception Strategic Trade Authorization (“STA”) for the export, reexport, and in-country transfer of certain items. BIS is seeking public comments on these proposed changes by December 6, 2021.

In a final rule published June 16, 2011, BIS established STA as part of the Obama Administration’s Export Control Reform efforts to authorize exports, reexports, and in-country transfers of certain, mostly military-related items to STA-eligible destinations. Section 740.20(b) of the EAR sets forth restrictions on the use of License Exception STA, including the exclusion from eligibility for STA of certain Category 9 Export Control Classification Numbers (“ECCNs”), namely ECCNs 9D001, 9D002, 9D004, 9E001, 9E002, and 9E003, regardless of destination.

However, the “Special Conditions for STA” paragraphs of each of these six Category 9 ECCNs are not as comprehensive as Section 740.20(b). These paragraphs state that STA eligibility for certain software and technology controlled under the ECCNs is excluded to destinations in Country Group A:6, while the text of Section 740.20(b) excludes STA eligibility for these items regardless of destination. BIS notes this difference “potentially confuses exporters.”

To reduce confusion, BIS proposes clarifying the “Special Conditions for STA” paragraphs of each of the six Category 9 ECCNs. The clarified text would direct exporters, reexporters, and in-country transferors to the Category 9 limitations on the use of STA set forth in Section 740.20(b). BIS maintains this change would not alter license requirements or restrictions.

BIS also proposes two new restrictions on the use of STA as follows:

  • restrictions on the use of STA for coating technologies under ECCN 2E003.f when the technology is used for the application of inorganic overlay coatings on gas turbine engine combustors (as it stands, coating technologies under ECCN 2E003.f are not controlled for Significant Items reasons and are eligible for export to certain countries under STA); and
  • the exclusion of ECCN 1E001 technology for the “development” or “production” of “equipment and materials specified by ECCNs 1A002, 1C001, 1C007.c, 1C008.a.1, 1C009.b and 1C010.b, .c or .d.” from eligibility for STA. For consistency purposes, BIS also proposes to exclude these same technologies from eligibility for License Exception Technology and Software under Restriction, (Section 740.6 of the EAR).

If you wish to submit a comment on the Proposed Rule or have any questions, please contact any member of our Outbound Trade Compliance team.

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Paul Amberg is a partner in Baker McKenzie’s Madrid office, where he handles international trade and compliance issues. He advises multinational companies on export controls, trade sanctions, antiboycott rules, customs laws, anticorruption laws, and commercial law matters. Paul helps clients assess and address compliance risks presented by export controls, trade sanctions, antiboycott rules, customs laws, and anticorruption laws. His practice especially focuses on internal reviews, voluntary disclosure filings, and enforcement actions brought by, the US Government in relation to the Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR), trade and economic sanctions programs, and US customs laws.

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Alex advises clients on compliance with US export controls, trade and economic sanctions, export controls (Export Administration Regulations (EAR); International Traffic in Arms Regulations (ITAR)) and antiboycott controls. He counsels on and prepares filings to submit to the US Government's Committee on Foreign Investment in the United States (CFIUS) with respect to the acquisition of US enterprises by non-US interests. Moreover, Alex advises US and non-US companies in the context of licensing, enforcement actions, internal investigations, compliance audits, mergers and acquisitions and other cross-border transactions, and the design, implementation, and administration of compliance programs. He has negotiated enforcement settlements related to both US sanctions and the EAR.

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Caroline focuses on all aspects of International Trade law, particularly compliance with US export controls, trade and economic sanctions, and US foreign investment restrictions. She represents clients in national security reviews before the Committee on Foreign Investment in the United States (CFIUS), including CFIUS-related due diligence, risk assessment, and representation before the CFIUS agencies.

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