The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a final rule effective October 29, 2020 amending Section 742.4(b)(7) of the Export Administration Regulations (“EAR”) to revise the license review policy for items controlled for National Security reasons (“NS items”) destined for the People’s Republic of China (“China”), Venezuela, or the Russian Federation (“Russia”).
According to the final rule, BIS will review all NS item applications involving China, Russia or Venezuela to determine the risk of diversion to a “military end user” or for a “military end use.” Exports, reexports and transfers of NS items destined for civil end users and civil end uses in China, Venezuela or Russia are subject to a presumption of approval, while BIS will apply a presumption of denial when reviewing applications for exports, reexports or transfers of NS items that will make a “material contribution” to the “development, production, maintenance, repair, or operation” of weapon systems, subsystems and assemblies in those three countries.
This amendment follows a similar update to Section 744.21 of the EAR which, as of June 29, 2020, significantly expanded the EAR’s definition of “military end use” and also prohibited exports, reexports and in-country transfers of specified items to China, Russia or Venezuela when those items will be used by “military end users” or for a “military end use.” BIS’s amendments to Section 744.21 only applied to specific items listed on Supplement No. 2 to EAR Part 744, but BIS did change its licensing review standard to a presumption of denial for those specific items.
BIS set forth several factors that it will now consider when reviewing license applications involving NS items destined to China, Russia or Venezuela. These factors include:
- The appropriateness of the export, reexport or transfer for the stated end use;
- The significance of the item to the importing country’s weapons systems capabilities;
- Whether any party is a “military end user” as defined in § 744.21(g) of the EAR, or is involved in military activities including the “development, production, maintenance, repair, or operation of weapons systems, subsystems, and assemblies”;
- The reliability of the parties to the transaction;
- Government strategies/policies that support diversion of civil end use exports towards a military end user; and
- The scope and effectiveness of the importing country’s system of export controls.
It is important to note that exports, reexports and transfers destined for civil end users and civil end uses in China, Venezuela or Russia are subject to a presumption of approval license policy. The review will also assess and consider the impact of the export of a certain controlled item on the U.S. domestic industry, including the negative impact of a denial of application.
We encourage clients and companies to contact Cortney Morgan or Grant Leach of Husch Blackwell’s Export Controls & Economic Sanctions team with any questions or concerns regarding this final rule and revised licensing policy.