Routed Exports and Licenses

Eric Younger of Adaptive Technologies asks the Geek:

I have a question regarding an ITAR controlled export to Italy. I have just received my export license from the DDTC and will be ready to ship in approximately two weeks give or take. This is my first export experience and not exactly sure which route to take here.

My concern is; I am the manufacturer of rifle stocks and now the exporter, our customer has a long history of importing to the USA their firearms, so I know there is nothing suspicious/malicious going on when they say that they will handle the freight forwarding on their end through their Italian F.F. Now then what would be my best course of action as far as relaying to them the need for me to follow ITAR compliance and to make sure that they follow procedure? They have had a hard time understanding why the licensing process has taken so long and I have required more paperwork and information from them than any other manufacturer that they have dealt with in the past. Am I correct in my interpretation that I am required to use a freight forwarder in the U.S. that is ITAR compliant and that the customer cannot just pick someone on this end randomly to come to our facility, pick up the shipment and deliver it to the port of export from the U.S.? If this is a normal procedure then do I simply send the export license file with the other paper work to the freight forwarder in Italy?

Good question, and good reason to be concerned.

Sometimes a buyer outside of the U.S. wishes to use their own freight forwarder. There’s a reason for this. The buyer usually ends up paying for the freight charges, either directly with FCA, FAS, or FOB Incoterms, or by the seller paying through CTP, CIP, CFR, or CIF Incoterms with the seller adding those costs onto the commercial invoice. Either way, the seller is less motivated to get a good price on the freight, so the buyer wishes to take control by using their own freight forwarder. Often, the Incoterms will be EXW, but they don’t have to be.

This is what is known as a Routed Export Transaction. I prefer to call it a consignee routed export, as opposed to a shipper routed export. It’s confusing to a lot of people, and it doesn’t help that the various US Government agencies involved in export controls are not in full agreement.

It’s important for the US seller to think about their responsibilities and what they may or may not be able to control in a Routed Export.

The Foreign Trade Regulations of the US Census Bureau say in 15 CFR 30.3(e)(1) that, in a Routed Export, the US Principal Party in Interest (USPPI), that’s the US Seller, is responsible for, among other things:

• His name, address, and EIN (Federal Tax ID)
• The commercial description of the commodities
• The Schedule B, or HTSUS number
• The Export Control Classification Number (ECCN) or sufficient information to determine
• All licensing information necessary to file the EEI for commodities where the Dept. of State, Dept. of Commerce, or other agency issues a license, or the merchandise is being exported under a license exemption or license exception
• Any information that it knows will affect the determination of license authorization

And 15 CFR 30.3(e)(2) says that the US agent for the foreign seller (the freight forwarder) is responsible for, among other things:

• The ultimate consignee
• The intermediate consignee, if applicable
• The country of ultimate destination

So, in a Routed Export, those last three are controlled by the freight forwarder, and the freight forwarder is working for the consignee, the buyer.

The Export Administration Regulations (EAR) of the Bureau of Industry and Security (BIS) say in 15 CFR 758.3(b) that, in a Routed Export, the USPPI must obtain a writing from the Foreign Principal Party in Interest (FPPI) wherein the FPPI assumes responsibility for determining the licensing requirements and obtaining the license authority, making the US agent (the freight forwarder) for the FPPI the exporter for EAR purposes.

I have repeatedly had discussions on this with Census and BIS, and the general feeling is that, if the writing above does not exist, then the shipment is not a Routed Export, which would imply that the US seller is fully liable for licensing, even though the freight forwarder is working for the seller. Sounds risky. If that writing does exist, where the FPPI assumes responsibility, the US agent for the FPPI is liable. Presumably that would be the freight forwarder, although I’ve never been able to get BIS to actually say that. What they do say is that everyone that is party to the transaction will bear some responsibility.

So what does the International Traffic in Arms Regulations (ITAR) of the Directorate of Defense Trade Controls (DDTC) say about Routed Exports?

Nothing.

Nowhere in the ITAR does the term Routed Export exist. Apparently, the seller is responsible all the time, regardless of who the freight forwarder is working for.

My advice to US sellers?

• Only accept Routed Exports if your goods do not require a license or license exception. Now your ECCN might not require a license where you think it is going. But when the buyer controls the freight forwarder, and can change the destination once it is beyond your control, that new destination may require a license. You have to consider into what potential countries your products might end up. Some US seller will always refuse Routed Exports, requiring all sales to be via their chosen freight forwarder.

• If you goods require a BIS license or license exception, or an ITAR license, never accept Routed Exports. Use only your chose freight forwarder so you can control where it’s going and who will receive it.

So, Eric, since your goods are ITAR controlled and require a license, I would strongly encourage you to not accept your buyer’s wish to use their freight forwarder.  You should use your preferred freight forwarder, that you control.

Also importantly, whatever freight forwarder used must be shown on the license.  If the US forwarder and the Italian forwarder are unrelated and work as contracted agents, then both should be shown on the license.

Also, I believe you were at the recent ITAR Summit in Portland. I addressed this briefly in my talk and here is a video of my talk (representing my day job at Lynden International). I discuss Routed Exports starting about the 5:24 mark, and showing the freight forwarder at the 14:48 mark.