BIS and DDTC Harmonize Destination Control Statements for Use in Export Transactions
International Trade & Customs Update
Date: September 19, 2016
On August 17, 2016, the Department of Commerce’s Bureau of Industry & Security (BIS) and the Department of State’s Directorate of Defense Trade Controls (DDTC) finalized rules to adopt a harmonized destination control statement (DCS). See BIS final rule and DDTC final rule. The purpose of the DCS is to alert parties outside the United States who receive the item and/or technical data, in tangible form, that (1) the item is subject to U.S. export control laws and regulations; (2) it was exported in accordance with the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR); and (3) diversion of the item contrary to U.S. law is prohibited. Prior to this harmonization, which is part of the Obama administration’s export control reform initiative, both agencies’ regulations set forth different mandatory text for a control statement, although the purpose and intent of each was the same. The result was often confusion or frustration on the part of U.S. exporters. With this final harmonization rule, and other related changes to requirements for information to be included on commercial invoices, BIS and DDTC believe there will be a reduced burden on exporters and improved compliance.
Exporters must use this harmonized DCS by November 15, 2016, and make all other necessary changes to commercial invoices, contractual language and compliance manuals, and ensure proper education and training of relevant personnel.
Harmonized Destination Control Statement
Prior to this harmonization rulemaking, the EAR required exporters to include a DCS, as specified in 15 C.F.R. § 758.6, and the ITAR required exporters to include a different DCS, as specified in 22 C.F.R. § 123.9(b)(1). The revised and harmonized DCS must be an integral part of the commercial invoice and reads as follows:
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.
The final rule requires exporters to include the DCS in commercial invoices. It is no longer required to be included on the air waybill, bill of lading or other export control documents. BIS and DDTC determined that specifying the document – the commercial invoice – in which the DCS must be included will create greater transparency, and make it easier for government agencies, exporters and other consignees to identify whether the DCS has been properly included.
Specific EAR Requirements
Under the EAR, commercial dual-use export shipments must include this DCS whenever items on the Commerce Control List are shipped (i.e., in tangible form), unless the shipment can be made under License Exception BAG (baggage) or GFT (gift parcels and humanitarian donations), or the items are designated as EAR99. Notably, even if an export may be shipped as NLR (no license required), the DCS must be affixed to the commercial invoice.
In addition to the DCS, commercial invoices for any 9x515 items (e.g., satellites and spacecraft) or “600 series” items (i.e., items of a military nature that were previously included on the U.S. Munitions List) being exported must also include the export control classification number (ECCN). While BIS noted in its final rule that for other items subject to the EAR there is not a requirement to include the ECCN information, the agency “does encourage the inclusion of that information as an export compliance best practice.”
Specific ITAR Requirements
Under the ITAR, the DCS applies to tangible defense articles when exported, reexported or retransferred. In addition to the DCS, the commercial invoice for shipping any defense articles covered under the U.S. Munitions List must also include: (1) the country of ultimate destination; (2) the end-user; and (3) the license or other approval number or applicable license exemption. Notably absent from the ITAR requirement is that there is no requirement to identify the applicable U.S. Munitions List category of the items on the invoice.
Additional revisions to the ITAR under this rulemaking include for the allowance of shipments of items subject to the EAR with shipments of defense articles subject to the ITAR and covered under the DDTC license or other approval. In such instances, the exporter must also provide on the commercial invoice the appropriate ECCN or EAR99 classification for each item. DDTC noted for clarification in its rulemaking that items subject to the EAR are not “defense articles,” even when exported and covered under a DDTC license or exemption. DDTC may authorize reexport or retransfer of an item subject to the EAR when (1) the item was initially exported, reexported or transferred pursuant to a DDTC license or other approval; (2) the item is for end-use in or with a defense article; and (3) all requirements for any reexport, retransfer, other disposition, or change in end-use, end-user or destination of a defense article initially exported or transferred under a DDTC license are met and the necessary information is submitted pursuant to 22 C.F.R. § 129.3(c) for the item subject to the EAR, as well as for the associated defense article.
DDTC’s new regulations also require that the need for a DCS be clearly stated in any manufacturing license agreement (MLA) or warehouse or distribution agreements.
For More Information
U.S. companies and exporters should begin planning now to make the necessary changes to their invoicing and shipping processes to implement these BIS and DDTC regulatory changes by November 15, 2016.
For more information or assistance with these revised compliance requirements, please contact:
Samir D. Varma
Scott E. Diamond
Senior Legislative & Regulatory Policy Advisor
Not licensed to practice law
or any member of our International Trade & Customs group.
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