Important Changes to BIS License Exceptions
Client Alert
On April 28, 2020, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published rules that will modify the Export Administration Regulations (EAR). These new rules largely target exports and re-exports to the People’s Republic of China (PRC), Russia, Venezuela, and other Country Group D:1 destinations.
The new changes, which are effective on June 29, 2020, are as follows:
1. Removal of CIV License Exception from the EAR. The CIV license exception currently allows some exports of national security (NS) controlled items to civilian end users in countries listed in Country Group D:1. See 15 CFR 740.5. BIS has determined that, due to “increasing integration of civilian and military technology development in these countries of concern,” the U.S. government should review all NS-controlled exports to civilian end users in D:1 countries on a case-by-case basis. See 85 FR 23,470 (April 28, 2020).
Beginning on June 29, 2020, the CIV exception in Section 740.5 and all references to the CIV exception on the Commerce Control List (CCL) will be removed. As a result, NS-controlled exports to civilian end users in D:1 countries will require an export license unless another license exception applies. Pursuant to the licensing policy in Section 742.4(b), BIS will review license applications for these exports on a case-by-case basis to determine if the proposed exports would make a significant contribution to the military capabilities of the D:1 destination country.
2. Removal of Country Group D:1 Destinations from APR License Exception in the EAR. The APR license exception currently allows some re-exports of NS-controlled items from Hong Kong and Country Group A:1 countries to Country Group D:1 countries, based on the assumption that the export laws for Hong Kong and Country Group A:1 countries are aligned with the EAR. See 740.16(a)(3)(ii). BIS has determined, however, that Hong Kong and A:1 countries may review licenses for NS-controlled exports to D:1 countries differently from the U.S., particularly with regard to the increasing integration of civilian and military technology development. See 85 FR 23,496 (April 28, 2020).
Consequently, starting June 29, 2020, companies seeking to re-export U.S. origin NS-controlled items from Hong Kong and A:1 countries to D:1 countries will need to obtain licenses from BIS, even if the relevant foreign jurisdiction have approved the re-export, unless another U.S. license exception applies. These license applications will also be reviewed pursuant to the licensing policy in Section 742.4(b).
3. Expand License Requirements for Exports to the PRC, Russia, and Venezuela to “Military End Users” or for “Military End-Use.” The EAR currently imposes a licensing requirement on the exports of certain items for “military end use” in the PRC or for a “military end use” or “military end user” in Russia and Venezuela. See 744.21. Items that are controlled for military end use reasons are listed in Supp. No. 2 to Part 744 (MEU-Controlled Items). The current rules define military end use as: (1) incorporation into a military item; or (2) for the use, production, or development of military items. See 744.21(f). BIS has determined that expanding the military end use licensing requirements will allow the U.S. government more control over exports and re-exports destined for military end users and end uses in the PRC, Russia, and Venezuela. See 85 FR 23,459 (April 28, 2020).
Consequently, starting June 29, 2020, the EAR’s military end use licensing requirements will expand in three ways:
- Expanded Definition of “Military End Use.” Military end use will include: (1) incorporation into a military item; or (2) any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, ‘development,’ or ‘production’ of military items. It would be prudent for companies to revise End User Statements and Certifications as needed to incorporate this broadened definition of military end use.
- Licenses Will Be Required for Exports of MEU-Controlled Items to Military End Users in the PRC. The licensing requirements will now cover exports of MEU-Controlled Items to the PRC’s: national armed services; national guard; national police; government intelligence or reconnaissance organizations; or any end user whose actions or functions are intended to support military end uses. Again, it would be prudent for companies to revise End User Statements, Certifications, and other due diligence processes to account for this new restriction.
- New ECCNs Added to List of MEU-Controlled Items. Supp. No. 2 to Part 744 will be expanded to include new ECCNs related to materials processing (2A290, 2A291, 2B999, 2D290), electronics (3A991, 3A992, 3A999, 3B991, 3B992, 3C992, 3D991), telecommunications (5B991), information security (5A992, 5D992), sensors and lasers (6A991, 6A996), and propulsion (9B990). Further, the list will include more items that fall under ECCNs 3A992, 8A992, and 9A991.
In addition, starting on June 29, 2020, BIS will review license applications for these exports under a presumption of denial. Altogether, BIS notes that “[t]his expansion will require increased diligence with respect to the evaluation of end users in China, particularly in view of China’s civil-military integration.” 85 FR 23,459.
Once these rules come into effect, companies should continue to flag any proposed exports of MEU-controlled items to the PRC, Russia, or Venezuela. If an export is flagged for this reason, shippers and forwarders should request information regarding the proposed end users and uses, possibly in the form of End User Statements or Certifications. In addition, it would be prudent for shippers and forwarders to review publicly available information on the end-users (e.g., company websites and news articles) to determine if the end-user has a history of working on defense-related projects. If there is any indication that the end users may engage in military end uses, companies should contact their counsel to determine the appropriate next steps. While End User Statements and Certifications may provide additional protection to shippers and forwarders, they will not insulate companies from liability if there are clear indications that the exports are intended for military end use.
