US Government Announces Changes to US Export Control Laws

The U.S. Commerce and State Departments recently announced revisions to the Export Administration Regulations (“EAR”) and International Traffic in Arms Regulations (“ITAR”) in furtherance of the government’s ongoing Export Control Reform Initiative to harmonize U.S. export control laws and regulations. The new measures: (i) require new language to be included in export destination control statements (“DCS”) related to exports subject to the EAR or ITAR; and (ii) harmonize certain definitions of terms used in the EAR and ITAR to ensure consistency across these regulations. 

These changes are part of the broader Export Control Reform Initiative which seeks to enhance both U.S. national security interests as well as the competitiveness of U.S. industry by removing redundant export control regulations, streamlining complex export requirements and ensuring that government resources are focused on protecting the most critical national security priorities of the U.S. Government. The new rules build on previous measures announced by BIS and DDTC in recent years to harmonize the EAR and ITAR pursuant to the Export Control Reform Initiative, with the ultimate goal of creating a single consolidated agency operating under a single set of regulations with respect to transfers of items subject to U.S. export control laws and regulations. Companies involved in the export of items controlled under the EAR and ITAR should assess whether these new measures require any changes to current compliance processes. 

Changes to Required Destination Control Statements 

In August 2016, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) and U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”) published final rules – effective November 15, 2016 – regarding the specific DCS language that must be included in documents accompanying exports of items subject to the EAR or ITAR¹. Currently, both the EAR and ITAR require exporters to include language on certain shipping documents alerting the recipient that the items at issue are subject to U.S. export control laws and that diversion contrary to U.S. law is prohibited. There are some differences between the EAR and ITAR with respect to the specific language required as well as where such language must be included. 

The final rules set forth harmonized language that must be included on exports of EAR or ITAR items and clarifies that such language needs to be included only on the commercial invoice accompanying the shipment (as opposed to other documents such as the bill of lading or purchase orders). The specific DCS language required under the new rules is: 

These items are controlled by the U.S. Government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations. 

Commercial invoices for shipments of goods controlled under the ITAR must identify the U.S. Munitions List category of any ITAR items in the shipment and the Export Control Classification Number (“ECCN”) of any EAR-controlled goods included in the same shipment. Commercial invoices for shipments of goods controlled under the EAR alone only need to identify the export classification for any items classified under ECCN 9X515 or “600 series” ECCNs – the export classification of items classified under other ECCNs, including EAR99 items, need not be specifically called out in the commercial invoice (though still will be need to be identified in electronic Automated Export Screening records related to such shipments). The rules also note that the DCS is required only for shipments of tangible goods, though it is good practice to include such language on any commercial invoices that may accompany intangible shipments (i.e., via electronic delivery). 

As the new rules will take effect on November 15, 2016, we advise that companies begin updating their systems to reflect the new DCS language and export classification information that may be required to be included on commercial invoices. 

Clarifications to the ITAR 

On September 8, 2016, DDTC issued a final rule (effective immediately) implementing various minor changes to the ITAR in furtherance of the Export Control Reform Initiative². Among other changes, the final rule: 

• Revised the definition of “retransfer” to clarify that temporary transfers to separate legal entities in the same non-U.S. country, and releases to non-U.S. persons who are nationals of the non-U.S. country in which such releases occur, are considered controlled “retransfers” and may require authorization under the ITAR; 
• Clarified that the ITAR’s definitions of “reexport” and “retransfer” do not apply to activities conducted under defense treaties with the United Kingdom and Australia, as such treaties contain different definitions that control such activities; and 
• Clarified that DDTC’s authority to revoke, deny or suspend an export license based on the provision of false information to DDTC extends to licenses not only for the export, but also for the reexport or retransfer of items, but also for the reexport or retransfer of ITAR items. 

The new rule builds on similar rules issued by BIS and DDTC to harmonize definitions of certain terms across the EAR and ITAR. Most recently, in June 2016, BIS and DDTC issued final rules revising the EAR and ITAR definitions of various terms, including “export”, “technology” and “foreign person” (among others)³. BIS and DDTC are expected to issue additional rules in the future to harmonize additional terms used in U.S. export control laws and take other actions in furtherance of the Export Control Reform Initiative. 

How Dechert Can Assist 

Companies involved in exports or transfers of items subject to the EAR and ITAR should closely monitor changes to U.S. export control laws in order to determine whether changes to existing processes are required. Dechert will remain active in providing alerts, and also can help assess current and prospective risks under U.S. export controls and other international trade laws and regulations. 

Footnotes 

_{1) BIS’s rule is available here, while DDTC’s rule is available here.
2) The DDTC rule is available here.
3) The BIS and DDTC final rules are available here.}