Reed Smith Client Alerts

On April 28, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a new rule under the Export Administration Regulations (EAR), expanding the export, reexport, and transfer controls related to military end use and military end users in China, Russia, and Venezuela. The new rule will be effective on June 29, 2020.

The new rule is one of several recent export control actions taken by BIS, including the elimination of certain license exceptions, to prevent what the Department of Commerce sees as circumvention efforts by China, Russia, and Venezuela to acquire U.S. technology under civilian-use pretenses.1 Secretary Wilbur Ross stated: “It is important to consider the ramifications of doing business with countries that have histories of diverting goods purchased from U.S. companies for military applications,” adding: “Certain entities in China, Russia, and Venezuela have sought to circumvent America’s export controls, and undermine American interests in general, and so we will remain vigilant to ensure U.S. technology does not get into the wrong hands.”2

Key revisions

  • BIS expanded the licensing requirements to China for certain low-sensitivity items. Under the new rule, BIS requires exporters, reexporters, and transferors to obtain a license for specified low-sensitivity items if at the time of the export, reexport or transfer to China they had knowledge that the item was intended in entirety or in part for Chinese military end users, in addition to military end use. The relevant items subject to this license requirement are listed in the regulations under Supplement No. 2 to 15 C.F.R. Part 744. BIS already required a license for such items intended for a military end use and end users in Russia and Venezuela.
  • BIS broadened the list of low-sensitivity items included in Supplement No. 2 to Part 744 by expanding the range of items under existing categories (for example, materials, specific processing equipment, vessels and marine systems, and aircraft and related commodities), as well as adding new Export Control Classification Numbers (ECCNs) in the categories of materials processing, electronics, telecommunications, information security, sensors and lasers, marine-related items, and aircraft and propulsion.
  • BIS has articulated a new license review policy for the expanded licensing requirements. Under the new rule, BIS will review license applications to export, reexport, or transfer items identified in Supplement No. 2 to 15 C.F.R. Part 744 to China, Russia and Venezuela with a presumption of denial when intended for military end use or a military end user. BIS will also implement a presumption of denial in their review of license applications of items not specified in Supplement No. 2 (but that require a license for any other reason) that are destined to China, Russia, Venezuela for a military end use or military end user. Previously, BIS implemented a case-by-case review to determine whether the export, reexport, or transfer would make a material contribution to the military capabilities of the PRC, Russia, or Venezuela, and would result in advancing the country's military activities contrary to the national security interests of the United States.
  • BIS broadened the definition of military end use. As amended, the definition of “military end use” will include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, “development,” or “production,” of military items described on the United States Munitions List (International Traffic in Arms Regulations (22 CFR 126.1)), or items classified under ECCNs ending in “A018” or under “600 series” ECCNs. Previously, the definition only applied to items exported for the purpose of “use,” “development” or “production” of military items. Here, BIS broadened the definition of military end use so that any element of the defined term “use” (including operation, installation, maintenance, repair, overhaul, and refurbishing) triggers the military end-use definition.
  • BIS retains restrictions on .y items (including low control parts and components) in ECCN 9x515 and ‘600 series” items, which require a license for all exports, reexports, and transfers of 9x515 and ‘600 series’ items to China, Russia and Venezuela. The ECCN entries for .y items in 9x515 (spacecraft) and ‘600 series” now includes a specific license requirement field for exports to China, Russia and Venezuela. Generally, applications to export or reexport .y items in ECCN 9x515 and ‘600 series’ categories to China, Russia, or Venezuela will be reviewed on a case-by-case basis; however, when destined to China, items classified under any 9x515.y ECCN will be subject to a policy of denial.
  • BIS added Electronic Export Information (EEI) filing requirements in the Automated Export System (AES) for exports to China, Russia, and Venezuela. Existing provisions exempt exporters from both filing EEI for many shipments valued under $2,500 (unless an export license is required) and from entering the ECCN in the EEI when the reason for control is only anti-terrorism (AT). Under the new rule, the EAR will require filing for items destined to China, Russia, or Venezuela regardless of the value of the shipment, unless the shipment is eligible for License Exception GOV. In addition, even if no license is required to ship an item to those destinations, the EEI filing must include the correct ECCN regardless of reason for control. Certain exemptions from filing found in both the EAR and Foreign Trade Regulations (see § 758.1(c) of the EAR), such as for personally-owned baggage, are retained in this rule.