Well, the Bureau of Industry and Security (BIS) waited until the summer was over, but timing may be the best part of the new export controls on Russia and Belarus (the “Rule”). Understanding the new Rule and how the old regulations have been amended is a bear. We do our best to simplify the new Rule and identify potential pain points.

The new export controls can be found here.

BIS has provided CAS numbers for the chemicals but has not provided Harmonized Tariff System (HTS) codes or Schedule B numbers. The Rule states that these items “may be useful for Russia’s [chemical and biological weapons] production and development capabilities and therefore may be used in support of its military aggression.” Additionally, quantum computing and advance manufacturing items may be used to “enable advanced manufacturing capabilities across a number of industries, including Russia’s defense-industrial base.”

The Rule notes that this revision will help better align these controls with the controls of US allies on these items.

The Rule broadens the scope of the Russian/Belarusian “military end user” and “military-intelligence end user” controls: it expands the “is informed” license requirements for additional entities that “pose a significant risk of being or becoming involved in activities that are contrary to the national security or foreign policy interests of the United States.” BIS also expands the “military end user” and “military-intelligence end user” restrictions to identify “military end users” and “military-intelligence end users” located anywhere in the world. Finally, the Rule revises the Entity List to designate six existing Entity List entities as Russian “military end users.”

This “significant risk of becoming involved” in unspecified activities contrary to unspecified US interests is perhaps the lowest standard yet for blacklisting non-US companies. Given the extremely short explanation currently provided by BIS for Entity List designations, will the requirement of “specific and articulable” result in BIS providing an opportunity to potential Entity List designees to dispute such facts prior to listing?

We previously analyzed the Russian invasion’s impact on the FDPR, and the Rule further expands the scope of the Russia/Belarus FDPR.

The Rule also makes further revisions to the items eligible for CCD to reflect current consumer communications device use. For instance, it removes input/output control units (other than industrial controllers designed for chemical processing) designated as EAR99 because BIS determined these items are not typically used by consumers for communications purposes. The Rule also flags that certain headphones are controlled under 600 Series ECCNs and are not eligible for CCD. Indeed, it specifically states that the commodities and software eligible for CCD are “strictly limited to the descriptions and classifications that are specified” under the list of items that license exception, which is an “exhaustive listing.”

Given the above, reviewing License Exception CCD to confirm that it does cover the products you wish to export is essential!

As previously discussed, BIS has implemented restrictions on the export, reexport, and transfer (in-country) of certain “luxury goods.” The Rule has made the following changes:

The EAR defines a reexport as an “actual shipment or transmission of an item subject to the EAR from one foreign country to another foreign country, including the sending or taking of an item to or from such countries in any manner.” First, in the new Rule, reexport is limited to “return” to the United States or a country in Country Group A:5 or A:6. Second, since when did we need a BIS license to “reexport” (aka import?) EAR-controlled items from Russia to the United States? Or, for example, an item controlled for antiterrorism (“AT”) reasons only (e.g., ECCN 4A994) to an A:5 or A:6 country? Does the exclusion now mean that a reexport of AT-controlled item from Russia to Morocco requires a reexport license because Morocco is not an A:5 or A:6 country?

Further, the Rule states that the exclusion applies to “transfers” within Russia or Belarus. Critically, it does not use the defined term “transfer (in-country),” but it is unclear what other type of transfer would require a license other than a transfer (in-country). However, a transfer (in-country) is “a change in end use or end user of an item within the same foreign country.” Here, the Rule states that the exclusion applies only if “the owner retains title to and control of the item at all times,” namely not a change in end use or end user. Does BIS intend to redefine transfer (in country) to mean the “movement” of an item in country (as BIS wrote in the Federal Register Notice), which is not necessarily a change in end user or end use, particularly if the same party maintains title and control of the item?

Ultimately, this exclusion may mean that companies trying to shut down operations in Russia need a BIS license to send their items to any country other than the United States or A:5 and A:6 countries, countries to which Russia may well decide to deny export licenses. In other words, it is quite possible that items subject to the EAR will be abandoned and stay in Russia.

The Rule includes a so-called Savings Clause, stating that shipments of items that have been removed from license exception eligibility or that were previously not subject to a license requirement may proceed to their destination under previous eligibility criteria if they “were en route aboard a carrier to a port of export, reexport, or transfer (in-country), on September 15, 2022, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination.” The export, reexport, or transfer (in-country) must be completed no later than November 14, 2022.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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