On December 30, 2014, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued long-awaited guidance clarifying that certain lightly processed crude oil are “petroleum products” that may be exported without a specific authorization otherwise required under the Short Supply Controls relating to crude oil and petroleum products in the Export Administration Regulations (“EAR”).
BIS in particular posted frequently asked questions and answers (“FAQs”) to its website that, among other things, clarify how BIS defines “crude oil” for purposes of the EAR. Under the EAR, a BIS license is required to export crude oil from the United States unless limited exceptions apply. Because most license applications for the export of crude oil are reviewed under a general policy of denial, this effectively amounts to an export ban. Thus, whether a particular product satisfies the definition of “crude oil” is very important.
In the EAR, “crude oil” is defined as a “mixture of hydrocarbons that existed in liquid phase in underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities and which has not been processed through a crude oil distillation tower” (emphasis added). By comparison, liquid hydrocarbons that have been processed through a crude oil distillation tower are classified as petroleum products, which are EAR99 and are not subject to the export ban. The FAQs set out various factors that BIS will consider when reviewing commodity classification requests to determine whether the distillation process is sufficiently material to transform the product from crude oil to petroleum products.
Among other information, the new FAQs also provide guidance for determining the acceptable level of domestic crude oil that can be mixed with foreign crude oil and still be eligible for export. Under the EAR, “foreign-origin” crude oil may be exported from the United States pursuant to a specific license so long as it is not “commingled” with domestic crude oil.
Companies dealing in crude oil and petroleum products should review the new FAQs, in particular to consider how they might affect the classification of their products and whether to submit a commodity classification request to BIS.
