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BIS Expands Export, Reexport and Transfer (In-Country) Controls for Military End Use or Military End Users in China, Russia or Venezuela

On April 28, 2020, the US Department of Commerce’s Bureau of Industry and Security (BIS) published in the Federal Register a Final Rule amending the Export Administration Regulations (EAR), 15 CFR parts 730-774. This new rule critically expands the licensing requirements for exports, reexports and transfers (in-country) of items subject to the EAR in three respects:

  1. The list of items subject to this end use/end user rule is significantly expanded (i.e., the list of items that normally would not require a license for China, Russia or Venezuela);
  2. The rule now applies to military end users in China (not just military end users in Russian and Venezuela); and
  3. The term “military end use” now includes any end use that “supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, development, or production of military items.”

Without any clarifications or limitations on this definition, the rule could extent deep into the supply chain to items that are steps away from a military item, but that could indirectly support or contribute to an ultimate military item. For example, this could include the supply of US content for the production of commercial items that are not specially designed for a military application.

Here we summarize the changes in three ways and provides information on the safe harbor period.

What’s Changed?

The Final Rule changed the existing regulation in three ways: (1) expanding the license requirements in § 744.21 on exports, reexports and transfers (in-country) of items intended for military end use or military end users located in the People’s Republic of China (China), Russia or Venezuela; (2) creating a new reason for control and associated review policy for regional stability for certain items intended for export, reexport or transfer (in-country) to China, Russia and Venezuela; and (3) adding Electronic Export Information (EEI) filing requirements in the Automated Export System (AES) for exports to China, Russia and Venezuela.

1. Expanded License Requirements and Review Policy for Items Intended for Military End Use or Military End Users in China, Russia or Venezuela

The definition of “military end user” is unchanged, but the prohibition now applies to military end users in China. Prior to the rule, it only applied to military end users in Russia and Venezuela.

The EAR defines “military end user” to include the army, navy, air force, marines, coast guard, the national guard and police, and government intelligence and reconnaissance organizations. The existing EAR definition of “military end use” refers both to direct use – such as for parts, components or subsystems of weapons and other defense articles – and indirect use – such as weapon design and development, testing, repair and maintenance.

The new Final Rule broadens the definition of “military end use” to include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, development or production of military items described on the United States Munitions List (USML) of the International Traffic in Arms Regulations (22 CFR 126.1), or items classified under Export Control Classification Numbers (ECCN) ending in (A018) or under “600 series” ECCNs.

Specifically, the new Final Rule adds the following ECCNs in the categories of materials processing, electronics, telecommunications, information security, sensors and lasers, and propulsion to the list of items subject to license requirements in Supplement No. 2 to part 744: 2A290, 2A291, 2B999, 2D290, 3A991, 3A992, 3A999, 3B991, 3B992, 3C992, 3D991, 5B991, 5A992, 5D992, 6A991, 6A996 and 9B990. This rule also expands the range of items under ECCNs 3A992, 8A992 and 9A991 included in Supplement No. 2 to part 744. The new Final Rule also adopts a review policy of presumption of denial for export, reexport or transfer (in-country) license applications for items intended for military end use or military end users in China, Russia or Venezuela.

2. New Reason for Control and Associated Review Policy for Regional Stability

This new Final Rule amends the EAR by relocating the existing license requirements for items described in a ‘.y” paragraph of a ‘9×515” or ‘600 series” ECCN to China, Russia or Venezuela from § 744.21 to the ‘License Requirements” sections of the relevant ECCNs on the Commerce Control List (CCL). The license requirements for ‘600 series” .y and ‘9×515.y” items were previously implemented on April 16, 2013 and May 13, 2014, respectively. This new rule does not change the scope of the existing license requirements on ‘600 series” .y and ‘9×515.y” items, which were intended to impose a license requirement for all ‘9×515.y” and ‘600 series” .y items for export, reexport or transfer (in-country) to China, Russia or Venezuela. Rather, this rule relocates those requirements to the ‘License Requirements” section in the CCL in order to help the public comply with EAR § 744.21.

BIS’s position is that such items require a license for export to China, Russia or Venezuela in order to support the US policy of regional stability in those areas. For this reason, BIS has listed regional stability (RS) as the reason for control for the items subject to this new Final Rule.

3. Electronic Export Information (EEI) Filing Requirements

This new Final Rule revises § 758.1 of the EAR to require filing of EEI in AES for items destined to China, Russia or Venezuela regardless of the value of the shipment, unless the shipment is eligible for License Exception GOV. Currently, the EAR exempts exporters from both filing EEI for many shipments valued under US$2,500 unless an export license is required, and from entering the ECCN in the EEI when the reason for control is only anti-terrorism (AT). In addition to requiring exporters to file EEI for the abovementioned items regardless of value, the new rule requires exporters to list the correct ECCN in the EEI, regardless the reason for control.

4. Safe Harbor

This new Final Rule will take effect on June 29, 2020. Items affected by this new Final Rule may be exported, reexported or transferred (in-country) to China, Russia or Venezuela without a license, (1) provided that such items were on dock for loading, on lighter, laden aboard an exporting carrier or en route on a carrier to a port of export, on June 29, 2020, pursuant to actual orders for export, reexport or transfer (in-country); and (2) provided that such items have been exported, reexported or transferred (in-country) before midnight on July 27, 2020.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 122

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