On Aug. 17, 2016, as part of the President's Export Control Reform (ECR) initiative, the Department of Commerce, Bureau of Industry and Security (BIS) and the Department of State, Directorate of Defense Trade Controls (DDTC) issued final rules (here and here) to harmonize the Destination Control Statement (DCS) required under §758.6 of the Export Administration Regulations (EAR) and §123.9 under the International Traffic in Arms Regulations (ITAR), respectively. This change, along with several more minor edits, is intended to simplify export clearance requirements for exporters, in particular those with mixed shipments consisting of both EAR and ITAR items. The final rules will become effective on Nov. 15, 2016.
Destination Control Statements
The purpose of the DCS is to notify parties outside the United States that receive an item that the item is subject to U.S. export controls, the item was exported in accordance with the EAR or ITAR, as applicable, and that diversion contrary to U.S. law is prohibited. Prior to the final rules, both the EAR and the ITAR mandated the inclusion of a slightly varied version of the DCS on the export control documents for shipments that included items subject to both sets of regulations. In contrast, the harmonized DCS will adopt language equally applicable under the ITAR and the EAR, and which must be used for all shipments, regardless of whether such shipments consist of only ITAR, only EAR, or a mix of ITAR and EAR items. The final DCS language applicable under the ITAR and the EAR will be 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.
While the term "authorized" as used in the final DCS language includes exports, re-exports and transfers (in-country) designated as No License Required (NLR), the phrase "country of ultimate destination" means the country specified on the commercial invoice where the ultimate consignee or end user will receive the items as an "export."
Under the final rules, the DCS will only be required with the commercial invoice and will no longer have to be included on the air waybill, bill of lading or other export control documents. The DCS will only be required for shipments from the United States of tangible items subject to the EAR, including exports authorized under NLR. A DCS will not be required for exports of EAR99 items or items exported under License Exception BAG or GFT. In addition, for shipments of 9x515 or "600 series" items exported in tangible form, the Export Control Classification Number (ECCN) of each item will need to be included on the commercial invoice. When a commercial invoice exists for intangible exports, BIS does not require, but instead recommends, as a good compliance measure, the inclusion of a DCS, all ECCNs and other relevant export control information.
Other Changes
The final BIS and DDTC rules make other changes to the existing regulations to include the following:
- Removing from the EAR a provision requiring a special DCS for items controlled under ECCNs for crime control columns 1 and 3 reasons, or regional stability column 2 reasons when those items are destined to India;
- Adding to various provisions of the ITAR clarifying language pertaining to the use of exemptions to the license requirements and the export of items subject to the EAR, when the EAR items are shipped with items subject to the ITAR (including guidance on the use of license exemptions for the export of such items, and clarification that items subject to the EAR are not defense articles, even when exported under a license or other approval issued by DDTC);
- Clarifying the requirements for retransferring items subject to the EAR pursuant to a request for written approval from DDTC;
- Clarifying that shipments of commingled commodities may be made under exemptions or license authorizations;
- Removing the requirement to provide seven (7) paper copies for various export license requests;
- Changing the identification of the agency responsible for permanent import authorizations of unclassified U.S.-origin defense items from the Department of the Treasury to the Department of Justice;
- Removing the pilot requirement in the ITAR, given that it does not take into account modern airport operations and is no longer necessary; and
- Adding to the ITAR a provision for requests to interpret ITAR requirements.
Recommendations
Companies have approximately three (3) months to take necessary actions needed to modify their export compliance procedures to comply with these rules. Exporters are expected to update automated systems and forms. Companies that rely upon manual processes to generate commercial invoices should review the new DCS and adjust pro forma export control language. In addition, training should be provided regarding the changes required for both manual and automated systems.
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