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20-0703 Friday ” Daily Bugle “

20-0703 Friday “Daily Bugle”

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Friday, 3 July 2020

  1. No Federal Register was published today due to U.S. Independence Day.
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State/DDTC: (No new postings)
  4. Treasury/OFAC: “Publication of Xinjiang Supply Chain Business Advisory”
  5. EU Council: “Declaration of the High Representative on behalf of the European Union on the adoption by China’s National People’s Congress of a National Security Legislation on Hong Kong”
  6. Spain Draft Legislation Provides Legal Framework for Sanctions Enforcement
  1. EU Sanctions: “OFAC Lifts Sanctions on 4 Shipping Companies & their Vessels
  1. Alston & Bird: “New Export Control Restrictions on China, Russia, and Venezuela Take Effect”
  2. Braumiller: “New Challenges for Exports to China (and other Destinations)”
  3. Crowell Moring: “US Export Controls and Hong Kong-Change Underway”
  4. ECS: “Breaking Developments in Export Policies Towards China and Hong Kong DOD Releases List of Communist Chinese Military Companies”
  5. Steptoe: “BIS Issues New FAQs Regarding the Expansion of the Military End Use / Military End User Rule”
  1. ECTI Presents: The Latest Issues in OFAC and EAR Enforcement Webinar; 21 Jul
  2. Friday List of Approaching Events: ??? Events Posted This Week, Including ??? New Events
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here. 
  3. Weekly Highlights of the Daily Bugle Top Stories 
  4. Submit Your Job Opening and View All Job Openings 
  5. Submit Your Event and View All Approaching Events 

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OGS OTHER GOVERNMENT SOURCES

(Source: Federal Register

 
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OGS_a23. Commerce/BIS: (No new postings)

 
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(Source:
Treasury/OFAC
, 1 Jul 2020
) [Excerpts] 
 
On July 1, the U.S. Departments of State, Commerce, Homeland Security, and Treasury
issued advisory with potential exposure in their supply chain to entities engaged in human rights abuses in the Xinjiang Uyghur Autonomous Region (Xinjiang) . Businesses with potential exposure in their supply chain to Xinjiang or to facilities outside Xinjiang that use labor or goods from Xinjiang should be aware of the reputational, economic, and legal risks of involvement with entities that engage in human rights abuses, including but not limited to forced labor in the manufacture of goods intended for domestic and international distribution.

 
* * * * * * * * * * * * * * * * * * * *  

 
The Standing Committee of China’s National People’s Congress adopted the National Security Law in Hong Kong on 30 June and subsequently promulgated it in Hong Kong the same day. The European Union reiterates its grave concerns about this law which was adopted without any meaningful prior consultation of Hong Kong’s Legislative Council and civil society.  
 
The European Union has a strong stake in the continued stability and prosperity of Hong Kong under the “One Country, Two Systems” principle. It attaches great importance to the preservation of Hong Kong’s high degree of autonomy, in line with the Basic Law and with international commitments, as well as to the respect for this principle.  
 
There are concerns about the conformity of the new law with Hong Kong’s Basic Law and with China’s international commitments.  In line with assurances that China gave in the past, the European Union considers it essential that the existing rights and freedoms of Hong Kong residents are fully protected, including freedom of speech, of the press and of publication, as well as freedom of association, of assembly, of procession and of demonstration. The provisions of the International Covenant on Civil and Political rights (ICCPR) as enshrined in Hong Kong legislation must continue to be fully applied.
 
The European Union is concerned that the law risks seriously undermining the high degree of autonomy of Hong Kong, and having a detrimental effect on the independence of the judiciary and the rule of law.  Both of these principles remain essential for the continued stability and prosperity of Hong Kong, and are therefore of vital interest to the European Union and the international community.
 
The European Union urges China to avoid any act which undermines Hong Kong’s autonomy in the legal field, including in terms of human rights.
The European Union is assessing the implications of such a law and will continue to raise its concerns in its dialogue with China.  It will continue to follow developments closely, including in the context of the upcoming Legislative Council elections on 6 September, which need to proceed as planned and in an environment conducive to the exercise of democratic rights and freedoms as enshrined in the Basic Law.  

 
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(Source: Spanish Government, 2 Jul 2020) [Excerpts] 
 
The present Draft Law transposes the EU Community Directive 2018/843 on the prevention of money laundering and terrorist financing -V Directive- and modifies Law 10/2010. The European Directive incorporates new measures aimed at reinforcing the preventive systems of the member countries. The new Draft Law advances in the reinforcement of the money laundering and terrorist financing control system, incorporating new community provisions and including additional improvements in the current regulation to increase the effectiveness of prevention mechanisms. … 


Click here for the full text.

 
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COM NEWS

(Source:
EU Sanctions, 3 Jul 2020) [Excerpts] 
 
OFAC has lifted sanctions on Marshall Islands-based Delos Voyager Shipping Ltd, Adamant Maritime Ltd, and Sanibel Shiptrade Ltd, and Greece-based Romina Maritime Co Inc. 4 crude oil tankers, 1 owned/controlled by each of the companies, have also been delisted. All were designated for allegedly operating in the oil sector of the Venezuelan economy (see post and post). General Licence 37, which authorized the winding down of transactions/activities relating to Delos Voyager and its vessel Delos Voyager, and Romina Maritime and its vessel Euroforce, has been revoked and archived. See Notice Here.

COM COMMENTARY

 
* Principal Author: Jason M. Waite, Esq., 1-
202

239

3455
 
Our International Trade & Regulatory Group investigates the connection between the Department of Commerce’s tightening of export control restrictions and the Department of Defense’s public release (for the first time) of 20 Chinese military-linked companies operating in the U.S.
 
(a)
Electronic Export Information must be filed for all exports on the Commerce Control List to China, Russia, and Venezuela
 
(b)
The DOD list includes some surprises in addition to state-owned entities
 
(c)
Industry will need to be extra vigilant when exporting to the Asia-Pacific region, Russia, and Venezuela
.
 
On Monday, June 29, 2020, new export control restrictions issued by the Department of Commerce, Bureau of Industry and Security (BIS) took effect, further limiting exports of certain items to China, Russia, and Venezuela.
The rule, which was issued on April 28, 2020, broadens Part 744.21 of the Export Administration Regulations (EAR) that imposes certain heightened military end-use and end-user controls involving the export, reexport, and transfer (in-country) of certain items that are destined for China, Russia, and Venezuela.
 
The new export control restrictions took effect one week after the U.S. Department of Defense (DOD) – in an unrelated action – published a list of “Communist Chinese military companies operating in the United States” specifically designating 20 companies that are deemed “qualifying entities.” The list, which was prepared in accordance with Section 1237 of the National Defense Authorization Act for Fiscal Year 1999 (NDAA 1999) could have downstream compliance impacts for U.S. companies engaged in business with these listed entities.
 
What Restrictions Does Part 744.21 Impose?
Part 744 of the EAR outlines certain end-use and end-user-based controls. Part 744.21 has historically imposed a license requirement on the export, reexport, or transfer (in-country) of certain items listed in Supplement No. 2 to Part 744 if the item was destined for China, Russia, or Venezuela and the exporter had knowledge that the item was destined for a military end use or to a military end user in Russia or Venezuela (but not China). These end-use and end-user controls were in addition to the normal license requirements based on the reason for control of the item in question.
 
To Recap: What Did the April 28 Rule Change?
 
(1)
Expansion of military “end use” definition.
 Any item identified in Supplement No. 2 to Part 744 for use, development, or production that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, development, or production of military items will be subject to this new rule. The new changes continue to restrict activities supporting direct use (parts, components, subsystems of weapons, and other defense articles) and indirect use (weapon design and development, testing, repair, and maintenance).
 
(2)
Prohibits transfers to military “end users.”
 The definition of military end user remains unchanged. Previously, the restrictions only applied to military end users in Russia and Venezuela; however, now it applies to military end users in China. Companies engaging in exports, reexports, or transfers (in-country) within China of items covered by this rule will be expected to conduct increased diligence of military end-users in China.
 
(3)
Addition of new Export Control Classification Numbers (ECCNs) to Supplement No. 2 to Part 744 to also include the following ECCNs:
 2A290, 2A291, 2B999, 2D290, 3A991, 3A992, 3A999, 3B991, 3B992, 3C992, 3D991, 5B991, 5A992, 5D992, 6A991, 6A996, and 9B990. Moreover, the rule expands the scope of the restrictions to cover all items classified under ECCNs 3A992, 8A992, and 9A991. Previously, only certain items in those ECCNs were subject to the rule.
 
(4)
New “reason for control.”
 The new rule creates a new regional stability reason for control for any item described in the “.y” paragraph of ECCNs 9×515 or 600 series ECCNs. A license is required for the export or reexport to China, Russia, or Venezuela of any item described in a .y paragraph of those ECCNs. Previously, “.y” items were exempted from the reasons for control that required a license to be shipped to these destinations. The limited exception to this is for exports or reexports to Russia for use in, with, or for the International Space Station.
 
Additional AES Filing Requirements and Recent Changes
The new restrictions also require that Electronic Export Information (EEI) be filed for all exports of items on the Commerce Control List to China, Russia, or Venezuela, regardless of value, unless the shipment is eligible for license exception GOV. Exporters making EEI filings for exports to China, Russia, or Venezuela must include the correct ECCN for all items being exported, even if no license is required for the export, including those shipments that would normally be exempt from filing requirements falling under the $2,500 valuation threshold.
 
This new Automated Export System filing requirement was scheduled to take effect on June 29, 2020 for all items destined for China, Russia, and Venezuela. While the requirement does take effect for items subject to Supplement No. 2 to Part 744 on June 29, BIS issued guidance last week that EEI filing for all exports controlled by ECCNs not listed in Supplement No. 2 to Part 744 will not be required until September 27, 2020.
 
Does Your Corporate Compliance Program Account for These Changes?
On Friday, June 26 – one business day before the new rule was scheduled to take effect – BIS issued 32 Frequently Asked Questions to address changes to Section 744.21. The new FAQs assist corporate compliance programs in assessing whether procedural or business process changes are required to adhere to the new export control requirements. While the FAQs do not address specific transactional challenges exporters might encounter as a result of increased due diligence, BIS is clear that “knowledge” surrounding the circumstances of a transaction is more essential than ever. As stated in the April 28 Federal Register notice, “[t]his 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.”
 
Notable FAQs that may be helpful for industry are Questions 3, 7, and 9, which make clear that the specific end user at issue is what matters when reviewing a proposed transaction. Due diligence must be conducted in an appropriate manner to identify the specific entity involved. This guidance is important to keep in mind when dealing with subsidiaries of large state-owned enterprises or other complex organizations that consist of dozens of independent subsidiaries and affiliates, even as first-level public sources like websites may give the appearance of a single organization. Questions 11 and 12 are also helpful when evaluating sales made through distributors or other third parties and the license requirements that arise when the original exporter has knowledge that the distributor or third party intends to reexport or transfer an item for a military end use.
 
DOD List of Communist Chinese Military Companies
In a separate, unrelated action, last week the DOD issued a list of 20 Chinese companies, including Huawei, Hikvision, and several state-owned entities including Aviation Industry Corporation of China, China Railway Construction Corporation, and China State Shipbuilding Corporation, that are all deemed to qualify as “military companies operating in the United States.” The list addresses a reporting requirement that has been in place for over 20 years pursuant to Section 1237 of NDAA 1999, which authorizes, but does not mandate, the use of the International Emergency Economic Powers Act to impose sanctions on “persons operating directly or indirectly in the United States or any of its territories and possessions that are Communist Chinese military companies.” While the DOD cover letter, which is dated June 24, 2020, acknowledges that the DOD produced an initial list of companies that meet the Section 1237 criteria based on direction from the 106th Congress, which met in 1999, it is not clear if earlier versions of the list have ever been publicly released.
 
While the timing of this recent DOD publication is very curious, it is not clear what the Administration will do about imposing sanctions or enacting other export control restrictions (i.e., designation on the BIS Entity List), or if they will simply take no action against the 20 Chinese companies, some of which are already named on the BIS Entity List. Regardless of what track the Administration takes, the list amounts to a red flag for industry requiring increased due diligence as required by the expanded Part 744.21 rule for any company engaged in covered exports, reexports, or transfers to any of the 20 listed Chinese companies.
 
Final Takeaways for Industry
These new export control restrictions should not come as a surprise to industry given the Administration’s recent deployment of other control measures targeting China, including restrictions on information and communications technology supply chainsexpansion of CFIUS controls aimed at direct investment in the U.S., and additional export control restrictions targeting foreign-produced direct products of U.S.-origin technology destined to Huawei.
Companies must remain diligent to ensure they are up to date on how this new rule impacts their sales activities. They may have to update end-use or end-user certifications on file, in addition to ensuring that items sold throughout the Asia-Pacific region, and into Russia and Venezuela, are documented and that the company understands the flow of goods between parties and intermediaries and how those goods are ultimately used by the end user.
 
While the new Part 744.21 rule is now in effect, it is not too late to take action and ensure that corporate compliance programs are updated accordingly to address this risk and that employees are trained on the new export control requirements.

 
The Bureau of Industry & Security (BIS) has published several changes that will make it more difficult to export to Hong Kong and China.
 
The first is actually an announcement on June 29, 2020 by the Department of State banning exports of defense articles to Hong Kong. The agency stated that it can no longer distinguish between Hong Kong and China (China has long been prohibited from exports of defense articles under Section 126.1 of the ITAR). This means that the Directorate of Defense Trade Controls will no longer accept applications for export of defense articles or technical data to Hong Kong.
 
At the same time BIS announced that it is suspending regulations giving preferential treatment to exports to Hong Kong over China. These would include license exceptions for articles exported for use in Hong Kong. Any exports to Hong Kong previously authorized under a license exception will now require a license. This rule took effect on June 30, 2020.
 
BIS also published a rule that took effect on June 29, 2020 requiring that exporters to China must use due diligence to determine whether the exports may be used by military end users or for military applications. This policy was announced in the Federal Register (see 85 FR 23459 and 85 FR 24306) and also applies to exports to Russia and Venezuela. The notices contained a long list of Export Commodity Control Numbers (ECCNs) affected by this rule. If the articles to be exported fall under one of these ECCNs, and will be used for a military end use or military end user, a license exception cannot be used and a license application will be required (with a presumption of denial). The burden is on the U.S. exporter to show that the exported articles will be used for purely civilian purposes. Those exporters should keep good records showing that they made thorough efforts to determine the end user, and end use of their exports to China, Russia, or Venezuela.
 
Finally, the rule published in 85 FR 23459 on April 28, 2020 amended Section 758.1 of the Export Administration Regulations to require that all exports to China, Russia and Venezuela that are classified under any ECCN on the Commerce Control List will require filing of Electronic Export Information (EEI) in the Automated Export System regardless of value. The only exception to this is exports qualifying under license exception GOV. The exporter must indicate the ECCN on the EEI even if the export does not require a license. Exports not classified on the Commerce Control List (EAR99) are exempt from this rule and are still subject to the >$2500 filing requirement. This rule took effect on June 29, 2020.
 
Exporters planning shipments to China, Hong Kong, Russia or Venezuela are advised to read the new rules thoroughly, perform due diligence and keep records of their actions before exporting to any of these destinations.


(Source: Crowell Moring, 2 Jul 2020)
 
* Principal Author: Maria Alejandra (Jana) del-Cerro, Esq., 1-202-624-2843, Crowell Moring
 
On May 29, 2020, President Trump announced his intention to direct his administration to begin the review and removal of Hong Kong’s special treatment for dual-use export controls.  Over the last week, we have seen the U.S. State and Commerce Departments begin to implement these changes through a coordinated series of announcements that, collectively, represent the largest change in Hong Kong’s status under export control laws since the 1997 handover ending British sovereignty.
 
Specifically, on June 29, 2020, the U.S. State Department announced that it will “end exports of U.S.-origin defense equipment and will take steps toward imposing the same restrictions on U.S. defense and dual-use technologies to Hong Kong as it does for China.”  On the same day, Secretary of Commerce Ross announced, “Commerce Department regulations affording preferential treatment to Hong Kong over China, including the availability of export license exceptions, are suspended. Further actions to eliminate differential treatment are also being evaluated.” 
 
On July 2, 2020 the Commerce Department’s Bureau of Industry and Security (BIS) formally announced the suspension of all license exceptions for all exports and re-exports and transfers in country to Hong Kong that provide different treatment than those available to China.  Essentially, the announcement limits available license exceptions for Hong Kong to only those that are also available for China.  Items already prepared for loading, on a carrier, or en route to Hong Kong may proceed under the prior license exceptions.  Similarly, deemed export transactions to Hong Kong previously authorized under these licensing exceptions   may proceed until August 28, 2020.  After which, deemed exports to Hong Kong will have licensing requirements.
 
Among the more significant changes are:  
  (1) L
icense Review Policy:  BIS currently has a more favorable case-by-case licensing policy for exports to Hong Kong, whereas exports to China involving military end uses or end users, or crime control items, are subject to a licensing policy of denial if the exports will “make a material contribution to the [PRC] military capabilities.”  
  (2)
License Exception APR:  License Exception APR for additional permissive re-exports found in section 740.16 of the EAR is available for re-exports of items subject to the EAR from Wassenaar member countries and from Hong Kong, which although not a Wassenaar Arrangement member, complies with the principles of the arrangement.  Under license exception APR, items may be exported from Country Group A:1 (Wassenaar member states) and Hong Kong to Hong Kong and other A:1 countries for end use in those countries.  Certain items are also permitted to be re-exported to other country groups and NS-controlled items are permitted to be exported to country group D:1 which includes the PRC.  BIS  has proposed an amendment to APR which would eliminate China (and other D:1 countries) from eligibility for re-exports under APR (see our prior alert here).  If this amendment is adopted, and Hong Kong becomes a D:1 country rather than an A:1-like country, NS controlled items would require a license for re-export to Hong Kong. Additonally, the termination of Hong Kong’s A:1-like status would result in license requirements for other items re-exported from Wassenaar member states.
   (3)
License Exception STA:  Hong Kong is currently designated as an A:6 country.  These countries are eligible for exports under license exception STA (Strategic Trade Authorization) found in section 740.20 of the EAR.  Under STA, certain items may be exported to countries in groups A:5 and A:6 provided that the exporter obtains certain written statements from the consignee among  other procedural requirements..  Although Hong Kong currently remains an A:6 country, as a result of the June 30, 2020 changes to license exceptions available to Hong Kong, it will no longer be eligible for any exports under license exception STA. 
  (4)
License Exception GOV:  License Exception GOV, EAR section 740.11(c), allows exports of certain items to NATO members and other “cooperating governments.”  Hong Kong is currently one of the cooperating governments and was eligible to receive exports under License Exception GOV.  However, the new changes will eliminate this license exception from those previously available for exports to Hong Kong.
  (5)
Hong Kong Import License Requirements:  Currently, under section 748.13, exporters to Hong Kong are required to include either (a) import licenses from Hong Kong or (b) statements from the Hong Kong government that no import license is required, when the exporter is applying for a license for items subject to the EAR and controlled for NS, MT, NP1, or CB reasons.  Similarly, re-exporters of items subject to the EAR and controlled for NS, MT, NP1 or CB reasons must obtain an export license from Hong Kong or a statement from the Hong Kong government that no export license is required.  However, these requirements are expected to be eliminated because exports to Hong Kong will be treated as exports to China.
  (6)
PRC License Requirements: Treating exports to Hong Kong as exports to China will not only entail the loss of certain advantages but also the imposition of additional burdens by the application of special requirements for the PRC.  Under section 748.10 of the EAR, exports to the PRC  valued at more than $50,000 that require a license (as well as licensed 6A003 cameras valued at more than $5,000, and licensed computers of any value) must include with the license application a PRC End-User Statement issued by the Chinese Ministry of Commerce (MOFCOM).  Exports to Hong Kong will also be subject to the recently revised Military End User and End Use provision of section 744.21.
 
What to Watch for

Additional changes to both the ITAR and EAR will likely be announced soon.  In the meantime, those exporting and re-exporting items subject to the EAR to Hong Kong would be well-served to closely examine their activities with respect to Hong Kong, including any upcoming shipments, in light of the recent announcements, and prepare for possible interruptions or suspensions to their business. 


(Source: Export Compliance Solutions, 1 Jul 2020)
 
O
n June 24, 2020, the Department of Defense released the following list of “Communist Chinese military companies”:
  • Aviation Industry Corporation of China (AVIC)
  • China Aerospace Science and Technology Corporation (CASC)
  • China Aerospace Science and Industry Corporation (CASIC)
  • China Electronics Technology Group Corporation (CETC)
  • China South Industries Group Corporation (CSGC)
  • China Shipbuilding Industry Corporation (CSIC)
  • China State Shipbuilding Corporation (CSSC)
  • China North Industries Group Corporation (Norinco Group)
  • Hangzhou Hikvision Digital Technology Co., Ltd. (Hikvision)
  • Huawei
  • Inspur Group
  • Aero Engine Corporation of China
  • China Railway Construction Corporation (CRCC)
  • CRRC Corp.
  • Panda Electronics Group
  • Dawning Information Industry Co (Sugon)
  • China Mobile Communications Group
  • China General Nuclear Power Corp.
  • China National Nuclear Corp.
  • China Telecommunications Corp.
 
This list, required by section 1237 of the National Defense Authorization Act for FY 1999, has not previously been released and does not immediately affect export controls.  The listed companies, however, could potentially be the subject of future sanctions and inclusion on the list should be considered a “red flags” under the expanded restrictions on Chinese military end-users.  Some companies, such as Huawei, are already sanctioned under other authorities.
 
Commerce Issues Military End User FAQs
The revised rule on Chinese Military End Users (MEUs) in the Export Administration Regulations (EAR) came into effect on June 29, 2020.  The Department of Commerce, Bureau of Industry and Security (BIS) released a series of FAQs on those changes.
 
The FAQs refer frequently to the revised definitions and the importance of due diligence, but do not provide a list of known military end users.  The answer to Q21 does state that a request for an Advisory Opinion may be submitted if there is a question about whether a specific end user or end use is restricted under the new rule.  We expect BIS to be swamped with these requests as companies begin to deal with exports under the new rules.
 
It is worth noting that BIS’s existing know your customer guidance states: “You can rely upon representations from your customer and repeat them in the documents you file unless ‘Red Flags’ oblige you to take verification steps.”  This does not allow conscious disregard or willful avoidance of facts, however, and an appropriate effort must be made to ascertain the true end user and end use.  As noted above, inclusion on the list of Communist Chinese military companies is a definite red flag, but there will be many others.
 
EEI Filing Requirement Partially Delayed
The requirement for Electronic Export Information (EEI) filings for any items destined China, Russia, or Venezuela regardless of value, unless shipped under License Exception GOV took effect on June 29th for ECCNs listed in Supplement No. 2 to Part 744.  According to the FAQs, the requirement for EEI filings for all other CCL items has been delayed for 90 days until September 27, 2020.  The new rule does not require EEI filings for EAR99 items or intangible exports.
 
Hong Kong’s Special Status Ending
On June 29, 2020, the Department of State and Department of Commerce released statements on the revocation of Hong Kong’s special status under U.S. export controls.  This follows the “G7 Foreign Ministers’ Statement on Hong Kong” from June 17th which expressed concern with China’s imposition of a new “national security law” that reduces Hong Kong’s preexisting autonomy.
 
Both departments previously distinguished between Hong Kong and the People’s Republic of China for export control purposes. The Department of State, Directorate of Defense Trade Controls (DDTC) previously approved licenses for Hong Kong on a case by case basis.  China was already listed as a prohibited destination under the International Traffic in Arms Regulations (ITAR) §126.1.
 
BIS listed Hong Kong separately in its country chart and country groups.  While BIS licensing requirements were largely the same as China (minus CB column 3), Hong Kong’s listing in Country Group A:6 and Country Group B made it eligible for some license exceptions, including Shipments to Country Group B (GBS), Shipments of Limited Value (LVS), some use of the Strategic Trade Authorization (STA).  These exceptions will no longer be available for exports to Hong Kong.
 
Huawei Cleared for Standards Organizations
On June 18, 2020, the BIS released an interim final rule (85 FR 36719) which authorizes the release of certain technology to Huawei in support of international standards organizations.  The rule replaces a previous advisory opinion and a Temporary General License, by amending the Huawei Entity List entries to include the following under “License requirement”:
 
For all items subject to the EAR, see §§
736.2(b)(3)(vi), and 744.11 of the EAR, EXCEPT for technology subject to the EAR that is designated as EAR99, or controlled on the Commerce Control List for anti-terrorism reasons only, when released to members of a “standards organization” (see §
772.1) for the purpose of contributing to the revision or development of a “standard” (see §
772.1).
 
This is intended to prevent regulatory roadblocks to U.S. participation in international standards setting in areas such as 5G and autonomous vehicles.
The rule was effective upon publication and comments will be accepted through August 17, 2020.  BIS also issued a press release on this topic.
 
Xinjiang Supply Chain Business Advisory
On July 1, 2020, the Department of State issued a supply chain business advisory related to forced labor human rights abuses in the Xinjiang Uyghur Autonomous Region (Xinjiang) of the People’s Republic of China:
Businesses, individuals, and other persons, including but not limited to academic institutions, research service providers, and investors… that choose to operate in Xinjiang or engage with entities that use labor from Xinjiang elsewhere in China should be aware of reputational, economic, and, in certain instances, legal, risks associated with certain types of involvement with entities that engage in human rights abuses, which could include Withhold Release Orders (WROs), civil or criminal investigations, and export controls.
 
The advisory provides substantial background to the situation in Xinjiang, red flags, and due diligence advice.  The document relates both to activities known to be occurring in Xinjiang and facilities in other regions using labor or goods from Xinjiang.  Page 15 of the advisory includes a map identifying 19 developed cities and provinces that have established satellite factories in Xinjiang.
 
Industries of concern include:
  • Agriculture (including such products as hami melons, korla pears, tomato products, and garlic)
  • Cell Phones
  • Cleaning Supplies
  • Construction
  • Cotton Yarn, Cotton Fabric, Ginning, Spinning Mills, and Cotton Products
  • Electronics Assembly
  • Extractives (including coal, copper, hydrocarbons, oil, uranium, and zinc)
  • Fake Hair and Human Hair Wigs, Hair Accessories
  • Food Processing Factories
  • Hospitality Services
  • Noodles
  • Printing Products
  • Footwear
  • Stevia
  • Sugar
  • Textiles (including such products as apparel, bedding, carpets, wool)
  • Toys


(Source:
International Compliance Blog
, 2 Jul 2020)
 
* Principal Author:
Hena Schommer
, Esq.,
1

202

429

8041
, Steptoe
 
The US Department of Commerce’s Bureau of Industry and Security (“BIS”) has issued new FAQs on its website addressing the new military end use / military end user rule (“MEU Rule”) and the expansion of the MEU controls for China, Russia, and Venezuela. For a summary of the MEU rule changes, please see our prior blog post detailing the changes to Section 744.21 and other related provisions in the Export Administration Regulations (“EAR”).
There are 32 FAQs, which provide a summary of the new MEU Rule, guidance on specific scenarios, and interpretations of the key terms, including, “military end use” and “military end user.” Below we discuss a few of the key points from the BIS FAQs regarding military end users, military end uses, and due diligence.
 
Military End User
   (a)
Broadened Application:
 BIS confirms in Question 2 that while the definition of military end user was not revised, its application has been broadened. Besides now applying to military end users in China, it will now effectively include additional end users because the definition of “military end uses” was expanded in Section 744.21(f).
 
   (b)
Types of Military End Users:
 In Question 3, BIS clarifies that there are two types of military end users: (1) “traditional foreign military and related organizations (defined in the text as ‘national armed services (army, navy, marine, air force, or coast guard), as well as the national guard and national police, government intelligence or reconnaissance organizations’)” (“traditional MEUsers”) and (2) other end users “whose activities are intended to support ‘military end uses’ as defined in Section 744.21(f)” (“other MEUsers”).
 
   (c)
Activities of an End User:
 Question 10 provides a very broad basis to determine if a company is an MEUser, even when the end use of the item is confirmed as a non-military end use, stating “a license is required if the specific end user is a person or entity that ‘develops, produces, maintains, or uses military items.’ The activities of the specific end user determine whether it meets that test. There is no specific volume level for such activities that would trigger a license requirement.” This could be interpreted as a low threshold of activity that could cause an end user to fall into the definition of a MEUser, i.e., there is no “predominance” test.
 
   (d)
State-owned Enterprises:
 BIS further explains that other MEUsers include other foreign national governmental organizations, specifically calling out state-owned enterprises (“SOEs”), that “develop, produce, maintain, or use military items.” According to BIS, “SOEs are entities over which their national governments can or do exercise significant direction or control of the SOE’s operations through supervision, financing, subsidization, or ownership, including significant minority ownership.”
 
   (e)
Police:
 In Question 17, BIS confirms that generally the MEUser definition applies to national police, not provincial or municipal police departments, and provides a warning regarding potential diversion to national police.
 
   (f)
License Requirements:
 BIS confirms that, if an end user meets the definition of a MEUser, then a license will be required for the export of items listed in Supplement No. 2 of Part 744, even if the item is destined for a non-military end use.
 
Military End Use
 
Scope of Military End Use:
 BIS clarified that “any item that supports or contributes to,” as used in the definition of military end use, “goes beyond incorporation into a military item to mean direct facilitation, such as installation, inspection, or test equipment and related software and technology, of the operation, installation, maintenance, repair, overhaul, or refurbishing, or the “development” or “production” of military items…”
 
Due Diligence
There are several FAQs that discuss due diligence measures in specific and general scenarios. However, BIS does not provide any new guidance on the extent of due diligence expected or other details regarding its due diligence expectations, aside from referencing its Know Your Customer Guidance.
 
   (i)
Defense Ministry Subsidiaries:
 Question 5 addresses whether a subsidiary agency of the Ministry of Defense, such as a military hospital, would be considered a MEUser. BIS confirms that due diligence is required to determine whether the hospital would be a MEUser, and provides factors to consider in the due diligence. The factors include the “relation of the ‘military hospital’ to the country’s national armed services and the patient population served by the hospital, or whether it is an entity that develops, produces, maintains, or uses military items.”
 
   (ii)
Affiliate Relationships:
 Question 9 addresses a situation where an exporter knows that an end user has a parent or subordinate involved in “military end uses” and whether the exporter would be selling to a military end user even if the exporter did not have knowledge that the end user was involved in manufacturing items for military end uses. BIS highlights, again, the exercise of “due diligence to determine whether the parent or subordinate entity’s military activities is relevant to the specific end user’s activities and that knowledge should be taken into account along with information regarding the specific end user.”
 
   (iii)
Knowledge:
 BIS also emphasized that the definition of “knowledge” under the EAR “includes not only positive knowledge that the circumstances exist or are substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence. Such awareness is inferred from evidence of the conscious disregard of facts known to a person and is also inferred from a person’s wilful avoidance of facts.”
 
   (iv)
BIS addresses the export of mass market items
in Questions 11 and 12, again emphasizing the knowledge definition. The license requirement in Section 744.21 is only triggered if the exporter has knowledge that a distributor or systems integrator of mass market items sold to the general public intends to reexport or transfer (in-country) the items for a “military end use.”
 
In addition to Questions 26-31, last week BIS issued additional exporter guidance (somewhat buried) on its website that is not included in the MEU FAQs. The guidance essentially states that Electronic Export Information (“EEI”) filings in the Automated Export System (“AES”) are required as of June 29, 2020 for all Export Control Classification Numbers (“ECCNs”) listed in Supplement No. 2 to Part 744 destined for China, Russia, or Venezuela (including where no license is required (“NLR”)), but imposition of this requirement is delayed for other ECCNs that are not identified in Supplement No. 2 to Part 744 and destined to the same jurisdictions until September 27, 2020.
 
In the FAQs, BIS provides the guidance it promised at the time it issued the MEU Rule, with further information regarding its current interpretation of key definitions in the MEU Rule and some scenarios. However, this guidance does not provide bright line rules or clear guidance for exporters or suppliers to China, Russia, and Venezuela, which will make it difficult to implement the new MEU Rule in practice, especially the modification of due diligence procedures. Specifically, in some instances, exporters may view the guidance as falling short of providing clarity as to when an end user may be a MEUser, as the guidance largely highlights some factors and the language of the definition in the regulations, without going further.

TE EX/IM TRAINING EVENTS & CONFERENCES

(Source:
Ashleigh Foor
)
 
* What: 
The Latest Issues in OFAC and EAR Enforcement
* When: 21 Ju
ly
; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: 
Timothy O’Toole, Esq.
* Register: 
here 
or Ashleigh Foor, 1-540-433-3977,

* * * * * * * * * * * * * * * * * * * *

(Sources: Event sponsors)  
 

Submit your event in the Submission section at the end of this newsletter.  
 
[Editor’s note:  This Daily Bugle Event List has grown so large that we have run out of space to display it, so we are displaying here only the new events in the Daily Bugle, while maintaining a 
LINK HERE to the full list.]
 

On-Line:
 
* 8 Jul:
BIS & Industry Export Control Roundtable
; Women in Trade – Northern California (WIT-NC)
* 9 Jul
:
Regulatory Policy Division, BIS, discuss EAR regulations and practices
;
  Society for International Affairs
* 16 Jul:
Customs Audits 101: What to Expect
; Sandler, Travis & Rosenberg
* 23 Jul:
USMCA Chapter 25 Working with USMCA Representatives
; Braumiller Law Group PLLC
* 29 Jul:
Import Compliance Bootcamp
;
Sandler, Travis & Rosenberg

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EN EDITOR’S NOTES

EN_a116. Bartlett’s Unfamiliar Quotations

(Source: Editor)
 

* Franz Kafka
(3 Jul 1883 – 3 Jun 1924; was a German-speaking Bohemian novelist and short-story writer, widely regarded as one of the major figures of 20th-century literature. His work fuses elements of realism and the fantastic. It typically features isolated protagonists facing bizarre or surrealistic predicaments and incomprehensible socio-bureaucratic powers. His best known works include “Die Verwandlung” (“The Metamorphosis”), Der Process (The Trial), and Das Schloss (The Castle). The term Kafkaesque has entered the English language to describe situations like those found in his writing.”
  – “I do not read advertisements. I would spend all of my time wanting things.”
  – “A book should serve as the ax for the frozen sea within us.”
 
* Nathaniel Hawthorne
(born Hathorne; 4 Jul 1804 – 19 May 1864; was an American novelist, dark romantic, and short story writer. His works often focus on history, morality, and religion.  He published several short stories in periodicals, which he collected in 1837 as Twice-Told Tales. His most famous novel was The Scarlet Letter.)
  – “Easy reading is damn hard writing.” 
 
Friday funnies
As a young nurse, it was my first night caring for an elderly patient. When he grew sleepy, I pushed his wheelchair as close to the bed as possible and, using the techniques I’d learned in school, grasped him in a bear hug to try to lift him onto the bed. But he was too heavy, and I couldn’t clear the top of the mattress. So I grabbed him again, summoned all my strength, and got him onto the bed, wrenching my back in the process. When the night shift nurse arrived, I told her what had happened. “Funny,” she said, looking puzzled. “Usually I just ask him to get in bed, and he does.”

* * * * * * * * * * * * * * * * * * * *

 

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.  The latest amendments are listed below.
 
Agency 
Regulations 
Latest Update 
DHS CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199.

 

5 Apr 2019: 84 FR 13499:

Civil Monetary Penalty Adjustments for Inflation. 
DOC EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774. 
DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   24 Apr 2018: 83 FR 17749: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates.  
DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM)

: DoD 5220.22-M. Implemented by Dep’t of Defense. 

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.)  
DOE ASSISTANCE TO FOREIGN ATOMIC ENERGY ACTIVITIES: 10 CFR Part 810.    23 Feb 2015: 80 FR 9359: comprehensive updating of regulations, updates the activities and technologies subject to specific authorization and DOE reporting requirements. 
DOE EXPORT AND IMPORT OF NUCLEAR EQUIPMENT AND MATERIAL; 10 CFR Part 110.  

15 Nov 2017, 82 FR 52823: miscellaneous corrections include correcting references, an address and a misspelling.

 
DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War. 
14 Mar 2019: 84 FR 9239: Bump-Stock-Type Devices.

DOS INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130. 
6 May 2020: 85 FR 26847: Notice (not an amendment) temporarily reducing the registration fee schedule in ITAR 122.3 until April 30, 2021. 
 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

5 Jun 2020:
85 FR 84510:

Syria Sanctions Regulations. 

 
 
 
USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA), Revision 8.

1 Jan 2019: 19 USC 1202 Annex.
  – HTS codes for AES are available here.
  – HTS codes that are not valid for AES are available here.

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