January 1, 2003
The Customs Service, the Bureau of the Census, and the Department of Commerce have recently undertaken several new initiatives affecting the exporting community. On July 22, 1999, the Customs Service published its Final Rule with respect to the Automated Export System ("AES") in the Federal Register. In addition, the Bureau of Export Administration ("BXA") issued a proposed rule for the implementation of the Chemical Weapons Convention, and a final rule revising certain entries on the Commerce Control List ("CCL") to conform with recent changes in the Wassenaar List of Dual-Use Goods and Technologies. Further, the BXA and Census have issued proposed rules to amend the EAR and FTSR with respect to the responsibilities of parties to export transactions, and the filing of SED's. Finally, the BXA has issued a final rule regarding the export of high-performance computers and the use of license exception CTP. The following sets forth a brief explanation of these developments.
1. Customs Regulations Amended to Include Automated Export System
On July 22, 1999, the U.S. Customs Service published a final rule which adds the Automated Export System ("AES") to the Customs Regulations at 19 C.F.R. Parts 4, 101, 178 and 192. New provisions were also added to the Census Bureau's Foreign Trade Statistics Regulations at 15 C.F.R. Part 30 with respect to the AES. As an alternative to filing a paper SED, the Customs Service and the Bureau of the Census jointly developed this voluntary reporting system which allows exporters to transmit commodity information set forth on SED's electronically. Similarly, the AES permits sea carriers to transmit electronically outbound vessel manifest information.
Exporters now may choose from four options when filing and submitting SED's. Option 1 consists of the standard practice of filing a paper SED. Option 2, however, permits exporters to file all information that is required prior to exportation electronically under the AES. For example, exporters wishing to participate in the AES must utilize Option 2 for the following shipments: self-propelled vehicles; essential and precursor chemicals requiring authorization from the U.S. Drug Enforcement Agency; shipments deemed to be "sensitive" pursuant to an Executive Order; and, shipments in which a U.S. federal agency requires the filing of all export information prior to exportation.
With respect to Option 3, exporters may electronically file partial information before exportation with no prior approval by the Census Bureau or Customs. Option 3 will become available to exporters for all modes of transportation after September 11, 1999. This option requires exporters to provide complete information no later than 5 working days following the date of exportation.
Option 4 allows exporters to forego the transmittal of all information prior to exportation. Option 4 may be used for shipments that do not require an export license, and which are not subject to the requirements of Options 2 or 3. However, exporters must first seek authorization from the Census Bureau, Customs, and other federal agencies. Generally, an application to use Option 4 will be denied if: (1) the applicant is not an exporter as defined by the Census regulations; (2) the applicant has a history of noncompliance with export regulations; (3) the applicant has previously been indicted, convicted or is currently under an investigation for a felony involving Customs laws; and, the applicant provided a false or misleading statement or omission in the letter of intent. Further, under Option 4, exporters must provide complete export information no later than 10 working days following the date of exportation.
Exporters interested in participating in the AES must be approved by first filing a letter of intent committing itself to the development, maintenance and compliance with all Census Bureau and Customs Service requirements under the AES. Thereafter, a 2-part communication test must be performed to determine whether the exporter is capable of transmitting data to, and receiving information from, the AES.
2. New Rules Proposed by BXA to Implement the Chemical Weapons Convention
The BXA has proposed new regulations designed to implement the United States' obligations under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction ("Chemical Weapons Convention"). The regulations are open to public comment for thirty days. Facilities subject to the regulations do not include those owned, operated by or leased to the U.S. Department of Energy or the Department of Defense. The Chemical Weapons Convention is an international arms control and nonproliferation treaty that bans the development, production, stockpiling and use of chemical weapons throughout the world. To date, it has been ratified by over 120 countries. The U.S. ratified the convention on April 25, 1997, and enacted implementing legislation on October 21, 1998. Based on their potential threat to the object and purpose of the Convention, the treaty categorizes toxic chemicals and precursors into three schedules, and creates a basket category for unscheduled discrete organic chemicals ("UDOC").
The proposed regulations require facilities located in the US, which produce, process, consume, import or export toxic chemicals and precursors, above certain threshold levels, to submit declarations and reports of their activities to the BXA. Specifically, such US facilities must file a declaration with the BXA 90 days after publication of the final regulations. The BXA will provide this information to the Organization for the Prohibition of Chemical Weapons ("OPCW") for review. These facilities, deemed "declared facilities," will be subject to on-site inspections by the OPCW. (U.S. facilities and trading companies that only import or export toxic chemicals and precursors above certain threshold levels, must also submit reports to the BXA 90 days after publication of the final regulations; however, these facilities are not subject to inspections by the OPCW.) Generally, the BXA will notify and assist the facility in preparing for an impending on-site inspection. The BXA will obtain the necessary administrative warrants and guide the inspectors through the facilities.
3. BXA Proposed Rule to Revise the Commerce Control List ("CCL") to Conform with the Wassenaar Arrangement
On July 23, 1999, the BXA issued a final rule revising certain national security controlled entries on the CCL in order to conform to the recent changes made to the Wassenaar Arrangement List of Dual-Use Goods and Technologies. The final rule revises numerous entries on the CCL, and places new national security (NS) and antiterrorism (AT) controls on certain items. Items which were removed from NS controls by the final rule will continue to be controlled for AT reasons.
The Wassenaar Arrangement, the successor to COCOM, is a multilateral agreement which controls strategic items in order to improve regional stability and international security. Member states have agreed to exchange information on exports of dual-use goods and technologies to non-participating states.
4. BXA and Census Propose Rules to Amend the EAR and FTSR
On July 9, 1999, the BXA and Bureau of the Census submitted packages to the Office of Management and Budget ("OMB") for approval of proposed revisions to the EAR and the Foreign Trade Statistics Regulations under the Paperwork Reduction Act. Presently, the proposed regulations are open for public comment.
The BXA proposes to amend the EAR in order to simplify and clarify the responsibilities of all parties to an export transaction. The primary purpose of the revisions is to allow parties to structure the transactions in a more flexible manner consistent with the national security and foreign policy objectives of the EAR. Specifically, the amendments provide that in every export transaction that is subject to the EAR, one party must be responsible for determining licensing authority and for obtaining the appropriate license or authorization. In addition, as part of the new License and Enforcement Action Program ("LEAP"), the proposed rules require the export licensee to communicate the license terms and conditions to all parties involved, and obtain written acknowledgment of receipt of these conditions in certain situations. The proposed rules also include new terms (such as "principal parties in interest," "routed export transactions," and "end-user"), and modify the definitions of existing terms, such as the definition of "exporter." Overall, the amendments encourage greater communication between the parties so as to ensure that all parties understand their responsibilities.
The Census Bureau proposes to amend the FTSR (15 C.F.R. Part 30) in order to articulate the responsibilities of exporters and freight forwarders in preparing the Shipper's Export Declaration ("SED's"), and clarify the provisions for authorizing freight forwarders to file an SED or use the Automated Export System ("AES"). Specifically, the rules propose to amend the Census regulations with respect to the party that is to be listed in the "exporter" box of the SED and in the exporter field of the AES. Further, like the BXA, the Census Bureau defines new terms (such as "U.S. principal party in interest" and "routed export transaction"), and modifies the definition of "exporter."
5. BXA Issues Final Rule Amending EAR with Respect to Exports of High-Performance Computers
Further to President Clinton's July 1st statement announcing reforms to the U.S. export controls on high-performance computers and semiconductors, the BXA has issued a final rule effective August 3, 1999, amending the EAR with respect to the export of such items and the use of license exception CTP. The Clinton administration stated that, because of the rapid rate of technological change in the computer industry, the previous U.S. controls would hurt exports without benefitting national security. Further, the presence of a thriving high-tech industry is in the national security and foreign policy interests of the United States.
License Exception CTP divides the world into tiers based on U.S. national security and foreign policy concerns. Each tier represents the proliferation and security risk a country poses to as follows: Tier 1 consists of U.S. allies, including Japan, Canada, Mexico, Australia, New Zealand, and the Western European countries; Tier 2 encompasses countries representing minimal security concerns to the U.S. such as South Korea, Slovenia, South Africa, and most of South America; Tier 3 countries, including China, India, Israel, Pakistan, and Russia, are those which pose a potential proliferation or security concern; and, Tier 4 consists of the terrorist supporting states.
The amended regulations raise the threshold of the Composite Theoretical Performance (CTP) parameter for Computer Tier 2 and Computer Tier 3 countries, thereby allowing the export or reexport of high-performance computers within the specified parameters under license exception CTP. Specifically, the upper threshold of the CTP parameter for Computer Tier 2 countries is raised from 10,000 millions of theoretical operations per second ("MTOPS") to 20,000 MTOPS. The upper threshold for Computer Tier 3 countries is raised from 7,000 MTOPS to 12,300 MTOPS for civilian end-users and end-uses. (For military end-users and end-uses in Computer Tier 3 destinations, the parameter remains at 2,000 MTOPS.) Finally, the amended regulations moved Brazil, the Czech Republic, Hungary, and Poland from Computer Tier 2 to Computer Tier 1.
The BXA will regularly review the CTP parameters for all tier levels every six months to determine if the threshold must be modified. The BXA currently expects to raise the threshold parameter for Computer Tier 2 countries to 32,000 - 36,000 MTOPS in six months, and may consider moving other countries from one tier to another.