On October 21, 2019, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) imposing new sanctions on Cuba for human rights abuses and for its support of the Nicolás Maduro regime in Venezuela. The amendments, among other things, establish a general policy of denial for leases of aircraft to Cuban state-owned airlines and revise License Exception Support for the Cuban People (SCP) to make the Cuban government and communist party ineligible for certain donations. Among the most notable revisions, the October 21 amendments roll back from 25 percent to 10 percent the general de minimis rule for reexports to Cuba of certain foreign-made items containing controlled U.S.-origin content. The recent amendments continue the Trump Administration’s strategic decision to reverse the Obama Administration’s policy of restoring diplomatic relations and the loosening of U.S. sanctions on the Cuban regime.
Several significant changes implemented by the October 21 amendments are highlighted below:
Change in De Minimis Threshold for Reexporting Foreign-Made Items to Cuba
- Under EAR Section 734.4, foreign-made goods are generally not subject to the EAR unless they incorporate more than a de minimis percentage of controlled U.S.-origin content, and the de minimis threshold is either 10 percent or 25 percent depending on the country of destination (except for certain special cases where the de minimis threshold is zero). On July 22, 2015, BIS issued a final rule implementing the Obama Administration’s rescission of Cuba’s designation as a State Sponsor of Terrorism, removal of Cuba from Country Group E:1 (terrorist supporting countries) in Supplement No. 1 to Part 740 of the EAR, and increase of the general de minimis level for Cuba from 10 percent to 25 percent. The October 21 amendments roll back the general de minimis level for Cuba from 25 percent to the pre-Obama era 10 percent threshold, meaning that a BIS license or license exception is required to reexport to Cuba foreign-made items containing more than 10 percent of controlled U.S.-origin content.
- The Trump Administration’s return to the 10 percent de minimis level treats Cuba, in effect, as a designated state sponsor of international terrorism for purposes of the EAR and increases the number of foreign-made items with controlled U.S. content which now may face licensing restrictions under the EAR. Manufacturers of foreign-made items with controlled U.S. content destined for Cuba should reevaluate their de minimis calculations to determine whether their product is eligible for de minimis treatment under the new threshold or whether a BIS license or license exception is now required.
Export Licensing Policy Revisions for Aircraft Leased to Cuban State-Owned Airlines
- The October 21 amendments reverse the Obama-era general policy of BIS approval for applications to export or reexport aircraft leased to Cuban state-owned airlines in place since January 27, 2016. Accordingly, export license applications to lease aircraft to Cuban state-owned airlines are now subject to a general policy of denial. BIS will also revoke within six days any existing licenses for aircraft leased to Cuban state-owned airlines under the former policy.
Limitations to License Exception Support for the Cuban People (SCP)
- The October 21 amendments revise License Exception SCP to exclude donations to organizations administered or controlled by the Cuban government or communist party. In addition, the October 21 amendments revise License Exception SCP to eliminate an authorization for promotional items that generally benefited the Cuban government given it has a virtual monopoly on importing items into the country. BIS also amended License Exception SCP to clarify the scope of telecommunications items that the Cuban government may receive without a license. In particular, paragraph (d)(1) of License Exception SCP authorizes the export or reexport to Cuba of certain items for telecommunications infrastructure creation and upgrades. The October 21 amendments revise paragraph (d)(1) to clarify that it is limited to eligible items for the creation and upgrades of telecommunications infrastructure to improve the free flow of information to, from, and among the Cuban people. For infrastructure items that would be used to connect specific end users (i.e., nonbackbone items), those items may be used to connect individual Cubans or the Cuban private sector only. A license is required for the export or reexport to Cuba of items for telecommunications infrastructure that would be used to connect other specific end users (e.g., Cuban government ministries and state-owned hotels).
Limitation to License Exception Aircraft, Vessels and Spacecraft (AVS)
- The October 21 amendments clarify that aircraft and vessels leased to or chartered by a Cuban national are not eligible for License Exception AVS.
BIS concurrently published updated FAQs related to Cuba, which include additional guidance regarding the October 21 amendments.
We will continue to monitor and issue updates on developments in the U.S. sanctions affecting Cuba, including any additional actions by the Trump Administration to roll back or otherwise alter the Obama-era Cuba-related EAR provisions.