The amendment to the Export Administration Regulations (EAR) Section 742.4(b)(7) is effective October 29, 2020. The EAR already specifically called out the PRC and Russia in Section 742.4(b)(7), but the new language:
Perhaps we should not have been surprised by this amendment to the EAR, given what has been a series of new restrictions related to the PRC, Venezuela, and Russia. As explained in our previous alert, BIS issued a final rule in April 2020 imposing stricter license requirements on a wide range of exports, reexports, and transfers to PRC, Russia, or Venezuela for “military end uses” or to “military end users.”
All license applications for NS-controlled items to PRC, Venezuela, and Russia will be reviewed to determine the risk of diversion to a military end user or military end use. BIS will maintain a general policy of approval for license applications to export, reexport, or transfer (in-country) items for civil end users or civil end uses. However, it will assess on a case-by-case basis whether the transaction “would make a material contribution to the ‘development,’ ‘production,’ maintenance, repair, or operation of weapons systems, subsystems, and assemblies, such as but not limited to, those described in supplement no. 7 to part 742 of the EAR”. If BIS concludes that the transaction will make a material contribution, BIS’s licensing review policy is a presumption of denial. We note the previous language stated the presumption of denial kicked in when the transaction “would make a direct and significant contribution to the PRC's or Russia's military capabilities such as, but not limited to, the major weapons systems” such as those listed in EAR Part 742, Supp. No. 7.
The amendment adds the following factors that BIS will consider in reviewing license applications for NS-controlled items to the PRC, Venezuela, and Russia. Any party seeking a license to export, reexport, or transfer (in-country) NS-controlled items should attempt to address these concerns in its license application.
Of course, most exporters will not have ready access to some of this information, but they should provide as much background as possible in a license application regarding the parties to the transaction and the civil end-use. We anticipate that these criteria may also result in a proliferation of additional non-standard license conditions. Exporters should ensure that any proposed conditions are actually feasible and if not, work with BIS to see if alternative conditions can be agreed to among the reviewing agencies.
The review will also include an assessment of the impact of the proposed export of an item on the United States defense industrial base and the denial of an application for a license that would have a significant negative impact, on such defense industrial base. Consistent with 50 USC 4815(d)(3), BIS will examine the following criteria to determine whether there is a significant negative impact:
Therefore, in addition to addressing the factors listed in the amended EAR Section 742.4(b)(7), parties should also address the criteria to examine whether a proposed export of an item will have a significant negative impact on the defense industrial base.
 One wonders whether the reference in 4 as to the “reliability of the parties to the transaction” was a “back at you” reference to China’s creation of an “Unreliable Entity List” and the listing of some US companies on that list. We hope this will not devolve into a tit-for-tat series of amendments to the export control laws, which historically have not been used for political name-calling.