Changes to Export License Exceptions Demand Caution by Industry

Subtle changes to the export license exceptions that are frequently used by the aviation industry could harm your business if you do not ensure continued compliance with the standards as they are evolving.

Many parties in the aviation industry have noticed and used the license exception for servicing and replacement of parts and equipment.  This exception is known as the “RPL” exception, because that is the code used in the electronic export information filing to indicate use of the exception.  This exception generally applies to articles that would require an export license, and it permits those articles to be exported without a license when they have been brought into the US for servicing and are then exported to their original owners (the transaction must also meet certain other criteria).  It is therefore highly useful to U.S. repair stations that are servicing parts for non-U.S. customers, and also to U.S. distributors that manage repairs for non-US customers.

The old scope clause read like this:

(1) Scope. The provisions of this paragraph (b) authorize the export and reexport of items that were returned to the United States for servicing and the replacement of defective or unacceptable U.S.-origin commodities and software.  15 CFR 740.10(b)(1) (2013).

The new scope clause reads like this:

(1) The provisions of this paragraph (b) authorize the export and reexport to any destination, except for 9×515 or “600 series” items to destinations identified in Country Group D:5 (see Supplement No. 1 to this part) or otherwise prohibited under the EAR, of commodities and software that were sent to the United States or to a foreign party for servicing and replacement of commodities and software “subject to the EAR” (see Sec.  734.2(a) of the EAR) that are defective or that an end user or ultimate consignee has found unacceptable.  Corrections and Clarifications to the Export Administration  Regulations; Correction, 79 Fed. Reg. 48660-48661 (August 18, 2014); 15 CFR 740.10(b)(1) (effective August 18, 2014).

This new text confirms certain limitations on the use of the RPL exception.  It may not be used for article bearing ECCN 9×515 or any “600 series” ECCN if the article is destined for Group D:5 country.

The new text also adds the detail that if the article is not defective, then the end-user or ultimate consignee must have found the article to be unacceptable.  Articles that are not defective may be overhauled or tested to confirm their airworthiness – this may be accomplished by a non-U.S. distributor.  The term “ultimate consignee” is defined in 15 C.F.R. 748.5(e):

(e) Ultimate consignee. The principal party in interest located abroad who receives the exported or reexported items. The ultimate consignee is not a forwarding agent or other intermediary, but may be the end-user.

When the non-U.S. distributor is the party that determined the need for servicing of a non-defective article, the non-US distributor must remain the ultimate consignee in the transaction.  When might the non-U.S. distributor become something other than the ultimate consignee?  When the unit is sold to a third party and the US person holding the serviced unit is directed to drop ship it to the third party buyer.   In any other unlicensed transaction, this should be fine (assuming no other laws are implicated by the transaction), but in an RPL transaction, this can cause a problem if the conditions of RPL are no longer met by the transaction model.  To clarify, if a non-defective unit is sent to the US for servicing (like calibration, or confirmation of airworthiness), then the person who found it unacceptable (the one who found it in need of servicing) must remain either the end user or the ultimate consignee.  If that person was a non-U.S. distributor, then the non-U.S. distributor must remain as the ultimate consignee to continue to meet the requirements of RPL.

Remember, RPL is an exception – you always have the option of obtaining a license for the export.  And luckily, most civil aviation articles exported from the U.S. do not require export licenses from BIS.

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Exporting During the Shutdown

The Federal Government continues to be shut down while our elected officials debate how to tackle our nation’s debt.  This has the potential to adversely affect exports, so it is important to have strategies for ensuring you can export in the absence of new licenses.

As a result of the shutdown, the Department of Commerce Bureau of Industry and Security (BIS) is no longer accepting export license applications.  All pending export license applications are being held without action by BIS until the shutdown ends.  This can have a significant effect on some distributors who need export licenses in order to support their customer base.

If you are an applicant who needs a license for national security reasons, then you can request emergency processing of your export license application by submitting an email request to Deputy Assistant Secretary for Export Administration Matthew Borman at Matthew.Borman@bis.doc.gov; however most civil aviation export licenses are not related to national security.

So what can you do to support a non-US customer need for parts that does NOT have national security implications, but that would ordinarily require a license?

The best way to approach the transaction is to think about how to structure it to make use of a license exception.  There are a number of license exceptions that can apply to common aircraft parts transactions, including the Replacement Parts/Servicing and Replacement Exception [RPL] (15 C.F.R. 740.10) and the Aircraft and Vessel Exception [AVS] (15 C.F.R. 740.15).  We’ve covered the use of these exceptions in ASA Workshops and during the ASA Annual Conference, but if you’ve missed the presentations, then we ordinarily advise potential exception-users to read the regulatory language carefully before using the exceptions.  Make sure that you can meet each and every requirement for the use of the exceptions.

For example, use of the AVS exception is often limited based on details related to the aircraft on which the part is expected to be installed. If the aircraft on which the part is to be installed is identified, then you should collect the following information:

  • The country in which the aircraft is located, and
  • The country in which the aircraft is registered, or will be registered in the case of an aircraft being manufactured, and
  • The country of citizenship of whoever currently owns, controls, leases, and/or charters the aircraft (more the one country may be implicated by this analysis).

These data will serve as an important foundation for the analysis implied by the requirements for the AVS exception.

If no exception would apply to your transaction, then another option might be to find someone with an existing license that will permit the export of your article, and include that party in your transaction as the exporter of record.  While you cannot use a third party exporter for purposes that circumvent the law (for example, a Denied Party cannot use a third party to circumvent their Denied Party status), it is permissible to sell the parts to an intermediary and have the intermediary export to your customer under the intermediary’s existing (applicable) license, as long as it is not for the purpose of circumventing legal prohibitions that would have prohibited you from getting a license.  The danger of this advice is that an intermediary who is also a copmetitor may use this as an opportunity to steal customers, so be careful to only deal with an intermediary whose business ethics are trustworthy.

Once you are in a position to be able export, you may run into some problems in assembling the data that you need to complete the electronic export information requirements on AESDIrect.  For example, the the Schedule B search engine on http://www.census.gov is not available. During this time you may use the following alternate address to identify schedule B numbers: https://uscensus.prod.3ceonline.com/.

As always, the Washington Aviation Group continues to provide export advice.  So if you need to get really creative, please give the Washington Aviation Group a call and let them work with you to find a solution.

Another issue that is facing the industry is the new release of the 600-series ECCNs that becomes effective tomorrow (to facilitate the movement of certain articles from the US Munitions List (USML) to the Commerce Control Lists (CCLs).  We will talk about that in tomorrow’s blog post.

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