November 30, 2022

Volume XII, Number 334

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BIS Issues New Export Controls on Russia and Belarus

On Friday, September 16, 2022, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) published in the Federal Register a Final Rule, 87 Fed Reg. 57068, amending the Export Administration Regulations (EAR) (15 CFR parts 730-774) to impose several new controls on exports, reexports, and transfers (in-country) of items to or within Russia and Belarus, and make twelve corrections and clarifications to existing Russian and Belarusian controls.  This rule serves to support the objective of restricting Russia’s access to items needed to support its military capabilities.

Background

Beginning on February 24, 2022, BIS amended the EAR to impose its first in a series of rules targeting Russia for its invasion of Ukraine. (See 87 FR 12226) (See our alert here)  Since that initial rule, BIS has further amended the EAR to: (1) impose the same licensing restrictions on Belarus as BIS imposed on Russia for its complicity in the invasion (see 87 Fed. Reg. 13048); (2) expand existing sanctions against the Russian industry sector to target the oil refinery sector in Russia (see 87 Fed. Reg. 12856); (3) add 91 entities to the Entity List (see 87 Red. Reg. 13141); (4) add a license requirement for the export, reexport, or transfer of certain luxury goods destined for Russia and Belarus and for Russian and Belarusian oligarchs and malign actors (see 87 Fed. Reg. 14785); and (5) add four additional countries to the list of countries excluded from certain license requirements (Supp. No. 3 to part 746) (see 87 Fed. Reg. 21554).

New Rules

Expand Scope of Russian Industry Sector Sanctions

First, this rule imposes a new license requirement for the export, reexport, and transfer (in-country) to or within Russia of certain items that are now listed in a new Supplement no. 6 to Part 746.  Supplement no. 6. includes various discrete chemicals, biologics, fentanyl and its precursors, related equipment, and quantum computing and advanced manufacturing items. These items are a subset of EAR99 items and may be used by Russia to further its chemical and biological weapon production and development. BIS believes these items are not manufactured in Russia but are vital to Russia developing advanced production and development capabilities. New license requirements are imposed on:

  • Chemicals identified in Supplement no. 6 (a)(1)-(41) in concentrations of 95% weight or greater;

  • Chemicals identified in Supplement no. 6 (b)(1)-(38) in concentrations of 90% weight or greater;

  • Fentanyl and its derivatives (Alfentanil, Sufentanil, Remifentanil, Carfentanil, and salts thereof), as identified in § 746.5(c);

  • Chemical precursors to central nervous system acting chemicals identified in Supplement no. 6 (d)(1)-(2);

  • Biologics identified in Supplement no. 6 (e)(1)-(5);

  • Equipment identified in Supplement no. 6 (f); and

  • Quantum computing and advanced manufacturing identified in Supplement no. 6 (g), which includes quantum computers and specially designed electronic assemblies and components.

Furthermore, Supplement no. 6 items, as described above, are now identified within the product scope of the Russia/Belarus Foreign Direct Product (FDP) rule in § 734.9(f).  Accordingly, foreign-produced items listed in Supplement no. 6 that are the direct product of certain U.S.-origin technology or software are subject to the EAR if an entity has knowledge that the item is destined to Russia or Belarus or will be used in the production or development of a non-EAR 99 part, component, or equipment produced in or destined to Russia or Belarus.

Second, this rule adds 57 entries to Supplement no. 4 of Part 746 that will require license for export or reexport to or transfers within Russia and Belarus. This Supplement will also include any modified or designed “components,” “parts,” “accessories,” and “attachments” regardless of Schedule B, Schedule B description, HTS Code, or HTS description to the listed items.

Third, this rule expands the scope of Russian industry sector sanctions in EAR § 746.5 applying these sanctions to Belarus.  Belarus now will be subject to the same industry sector sanctions as Russia. While BIS does not add Belarus after the reference to Russian Deepwater or Artic offshore oil or gas exploration in § 746.5(a) (1) (i), BIS nevertheless imposes the same license requirements on Belarus as Russia.  BIS recognizes that Belarus has only a limited oil and gas exploration industry but has added Belarus to these controls to prevent diversion of the specified items through Belarus to Russia. 

Broaden “Military End User” and “Military Intelligence End User”

Fourth, this rule expands the scope of § 744.21 by allowing BIS to designate any Belarusian, Burmese, Cambodian, Chinese, Russian, or Venezuelan “military end users” (MEU) located in countries other than a country identified in § 744.21. Previously, these MEUs had to be located in a country listed in § 744.21 in order to be designated as an MEU. Now, any Belarusian or Russian MEUs located outside Russia or Belarus may be identified as MEUs through their designation on the Entity List in Supplement no. 4 with a footnote 3 designation, or, with respect to Burmese, Cambodian, Chinese, or Venezuelan MEUs, BIS will identify all MEUs located outside those countries on the MEU List in Supplement no. 7 to Part 744.

For MEUs located outside of a country identified in § 744.21, BIS will require a license only for those MEUs specifically identified on the MEU List or Entity List with a footnote 3 designation.  Accordingly, exporters, reexporters, and transferors do not have to independently assess the potential applicability of § 744.21 on a worldwide basis. This does not excuse, however, exporters, reexporters, and transferors from the requirement to determine whether the entity is a MEU located within one of the listed countries even when that entity is not designated on the Entity List nor MEU List.

Fifth, this rule expands the scope of “military-intelligence end user” (MIEU) controls in § 744.22 to mirror the changes made to § 744.21 discussed above. An exporter, reexporter, or transferor must obtain a license to export, reexport, or transfer (in-country) any item that it knows is intended for an MIEU of Belarus, Burma, Cambodia, China, Russian, Venezuela, or a country listed in E:1 or E:2, wherever located. For MIEUs located outside of a country identified in § 744.22, the licensing requirement is limited to entities specifically identified in § 744.22(f)(2).

Sixth, BIS amends § 744.11 to expand the scope of the “is informed” provision to allow the Deputy Assistant Secretary for Export Administration (DAS/EA) to provide specific notice of parties that are not currently on the Entity List, but that are engaging in activities contrary to U.S. national security or foreign policy interest. This rule permits the DAS/EA to provide specific notice to an identified party that a specified item requires a license because of a reasonable belief that the entity poses a significant risk of being involved in activities contrary to U.S. national security or foreign policy interest. This notice will include the license requirement, limits on the use of license exceptions, and license review process. BIS may subsequently add entities that are the subject of “is informed” letters to the Entity List.

Refine Luxury Good Controls

Seventh, BIS revises the “Luxury Goods” controls in Supplement no. 5 to Part 746 to specify dollar value exclusion thresholds for certain luxury goods to better align with the controls implemented by allies. The Russian and Belarusian luxury goods controls were initially added on March 16, 2022, 87 Fed. Reg. 14758. The threshold for clothing and shoes was originally set at $1,000, and the new rule lowers the dollar value threshold to$300 per unit wholesale price. Most other ‘luxury good’ entries will also have a $300 per unit wholesale price exclusion. This rule provides higher dollar value exclusions to certain other items as warranted, such as automobiles that have a $50,000 per unit wholesale price exclusion threshold.

Corrections and Clarifications

This rule makes twelve corrections and clarifications to the existing controls on Russia and Belarus. These include:

  1. Update and expand the list of consumer communications devices in § 740.19(b)(1) eligible for License Exception CCD to reflect technology developments since License Exception CCD was first published in 2009. For example, this rule adds tablets, microphones, and headphones as consumer computers and peripherals that are EAR99 items or classified under Export Control Classification Numbers (ECCN) 5A992.c or 4A994.b. However, commodities and software eligible for this exception remain strictly limited to those specified in paragraph (b).

  2. Make a correction to add Russia and Belarus to the countries identified under the License Exception TMP in §740.9(a)(9) for news media authorization.

  3. Make a correction to § 744.11 to remove an unnecessary sentence. In doing so, BIS clarifies that it will not place entities on the Entity List if exports or reexports to that party of items subject to the EAR are otherwise prohibited or require a license from another U.S. Government agency.

  4. Add License Exception CCD eligibility for Russian industry sector sanctions under § 746.5 and the “Luxury goods “controls under § 746.10 in order to not impose duplicative licensing requirements and ensure the continued availability of License Exception CCD eligibility under § 746.8.

  5. Clarify in § 746.8 (“Sanctions Against Russia and Belarus”) that the exclusion for ECCNs 5A992 or 5D992, the availability of license exceptions, and the license review policy apply to branches or sales offices of companies headquartered in the U.S. and Country Group A:5 and A:6 countries in Supplement no. 1 to Part 740, even if such branches or sales offices are not separately incorporated as subsidiaries or joint ventures.

  6. Add a Note 1 to § 746.8(a)(1) of the EAR to clarify that the deemed export and deemed reexports exclusion in this subsection only applies to the additional Russia and Belarus license requirements imposed under paragraph (a)(1), and not any license requirements that were in place prior to the imposition of sanctions on Russia and Belarus, beginning in February 2022 and March 2022, respectively. Thus, if a deemed export or reexport to or within Russia or Belarus is subject to another license requirement under the EAR, the exclusion in § 746.8 does not apply to those requirements. 

  7. Add an exclusion from the license requirements under § 746.8(a) (1) and (2) for transfers of certain items within Russia or Belarus for reexports (i.e., return) to the United States or a Country Group A: 5 or A: 6 country. This allows for the movement of an item subject to the EAR within Russia or Belarus for the purpose of returning it to the U.S. or a Country Group A:5 or A:6 country, provided that the owner retains title to and control of the item while it remains in Russia or Belarus.

  8. Update the licensing policy for “luxury goods” in § 746.10 to adopt a case-by-case license application review policy for items for humanitarian needs, consistent with the other Russia and Belarus licensing policies throughout Part 746.

  9. Clarify that the EAR’s recordkeeping requirements in Part 762 extend to transfers (in-country) of items subject to the EAR.

  10. Clarify in § 736.2 (“General Prohibitions”) that transfers (in-country) are activities subject to the restrictions of General Prohibitions 5 and 6.

  11. Clarify in § 732.2 (“Steps regarding the ten general prohibitions”) that step 14 for embargoed countries and special destinations also encompasses the restrictions set forth in §§ 746.5 (“Russian and Belarusian Industry Sector Sanctions”), 746.8 (“Sanctions Against Russia and Belarus”), and 746.10 (“‘Luxury Goods’ Sanctions Against Russia and Belarus and Russian and Belarusian Oligarchs and Malign Actors”).

  12. Remove Russia and Belarus from Country Group A in Supplement no. 1 to Part 740 of the EAR to avoid confusion since they have no “x” in the box for any of the Country Group A columns.

© Copyright 2022 Squire Patton Boggs (US) LLPNational Law Review, Volume XII, Number 279
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