On December 9, 2010, the US Department of Commerce’s Bureau of Industry and Security (BIS) published a proposed rule that would add a new license exception called “Strategic Trade Authorization” to the US Export Administration Regulations (EAR). The new license exception would be the first part of implementing the Obama administration’s Export Control Reform Initiative, aimed at strengthening the US national security and the competitiveness of key technology sectors.
Generally, items subject to control under the EAR (“controlled items”) may not be exported or re-exported to specified destinations without a BIS license or other authorization. Part 740 of the EAR lists the 16 license exceptions currently available – provisions that allow exports of otherwise controlled items without a license when certain conditions are met. The proposed rule would add a new section 740.20 to the EAR, and make various conforming changes to the regulations.
License Exception STA Exclusions
License exception Strategic Trade Authorization (STA) would be unusual in its breadth. Unlike almost all other license exceptions (with the possible exception of license exception APR (Additional Permissive Re-exports), which applies to re-exports of previously exported items to and between specified countries), this license exception as proposed would be defined more by what it excludes (negative list) rather than includes (positive list).
Specifically, the following categories of exports and re-exports would not be authorized:
- Exports requiring a license under Part 746 of the EAR – Embargoes and other Special Controls;
- Items controlled under Export Control Classification Numbers (ECCNs) 0A981 or 0A983 (execution equipment and implements of torture);
- Items controlled for reasons of short supply (SS), surreptitious listening (SL), missile technology (MT), or chemical weapons (CW); and
- Items subject to the export control jurisdiction of another agency such as the US Department of State (for military items), the US Department of Energy or Nuclear Regulatory Commission (for nuclear goods and technologies).
- Items controlled under the highest-level controls (approximately 50 ECCNs, such as 1A002, 3A002, 4A001, etc.) when exported or re-exported to destinations other than the 37 most trusted countries (Western Europe and other key allies).
Other exports and re-exports of otherwise controlled items would be authorized under License Exception STA to one or more of the three tiers of countries, depending on the reasons for control and intended end-use of the items.
Authorization country tiers
License Exception STA would authorize exports and re-exports of otherwise controlled items as follows:
- Where the only applicable reason(s) for control is (are): national security (NS), chemical or biological weapons (CB), nuclear nonproliferation (NP), regional stability (RS), encryption items (IE), crime control (CC) (although the authorization does not apply to ECCNs 0A981, 0A982, 0A983, 0A985, or 0E982), and/or significant items (SI), items could be exported or re-exported to 37 most trusted countries (Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Ukraine and the United Kingdom). In addition, exports and re-exports to these countries would be authorized even for the 50 most-controlled ECCNs subject to the STA exclusion (see above).
- Where the only applicable reason for control is NS, the items could be exported to Albania and Israel for civil or military end-use in addition to the above countries.
- Where the only applicable reason for control is NS, and the item would be exported or re-exported for civil end-use only, the export or re-export to an additional 125 countries would be authorized.
Conditions on use of License Exception STA
As proposed in the draft regulation, however, the use of License Exception STA would be subject to certain documentation requirements, as follows:
- Exporters and re-exporters would be required to provide their consignees and transferees with the ECCNs for each of the items exported under License Exception STA.
- The exporter, re-exporter, or transferor would be required to obtain from their consignee a statement in the prescribed form describing the items to be shipped, acknowledging the receipt of ECCNs, and agreeing to comply with certain conditions prior to the shipment (i.e., a written assurance). This Prior Consignee Statement would be required to be kept on file for 5 years.
- The exporter, re-exporter, or transferor would also need to include a Destination Control Statement in the prescribed form on each invoice or other document accompanying the shipment.
In addition, items that have been exported or re-exported pursuant to License Exception STA would not be eligible for subsequent export, re-export or in-country transfer under paragraph (a) of license exception APR.
Finally, for items classified in certain ECCNs listed in section 743.1(c) of the EAR (generally high-level controls), the exporter must submit semi-annual reports to BIS if it uses License Exception STA. (This requirement already exists for certain other license exceptions.)
Is the proposed rule going to help exporters?
The proposed rule, if adopted in its current form, represents a significant liberalization of US export controls. License exception STA would allow license-free exports and re-exports of goods, software, and technology that are currently controlled to a number of key trading partners and allies that pose low risks, increasing the efficiency of such exports. Unfortunately, this rule retains the existing complexity of the US export control system and perhaps adds to it. Thus, license exception STA may represent a welcome reform within an inefficient system of control, rather than reform of the system itself. It is nonetheless a step in the right direction.
The comment period on the proposed rule closes on February 7, 2011. Exporters should monitor the further development of this proposed rule, analyze whether STA applies to their transactions, and prepare to avail themselves of the new license exception once it becomes final.