In fulfilling one of President Obama’s early promises regarding Export Control Reform (ECR), the Bureau of Industry and Security (BIS) published, on June 16th 2011, its newest export license exception: License Exception Strategic Trade Authorization or STA (15 CFR § 740.12). Federal Register Notice 76 Fed. Reg. 35276. The rule is effective immediately.

License Exception STA authorizes the export, reexport and transfer (in-country) of specified items on the Commerce Control List (CCL) to destinations posing a low risk of unauthorized or impermissible uses.

To safeguard against reexports to destinations that are not authorized under License Exception STA, certain notification and consignee statements are required to be obtained and kept by the exporter and foreign consignee.

License Exception STA comes into play for exports, reexport, and transfers for which a license is otherwise required under the EAR and for which no other license exception applies. Exporters may use any other license exception (such as license exception GOV) that would authorize the planned transaction or apply for a license if they prefer to do so and avoid the notification and consignee statement requirements.

License Exemption STA Country List

License Exemption STA has a two-tiered country list (referred to as STA1 and STA2). 

There are 36 countries included in the § 740.20(c)(1) group one (STA1), which authorizes exports, reexports and in-country transfers of product and technologies that are controlled for multiple reasons. STA1 destinations are:

Eight destinations are included in § 740.20(c)(2) group two (STA2), which authorizes export, reexports and in-country transfers that are subject only to national security controls. STA2 destinations are:

The final rule removes the civil end-use requirement that the proposed rule applied to destinations listed in STA2.

Eligible Products

Items that are eligible for export to STA1 destinations or nationals thereof include items that are subject to control for: national security (NS); chemical or biological weapons (CB); nuclear nonproliferation (NP); regional stability (RS); crime control (CC), and/ or significant items (SI). 

License Exception STA will authorize a shipment to a STA2 destination that is controlled for NS reasons, unless the following statement is provided in license exception section of the ECCN:

STA: License Exception STA may not be used to ship any item in this entry to any of the eight destinations listed in § 740.20(c)(2).

There are 49 ECCNs that are currently subject to limitation for exportation to STA2 destinations. 

A key change in the final rule is the removal of EI eligibility. Items controlled for encryption (EI) reasons are ineligible for License Exception STA because of a determination that License Exception STA is not the appropriate approach to addressing the government interests in encryption export controls. Accordingly, BIS will address encryption-related aspects of the Export Control Reform Initiative separately. Other items excluded from License Exception STA include:

• Removal of certain pathogens and toxins from general eligibility;
• Removal of certain gas turbine engine related software and technology from general eligibility;
• ECCNs 7E001 and 7E002 (clarification that “reasons for control” of Missile Technology (MT) apply to these ECCNs, making them ineligible); and
• Removal of additional crime control items (controlled by ECCNs 0A982, 0A985, and 0E982) from general eligibility.

Section 740.20(d): Notification and Consignee Statement Requirements

Unlike most other license exceptions, use of License Exception STA is conditioned on exporter and consignee compliance with the use of notification and consignee statements.

A. Furnishing of ECCN Information

Because the subsequent permissive reexport, transfer or sale of the item may be conditioned on the ECCN of the product or technology, Section 740.20(d) requires the exporter and reexporter or transferor furnish to subsequent consignees the ECCN number applicable to that product. The consignee is entitled to rely on the ECCN provided to it by the party when making a licensing decision, unless the consignee knows that the ECCN is incorrect or has changed.

Once furnished to a particular consignee, the information need not be refurnished if the same reexporter or transferor makes an additional shipment of the same item to that consignee. 

B. Prior Consignee Statement

The exporter, reexporter and transferor must obtain a statement in writing from its consignee prior to shipping the item, and the statement must be retained in accordance with the EAR recordkeeping requirements of part 762. 

The statement is required to identify the STA items in question and acknowledge that the consignee:

• Is aware that items will be shipped pursuant to License Exception STA;
• Has been informed of the description of the items and their ECCN(s) by the exporter, reexporter or transferor;
• Understands that shipment pursuant to License Exception STA precludes subsequent use of paragraphs (a) or (b) of License Exception APR for the items;
• Agrees not to export, reexport or transfer these items to any destination, end-use or end-user prohibited by the EAR; and
• Agrees to produce copies of this document and all other export, reexport or transfer records (i.e., the documents described in part 762 of the EAR).

One statement may be used for multiple shipments of the same item between the same parties so long as the party names, item(s) and the ECCNs are correct. The exporter, reexporter and transferor must maintain a log or other record that identifies each shipment made pursuant to this section and the specific consignee statement that is associated with each shipment.

C. Notification to Consignee of STA Shipment

Subsequently, with each shipment under License Exception STA, the exporter (or reexporter or transferor), must notify the consignee in writing that the shipment is made pursuant to License Exception STA. The notice must clearly identify the shipment to which it applies. The written notice may be conveyed by paper documents or by electronic methods such as facsimile or email.

D. Special Requirements for Releases of Software Source Code or Technology Within a Single Country

Instead of the requirement of the ECCN, Prior Consignee, and Consignee Notification requirements of paragraphs (d)(1) through (d)(3), a party releasing software source code or technology to a national of a country listed in paragraph (c)(1) or (c)(2) must notify the recipient of the software source code or technology of the restrictions upon further release of the software source code or technology.

The notification must either expressly inform the recipient that the EAR imposes limits on further disclosure or must be in the form of an agreement in which the recipient agrees to limits on further disclosure. These limits must be equivalent to or more restrictive than all limits on further disclosure that are imposed by the EAR and retained by the parties.

Final Comments

There are a number of questions that remain about the utility of License Exception STA, particularly in light of the notification and consignee statement requirements that reach down into subsequent sale and retransfer transactions. 

Compliance with the substantial documentary and record-keeping requirements of License Exception STA will also require much greater attention on the part of exporters and their foreign consignees. However, to the extent that it does alleviate the need for exporters and trading partners to obtain export licenses or retransfer authorizations, the effort is welcome. While the restrictions on the resale and retransfer of the items is not new, the requirement of the written consignee certifications will likely cause some foreign customers to think twice about accepting these conditions in such a conspicuous manner.

To see a copy of the regulation published in the Federal Register notice, go to http://www.gpo.gov/fdsys/pkg/FR-2011-06-16/pdf/2011-14705.pdf.

For more information or questions on the use of License Exception STA, contact George Tuttle, III of George R Tuttle Law Offices (george.tuttle.iii@tuttlelaw.com). 

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright © 2011 by Tuttle Law Offices. 

All rights reserved.  Information has been obtained from sources believed to be reliable.  However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.