On August 17, 2016, the Commerce Department’s Bureau of Industry and Security (BIS) and the State Department’s Directorate of Defense Trade Controls (DDTC) published final rules in the Federal Register effectively harmonizing the export destination control statements mandated by the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR). Generally, under the current rules, destination control statements (“DCS”) are placed on commercial invoices, air waybills, bills of lading and other shipping documents that will accompany export shipments from the United States in order to put the foreign end-users on notice that the goods they are receiving are subject to U.S. laws and regulations and may require prior U.S. government authorization before they can be reexported or retransferred. The ITAR DCS is currently required for all exports, reexports and retransfers of defense articles designated on the U.S. Munitions List (USML) per 22 C.F.R. Section 123.9. Similarly, per 15 C.F.R. Section 758.6 of the EAR, the DCS is required for exports of goods that are subject to the EAR and that are classified in Export Control Classification Numbers (ECCNs)—the EAR DCS is not currently required for goods classified as EAR99; however, it is generally a recommended “best practice” for exporters to utilize the DCS for all export shipments that are subject to the EAR, regardless of an item’s classification.
Currently, the ITAR DCS language differs from the language mandated under the EAR. As a result, companies whose product lines are subject to the ITAR and EAR have the additional burden of ensuring that the appropriate language appears on their export shipments—even putting both the ITAR and EAR statements on the same set of documents to ensure compliance with both sets of regulations. However, as part of the U.S. export control reform process, the BIS and the DDTC have decided to harmonize the two sets of statements, as well as mandate that they be inserted only on commercial invoices—they will no longer need to appear on the bills of lading, air waybills or other shipping documents. Effective as of November 15, 2016, the new harmonized DCS language that must be used under both the ITAR and the EAR will be as follows:
These items are controlled by the US 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 US government or as otherwise authorized by US law and regulations.
Unfortunately, that is where the harmonization appears to end, as both agencies will also impose additional requirements related to the use of DCS. For example—
New ITAR Destination Control Statement Requirements:
- The ITAR DCS language has been harmonized with the EAR language.
- The ITAR DCS must appear on the commercial invoice (exports, reexports and retransfers).
- The commercial invoice must also specify: (a) destination country; (b) end-user’s name; and, (c) license number or license exception.
- The USML Category of the item is not required on the commercial invoice.
- If an item subject to the EAR is included in the shipment, the exporter must provide the EAR export classification to the end-user (i.e., ECCN or EAR99).
New EAR Destination Control Statement Requirements:
- The EAR DCS language has been harmonized with the ITAR language.
- Exporters must insert the export classification on the commercial invoice for items classified in ECCN 9X515 and 600-series ECCNs.
- The DCS is not required for exports of EAR99 items or items exported under License Exceptions BAG or GFT
- All other items exported from the United States (i.e., tangible exports), even those exported NLR, will require the EAR DCS.
The new rules will take effect on November 15, 2016; therefore, U.S. exporters are advised to begin taking steps now to update their Enterprise Resource Planning (ERP) systems to reflect the new destination control statement language and the additional export classification information that may be required to be printed on their commercial invoices.