On March 1, 2016, the Bureau of Industry and Security (BIS) of the US Department of Commerce published a final rule that adopted, without change, its December 2, 2015 proposed rule expanding the requirements to report offsets in defense sales agreements.
Effective March 31, 2016, companies must report certain offsets in the sale of items controlled in “600 series” Export Control Classification Numbers (ECCNs) on the Commerce Control List (CCL), except for certain submersible and semi-submersible cargo transport vessels and related equipment, software, and technology controlled in ECCN 8A620.b, 8B620.b, 8D620.b, and 8E620.b.
Pursuant to the Defense Production Act of 1950, BIS requires US firms to annually report certain offset agreements related to defense sales, both in licensed commercial transactions and the Foreign Military Sales (FMS) program. See 15 C.F.R. Part 701. Offset agreements often are required by foreign governments as a condition of the purchase of defense articles and can take many different forms, such as arrangements for co-production, technology transfer, subcontracting, credit assistance, training, licensed production, investment, and purchases.
The Defense Production Act requires BIS to summarize the effect of offsets on “the full range of domestic defense productive capability.” See 50 U.S.C. § 2172(b)(1)(A). After the implementation of Export Control Reform (ECR), many defense articles were moved from the US Munitions List (USML) to the “600 Series” of the CCL. Because the government has completed ECR on many categories in the USML and CCL, many former defense articles are subject to the EAR.
As we noted in our prior post, this is not a significant change to the scope of the Offset Reporting Regulations, but the rule may subject some companies to new reporting requirements, especially if their items were moved from other ECCNs into the “600 Series” during ECR. Please see our prior posts and advisories for a lengthier discussion of offsets, ECR, and the “600 series.”