DDTC Issues Notices on Commodity Jurisdiction Changes and Guidance to Prevent RWAs

The State Department's Directorate of Defense Trade Controls (DDTC) released two Industry Notices in the past week providing important information and guidance to exporters and manufacturers of defense articles.

Commodity Jurisdiction Policy Change

The first industry notice, published on August 30, 2013, states that due to the upcoming changes to the U.S. Munitions List (USML) arising from the export control reform (ECR) process, starting on September 1, 2013 DDTC will review newly submitted commodity jurisdiction (CJ) requests involving articles or services relating to USML Categories VIII (Aircraft and Related Articles) and XIX (Gas Turbine Engines and Associated Equipment) using the new version of the USML contained in the final rule that will take effect on October 15, 2013. 

The reason for this change is that the current CJ processing time is 60 days and thus CJs submitted after September 1, 2013 will not be issued until after the final ECR rule goes into effect.

DDTC's notice also notes that exporters and manufactures should continue using "the current control criteria" on the USML until the new rules go into effect on October 15, 2013.

The notice indicates that DDTC will implement similar 60-day policies for CJ requests submitted for other USML categories that will take in the coming months. For example, starting in November 2013, DDTC will begin processing CJs for USML Categories VI (Vessels of War and Special Naval Equipment), VII (Tanks and Military Vehicles), XIII (Auxiliary Military Equipment) and XX (Submersibles) under the new criteria, since the new USML categories will go into on January 6, 2014.

RWA Guidance

Today DDTC's Office of Licensing issued a notice advising exporters submitting licenses for defense articles of the reasons why cases were returned without action (RWA) last week. These reasons include:

• Failure to provide a purchase order with the submission
• Provided letter of intent [instead of] purchase order for Significant Military Equipment
• Not all Party names and addresses were included in submission
• Insufficient technical data submitted for technical review
• Not following Firearms Guidelines regarding suppressors
• Exporting CCL items on a DSP-5

DDTC noted that:

"All of these RWAs were preventable. Don’t be one of these people. RWAs waste time, ours and yours."

Exporters are reminded to use the checklists on DDTC's websites when submitting license applications and other authorization requests to DDTC.
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 Our law clerk Andrew Azorsky contributed to this report.

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Chinese National Pleads Guilty for Involvement in Scheme to Export "Massive Quantities" of Controlled Carbon Fiber to China

On August 19, 2013, the U.S. Department of Justice announced that Mr. Ming Suan Zhang, a citizen of the People's Republic of China, pled guilty to violating the International Emergency Economic Powers Act (IEEPA) by attempting to export "massive quantities" of "aerospace-grade" carbon fiber from the U.S. to China in 2012 without the required BIS export license.

At first glance this case appears to be yet another example of the attempted acquisition of controlled U.S. origin products by China. However, the court documents filed by the Justice Department in this case (see below) include some interesting facts, including the methods  that U.S. law enforcement is using to combat prohibited exports and the means by which prospective buyers will take to acquire controlled U.S. products.

According to the complaint in support of the arrest warrant, Mr. Zhang first came to the attention of U.S. law enforcement because of his affiliation with two Taiwanese citizens who submitted a request via a website operated by Immigration and Customs Enforcement's Homeland Security Investigations directorate, part of the Department of Homeland Security. The website "purports to be for a company that deals in high-technology commodities, including commodities with aerospace and military applications." The website allows visitors to submit online requests via email

According to the court documents, in April 2012 the two Taiwanese citizens later contacted an undercover agent via telephone to negotiate the acquisition of "multiple tons" of carbon fiber. "During the conversation the undercover agent explained to them that an export license would be required to export the type of carbon fiber that they were seeking. The buyers mentioned that obtaining an export license "would be problematic because the acquisition related to a 'military matter' and was therefore sensitive."

The Taiwanese buyers requested the undercover agent whether he could ship the carbon fiber to a third-country that would not require an export license. When the undercover agent declined to do so, the prospective buyer asked if the carbon fiber could be mislabeled. The potential customer then requested the undercover agent to sell a "trial order" of three case cases of the carbon fiber.

With respect to payment, they parties agreed to meet with the undercover agent in the U.S. to pay for the goods in cash. The agent declined payment via cash and suggested a wire transfer made to a U.S. bank. The buyers later wire transferred $1000 to a U.S. bank account maintained by the U.S. Government. The Taiwanese buyers then suggested traveling to the U.S. to arrange a "multi-million dollar" purchase.

In July 2012, the Taiwanese buyers contacted Mr. Zhang to discuss exporting a sample of the carbon fiber back to China.  A second undercover agent, purporting to be the U.S. based seller, informed Mr. Zhang that it is illegal to ship the samples to China without the proper export license. The second undercover officer emailed Mr. Zhang to set up a face-to- face meeting in the U.S. regarding the transaction.

Before the meeting, Mr. Zhang requested to be provided with samples of the carbon fiber. Mr. Zhang subsequently met with the undercover agent and mentioned that he had an urgent need for the carbon fiber as it was connected to the test flight of a Chinese fighter plane. Mr. Zhang sought to purchase the sample so he could send it to China to be analyzed for authenticity. Mr. Zhang was arrested after he arrived at the meeting.

Mr. Zhang faces up to 20 years in prison and a fine of up to $1 million when he is sentenced in November 2013.

The particular type of carbon fiber involved in this case was made by Toray Industries and is classified as ECCN 1C210.a. Items classified as ECCN 1C210.a are controlled for nuclear non-proliferation and anti-terrorism reasons. As a result, an export license is required to export the this type of carbon fiber to China and many other countries. 

This is not the first time that individuals have been arrested and charged for trying to procure this type of carbon fiber. In 2008, three individuals in the U.S. and Singapore were indicted for conspiring to export the identical product to China's Academy of Space Technology. In that case, one of the persons was sentenced to 46 months in prison, one individual was sentenced to one year in prison and the last person was received probation. One of the individuals was also assessed a civil penalty of $100,000 by BIS and received a 25 year denial order. 
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Our law clerk Andrew Azorsky contributed to this report.

Ming Zhang Complaint

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DDTC Issues Interim Final Rule Significantly Amending ITAR "Brokering" Provisions

Today DDTC published an interim final rule in the Federal Register that makes significant changes to the current definition of “brokering” and related brokering activities in the International Traffic in Arms Regulations ("ITAR").

These revisions to the ITAR's brokering provisions have been eagerly anticipated by the defense trade community since the DDTC’s December 19, 2011 proposed amendment to the brokering provisions were widely criticized. In formulating the revised brokering provisions published today, DDTC took into account many of the public comments, as well as the input of the Defense Trade Advisory Group (DTAG).

This interim final rule, which will become effective on October 25, 2013, dramatically revises the definition of a “broker” in section 129.2(a) of the ITAR. The new definition of a “broker” is as follows:

(a) Broker means any person (see Sec. 120.14 of this subchapter) described below who engages in the business of brokering activities:
(1) Any U.S. person (see Sec. 120.15 of this subchapter) wherever located;
(2) Any foreign person (see Sec. 120.16 of this subchapter) located in the United States; or (3) Any foreign person located outside the United States where the foreign person is owned or controlled by a U.S. person. 

The revised definition of “brokering activities” in section 129.2(b) of the ITAR reads as follows: 

(b) Brokering activities means any action on behalf of another to facilitate the manufacture, export, permanent import, transfer, reexport, or retransfer of a U.S. or foreign defense article or defense service, regardless of its origin.
(1) Such action includes, but is not limited to:
(i) Financing, insuring, transporting, or freight forwarding defense articles and defense services; or
(ii) Soliciting, promoting, negotiating, contracting for, arranging, or otherwise assisting in the purchase, sale, transfer, loan, or lease of a defense article or defense service. 

These changes dramatically narrow the current ITAR definition, which provides that a “broker” is “ any person who acts as an agent for others in negotiating or arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission, or other consideration.”

It has been DDTC’s long-standing policy and practice to treat non-U.S. persons as a broker if the non-U.S. person acted as an agent in negotiating a contract for the delivery of U.S. defense articles or defense services, even if they had no other U.S. contacts and were not physically located in the U.S.

In this interim final rule, DDTC stated that it has: “clarified that foreign persons that are required to register as brokers are those that are in the United States and those foreign persons outside the United States that are owned/controlled by a U.S. person.”

DDTC also stated that it has “removed from the definition of ‘brokering activities’ the activities of any foreign person located outside the United States acting on behalf of a U.S. person.”

The interim final rule also addresses the types of activities that are not brokering activities, including an important issue that was raised in the December 19, 2011 proposed brokering rule regarding legal advice provided by attorneys. Specifically, the interim final rule makes clear that "activities by an attorney that do not extend beyond the provision of legal advice to clients'' is not a brokering activity and that "legal advice" includes the provision of export compliance advice by an attorney to a client.

As a result of this change, DDTC has estimated that “approximately 1,300 of the currently-registered brokers will not need to maintain registration following implementation of this rule, and that approximately 300 brokers will be eligible to consolidate into their manufacturer/exporter registration and no longer be required to pay a broker registration fee.”

This interim final rule will become effective on October 25, 2013 and DDTC will accept public comments on the interim final rule until October 10, 2013. While DDTC will eventually publish a final brokering rule, the basic concepts and definitions included in this interim final rule are not likely to change.

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OFAC Announces Rare "Finding of Violation" for Failing to File Blocked Property Reports

OFAC's Office of Enforcement last week issued a rare "Finding of Violation" to Visa International Service Association for failing to file blocked property reports in a timely manner. Visa International Service Association (VISA), a subsidiary of Visa, Inc., operates retail electronic payment networks worldwide.

In this case, OFAC found that in 2007 VISA failed to file two initial blocked property reports in connection with accounts in which Iran's Bank Melli had an interest within 10 business days from the date that the property was blocked, as required by section 501.603(b)(1) of OFAC's Reporting, Procedures and Penalties Regulations. OFAC also found that VISA failed to file its 2008 annual blocking report in connection with the blocked Bank Melli accounts. Both of these alleged violations were voluntarily disclosed by VISA to OFAC in 2009.

OFAC also found that VISA violated the blocked property reporting requirements when VISA failed to report to OFAC blocked funds from a transaction with Syria's Real Estate Bank. VISA advised OFAC that it failed to meet the reporting deadline since it was attempting to determine whether or not fees owed to the bank should be deducted from funds before filing its blocked property report. 

Under OFAC's Enforcement Guidelines, which are found in Appendix A to Part 501 of the Reporting, Procedures and Penalties Regulations, a Finding of Violation is one of several outcomes resulting from an OFAC enforcement case. OFAC's Enforcement Guidelines make clear that a Finding of Violation will be issued if:

OFAC determines that a violation has occurred and considers it important to document the occurrence of a violation and, based on an analysis of the General Factors . . . .  [in the] Guidelines, concludes that the Subject Person's conduct warrants an administrative response but that a civil monetary penalty is not the most appropriate response . . . . A Finding of Violation may also convey OFAC's concerns about the violation and/or the Subject Person's OFAC compliance policies, practices and/or procedures, and/or identify the need for further compliance steps to be taken.

In this case, OFAC found that a Finding of Violation, rather than a civil penalty, was appropriate in this case for several reasons, including: 

• A Finding of Violation is appropriate given that VISA is a large and commercially sophisticated financial institution whose failure to submit the initial and annual blocking reports to OFAC denied the U.S. government the benefit of accurate information in making its policy decisions, but did not result in an economic benefit being conferred to a sanctioned party. 
• VISA had not received an OFAC penalty notice or Finding of Violation from in the five years prior to the date of the failure to report the blocked property. 
• A Finding of Violation is likely to promote compliance with OFAC reporting obligations.

OFAC has issued Findings of Violation in very few cases. Unlike "Cautionary Letters", which can be issued when OFAC determines a civil penalty is not warranted, Findings of Violations can be made public.

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Our law clerk Andrew Azorsky contributed to this report.

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BIS to Hold Webinar on Impact of Export Control Reform on EAR License Exceptions on August 14, 2013

Instead of the weekly teleconference, on August 14, 2013 at 2:30 pm EDT, the Commerce Department's Bureau of Industry and Security (BIS) will hold a webinar on the changes to various license exceptions under the Export Administration Regulations (EAR) as a result of the current Export Control Reform initiative.

This webinar will discuss implementation of the various changes to the EAR's license exceptions, which will take effect on October 15, 2013, that will facilitate the realignment being made to the Commerce Control List and International Traffic in Arms Regulations.
 
The webinar will include a detailed overview of license exceptions that are available for "600 series" items and explain the steps needed to determine whether these licenses exceptions may be used for a particular export, reexport or transfer (in-country) of a "600 series" item.

The speakers include Hillary Hess, Director of BIS's Regulatory Policy Division and William Arvin, a Senior Export Policy Analyst at BIS's Regulatory Policy Division

There is a $35.00 charge for this webinar. For instructions on registration and how to join the webinar on the day of the broadcast click here.

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U.S. Steel Companies File Antidumping and Countervailing Duty Petitions on Imports of Oil Country Tubular Goods From Various Countries

Today a number of U.S. steel companies filed antidumping (AD) and countervailing duty (CVD) petitions on imports of certain Oil Country Tubular Goods (OCTG) produced in ten countries.

AD petitions were filed on imports of certain OCTG products from Turkey, India, Philippines, Saudi Arabia, South Korea, Taiwan, Thailand, Ukraine and Vietnam. Countervailing duty petitions were filed on certain OCTG products from Turkey and Turkey.

The products covered by the AD and CVD petitions include seamless and welded casing and tubing. Drill pipe is not covered by these petitions. The scope of the petitions are effectively identical to that of the AD and CVD orders on OCTG from China that were imposed by the U.S. in 2010.

The U.S. petitioners claim that the volume of U.S. imports of casting and tubing from the named countries increased from 840,313 net tons in 2010 to 1,771,320 net tons in 2012.

The U.S. petitioners include: Boomerang Tube; Energex Tube, a division of JMC Steel Group; Maverick Tube Corporation; Northwest Pipe Company; Tejas Tubular Products; TMK IPSCO; United States Steel Corporation; Vallourec Star, L.P.; Welded Tube USA, Inc.

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Highlights from Bureau of Industry and Security's 2012 Annual Report

The Bureau of Industry and Security (BIS) recently published its annual report to Congress for Fiscal Year 2012.

In addition to providing an overview of BIS's activities during the past year, including regulatory changes, the report contains extensive information on licensing, enforcement and antiboycott-related activities.

Here are some of the highlights of the 2012 Annual Report:

Licensing:

• BIS processed 23,229 export license applications (compared to 25,093 in Fiscal Year 2011) worth approximately $204.1 billion, in an average processing time of 26 days. Of those applications, BIS approved 19,817 (85%), returned 3,197 without action (14%) and denied 143 applications (less than 1%).
• The greatest number of license application approvals under a single commodity classification was for chemical manufacturing facilities and equipment (ECCN 2B350), with 2,777 approved applications for exports and reexports worth $348.5 million.
• The export of crude oil was the category of license applications with the highest transaction value, totaling $113.6 billion.
• With respect to items controlled by multilateral regimes, BIS approved the following licenses:
• 4,467 license applications, valued at $11.9 billion, for the export or reexport of items controlled by the Australia Group.
• 1,064 applications valued at $2.2 billion, for the export or reexport of missile technology-controlled items. 
• 2,277 applications, valued at $2.13 billion, for the export or reexport of items controlled for nuclear nonproliferation reasons.
• 4,939 applications valued at $3.4 billion, for the export or reexport of items controlled by the Wassenaar Arrangement. 

Enforcement:

• BIS investigations resulted in the criminal conviction of 27 individuals and businesses and the imposition of more than $4.7 million in criminal fines for export and antiboycott violations (compared to 39 convictions and $20.2 million in criminal fines in Fiscal Year 2011).
• BIS investigations resulted in the completion of 42 administrative export and antiboycott cases against individuals and businesses and the imposition of $7.4 million in civil penalties (compared to 47 cases and $8.5 million in civil penalties in Fiscal Year 2011).
• BIS issued 231 warning letters, 199 detentions, and 48 seizures. 16 companies and eight individuals were issued Temporary Denial Orders.
• BIS completed 994 end-use checks in over 50 countries, a 10% increase from Fiscal Year 2011. Out of these checks, 136 were Pre-License Checks and 858 were Post Shipment Verifications.

Antiboycott Enforcement and Compliance:

• Of the 42 antiboycott cases closed, ten companies agreed to enter into civil penalty agreement settlement resulting from alleged violations of the antiboycott provisions of the EAR. These civil penalties totaled $142,600 (compared to eight companies involving $129,300 in Fiscal Year 2011).
• The United Arab Emirates (UAE) continued to generate the largest number of prohibited boycott-related requests, followed by Iraq.
• Officials from BIS's Office of Antiboycott Compliance (OAC) held meetings with senior UAE officials to assess progress in removing boycott-related language from documents sent to U.S. companies by UAE entities. The U.S. and UAE agreed to establish a bilateral arrangement whereby OAC would utilize the auspices of the UAE’s Commercial Attaché in Washington to resolve boycott-specific problems. 

Regulatory Changes: 

• As part of the Export Control Reform (ECR) process, BIS published nine proposed rules that would move certain items from the jurisdiction of the ITAR to the EAR.
• BIS published a proposed rule to implement the ECR transition process.
• BIS published nine Entity List-related rules that added 67 persons (in 88 separate entries) and removed 26 parties from the Entity List.
• BIS published a rule establishing the ECCN 0Y521 series of “holding” classifications on the Commerce Control List.

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Our law clerk Joshua Bramble contributed to this report.

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Reminder: Annual Burma Responsible Investment Reports Must be Submitted to State Department on July 1, 2013

The State Department's Burma (Myanmar) Responsible Investment Reporting Requirements have received final approval from the Office of Management and Budget and U.S. persons having an aggregate new investment in Burma over $500,000 must submit their first annual report by July 1, 2013.

By way of background, when the State Department announced on May 2012 that the U.S. would suspend sanctions on Burma, the U.S. Government stated that it would require U.S. companies that engaged in new investment in Burma exceeding $500,000 per year to submit an annual “Responsible Investment” report to the State Department. 

The Responsible Investment reports, which must be filed electronically with the State Department, include information on a wide range of policies and procedures with respect to their investments in Burma, including human rights, labor rights, land rights, community consultations and stakeholder engagement, environmental stewardship, anti-corruption, arrangements with security service providers, risk and impact assessment and mitigation, payments to the government, any investments with the Myanma Oil and Gas Enterprise (MOGE), and contact with the military or non-state armed groups.

The State Department will use the confidential and public versions of the reports that are submitted to conduct consultations with U.S. businesses to encourage and assist them to develop policies and procedures to address various issues resulting from their investments and operations in Burma. The State Department will also issue a public report on the various efforts undertaken by U.S. companies in Burma. 

The full text of the of the Burma Responsible Investment Reporting Requirements can be found here.  

OFAC's General License No. 17 that authorized new investment in Burma can be found here.

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Registration is Now Open for BIS Export Controls Conference to be Held in Washington, DC from July 23-25, 2013.

Registration is now open for the 26th Annual Update Conference on Export Controls and Policy that will be held in Washington, DC from July 23-25, 2013 at the Washington Hilton hotel. 

The theme of this year’s conference is, “Export Control Reform: Fulfilling the Promise.” The agenda will focus on the recently published and proposed rules implementing the Obama Administration's Export Control Reform initiatives.

Recurring topics, such and sanctions compliance, export enforcement, deemed exports and encryption also will be covered. The very useful and popular roundtable discussions with staff from BIS offices will also be featured again this year.

The current agenda for BIS Update 2013 is found here.

The registration link for BIS Update 2013 is found here.

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DDTC Issues Proposed Changes to Definition of "Defense Services" in the ITAR

On May 24, 2013 the State Department's Directorate of Defense Trade Controls (DDTC) published a proposed rule that would amend U.S. Munitions List Category XV which includes spacecraft systems and related articles. 

Also included in the proposed USML Category XV rule is a proposed new definition of the phrase "defense services" in section 120.9 of the International Traffic in Arms Regulations (ITAR).

This is the second proposed change to the definition of "defense services" in the ITAR. The first proposed revision published in April 2011 generated nearly 40 comments seeking additional changes to the definition.

Based on the public comments received, DDTC made a number of changes to the proposed definition of "defense services", including:

• distinguishing between the concepts of "integration" and "installation";
• adding the term ‘‘tactical,’’ to differentiate training in such employment from the type that is not to be within the definition of a defense service (training in basic operation);
• specifying that the furnishing of assistance for certain spacecraft related activities, including launch failure analysis, is a defense service.
• Modifying ITAR section 124.1(a), which describes the approval requirements of manufacturing license agreements and technical assistance agreements, to remove the requirement of Department approval for the provision of a defense service using public domain data or data otherwise exempt from ITAR licensing requirements.

Public comments on the current proposed definition of "defense services" must be submitted to DDTC by July 8, 2013.

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Treasury Department Publishes List of Countries That May Require Participation With an International Boycott

The U.S. Department of the Treasury today published in the Federal Register the list of list of countries that may require participation in, or cooperation with, an international boycott, as defined by section 999(b)(3) of the Internal Revenue Code of 1986.

Treasury has advised that the following nine countries may require participation in, or cooperation with, an international boycott:

1. Iraq
2. Kuwait
3. Lebanon
4. Libya
5. Qatar
6. Saudi Arabia
7. Syria
8. United Arab Emirates
9. Yemen 

Iraq was added to this list in August 2012.

This list of countries is used for IRS boycott reporting purposes. U.S. law requires companies to report “operations in or relating to a boycotting country” on IRS Form 5713 submitted with corporate tax returns.

This list is not applicable to the antiboycott provisions in Part 760 of the Export Administration Regulations (EAR) that are administered and enforced by the Bureau of Industry and Security (BIS).

The EAR requires that all reportable boycott requests relating to unsanctioned foreign boycotts be reported to BIS on a quarterly basis. Such requests can come from the countries listed above and others, such as Bangladesh, Pakistan and Malaysia.

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BIS Unveils Two New Export Control Reform Web-Based Decision Tools

As part of the Bureau of Industry and Security's (BIS) efforts to assist exporters comply with the Initial Implementation of Export Control Reform final rule published in the Federal Register on April 16, 2013, BIS has developed two new web-based decision tools to assist users in understanding and applying the Commerce Control List (CCL) Order of Review and the definition of "Specially Designed".

These two new Export Control Reform decision tools were posted today on the BIS website and are available for use at the following links: 

Commerce Control List (CCL) Order of Review Decision Tool — The Order of Review decision tool is intended to help exporters classify items that are subject to the Export Administration Regulations (EAR) and is based on the new CCL Order of Review in Supplement No. 4 to part 774 of the EAR. The CCL Order of Review provides guidance for how to classify items in light of the addition of the 600 series Export Control Classification Numbers (ECCNs) to the CCL and the new definition of "specially designed."

 "Specially Designed" Decision Tool — This tool is intended to assist exporters in determining whether items that are subject to the EAR are "specially designed. The "Specially designed" decision tool will lead to one of three results:

1. The item is "specially designed" on the CCL;
2. The item is not "specially designed" on the CCL; or
3. Obtain guidance on the next steps to take if you have difficulty in answering whether an item is 'caught' or 'released' under the "specially designed" definition.

BIS previously implemented the Strategic Trade Authorization (STA) decision tool to help exporters determine if they are eligible to use and be in compliance with License Exception STA.

While these decision tools are now online, the final rules implementing Export Control Reform will not take effect until October 15, 2013.

The final rules on implementation on Initial Implementation of Export Control Reform published by BIS and the State Department's Directorate of Defense Trade Controls (DDTC) can be found at the following links:

• BIS Final ECR Implementation Rule
• DDTC Final ECR Implementation Rule 

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ICC to Hold Incoterms 2010 Seminar in Paris, France on April 25, 2013 to Coincide With Launch of Incoterms 2010 Q&A Book

As part of its launch of the new Incoterms® 2010 Question and Answer book the International Chamber of Commerce (ICC) is holding a half day Incoterms 2010 "Meet the Experts" program in Paris, France on April 25, 2013.

As indicated on the agenda and registration information below, the ICC's program will feature presentations by some of the leading Incoterms 2010 experts, including several members of the Incoterms 2010 Drafting Group.

One of the presentations, which will focus on the use of Incoterms 2010 in the United States, will be presented by Frank Reynolds, the U.S. member of the Incoterms 2010 drafting group.

The other presentations will discuss common mistakes when using Incoterms 2010, how to choose the right Incoterms 2010 rule and a discussion of how Incoterms 2010 work with contracts of carriage and sales contracts.

The ICC will soon be publishing an Incoterms 2010 Question and Answer book that will feature expert guidance on more than 40 real-life scenarios. The Incoterms 2010 Q and A book will also feature supporting materials related to Incoterms 2010 to help users understand and use Incoterms 2010 to their advantage when buying or selling goods.

The Incoterms 2010 Q and A Book will be available worldwide from the online ICC bookstore and in the United States from the U.S. Council on International Business's online bookstore.

Further information on the Incoterms 2010 expert program on April 25, 2013 can be found here.

ICC Incoterms 2010 Program 25 April 2013 by dougj1

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BIS and DDTC Publish Long-Awaited Export Control Reform Rules

Today BIS and DDTC today issued the long-awaited final transition rules to implement the Export Control Reform process that commenced in August 2009. 

Both final rules will take effect on October 15, 2013.

The 82 page BIS rule at http://www.gpo.gov/fdsys/pkg/FR-2013-04-16/pdf/2013-08352.pdf adds the new 600 series entries to the Commerce Control List for military aircraft parts and engines, adds the new definition of "specially designed" and makes numerous other changes to the EAR to implement ECR.

The 20 page final DDTC rule at http://www.gpo.gov/fdsys/pkg/FR-2013-04-16/pdf/2013-08351.pdf revises the ITAR and USML to include updated USML Category VIII (military aircraft), adds new USML Category XIX (Gas Turbine Engines), adds definitions of "specially designed" and "‘‘subject to the EAR’’ to the ITAR and makes other necessary changes to the ITAR to implement the export control reform process.

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DDTC Modifies Procedures to Utilize ITAR Section 126.18 Exemption to Transfer Technical Data to Foreign Nationals Via Agreements

The State Department's Directorate of Defense Trade Controls (DDTC) has issued updated procedures for exporters utilizing the exemption contained in section 126.18 of the International Traffic in Arms Regulation (ITAR) authorizing the intra-company or intra-organization transfer of ITAR-controlled technical data via technical assistance agreements (TAAs) and manufacturing licensing agreements (MLAs).

Section 126.18 of the ITAR, which was published by DDTC in May 2011 and went into effect on August 15, 2011, allows companies, governmental entities and international organizations, to transfer unclassified defense articles, including technical data, to their dual and third-country full-time employees as long as “effective procedures” are in place to prevent diversion to unauthorized destinations, entities or for unauthorized purposes.

In guidance issued on July 25, 2011, DDTC required all TAAs and MLAs to be amended prior to use of the ITAR § 126.18 exemption to (1) update the new verbatim clause at ITAR § 124.8(5); and (2) to add specific language to the ITAR § 124.7(4) section of the agreement.

Based on DDTC's review of these requirements and through experience gained by DDTC in administering the new provision, DDTC has decided to change the requirement for utilizing the § 126.18 in connection with TAAs and MLAs.

Effective immediately, TAAs and MLAs do not have to be amended to include the modifications cited above in order to utilize the ITAR § 126.18 exemption. However, all agreement holders and foreign parties utilizing the ITAR § 126.18 exemption must maintain a copy of DDTC's web notice in their records.

However, DDTC will require all TAAs or MLAs that are amended to be updated to include the updated ITAR §124.8(5) verbatim clause. All pending TAAs and MLAs, or amendments, which do not include the updated ITAR § 124.8(5) verbatim clause will receive a proviso to correct prior to execution of the agreement or amendment.

In addition, the requirement to specifically request use of the ITAR § 126.18 exemption in the ITAR § 124.7(4) paragraph of the agreement is no longer required. However, in order to continue the use of ITAR § 124.16 under Option 1 (foreign vetting), or the initial request of ITAR § 124.16, the TAA or MLA must be amended to include Option 2 (DDTC vetting) language.

DDTC will soon update its guidelines for preparing electronic agreements to reflect this policy change.

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Obama Administration Notifies Congress of Proposed Transfer of Certain Defense Articles from USML to CCL and President Issues Export Control Reform Administration Executive Order

As part of the ongoing Export Control Reform process that could eventually move many parts and components associated with defense articles from the U.S. Munitions List and the International Traffic in Arms Regulations (ITAR) to the jurisdiction of the Bureau of Industry and Security (BIS) and the Export Administration Regulations (EAR), President Obama today issued an Executive Order (see below) that delegates the various responsibilities associated with the reformed export control system to the appropriate Cabinet Department.

The Executive Order makes the following changes to the existing U.S. export control system:

1. Consolidates brokering responsibilities with the State Department's Directorate of Defense Trade Controls (DDTC).
2. Eliminates possible “double licensing” requirements by allowing  the State Department to authorize the accompanying items that may have moved to the Commerce Control List (CCL) and prevent any potential double-licensing requirement. 
3. Modifies the Congressional notification process by requiring BIS to establish procedures for notifying Congress of approved export licenses for a certain subset of items that are moved or that may move from the USML to the CCL.
4. Other Administrative Updates: The Executive Order delegates to the Attorney General the functions previously assigned in 2003 to the Secretary of the Treasury, reflecting the move of ATF to the Department of Justice. ATF will remain responsible for permanent imports of most defense articles.

This Executive Order was timed to coincide with the notifications by the State Department to the U.S. Congress required by section 38(f)(1) of the Arms Export Control Act (22 USC 2778(f)(1)) regarding the defense articles that will be transferred from the USML to the CCL as part of the Export Control Reform process.

The initial notifications to Congress for USML Categories VIII (aircraft) and XIX (gas turbine engines) were submitted yesterday to the Speaker of the House, Chairman and Ranking Members of the Senate Foreign Relations Committee and House Foreign Affairs Committee. The House and Senate now have 30 days to review the proposed transfer. Absent a Congressional resolution of disapproval, the Obama Administration will have the authority to transfer the designated items from the USML to the CCL, which will take place after BIS and DDTC issue the final rules modifying the USML and CCL, as well as the other required regulations, including the transition rules. 

Further information on the Export Control Reform process can be found at www.export.gov/ecr.

Export Control Reform Administration EO (3.8.2013) by

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DDTC Issues New Registration Form (DS-2032)

The State Department's Directorate of Defense Controls (DDTC) today published the following announcement on its website regarding the need for DDTC registrants to use the new version of the Statement of Registration Form and that registration letters will be sent to registrants by email in the future.

Industry Notice:Effective immediately, industry must use the updated version (Version 3) of the DS2032 Statement of Registration form. Revisions include fixing several typos and adding new flow-over instructions to Block 12 advising the applicant to enter the email address of the person to receive the approval letter and who will receive the electronic renewal notice letter. DDTC no longer mails hardcopy approval letters or renewal letters. (1.18.13)

The direct link to the new version of the DS-2032 registration form and related instructions is found here.

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