New Restrictions on License Exception STA Could Disrupt Supply Chains, Exporters Say

The companies, in public comments released by BIS last week, were responding to a proposed rule issued by the agency in December (see 2312070041) to improve and simplify STA, which authorizes certain exports to trusted U.S. allies if the foreign importer certifies that they won’t reexport the item outside a list of STA countries. BIS has long tried to convince more exporters to use the exception (see 2209280042).

In comments, exporters said they support BIS efforts to encourage use of the exception. The Association for Uncrewed Vehicle Systems International (AUVSI) applauded proposed moves to “adopt a simpler and more consistent approach to identifying” the Export Control Classification numbers that are eligible for STA, and the Aerospace Industries Association said its members are “encouraged by BIS’ efforts to inject clarity into exemption eligibility.”

But AIA and other commenters also urged BIS not to move forward with a proposal that could place new STA restrictions on ECCN 7D004, which includes source code for certain controlled technology. The agency said it’s considering restricting nations in Country Group A:5 -- which include a range of U.S. allies -- from being eligible for license exception STA when receiving 7D004 technology.

The aerospace and defense industry “relies” on STA to ship 7D004 data technology for a range of activities, AIA said, including civil aircraft design and airworthiness investigations. The association also said U.S. companies have been using this license exception for “over a decade.” Placing new restrictions on ECCN 7D004 would create “unnecessary hurdles for the [aerospace and defense] industry and incentivizes partners to consider non-U.S. suppliers for their aerospace needs,” AIA said.

Aerospace company RTX made similar points, saying making A:5 countries ineligible for the license exception for 7D004 would “impede aircraft certification activities and promote ‘design-out’ of U.S. content.” It also said the 3D displays described under ECCN 7D004.g “currently exist in consumer televisions developed and produced” outside the U.S.

“As such,” RTX said, “it is not clear what the proposed restriction aims to achieve.”

BIS gave “no justification” for removing 7D004 from the license exception, AUVSI added. The group said its members, commercial delivery drone operators and others use STA to release 7D004 technology to non-U.S. persons from A:5 countries “who are employed full-time by our” members. New restrictions on the technology could “delay, impede, and reduce our member companies’ ability to hire and retain top engineering talent,” because the change would require companies to apply for specific licenses to hire non-U.S. persons from A:5 countries.

“If BIS makes the proposed change, we anticipate that BIS will receive a significant volume" of those deemed export-related license applications, "all of which we would expect to be approved,” it said. “Also, rescission is counter to the goal of deeper ally and partner country relationships.”

Other companies asked BIS not to remove certain STA eligibility for ECCN 2E003.f, which includes technology “for the application of inorganic overlay coatings or inorganic surface modification coatings.” Under the agency’s proposal, which it had also floated in 2021, 2E003.f technology wouldn't be eligible for STA when that technology is used for certain purposes.

This would place an “unwarranted administrative burden on our business without any added increase in protection of technology affecting any identified concerns,” said Linde Advanced Material Technologies, a coatings manufacturer. The company said it would likely have to file “double digit numbers of license applications” if BIS follows through with the change.

The restrictions would also deviate from export exemptions available in the EU and the U.K., said Linde and General Electric. This could require American companies to apply for and obtain a specific license that their European competitors don’t need.

“This is particularly hard to understand in light of the matters discussed in the overall rulemaking itself -- that it is intended as an enhancement and simplification of STA -- and recent efforts to work more closely at export control coordination and enforcement, including with respect to our allies,” Linde said.

Linde also said many U.S. exporters have been sending the technology under STA to their customers since 2011. If STA eligibility were restricted, Linde said, it may need to apply for a license to “continue that communication” with its customers and to make sure it can continue “more of its core coating services business.” This could cause “supply chain disruption and delays” and higher costs to “develop various license requests in coordination with its foreign affiliates and customers, on a recurring basis, notwithstanding the fact that such parties may already have received this technology.”

GE said it has been using STA to send 2E003.f technology for 13 years “in lieu of requesting and exporting against licenses.” The company “expects that if implemented as drafted, the proposed rule would significantly increase administrative efforts while only providing a nominal enhancement to export controls for such technology.”

In the event BIS makes the change, Linde asked the agency to tweak the restrictions so they target only exports “incorporating specific areas of concern.” It also asked BIS for a one-year grace period to allow companies to apply for licenses, and said the agency should review license applications under a policy of approval for ultimate consignees and end users in the newly restricted country groups that have already received 2E003.f technology under STA or existing licenses. Many of them have had the technology for “several years,” Linde said.

In addition to simplifying License Exception STA, BIS should also “reexamine” its controls for space-related commodities, said Astroscale, a company that provides in-space servicing solutions. While some of the BIS proposals could encourage more exporters to use STA, they don’t address the “significant underlying problem -- export review of space-related commodities is urgently needed,” Astroscale said.

The company said a “substantive and comprehensive export review for spacecraft commodities” hasn’t been conducted since January 2017. “Rather than supporting U.S. industry and the growing commercial space economy, this Proposed Rule contains a time-consuming, piecemeal approach to export reform, asking industry to identify one-off ECCNS that could have STA eligibility added,” it said.

BIS should work with the State Department to “expediently” review current space-related export restrictions to help American companies be more competitive, Astroscale said. The company specifically said the two agencies should issue a notice of proposed rulemaking to “examine controls” on both the Commerce Control List and in the State Department’s U.S. Munitions List Category IV, which covers space launch vehicles, and Category XV, which covers spacecraft.

“It is imperative that BIS and the State Department take bold steps to comprehensively review export controls of space-related commodities,” the company said.