On July 22, 2015 the U.S. Bureau of Industry and Security (“BIS”) issued a final rule amending the Export Administration Regulations, 15 C.F.R. Parts 730-774 (“EAR”), to implement the rescission of Cuba’s designation as a State Sponsor of Terrorism (BIS has also issued FAQs).  As discussed in our previous blog posts here and here, the U.S. Secretary of State rescinded the designation of Cuba as a State Sponsor of Terrorism on May 29, 2015, as part of the Obama Administration’s efforts to establish diplomatic relations with Cuba and relax certain aspects of the U.S. embargo of Cuba.


The rule removes text in the EAR referring to Cuba as a State Sponsor of Terrorism and removes Cuba from Country Group E:1 (terrorist supporting countries) in Supplement No. 1 to Part 740 of the EAR (Country Groups) but retains Cuba in Country Group E:2.  The principal effects of Cuba’s removal from Country Group E:1 are the following:


1.    The de minimis level for U.S. content in most foreign-made items destined for Cuba is raised from 10% to 25%, meaning that fewer foreign-made items with U.S. content destined for Cuba will be subject to the EAR and thus require a license.


2.    Certain restrictions in the following four license exceptions no longer apply to Cuba or Cuban nationals:  (i) License Exception Servicing and Replacement of Parts and Equipment (RPL); (ii) License Exception Governments, International Organizations, International Inspections Under the Chemical Weapons Convention, and the International Space Station (GOV); (iii) License Exception Baggage (BAG); and (iv) License Exception Aircraft, Vessels and Spacecraft (AVS).  The removal of the restrictions results from the removal of Cuba from Country Group E:1, and no changes to the text of these license exceptions were therefore necessary.


Despite these amendments to the EAR, which are in effect a relaxation of the controls, Cuba is still subject to a comprehensive embargo and a license is still required to export or reexport to Cuba any item subject to the EAR (i.e., U.S.-origin items, items in the United States, foreign-made Items that contain more than a de minimis amount of controlled U.S.-origin content by value, and certain foreign direct products of U.S. technology or software) unless authorized by a license exception applicable to Cuba.  This licensing requirement includes all items controlled on the EAR’s Commerce Control List, including those controlled for anti-terrorism (AT) reasons only, and items classified as EAR99.  Accordingly, the rule also amends the EAR to retain the applicability of certain embargo-related provisions and license conditions to Cuba by linking Country Group E:2 to these provisions and conditions.


Kathryn Anderson is an associate in Baker McKenzie's International Commercial Practice Group in San Francisco. Kathryn's practice focuses on cross-border transactions and international trade regulation, including export controls, trade and investment sanctions, anti-terrorism controls, and customs and import regulations. Her practice also covers anti-corruption rules and international corporate compliance.


Ms. Test advices clients on issues relating to licensing, regulatory interpretations, enforcement actions, internal investigations and compliance audits, as well as the design, implementation and administration of compliance programs. She also advises clients on the extra-territorial application of trade compliance-related regulations in cross-border transactions.

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