By Melissa Miller Proctor
Yesterday, the new export Destination Control Statement requirements under the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) went into effect which required U.S. exporters to make adjustments to their invoices, shipping documents, airway waybills, other documents, and their export compliance programs. Earlier this summer, the Commerce Department’s Bureau of Industry and Security (BIS) and the State Department’s Directorate of Defense Trade Controls (DDTC) harmonized the Destination Control Statement requirements under both the EAR and the ITAR. U.S. exporters are required to insert Destination Control Statements on commercial documentation to inform their foreign customers that they are receiving goods which are subject to U.S. law, and that any subsequent reexport or retransfer may require them to obtain prior authorization from the U.S. Government.
Under the previous rules, Destination Control Statements were to be placed on commercial invoices, air waybills, bills of lading and other shipping documents for certain export shipments from the United States. The EAR, which generally applies to purely commercial items, dual-use items and certain munitions items, required the Destination Control Statement to be applied to commercial and shipping documents for goods classified under Export Control Classification Numbers (ECCNs)—five-character alphanumeric codes in the Commerce Control List. The EAR did not require Destination Control Statements to be used for goods classified as EAR99, the catch-all basket provision for goods that are not classified in any ECCNs. Destination Control Statements were also not required for exports made under License Exception BAG, which authorizes travelers and crew members leaving the United States to take personal baggage to any destination without an export license. The previous Destination Control Statement language under the EAR read as follows:
These commodities, technology, or software were exported from the United States in accordance with the Export Administration Regulations. Diversion contrary to U.S. law is prohibited.
The ITAR applies to defense articles, related technical data and defense items (i.e., items and services designated on the U.S. Munitions List or that are specially designed for such items or articles classified in 600-series ECCNs under the EAR). The ITAR previously required that Destination Control Statements be inserted into the bill of lading, air waybill or other shipping documents, as well as the purchase documentation or invoice for all exports and reexports of defense articles. The ITAR’s Destination Control Statement language differed from that of the EAR, and provided as follows:
These commodities are authorized by the U.S. Government for export only to [country of ultimate destination] for use by [end-user] under [license or other approval number or exemption citation]. They may not be resold, diverted, transferred, or otherwise be disposed of, to any other country or to any person other than the authorized end-user or consignee(s), either in their original form or after being incorporated into other end-items, without first obtaining approval from the U.S. Department of State or use of an applicable exemption.
Thus, the ITAR required exporters to insert transaction-specific data into each Destination Control Statement. In addition, where a single shipment contained goods that were subject to the EAR and other that fell under the ITAR, both Destination Control Statements were required to appear on the commercial documents for that shipment.
As part of the U.S. export control reform effort, the BIS and the DDTC decided to harmonize the Destination Control Statement requirements and require that they only be inserted into commercial invoices. That is, as of November 15th, the Destination Control Statements are no longer required to appear on the bills of lading, air waybills or other shipping documents. In addition, the Destination Control Statement language under the EAR and ITAR was changed to the following:
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 EAR continues to require the Destination Control Statement to be used only for shipments of goods that are classified under ECCNs—the requirement still does not apply to shipments of goods classified as EAR99. However, as a best practice and to simplify compliance with the Destination Control Statement rules, companies should consider placing the Destination Control Statement on ALL commercial invoices for their export shipments. The Destination Control Statement requirements can be found in 15 C.F.R. Section 758.6 of the EAR and 22 C.F.R. Section 123.9(b) of the ITAR. The BIS and DDTC Final Rules can be found at: 81 Federal Register 54721 (August 17, 2016); and, 81 Federal Register 54732 (August 17. 20160.
If you have any questions pertaining to the recent amendments to the EAR or ITAR under the export control reform effort, or other international trade issues, please feel free to contact a member of Polsinelli’s International Attorneys.