On November 10, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a final rule delaying enforcement of the “Affiliates Rule” that BIS issued on September 29. The one-year suspension ends November 9, 2026.
The suspension of the Affiliates Rule follows President Trump’s recent high-profile trade negotiations with Chinese President Xi Jinping in South Korea, which saw China “suspend the implementation” of its October 9 restrictions on the export of rare earths and permanent magnets.
Background
As explained in a previous Blank Rome client alert, BIS adopted the Affiliates Rule under the Export Administration Regulations (“EAR”) to align its diversion risk policies with the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”).
In short, under the now-suspended rule, non-U.S. entities owned 50 percent or more by parties designated on the BIS Entity List, the BIS Military End User (“MEU”) List, or under certain OFAC Specially Designated Nationals (“SDN”) List programs were subject to the “most restrictive” license conditions (i.e., license requirements, exception eligibility, and review policy) applicable to their listed parents.
Next Steps and Key Takeaways
- With the Affiliates Rule now suspended until November 2026, BIS will revert to its former “legally distinct” standard, meaning that restricted party controls generally will apply only to listed parties.
- Under the auspices of the “legally distinct” standard that again is in effect, BIS has cautioned exporters that, when dealing with an unlisted subsidiary of a designated restricted party, they should assess red flags to confirm that the subsidiary will not divert items to its restricted parent(s).
- If U.S.-China trade relations deteriorate, it is possible that the Trump Administration could rescind the one-year suspension of the Affiliates Rule. Companies engaged in cross-border operations should continue to monitor U.S. trade developments and anticipate foreign policy developments.
- Companies should consider whether and how they wish to continue to leverage the compliance processes they have been standing up since BIS issued the Affiliates Rule on September 29 (i.e., compiling ownership information on counterparties, declining business with entities covered by the rule, enacting audit rights on distributors and resellers, etc.).
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