BIS, State Dept. Issue Final Rules Harmonizing Destination Control Statement for EAR and ITAR

The revised DCS under the final rules is 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.”

The agencies are requiring that only an export’s commercial invoice include the DCS, contrasting with the proposed rule, which sought to require the statement on contractual documentation as well (see 1505210063). Per the final rule, conditions described on State or BIS licenses issued before Aug. 17 requiring a DCS on documents other than the commercial invoice will not be applicable as of Nov. 15, when the final rule takes effect. But, in line with the proposed rule, the final rule also requires commercial invoices, which are used for both EAR- and ITAR-covered exports, to include Export Control Classification Numbers for “600 series” and “9x515” exports. The final rule also amends the EAR to define the “country of ultimate destination” as the country specified on the commercial invoice listing the ultimate consignee or end user receiving a direct shipment from an exporter.

While some comments stated that the new DCS requirement would unnecessarily burden industry and not result in significant government payoff, several commenters said requiring the DCS only on the commercial invoice will be “much more likely to achieve the intended purpose” of the directive, eliminate confusion of what statement to use for shipments including items subject to both the ITAR and EAR, and will overall significantly simplify the export process, BIS said. “Ensuring that the DCS actually goes out of the U.S. and reaches the parties that will receive the items is key to the United States Government’s ability to achieve its objectives in this area with the DCS,” BIS said in its final rule.

Notably, the final language of the DCS differs from the proposal by adding the term “ultimate consignee” in lieu of “consignee,” after commenters requested clarification on which consignees the DCS-stated requirement applied to. BIS said the addition of this term could mitigate concerns vis-a-vis “needing to include the end user on every document that requires the DCS.” BIS is also adding to the EAR some key terms used in DCS text as interpreted in the EAR context, in response to concerns related to no license required (NLR) shipments or multistep transactions consisting of discrete controlled events, such as shipments exported to a distributor, then re-exported. BIS is also revising the EAR to clarify that the term “authorized,” as included in the uniform DCS, covers NLR shipments, it said.

The harmonization is part of a broader ECR effort to create a unified export control list, as opposed to continuing to operate under the Commerce Control List and the U.S. Munitions List. That would require legislation, but BIS and State's Directorate of Defense Trade Controls are moving toward that goal with administrative changes such as this proposal, the agencies said. “Adopting a new harmonized DCS in the final rule will simplify export clearance requirements for exporters because they will not have to decide which DCS to include, especially for mixed shipments containing both ITAR and EAR items,” BIS said. “The scope of the text change, which is very similar in length to the current DCS, should be easy to implement based on the public comments received that strongly favored using the commercial invoice for the DCS requirement.”

(Federal Register 08/17/16)