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March 31, 2014 

Are You Ready for the Changes to the Foreign Trade Regulations That Will Finally Take Effect on April 5, 2014?

By Doug Jacobson and Michael Burton, Jacobson Burton PLLC

More than three years after the Census Bureau first proposed them, the most recent amendments to the Foreign Trade Regulations (“FTR”) (15 CFR Part 30) finally will take effect on April 5, 2014. 

Given the long delay in implementing the final rule — which was originally published on March 14, 2013, and the effective date changed from January 8, 2014 to April 5, 2014 — many U.S. exporters and freight forwarders appear unaware that these changes are finally taking effect, much less have analyzed the implications on their EEI filings. 

The final rule is particularly significant given its broad application. The changes to the FTR will affect all Electronic Export Information (“EEI”) filings made through the Automated Export System (“AES”), whether filed directly by the U.S. exporter or via an agent, such as a freight forwarder. 

Some of the changes are particularly important to exporters that ship goods under export licenses issued by the Bureau of Industry and Security (“BIS”) or the Directorate of Defense Trade Controls (“DDTC”).  

Since this final rule impacts all exports departing the U.S. on or after April 5, 2014, U.S. exporters will need to submit the new information in AES later this week, except for the small number of authorized postdeparture filers. 

As with any regulatory overhaul, questions abound, and we have already seen confusion within industry regarding how certain changes to the FTR will affect ITAR and other licensed shipments.

The following is a summary of several of the more significant changes to the Foreign Trade Regulations that enter into effect on April 5, 2014. This is by no means a complete list. We recommend that all exporters and freight forwarders, as well as their advisors, review the final rule published by Census in the Federal Register on March 14, 2013 to review the full set of FTR amendments to determine the impact of the changes on their EEI filings.

Addition of Two Data Elements in All EEI Filings

One of the most significant changes made by the final FTR amendment rule is the addition of two new data elements to numerous existing data elements required in EEI filings:
  1. License value – Amended FTR section 30.6(b)(15) requires that all shipments requiring an export license report the total value included on the BIS or DDTC export license that corresponds to the commodity being exported. Thus, in addition to the export license number and total value of the shipment, the total value of the license must also be included in the EEI filing. This information will be used to allow electronic license decrementation capability that is being included in the reengineered AES/ACE platform.                                                                                                              
  2. Ultimate consignee type– Amended FTR section 30.6(a)(28) to include a mandatory filing requirement for the “ultimate consignee type.” This applies even if the goods are EAR99 and are exported No License Required ("NLR"). There are four ultimate consignee types to choose from: 
    1. Direct Consumer
    2. Government Entity
    3. Reseller
    4. Other/Unknown. Other/Unknown is an entity that does not fall under one of the other three ultimate consignee types or whose type is not known at the time of export.
Census has stated that if more than one type applies to the ultimate consignee the type that applies most often should be reported. 

Census has also advised that shipments exported on and after April 5, 2014 will require the additional data element(s) outlined in the FTR, otherwise the shipment will be rejected."

Postdeparture Filing (Formerly Option 4) Time Decreased From 10 Calendar Days to 5 Calendar Days

While all EEI filings must be filed prior to the export taking place, certain exporters are authorized to transmit the EEI filing after the goods have been exported because they are grandfathered into the Census postdeparture filing program (formerly known as Option 4). A moratorium on accepting new applications for postdeparture filing has been in place since 9/11, but Census and CBP reportedly are working on future pilot program that might allow certain data elements to be filed after the goods have left the United States.

For currently approved postdeparture filers, however, section 30.4(c) of the FTR has been amended to decrease the postdeparture filing timeframe from 10 calendar days to 5 calendar days. This change has required many exporters to make signficant changes to their EEI filing procedures and processess. 

Changes to FTR Filing Exemptions and Impact on Exports Made Pursuant to an Export License, License Exemption, or License Exception

Numerous changes were made to the various EEI filing exemptions in section 30.37 of the FTR. As a result of these changes, EEI does not have to be filed for the following shipments:
  1. Exports of ITAR controlled technical data and defense service exemptions as defined in 22 CFR § 123.22(b)(3)(iii) (see section 30.37(u) of the FTR).
  2. Shipments exported under EAR License Exception BAG (see section 30.37(x) of the FTR).
  3. While shipments to EAR Country Group E:1 countries (Cuba, Iran, North Korea, North Sudan and Syria) require an EEI fling in most cases, specific types of shipments destined for these E:1 terrorist supporting countries, are excluded from EEI filings, such as tools of the trade, certain publications, and vessels and aircraft under License Exception AVS (see section 30.37(y) of the FTR).
Conversely, an important EEI filing exclusion was eliminated. Section 30.27(q) of the FTR was removed so as to require an EEI filing for goods that are temporarily exported from the United States valued over $2,500 per Schedule B number.  

New Filing Exclusions for Licensed Goods

Section 30.2(d) of the FTR was amended to add the following two narrow EEI filing exclusions:

1. When the ultimate destination of BIS or DDTC export licensed goods is the United States. (See below for clarifications related to ITAR-controlled goods.); or
2. When the ultimate destination of BIS or DDTC export licensed goods is to international waters (such as an offshore oil rig) where the person or entity assuming control of the item is a U.S. citizen or U.S. permanent resident alien (Green Card holder). (See below for changes made to the FTR regarding other types of shipments to international waters).

Changes to EEI Filings for ITAR-Controlled Goods Ultimately Destined for the U.S.

Section 30.18(a) of the FTR was amended to read as follows:
"Items identified on the USML, including those exported under an export license or license exemption, ultimately destined to a location in the United States are not required to be reported in the AES."
This change has led to confusion among various exporters, as they were reading the regulation to indicate that a temporary export of an ITAR-controlled item from the United States pursuant to a DSP-73 or other authorization, which ultimately is being returned to the US, would not require an EEI filing. This interpretation is not correct. Census has confirmed that this language was only included to clarify that shipments of ITAR controlled goods moving by vessel from the East Coast of the U.S. to the West Coast of the U.S., or vice versa, would not require the an EEI filing. In a temporary export where the goods are delivered to an end-user outside the United States, an EEI filing is required notwithstanding that the goods ultimately will be returned to the United States.  It is not hard to understand why the regulation as drafted generated confusion among industry.  
While not specifically mentioned in the FTR, the same policy should apply to EAR controlled goods.

International Waters

In addition to the filing exclusion noted above regarding shipments to international waters, the new amendments to the FTR make a number of other changes to shipments to international waters, including:
  1. Adding the following definition of “international waters” in the FTR: “waters located outside the U.S. territorial sea, which extends 12 nautical miles measured from the baselines of the United States, and outside the territory of any foreign country, including the territorial water thereof. Note that vessels, platforms, buoys, undersea systems, and other similar structures that are located in international waters, but are attached permanently or temporarily to a country’s continental shelf, are considered to be within the territory of that country” (see section 30.1 of the FTR).
  2. For licensed shipments to “international waters”, the person designated on the export license must be reported as the ultimate consignee (see section 30.6 of the FTR).
  3. For BIS license exceptions and non-licensed shipments to international waters, the EEI filer will be required to report the nationality of the person or entity assuming control of the item subject to the EAR (see section 30.6(a)(5)(i)).
Of course, the EAR contains separate requirements for certain shipments to international waters and those should also be reviewed. 

These are but a few of the significant changes to the FTR that will take effect on April 5, 2014. A number of the other changes to the FTR might affect a particular exporter or freight forwarder depending on the nature of their export activities. Exporters and freight forwarders are encouraged to examine the FTR amendments to determine whether and the extent to which they will require changes to their EEI filings processes and procedures going forward, including providing their EEI filing agents with new data elements in their Shipper's Letters of Instructions.  

Compliance with the FTR is particularly important given the increased scrutiny EEI filings now receive from CBP and other agencies, the potential civil penalties that can be imposed for inaccurate EEI filings (up to $10,000 maximum per violation), and the more aggressive enforcement posture of such agencies, particularly U.S. Customs and Border Protection. 



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