On April 28, 2020, the Commerce Department’s Bureau of Industry and Security (BIS) published two final rules and one proposed rule that aim to prevent efforts by entities in China, Russia, Venezuela, and other countries listed in Country Group D:1 of the Export Administration Regulations (EAR) from acquiring U.S. products and technology that could be used for military applications. Specifically, BIS has expanded the military end use/end user controls in Part 744 of the EAR (final rule available here), removed License Exception Civil End Users (CIV) (final rule available here), and made proposed changes to License Exception Additional Permissive Reexports (APR) (proposed rule available here). These changes—particularly those to Part 744, which imposes additional license requirements on certain ECCNs destined for “military end uses” and/or “military end users” in China, Russia, and Venezuela—are important for companies selling certain controlled items to these countries as they create additional due diligence expectations for exporters.
In the published rules, BIS noted that it is amending the EAR in response to the increasing integration of civilian and military technology development in countries of concern. With respect to China in particular, these rules are consistent with recent U.S. regulatory and enforcement actions that focus on restricting China’s access to sensitive U.S. products and technology for national security and foreign policy reasons. The concerns regarding China, which are set out in Trump administration policy documents, and the increased diligence expectations for exporters are further highlighted by BIS’s comment that the expansion of military end user controls “will require increased diligence with respect to the evaluation of end users in China, particularly in view of China’s widespread civil-military integration.”
In connection with the EAR amendments, Commerce Secretary Wilbur Ross stated: “It is important to consider the ramifications of doing business with countries that have histories of diverting goods purchased from U.S. companies for military applications. Certain entities in China, Russia, and Venezuela have sought to circumvent America’s export controls, and undermine American interests in general, and so we will remain vigilant to ensure U.S. technology does not get into the wrong hands."
The amendments include:
- New Definition of “Military End Use”. The definition of “military end use” in Part 744 of the EAR is expanded beyond any item for the use, development, or production of military items to include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, development, or production, of military items. The definition of “military end user” is not modified.
- Expands the License Requirements for Exports to China. The license requirements for China in Part 744 of the EAR are expanded to include military end users, in addition to military end use. The license requirements for Russia and Venezuela already covered exports to both military end users and military end uses.
- Broadens List of ECCNs Subject to Military End Use/End User Restrictions. The list of ECCNs subject to military end use/end user restrictions in Part 744 of the EAR is expanded to include the following ECCNs: 2A290, 2A291, 2B999, 2D290, 3A991, 3A992, 3A999, 3B991, 3B992, 3C992, 3D991, 5B991, 5A992, 5D992, 6A991, 6A996, and 9B990. Additionally, the ranges of items under ECCNs 3A992, 8A992, and 9A991 are expanded.
- AES Filings for All Exports to China, Russia, Venezuela. Electronic Export Information (EEI) filing in the Automated Export System will be required for all exports to China, Russia, and Venezuela, regardless of value, unless the shipment is eligible for License Exception GOV. This amendment eliminates the use of most EEI filing exemptions and particularly the $2,500 de minimis exemption.
- Removal of License Exception CIV. BIS is removing License Exception CIV, which authorized exports of certain national security-controlled items, without prior review by BIS provided the exception’s criteria were met, to most civil end users for civil end uses in Country Group D:1. BIS noted that it is now requiring U.S. Government review of exports previously authorized by License Exception CIV because the integration of civil and military technology development in Country Group D:1 countries makes it more difficult for industry to know or determine whether the end use and end users of items proposed for export.
- Proposed Modification of License Exception APR. BIS is proposing to amend paragraph (a) of License Exception APR to remove countries in Country Group D:1 as a category of eligible destination for reexports of national security-controlled items from a country in Country Group A:1 or Hong Kong. Currently, paragraph (a) authorizes reexports to Country Group D:1 countries if, among other things, the reexport is consistent with an export authorization from the country of reexport. BIS is proposing this modification because, based on discussions with partner governments and U.S. companies, BIS has evidence of differences in licensing review standards for national-security controlled items destined to Country Group D:1, so that countries in Country Group A:1 or Hong Kong may approve a license for the reexport of a U.S.-origin item that would have been denied if exported directly from the United States.
The two final rules go into effect on June 29, 2020, and comments are due on the proposed rule on June 29, 2020.
For more information on how these could impact your business, contact:
- Martin Lutz, Partner (email@example.com, 512-495-6024),
- Lindsey Roskopf, Attorney (firstname.lastname@example.org, 713-615-8534), or
- Another member of the McGinnis Lochridge International Trade and Transactions Practice Group