Press Releases & Advisories

The Commerce Department's Bureau of Industry and Security ("BIS") released a proposed rule on July 15, 2011, that would for the first time provide a comprehensive definition of the term "specially designed." ¹ The proposed rule deals primarily with the transition of the first of several product categories from the United States Munitions List ("USML") to the generally less restrictive Commerce Control List ("CCL").  The proposed new definition of "specially designed" could prove to have even a greater impact, however, as it affects exporters across virtually all industries and may increase the export control burden even for companies that have no involvement with products on the USML.

The lack of a uniform definition has generated confusion and controversy for years.  While comprehensive, BIS's newly proposed definition is not a model of clarity and, as a result, it could lead to continued uncertainty over the reach of U.S. export controls.  Indeed, in some respects it reflects a setback for the Administration's goal of creating an export control regime built on a "positive list" of controls, not limitations based on the "design intent."

Background

Currently, many CCL entries for dual-use items do not contain the term "specially designed."  In the many entries that do, the term is most often used to describe the relationship of a subsidiary element, such as components, production equipment or software, to the ultimate object of control (that is, the end-products or materials of dual-use significance).  Although the Export Administration Regulations ("EAR") use "specially designed" in many and varied control contexts, the only definition of the term in the EAR is expressly limited to missile technology controls.  Under that narrowly applicable definition, a product is "specially designed" only if it is useful exclusively for the missile-related purpose for which it was developed—that is, when it has "no function or use" apart from the one for which it was designed. ²

Outside of the missile-control context, a reliable definition has proved elusive.  The U.S. Court of Appeals for the First Circuit attempted to ascertain the term's meaning in 2004 and concluded that a component is "specially designed" if it was "intentionally created for use, and in fact capable of being used, with the embargoed commodity," regardless of whether it can also be used in a non-controlled application. ³  BIS has never officially endorsed or rejected the court's interpretation, and no clear BIS position has emerged from case-by-case BIS rulings.          

The Proposed Definition

BIS's proposal bifurcates the definition between (a) "specially designed" items enumerated on the CCL and (b) "specially designed" parts and components of such items.  With respect to the first aspect of the definition, an "item" would qualify as "specially designed" only if it has "properties peculiarly responsible for achieving or exceeding the controlled performance levels, characteristics, or functions" identified in the CCL.  With respect to the second aspect of the definition, and with certain exceptions, a CCL entry that covers "specially designed" parts or components applies to all parts or components of the item listed on the CCL (unless the item is controlled only for antiterrorism reasons), regardless of their relationship (or lack thereof) to the applicable control parameters.  In other words, the purpose or function of the part or component does not matter; if it is a part of component of an item listed on the CCL, it qualifies as "specially designed" unless if fits within one of the exceptions described below.

The proposed definition also includes some critical carve outs, including the following:

· An unassembled commonplace part of the general kind used in civilian applications—such as a screw, bolt, rivet or washer—is not a "specially designed" part or component even if the part used in a controlled product varies in dimension or composition from comparable parts of the same type.

· A part or component that would otherwise meet the definition of "specially designed" is excluded if it is also used in serial production of a non-controlled product.  For example, a circuit board that is used in the serial production of a non-controlled computer is not a "specially designed" component even if it is also used as a component in a controlled computer or in some other controlled capacity.

· Finally, a part or component is excluded from the definition of "specially designed" if it can be exchanged on a one-for-one basis with a non-controlled part or component (or a part or component controlled only for antiterrorism reasons) without modifying the form, fit or function of the replacement.

Companies should review the export control classifications of their goods and technology in light of the BIS proposal.  If it appears that the extent or level of control might increase, or if a company would like to see a clarification or change in the final rule, it should consider submitting a comment to BIS by September 13, directly or through an industry group.

For more information regarding the proposed rule or our trade controls practice, please contact Chad Breckinridge by email at cbreckinridge@wiltshiregrannis.com or by phone at (202) 730-1349, or Cecil Hunt by email at chunt@wiltshirgrannis.com or by phone (202) 730-1309.

This advisory is not intended to convey legal advice. It is circulated as a convenience and is not intended to reflect or create an attorney-client relationship as to its subject matter.

¹       Proposed Revisions to the Export Administration Regulations, 76 Fed. Reg. 41,958 (July 15, 2011). 

²       15 C.F.R. § 772.

³       See United States v. Lachman, 387 F.3d 42, 50-56 (1st Cir. 2004).