In yet another action on April 28, 2020, the Bureau of Industry and Security (BIS) issued a final rule imposing stricter license requirements on a wide range of exports, reexports and transfers to China, Russia, or Venezuela for “military end uses” or to “military end users.”
A link to the final rule is here.
To achieve this goal, BIS is making several changes to the Export Administration Regulations (EAR):
Any company that exports, reexports or transfers (in country) items subject to US export controls that fall into one of now 49 ECCNs to China, Russia or Venezuela needs to revamp their end use/end user controls to account for this new rule. Suggested steps:
The final rule goes into effect 60 days after publication in the Federal Register, June 29, 2020, and does include a 90-day savings clause.
A summary of each change follows.
1) Expanding the definition of military end use, which also impacts the definition of military end user.
BIS has changed the definition of “military end use” to include an expansion of “use” and adding items that “support or contribute” to certain activities related to military items described on the US Munitions List (USML) or Wassenaar Arrangement Munitions List (WAML). The current and new definition follow.
§744.21(f) effective June 29, 2020
Military end use. In this section, 'military end use' means: incorporation into a military item described on the U.S. Munitions List (USML) (22 CFR part 121, International Traffic in Arms Regulations); incorporation into a military item described on the Wassenaar Arrangement Munitions List (as set out on the Wassenaar Arrangement Website); incorporation into items classified under ECCNs ending in “A018” or under “600 series” ECCNs; or for the “use,” “development,” or “production” of military items described on the USML or the Wassenaar Arrangement Munitions List, or items classified under ECCNs ending in “A018” or under “600 series” ECCNs. 'Military end use' also means deployment of items classified under ECCN 9A991 as set forth in supplement no. 2 to part 744.
Military end use. In this section, ‘military end use’ means: incorporation into a
military item described on the U.S. Munitions List (USML) (22 CFR part 121, International Traffic in Arms Regulations); incorporation into items classified under ECCNs ending in “A018” or under “600 series” ECCNs; or any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, “development,” or “production,” of military items described on the USML, or items classified under ECCNs ending in “A018” or under “600 series” ECCNs.
This definition has been expanded in two ways:
In short, the revised definition of military end use in 744.21 is vastly expanded and its limits are both vague and broad. When a US company sends very basic ECCN 5A991 telecommunication equipment to China, how can it be sure that it will not be used in a way that supports or contributes to operation, installation, maintenance, repair, overhaul, refurbishing, ‘‘development,’’ or ‘‘production,’’ of military items?
The definition does eliminate the following phrase: “’Military end use’ also means deployment of items classified under ECCN 9A991 as set forth in Supplement No. 2 to Part 744.” But given the breadth of the rest of the definition and the addition of military end user for China (see below), this elimination likely makes no difference in practice.
The expanded definition of “military end use” also expands the definition of who is a “military end user.” Military end user “means the national armed services (army, navy, marine, air force, or coast guard), as well as the national guard and national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support 'military end uses' as defined in [this section].” Playing out the examples from above, diagnostic equipment under a relevant ECCN exported to support a Russian company that repairs military items falls under the definition of military end use. That makes the Russian repair company a “military end user,” meaning that exporting a covered ECCN to that Russian repair company – as a military end user – requires a license even if the item in question is NOT being used for a military end use. In other words, if you have reason to believe that a Russian company repairs military devices, the export of covered ECCNs to that company arguably requires a license.
2) Adding a prohibition on military end users in China.
This change seems simple in principle but is the practical equivalent of hiking in a minefield: Section 744.21(a) is amended to prohibit the export of certain items subject to the EAR for military end users in China – previously only exports for military end use was prohibited without a license. But as difficult as it is to identify military end users in Venezuela and Russia, it is even harder to identify them in China. Just who is a Chinese company whose actions or functions are intended to support or contribute to operation, installation, maintenance, repair, overhaul, refurbishing, ‘‘development,’’ or ‘‘production,’’ of military items? And what sort of due diligence is sufficient to conclude that the Chinese company is doing no military maintenance or repair work on the side?
3) Adding 16 ECCNs to the list of items subject to military end use/user license requirements.
In addition to license requirements on the CCL, certain items are subject to additional review, and now in some cases a presumption of denial, if they will be exported, reexported, or transferred to China, Russia, or Venezuela if the exporter has knowledge that the item is intended, entirely or in part, for military end use or a military end user. These items are listed in Part 744, Supp. No. 2. Currently, there are 33 ECCNs listed, and this action will add another 16 ECCNs.
Of note? ECCNs 3A991 and 3A992 – widely available electronic equipment, ECCNs 5A992 and 5D992, “mass market” encryption hardware and software (think your phone and many of your apps), a wide range of test equipment (ECCNs 3B991, 3B992, 5B991) and civil aircraft parts and components (ECCN 9A991). Many of these items are widely available and frequently manufactured in China. The full list:
4) Licensing policy of presumption of denial for China.
Currently, applications to export, reexport, or transfer items in Part 744, Supp No. 2 to China, Russia or Venezuela are reviewed on a case-by-case basis. The final rule changes the licensing policy towards China to a presumption of denial.
5) Requiring EEI filings for most CCL-listed exports to China, Russia, or Venezuela.
Non-licensed shipments under $2,500 typically do not require an EEI filing in the Automated Commercial Environment (ACE). However, BIS’s change to §758.1, specifically adding (b)(10), requires EEI filings for all exports of items on the CCL, regardless of value if being exported to China, Russia, or Venezuela. Also, exporters will need to enter the ECCN on EEI filings for these types of shipments, even if only controlled for anti-terrorism reasons.
One exception is shipments made under License Exception Governments, international organizations, international inspections under the Chemical Weapons Convention, and the International Space Station (GOV), which do not require EEI.
The US Census Bureau (Census) and US Customs and Border Protection (CBP) may need to update the AES Direct portal for filing EEIs in order to revise the ECCN field for license type codes that are currently not mandatory due to the above EEI filing revisions for exports to China, Russia, or Venezuela. The new ECCN reporting requirements may lead to enforcement actions and penalties from one or all of the involved agencies: BIS, Census and CBP.
6) A series of changes that have no practical impact but do make it easier to find the authority that 500/600 Series .y items require a license to China, Russia and Venezuela.
Many of us were aware of the 500/600 Series .y licensing requirement, but every time it comes up, we spend valuable time asking ourselves “where did BIS hide that .y licensing requirement again?”
Currently, 500/600 Series .y items on the Commerce Control List are controlled for anti-terrorism reasons only but required a license for export to China, Russia, and Venezuela separately under 744.21(a). In this final rule, BIS added a specific regional stability (RS) control to the ECCNs that indicates the limited RS license requirement (as opposed to the existing RS control that imposes a license requirement for all countries except Canada). This triggered an extensive series of changes to correct the references throughout the EAR. Thank you BIS for saving us that aggravation even if it vastly expanded the length of the regulation. Brevity may be to soul of wit, but clarity is important in an export control regulation!