BIS Proposes To Amend EAR To Replace "Routed Export Transaction"
with "Foreign Principal Party Controlled Export Transaction"
and Clarify Requirements When FPPI is Responsible
for Licensing

February, 10 2014

On February 5, 2014, the Department of Commerce issued a notice of proposed ruling (NPRM) to replace the term “Routed Export Transaction” in the Export Administration Regulations (EAR) with the term “Foreign Principal Party Controlled Export Transaction.” Source: http://www.gpo.gov/fdsys/pkg/FR-2014-02-06/html/2014-01176.htm; 79 FR 7105).  The purpose of this change is said to better identify when, in export transactions, the foreign principal party in interest (FPPI) is responsible for the transportation of items subject to the EAR out of the United States.  The responsibilities are similar to those found in section 30.3 of the Foreign Trade Regulations (FTR) related to the filing of export information in the automated export system (“AES”).

Under section 758.3 of the EAR, the U.S. principal party in interest (USPPI) has the responsibility under the EAR to determine license requirements and, if necessary, to apply for a license from the Bureau of Industry and Security (BIS) for the export of the good.  If certain criteria are met, however, the FPPI, acting through a U.S. agent, may assume these responsibilities.  To enhance clarity, BIS is proposing to remove the term “Routed Export Transaction” from the EAR and create a new term to better define transactions in which the Foreign Principal Party accepts the responsibility, for EAR licensing purposes, to control the export from the United States.

This proposed rule would also refine the procedures for creating a “Foreign Principal Party Controlled Export Transaction.”  According to BIS, these proposed changes are intended to facilitate enhanced public understanding of the EAR by eliminating perceived discrepancies between the EAR and the Bureau of the Census's Foreign Trade Regulations (FTR) with respect to the definition of a “routed export transaction.”

The BIS requirements will be described in three new paragraphs to current section 758.3.  These requirements will bring together the documentary requirements in the current section 758.3(b), section 758.3(d) and the information sharing requirements in the current section 758.3(c).

Proposed section 758.3(b)(1) would continue the requirement that there be a writing in order to transfer licensing responsibility, however, the propose rule treats the written authorization as an assignment of the responsibility for determining licensing requirements and obtaining license authority from the USPPI to the FPPI.  The FPPI must then provide the USPPI with an acknowledgment of its assumption of those responsibilities, and identifies the U.S. agent of the foreign principal party in interest authorized to act as the exporter for EAR purposes.

Proposed subparagraph (2) to section 758.3(b) would require that, prior to assuming responsibility from the USPPI for determining licensing requirements and obtaining license authority, the FPPI would have to designate an agent in the United States to represent the FPPI and provide a power of attorney or other written authorization to its U.S. agent to authorize the agent to act on its behalf.  While this requirement currently exists in section 30.3 of the FTR, it is often overlooked by Forwarders and other agents of the FPPI.  The U.S. agent for the FPPI would be required to have the power of attorney or other written authorization before it could represent the FPPI or apply for a license on the FPPI's behalf.

Like the obligation in section 30.3(e)(2) of the FTR, the FPPI would be required to provide the USPPI with a copy of the power of attorney or other written authorization prior to the FPPI's assuming responsibility from the USPPI for determining licensing requirements and obtaining license authority.

Proposed subparagraph (3) to section 758.3(b) would require the USPPI to provide the FPPI and its U.S. agent with the correct Export Control Classification Number (ECCN) or with sufficient technical information to determine a classification upon the request of the FPPI or its U.S. agent; and, provide the FPPI and its U.S. agent with any information that the USPPI “knows” may affect the determination of license requirements or export authorization.  The USPPI will be held to the “knowledge” standard defined in Part 772 of the EAR.  This is similar to the current obligations specified in section 30.3(e)(1) of the FTR.

Section 758.3(b)(3)(ii) would require the FPPI to authorize the USPPI to obtain from the FPPI's U.S. agent certain information related to the transaction, and direct the U.S. agent to provide such information to the USPPI, upon request.  Specifically, upon request, the FPPI's U.S. agent must provide the USPPI with the date of export, port of export, country of ultimate destination and destination port, method of transportation and specific carrier identification, and export authorization (e.g., license number, license exemption, or NLR designation).  This information sharing will enable the USPPI to confirm that the export was properly authorized.  This is similar to the obligation currently found in section 30.3(e)(2) of the FTR.

Request for Comments

BIS seeks comments on this proposed rule.  BIS will consider all comments received on or before April 7, 2014.  For further information from BIS, interested parties may contact Robert Monjay, Office of Exporter Services, Bureau of Industry and Security, by telephone (202) 482-2440 or email: Robert.Monjay@bis.doc.gov.

George R. Tuttle, III, is an attorney with the Law Offices of George R. Tuttle in San Francisco.

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