**Regulations and Procedures Technical Advisory Committee**

**December 3, 2002**

Industry members in attendance: James Wyatt, Anne Marie Banner, David
Calabrese, Kathleen Gebeau, Susan Kargel, Thomas Ladd, Keith Melchers,
Terence Murphy, Vera Murray, Vickey Roberts, Gina Roberts, William Root,
Richard Seppa, Roszel Thomsen, Sandra Vincent, Julie Zack

Welcome and introductions.

Regulatory Update by Sharron Cook

APR - much concern over the removal of paragraph (a). This will be
published as a notice of inquiry and there will be an opportunity to
comment.

Ben Flowe: Can BIS increase the comment period from 60 to 90 days?

S.Cook: I will put forward RPTAC's concerns and we will see.

TSR - Wait for Wassenaar Plenary and then the Administration will
discuss how to implement and whether their will be an impact on TSR.

RPTAC wants a copy of the new De Minimis draft and the Microprocessor
draft.

State published a reg on Wed that transferred USML items to the CCL.
(Since the RPTAC meeting, SCook has seen this rule and has confirmed
that BIS has a pending rule that will adjust the CCL accordingly, Mr.
William Arvin is the drafter of this rule)

Norm LaCroix discussion of encryption regulation recommendations

Overview of last encryption reg and the impact, and a forward look

Activity 12% increase in review and clearance of applications to
Encryption division, maintained processing time same as last year. 2164
encryption items reviewed, 1024 considered retail.

Under new Mass Market (MM) policy, 196 MM reviews done to date, EAR
provides for 30 day review. 82% have been deemed MM, 15% were not found
to meet the Crypt Note and could go under ENC, 4% were found to fall
elsewhere, e.g., RWA. Ave 4 days of HWA.

Security for managing computer equipment, routers, are not eligible for
MM treatment. VPN, 64% are not eligible for ENC and require a license.
36% are eligible for full retail eligibility. 72% are eligible for full
retail.

Increase in licenses. Doubled since last year. In 2002, 316 license
applications, 246 approved, 5 denials, rest RWA'd. 60% favorable outcome
of license applications.

Notifications. Reports. Over 200 notifications of Internet postings. 419
bulk reports received.

Still network security concerns.

Future: review of products prior to sale, streamlined reporting w/o,
license requirement of high end products to gov endusers

4 Areas of concentration: Dramatic removal of license submissions.
Reduce regulatory outcomes. Decrease regulatory complexity that have
been caused by liberalizations.

1^st^ priority pruning of decision tree for determining license
requirements

simplify ENC

simplify procedures for compliance to notification, reports, license
submission

increase transparency, tech review process

anticipate technology trends.

Recommendations submitted by RPTAC are inline with Norms recommendations

Vera Murray, IBM, need to simplify the authorization process. Is it
possible to just notify without the 30 waiting period prior to export?
Weak encryption, should be 992 category. Mass market too strict, looking
at end-user instead of the technical parameters. Suggestions, should be
measured against MM provisions, not number of end-users or who the
end-user is. One of the requirements is that if we announce that we are
selling a new product today it cannot be eligible for MM today, but must
wait for a period.

Jim Wyatt; at least 18 different ways to classify product, cut down to 4
or 5 ways. Number of decisions reduced, group things that are similar in
the way they are treated into the same ECCN. If there is no notification
or review in one bucket, if review and notification in one bucket. Don't
want to be whipped back and forth between ECCNs dependant upon a review.
We understand that some of the problem is based upon the requests that
we have made for carve outs.

Roz Thomsen- see thru rules. Cat 5 part 1 trumps cat 4, we are seeing
cat 4 items being licensed under cat 5 criteria because of ancillary
encryption products. Have govt review this procedure of see thru.

Cecil Hunt - Are you in a position to determine whether US suppliers are
disadvantaged against the rest of the world today because of current
encryption policy?

Norm - application of de minimis, and policy towards embargoed and
terrorist countries seems to be the points where we are most
disadvantaged. Other countries seem to be following US policies and the
US is setting the standard in encryption policy. It is the review of
items prior to sale that seem to separate the US from other countries.
The ultimate outcome is about the same, but the time burden is the US
cost.

Ben Flow - the US sets policies because of the notifications and review
policies, I don't know that other countries are following suit.

Vera - when another countries require a license, they will ask how would
this be viewed against the US regulations.

Martin Sangers - nothing in the regulations about certain policies of
distinction between retail and mass market, eg, bundled software.

Norm - Note 1 to cat 5, does present some technical insights. In the
upcoming regulations we'll look into this.

Bill Root - How did you make such determinations between retail and mass
market. What was the criteria?

Norm - the implementation of the crypt note, there is a certain amount
of interpretation, eg. What is in the public. Most of the 15% are not
sold in large volumes yet. No restriction on bringing new products to
market. Not available to the general public, because they are higher end
and only marketed to a limited customer base. Further research needs to
be done about the breakdown of these products that did not qualify as MM
treatment.

Bill Root - are you going to bring this out in the regulations?

Norm - is 15% a low or high number, it is yet to be determined.

Wyatt - Were the new reviews mostly retail products or new products?

Norm- Don't' have that info.

Earl Adams - Is it still the standard that once we've seen your products
we don't want to see it again if you add bells and whistles?

Norm - People interact with us not just once, but many times during a
lifecycle of a product.

Earl - it might be good to clarify this in the regulations.

Ben - Elaborate on the difficult line drawing you had to do in
determining MM. Don't have much of a govt record on interpreting the
Encryption Note. If it were freely available and easy to install, we
couldn't control the outcome. General public - vs developers, but if you
can download it from the internet it meets the criteria. It seems to be
evolving, e.g., servers. Difference between a server or a general PC,
but still sold through retail outlets.

Norm - Servers, at what level is a system high enough end that it drops
out of general public use? Servers and development tools, for products
not components. If I'm selling chips to manufacturers to incorporate
into a product, then it is not generally available to the public. What
would be helpful is: if we could be presented with deeper insight, your
industry prospective of what should be in MM treatment.

Roz - RPTAC approach to pruning the tree is to use the ECCNs as the
buckets, is there another approach.

Norm - it attempts to use ECCNS to match a process, which may not be a
good match. We would like to see the exporter empowered to make a
decision as to whether they are retail or not.

Roz - This approach goes against the Wassenaar approach in that it
presents a negative list, instead of a positive list.

Norm - I believe we have lots of flexibility in implementing the
Wassenaar policies.

Wyatt - What is your recommendation

Norm - Better sense of the MM criteria concerns, present them to Gov,
encryption workgroup made available for working group meetings in the
govt.

Vera - we will do all of the above

Charley Bartoldus - Customs, and Harvey Monk (H) from Census - AES
discussion

H - talked about AES statistics and regulatory changes that have
happened

As of Oct 875000 shipments thru AES \...24079 through Opt 4, 702000 Opt
2, Opt 3 21776, 151000 Opt 4

85.2% AES . . . 170,000 paper a month, top ports Laredo, JFK, LA, San
Fran, Chicago, Miami

Security Assistance Act Public Law 107228 section 1404 AES, All required
to file SED shall do so through AES, penalty \$1000 a day, max \$10,000
per transaction per violation, criminal penalty, \$10,000 per violation,
or 5 yrs in jail or both. Administrative procedure for assessing
penalties. OEE and Customs to enforce. Census is in the stage of
thinking about how to implement this. Because we don't have a budget,
don't know when, we were going to say mid year next year with final in
2004. But because of budget, do not know when we are going to implement

Issued a proposed rule on Oct 9 comments due Dec 9^th^, received a
handful of comments, none really critical of the rule, had to do with
USPPI. Will issue a final rule ASAP, goal to issue by Jan 1, 2004. Do
not foresee any changes to the proposed rule, will go into effect 90
days after date of issue. State has rule to issue too, conforming to
address proof of export documentation, when you have to file AES for
ITAR goods. ITN will be a phased in process. Working on making a change
to implement a replace feature instead of a add and delete function. You
can file pre departure at the point of departure, ITAR is going to
require in advance air and truck, 24 hour for ocean.

Now getting the ITN within 10 minutes.

H. a few companies that State has allowed to file post departure, that
will be taken away. You will be able to continue to file post departure
for BIS if you have received authorization to do so.

State's reg will be an Interim final rule, not proposed. Pls be aware of
other legislation

Trade Act of 2002 HR3009 section waterborn exports, gives Treasury
jurisdiction. Submit SED/AES 24 hours prior to departure when via ocean.

S1214 Maritime of 2002

section 343a of 3009, mandatory advanced submission of cargo info on
Customs system.. Tues, November, 26 announcement a meeting to discuss
electronic cargo filing. Meetings will be held in Reagan building.
Harvey suggests that you attend.

Susan Kargel - Check with your shipping departments and find out when
they are submitting their commercial invoices.

H. - this could eventually effect all exports. Possibly elimination of
Opt 4.

Charley Botoldus - There has been talk of eliminating Opt 4 because of
the post 911 terrorist concerns. Customs has been pushing to get rid of
Opt 4, but are now going to reevaluate this in the next 60 days. There
will be a series of meetings, please attend.

Susan Kargel - Inspectors have not been properly trained to read the AES
screens and are holding exports.

Charlie -I am the new director of Border Targeting and Analysis.
National Targeting Center.

Susan - One more suggestion, if a company has already been certified and
have done background checks on all their people, then this should be
taken into consideration for Opt 4.

Charlie (C)- 23 years in Customs, also was a Inspector, and director of
port in Baltimore.

Wyatt - In the meantime is it more difficult to get approved for Opt 4?

C. - Yes, not pushing anybody through right now

H. - for ocean born option 4 is already gone, because of this new
legislation.

It sounds as if Option 4 is already mandated to be eliminated

C. - Customs is committed to working with Census on this issue

When you come into Homeland Security (HLS), who is to say that policies
and authorities will be changed.

C. - Customs goes into HLS on March 1. We have been working with HLS
already and have 2 executives on loan with them already. Customs is not
pushing to kill it today.

Ben - how is looking at import data going to help you decide about
exports?

C. - from the targeting side of it, as we sort through the universe of
data we will discover there are certain data that we are not interested
in. We will look at that type of stuff. Have been working with HLS for 6
months to a year.

Susan - Is License Exception included in mandatory? Why are you asking
for the weight by schedule B number?

H. - if no exemption applies yes. Have always asked for weight.

C. - We also use that data for enforcement.

Spelling of Charlie's last name "Who told us?" "Bartoldus"

Break for lunch

Bernie Kritzer (K)

Next week is the plenary of Wassenaar. Experts Group their will be a
proposal of liberalization in 12 bit AD converters. External
interconnects for computers will be discussed in next years meetings.
Catch all control and knowledge.

\* Going to start 2003 cycle, please send all proposals by end of this
month for next years meetings.

USML review going on. Participation messages sent to RPTAC. Going to
work on electronics and sensors next, please send proposals forward to
assist with this, e.g., rad hard components.

Wyatt - MTOP level of computer technology to stay at 28,000 MTOPs

Bill Root - why does Wassenaar even have a basic list? There seems to be
no discipline of control of item that are not on Annex 1 or 2. Example
machine tools.

K. - Any info you can provide of exports of high level machine tools .

Roz- no undercut rule - still on the table?

K - yes, as is consultation denials.

Seppa (S) - Catch -all , what kind of catch all is the US advocating at
Wassenaar.

K - items that could be used for military that are dual use.

S. danger, that it will catch items that are not on the list. It is very
difficult to adopt a corporate policy. It creates an unlevel playing
field.

K. - Deemed export issue, processed about 700 - 715 license
applications, 10-15 % were renewals. About 150-200 are in the system
now, a good percentage are renewals. DOC has had meetings with DOD and
State to discuss conditions. Including philosophy of applying
conditions, across the board or case by case. DOC would like to apply
them case by case. When we apply license conditions that we do not
remove LE eligibility.

Jim Wyatt (W) - earlier this year there was discussions about removing
conditions that have nothing to do with export regulations in the EAR.
What we have been seeing does not seem to reflect this.

Roz - I can't find any authority to remove License Exceptions (LE) or
NLR with license conditions, have you found any?

K - You would have to have a major scenario that would warrant removal
of this type of eligibility.

Ben - when you have multiple LE you can choose the most liberal. It
seems to be a non-issue.

K - License condition with deemed exports, predominant LE have been TSR.

W. The conditions that says, you can't use a computer above a certain
CTP level or LE level.

K - please share these with us. The second area I would like to revise
is, more specificity with the authority of the license. More detail
about what is authorized down to the ECCN level and subparagraph level.

Roz - this is really dangerous path to go down, it restricts the scope
of technology that is available to these foreign nationals, with no
apparent benefit. Going to lead to a lot of reapplications

Vera - you have to build a plan around it to comply and it would have to
be very vigorous.

K - You wouldn't need to give authority for technology that they do not
work with.

Matt Borman - I think those are good points, I think we are trying to
reach balance. It is important to present a case that is more acceptable
to DOD, instead of trying to gain authorization for items that are
actually not needed, while on the other hand you do not want to have to
reapply all the time to expand the scope.

Seppa - is the greater concern the background of the individual or the
technology? How do you balance? What is the lead concern?

Gene Lewis - it is a combination, we have most of our problems with the
technology issues

Keith Melchers (KM) how many have you denied? on what basis?

K - most all on background of individual.

W - presumably the conditions have been addressing the technology levels

K - we would like to be more specific with the license scope, so DOD
will not apply blanket conditions. Instead we would like to propose a
specific scope and apply specific conditions, trying to strike a
balance.

Matt - the broader the scope of the technology, the more likely DOD will
broadly apply conditions

Is this the case for renewals?

K - trying to make these renewals quicker and lighter in conditions.
Whether new or renew, most fall into categories 3, 4, and 5. We have a
pretty good idea what the national will be working on.

We are also looking at the technology control plans (TCP). I've been out
to several of the companies and how they are effectively controlling
technology.

Would you say that this would expedite applications after a favorable
TCP review?

K We are coming to realize there needs to be a more streamlined process.
We believe this will lead to

W - who would be on the visits

K - BIS, OEE, agencies

KM - why bring EE?

K - as part of *(sorry folks, missed what K said here)*

KM is it a formal post shipment check?

K - no

Roz - Most people are trying to apply for DELs on an open campus basis.
Not what is this person going to work on in the next 3 months, but what
is the technology in my company going to do in the next 3 years. The
more specific the greater the cost to the companies. Don't do it on job
description, but should do it based on company technology

W - can't change the way the company operates based on how quickly you
can get a license

Ben - DOD would like to see a DOD based type of control facility, but it
is quite different in private industry. Companies have to balance EEO
regulations. This is a major proposal - company visits.

Vera - distribution license audits did not include EE or other agencies.
We have to look ahead because the economy will turn and there will be a
greater need of hiring foreign nationals.

K - LE for subs. Ask of other TACs as to how the encryption LE works for
subs in companies.

Matt - This Congress is finished as far as the EAA. We would like to
make a more systematic review of the deemed export process and the
RPTAC's proposal for the LE for foreign nationals of subs.

Bonnie - TCP if you are planning to look to see if companies are
complying or how well you are complying with TCP, are you also going to
look at those competitors that are not implementing TCPs.

Roz - deemed export and EPCI are on the top of list what else

Mat - night vision , USML review,

Vera - more precise about EPCI

Mat - EPCI controls more manageable for companies, can we make it more
manageable and put forward a proposal to agencies.

Ben - It might be useful, administrative hearing different presentations
and limits on time, different perspectives. Get a number of people from
the hill to come and hear all the issues and presentations. It is
intimidating to have EE and other agencies to come visit the plant,
instead of a EA visit.

W - what ever happened with the conditions that we reviewed and put
forward last summer

K - still reviewing them, some agreements. Agencies still waiting to see
what will happen with the TCP policy.

K - 2 issues left: feature size and access to hire level computers.

KM the computer levels that are on conditions now make no sense now,
because in a development environment we do not know what level will be
reached.

K - Agencies are reluctant to revise the conditions until these other
issues are addressed.

Roz - is a DEL validity period being discussed?

K - This is one of the new things we are discovering the renewal
applications. We are looking at how long it takes to get a greencard.
Now its taking longer after 911.

W - what would be wrong with a condition that reads, it is valid until
he obtains a greencard or until his authorization to be in the US
expires.

Gene - once a license had been in use for 2 years, the conditions became
unmeaningful.

ROZ - at least you would leave it up to the companies to make that
decision. Narrower scope and shorter duration leads to more renewals.

DOC is creating an unlevel playing field.

Seppa - has there been an enforcement action where conditions to a
deemed export have not been complied with?

Matt - there was a case in the last 2 years

Roz - that wasn't a real case, they new it was going to be exported to
PRC.

Matt - India, agreed to start a high tech group. Develop high tech trade
between the US and India. Would be very interested in private sector
input into this group. Info input and participation in experiences
industry has had with export to India, what are the barriers you come
across. The Indians think it is export controls, but DOC believes that
export controls play a small part in affecting high tech trade to India.

Earl - The answer you get will be dependant upon who you ask, whether
they be export control experts or small business general industry. Small
Business is apt to say that they are unable to sell to India at this
time because of export controls.

KM - do you see further changes on the Entity List?

Matt - no

Why is BIS getting involved in this at all, when India is such a small
percentage of exports?

Mr. Juster just participated in a trip to India.

BIS has a Defense advocacy role in the President's announce defense
trade review.

Ben - also announced a defense export policy review.

Matt - same thing

Roz - what are we going to do with all the licenses that we issued over
the years if we are successful in a new set of conditions, are we going
to have to renew these or will these new conditions apply

K - hope to be able to apply the new conditions without renewals

Roz - does this go against the applying conditions on a case by case
basis?

K - we hope to come up with a reasonable solution that avoids everyone
having to reapply.

**User Friendliness Working Group**

Bill Root gave an overview of his progress report from his meeting notes
with Sharron Cook.

Dow has found out the CAS numbers for all the CCL items that are CWC and
AG related, or DEA related.

Bonnie will provide Dow's work to RPD

Work Group Reports:

W. - There are fewer workgroups, CCL removed and EPCI removed. 5
workgroups left. There is a table that lists where members are serving.
If you want to move to another group just let the chair know.

Earl Adams - Mark Menefee is working with RPTAC on the updating/revising
the red flag guidance.

Ben - OGC working on mitigating factors, better predictability in cases.

Earl - Assemble forces, get to Mark what he has asked for

Vicky Roberts - Get comments in on AES proposed reg by Dec 9^th^

Anne Marie Banner - Difficult in getting a global catch all policy.
People we want to meet with, John Schlosher of State, Richard Cupitt -
to see if any RPTAC can be of any help, Karan Bahtia

Tech Controls - covered most of the topics in the discussions today.

Chairperson Elections

Vera Murray called for an election.

Earl Adams nominated Jim Wyatt.

Unanimous vote for Jim Wyatt's election as chair.

The meeting was adjourned.