81 FR 10472 - Export Control Reform: Conforming Change to Defense Sales Offset Reporting Requirements
DEPARTMENT OF COMMERCE
Bureau of Industry and Security Federal Register Volume 81, Issue 40 (March 1, 2016)
Bureau of Industry and Security
Federal Register Volume 81, Issue 40 (March 1, 2016)
| Page Range | 10472-10474 | |
| FR Document | 2016-04425 |
[Federal Register Volume 81, Number 40 (Tuesday, March 1, 2016)] [Rules and Regulations] [Pages 10472-10474] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-04425] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE Bureau of Industry and Security 15 CFR Part 701 [Docket No. 150825780-6125-02] RIN 0694-AG38 Export Control Reform: Conforming Change to Defense Sales Offset Reporting Requirements AGENCY: Bureau of Industry and Security, Commerce. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: This rule requires reporting of offsets agreements in connection with sales of items controlled on the United States Munitions List (USML) and items controlled in ``600 series'' Export Control Classification Numbers (ECCNs) on the Commerce Control List (CCL) except for certain submersible and semi-submersible cargo transport vessels and related items that are not on the control lists of any of the multilateral export control regimes of which the United States is a member. Since the early 1990s, BIS has required reporting of offsets agreements in connection with sales of items controlled on the USML. Those reporting requirements will continue, unchanged by this rule. Beginning on October 15, 2013, some items have been removed from the USML and been added to 600 series ECCNs. These items were subject to offsets reporting requirements prior to being added to 600 series ECCNs. Some other items have been moved from non-600 series ECCNs to 600 series ECCNs as part of the Administration's Export Control Reform Initiative. This rule requires reporting of offsets agreements in connection with sales of items controlled in 600 series ECCNs regardless of whether the item was added to a 600 series ECCN simultaneously with its removal from the USML or was subject to the EAR prior to its inclusion in a 600 series ECCN, except for certain submersible and semi-submersible cargo transport vessels and related items that are not on the control lists of any of the multilateral export control regimes of which the United States is a member. The changes made by this rule were the subject of a proposed rule for which BIS received no comments. This final rule adopts the text of the proposed rule without change. DATES: Effective: March 31, 2016. FOR FURTHER INFORMATION CONTACT: Ronald DeMarines, Strategic Analysis Division, Office of Strategic Industries and Economic Security, 202- 482-3755, or [email protected]. SUPPLEMENTARY INFORMATION: Background Part 701 of Title 15, Code of Federal Regulations--Reporting of Offsets Agreements in Sales of Weapon Systems or Defense-Related Items to Foreign Countries or Foreign Firms (herein the Offsets Reporting Regulations) requires that U.S. firms report certain offset agreements to BIS annually. BIS uses the information so reported to develop a ``detailed annual report on the impact of offsets on the defense preparedness, industrial competitiveness, employment, and trade of the United States'' (herein ``the offset report to Congress''), that is submitted to the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives, as required by Section 723 of the Defense Production Act of 1950, as amended (DPA) (50 U.S.C. 4568(a)(1)). An offset for purposes of the Offsets Reporting Regulations is compensation required by the purchaser as a condition of the purchase in government-to- government or commercial sales of defense articles or services. This compensation can take a variety of forms, including: Co- [[Page 10473]] production, technology transfer, subcontracting, credit assistance, training, licensed production, investment, and purchases. An agreement to provide offsets with a value exceeding $5,000,000 must be reported to BIS. Performance of an existing offset commitment for which offset credit of $250,000 or more has been claimed must also be reported to BIS. The Defense Production Act describes the items for which the offset report to Congress must be submitted as ``weapon system[s] or defense- related item[s].'' (See section 723 of the DPA) (50 U.S.C. 4568(c)(1)). The Offsets Reporting Regulations currently require reporting of offsets in connection with ``defense articles and/or defense services'' as defined by the Arms Export Control Act and the International Traffic in Arms Regulations (22 CFR parts 120-130) (ITAR). See 15 CFR 701.2(a). The ITAR includes the USML (22 CFR part 121), which describes the defense articles that it regulates. Beginning on October 15, 2013, as part of the Administration's Export Control Reform Initiative, a series of rules removed a number of defense articles from the USML and added them to the CCL (15 CFR part 774, Supp. No. 1). BIS created a new series of ECCNs in the EAR, identified as the ``600 series'' because the third character in the ECCN is the numeral ``6,'' for those defense articles. The 600 series items formerly controlled on the USML were subject to offsets reporting requirements before being added to the 600 series. Simultaneously with adding former USML defense articles to the 600 series ECCNs, BIS added to those ECCNs some items that are of a military nature but that were already subject to the EAR. BIS took this step to provide consistent treatment for all military items that are subject to the EAR. Some of these items were in existing ECCNs. Others were subject to the EAR, but not set forth in any ECCN. Such items are designated under the EAR as EAR99 items. Items that were subject to the EAR prior to being added to 600 series ECCNs were not subject to offsets reporting requirements. On December 2, 2015, BIS published a proposed rule (see 80 FR 75438) to require reporting of offsets agreements in connection with sales of all items controlled in 600 series ECCNs, except for certain submersible and semi-submersible cargo transport vessels and related items that are not on the control lists of any of the multilateral export control regimes of which the United States is a member, regardless of whether the item was controlled on the USML or subject to the EAR prior to being controlled under a 600 series ECCN. BIS received no comments on that proposed rule and this rule adopts the text of the proposed rule without change. The preamble to that proposed rule contained a description of 600 series ECCNs and a discussion of the antecedents to the current 600 series ECCNs, which identified items that were moved from the USML to 600 series ECCNs and items that were moved from non-600 series ECCNs to 600 series ECCNs (see 80 FR 75438, 75439-75441, December 2, 2015). The facts presented in that discussion have not changed and it is not repeated here. Rulemaking Requirements 1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). This rule does not materially change any regulatory burden on the public and is consistent with the goals of Executive Order 13563. This rule has been determined to be not significant for purposes of Executive Order 12866. 2. Notwithstanding any other provision of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. The collection of offset reports has been approved by OMB under control number 0694-0084. The estimated number of annual responses is 30 and the estimated number of burden hours is 360. BIS believes that this rule will not materially change the number of responses or burden hours authorized under 0694-0084 because the primary impact of this rule is to restore reporting requirements that have lapsed since those estimates were made, and to retain reporting requirements that otherwise will lapse in the coming months. Although this rule will create new reporting requirements for some items that were subject to Department of Commerce export control jurisdiction prior to being added to 600 series ECCNs, the impact of those additions on the burden is likely to be insignificant because those items are primarily low value items such as military ground vehicles designed for non-combat use, which are not usually the subject of offset agreements. The higher value items that typically trigger offset requirements by the foreign government purchaser, such as combat aircraft, strategic airlifter aircraft, ships, missiles and missile defense systems, are remaining on the USML and their offset reporting requirements have not changed. In addition, any increase in the reporting burden by the imposition of offsets reporting requirements on items that have moved to 600 series ECCNs is likely to be offset by a reduction in that burden resulting from the removal of some items from the USML and their addition to non- 600 series ECCNs, which are not subject to offsets reporting requirements. Those items are: Commercial spacecraft including satellites and related items, and certain energetic materials. Send comments regarding this burden estimate or any other aspect of these collections of information, including suggestions for reducing the burden, to Jasmeet K. Seehra, Office of Management and Budget, by email at [email protected] or by fax to (202) 395-7285 and to William Arvin at [email protected]. 3. This rule does not contain policies with Federalism implications as that term is defined under Executive Order 13132. 4. The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et seq., generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to the notice and comment rulemaking requirements under the Administrative Procedure Act (5 U.S.C. 553) or any other statute, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Under section 605(b) of the RFA, however, if the head of an agency certifies that a rule will not have a significant impact on a substantial number of small entities, the statute does not require the agency to prepare a regulatory flexibility analysis. Pursuant to section 605(b), the Chief Counsel for Regulation, Department of Commerce, certified to the Chief Counsel for Advocacy, Small Business Administration that this rule will not have a significant impact on a substantial number of small entities for the reasons explained below. BIS received no comments regarding the certification. Consequently, BIS has not prepared a final regulatory flexibility analysis. Small entities include small businesses, small organizations and [[Page 10474]] small governmental jurisdictions. For purposes of assessing the impact of this rule on small entities, a small entity is defined as: (1) A small business according to the ``Table of Small Business Size Standards Matched to North American Industry Classification System Codes,'' effective January 22, 2014, published by the Small Business Administration (the SBA size standards); (2) a small governmental jurisdiction that is a government of a city, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. BIS has determined that this rule will not affect any of these categories of small entities. SBA's size standards classify businesses in various North American Industry Classification System (NAICS) codes as small based on their annual revenue or number of employees. For example, in 2014, the maximum annual revenue for a small business was $33.5 million and the maximum number of employees was 1,500. Since BIS began collecting data in 1994, virtually all of the submissions that it has received have been from a small number of very large companies that exceed the SBA size standards for a small business. Since 1994, the number of companies that submitted data to BIS pursuant to this regulation has not exceeded 26 per year. On average, the companies that submit data to BIS have annual revenues well in excess of $1 billion. For instance, in 2014, the most recent year for which BIS has data collected pursuant to this regulation, only one of the 26 companies that submitted data had reported revenue of less than $1 billion. That company had revenue of $120 million. Some small businesses likely are involved in fulfilling offset obligations by acting as subcontractors to the large prime contractors that report directly to BIS, meaning that they report indirectly to BIS pursuant to this section. However, this rule will not significantly increase the burden on such companies. Most of the information collected by BIS pursuant to this section is already collected by such small businesses so that they can accurately account for their obligations under the offset agreement (which is imposed at the behest of the foreign buyer) and report them to the prime contractor. The only data element required by this rule that might not be needed for those reports to the prime contractor is the classification of offset agreements and transactions by NAICS code. Even subcontractors involved in the manufacture of defense articles are likely to conduct business with the U.S. government and, therefore, be required to classify their products and services in accordance with the NAICS (See System for Award Management User Guide--V. 1.8, July 23, 2012, Section 3.4, page 92, available at https://www.sam.gov/sam/transcript/SAM_User_Guide_v1.8.pdf). In addition, the U.S. government takes steps to facilitate selection of the correct NAICS code by private parties. The U.S. Census Bureau posts instructions on its Web site on how to properly classify products and services in accordance with the NAICS. BIS has included illustrative examples in Sec. 701.4(c)(1)(iii) and (c)(2)(iv) on classifying military export sales and offset transactions by NAICS codes. In addition, small governmental entities and small organizations are not likely to be involved in international defense trade, and will therefore have no reason to submit data to BIS pursuant to this regulation. Consequently, this rule will not have a significant impact on a substantial number of small entities. List of Subjects in 15 CFR Part 701 Administrative practice and procedure, Arms and munitions, Business and industry, Exports, Government contracts, Reporting and recordkeeping requirements. Accordingly, 15 CFR part 701 is amended as follows: PART 701--[AMENDED] 0 1. The authority citation for part 701 continues to read as follows: Authority: 50 U.S.C. 4568; E.O. 12919, 59 FR 29525, 3 CFR, 1994 Comp., p. 901; E.O. 13286, 68 FR 10619, 3 CFR, 2003 Comp., p. 166. 0 2. In Sec. 701.2, revise paragraphs (a) and (b) to read as follows: Sec. 701.2 Definitions. (a) Offsets--Compensation practices required as a condition of purchase in either government-to-government or commercial sales of: (1) Defense articles and/or defense services as defined by the Arms Export Control Act and the International Traffic in Arms Regulations; or (2) Items controlled under an Export Control Classification Number (ECCN) that has the numeral ``6'' as its third character in the Commerce Control List found in Supplement No. 1 to part 774 of this chapter other than semi-submersible and submersible vessels specially designed for cargo transport and parts, components, accessories and attachments specially designed therefor controlled under ECCN 8A620.b; test, inspection and production equipment controlled in ECCN 8B620.b, software controlled in ECCN 8D620.b and technology controlled in ECCN 8E620.b. (b) Military Export Sales--Exports that are either Foreign Military Sales (FMS) or commercial (direct) sales of: (1) Defense articles and/or defense services as defined by the Arms Export Control Act and International Traffic in Arms Regulations; or (2) Items controlled under an Export Control Classification Number (ECCN) that has the numeral ``6'' as its third character in the Commerce Control List found in Supplement No. 1 to part 774 of this chapter other than semi-submersible and submersible vessels specially designed for cargo transport and parts, components, accessories and attachments specially designed therefor controlled under ECCN 8A620.b; test, inspection and production equipment controlled in ECCN 8B620.b; software controlled in ECCN 8D620.b; and technology controlled in ECCN 8E620.b. * * * * * 0 3. In Sec. 701.3, revise paragraph (a) to read as follows: Sec. 701.3 Applicability and scope. (a) This part applies to U.S. firms entering contracts that are subject to an offset agreement exceeding $5,000,000 in value and that are for the sale to a foreign country or foreign firm of: (1) Defense articles and/or defense services as defined by the Arms Export Control Act and International Traffic in Arms Regulations; or (2) Items controlled under an Export Control Classification Number (ECCN) that has the numeral ``6'' as its third character in the Commerce Control List found in Supplement No. 1 to part 774 of this chapter other than semi-submersible and submersible vessels specially designed for cargo transport and parts, components, accessories and attachments specially designed therefor controlled under ECCN 8A620.b; test, inspection and production equipment controlled in ECCN 8B620.b; software controlled in ECCN 8D620.b and technology controlled in ECCN 8E620.b. * * * * * Dated: February 24, 2016. Kevin J. Wolf, Assistant Secretary for Export Administration. [FR Doc. 2016-04425 Filed 2-29-16; 8:45 am] BILLING CODE 3510-JT-P
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Original Issue date of this service bulletin,’’ (IBR) of the service information listed in this continue, unchanged by this rule.
this AD requires compliance within the paragraph under 5 U.S.C. 552(a) and 1 CFR Beginning on October 15, 2013, some
specified compliance time after the effective part 51. items have been removed from the
date of this AD. (2) You must use this service information
(2) Although Boeing Alert Service Bulletin as applicable to do the actions required by
USML and been added to 600 series
747–53A2876, dated October 22, 2014, this AD, unless the AD specifies otherwise. ECCNs. These items were subject to
specifies to contact Boeing for repair data, (i) Boeing Alert Service Bulletin 747– offsets reporting requirements prior to
and specifies that action as ‘‘RC’’ (Required 53A2876, dated October 22, 2014. being added to 600 series ECCNs. Some
for Compliance), this AD requires repair (ii) Reserved. other items have been moved from non-
before further flight using a method approved (3) For service information identified in 600 series ECCNs to 600 series ECCNs
in accordance with the procedures specified this AD, contact Boeing Commercial as part of the Administration’s Export
in paragraph (k) of this AD. Airplanes, Attention: Data & Services Control Reform Initiative. This rule
Management, P.O. Box 3707, MC 2H–65,
(k) Alternative Methods of Compliance
Seattle, WA 98124–2207; telephone 206–
requires reporting of offsets agreements
(AMOCs) in connection with sales of items
544–5000, extension 1; fax 206–766–5680;
(1) The Manager, Seattle Aircraft Internet https://www.myboeingfleet.com. controlled in 600 series ECCNs
Certification Office (ACO), FAA, has the (4) You may view this service information regardless of whether the item was
authority to approve AMOCs for this AD, if at FAA, Transport Airplane Directorate, 1601 added to a 600 series ECCN
requested using the procedures found in 14 Lind Avenue SW., Renton, WA. For simultaneously with its removal from
CFR 39.19. In accordance with 14 CFR 39.19, information on the availability of this the USML or was subject to the EAR
send your request to your principal inspector material at the FAA, call 425–227–1221.
or local Flight Standards District Office, as
prior to its inclusion in a 600 series
(5) You may view this service information
appropriate. If sending information directly that is incorporated by reference at the
ECCN, except for certain submersible
to the manager of the ACO, send it to the National Archives and Records and semi-submersible cargo transport
attention of the person identified in Administration (NARA). For information on vessels and related items that are not on
paragraph (l)(1) of this AD. Information may the availability of this material at NARA, call the control lists of any of the
be emailed to: 9-ANM-Seattle-ACO-AMOC- 202–741–6030, or go to: http:// multilateral export control regimes of
Requests@faa.gov. www.archives.gov/federal-register/cfr/ibr- which the United States is a member.
(2) Before using any approved AMOC, locations.html. The changes made by this rule were the
notify your appropriate principal inspector,
or lacking a principal inspector, the manager Issued in Renton, Washington, on February subject of a proposed rule for which BIS
of the local flight standards district office/ 15, 2016. received no comments. This final rule
certificate holding district office. Michael Kaszycki, adopts the text of the proposed rule
(3) An AMOC that provides an acceptable Acting Manager, Transport Airplane without change.
level of safety may be used for any repair, Directorate, Aircraft Certification Service. DATES: Effective: March 31, 2016.
modification, or alteration required by this [FR Doc. 2016–03884 Filed 2–29–16; 8:45 am] FOR FURTHER INFORMATION CONTACT:
AD if it is approved by the Boeing
Commercial Airplanes Organization BILLING CODE 4910–13–P Ronald DeMarines, Strategic Analysis
Designation Authorization (ODA) that has Division, Office of Strategic Industries
been authorized by the Manager, Seattle and Economic Security, 202–482–3755,
ACO, to make those findings. To be DEPARTMENT OF COMMERCE or ronald.demarines@bis.doc.gov.
approved, the repair method, modification SUPPLEMENTARY INFORMATION:
deviation, or alteration deviation must meet Bureau of Industry and Security
the certification basis of the airplane, and the Background
approval must specifically refer to this AD. 15 CFR Part 701 Part 701 of Title 15, Code of Federal
(4) Except as required by paragraph (j)(2)
Regulations—Reporting of Offsets
of this AD: For service information that [Docket No. 150825780–6125–02]
contains steps that are labeled as Required Agreements in Sales of Weapon Systems
for Compliance (RC), the provisions of RIN 0694–AG38 or Defense-Related Items to Foreign
paragraphs (k)(4)(i) and (k)(4)(ii) apply. Countries or Foreign Firms (herein the
(i) The steps labeled as RC, including Export Control Reform: Conforming Offsets Reporting Regulations) requires
substeps under an RC step and any figures Change to Defense Sales Offset that U.S. firms report certain offset
identified in an RC step, must be done to Reporting Requirements agreements to BIS annually. BIS uses
comply with the AD. An AMOC is required the information so reported to develop
for any deviations to RC steps, including AGENCY: Bureau of Industry and
Security, Commerce. a ‘‘detailed annual report on the impact
substeps and identified figures.
(ii) Steps not labeled as RC may be ACTION: Final rule. of offsets on the defense preparedness,
deviated from using accepted methods in industrial competitiveness,
accordance with the operator’s maintenance SUMMARY: This rule requires reporting of employment, and trade of the United
or inspection program without obtaining offsets agreements in connection with States’’ (herein ‘‘the offset report to
approval of an AMOC, provided the RC steps, sales of items controlled on the United Congress’’), that is submitted to the
including substeps and identified figures, can States Munitions List (USML) and items Committee on Banking, Housing, and
still be done as specified, and the airplane controlled in ‘‘600 series’’ Export Urban Affairs of the Senate, and the
can be put back in an airworthy condition.
Control Classification Numbers (ECCNs) Committee on Financial Services of the
(l) Related Information on the Commerce Control List (CCL) House of Representatives, as required by
For more information about this AD, except for certain submersible and semi- Section 723 of the Defense Production
contact Nathan Weigand, Aerospace submersible cargo transport vessels and Act of 1950, as amended (DPA) (50
asabaliauskas on DSK5VPTVN1PROD with RULES
Engineer, Airframe Branch, ANM–120S, related items that are not on the control U.S.C. 4568(a)(1)). An offset for
FAA, Seattle Aircraft Certification Office lists of any of the multilateral export purposes of the Offsets Reporting
(ACO), 1601 Lind Avenue SW., Renton, WA control regimes of which the United Regulations is compensation required
98057–3356; phone: 425–917–6428; fax: 425– States is a member. Since the early by the purchaser as a condition of the
917–6590; email: nathan.p.weigand@faa.gov.
1990s, BIS has required reporting of purchase in government-to-government
(m) Material Incorporated by Reference offsets agreements in connection with or commercial sales of defense articles
(1) The Director of the Federal Register sales of items controlled on the USML. or services. This compensation can take
approved the incorporation by reference Those reporting requirements will a variety of forms, including: Co-
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production, technology transfer, USML or subject to the EAR prior to which are not usually the subject of
subcontracting, credit assistance, being controlled under a 600 series offset agreements. The higher value
training, licensed production, ECCN. BIS received no comments on items that typically trigger offset
investment, and purchases. An that proposed rule and this rule adopts requirements by the foreign government
agreement to provide offsets with a the text of the proposed rule without purchaser, such as combat aircraft,
value exceeding $5,000,000 must be change. The preamble to that proposed strategic airlifter aircraft, ships, missiles
reported to BIS. Performance of an rule contained a description of 600 and missile defense systems, are
existing offset commitment for which series ECCNs and a discussion of the remaining on the USML and their offset
offset credit of $250,000 or more has antecedents to the current 600 series reporting requirements have not
been claimed must also be reported to ECCNs, which identified items that changed. In addition, any increase in
BIS. were moved from the USML to 600 the reporting burden by the imposition
The Defense Production Act describes series ECCNs and items that were of offsets reporting requirements on
the items for which the offset report to moved from non-600 series ECCNs to items that have moved to 600 series
Congress must be submitted as ‘‘weapon 600 series ECCNs (see 80 FR 75438, ECCNs is likely to be offset by a
system[s] or defense-related item[s].’’ 75439–75441, December 2, 2015). The reduction in that burden resulting from
(See section 723 of the DPA) (50 U.S.C. facts presented in that discussion have the removal of some items from the
4568(c)(1)). The Offsets Reporting not changed and it is not repeated here. USML and their addition to non-600
Regulations currently require reporting series ECCNs, which are not subject to
of offsets in connection with ‘‘defense Rulemaking Requirements
offsets reporting requirements. Those
articles and/or defense services’’ as 1. Executive Orders 13563 and 12866 items are: Commercial spacecraft
defined by the Arms Export Control Act direct agencies to assess all costs and including satellites and related items,
and the International Traffic in Arms benefits of available regulatory and certain energetic materials. Send
Regulations (22 CFR parts 120–130) alternatives and, if regulation is comments regarding this burden
(ITAR). See 15 CFR 701.2(a). The ITAR necessary, to select regulatory estimate or any other aspect of these
includes the USML (22 CFR part 121), approaches that maximize net benefits collections of information, including
which describes the defense articles that (including potential economic, suggestions for reducing the burden, to
it regulates. Beginning on October 15, environmental, public health and safety Jasmeet K. Seehra, Office of
2013, as part of the Administration’s effects, distributive impacts, and Management and Budget, by email at
Export Control Reform Initiative, a equity). This rule does not materially jseehra@omb.eop.gov or by fax to (202)
series of rules removed a number of change any regulatory burden on the 395–7285 and to William Arvin at
defense articles from the USML and public and is consistent with the goals william.arvin@bis.doc.gov.
added them to the CCL (15 CFR part of Executive Order 13563. This rule has 3. This rule does not contain policies
774, Supp. No. 1). BIS created a new been determined to be not significant for with Federalism implications as that
series of ECCNs in the EAR, identified purposes of Executive Order 12866. term is defined under Executive Order
as the ‘‘600 series’’ because the third 2. Notwithstanding any other 13132.
character in the ECCN is the numeral provision of law, no person is required 4. The Regulatory Flexibility Act
‘‘6,’’ for those defense articles. The 600 to respond to, nor shall any person be (RFA), as amended by the Small
series items formerly controlled on the subject to a penalty for failure to comply Business Regulatory Enforcement
USML were subject to offsets reporting with, a collection of information subject Fairness Act of 1996 (SBREFA), 5 U.S.C.
requirements before being added to the to the requirements of the Paperwork 601 et seq., generally requires an agency
600 series. Reduction Act of 1995 (44 U.S.C. 3501 to prepare a regulatory flexibility
Simultaneously with adding former et seq.) (PRA), unless that collection of analysis of any rule subject to the notice
USML defense articles to the 600 series information displays a currently valid and comment rulemaking requirements
ECCNs, BIS added to those ECCNs some Office of Management and Budget under the Administrative Procedure Act
items that are of a military nature but (OMB) Control Number. The collection (5 U.S.C. 553) or any other statute,
that were already subject to the EAR. of offset reports has been approved by unless the agency certifies that the rule
BIS took this step to provide consistent OMB under control number 0694–0084. will not have a significant economic
treatment for all military items that are The estimated number of annual impact on a substantial number of small
subject to the EAR. Some of these items responses is 30 and the estimated entities. Under section 605(b) of the
were in existing ECCNs. Others were number of burden hours is 360. BIS RFA, however, if the head of an agency
subject to the EAR, but not set forth in believes that this rule will not certifies that a rule will not have a
any ECCN. Such items are designated materially change the number of significant impact on a substantial
under the EAR as EAR99 items. Items responses or burden hours authorized number of small entities, the statute
that were subject to the EAR prior to under 0694–0084 because the primary does not require the agency to prepare
being added to 600 series ECCNs were impact of this rule is to restore reporting a regulatory flexibility analysis.
not subject to offsets reporting requirements that have lapsed since Pursuant to section 605(b), the Chief
requirements. those estimates were made, and to retain Counsel for Regulation, Department of
On December 2, 2015, BIS published reporting requirements that otherwise Commerce, certified to the Chief
a proposed rule (see 80 FR 75438) to will lapse in the coming months. Counsel for Advocacy, Small Business
require reporting of offsets agreements Although this rule will create new Administration that this rule will not
in connection with sales of all items reporting requirements for some items have a significant impact on a
asabaliauskas on DSK5VPTVN1PROD with RULES
controlled in 600 series ECCNs, except that were subject to Department of substantial number of small entities for
for certain submersible and semi- Commerce export control jurisdiction the reasons explained below. BIS
submersible cargo transport vessels and prior to being added to 600 series received no comments regarding the
related items that are not on the control ECCNs, the impact of those additions on certification. Consequently, BIS has not
lists of any of the multilateral export the burden is likely to be insignificant prepared a final regulatory flexibility
control regimes of which the United because those items are primarily low analysis.
States is a member, regardless of value items such as military ground Small entities include small
whether the item was controlled on the vehicles designed for non-combat use, businesses, small organizations and
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small governmental jurisdictions. For articles are likely to conduct business controlled under ECCN 8A620.b; test,
purposes of assessing the impact of this with the U.S. government and, inspection and production equipment
rule on small entities, a small entity is therefore, be required to classify their controlled in ECCN 8B620.b, software
defined as: (1) A small business products and services in accordance controlled in ECCN 8D620.b and
according to the ‘‘Table of Small with the NAICS (See System for Award technology controlled in ECCN 8E620.b.
Business Size Standards Matched to Management User Guide—V. 1.8, July
(b) Military Export Sales—Exports
North American Industry Classification 23, 2012, Section 3.4, page 92, available
System Codes,’’ effective January 22, that are either Foreign Military Sales
at https://www.sam.gov/sam/transcript/
2014, published by the Small Business SAM_User_Guide_v1.8.pdf). In addition, (FMS) or commercial (direct) sales of:
Administration (the SBA size the U.S. government takes steps to (1) Defense articles and/or defense
standards); (2) a small governmental facilitate selection of the correct NAICS services as defined by the Arms Export
jurisdiction that is a government of a code by private parties. The U.S. Census Control Act and International Traffic in
city, town, school district or special Bureau posts instructions on its Web Arms Regulations; or
district with a population of less than site on how to properly classify (2) Items controlled under an Export
50,000; and (3) a small organization that products and services in accordance Control Classification Number (ECCN)
is any not-for-profit enterprise which is with the NAICS. BIS has included
independently owned and operated and that has the numeral ‘‘6’’ as its third
illustrative examples in § 701.4(c)(1)(iii) character in the Commerce Control List
is not dominant in its field. BIS has and (c)(2)(iv) on classifying military
determined that this rule will not affect found in Supplement No. 1 to part 774
export sales and offset transactions by
any of these categories of small entities. of this chapter other than semi-
NAICS codes.
SBA’s size standards classify In addition, small governmental submersible and submersible vessels
businesses in various North American entities and small organizations are not specially designed for cargo transport
Industry Classification System (NAICS) likely to be involved in international and parts, components, accessories and
codes as small based on their annual defense trade, and will therefore have attachments specially designed therefor
revenue or number of employees. For no reason to submit data to BIS controlled under ECCN 8A620.b; test,
example, in 2014, the maximum annual pursuant to this regulation. inspection and production equipment
revenue for a small business was $33.5 Consequently, this rule will not have a controlled in ECCN 8B620.b; software
million and the maximum number of significant impact on a substantial controlled in ECCN 8D620.b; and
employees was 1,500. Since BIS began number of small entities. technology controlled in ECCN 8E620.b.
collecting data in 1994, virtually all of
List of Subjects in 15 CFR Part 701 * * * * *
the submissions that it has received
have been from a small number of very Administrative practice and ■ 3. In § 701.3, revise paragraph (a) to
large companies that exceed the SBA procedure, Arms and munitions, read as follows:
size standards for a small business. Business and industry, Exports,
Since 1994, the number of companies § 701.3 Applicability and scope.
Government contracts, Reporting and
that submitted data to BIS pursuant to recordkeeping requirements. (a) This part applies to U.S. firms
this regulation has not exceeded 26 per Accordingly, 15 CFR part 701 is entering contracts that are subject to an
year. On average, the companies that amended as follows: offset agreement exceeding $5,000,000
submit data to BIS have annual in value and that are for the sale to a
revenues well in excess of $1 billion. PART 701—[AMENDED] foreign country or foreign firm of: (1)
For instance, in 2014, the most recent Defense articles and/or defense services
year for which BIS has data collected ■ 1. The authority citation for part 701
continues to read as follows: as defined by the Arms Export Control
pursuant to this regulation, only one of
Act and International Traffic in Arms
the 26 companies that submitted data Authority: 50 U.S.C. 4568; E.O. 12919, 59
had reported revenue of less than $1 FR 29525, 3 CFR, 1994 Comp., p. 901; E.O. Regulations; or
billion. That company had revenue of 13286, 68 FR 10619, 3 CFR, 2003 Comp., p. (2) Items controlled under an Export
$120 million. 166. Control Classification Number (ECCN)
Some small businesses likely are ■ 2. In § 701.2, revise paragraphs (a) and that has the numeral ‘‘6’’ as its third
involved in fulfilling offset obligations (b) to read as follows: character in the Commerce Control List
by acting as subcontractors to the large found in Supplement No. 1 to part 774
prime contractors that report directly to § 701.2 Definitions. of this chapter other than semi-
BIS, meaning that they report indirectly (a) Offsets—Compensation practices submersible and submersible vessels
to BIS pursuant to this section. required as a condition of purchase in specially designed for cargo transport
However, this rule will not significantly either government-to-government or and parts, components, accessories and
increase the burden on such companies. commercial sales of: attachments specially designed therefor
Most of the information collected by BIS (1) Defense articles and/or defense
controlled under ECCN 8A620.b; test,
pursuant to this section is already services as defined by the Arms Export
inspection and production equipment
collected by such small businesses so Control Act and the International Traffic
that they can accurately account for in Arms Regulations; or controlled in ECCN 8B620.b; software
their obligations under the offset (2) Items controlled under an Export controlled in ECCN 8D620.b and
agreement (which is imposed at the Control Classification Number (ECCN) technology controlled in ECCN 8E620.b.
asabaliauskas on DSK5VPTVN1PROD with RULES
behest of the foreign buyer) and report that has the numeral ‘‘6’’ as its third * * * * *
them to the prime contractor. The only character in the Commerce Control List Dated: February 24, 2016.
data element required by this rule that found in Supplement No. 1 to part 774
Kevin J. Wolf,
might not be needed for those reports to of this chapter other than semi-
the prime contractor is the classification submersible and submersible vessels Assistant Secretary for Export
of offset agreements and transactions by specially designed for cargo transport Administration.
NAICS code. Even subcontractors and parts, components, accessories and [FR Doc. 2016–04425 Filed 2–29–16; 8:45 am]
involved in the manufacture of defense attachments specially designed therefor BILLING CODE 3510–JT–P
VerDate Sep<11>2014 18:20 Feb 29, 2016 Jkt 238001 PO 00000 Frm 00042 Fmt 4700 Sfmt 9990 E:\FR\FM\01MRR1.SGM 01MRR1](https://thefederalregister.org/doc/81_FR_10512/page/3.svg)
Document Created: 2018-02-02 15:00:14
Document Modified: 2018-02-02 15:00:14
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Final rule. | |
| Dates | Effective: March 31, 2016. | |
| Contact | Ronald DeMarines, Strategic Analysis Division, Office of Strategic Industries and Economic Security, 202- 482-3755, or [email protected] | |
| FR Citation | 81 FR 10472 | |
| RIN Number | 0694-AG38 | |
| CFR Associated | Administrative Practice and Procedure; Arms and Munitions; Business and Industry; Exports; Government Contracts and Reporting and Recordkeeping Requirements |
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