Revisions to the Export Administration Regulations (EAR): Harmonization of the Destination Control Statements, 54721-54732 [2016-19551]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security

[Federal Register Volume 81, Number 159 (Wednesday, August 17, 2016)]
[Rules and Regulations]
[Pages 54721-54732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19551]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 758

[Docket No. 150107020-6464-02]
RIN 0694-AG47


Revisions to the Export Administration Regulations (EAR): 
Harmonization of the Destination Control Statements

AGENCY: Bureau of Industry and Security, Department of Commerce.

ACTION: Final rule.

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SUMMARY: This final rule implements changes that were proposed on May 
22, 2015, in a proposed rule entitled Revisions to the Export 
Administration Regulations (EAR): Harmonization of the Destination 
Control Statements. This final rule revises the destination control 
statement in Sec.  758.6 of the

[[Page 54722]]

Export Administration Regulations (EAR) to harmonize the statement 
required for the export of items subject to the EAR with the 
destination control statement in Sec.  123.9(b)(1) of the International 
Traffic in Arms Regulations (ITAR).

DATES: This rule is effective November 15, 2016.

ADDRESSES: Commerce's full retrospective regulatory review plan can be 
accessed at: https://open.commerce.gov/news/2015/03/20/commerce-plan-retrospective-analysis-existing-rules-0.

FOR FURTHER INFORMATION CONTACT: For questions about this rule, contact 
Timothy Mooney, Regulatory Policy Division, Office of Exporter 
Services, Bureau of Industry and Security, at 202-482-2440 or email: 
timothy.mooney@bis.doc.gov.

SUPPLEMENTARY INFORMATION: This final rule is published in conjunction 
with the publication elsewhere in this issue of the Federal Register of 
a Department of State, Directorate of Defense Trade Controls final rule 
revising Sec.  123.9(b)(1) of the ITAR. Both final rules are part of 
the President's Export Control Reform Initiative. This final rule is 
also part of Commerce's retrospective regulatory review plan under 
Executive Order (E.O.) 13563 (see below for availability of the plan).

Background

    Prior to the effective date of this final rule, the EAR required 
exporters to include a destination control statement (``DCS''), 
specified in Sec.  758.6 (Destination control statement and other 
information furnished to consignees) of the EAR, on certain export 
control documents that accompanied a shipment for most exports. The 
purpose of the DCS was to alert parties outside the United States that 
receive the item that the item was subject to the EAR, the item was 
exported in accordance with the EAR, and that diversion contrary to 
U.S. law was prohibited.
    Prior to the effective date of the State final rule, the ITAR, 
under Sec.  123.9(b)(1), included the same type of DCS requirement, but 
with slightly different text than that which was required by the EAR. 
The purpose of the DCS requirements was the same under both sets of 
export control regulations. As a general principle of the Export 
Control Reform (ECR) effort, wherever the ITAR and EAR have provisions 
that are intended to achieve the same purpose, the U.S. Government will 
harmonize the corresponding provisions.
    As was stated in the Commerce and State proposed rules, the DCS 
under the ITAR and the EAR were an example of requirements that could 
and should be harmonized to reduce the burden on exporters, improve 
compliance, and ensure that the regulations are achieving their 
intended purpose for use under the U.S. export control system, 
specifically under the transactions ``subject to the ITAR'' and 
``subject to the EAR.'' This final rule is revising Sec.  758.6 of the 
EAR to harmonize the DCS requirement text with Sec.  123.9(b)(1) of the 
ITAR.
    Under the existing provisions, both regulations have a mandatory 
DCS that must be on the export control documents for shipments that 
include items subject to those regulations. This had caused confusion 
to exporters as to which statement to include on such mixed shipments, 
or whether to include both. The harmonization of these statements in 
this final rule will ease the regulatory burden on exporters, which, 
based on the public comments described below and the additional changes 
made in the Commerce and State final rules in response to those 
comments, will further the objectives of the DCS requirements.
    The change is also being made in this final rule to harmonize the 
two sets of regulations, the EAR and the ITAR, per the President's 
instructions. While the creation of a single export control list and 
licensing agency would require legislation, the President has directed 
BIS and the Directorate of Defense Trade Controls at the Department of 
State to undertake all available actions to prepare for consolidation 
as a single agency with a single set of regulations. Harmonization, to 
the extent possible, of the existing export control regulations is one 
important step for preparing both regulators and the regulated public 
for the work that will be needed to create such regulations.

Public Comments and BIS Responses

    The public comment period on the May 22, 2015, proposed rule (80 FR 
29551) closed on July 6, 2015. BIS received 17 public comments on the 
EAR proposed rule. Most of the commenters sent the same comments to 
Commerce and State expressing their support or concerns regarding the 
DCS related provisions included in the Commerce and State proposed 
rules. There were slightly different points of emphasis that were 
specific to the Commerce and State proposed rules, but substantively 
the comments were not different in any meaningful way in what the 
commenters thought needed to be changed in order to achieve the stated 
objectives in the Commerce and State proposed rules. The following 
describes the public comments and BIS's responses. After making changes 
to what was proposed to address the public comments and better achieve 
the stated objectives, Commerce and State are concurrently publishing 
final rules to harmonize the DCS provisions under the EAR and ITAR. 
Commerce and State agree with the public commenters that, as proposed, 
the harmonization did not go far enough and in order to have true 
harmonization and achieve the stated objectives that additional 
harmonization was needed. In addition, certain clarifications and 
refinements of what was originally proposed were needed in order to 
clarify and alleviate perceived concerns, in particular for exporters 
of non-600 series and non-9x515 items under the EAR. Where BIS has made 
regulatory changes to address the public comments, a description of 
those changes is included beneath the respective public comments and 
BIS responses. BIS has made these regulatory changes to Sec.  758.6 to 
address the public comments and to better achieve the stated objectives 
of the rule. The public comment process was helpful in identifying 
areas where changes needed to be made to fully achieve the intended 
objectives for the DCS for use under the EAR and the ITAR. The 
following are the BIS responses to the comments:

Supportive

    Comment 1: Several commenters were supportive of the plan to 
harmonize the DCS and noted the proposed changes: (1) Will minimize 
confusion as to which DCS must be used depending on the jurisdiction of 
item, (2) will exclude EAR and ITAR-specific text--meaning it can be 
used under both sets of regulations; and (3) will help to achieve the 
stated intent of the ECR initiative principles, which includes 
elimination of unnecessary export compliance burdens.
    BIS response: BIS agrees. These commenters support that the key 
objectives of the rule have been met.

Not Supportive

    Comment 2: Expresses significant concern and requests 
clarification, but also wishes to note that in general supports BIS's 
efforts to harmonize the DCS and thereby reduce the burden on 
exporters, promote consistency, improve compliance, and ensure the 
regulations are achieving the intended purpose for use under the U.S. 
export control system.
    BIS response: BIS was encouraged that even for the commenters that 
raised significant concerns about certain aspects of the proposed rule 
that most of these same commenters still

[[Page 54723]]

supported the general objective of harmonization of the DCS under the 
EAR and ITAR. Once BIS made changes to address their concerns on 
certain aspects of the proposed rule, these commenters would likely 
fully support the final rule because they viewed harmonization of the 
DCS as a positive step and their support was only qualified because of 
certain aspects of the proposed rule, which BIS has addressed in this 
final rule, as described further below.
    Comment 3: Proposed DCS language focuses too much on harmonizing 
the EAR's language with the ITAR's DCS. While this is a potentially 
positive outcome for companies involved in defense trade, this approach 
does not take into account non-military exporters and the nature of 
commercial transactions.
    BIS response: BIS is addressing these concerns by defining some of 
the key terms used in the DCS as they are interpreted in the EAR 
context, including providing some specific application examples in this 
final rule. These changes will address the various concerns in this 
area that were raised by various commenters as it related to NLR 
shipments or multi-step transactions that consist of discrete 
controlled events (e.g., ``exported'' to a distributor as one discrete 
controlled event, and then a subsequent ``reexport'' as another 
discrete controlled event under the EAR). The proposed rule did not 
change any of the obligations of the parties to the transaction in 
these situations under the EAR, but the text of the DCS made some 
people worry how the DCS text would be applied in the EAR context, 
which BIS is addressing with some clarifying examples and defining how 
some of these key terms used in the DCS text is interpreted in the EAR 
context in this final rule. This final rule makes the following 
regulatory changes to address this public comment:
    In Sec.  758.6, addition of Note 1 to paragraph (a). This final 
rule adds Note 1 to paragraph (a) to clarify the term ``authorized'' 
includes exports, reexports and transfers (in-country) designated under 
No License Required (NLR), which was explained in the preamble of the 
proposed rule, but one commenter requested this be added to the 
regulatory text. In addition, several other commenters did not 
understand that in the context of paragraph (a) the term ``authorized'' 
also includes NLR. BIS agrees that specifying this for purposes of this 
section is helpful and therefore this final rule is adding the new Note 
to paragraph (a). Because NLR is specific to the EAR, no changes are 
being made to the ITAR's DCS to address this comment. Similarly, the 
Note 2 to paragraph (a) described in the next paragraph is specific to 
the application under the EAR, so no changes are being made in the ITAR 
rule to add similar clarifying notes.
    In Sec.  758.6, addition of Note 2 to paragraph (a). This final 
rule adds Note 2 to paragraph (a) to specify the phrase `country of 
ultimate destination' means the country specified on the commercial 
invoice where the ultimate consignee or end user will receive the items 
as an ``export.'' The term ``export'' is a long established and well 
understood term under the EAR, so the use of this term in Note 2 will 
assist exporters' understanding of the use of the phrase `country of 
ultimate destination'' in the DCS requirements in the context of the 
EAR. This final rule provides two examples here for using Note 2 to 
paragraph (a) to determine the `country of ultimate destination.' 
Example 1: If the exporter is ``exporting'' directly to an end user, 
such as generally permitted pursuant to Sec.  750.7(c)(1)(ix) under a 
BIS license, the commercial invoice must be provided to the end user, 
which in this scenario is in the `country of ultimate destination.' 
Example 2: If the exporter is exporting to an ultimate consignee, such 
as a distributor, the `country of ultimate destination' in these 
exports is the destination of the ultimate consignee. This was a major 
concern that several commenters raised on the proposed rule, in 
particular for exporters of non-600 series and non-9x515 items. The 
addition of Note 2 addresses those comments and will improve 
understanding of the DCS in the EAR.
    Comment 4: We applaud the U.S. government's attempt to simplify and 
improve the export clearance process (export clearance process refers 
to the regulatory requirements that need to be followed under the EAR 
and ITAR at the time of export to clear the final steps in exporting an 
item, e.g., filing Electronic Export Information (EEI)); however, you 
are proposing changes that will require every organization that exports 
products from the U.S. to revise their systems, when the need is 
appropriate only for ITAR or EAR license-required 9x515 and 600-series 
shipments. The proposed changes will impose a regulatory burden on all 
U.S. exporters without any apparent enhancement to compliance; and 
increase the uncertainty among foreign recipients.
    BIS response: BIS does not agree. There are benefits that this 
harmonization will bring for exporters of ``600 series'' (what the 
commenters refers to as defense exporters) and 9x515 items. However, 
all exporters will benefit from a reduction in the number of documents 
that the DCS needs to be placed on under the EAR and the ITAR. In 
addition, as was noted in the support for not requiring the DCS on 
transportation documents (such as the air waybill), the existing DCS 
provisions imposed a requirement on many transportation related 
documents that in many cases were not reaching the consignees for which 
the statement was intended. The EAR were imposing a requirement to 
place the DCS on transportation documents that, although important to a 
transaction, do not in most cases reach the ultimate consignee or end-
user(s). Requirements that do not achieve their objectives should be 
revised or removed. The objectives of the DCS are to ensure that the 
statement reaches the ultimate destination and ultimate consignee and/
or end-user(s) of the item. The DCS helps such parties understand that 
the items were exported under the U.S. export control system, so they 
will understand their responsibilities under the U.S. export control 
system. Ensuring that the DCS is placed on the document that has the 
greatest likelihood of reaching the parties that will ultimately 
receive and use the item is the best way to protect the interest of all 
parties that participate in exports that are subject to the EAR and 
ITAR. This includes exporters of non-600 series and non-9x515 items 
under the EAR. An effective DCS is important for protecting U.S. 
national security and foreign policy interests. Parties outside the 
United States that will receive and use an item that is ``subject to 
the EAR'' or ``subject to the ITAR'' must be aware that the item was 
exported to them under the U.S. export control system in order to be 
able to comply with the EAR or the ITAR.

Objectives Achieved

    Comment 5: Several commenters indicated the objectives of the 
proposed rule were achieved because of the following reasons: (1) Will 
eliminate confusion regarding which statement to use for shipments that 
include both items subject to the ITAR and items subject to the EAR, 
(2) incorporating the DCS into the commercial invoice will be much more 
likely to achieve the intended purpose of the DCS; and (3) having 
common text for the DCS will significantly simplify the export process.
    BIS response: BIS agrees.

Objectives Partially Achieved

    Comment 6: Better to create a second DCS for use with ITAR and 
``600 series'' and mixed shipments.

[[Page 54724]]

    BIS response: BIS disagrees. This suggestion would create unneeded 
complexity. The concerns raised by exporters of non-600 series and non-
9x515 items can be addressed without creating separate forms for 
different types of items.
    Comment 7: Harmonized text right step. But DCS requirements need to 
be identical to achieve the intended objective.
    BIS response: BIS agrees. The intent was to have the DCS text be 
identical, so any slight differences are being harmonized. This final 
rule makes the following regulatory changes to address this public 
comment:
    In Sec.  758.6, introductory text of paragraph (a), this final rule 
makes a conforming edit for text used to ensure the text is the same 
under the EAR and ITAR DCS. In the first sentence of paragraph (a) 
introductory text, this final rule is removing the term ``shall'' and 
adding in its place the term ``must.'' This change is being made to 
harmonize the EAR text with the text used in the ITAR DCS rule. 
Commerce and State intended for these words to be the same, but the 
Commerce and State proposed rules differed, so BIS is making this 
change in the Commerce final rule. This inconsistency was identified in 
one of the comments, including the suggestion of adopting State's text 
because it was clearer regarding it being a requirement. BIS agrees.

Objectives Not Achieved

    Comment 8: There should be some way to ensure that this DCS 
information is communicated to all parties involved and not just to the 
first party the items will be exported to in the transaction. Often the 
export occurs to a sales agent/reseller in the foreign country who will 
first receive the shipment, but they may not be the actual end-user and 
may be in a country that is not the ultimate destination.
    BIS response: BIS agrees. BIS has added text as described below to 
address such scenarios, along with also providing guidance on how the 
DCS provisions interact with other EAR provisions, which was noted by 
several other comments as a concern with potential overreach.
    Comment 9: This appears to be a case of harmonization for the sake 
of harmonization, and would appear to have the potential to create 
substantial confusion among recipients, impose significant burdens 
without a correspondingly significant benefit to the government.
    BIS response: BIS disagrees. Several other commenters noted the 
concern in particular over mixed shipments and that the objectives of 
the rule would be met. BIS disagrees that there would not be benefits 
to the United States Government. An effective U.S. export control 
system requires effective reexport controls, which at its most basic 
level means reexporters understand that an item is subject to U.S. 
reexport controls. 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.
    Comment 10: Statement that commercial invoice and contractual 
documentation would be most likely to travel with shipment not 
necessarily correct.
    BIS response: BIS disagrees. For the commercial invoice, several 
other commenters disagreed with this commenter's assertion. Requiring 
the DCS on contractual documentation was not adopted in this final 
rule, so that part of the comment is no longer applicable.

Decreases Burden

    Comment 11: Single DCS statement will make it easier to automate 
because the same DCS will be used for EAR and ITAR shipments.
    BIS response: BIS agrees.

Increases Burden

    Comment 12: Changes to the DCS can be costly because it requires 
recoding the logic for each enterprise resource planning (ERP) system 
printing the DCS in the export control documentation. Some companies 
may have several different ERPs, which further increases the burden.
    BIS response: The delayed effective date is intended to ease this 
initial burden of transitioning to the new DCS, which BIS expects will 
subside quickly and that over the mid to long term the DCS text will 
ease the burden. BIS acknowledges that there will be a minimal one-time 
burden on exporters as they need to update the DCS text on an existing 
document that already requires the DCS, but BIS expects this to be a 
one-time cost, not a recurring one. The delayed effective date of 90 
days will also ease the cost on exporters who have already pre-printed 
the DCS on their commercial invoice documents by allowing such 
exporters to use that remaining stock of commercial invoices during the 
transition period prior to the effective date. In addition, several 
commenters noted that their systems are set up to prepopulate the 
commercial invoice, so limiting the requirement to the commercial 
invoice should ease the burden significantly. Current EAR DCS 
requirements already extend to the invoice (which has the same meaning 
as commercial invoice), so exporters' ERP systems should already be set 
up for this requirement and the extent of the change is limited to 
updating the text of the statement. Not adopting the proposed 
requirement to include the DCS on the contractual documentation will 
significantly reduce the amount of changes needed to ERP systems. This 
commenter also wanted the ability to continue to include the DCS on the 
shipping documents. Nothing in the final rule would prohibit continuing 
that practice, which will also reduce the number of changes needed to 
ERP systems, except for updating the text used.
    Comment 13: Extending to intangible exports would create a 
significant burden.
    BIS Response: BIS agrees. BIS has added changes in this final rule 
to clarify the EAR DCS is only required on the items exported in 
tangible form. This final rule makes the following regulatory changes 
to address this public comment:
    In Sec.  758.6, introductory text of paragraph (a), this final rule 
clarifies that paragraph (a) applies only to items shipped, i.e., 
exported in tangible form. As discussed above in response to the public 
comments, several commenters were concerned that the use of the defined 
term ``export'' would be a significant expansion of the DCS requirement 
by requiring the DCS for tangible as well as intangible exports. BIS 
had intended this broader scope when using the term ``export,'' instead 
of the undefined term shipment, in the proposed rule. However, in 
reviewing the public comments and in discussing the practice under the 
ITAR, BIS accepts the public comments on the Commerce rule to clarify 
that the scope of the DCS requirement only applies to items on the 
Commerce Control List that are shipped (exported in tangible form). 
Therefore, this final rule adopts in paragraph (a)(1) the term 
``shipped (i.e., exported in tangible form)'' rather than the term 
``export.''
    In Sec.  758.6, paragraph (a)(2), this final rule removes the term 
``exported'' and adds in its place the phrase ``shipped (i.e., exported 
in tangible form).'' This clarification is made for the same reasons 
why, as described above, the similar changes were made to paragraph 
(a)(1) in response to public comments.

Concerns About Costs To Implement

    Comment 14: Large and small exporters will incur costs that are 
dependent on size, but significant in any case. Large exporters will 
have to

[[Page 54725]]

retool their ERP systems to collect information they are not presently 
collecting (e.g., end-user) and insert it into documents they do not 
currently generate with a DCS.
    BIS response: The commenter is concerned about having to account 
for changes in the ERP system, but this concern is not warranted 
because the proposed rule did not change any of the obligations of the 
parties to the transaction in these situations under the EAR. BIS is 
clarifying that these obligations of the parties to the transactions 
will not change, which also addresses the ERP changes concern. These 
concerns about the extent of changes required to the ERP systems were 
based on an incorrect understanding that the obligations of the parties 
to the transactions were also proposed to change in addition to the DCS 
proposed changes. As discussed elsewhere in this final rule, BIS is 
clarifying that this is not the case.

Concerns With Proposed DCS Text

    Comment 15: There is no justification for requiring the inclusion 
of the new DCS on documentation associated with NLR exports, as such 
exports require no authorization from the U.S. Government. Such a 
requirement would be unnecessarily burdensome and should be eliminated.
    BIS response: BIS disagrees. The requirement to include the DCS for 
most NLR shipments is an existing EAR DCS requirement. An item that can 
be exported NLR to one country or one end user or end use may require 
an EAR license for subsequent transfers (in-country) or reexports. For 
example, NS1, RS1, or MT1 controlled items could go NLR to Canada, but 
would be subject to a worldwide license requirement for any subsequent 
reexport. Further, there are certain persons in Canada on the Entity 
List who are subject to a license requirement for all items subject to 
the EAR, including a license requirement for transfers (in-country). 
Merely because the initial export can be made under the NLR designation 
does not preclude that subsequent reexporters or transfers (in-country) 
will require a license. Accordingly, no new burden is being imposed 
because the existing DCS requirements require it for NLR designated 
shipments and the policy rationale for why a DCS is needed for NLR 
shipments has not changed.
    Comment 16: Proposed rulemaking requires a DCS to be included 
whenever any item on the CCL is exported. Because exports are defined 
to include both tangible and intangible transfers, this requirement can 
be construed to require the DCS to be included on both physical 
shipments as well as intangible transfers (e.g., when software is 
downloaded). They propose that the requirements should be limited to 
physical (tangible) exports only.
    BIS response: BIS agrees. BIS has made changes in this final rule 
to clarify the DCS only applies to shipments (exports in tangible 
form). This final rule makes the following regulatory changes to 
address this public comment:
    In Sec.  758.6, paragraph (a)(1), this final rule removes an 
unneeded phrase. Specifically, this final rule removes at the beginning 
of paragraph (a)(1) the phrase ``For any item on the Commerce Control 
List being exported'' because the text is not needed. The text is not 
needed because the same text is already stated in the introductory text 
of paragraph (a). This will shorten and simplify the text of paragraph 
(a)(1) without changing the requirements of this paragraph, or the 
requirements specified in paragraph (a)(2).
    Comment 17: Clarifying that the DCS provisions are limited to 
shipments (tangible exports).
    BIS response: After reviewing the public comments, this final rule 
limits the requirement to shipments, i.e., tangible exports, but notes 
that when a commercial invoice does exist for intangible exports that 
BIS recommends as a good compliance practice to include a DCS or other 
export control related information that may be relevant.
    Comment 18: Retain the phrase ``excluding EAR99 items'' in the text 
of Sec.  758.6 for maximum clarity.
    BIS response: BIS agrees. This final rule makes the following 
regulatory changes to address this public comment:
    In Sec.  758.6, introductory text of paragraph (a), this final rule 
clarifies that items designated as EAR99 do not require a DCS. The 
proposed rule in the preamble explained that items designated as EAR99 
did not require the DCS, and several of the public commenters agreed. 
However, some of the commenters suggested that this clarification also 
needed to be added to the regulatory text in paragraph (a)(1). BIS 
believes the reference in the text of paragraph (a) to ``items on the 
Commerce Control List'' already clarifies that the requirement would 
not extend to items designated as EAR99. However, BIS does agree with 
the commenters that for people not familiar with the EAR, such as 
certain foreign purchasers or consignees that would be receiving 
commercial invoices with this DCS, that this nuance of the Commerce 
Control List may not be well understood and could lead to 
misunderstanding. BIS agrees that although the text may be slightly 
redundant that it will be helpful in particular for those not as 
familiar to the EAR, so the final rule is adding the phrase ``or the 
item is designated as EAR99'' to the introductory text of paragraph (a) 
to clarify items designated as EAR99 do not require a DCS.
    Comment 19: Clarify whether the use of the term ``end-user'' in the 
proposed language implies the creation of a new regulatory requirement 
to identify all potential end-users on all documents for which a DCS is 
required.
    BIS response: The term ``end user'' does not create a new 
regulatory requirement. This final rule makes the following regulatory 
changes to address this public comment:
    In Sec.  758.6, paragraph (a)(1), this final rule removes the term 
``specified'' before the phrase ``country of ultimate destination.'' 
The use of the term ``specified,'' raised concerns for several of the 
commenters regarding whether the inclusion of this term would change 
other obligations of the parties to the transaction in these situations 
under the EAR for how exports are treated, in particular for subsequent 
reexports or transfers (in-country). BIS did not intend to change the 
obligations of the parties to the transaction in these situations under 
the EAR. In order to address these concerns, BIS has removed the term 
``specified.'' BIS, to address the public comments in this area, in 
particular misunderstandings for how the text of paragraph (a)(1) would 
be applied in the EAR context, is including Note 2 to paragraph (a)(1) 
to clarify the application of the phrase ``country of ultimate 
destination,'' along with adding two other notes for paragraph (a)(1) 
to address misunderstandings for how paragraph (a)(1) would be applied 
in the EAR context.
    In Sec.  758.6, paragraph (a)(1), this final rule is also adding 
the term ``ultimate consignee'' before the term ``end-user,'' along 
with making the term ``end-user'' plural by adding an ``s'' to clarify 
that the requirement applies to the ``ultimate consignee'' or ``end-
user(s).'' This final rule did not adopt the term ``or consignee'' that 
followed the term ``end-user'' in the proposed rule. Certain commenters 
requested clarification regarding to which consignees the requirement 
specified in paragraph (a)(1) was intended to apply, which the more 
specific text of ``ultimate consignee or end-user(s)'' addresses. To 
achieve the objectives of the DCS, the commercial invoice must be 
provided to those two types of consignees: ultimate consignee and end-
user(s), as applicable.

[[Page 54726]]

    Comment 20: Commercial invoice and shipping documents currently in 
most cases do not include end users.
    BIS response: BIS is aware of this, but the commercial invoice is 
still deemed to be the most appropriate document to achieve the 
objectives of the DCS. BIS will be adding FAQs to the BIS Web site to 
provide additional application guidance on applying the DCS in 
different scenarios.
    Comment 21: Insert the phrase ``ultimate consignee or'' before the 
term end user.
    BIS response: BIS accepts this suggestion which may mitigate the 
concerns people have with needing to include the end user on every 
document that requires the DCS.
    Comment 22: Delete the term ``ultimate'' before the term 
``destination'' and delete the term ``ultimate end user.''
    BIS response: BIS will delete the term ultimate before those two 
terms.

DCS Text Is Too ITAR Specific and Will Be Difficult To Understand in 
EAR Context

    Comment 23: Clarify the application of the DCS text in the EAR 
context as it relates to other EAR provisions, such as shipments to 
distributors and NLR and multi-step shipments.
    BIS response: Many of the commenters that raised concerns regarding 
the burden or other major concerns were focused on how the DCS text 
seemed more appropriate for the ITAR regulatory construct than the EAR 
regulatory construct. These commenters thought that this rule proposed 
broader changes than intended, and therefore several of them raised 
significant concerns. For example, they raised concerns about how 
shipments to distributors would be handled in light of the proposed DCS 
text. In order to address these concerns, BIS is defining some of the 
key terms used in the DCS text as they are interpreted in the EAR 
context, including providing some specific application examples, along 
with adding notes to clarify the applicability of the DCS requirements 
in the context of the EAR. These changes will address the various 
concerns in this area that commenters raised related to NLR shipments 
or multi-step transactions that consist of discrete controlled events 
(e.g., ``exported'' to a distributor as one discrete controlled event, 
and then a subsequent ``reexport'' as another discrete controlled event 
under the EAR). The proposed rule did not change any of these other 
provisions under the EAR, but the proposed text of the DCS made some 
people worry how the text would be applied in the EAR context.
    Comment 24: The proposed inclusion of the phrase ``or as otherwise 
authorized by U.S. law and regulations'' is more likely to cause 
confusion than the current DCS with respect to items that can be 
reexported NLR or under a license exception, and lead recipients 
erroneously to believe that all U.S.-origin items require a specific 
reexport license. Some exporters have tried to use phrases in export 
control contractual clauses that limit reexports ``unless otherwise 
approved in writing by the U.S. government or authorized by U.S. law or 
regulation.'' Such phrases are understood by sophisticated reexporters, 
but they inevitably lead to questions about why a reexport license is 
required, when no export license was required in the first place.
    BIS Response: To address this commenter's concern, this final rule 
includes several clarifications to key terms used, including a new note 
to define what is meant by ``or as otherwise authorized by U.S. law and 
regulations.'' This final rule makes the following regulatory changes 
to address this public comment:
    In Sec.  758.6, addition of Note 3 to paragraph (a). This final 
rule adds Note 3 to paragraph (a) to clarify what is meant in the EAR 
context by the phrase ``or as otherwise authorized by U.S. law and 
regulations.'' The note as of the effective date of this final rule 
will now acknowledge that the phrase includes not just license 
exceptions, but also shipments made under `no license required' as well 
as reexports of foreign made items containing less than de minimis U.S. 
origin controlled content. Some of the commenters acknowledged that the 
use of this phrase was also explained in the preamble of the proposed 
rule. However, other commenters did not understand this nuance of this 
proposed regulatory text. Most of those commenters also requested that 
BIS make this nuance of the EAR more explicit in regulatory text, in 
particular to avoid people outside the United States incorrectly 
believing that the new Commerce DCS provisions were intended to change 
or limit the applicability of the EAR de minimis provisions, or the EAR 
direct product rule provisions. The Commerce DCS proposed rule did not 
intend to change any EAR related provisions related to de minimis or 
the direct product rule, which is also the case with the Commerce final 
rule published today. BIS agrees with the commenters that making the 
intended meaning of the phrase ``or as otherwise authorized by U.S. law 
and regulations'' clearer will help understanding of the DCS provisions 
in the EAR. Therefore, this final rule is adding Note 3 to paragraph 
(a)(1) to address these comments.

Concern That State and Commerce Documents Are Not Harmonized for DCS

    Comment 25: Commerce and State should require the DCS on the same 
document(s).
    BIS response: Commerce and State agree that, in addition to 
harmonizing the text of the DCS, the requirements regarding the 
documents on which it needs to be placed should be harmonized as well. 
Commenters supported the Commerce proposal of including it on the 
commercial invoice. After reviewing the public comments, Commerce and 
State agree that using the same document for the requirement is the 
best approach.
    Comment 26: Export clearance phase of corporate export controls 
compliance programs relies heavily on information technology (IT) as 
standardization conserves resources and improves compliance. By having 
different DCS implementation requirements for the ITAR and EAR, the 
proposed regulation will force companies to have two different IT 
systems--one for the ITAR and one for the EAR. Companies will have to 
re-train their compliance staff to be able to determine which 
commercial document to insert the required DCS statement. This proposal 
will increase compliance costs. Different documents for DCS will 
increase likelihood of violations.
    BIS Response: BIS agrees. BIS will require the DCS on the same 
document, the commercial invoice, as required by State.

Supports Using Commercial Invoice

    Comment 27: Supports this proposed requirement and recognizes this 
change as a key element to reinforcing the intent of the regulation 
which is to provide the foreign consignee with needed information to 
ensure compliance with the EAR. The foreign consignee is far more 
likely to receive the commercial invoice and contractual documents 
between the shipper/USPPI and consignee/buyer than any transportation 
documentation produced by the carrier/forwarder for any such contract 
of carriage.
    BIS response: BIS agrees. However, as noted elsewhere in this final 
rule, BIS is limiting the documentation requirement to the commercial 
invoice.
    Comment 28: Exporters generate commercial invoices, but freight 
forwarders and/or carriers generate bills of lading and air waybills. 
Imposing

[[Page 54727]]

requirements on exporters that they must then flow to other parties to 
a shipping transaction adds complexity and compliance risk.
    BIS response: BIS agrees. The Commerce proposed rule already took 
these factors into account in proposing that the DCS be placed on the 
commercial invoice and contractual documentation (documents created by 
exporter). As described elsewhere in this final rule, the requirement 
is limited to the commercial invoice (document created by exporter).
    Comment 29: Supports the approach taken by BIS for using commercial 
invoice and contractual documentation, and in particular for 
recognizing that this lengthy statement does not offer value on the 
transport document (bill of lading, air waybill) and that the DCS 
should be required only on the commercial and contractual documents 
that relate to the transactions between the vendors, purchasers and 
other parties that may be involved in the commercial relationship for 
exports.
    BIS response: BIS agrees, but as noted elsewhere in the final rule 
the requirement will be limited to the commercial invoice.

Concerns With Using Commercial Invoice

    Comment 30: Invoices are usually filed by the finance function that 
is responsible for payment and they may not take any action on this 
information (e.g., restriction on further re-sale/transfer to the end-
user); explicitly stating export restriction on the contractual 
documents would be a more effective way to communicate the importance 
of compliance with the U.S. exports regulation and use of the items.
    BIS response: Other commenters did not support using contractual 
documentation. BIS notes that although the personnel involved in 
financial management of a company (e.g., those in accounts payable) may 
receive the commercial invoice either at the time the items shipped 
(exported in tangible form) are received or before, at some point in 
the process typically the commercial invoice is matched up with what 
was received. If the DCS reaches the ultimate consignee or end-user(s) 
before the item is subsequently reexported or transferred (in-country) 
to another party, it helps to achieve the objective of putting the 
reexporter or transferor on notice that the items are subject to U.S. 
export controls.
    Comment 31: BIS uses the term ``commercial invoice'' but DDTC uses 
the term ``invoice.'' For some exporters, the term ``invoice'' refers 
to the final billing document that moves electronically, whereas the 
commercial invoice moves with the freight.
    BIS response: BIS agrees that the terms should be harmonized. Based 
on other comments received, the term commercial invoice is well 
understood by industry, as well as by BIS's Office of Export 
Enforcement, so this final rule adopts the term commercial invoice.
    Comment 32: Commercial invoices do not accompany items during 
shipment. In today's business processes, invoices are sent either 
electronically (the preferred method) or in hard copy directly to the 
buyer's accounts payable department. The invoice is not sent to those 
who might divert the items. In compliance with the EAR, the DCS is 
currently printed on the invoice, but doing so arguably does not serve 
the purpose BIS intends.
    BIS response: Several other commenters supported BIS's position 
that the commercial invoice is the document most likely to travel to 
the end of the export. However, BIS acknowledges and understands that 
in certain cases a commercial invoice may be sent prior to the items 
being shipped (exported in tangible form), so this final rule does not 
specify the timing of when the commercial invoice must be sent, but 
simply specifies the requirement that the commercial invoice must 
include the DCS. BIS intends to add FAQs to the BIS Web site once this 
final rule is published to provide additional application guidance to 
exporters.
    Comment 33: Changing requirement from ``accompanies the shipment'' 
to when ``such documentation exists'' is a significant expansion of the 
DCS requirement for little benefit to U.S. national security.
    BIS response: BIS disagrees. As was noted by several commenters the 
DCS requirements under the EAR and ITAR we need to take into account 
how business is conducted in order for exporters to effectively comply 
and to achieve the export control objectives of protecting U.S. 
national security and foreign policy interests. Because the phrase 
``accompanies the shipment'' is limiting and does not take into full 
account how documents are transmitted related to exports in certain 
cases, BIS does not accept the suggestion, which conflicts with the 
larger objectives of what the DCS provisions are trying to achieve.

Supports Using Contractual Documentation

    Comment 34: The contractual documents and commercial invoice are 
intended to detail the entirety of the transaction between the parties 
that are engaging in the transfer of the items. Incorporating the DCS 
into those documents is much more likely to achieve the intended 
purpose of the DCS than is including that information on the air 
waybill.
    BIS response: BIS agrees. However, as noted elsewhere in this final 
rule, BIS is limiting the documentation requirement to the commercial 
invoice.

Concerns for Using Contractual Documentation

    Comment 35: The proposed requirement to include the DCS on 
contractual documentation raised significant concerns among the 
majority of commenters, even those that strongly supported the proposed 
rule. These commenters included a number of well supported reasons for 
why the use of contractual documentation would be needlessly burdensome 
and not achieve the stated objectives in the proposed rule. These 
reasons included the following: (1) The term ``contractual 
documentation'' was not defined and could be overinclusive of 
documents, including contractual documentation that are not related 
directly to items that would be exported, but would still create a 
significant administrative burden in keeping track of certain 
contractual documentation that would require the DCS from those that 
would not; (2) grandfathering of existing contractual documentation, 
where some commenters noted that amending existing contracts to include 
the DCS would require amending thousands of contractual documents; (3) 
would require a U.S. company to have prior knowledge during 
negotiations for what the item that is subject to the contract that 
will actually be exported, which often is unknown at the time a 
contract is signed; (3) handling changes in classification that may 
impact previous contracts would require contractual documents to be 
revised; (4) including the DCS in contractual documentation may 
exacerbate foreign parties' concerns over acknowledging U.S. 
extraterritoriality; and (5) if the ultimate goal of the proposed rule 
is to avoid diversion, most commenters noted that requiring the DCS to 
be included on the commercial invoice will suffice--meaning the 
objectives of the DCS could be achieved more efficiently by only 
requiring it on the commercial invoice without creating the significant 
burdens that would be required to include it on contractual 
documentation.
    BIS response: Commerce and State agree with the public commenters 
that removing the requirement to include the DCS on the contractual 
documentation is warranted. The public comments were persuasive that 
including a

[[Page 54728]]

requirement to include the DCS on the contractual documentation would 
create a significant amount of unneeded complexity and in most cases 
would not achieve the stated objectives in the Commerce and State 
proposed rules. Based on the public comments received and additional 
review by Commerce and State, limiting the requirement to include the 
DCS on the commercial invoice is sufficient to meet the stated 
objectives in the Commerce and State proposed rules, and therefore this 
final rule does not adopt the proposed requirement to include the DCS 
on contractual documentation. This final rule makes the following 
regulatory changes to address this public comment:
    In Sec.  758.6, introductory text of paragraph (a), this final rule 
removes the undefined term ``contractual documentation.'' As discussed 
above, there was considerable concern raised regarding the inclusion of 
the undefined term ``contractual documentation.'' BIS is not including 
the undefined term ``contractual documentation'' and instead, as 
explained above, is limiting the requirement under the EAR to the 
commercial invoice. The Department of State will only require the DCS 
to be placed on the commercial invoice under the ITAR.

Create a New Document Specific To Export Controls for Use With DCS

    Comment 36: Provide the DCS and other export control information 
(e.g., as ``600 series'' or a 9x515 ECCN classification) on a 
completely separate document that can serve multiple purposes and can 
be sent with the items being shipped or separately in order to convey 
to the consignees that the items are U.S. export regulated and are 
intended only for the designated end user and the destination 
identified. This should be similar to a certificate of compliance or 
documents of similar nature (usually from a quality perspective) that 
are usually sent to customers.
    BIS response: BIS appreciates the effort this commenter put into 
the idea, including the templates they created, but ultimately BIS 
believes that it would be unduly burdensome to create a requirement to 
generate a wholly new document. Therefore, although we acknowledge 
there would be some benefits to what the commenter had in mind, BIS 
believes that it is still preferable to require the DCS on an existing 
document (the commercial invoice) that is created in the normal course 
of business. Other public comments support this conclusion.

Allow Flexibility for Exporters To Decide Which Document To Include DCS 
on, but Require It on One Document That Accompanies Physical Shipment

    Comment 37: The regulations should not prescribe the specific 
document that must include the DCS, but instead require that it appear 
on one document that accompanies the item to the ultimate destination. 
Which document will contain the DCS should be determined by the 
exporter in light of its shipping practices.
    BIS response: BIS disagrees. This would create a burden on 
exporters and other parties to the transaction, as well as the United 
Stated Government in conducting checks to confirm that exporters are in 
compliance. Allowing for exporters to pick and choose the document 
would create more burden than benefits that would come from allowing 
that level of flexibility because exporters and other parties to the 
transaction would need to adopt processes to identify on a transaction 
by transaction basis, which document contained the required DCS. 
Variability would provide flexibility, but also impose implementation 
costs. Requiring and identifying a single document, the commercial 
invoice, creates predictability, will facilitate the adoption of 
standardized processes and will reduce implementation costs. In 
addition, exporters are free to place the DCS on additional documents, 
but at a minimum the final rules published today by Commerce and State 
require the DCS to be placed on the commercial invoice.

Suggested Notes To Add to DCS Section

    Comment 38: In the Supplementary Information, BIS states that, ``. 
. . in the context of this EAR paragraph ``authorized'' would also 
include exports that were designated under No License Required (NLR).'' 
This would be useful information to include in Sec.  758.6.
    BIS response: BIS agrees. BIS has added a note to specify this 
concept as described earlier in the BIS response above to Comment 6.

Other Changes To Enhance Usefulness of DCS in Preventing Diversions

    Comment 39: A requirement should be added that all the parties 
(consignees involved in the transaction between the U.S. exporter and 
the ultimate end user) should somehow be communicated to about the U.S. 
regulations restricting further export/transfer to anyone or to any 
country other than the end user and ultimate destination should be 
considered in the final export process.
    BIS response: Based on other comments received there would likely 
be significant concern about the burden created and the complexity of 
compliance programs caused by implementing such a requirement. The 
parties helping to facilitate the movement of the item to the end of 
the export are simply moving the item to the ultimate consignee or end 
user(s). The focus of the DCS on the commercial invoice is to ensure 
that it reaches the ultimate consignee and/or end user(s) that will be 
in a position to make a subsequent reexport or transfer (in-country), 
so they are aware the item in question is subject to U.S. reexport 
controls. As discussed in other parts of this rule, BIS is defining 
some of the terms used in the DCS text and adding some clarifying notes 
to provide additional context for how the DCS is applied in the EAR 
context.

Request for Delayed Effective Date

    Comment 40: Requests that BIS strongly consider setting the 
implementation date 180-240 days after publication of the final rule to 
allow sufficient time for all affected parties to make the required 
changes to system programming, document revision and related procedural 
tasks. Other commenters had requested a 180 day delayed effective date, 
along with a delayed compliance date.
    BIS response: Commerce and State agree that a delayed effective 
date is warranted and will delay the effective date of this final rule 
for 90 days after publication. This delay of effective date will allow 
exporters, as well as other parties to which these revised DCS 
requirements will apply, to make any needed changes to their export 
compliance systems and business processes.

Request for Public Meetings or Additional Proposed Rules Prior to Final 
Rule Publication

    Comment 41: Request for public meetings for public to comment and 
requests for Commerce and State outreach for the new changes to be 
implemented.
    BIS response: BIS values public participation in the rulemaking 
process. Through the public comment process, BIS has provided adequate 
opportunity for comment and has addressed the concerns that were 
raised. Therefore, BIS does not accept the request to conduct public 
meetings prior to publishing a final rule. In regard to the request for 
conducting outreach, BIS agrees that this is a good idea and intends to 
add updated DCS information to our already robust ECR related

[[Page 54729]]

outreach activities, including to instruction at seminars and to the 
Frequently Asked Questions on the BIS Web site.
    Comment 42: A public comment period with relevant meetings will 
provide the necessary fora to engage with the government and discuss 
mutually[hyphen]beneficial alternatives to accomplish the government's 
objectives without putting any sector of the trade at an inappropriate 
disadvantage.
    BIS response: Commerce and State already provided an opportunity 
for public review and comment on the proposed rules. Commerce and State 
have considered those public comments, which were generally supportive 
of the rule, and for those commenters that raised concerns, Commerce 
and State were able to refine what was proposed to address those 
comments and better achieve the stated objectives. Therefore, there is 
no need for an additional proposed rule or engaging in public meetings 
before moving forward with final rules, which would delay the 
reductions in burdens included in the Commerce and State final rules, 
as well as delaying the benefits for better protecting U.S. national 
security and foreign policy interests by adopting these more effective 
DCS requirements under the EAR and the ITAR. No party will be placed at 
an inappropriate disadvantage as a result of this rule being published 
in final form because all interested parties had an opportunity to 
review the proposed rule and make comments for improving the proposed 
DCS requirements. BIS by addressing those comments in this final rule 
has led to an improved rule that better achieves the stated objectives. 
As noted above, Commerce and State have a robust outreach program for 
ECR related changes and intend to conduct robust outreach regarding the 
new DCS requirements included in the final rules published today, in 
particular during the 90 day transition period prior to the effective 
date.

Including ``600 Series'' and 9x515 ECCNs on Same Documents as DCS

    Comment 43: Require the items level classification for 9x515 and 
``600 series'' items. In consideration that sub-categories of a same 
ECCN may not be subject to the same controls (for instance 9A610.x and 
9A610.y.1), we suggest that the text be amended to request not only the 
ECCN, but also the corresponding subcategory.
    BIS response: This comment is outside the scope of the proposed DCS 
rule.
    Comment 44: While the requirement to place the DCS found in Sec.  
758.6(a)(1) on the commercial invoice is reasonable, the requirement to 
place the DCS and the ECCN for ``600 series'' or 9x515 item, when 
required, on contractual documentation, when such contractual 
documentation exits, may require a level of specificity that is not 
available at the time of contracting. The suggested change would 
clarify that the contract itself need not contain each ``600 series'' 
or 9x515 ECCN if subsequent contract implementing documentation will be 
the vehicle by which actual commitments for shipment of such items are 
made.
    BIS response: As noted elsewhere in this final rule (see BIS 
response above to Comment 35 under the heading Concerns for using 
contractual documentation), BIS is not including contractual documents 
in the final rule, so this comment is no longer applicable.

Broadening Scope of DCS To Also Alert People Receiving Incorporated 
9x515 and ``600 Series'' of Such Content

    Comment 45: There is no requirement to include a DCS for end items 
that include ECCN 9x515/600 series de minimis content. This creates a 
risk related to restrictions on the use of de minimis for Country Group 
D:5 countries. For example, a non-U.S. prime may receive a system or 
sub-assembly from an Asian or European supplier for integration into an 
end-item. That system or sub-assembly may contain ECCN 9x515/600 series 
de minimis content from another supplier. The non-U.S. prime may never 
know about the ECCN 9x515/600 series content since there is no 
requirement for the re-exporter to disclose this information, which may 
raise a compliance issue when considering further retransfer to Country 
Group D:5 countries.
    BIS response: This comment is outside the scope of the DCS proposed 
rule, but it is something that BIS will evaluate further. However, as a 
best practice, BIS does encourage companies to work together to assist 
each other in complying with the EAR requirements, whether that is in 
the United States or outside the United States when items that may be 
subject to the EAR are involved.

Add Provisions To Rescind Previous License Conditions for Currently 
Valid Licenses That Include a Condition That Current DCS Needed To Be 
Included on Current DCS Required Documents

    Comment 46: Recommend a statement in a final rule to clarify that 
for existing, valid licenses previously issued by BIS, any license 
condition to place a DCS on any shipping documentation (e.g., on all 
bills of lading or air waybills) not specifically required in the 
revised EAR is rescinded. A common current license condition is as 
follows: ``Place a Destination Control Statement on all bills of 
lading, air waybills, and commercial invoices.'' This clarification 
will relieve exporters with numerous licenses, wherein the license 
condition to apply DCS to shipping documentation appears, from the need 
to petition the Commerce Department for relief from the condition.
    BIS response: BIS confirms that a condition on a license issued 
prior to August 17, 2016 to place a destination control statement on 
documents other than the commercial invoice would no longer be 
applicable as of November 15, 2016.

Summary of the Regulatory Changes Being Made in This Final Rule to 
Sec.  758.6

    The heading of Sec.  758.6 of the EAR remains the same. However, 
the provisions that were under paragraph (b) prior to the effective 
date of this final rule are being moved to a new paragraph (a)(2). 
Further, new paragraph (a)(2) specifies that the ECCN for each 9x515 or 
``600 series'' item being shipped (exported in tangible form) must be 
included. This is the same requirement that was in paragraph (b) prior 
to the effective date of this final rule, although it is slightly 
shortened because the introductory text of paragraph (a) is specifying 
some of the requirements that previously were included in paragraph 
(b), specifically the documents for which the 9x515 and ``600 series'' 
classification must be included under this section. The commercial 
invoice is the same document that the DCS is included on, so this 
change is shortening and simplifying this section by moving the text of 
paragraph (b) to paragraph (a)(2). This change will reduce the number 
of documents upon which this classification needs to be included on to 
conform with the DCS changes described below.
    The introductory text paragraph (a) in this final rule specifies 
that the exporter shall incorporate the information specified under 
paragraphs (a)(1) (destination control statement) and (a)(2) (ECCN for 
9x515 or ``600 series'' item being shipped (exported in tangible form)) 
as an integral part of the commercial invoice. The changes in this 
final rule mean this section of the EAR no longer includes, as of the 
effective date of this final rule, a requirement to include the DCS on 
the air waybill, bill

[[Page 54730]]

of lading or other export control documents, and instead is limiting 
the requirement to the commercial invoice.
    Consistent with the DCS provisions prior to the effective date of 
this final rule, this final rule is not requiring an EAR DCS for 
exports of EAR99 items or items exported under License Exception BAG or 
GFT. Any other shipment (tangible export) from the United States of any 
item on the CCL would require the DCS as specified in paragraph (a)(1) 
and any shipment (tangible export) of a 9x515 or ``600 series'' ECCN 
would also need to be specified on the commercial invoice as specified 
in paragraph (a)(2).
    The text of the harmonized DCS in this final rule is being 
specified under revised paragraph (a)(1) of Sec.  758.6 of the EAR. The 
new DCS this final rule adds does not include EAR-specific language, 
but rather adopts text that is equally applicable under the ITAR as 
well as the EAR. However, this final rule adds several clarifying notes 
to clarify how the DCS provisions are applied in the EAR context. The 
first sentence of the statement added by this final rule specifies that 
``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.'' For 
clarification this final rule moved the position of the phrase ``by the 
United States Government'' to the first sentence. This is a 
clarification to ensure that exporters understand that ``only'' 
modifies ``authorized'' and not ``controlled.'' This first sentence is 
intended to alert the person outside the United States receiving the 
item that the item is subject to U.S. export laws and regulations and 
was authorized by the U.S. Government for export. In addition, the 
first sentence in this final rule specifies that the items are 
authorized for export only to the country of ultimate destination for 
use by the ultimate consignee or end-user(s). The new DCS included in 
this final rule uses the term authorized, but in the context of this 
EAR paragraph ``authorized'' would also include exports that were 
designated under No License Required (NLR). This final rule adds a new 
Note 1 to paragraph (a) to specify this in the regulatory text in 
regards to the applicability of NLR. This final rule adds Note 2 to 
paragraph (a) to specify the phrase ``country of ultimate destination'' 
means the country specified on the commercial invoice where the 
ultimate consignee or end user will receive the items as an ``export.'' 
This note will assist the exporter's understanding of the use of this 
phrase in the context of the EAR.
    The second sentence of the new harmonized DCS being added in this 
final rule focuses on alerting the persons receiving the items that 
they may not be resold, transferred, or otherwise be 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. Similar to the first sentence, this second sentence is 
adopting common text that can be used under the ITAR and the EAR. The 
application of this second sentence is different under the ITAR and the 
EAR due to the different types of authorizations and other approvals in 
the respective regulations, as well as other differences, such as the 
de minimis requirements in the EAR, which is not provided for in the 
ITAR. The final rule adds a new Note 3 to paragraph (a) to make this 
clearer in regards to how this is applied in the EAR context.
    The advantage of the text included in this final rule is that it 
adopts a new harmonized DCS, while at the same time is still flexible 
enough to not impact other ITAR or EAR provisions that do warrant 
differentiation, such as the availability of de minimis provisions, 
which are available under the EAR.
    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.
    As of the effective date of the Commerce and State final rules, an 
exporter will still need to go through all of the steps to determine 
jurisdiction, classification, and license requirements, and to obtain 
and use the proper authorization under the respective regulations, 
prior to moving on to the respective export clearance requirements 
under the ITAR or EAR. It is important to remember when reviewing the 
changes included in the Commerce and State final rules that the 
regulations still need to be reviewed and evaluated in the context in 
which they are intended to be applied, including the steps for 
determining the applicable export control requirements under the ITAR 
and the EAR. For those parties outside the United States that will be 
receiving items under this new DCS once this final rule becomes 
effective on November 15, 2016, although the new DCS is not ITAR or EAR 
specific, in the case of the ITAR the classification of USML items will 
be required on the commercial invoice. This classification will alert 
the parties that the items are subject to the ITAR. For military items 
under the EAR, because of the requirement this final rule is including 
in paragraph (a)(2) (which was required under paragraph (b) prior to 
the effective date of this final rule) of Sec.  758.6 of the EAR, 
anyone receiving a ``600 series'' military item or an ECCN 9x515 item 
will know that item is subject to the EAR because the classification 
information will also need to be included on the commercial invoice. 
For other EAR items, there is not a requirement to include the 
classification information, although BIS does encourage the inclusion 
of that information as an export compliance best practice.
Removal of Paragraph (c)
    BIS in this final rule removes the text that was in paragraph (c) 
of Sec.  758.6 prior to the effective date of this final rule. BIS did 
not receive any comments on this proposed change and therefore is 
implementing this change in this final rule. Paragraph (c) was added 
recently (January 23, 2015, 80 FR 3463) and required prior to the 
effective date of this final rule a special DCS for items controlled 
under ECCNs for crime control columns 1 and 3 reasons or regional 
stability column 2 reasons when those items are destined to India. BIS 
proposed removing this requirement because the benefit of this 
requirement in paragraph (c) is outweighed by the added complexity to 
the EAR of including this country specific requirement. Therefore, 
consistent with the purpose of the retrospective regulatory review, BIS 
removes paragraph (c).
    This final rule is the same as the May 22, 2015 proposed rule 
except for the refinements explained above. These changes address the 
public comments and will achieve the objectives of adopting a 
harmonized DCS requirement under the EAR and ITAR. These changes will 
help to further achieve the objectives of ECR to harmonize provisions 
between the EAR and the ITAR where warranted.
    The changes in this final rule will ease the regulatory burden and 
complexity for exporters, in particular those with mixed shipments, 
which as noted above is now a much more common occurrence because of 
ECR. These changes and the corresponding reduction of documents that 
will require the DCS (now limited to the commercial invoices) will 
benefit all exporters under the EAR, not just exporters of ``600 
series'' and 9x515 items. The DCS

[[Page 54731]]

provisions in this final rule will better achieve their stated 
objectives--meaning all exporters will benefit because the appropriate 
parties (consignees in a position to make a subsequent reexport or 
transfer (in-country)) further down the line in export transactions 
will be receiving the DCS and other export control information required 
under this section as applicable.
    These changes to the DCS provisions under the EAR and the ITAR move 
beyond harmonization for the sake of harmonization, which as discussed 
above was a concern of several of the commenters in response to the 
proposed rule. The changes in this final rule achieve true 
harmonization in this area of the U.S. export control system under the 
EAR and the ITAR, while at the same time improving the effectiveness of 
these provisions under the EAR and the ITAR, which ultimately will lead 
to better informed parties to transactions that are subject to U.S. 
export controls and better protecting U.S. national security and 
foreign policy interests. For the reasons described above, Commerce and 
State are publishing these final rules today.
    As required by Executive Order (E.O.) 13563, BIS intends to review 
this rule's impact on the licensing burden on exporters. Commerce's 
full retrospective regulatory review plan is available at: https://open.commerce.gov/news/2011/08/23/plan-analysis-existing-rules. Data 
are routinely collected on an ongoing basis, including through the 
comments to be submitted and through new information and results from 
Automated Export System data. These results and data have formed, and 
will continue to form, the basis for ongoing reviews of the rule and 
assessments of various aspects of the rule. As part of its plan for 
retrospective analysis under E.O. 13563, BIS intends to conduct 
periodic reviews of this rule and to modify, or repeal, aspects of this 
rule, as appropriate, and after public notice and comment. With regard 
to a number of aspects of this rule, assessments and refinements may be 
made on an ongoing basis. This is particularly the case with regard to 
possible modifications that will be considered based on public comments 
described above.

Export Administration Act

    Although the Export Administration Act expired on August 20, 2001, 
the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 
2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 
8, 2013, 78 FR 16129 (March 13, 2013) and as extended by the Notice of 
August 4, 2016, 81 FR 52587 (August 8, 2016), has continued the Export 
Administration Regulations in effect under the International Emergency 
Economic Powers Act. BIS continues to carry out the provisions of the 
Export Administration Act, as appropriate and to the extent permitted 
by law, pursuant to Executive Order 13222, as amended by Executive 
Order 13637.

Rulemaking Requirements

    1. Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distribute impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This final rule has been determined to be significant for 
purposes of Executive Order 12866.
    2. Notwithstanding any other provision of law, no person is 
required to respond to, nor is subject to a penalty for failure to 
comply with, a collection of information, subject to the requirements 
of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA), 
unless that collection of information displays a currently valid OMB 
control number. This regulation involves collections previously 
approved by the OMB under control number 0694-0122, ``Licensing 
Responsibilities and Enforcement.'' This rule does not alter any 
information collection requirements; therefore, total burden hours 
associated with the PRA and OMB control number 0694-0122 are not 
expected to increase as a result of this rule. BIS acknowledges that 
there will be a minimal one-time burden on exporters as they need to 
update the DCS text on an existing document that already requires the 
DCS, but BIS expects this to be a one-time cost, not a recurring one. 
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. You may send comments regarding the collection of 
information associated with this rule, including suggestions for 
reducing the burden, to Jasmeet K. Seehra, Office of Management and 
Budget (OMB), by email to Jasmeet_K._Seehra@omb.eop.gov, or by fax to 
(202) 395-7285.
    3. This rule does not contain policies with Federalism implications 
as that term is defined under E.O. 13132.
    4. The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 
601 et seq., generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act (5 
U.S.C. 553) or any other statute, unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Under section 605(b) of the RFA, however, if 
the head of an agency certifies that a rule will not have a significant 
impact on a substantial number of small entities, the statute does not 
require the agency to prepare a regulatory flexibility analysis. 
Pursuant to section 605(b), the Chief Counsel for Regulation, 
Department of Commerce, certified to the Chief Counsel for Advocacy, 
Small Business Administration that the May 22 proposed rule, if 
promulgated, will not have a significant impact on a substantial number 
of small entities. A summary of the factual basis for the certification 
was provided in the May 22 proposed rule that is being finalized in 
this rule and is not repeated here. No comments were received regarding 
the economic impact of this final rule. Consequently, BIS has not 
prepared a regulatory flexibility analysis for this final rule.

List of Subjects in 15 CFR Part 758

    Administrative practice and procedure, Exports, Reporting and 
recordkeeping requirements.

    Accordingly, part 758 of the Export Administration Regulations (15 
CFR parts 730-774) is amended as follows:

PART 758--[AMENDED]

0
1. The authority citation for part 758 is revised to read as follows:

    Authority:  50 U.S.C. 4601 et seq.; 50 U.S.C. 1701 et seq.; E.O. 
13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; Notice of August 4, 
2016, 81 FR 52587 (August 8, 2016).


0
2. Section 758.6 is revised to read as follows:


Sec.  758.6  Destination control statement and other information 
furnished to consignees.

    (a) The exporter must incorporate the following information as an 
integral part of the commercial invoice whenever items on the Commerce 
Control List are shipped (i.e., exported in tangible form), unless the 
shipment (i.e., the tangible export) may be made under License

[[Page 54732]]

Exception BAG or GFT (see part 740 of the EAR) or the item is 
designated as EAR99:
    (1) The following statement: ``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'' and
    (2) The ECCN(s) for any 9x515 or ``600 series'' ``items'' being 
shipped (i.e., exported in tangible form).

    Note 1 to paragraph (a).  In paragraph (a)(1), the term 
`authorized' includes exports, reexports and transfers (in-country) 
designated under No License Required (NLR).


    Note 2 to paragraph (a).  The phrase `country of ultimate 
destination' means the country specified on the commercial invoice 
where the ultimate consignee or end user will receive the items as 
an ``export.''


    Note 3 to paragraph (a).  The phrase `or as otherwise authorized 
by U.S. law and regulations' is included because the EAR contain 
specific exemptions from licensing (e.g., EAR license exceptions and 
NLR designations) and do not control the reexport of foreign-made 
items containing less than a de minimis amount of controlled 
content. See Sec.  734.4 and Supplement No. 2 to part 748.

    (b) [Reserved]

    Dated: August 8, 2016.
Kevin J. Wolf,
Assistant Secretary of Commerce for Export Administration.
[FR Doc. 2016-19551 Filed 8-16-16; 8:45 am]
 BILLING CODE 3510-33-P