On August 17, 2016 the US Departments of State and Commerce published final rules regarding revisions to the destination control statements required under the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR). Destination control statements are required in order to alert recipients of ITAR or EAR-controlled items of US export control requirements associated with the items. The agencies’ Federal Register notices (here and here) describe the harmonization of the two statements pursuant to Export Control Reform (ECR), along with new requirements for statement placement and accompanying information about export control classifications. The new rules will be reflected in the ITAR at 22 C.F.R. §123.9 and in the EAR at 15 C.F.R. §758.6 effective on November 15, 2016.
The harmonized destination control statement for the ITAR and the EAR is 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.
The ITAR and EAR require that the statement be included on the commercial invoice. The statement is no longer required on the bill of lading, air waybill, or other shipping documents.
Although the two statements are now harmonized, each agency has some additional requirements related to the statements. Most significant among the additional requirements, described in more detail below, is the need to provide certain export control classification information to the recipient of the items being exported.
In addition to the destination control statement, the following information must also be included on the commercial invoice for items exported pursuant to an ITAR license or other ITAR approval: (1) country of ultimate destination, (2) name of end-user, and (3) the license or other approval number or applicable license exception. Notably, there is no requirement to identify the USML category applicable to the items. However, US exporters who are exporting EAR-controlled items pursuant to an ITAR license or other approval must provide to the recipient the EAR Commodity Control List classification for each item included in the shipment. The EAR classification information requirement includes individual Export Control Classification Numbers (ECCNs) under the EAR, as well as EAR99 designations. These ITAR requirements are applicable to items when they are exported, reexported, or retransferred in tangible form (i.e., shipped).
The EAR also requires that exporters include export control classification information with the destination control statement. In particular, ECCNs for each 9x515 item and “600 series” item must be included when the items are exported in tangible form. While not required, the Commerce Department noted in the release of its rule that it is an export compliance best practice to provide ECCNs for all items subject to the EAR (not just 600 series and 9x515) to the recipient.
Like the ITAR, the EAR requires that the destination control statement (and other required information) be included on the commercial invoice. An EAR destination control statement is not required for exports of EAR99 items or items exported under the BAG or GFT license exceptions. All other tangible exports (including those exported “no license required” or NLR) will require the destination control statement.
The harmonization of the ITAR and EAR destination control statements will be helpful to exporters of mixed shipments of ITAR and EAR items as it removes confusion about which statement to apply and allows for the statement to be included only on the commercial invoice. This should simplify export clearance requirements for some exporters.
As commentators on the proposed rule have noted, however, exporters may experience some difficulty in implementing the new destination control statement from a logistics perspective. In particular, many exporters will need to focus on recoding logic for enterprise resource planning (ERP) systems to reflect the new statement. Perhaps most difficult to implement will be the need to include export control classification information with the destination control statement. The harmonized statement does not alleviate the need to determine the export jurisdiction and classification of exported items; indeed, it illustrates the need for increased attention to this area of export controls compliance. For example, for companies with a significant volume of exports, the new requirements may necessitate combining databases of export control jurisdiction and classification determinations with automatic generation of commercial invoices. Exporters have until November 15th to implement the changes, but should start planning now to avoid delays with shipments this fall.