Chips Up for Boeing, Chips Down For Most Others

Here is a follow up to our Chip Fixation article: State and Commerce issued Federal Register Notices in which they attempted to resolve the Commodity Jurisdiction (CJ) debacle surrounding an apparently dual use avionics chip that was originally designed for defense use.

The resolution: PMDTC published a Federal Register Notice on January 7 indicating that they are likely to grant Commerce jurisdiction in response to submitted CJ ruling requests for the chips embedded in or intended to be embedded into back up commercial avionics. State jurisdiction is retained in all other cases. You must apply for the jurisdiction change in a CJ ruling-it does not come automatically.

Meanwhile, the Bureau of Industry and Security amended the EAR on February 9 to deal with the chip in avionics punted their way. Loose chips (intended for export for use in a back up commercial avionics system) were placed in Export Classification Control Number (ECCN): 7A994 and made subject to Regional Stability (RS) controls subjecting them to licensing requirements worldwide except Canada. It is now the only “994″ level item on the Commerce Control List that we know of with such restrictive licensing. The chips were removed from de minimis eligibility, adding another exception to the rules. Removing de minimis eligibility restricts, in theory at least, any foreign made aircraft flying with the chip on board from entering embargoed destinations, Syria and N. Korea.

But did the rules really solve the problem? Maybe for Boeing, which no longer has a controlled chip on board its 737. Moreover, by removing de minimis eligibility for the chip, Boeing’s foreign competitors are now subject to the same export restrictions as Boeing. But for many other aerospace companies, the rules still place them in a quagmire.

“Why?” you ask. First of all, the rules only cover chip part number QSR11-00100-100/101. This is likely an export compliance first, by the way. As far as we know, there has never been an export control regulations based on a part number, another interesting exception to the rules. A number of the chips at issue are of a different part number, even lower performance versions. These are not covered by the rule and presumptively remain at State. Second, the rule only covers the 100/101 part number chip as used in back up flight controls, not primary flight controls, where the chip is also frequently used. Third, the State Department CJ requirement could allow essentially allows State to add whatever whimsical interpretation or restriction they feel like, and gut the regulation altogether. The end result: many aerospace companies are still totally bogged down in CJ woes surrounding the now infamous chip.

It remains to be seen if the chip silicon has truly gelled at this point even for Boeing. Hill representatives, particularly Reps. Henry Hyde (R-Ill.) and Tom Lantos (D-Calif.), have complained to Secretary of State Collin Powell that PMDTC should have more closely controlled the chip to begin with and in particular complained about the China 737 sales that were made prior to these Notices. State may seek blood by way of an enforcement action against some hapless manufacturer to placate the Hill.

(Editor’s Note: What a bunch of idiots on the Hill and elsewhere. If the Chinese buy a 737 just to get this one chip that has military applications, that is export control success. Paying millions and millions for a complete 737 just to get this chip is what export control is all about. Export controls cannot keep anybody from getting what they want, export controls can only raise the cost of getting the stuff. And in this case they are giving the money to a legitimate company, not to black market technology smugglers. So Congress, why don’t you encourage the Chinese to spend millions and millions to get each chip. That’s much better than the Chinese learning how to make their own, something they have been pretty good at doing. Sometimes you would think that the people in the government and Congress never really sit down and think about this stuff. —JB)

The good news is that export control administrators and embedded bureaucrats are generally pleased by the developments. By trying to solve a messy problem in such a microscopic way, the underlying problem is not really solved, and at the same time the rules become even more complicated and tangled. The chip rules create new exceptions to exceptions to exceptions to the rule. The more confusing the rules, the better the job security for export administrators and the government bureaucracy.