Last week was quite remarkable for U.S. export controls. On one day, April 28, the Bureau of Industry and Security (“BIS”) published three significant new regulations – two final and one proposed rule. Exporters should pay heed, because each of these rules creates new restrictions requiring further due diligence, risk management, and more scrutiny by the U.S. government.
The first of these actions is the Elimination of License Exception Civil End Users (CIV), effective June 29, 2020. License Exception CIV authorizes the export of certain items controlled for national security reasons to country group D-1 countries without a BIS export license to civil end users for civil end uses, provided that certain conditions are met. Soon, Licence Exception CIV will be no more. Some exporters will surely miss it, because group D-1 includes major technology destinations, including China and Russia. However, BIS explains that it is taking this action due to its concerns that certain D-1 countries (read China and Russia) divert U.S. items or integrate civil and military technology development to obscure transfers of U.S. items to military end users and military end uses. Now, exporters and re-exporters of items subject to the EAR national security controls will need to seek BIS licenses, and in the process of doing so, be able to assure BIS that their items would not be diverted to military end uses or end users. Some exporters and re-exporters will find that this is hard to do.
Another action is a proposed modification of License Exception Additional Permissive Reexports (APR). Through this action, BIS plans to remove the authorization for re-export of items controlled for national security reasons from A-1 group countries and Hong Kong to D-1 group countries. The stated reason is that BIS has found that there is a difference in license review standard between it and certain A-1 countries and Hong Kong, so that such countries may approve a license for an export to a D-1 country where BIS would not have approved. Here, again, one can glance BIS’ concern over national security items being diverted to China and Russia. It is likely that in the future re-exporters in other countries will be required to seek a BIS license in addition to their country’s export authorization to export U.S. items to China, Russia, or other D-1 countries, and will be in breach of U.S. law if they fail to do so. In such a case they would be liable to be listed in the U.S. Entity List and themselves become a restricted party.
Finally, probably the most telling of the actions taken by BIS last week is the expansion of export controls on military end use and military end users in China, Russia, and Venezuela. The controls on military end uses and military end users in China, Russia, and Venezuela, already exist in section 744.21 of the Export Administration Regulations (“EAR”). In this Final Rule, BIS has taken the following actions to expand these controls:
- Expand licensing requirements for China to include “military end users” in addition to “military end uses.”
- Expand the definition of “military end use” to include not only “use,” “development,” “production” or incorporation into military items, but also supporting or contributing to the operation, installation, maintenance, repair, overhaul, refurbishing, ‘‘development,’’ or ‘‘production,’’ of military items. Now, an export that contributes to any of these functions, for example, to maintenance of military items, will be subject to licensing requirements.
- Substantially expand the list of items in Supplement No. 2 to Part 744 of the EAR, which are subject to the “military end use” and “military end user” restrictions on China, Russia and Venezuela. Specifically, this rule adds the following Export Control Classification Numbers (ECCNs) in the categories of materials processing, electronics, telecommunications, information security, sensors and lasers, and propulsion to the supplement: 2A290, 2A291, 2B999, 2D290, 3A991, 3A992, 3A999, 3B991, 3B992, 3C992, 3D991,5B991, 5A992, 5D992, 6A991, 6A996, and 9B990.
- Unsurprisingly, adopt the license review policy of presumption of denial for export and reexport of items for military end use or military end users in China, Russia, and Venezuela.
- Expand the Electronic Export Information (“EEI”) filing requirements for exports to China, Russia, and Venezuela to remove the exemption from filing for shipments valued under $2,500 and require the reporting of the correct ECCN.
All of these changes together amount to a tightening of controls on export and re-exports to China, Russia, and Venezuela that goes far beyond technical changes. This is a case of export control regulations catching up with the national security and foreign policy of the United States to treat China and Russia as strategic adversaries, and Venezuela as an illegitimate dictatorship. Those who provide a wide range of goods and technologies that are subject to U.S. jurisdiction to these countries – including both U.S. and non-U.S. persons, companies, and research institutions – are the tip of the spear of enforcement of U.S. policy. They should pay attention and conduct thorough due diligence to ensure their compliance, lest they find themselves the target of the wrath of the U.S. government.