The Department of Commerce’s Bureau of Industry and Security (“BIS”) announced today new export controls and Entity List additions designed to further restrict Russia’s ability to maintain its continued war against Ukraine. The Biden Administration’s measures come on the one-year anniversary of Russia’s invasion of Ukraine and the first announcement by several Western countries, including the U.S., of initial sanctions in response. Notably, the new actions target items destined to Russia, Belarus, Iran, and other countries that are being used to support Russia’s defense industrial base and ongoing war effort.
These measures are one part of a multi-prong package of actions taken against Russia by the Biden Administration. In conjunction with BIS’s export controls, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) also implemented additional sanctions against individuals and entities operating in Russia, and those assisting Russia’s war effort. Additionally, the White House announced it is imposing a 200% tariff on Russian aluminum entering the US beginning March 10. A detailed review of those new sanctions and tariffs can be found in our separate posts here and here.
BIS amended and expanded its Russian and Belarusian Industry Sector Sanctions under Section 746 of the U.S. Export Administration Regulations (“EAR”) to more closely align U.S. controls with those implemented by allied countries. BIS also created a new list of items restricted for export to Iran as well as a new Iran Foreign-Direct Product (“FDP”) Rule. Finally, BIS added 86 new entities from Russia and other countries to the Entity List. The new restrictions, discussed in greater detail below, impose further limitations on the export of various commercial, industrial, and luxury goods.
Supplement No. 2 to Part 746 of the EAR
BIS revised Supplement No. 2 to Part 746 of the EAR to remove all references to Schedule B numbers in place of the Harmonized Tariff Schedule (HTS)-6 Code and HTS Description, which are more widely used among U.S. partner countries. BIS also expanded the scope of items subject to restrictions under Supplement No. 2 by specifying that the items now include any modified or designed “components,” “parts,” “accessories,” and “attachments”, regardless of their HTS Code or HTS Description.”
Supplement No. 4 to Part 746 of the EAR
Similar to Supplement No. 2, BIS also revised Supplement No. 4 to Part 746 of the EAR to utilize only the HTS-6 Code and HTS Description. BIS further added 322 new HTS-6 codes to the restricted items identified in Supplement No. 4 to Part 746. Pursuant to § 746.5(a)(1)(ii) of the EAR, these items will require a license for export to Russia or Belarus. The list includes numerous steel products classified under Chapter 72 of the HTS, as well as heavy equipment and industrial machinery under Chapters 84, 85 and 90 of the HTS.
Supplement No. 5 to Part 746 of the EAR – Luxury Goods
BIS expanded its restrictions on “Luxury Goods” as identified in Supplement No. 5 to Part 746 by adding 276 additional items that will now require a license for export, reexport, or transfers (in-country) to and within Russia or Belarus pursuant to § 746.10(a)(1) of the EAR. Pursuant to § 746.10(a)(2) of the EAR, these items will also require a license for export, reexport, or transfers (in-country) to certain Russian and Belarusian oligarchs and malign actors worldwide designated on the U.S. Treasury Department’s Office of Foreign Assets Control’s (“OFAC”) Specially Designated Nationals and Blocked Persons (“SDN”) List. These goods include (but are not limited to): (i) numerous household items such as refrigerators, freezers, dishwashing machines, washers, dryers, vacuums, microwave ovens, coffee machines and toasters, (ii) office equipment such as certain types of printers, scanners and copier machines, and (iii) various automobile replacement parts such as turn signals, horns, defrosters and windshield wipers. The full list of items can be found in this Federal Register Notice.
Supplement No. 6 to Part 746 of the EAR
BIS made a variety of revisions to the chemicals, biologics, equipment, and other items identified in Supplement No. 6 to Part 746. BIS stated it also added several explanatory notes to help clarify the scope of the controls in this section. Pursuant to § 746.5(a)(1)(iii) of the EAR, items identified in Supplement No. 6 to Part 746 require a license for export, reexport, and transfer (in-country) to or within Russia or Belarus.
Changes in Licensing Policy for Russia and Belarus
For license applications involving transactions with items in Supplements Nos. 2, 4, 5, and 6 which were eligible for a case-by-case review standard, BIS modified its standard of review from “case-by-case basis” to “case-by-case basis to determine whether the transaction in question would benefit the Russian or Belarusian government or defense sector”. Additionally, BIS expanded the list of transactions eligible for review under that newly revised case-by-case standard to include transactions involving items listed in Supplement Nos. 2, 4, 5, and 6 and ECCN and FDP-controlled items under EAR § 746.8 when those items are disposed by companies that are not headquartered in Country Groups D:1, D:5, E:1 or E:2 who are curtailing or closing all of their operations in Russia or Belarus. BIS explained that “Companies deciding to curtail or close all operations in Russia put further pressure on the Russian government and on the Russian and Belarusian defense industrial base, as their departure will hollow out both countries’ industrial capacity and economy, which may lead to further degradation of their defense industrial base. BIS encourages companies to exit the Russian and Belarusian markets and is making these changes to facilitate such decisions”.
BIS created a new Supplement No. 7 to Part 746 of the EAR, which identifies items used to manufacture Iranian Unmanned Aerial Vehicles (“UAVs”) and is designed to target Iran’s supply of UAVs to Russia. Similar to Supplement Nos. 2, 4, and 6 to Part 746, the new Supplement No. 7 imposes a license requirement on a subset of EAR99 items that are destined to Iran, regardless of whether a U.S. person is involved in the transaction. These items include certain aircraft internal combustion engines and parts for such engines as well as additional electronic components. The restricted items also include any modified or designed “components,” “parts,” “accessories,” and “attachments”. Any items newly subject to the EAR will be subject to the regulatory authority of OFAC to the extent the export is prohibited by 31 C.F.R. §§ 560.204 or 560.205 of the Iranian Transactions and Sanctions Regulations. (“ITSR”). BIS has identified these items by HTS-6 Codes, and a full list of these items can be found in this Federal Register notice.
Additionally, BIS made two revisions to the Foreign-Direct Product (“FDP”) Rules in § 734.9 of the EAR. The first revision expands the Russia/Belarus FDP rule, while the second change added a new Iran FDP rule for items identified in the new Supplement No. 7 to Part 746.
First, BIS expanded the scope of the current Russia/Belarus FDP rule in paragraphs (f)(1)(i)(B) and (f)(1)(ii)(B) of § 734.9 to include items identified in the new Supplement No. 7 to Part 746, even if such items are designated EAR99 when they meet the FDP criteria under paragraph (f). BIS noted that many of the “parts” and “components” found in Iranian UAVs on the Ukrainian battlefield have branding indicating U.S. origin. This revised expansion is designed to help further restrict the export of these items to Iran for eventual use by Russia in Ukraine.
Second, BIS added a new Iran FDP rule under paragraph (j) of § 734.9 of the EAR. While the Iran FDP Rule is similar to the Russia/Belarus FDP Rule, BIS tailored the Rule to target Iran’s UAV activities. Specifically, under the Iran FDP Rule, items will be subject to the EAR if they are the direct product of U.S.-origin software or technology classified in Categories 3 through 5 and 7 of the CCL, or are produced by a plant or major component of a plant which itself is the “direct product” of such software or technology. The full explanation of the new Iran FDP Rule can be found in the Federal Register notice.
The new BIS rule does provide a savings clause. Authorized shipments that are en route aboard a carrier to port, and that would now otherwise be prohibited by these new restrictions, may proceed to the final destination provided the export, reexport, or transfer (in-country) is completed by March 27, 2023.
Entity List Additions
BIS also added 86 entities from Russia, China, and other countries to its Entity List for evading sanctions and providing backfill supply to support Russia’s defense industry. The Entity List designations are intended to prevent these listed companies from acquiring items, including semiconductors, made in the U.S. as well as abroad using certain U.S. technology and software. The full list of entities added under the destination of Russia can be found here, while the remaining entities are listed here. U.S. persons will require an export license to export, reexport, or transfer (in-country) any item subject to the EAR to these entities. BIS will review most license applications under a policy or presumption of denial, with several limited exceptions to certain entities for food and medicine designated as EAR99, which BIS will review on a case-by-case, while also considering whether the transaction in question would benefit the Russian or Belarusian government or defense sector when evaluating applications involving Russian Entity List designees who are eligible for case-by-case consideration.
Husch Blackwell’s Export Controls and Economic Sanctions Team continues to closely monitor all sanctions and export controls developments concerning Russia, Belarus, and Ukraine and will provide further updates as conditions change. Interested readers can also review content covering previous Russia, Belarus and Ukraine sanctions developments at the Husch Blackwell Russia Sanctions Resource Library. Should you have any questions or concerns, please contact Cortney Morgan, Grant Leach, Emily Mikes or Eric Dama of our Export Controls and Economic Sanctions Team.