Export Control Agencies Issue Guidance to Address FMS, EAR Uncertainty

The U.S. issued guidance last week to address industry uncertainty and a rising number of questions about export licensing jurisdiction for goods sent under its Foreign Military Sales Program. The guidance -- which includes frequently asked questions developed by Homeland Security, CBP and the Commerce, State and Defense departments -- was issued because the agencies “continue to receive questions” about exports that were moved from the U.S. Munitions List to the Commerce Control List but are exported under FMS authority. They said exporters are “having difficulty” understanding how Commerce’s Export Administration Regulations, the State Department’s International Traffic in Arms Regulations and the FMS Program “relate to each other” for goods that have recently transitioned from the ITAR to the EAR.

The agencies said they have specifically seen an increase in application questions about the FMS Program due to transfers of some export controls from State to Commerce. Most of the questions have involved exports of 600 Series military items that were transferred from the USML to the Bureau of Industry and Security’s EAR. “Application questions about the FMS Program increased because the number of FMS exports of items that would otherwise have been subject to the EAR increased significantly,” said the guidance, which BIS updated May 12.

A BIS official said last year the agency was working on modifying the Automated Export System to streamline the process for exporters selling arms under the FMS Program 2009170040). Although the agency estimated the changes would be made by early 2021, the government is "still evaluating" whether to follow through on those changes, a BIS spokesperson said May 14. "The purpose of the modification is to make it easier for industry to file [Electronic Export Information] in AES for FMS shipments of items that would otherwise be subject to the EAR if not being exported under an FMS authorization," the spokesperson said, "as well as for the U.S. Government to more easily identify this subset of FMS shipments." The agency said it "does not have an updated estimate" for when those changes will be made.

In its guidance, the agencies stressed that items exported under the FMS Program aren’t subject to the EAR because they are “defense articles” under the Arms Export Control Act. The State Department will license those items, the guidance said, and has determined that it “has the authority to authorize items” that are normally subject to the EAR but “will be exported under FMS authority if the item will be used in or with a USML defense article.”

BIS won’t issue licenses for those exports, the agencies said. If BIS receives a license application for those items, it will issue a Returned Without Action (RWA) notification. “[N]o license or other approval under the ITAR or EAR is required for the export of defense articles that would otherwise be ‘subject to the EAR,’ but are not because they are exported under the FMS authority,” the guidance said. “The terms and conditions of the LOA [Letter of Offer and Acceptance] govern the export, reexport, or other transfer of the items shipped under the FMS case and thus serve as the U.S. Government authorization.”

The guidance also stressed that exporters aren’t required to first obtain a RWA notification from either BIS or the State Department’s Directorate of Defense Trade Controls when seeking a license. “Exporters are encouraged not to apply for licenses or other authorizations when they know a license is not required from BIS and DDTC,” the guidance said. “An export is either being made under FMS authority, or it is not.”

If an exporter isn’t sure whether an item is authorized under the FMS Program and an LOA, the exporter should “note the possible eligibility of the FMS authorization” in their application to BIS. The agency said it will review the application “as any other similar license application,” and if it’s approved, BIS will likely include a statement “putting the exporter on notice” that the license is “not applicable if the items are exported under FMS authority pursuant to an LOA.” But BIS stressed that exporters should first contact “the Implementing Agency/Line Manager that has implemented the contract with the exporter” if the exporter is unsure whether the item falls under the FMS Program.

The guidance also addresses language in the EAR that says some exports subject to the EAR under an FMS case require “separate authorization” from BIS. The agency said that sentence may apply to items subject to the EAR that are “related” to items sold or leased under AECA programs “but are not themselves exported under the FMS or similar authorities.” As an example, BIS pointed to exports of replacement components that are part of a direct commercial sale for use in a military aircraft that was originally exported under FMS authority. Those items would require “separate EAR authorization” if the replacement parts are controlled under the EAR but “not provided through FMS authorities,” BIS said. But the agency said it “cannot advise exporters on whether initial or follow-on exports are within the scope of an LOA.”

BIS also stressed that EAR license exceptions can’t be used for exports under FMS authority and can be used only if the item requires EAR authorization. But the agency said License Exception GOV (Governments, international organizations, international inspections under the Chemical Weapons Convention, and the International Space Station) has “broad applicability to other types of cooperative programs.”

The guidance also includes a statement exporters can use if they want to facilitate “export clearance” with CBP for an item under the FMS Program: “Not subject to the EAR (NOEAR) pursuant to section 734.3(b)(1)(vi).” BIS said exporters can include that statement in export control documents that accompany the export.