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Defense Export Offsets Agreement Reporting Expanded Under BIS Rule

Tuesday, March 01, 2016
Sandler, Travis & Rosenberg Trade Report

The Bureau of Industry and Security has issued a final rule that, effective March 31, will require the reporting of offsets agreements in connection with sales of items controlled in 600 series Export Control Classification Numbers, except for certain submersible and semi-submersible cargo transport vessels and related items that are not on the control lists of any of the multilateral export control regimes of which the U.S. is a member.

An offset is compensation required by the purchaser as a condition of the purchase in government-to-government or commercial sales of defense articles or services. This compensation can take a variety of forms, including co-production, technology transfer, subcontracting, credit assistance, training, licensed production, investment and purchases. An agreement to provide offsets with a value exceeding $5 million, and the performance of an existing offset commitment for which offset credit of $250,000 or more has been claimed, must be reported to BIS.

Since the early 1990s BIS has required the reporting of offsets agreements in connection with sales of items controlled on the U.S. Munitions List. However, under the Export Control Reform Initiative some items on the USML have been moved to 600 series ECCNs on the Commerce Control List, as have some items that were subject to the Export Administration Regulations (and thus had not been subject to the offsets reporting requirements).

This rule will require the reporting of offsets agreements in connection with sales of all items controlled in 600 series ECCNs (with the exception noted above), regardless of which of these two methods were used to place them there. BIS has said it is taking this action because such items are of a military nature and collecting information regarding offsets requirements in connection with the sale of such items is necessary to make a report to Congress mandated by the Defense Production Act complete.

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