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17-0719 Wednesday “Daily Bugle”

17-0717 Monday “Daily Bugle”

Wednesday, 19 July 2017

TOP
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  1. Justice/ATF Seeks Comments Concerning Notification of Change of Mailing or Premise Address
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Announces ACE Production Deployment on 20 July
  4. State/DDTC Posts Name Change Announcement
  5. State/DDTC Posts Policy FAQ Update
  6. EU Publishes Corrigendum Concerning Restrictive Measures Against North Korea
  1. China Daily: “Chinese Vice Premier Urges U.S. to Ease Export Barriers Against China”
  2. Reuters: “Russia Will Struggle to Turn on Siemens Turbines in Sanctions-Bound Crimea”
  1. M. Tan: “Data Export Controls in China: Implications for Digital Business”
  2. Ren Qing & Pan Jingyi: “China to Strengthen Export Control – An Introduction to the Draft PRC Export Control Law”
  3. Gary Stanley’s ECR Tip of the Day
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (13 Jul 2017), DOD/NISPOM (18 May 2016), EAR (7 Jul 2017), FACR/OFAC (16 Jun 2017), FTR (19 Apr 2017), HTSUS (28 Jun 2017), ITAR (11 Jan 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1
1.

Justice/ATF Seeks Comments Concerning Notification of Change of Mailing or Premise Address

 
82 FR 33158-33159: Agency Information Collection Activities; Proposed eCollection eComments Requested; Extension Without Change of a Currently Approved Collection; Notification of Change of Mailing or Premise Address
 
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 60-day notice.
* SUMMARY:  The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
* DATES:  Comments are encouraged and will be accepted for 60 days until September 18, 2017. …
SUPPLEMENTARY INFORMATION:  …
  – The Title of the Form/Collection: Notification of Change of Mailing or Premise Address.
  – The agency form number, if any, and the applicable component of the Department sponsoring the collection:
  – Form number (if applicable): None. …
  – Abstract: During the term of a license or permit, a licensee or permittee may move his business or operations to a new address at which he intends to regularly carry on his business or operations, without procuring a new license or permit. However, in every case, the licensee or permittee shall notify the Chief, Federal Explosives Licensing Center of the change. This collection of information is contained in 27 CFR 555.54. …
 
  Dated: July 14, 2017.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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OGSOTHER GOVERNMENT SOURCES

OGS_a12. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register

* President; ADMINISTRATIVE ORDERS; Transnational Criminal Organizations; Continuation of National Emergency (Notice of July 19, 2017) [Publication Date: 20 July 2017.]

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OGS_a34.

DHS/CBP Announces ACE Production Deployment on 20 July

(Source:
CSMS# 17-000411, 19 July 2017)
 
T
here will be an ACE PRODUCTION deployment on Thursday morning, July 20, 2017, during the 0500 – 0700 ET window, which will impact ACE Cargo Release and ACE Entry Summary processing.
 
To be deployed:

  – SE-8708: Contact information is now required in the SE13 record. If an entry does not include contact information, entry will be rejected with “MISSING CONTACT INFO” message.
  – SE-8735: Auto Cancel: Implement auto-cancellation after 60 days for all modes when entry status is Intensive or Doc Req with No Bill Match and there is no entry summary on file.
 
A new disposition code has been implemented in the SO (cargo release notification) message for entries that are cancelled after 60 days of no bill match: “28 NO BILL MATCH AFTER 60 DAYS”
 
  – SE-8707: Auto Cancel: Turn back on 30 day auto cancel for Pending Truck entries with no bill match.

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OGS_a45
.

State/DDTC Posts Name Change Announcement

(Source:
State/DDTC) [Excerpts.]
 
DDTC has posted the following name change announcement. Excerpts are included below.
 
 
Effective immediately, Aerolyusa will change as follows: ALA-Advanced Logistics for Aerospace dba ALA North America. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. … 

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OGS_a56
State/DDTC Posts Policy FAQ Update

(Source: State/DDTC)  
 
DDTC has posted a Policy FAQ Update (June 2017). The content of the document is included below.
 
Update to Policy FAQs
Q: Does saving ITAR controlled technical data on the cloud constitute an export per ITAR § 120.17?
 
A: A cloud service provider’s receipt of effectively encrypted technical data uploaded by the U.S. owner, stored and managed on a cloud service network consisting of only U.S.-based servers, administered only by U.S. persons, and appropriately configured to enable the U.S. technical data owner to control access to such data does not constitute an export under the ITAR.
Post Location: here – Under “Technical Data”
 
Q: Are public universities eligible to use the ITAR § 125.4(b)(9) exemption?
 
A: If a public university is incorporated under applicable U.S. or state laws, such public universities are eligible to use the ITAR § 125.4(b)(9) exemption.
Post Location: here – Under “Exemptions”
 
Q: Which office (DDTC or RSAT) should a foreign end user contact if they are not certain of the original procurement method of a defense article (FMS or DCS) and is seeking a third party transfer or reexport/retransfer authorization?
 
A: Where a foreign end user is not certain of the original procurement method, RSAT is the appropriate office for the foreign end user to submit a request (PM_RSAT-TPT@state.gov). In such cases, RSAT will process the request and coordinate with DDTC. Information on RSAT and the third party transfer process can be found here. Whether for RSAT or DDTC, to facilitate adjudication of the request, we ask that the foreign end user provide a best-faith statement as to what it believes to be the original acquisition method (i.e., via DCS or FMS), a summary of steps taken to investigate the acquisition of the article(s), and any other information that may be helpful.
Post Location: here– Under “Retransfer”

 
Q: Is the term “at the company’s facilities” in ITAR § 120.39(a)(2) include only a company’s headquarters, or also includes travel to other facilities?
 
A: If a contracted employee is employed ordinarily at their company’s facilities, they may also provide services for the company’s clients outside the company’s facilities. Such activities are within the definition of a regular employee in ITAR § 120.39(a)(2).
Post Location: here – Under “Terminology”
 
Q: What is meant by “commercial invoice” in ITAR § 123.9(b)(1)?
 
A: The term “commercial invoice” references the document that moves with the freight.
Post Location: here – Under “Automated Export System”

—–
Update References to ITAR § 124.16 (Either Remove or Change Reference Instead to § 126.18(d)) here.
 
  (1) Remove FAQ Entirely: Can a foreign party choose to use § 126.18 for an individual that qualifies for § 124.16? (weblink)
  (2) Update References Instead to § 126.18(d)): Can § 124.16 [change to “§ 126.18(d)”] be used to authorize dual/third country nationals of § 124.16 [change to “§ 126.18(d)(2)”] countries employed by the applicant or other US Signatories to the Agreement? (weblink)
  (3) Update Reference Instead to § 126.18(d)): When an agreement involves the transfer of classified defense articles, can § 124.16 [change to “§ 126.18(d)”] still be used to authorize dual/third country nationals access to only unclassified defense articles associated with the agreement? (weblink)
  (4) Remove FAQ Entirely: Per § 124.12(a)(10) “This agreement (does/does not) request retransfer of defense articles and defense services pursuant to § 124.16.” Should this statement include a reference to technical data? (weblink)
 
—–
New Blue Lantern FAQs
 
Post Location: New Subheading “Blue Lantern Program” here.
 
Q: What is the Blue Lantern program?
 
A: Established in 1990, the Blue Lantern program monitors the end-use of defense articles, technical data, services, and brokering activities exported through commercial channels and subject to Department of State licenses or other approvals under section 38 of the Arms Export Control Act (AECA) (22 U.S.C. 2778) and the International Traffic in Arms Regulations (ITAR) (22 CFR Parts 120-130).
 
Q: Is end-use monitoring mandated by U.S. law?
 
A: Yes. The Blue Lantern program fulfills those requirements stipulated in section 40A of the AECA (22 U.S.C. 2785) and delegated to the Department of State in Executive Order 13637.
 
Q: What does the Blue Lantern program entail?
 
A: Blue Lantern end-use monitoring includes pre-license, post-license, and post-shipment checks to verify the bona fides of foreign consignees and end-users, confirm the legitimacy of proposed transactions, and provide reasonable assurance that 1) the recipient is complying with the requirements imposed by the United States Government with respect to use, transfers, and security of defense articles and defense services; and 2) such articles and services are being used for the purposes for which they are provided.
 
Q: Who manages the Blue Lantern program?
 
A: The Blue Lantern program is managed by the Regional Affairs and Analysis Division (RAA), Office of Defense Trade Controls Policy (DTCP), Directorate of Defense Trade Controls (DDTC), Bureau of Political- Military Affairs (PM) at the U.S. Department of State. Generally, checks are conducted by Department of State personnel working from U.S. embassies and consulates worldwide.

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OGS_a67
EU Publishes Corrigendum Concerning Restrictive Measures Against North Korea

(Source: Official Journal of the European Union, 19 July 2017.)
 
  Corrigenda
 
* Corrigendum to Council Implementing Decision (CFSP) 2017/975 of 8 June 2017 implementing Decision (CFSP) 2016/849 concerning restrictive measures against the Democratic People’s Republic of Korea ( OJ L 146, 9.6.2017 )

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NWSNEWS

NWS_a18
.

China Daily: “Chinese Vice Premier Urges U.S. to Ease Export Barriers Against China”

(Source:
China Daily, 19 July 2017.) [Excerpts.]
 
Chinese Vice Premier Wang Yang on Tuesday called on the United States to relax export barriers against China and allow the two sides to tap the huge market potential in bilateral trade.
 
  “The Chinese and U.S. economies do have a competitive dimension, but there is far greater complementarity than competition,” he said at a business luncheon in Washington ahead of the first China-U.S. Comprehensive Economic Dialogue, which is slated for Wednesday.
 
As the Chinese economy continues to grow at a medium-high speed and climb higher on the value chain, China’s traditional industries are transformed and upgraded at a faster pace, and emerging industries flourish, he said.
 
Thanks to that, “there is huge market potential to tap in U.S. export of advanced technologies, key equipment and critical parts to China,” the vice premier pointed out.
 
  “Unfortunately, American businesses have not had their fair share of the ‘cake’ due to outdated U.S. regulations on export control,” he said, noting that while U.S. high-tech exports to China accounted for 16.7 percent of China’s total imports of such products in 2001, the percentage dropped to 8.2 percent last year. …
 
Citing an op-ed by the Carnegie Endowment for International Peace last April, Wang said that if the United States were to liberalize its export barriers against China to the same level as those applicable to Brazil or France, the U.S. trade deficit with China would narrow by up to 24 percent and 34 percent respectively. … 

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NWS_a29
.

Reuters: “Russia Will Struggle to Turn on Siemens Turbines in Sanctions-Bound Crimea”

(Source:
Reuters, 19 July 2017.)
 
Russia outfoxed European Union sanctions by delivering gas turbines made by Germany’s Siemens to the annexed Ukrainian region of Crimea. Now for the hard part, switching them on.
 
No Russian company, according to Reuters data, has ever got a Siemens turbine working without the help of the manufacturer.
 
In this case, Siemens said the turbines were shipped to Crimea behind its back and is refusing to be involved, leaving Moscow to work out how to start them up to fulfill President Vladimir Putin’s promise to give Crimea a stable power supply.
 
Siemens has filed a lawsuit against its Russian customer over the delivery of the turbines to Crimea and says it will do everything in its power to block their installation and commissioning.
 
If Russia can somehow get the turbines operating at the two new power plants under construction, having already irked Europe by delivering them, it will again demonstrate its ability to thumb its nose at the sanctions.
 
Ten industry specialists who spoke to Reuters said starting up the turbines without engineers from Siemens or its partners would be a tough test of the country’s engineering resourcefulness, fraught with technical problems, expensive and a legal minefield. …
 
EU companies are banned from transferring energy technology to Crimea under the sanctions, imposed after Moscow seized the peninsula from Ukraine in 2014. But, in a loophole Moscow seems to have exploited, their Russian subsidiaries are not directly liable. …
 
Any Russian company that agrees to set up the Crimea turbines must weigh the “very high” risk of sanctions being imposed on any EU or US business it has, according to Artyom Zhavoronkov, partner in the Russian office of law firm Dentons. …
 

Russian officials have not acknowledged shipping Siemens turbines to Crimea. They say the turbines were obtained second hand and were Russian-made. Siemens makes turbines at a factory it co-owns in Russia. … 

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COMMCOMMENTARY

COMM_a01
10. M. Tan: “Data Export Controls in China: Implications For Digital Business”

(Source: Taylor Wessing)
 
* Author: Michael Tan, Esq., m.tan@taylorwessing.com, Taylor Wessing, Shanghai, China.
 
All digital business in China will need to consider the implications brought by the draft Measures for Security Assessment of Export of Personal Information and Critical Data (“Draft”) which were presented by the Cyberspace Administration of China (“CAC”) to solicit comments from the public until 11 May 2017 and are expected to take effect in June 2017. This is an important legislative move following the new PRC Cyber Security Law, which will take effect on 1 June 2017 (“CS Law”), and which extends the legal application of the controversial Article 37 under the CS Law. This article generally imposes a local storage obligation on critical information infrastructure operators (“CIIO”) with regard to personal information and important data collected and generated out of their operation in China. If transmission of such data out of China is necessary due to business needs, clearance procedures shall be followed according to separate rules to be formulated by the CAC. The Draft is meant to clarify details for further implementation of Article 37 of the CS Law. However, in its current form as presented to the public it appears to go far beyond the CS Law, which will have a substantial impact on all online based business including digital business.
 
  Relevance to Your Business
 
The CS Law does not define the term CIIO. Based on a pure literal reading of this law, one will not conclude that it relates to digital business. The exemplary industries mentioned in this law where the term CIIO appears include public communication networks and information services, energy, transport, water conservancy, finance, public services, and e-government affairs. It further covers the areas where a data breach or security compromise could result in serious harm to national security, national economy, peoples’ livelihood and the public interest. All these give the impression of a “heavier” infrastructure and facility operator, but not a lighter digital business model, which usually takes the form as a user of the former. However, “information service” under Article 31 of the CS Law – as an exemplary industry where a company may qualify as a CIIO – is quite a broad and vague term, which could potentially be extensively interpreted to cover all business relating to (digital or digitalised) information.
 
As a newly formed ministerial level agency in charge of cyber security matters, the CAC is supposed to shed light on implementation details of the CS Law including in regards to further interpreting the tricky term “CllO.” However, the Draft it presented to the public has come as quite a surprise to the business sector. This Draft does not address CIIOs. Instead, it repeats the local data storage obligation under Article 37 of the CS Law and applies this obligation to “network operators” (not only CIIOs). The term “network operators” is further defined to be those who own networks, manage networks and provide network services. This is a very broad term which in the real world could potentially cover all digital businesses which usually have online features (e.g. cloud based services). On top of this, Article 16 of the Draft stipulates that “other individuals or organisations” shall also handle data export clearance matters by referring to this Draft.
 
Obviously, by rephrasing and expanding the subjects of the obligation, the Draft now makes local storage of data a more general requirement. As far as your business concerns personal information and important data collected and generated out of your operations in China, you might be caught by this obligation.
 
  Data Sensitivity and How to Handle the Obligations
 
Generally speaking, two types of data are sensitive under the CS Law and the Draft, namely personal data (i.e. more individual based data) and critical data (e.g. more group based data) collected and generated within the territory of China. The definition of personal data is the same under both the CS Law and the Draft, which means information recorded by electronic or other means that, alone or jointly with other information, can serve to identify a natural person, including but not limited to a natural person’s name, date of birth, identification number, personal biometrics data, address, or phone number. Critical data – a term not defined under the CS Law – is defined under the Draft as data closely related to national security, economic development and public interest, of which the exact scope shall follow relevant national standards and classification guidance. So far no such national standards and classification guidance exist; they are yet to be formulated.
 
According to the Draft, if export of the above sensitive data becomes necessary due to business demand, an export clearance shall be secured. This is formed of two kinds of exercise, namely a self-assessment procedure and an administrative assessment procedure. The former is a generally applicable procedure for all network operators who shall be responsible for the result of their own assessment. They are obliged to carry out such an assessment on a yearly basis depending on their business development and shall file the assessment result with their respective industrial watchdogs. Such assessment shall focus on aspects such as business demand for export, quantity, scope, category and sensitivity of the concerned data including consent for export where applicable, security level and competence on the data recipient’s side including the cyber security situation in the country/region where the data recipient resides, data breach risk and impact after export including re-export. Any change on the recipient side or alteration of purpose, scope, quantity and type of data export or a serious data breach event shall result in a new self-assessment (plus filing).
 
In case of any of the items listed below, an administrative assessment shall apply, i.e. clearance for data export shall be obtained beforehand from the respective industrial watchdogs that will work under the CAC’s guidance and shall complete a review case within 60 working days:
 
  (i) personal information involving over 500,000 individuals (including on an accrued basis);
  (ii) data size exceeding 1,000 GB;
  (iii) data concerning nuclear facilities, biochemistry, national defence and military, demographics and health, large-scale project activities, marine environment or sensitive geographic information, etc.;
  (iv) cyber security information about system vulnerabilities and security protection of critical information infrastructures;
  (v) exporting data by a CIIO; and
  (vi) other circumstances potentially impacting national security and the public interest, of which an assessment is deemed necessary by the regulatory watchdogs.
 
Compared with Article 37 of the CS Law which only says that export of sensitive data by a CIIO shall require export clearance, the above is again surprisingly a much broader scope of coverage. Considering the fact that more data exporters are already caught by the Draft (see above first section), the Draft indeed substantially expands the circumstances under which a compulsory data export clearance will be triggered. Irrespective of the above data export clearance procedures, the Draft states that the below data are not allowed to be exported abroad:
 
  – personal data of which no prior consent was sought for export or where an export might jeopardise personal interest;
  – data of which export brings a risk to national security (e.g. politics, economy, technology, national defence) or may possibly affect national security and damage the public interest; and
  – other data of which an export is barred by administrative authorities such as the CAC, the public security authority and the national security authority.
 
  Practitioners’ Advice
 
Besides clarifying some implementation details as expected under the CS Law, the Draft actually brings more uncertainties and burdens for digital business. The fact that it regulates data transmission across the border will easily create the impression that most of these uncertainties and burdens will fall upon international business operators whose daily operation very much relies upon the free movement of data. The administrative data export control mechanism may not be business friendly when compared with, for example, the EU. According to the latter’s regulatory framework, a B2B- level data protection agreement suffices for data export to a country/region not recognised by the EU as providing an adequate level of data protection.
 
Considering the broad coverage of the Draft with regard to both whom and what shall be regulated, it is strongly recommended that digital business operators should keep a close eye on the finalised version of the Draft and be prepared for the coming data export control assessment/clearance obligations. Since the Draft also creates many pending uncertainties and questions (for example what exactly is meant by “export” and what those open ended “other” situations are), proactive communication with the regulators and implementation of a proper assessment system, with both supported by experienced legal professionals, will be a must to tackle these new regulatory challenges in China.

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COMM_a2
11Ren Qing & Pan Jingyi: “China to Strengthen Export Control – An Introduction to the Draft PRC Export Control Law”

(Source: Global Law Office)
 
* Authors: Ren Qing, Esq., renqing@glo.com.cn; and Pan Jingyi, Esq. Both of Global Law Office, Beijing, China.
 
When ZTE was penalized in a big amount of fine by the U.S. government, there were comments saying that the export control in China was without “teeth”. If these comments to some degree reveal the truth, the situation will soon change. Lately, the Ministry of Commerce (MOFCOM) has published the Export Control Law of PRC (Draft for Comments) (hereinafter referred to as the “Draft”) for soliciting public comments. [FN/1] The Draft explicitly includes “deemed export” and reexport in its application scope, perfects provisions on embargo as an additional control measure, reinforces administration on end-users and end-use, expands investigatory powers of export control authorities and aggravates punishments against illegal acts. The enactment of this new law may have significant implications on business operations of both domestic and foreign enterprises, and thus is worth relevant enterprises’ close attention.
 
  (1) Necessity of Legislation
 
Why does China has the motive to enact the Export Control Law considering the dozens of existing administrative regulations and rules in this area? MOFCOM has put forth three rationales as to the necessity of legislation in its Introduction to the Draft, of which the second rationale is that “China’s current export control rules and regulations are promulgated at an early stage with low hierarchy in the law system, and problems relating to insufficient enforcement authority and impossibilities of investigating and closing certain cases in practice have derogated the authority of export control work”. [FN/2] We understand that this rationale is the most realistic rationale that calls for legislation reform, and also the one that needs enterprises’ greatest attention. As detailed in the following paragraphs, the Draft indeed renders solutions to these problems.
 
  (2) Application Scope
 
Articles 2, 3 as well as Articles 64 through 69 in the Draft provide application scope of the Export Control Law. By including deemed export and reexport into its application scope, the Draft has enlarged (or has further clarified) the scope of export control in China.
 
According to the Draft, items under control are classified into four categories, namely (1) dual-use items (items for both civil and military use), (2) military items, (3) nuclear items, and (4) other items related to national security. Each category covers relevant goods, technologies and services. The scope of items under control is thus expanded compared to that in the past.
 
Behaviors under control are classified into two categories, namely (1) transferring across the border the controlled items from the territory of China, and (2) providing controlled items to foreign nationals, legal persons or other organizations by China’s nationals, legal persons or other organizations. The first classification emphasizes the notion of “across the border”, thereby including either exports of the nature of trade or other forms of transfers arising out of outbound investment, overseas exhibitions, foreign aids, foreign donations, etc. Moreover, the notion “the territory of China” does not include Taiwan area, Hong Kong and Macao Special Administrative Regions; unless otherwise specified, controlled items transferred to the above area or regions shall also be subject to export control.
 
The second category mainly refers to “deemed exports”, namely providing controlled goods or technologies in the territory of China to foreign persons, or residents in Taiwan area, Hong Kong and Macao Special Administrative Regions. This may include, allowing foreign persons who work, study or visit temporarily in China to access to relevant equipment or technical materials, or communicating orally with foreign persons, etc. While “deemed export” has been the focal point of export control law enforcement in the U.S., China has not maintain specific provisions over this issue until the Draft finally brings it into its application scope.
 
Additionally, the Draft includes reexport in its application scope. The following two circumstances are deemed as reexport: (1) controlled items that have been exported outside the territory of China are further exported to a third country or region; (2) controlled items that have been exported outside the territory of China are used for manufacturing of new products and such new products are further exported to a third country or region. In the second scenario, China’s export control law only applies if value of the controlled items has reached certain proportion in the total value of the reexported products.
 
  (3) Competent Authorities
 
Currently, the export control of China involves various government departments, where division of responsibilities and cooperation both exist. The export of nuclear, missile, biological and chemical dual-use items are under the administration of MOFCOM jointly with other departments like State Administration of Science, Technology and Industry for National Defense (SASTIND, also named as “China Atomic Energy Authority”) and Ministry of Industry and Information Technology (MIIT). The export of nuclear items is administered by SASTIND together with MOFCOM. The export of military items is administered by SASTIND in association with the Equipment Development Department of the Central Military Commission.
 
In light of Articles 5 and 6 of the Draft, the current framework of administration over export control would remain basically unchanged, although slight changes might occur.
 
  (4) Control Lists
 
For the convenience of law enforcement as well as compliance, major countries and regions maintain control lists for export control. According to Articles 13 to 15 of the Draft, an export control system consisted of “two lists and two additional measures” would be established in China.
 
“Two lists” refer to dual-use items export control list and military items export control list. Without doubt the latter corresponds to the Administrative Catalogue of Export of Military Products that is now in place. However, ambiguity exists as to whether the former list will be established in the form of an unified list or, following current practice, in the form of separate lists for “controlled chemical products”, “relevant chemical products”, biological dual-use items, missile dual-use items, nuclear dual-use items, etc. (These lists are included in the Catalogue of Dual-Use Items and Technologies Subject to Administration of Export License [FN/3]). Moreover, as mentioned in above, controlled items are classified into four categories in the Draft; apart from dual-use items and military items, the Draft does not touch upon whether to establish lists for the other two categories of controlled items. As for nuclear items, it might be a result of negligence given the existence of the current Nuclear Export Control List. As for other items related to national security, a list is not expected to be made for the very miscellaneous nature of this category.
 
Two additional measures are (1) provisional control measures, i.e. imposing control over items outside the control lists in the form of provisional notices, when it is impossible to adjust the control lists in time for sake of effectiveness of export control work; (2) embargo, mainly referring to prohibiting exports of relevant controlled items or exports destined to specified destinations, natural persons, legal persons or other organizations, for purpose of implementing international obligations such as the resolution of the UN Security Council. Current regulations have set forth provisions on provisional control measures, and embargos that prohibit exports of specified items to specified countries have already been in place. Nevertheless, current laws or regulations and practices cannot provide explicit provisions or guidelines over embargos that target at specified individuals or entities. The Draft has filled this gap by drawing experiences from the U.S. as well as other countries and regions.
 
  (5) License Administration
 
There are two aspects contemplated by the export license regime for the controlled items: one is the administration of qualification for export operators, and the other is the administration of licenses for export transactions.
 
Article 20 of the Draft provides that export operators for controlled items are subject to monopoly, record-filing or other administrative measures. Currently, controlled chemicals and military items are subject to monopoly of trade, while for exporting other dual-use items, export operators are required to be registered with MOFCOM. It remains to be seen whether the use of the term “record-filing”, instead of “registration”, implies a further deregulation of qualification for exporting dual-use items.
 
Articles 20 to 31 of the Draft are general provisions about license administration for export transactions. Similar to the current practice, licenses are categorized into two types, individual licenses and general licenses. The competent authority will consider national security, international obligation and other factors when determining whether to grant a license. It is especially noteworthy that the Draft contains at least 5 articles concerning administration of end users and end use, including that the importer or the government of the importing country is required to issue a certificate of end user and end use; that the importer commits not to change the end use and the end user; that the export operator is required to review the end user and the end use; that the competent authority can send personnel to conduct on-site verification regarding the end user and the end use; that a blacklist of foreign importers and end users will be established. Sections II and III of Chapter III of the Draft set forth detailed provisions for export license administration for dual-use items and military items, respectively.
 
  (6) Investigatory Powers
 
Chapter IV of the Draft sets forth provisions on daily supervision and enforcement investigations, the most distinguishing feature of which is that the competent authority of export control has been bestowed with full power of investigation and enforcement. The competent authority is authorized to take the following measures: (1) entering into and examine the business places or other relevant places of the investigated operators; (2) inquiring the investigated operators, interested parties or other relevant entities or individuals, and asking them to explain the situation; (3) looking up and copying relevant documents, agreements, accounting books, business correspondence, electronic data, etc.; (4) examining the conveyance used for export, stopping the loading of suspicious export items, and requiring the return of illegally exported items; (5) closing down and seizing items concerned; and (6) checking and freezing bank accounts of the investigated operators.
 
  (7) Legal Liabilities
 
The Draft provides liabilities for seven categories of illegal acts, which include exportation without license, provision of untruthful information when applying for licenses, defraud/sale of export licenses, abet, conspiracy or provision of convenience or similar illegal acts, circumvention behaviors, violation of blacklist control, and obstruction of investigations. Most illegal acts other than exportation without license and defraud/sale of export licenses are not explicitly specified in current regulations.
 
The Draft provides multiple legal liabilities over illegal acts such as exportation without license, including (1) confiscation of illegal gains; (2) imposition of fines on export operators; (3) imposition of fines on directly responsible person-in-charge and other directly liable persons; (4) entering credit information including but not limited to administrative penalties imposed on export operators and their major responsible person into the National Credit Information Sharing Platform; (5) dismissal of export license application made within three years by any unlawful export operators; (6) temporal seizure or withdrawal of qualification of the export operator; and (7) criminal liabilities under the Criminal Law if the violation concerned constitutes a crime. Compared to current laws and regulations, the major changes are to increase the upper limit of amount of fines for export operators from five times to ten times of revenue of illegal business, and to introduce fines for individuals (with an upper limit of 300,000 yuan).
 
It remains to be seen whether and in what way the aforementioned punishments will be applied to foreign individuals or entities that are engaged in reexport of controlled items.
 
  (8) Compliance Guidance
 
Several measures are introduced in the Draft to guide and encourage enterprises to comply with export control laws: (1) license convenience regime, i.e. the authorities will provide license conveniences such as issuance of general licenses to enterprises that maintain an internal export control compliance system; (2) consultation regime, i.e. export operators may apply to consult with the authorities on whether the goods to be exported fall within the scope of controlled items; (3) administrative guidance regime, i.e. the authority will publish from time to time export control guidelines and best practices; (4) risk warnings regime, i.e. the authority will notify export operators any violation risks by issuing warning letters or calling in for talks. 
 
This brief introduction is not intended to cover every aspect of the Draft. The author welcomes any comments or questions on the content of the Draft or its implication for enterprise operation, or on the current export control regime in China.
 
——-

  [FN/1] See
MOFCOM website (in English).

  [FN/2] MOFCOM’s Introduction to the Draft is available here (in Chinese).
  [FN/3] The latest version of this Catalogue is available here (in Chinese.) 

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COMM_a3
12. Gary Stanley’s ECR Tip of the Day

(Source: Defense and Export-Import Update; available by subscription from
 gstanley@glstrade.com
)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com.
 
ITAR § 126.18 does not impose on the U.S. exporter an obligation to request a written statement or certification from the foreign company that it will be invoking the provisions of § 126.18 and has met all the requirements outlined therein to prevent the diversion of defense articles to unauthorized end-users and end-uses. However, it is always good business practice to be sure that foreign companies that are receiving ITAR-controlled items understand the requirements and restrictions associated with the receipt and handling of such items.

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ENEDITOR’S NOTES

* Edgar Degas (born Hilaire-Germain-Edgar De Gas, 19 Jul 1834 – 27 Sep 1917, was a French artist famous for his paintings, sculptures, prints, and drawings. He is especially identified with the subject of dance; more than half of his works depict dancers. He is regarded as one of the founders of Impressionism, although he rejected the term, preferring to be called a realist.)
  – “Art is not what you see, but what you make others see.”
  – “Painting is easy when you don’t know how, but very difficult when you do.”

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EN_a314
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  Changes to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. 
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 13 Jul 2017: 82 FR 32232-32241: Electronic Information for Cargo Exported from the United States; Technical Amendments


* DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M
  – Last Amendment: 18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and cancelled Supp. 1 to the NISPOM  (Summary here.)


EXPORT ADMINISTRATION REGULATIONS (EAR)
: 15 CFR Subtit. B, Ch. VII, Pts. 730-774

  – Last Amendment: 7 July 2017: 
82 FR 31442-31449: Revisions to the Export Administration Regulations Based on the 
2016 Missile Technology Control Regime Plenary Agreements. 

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 16 Jun 2017: 82 FR 27613-27614: Removal of Burmese Sanctions Regulations 
 
*
FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30
  – Last Amendment: 19 Apr 2017: 82 FR 18383-18393: Foreign Trade Regulations: Clarification on Filing Requirements 
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (18 July 2017) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and footnotes containing case annotations, practice tips, Census/AES guidance, and to many errors contained in the official text. Subscribers receive revised copies every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance website.  BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR. 
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jan 2017: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment: 28 Jun 2017: Harmonized System Update 1704, containing 2,564 ABI records and 463 harmonized tariff records. 
  – HTS codes for AES are available
here
.
  – HTS codes that are not valid for AES are available
here.
 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.
  – Last Amendment: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
  – The only available fully updated copy (latest edition: 10 Jun 2017) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III.  The BITAR contains all ITAR amendments to date, plus a large Index, over 800 footnotes containing amendment histories, case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text.  Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.  The BITAR is available by annual subscription from the Full Circle Compliance website.  BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please contact us to receive your discount code.

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Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published
here

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, John Bartlett. The Ex/Im Daily Update is emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOJ/ATF, DoD/DSS, DoD/DTSA, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.

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