April 30, 2020

The U.S. Department of Commerce on Monday announced new rules aimed at tightening export controls on items to China that could end up in the hands of that country’s military, even if they are for civilian use. 

The first rule, which will go into effect 60 days after it is published in the Federal Register, expands U.S. licensing requirements on exports to #China to include all “military end users,” in addition to “military end use.” The change brings companies owned by the Chinese military under the U.S. export control licensing regime when they seek U.S.-origin items ranging from certain chemicals and nuclear generators to aviation and electronic equipment, among others.

“This expansion will require increased diligence with respect to the evaluation of end users in China, particularly in view of China’s widespread #civil-military integration,” the rule said.

#DueDiligence “will be more complicated once the final rule is implemented,” said Doug Jacobson, a partner at the international trade-focused law firm Jacobson Burton Kelley PLLC. “To the extent that there is a tool that has much more detail on ownership, that is a valuable compliance and due diligence aide.”

The first rule also broadens the definition of military end use to go beyond items for “use,” “development” or “production” by the military. It will now also include any item supporting or contributing to the operation, installation, maintenance, repair, overhaul or refurbishing of a military item, according to the rule. Any item that reaches the expanded definition of use is subject to a policy of presumed denial for an export license, according to the rule.

The ultimate use of an item is treated separately under U.S. export controls rules than its user. Under the Export Administration Regulations (EAR), “end use” can include weapons components, while an “end user” includes a nation’s armed forces, law enforcement and intelligence organizations. The definition of an end user didn’t change under the new rule. 

The requirements for end use and end users have been in effect for both Russia and Venezuela since 2014, but restrictions on China in place since 2007 only covered end use. 

“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,” said Secretary of Commerce Wilbur Ross.

second rule removes a civilian license exception for exports, reexports or transfers of certain items to countries of national security concern, including China, as well as Iraq, North Korea, Russia, Ukraine, Venezuela and more than a dozen others. The change allows “U.S. government review of these transactions” before the goods are transferred, the rule said.

Many countries seek to align civil and defense technology development, posing an economic challenge to nations that export high-tech products that could support military goals contrary to U.S. national security interests, according to the rule. Such integration of military and civilian goals “makes it more difficult for industry to know or determine … the end use and end users of items” they seek to transfer, the rule said.

The Commerce Department also proposed a rule that would eliminate certain provisions of a license exception for countries relating to reexports of controlled items to jurisdictions deemed a national security concern. The goal is “to gain better visibility into transactions of national security or foreign policy interest to the United States,” according to the proposal. 

The department said it doesn’t have a way to readily account for how many items the proposal would cover, so it also is seeking information about the volume of transactions affected by the change, the amount of time necessary to complete such transactions in the future, and how the proposed change would otherwise affect current business.

#CommerceDepartment, #exports, #Compliance, #RiskManagement

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April 30, 2020