The U.S. Bureau of Industry and Security (BIS) has published its Final Rule on the much anticipated license exception Strategic Trade Authorization (STA) [76 Federal Register 35276 (June 2011)]. This new license exception, §740.20 of the Export Administration Regulations, is the next significant step in the Obama Administration's Export Reform Initiative announced in 2009. STA is intended to facilitate exports between the United States and its close partners and allies by easing the license burden on exports of numerous items. Eligible items are those not considered to be among a core set of items that, if misused or diverted, could pose a national security threat to the United States. BIS anticipates that license exception STA could potentially eliminate up to 3,000 of the approximate 22,000 licenses BIS issued last year.
License exception STA is available for export, re-export or transfer (in country) of eligible items to a number of countries considered to be "low-risk" for unauthorized use or diversion. However, STA comes with a significant administrative burden on exporters seeking to use it. Its use requires certain notifications and statements to be exchanged by the parties to the transaction as well as related recordkeeping requirements. In effect, STA creates a "license free" zone, at least for the initial transaction, and the various safeguards are meant to protect against diversion outside of the zone.
STA Authorizations and Conditions
There are two separate authorizations included under license exception STA. The first is for items controlled for reasons of national security (NS), chemical or biological weapons (CB), nuclear nonproliferation (NP), regional stability (RS), crime control (CC) or significant items (SI) that are eligible for export, re-export or in-country transfer to 36 countries that are close U.S. allies.1 The second is for "less sensitive" items, controlled for NS reasons only that are eligible for export to the following additional countries: Albania, Hong Kong, India, Israel, Malta, Singapore, South Africa and Taiwan. All other countries (including China and Russia) are not eligible destinations under license exception STA.
There are a number of conditions that must be met before STA may be used, as follows:
- Provide ECCN to Consignee. The exporter, re-exporter or transferor must provide the consignee with the export classification control number (ECCN) for the item. The ECCN needs to be provided only with the initial shipment, as long as it remains accurate.
- Obtain Consignee Statement. Prior to shipment, the exporter, re-exporter or transferor must obtain from the consignee a written statement that describes the items to be shipped and the applicable ECCNs. The statement must also include an acknowledgment by the consignee that the items are being shipped under license exception STA and that the consignee has received the applicable ECCNs. This statement must be provided at least once prior to shipment of an item but not with every shipment as long as the party names, items and ECCNs remain correct. The form of the statement is included in the Final Rule.
- Consignee Notification Upon Shipment. Notice must be provided by the exporter, re-exporter or transferor to the consignee in writing that a shipment is being made pursuant to license exception STA. This notice may be provided by paper or electronic methods (e.g., fax or email).
- Recordkeeping. The exporter, re-exporter or transferor must keep a log of all shipments for which it uses license exception STA and identify the associated consignee statement in its export control records.
License exception STA may also be used for "deemed" exports to foreign nationals of the eligible countries. A release of source code or technology requires (instead of the conditions listed above) a one-time written notification to the applicable foreign national prior to release. The notice may be a stand-alone notice or incorporated into another document (e.g., an employment contract or nondisclosure agreement).
Restrictions on Use of STA
In addition to the conditions for use, there are a number of restrictions on license exception STA that exporters must be aware of and should review carefully prior to relying on STA. STA may not be used for the following:
- Where the license requirement is imposed based on a specific end-use or end-user (Part 744) or because of an embargo or other special controls (Part 746).
- Items controlled for reasons of encryption (EI), short supply (SS), surreptitious listening (SL), missile technology (MT) and Chemical Weapons Convention (CW).
- Items that are subject to the exclusive jurisdiction of an agency other than the Department of Commerce (e.g., Department of State, Department of Energy, etc.).
- Certain Crime Control equipment (e.g., law enforcement restraint devices, implements of torture), pathogens and toxins, and gas turbine engine software and technology.
Not all ECCNs are eligible for license exception STA. The availability of license exception STA will also depend on the applicable "reasons for control" and destination of the export. Use of license exception STA is optional, and other license exceptions may be available for a particular transaction. However, items that are shipped under license exception STA are not eligible for subsequent re-export under license exception APR (Additional Permissive Re-Exports).
The new license exception STA will be of most value to exporters who routinely ship items controlled on the Commerce Control List that require a license to Europe or the other eligible STA destinations. Although it will eliminate the need for an export license for shipments to which it applies, STA shifts much of the administrative burden for compliance onto the exporter. Exporters, re-exporters and transferors should weigh the burden of compliance with STA's requirements against those of filing a license application (or using another license exception, if available) to determine if using STA makes sense for their particular transaction(s).
1 Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey and the United Kingdom.
© 2011 Perkins Coie LLP