[Federal Register Volume 81, Number 159 (Wednesday, August 17, 2016)]
[Rules and Regulations]
[Pages 54721-54732]
[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

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: http://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<PHONE_NUMBER> or email:
<EMAIL_ADDRESS>
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

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.

    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

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.

    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

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

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

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

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

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: http://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<EMAIL_ADDRESS>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

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


[Federal Register: December 11, 2008 (Volume 73, Number 239)]
[Notices]
[Page 75485-75486]
[DOCID:fr11de08-104]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59052; File No. SR-CBOE-2008-119]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend CBOE Rules Relating to Appointment Costs

December 4, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 25, 2008, the Chicago Board Options Exchange,
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities
and Exchange Commission (the ``Commission'') the proposed rule change
as described in Items I and II below, which Items have been prepared by
the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend CBOE rules relating to appointment
costs in connection with CBOE's decision to trade OEX on the Hybrid
Trading System. The text of the proposed rule change is available on
the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's
Office of the Secretary and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in Sections A, B, and C below, of the most
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this rule change is to amend CBOE Rule 8.3 relating
to the appointment costs for the OEX and XEO option classes, in
connection with CBOE's decision to trade OEX on the Hybrid Trading
System, and not on the Hybrid 3.0 Platform. Specifically, CBOE proposes
to lower the appointment cost of OEX from .75 to .40, and lower the
appointment cost of XEO from .25 to .10. The changes to the appointment
costs would be effective December 9, 2008, which coincides with the
date CBOE intends to trade OEX on the Hybrid Trading System. OEX would
be placed in the AA Tier, which tier holds all option classes which
have a fixed appointment cost. The tables in paragraphs (c)(i) and
(c)(iii) of Rule 8.3 would be amended to reflect these proposed
changes.
    CBOE believes that amending the appointment costs of OEX and XEO as
proposed promotes competition and efficiency, as members then could
utilize the excess membership capacity to hold an appointment and quote
electronically in additional Hybrid option classes.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to a
national securities exchange and, in particular, the requirements of
Section 6(b) of the Act. Specifically, the Exchange believes the
proposed rule change is consistent with Section 6(b)(5) of the Act's
\5\ requirements that the rules of an exchange be designed to promote
just and equitable principles of trade, in that lowering the
appointment cost of OEX and XEO promotes competition and efficiency, as
members then could utilize the excess membership capacity to hold an
appointment and quote electronically in additional Hybrid option
classes.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the
proposal.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \6\ and Rule 19b-
4(f)(6) thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4(f)(6). The Commission notes that CBOE has
satisfied the five-day pre-filing notice requirement.
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    CBOE has asked the Commission to waive the 30-day operative delay.
The Commission hereby grants the Exchange's request and believes that
such waiver is consistent with the protection of investors and the
public interest. Allowing CBOE to lower the appointment cost of OEX and
XEO does not raise any novel or significant regulatory issues and
should promote competition and efficiency by allowing

members to use their excess membership capacity to hold an appointment
and quote electronically in additional Hybrid option classes.
Therefore, the Commission designates the proposed rule change as
operative upon filing.\8\
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    \8\ For purposes only of waiving the operative date of this
proposal, the Commission has considered the rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number SR-CBOE-2008-119 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CBOE-2008-119. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of CBOE. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2008-119 and should be
submitted on or before January 2, 2009.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-29252 Filed 12-10-08; 8:45 am]

BILLING CODE 8011-01-P