May 20, 2020
The rules were adopted as part of the Trump Administration’s 2017 National Security Strategy, and they substantially affect U.S. exporters of goods to China (CH), Russia (RU), and Venezuela (VZ). These significant regulatory changes will be effective June 29, 2020, and are intended to enhance US national security and foreign policy by expanding the scope of items requiring a license for export, re-export or transfer to military end users and end uses and by adding Regional Stability (RS) as a new reason for control for the export of certain items to these countries.
1. License Requirements
a. Broadened license requirements for exports of certain items to military end users and military end uses pursuant to the EAR 744.32. Exports, reexports, or (in country) transfers of those items intended for Military End Use (MEU) or Military End Users in Russia, Venezuela and China will require licenses.
i. Military End Users (MEU) are defined as the national armed services (army, navy, marine, air force, or coast guard), as well as the national guard, national police, government intelligence or reconnaissance organizations. It also includes any person or entity whose actions or functions are intended to support military end uses;
ii. The definition of Military End Use is expanded to include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, “development”, or “production” of military items.
b. Export licenses will be required for items listed on the Commerce Control List (CCL) and identified as controlled for Anti-Terrorism (AT) only, when exported, reexported or transferred to a military end user or military end use in Russia, Venezuela or China.
i. This will cover certain items in the Information Security, Materials Processing, Lasers and Sensors, Telecommunications, Electronics and Propulsion categories, such as commercial aircraft parts and components, general purpose electronic equipment, semiconductors, and marine equipment (ranging from scuba gear and inflatable boats to underwater scopes/vision systems.
ii. The license requirement is implemented by adding the following ECCNs to Supplement No. 2 to Part 744: 2A290, 2A291, 2B999, 2D290, 3A991, 3A992, 3A999, 3B991, 3B992, 3C992, 3D991, 5B991, 5A992, 5D992, 6A991, 6A996, as well as by expanding the range of commodities found under 3A992, 8A992, 9A991 and 9B990 that are included in Supplement No. 2 to Part 744.
iii. Clarifies export license requirements for exports to Russia, Venezuela or China of items in a “.y” paragraph of a 9x515 or Series 600 ECCN by relocating those license requirements from Section 744.21 to the License Requirements sections of each ECCN.
iv. License Exceptions
c. License applications must be submitted and approved prior to export, reexport or transfers to these countries. Review and approval of licenses for military end uses and military end users in Russia, Venezuela and China will be more restrictive, with a presumption of denial for such cases pursuant to Section 744.21(e).
2. Mandated EEI submissions via the Automated Export System ("AES") for an expanded scope of items listed on the CCL when exported to China, Russia, or Venezuela.
EEI submissions will be required regardless of value for exports, including no license required (NLR) exports, of all items except those classified as EAR99. Therefore, the use of the EEI 30.37(a) for exports less than $2,500 per HTS/Schedule B and per shipment is no longer permitted unless the items are properly classified as EAR99.
Exporters are encouraged to start the process now of incorporating changes to adhere with this significant trade regulatory change by thoroughly reviewing the broadened and expanded scope of controls closely to determine the ‘correct’ classification of its products and perform license determinations accordingly. EAR99 does not automatically imply NLR. Likewise, NLR is not an export classification. Products previously exported as No License Required (“NLR") should be reviewed closely to ensure compliance with the new list-based sanctions and licensing requirements. Under the EAR’s revised scope of controls for these Group D:1 countries, the use of NLR for exports of these items may no longer be permitted.
Exporters should perform enhanced Due Diligence to validate the end users and end uses and perform restricted party screens prior to exporting products to China, Russia or Venezuela. Exporters should also maintain accurate records of these shipments, including the due diligence performed. All documents should be retained, date/time stamped, to include all products shipped (even if qualifies under EAR99), the classification process, pertaining shipping documents, and clear validation of end users and verified end use. Exporters should also implement end user statements on these shipments. This is especially important where most of the exports are to Distributors or Wholesalers.
“For example, 7.5.2020, Exporter, ABC USA engages in a transaction to export a shipment of their product classified pursuant to EAR as 3A991, from the US to its customer, XYZ Co, a distributor located in China. ABC USA sales representative reveals during a casual conversation with XYZ they also have a contract with the Chinese Military for commercial end use.
Under the new regulation, prior to export, ABC USA must have a clearly documented process in place to validate whether their product will indeed be distributed at some point in the future to the MEU or for military end use. Clearly developed processes and implemented processes for validating or verifying the end use may affect liability in the event of a violation of the EAR, especially if ABC USA verifies end use will not be MEU or for military end use by requiring XYZ Co. to sign and date the end user statement.
If anticipated sales to the MEU or for a military end use are determined, ABC USA should apply to BIS for a license. In the event of a planned sale to the MEU or for a military end use from the existing inventory of XYZ, either ABC USA or XYZ must apply for (and receive) a license from BIS before the sale may go forward.”
Crane Trade Services can assist you with understanding if these new requirements apply to your products, as well provide export compliance reviews for current or new processes. For assistance please contact CWTSConsulting@craneww.com.