On October 29, 2020, the US Commerce Department’s Bureau of Industry and Security (“BIS”) issued a final rule (the “final rule”) amending the license review policy under the Export Administration Regulations (“EAR”) for items controlled for national security (“NS”) reasons when destined to China, Russia, or Venezuela. The amendments add Venezuela to the list of countries to which the policy applies and modify the policy to replace the reference to military capabilities with a new, more nuanced standard for assessing the contribution an item would make to those countries’ weapons systems.

Under the amended licensing policy, BIS will review each license application covering an export, reexport, or transfer (in-country) of items controlled for NS reasons to China, Russia, or Venezuela to determine, on a case-by-case basis, whether the proposed transaction will make a material contribution to the weapons systems capability of those countries. BIS will apply a presumption of approval when an export, reexport, or transfer (in-country) is destined for a civil end-user for civil end-uses in China, Russia, or Venezuela. BIS will apply a presumption of denial when the items would make a material contribution to the “development” or “production” (as those terms are defined in the EAR), maintenance, repair, or operation of weapons systems, subsystems, and assemblies in those countries, such as those described in Supplement No. 7 to Part 742 of the EAR.

The final rule includes an illustrative list of factors BIS will consider in reviewing these license applications. These factors are intended to inform BIS’ assessments and licensing determinations. They also provide helpful guidance to exporters with respect to the information and advocacy they can provide in support of their license applications. The factors are as follows:

  1. The appropriateness of the export, reexport, or transfer for the stated end-use;
  2. The significance of the item for the weapons systems capabilities of the importing country;
  3. Whether any party is a military end-user, as defined in § 744.21(g) of the EAR;
  4. The reliability of the parties to the transaction, including whether:
    • An export or reexport license application has previously been denied;
    • Any parties are or have been engaged in unlawful procurement or diversion activities;
    • The parties are capable of securely handling and storing the items; and
    • End-use checks have been and may be conducted by BIS or another U.S. government agency on parties to the transaction;
  5. The involvement of any party to the transaction in military activities;
  6. Government strategies and policies that support the diversion of exports from their stated civil end use and redirection towards military end use; and
  7. The scope and effectiveness of the export control system in the importing country.

License reviews of items subject to the policy will also include an assessment of the impact of the proposed export on the US defense industrial base. The final rule provides that license applications will be denied if BIS finds that the license would have a “significant negative impact” on the US defense industrial base, which is defined to include reductions in US production of items that are the result of research and development funded or carried out by the Department of Defense, or in the availability of US-produced items likely to be acquired by it, among other criteria. This amendment to the licensing policy for NS items follows an April 2020 expansion of licensing requirements for items intended for military end-use or military end-users in China, Russia, and Venezuela. Our prior blog posts on that development and on the June 2020 clarifications that followed are available here and here.

Author

Ms. Lis has extensive experience advising companies on US laws relating to exports and reexports of commercial goods and technology, defense trade controls and trade sanctions — including licensing, regulatory interpretations, compliance programs and enforcement matters. She also has advised clients on national security reviews of foreign investment administered by the Committee on Foreign Investment in the United States (CFIUS), including CFIUS-related due diligence, risk assessment, and representation before the CFIUS agencies.

Author

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.

Author

Daniel Andreeff’s practice focuses on US economic and trade sanctions, including those targeting Iran, Russia, Cuba, Syria, and North Korea, export controls, and anti-boycott laws. He represents clients in national security reviews before the Committee on Foreign Investment in the United States (CFIUS), and has experience in federal court litigation and congressional investigations. His pro bono practice includes providing sanctions and export control advice to a global humanitarian NGO. * Admitted in New York only. Practice in the District of Columbia is under the supervision of a member of the District of Columbia Bar.