BIS Proposes Name Change and Clarifications in Routed Export Transactions
February 25, 2014

On Thursday, February 6, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) published a proposed rule aimed at clarifying export control responsibilities in so-called “routed export transactions.” (Federal Register Volume 79, No. 25). These are transactions in which a foreign principal party in interest (FPPI) is responsible for transporting items subject to the Export Administration Regulations (EAR) out of the U.S.

In such transactions, the U.S. principal party in interest (USPPI) often retains responsibility for determining and complying with EAR licensing requirements, even though the FPPI is effectuating the export. Under the EAR, however, a USPPI can shift that responsibility, along with the corresponding authority to apply for export licensing, to a willing FPPI. The FPPI must assume the responsibility in writing. The FPPI must also delegate its assumed responsibility and authority to a U.S. agent, who will then act as the exporter in the transaction for export control purposes. The USPPI remains responsible for providing certain export control-related information to the FPPI, but is otherwise generally relieved of further compliance duty.

Summarized this way, a “routed export transaction” and the related responsibility shifting probably sound fairly straightforward. The problem is that the Census Bureau’s Federal Trade Regulations (FTR) also use the term “routed transaction,” and define it differently than the EAR. The FTR’s definition shares the EAR version’s requirement that the FPPI’s U.S. agent obtain authorization to facilitate the export, but adds that the U.S. agent must also be authorized to make the required Automated Export System entry. The FTR definition makes no mention of the USPPI. This seemingly minor definitional distinction has caused no shortage of headaches in the trade community.

To remedy this, BIS proposes to do away with the phrase “routed export transaction” in the EAR and replace it with “Foreign Principal Party Controlled Export Transaction.” This switch will simultaneously (1) eliminate the confusion caused by two sets of closely-related regulations defining the same phrase differently (or so BIS hopes), and (2) apply a more precise term of art to the narrow subset of “routed export transactions” that BIS really cares about – namely, those in which USPPIs delegate export control responsibilities to FPPIs and their U.S. agents.

If the proposed rule becomes effective, the rights and responsibilities in such transactions under the EAR would remain largely the same. As is the case now, both the USPPI and the FPPI would have to agree in writing to the FPPI’s assumption of export control compliance responsibility. That writing would also have to name the FPPIs U.S. agent, who, upon obtaining a power of attorney from the FPPI, would have the authority to apply for export licensing and become the official licensee. Upon license issuance, however, both it and the FPPI would be responsible for ensuring license compliance. Both would also continue to have information sharing obligations to one another.

Take care to note that nothing in this proposed rule would alter a USPPI’s obligations under the FTR. The rule does, however, promise to bring a measure of clarity to a knotty issue that many trade compliance professionals have spent far too many hours trying to untangle. BIS welcomes comments on the proposed rule, and will accept them until April 7, 2014.