Santa Claus may have already done his job for 2020, but the U.S. Government continues to make their lists and check them twice. For those of us in the trade compliance community, it has been difficult to keep up with all the various additions to the Restricted Parties Lists. The most recent actions have been focused on China and Russia (with a little nod to Venezuela). These activities have included the creation of a new Restricted Parties List and the designation of 179 entities as restricted in some fashion.
Trade compliance professionals are tasked with understanding the scope of the restrictions and any due diligence required if the transaction is actually permitted via the U.S. Export Regulations including the U.S. Department of Commerce, Department of Defense, the U.S. State Department and the U.S. Treasury.
Designation of Military End Users (MEUs) List under the Export Administration Regulations (EAR)
On December 23, 2020, BIS published in the Federal Register a Final Rule concerning the “Addition of ‘Military End Users’ (MEU) List to the EAR and Additions of Entities to the MEU List.” This rule was also effective on December 23, 2020. The most recent action involves the creation of the Military End Users (MEU) List to Part 744.21 Restrictions on Certain ‘Military End Use’ or ‘Military End User’ in the People’s Republic of China, Russia or Venezuela of the EAR. This new list is found in Supplement No. 7 to Part 744 of the EAR. Part 744.21 of the EAR outlines that a license is required when an exporter knows that a certain controlled item (see Supplement No. 2 to Part 744) is being exported for a “military end use” or a “military end user.” Entities that are placed on the MEU List are considered a formal designated as a “military end user.” BIS states that “compliance remains the obligation of the exporter, reexporter or transferor” and the absence of an entity on the MEU List does at all indicate that a license is NOT required. There are many other entities that can be considered “military end users” or exports for a “military end use” whether or not they are specifically identified on the MEU List.
BIS specifically states:
The U.S. Government has determined that these entities are ‘military end users’ for purposes of the ‘military end user’ control in the EAR that applies to specified items for exports, reexports, or transfers (in-country) to the People’s Republic of China (China), Russia, and Venezuela when such items are destined for a ‘military end user.’ The existing ‘military end-use’ and ‘military end user’ controls under the EAR, including BIS’s authority to inform the public of a license requirement for an item due to an unacceptable risk of diversion to a ‘military end user’ via amendment to the EAR, are essential for protecting U.S. national security interests. The addition of the new MEU List via amendment to the EAR and this first tranche of entities is also responsive to requests received from the public. This final rule will add one hundred and two ‘military end users’ to the MEU List consisting of fifty-seven under China and forty-five under Russia. However, the establishment of the MEU List does not imply that other parties, not included on the list, are not subject to the ‘military end-use’ and ‘military end user’ controls under the EAR
At this time, the restrictions regarding “military end use” and “military end users” per 744.21 of the EAR do not include items classified as EAR99. However, it is recommended that any export to any entity designated as a MEU be reviewed closely and the exporter understands who they are doing business with. Further, and as with all exports, exporters should screen all parties to any export transaction against all Restricted Parties List including this new MEU List. In addition, exports to China, Russia and Venezuela should be reviewed in-depth to understand your customer and the business that they are engaged in and with. While you may be exporting an item for a strictly commercial use, you must be aware and conduct due diligence as to whether the customer is a “military end user” or for a “military end use.”
Additions to the Entity List under the EAR
On December 18, 2020, the U.S. Department of Commerce announced the addition of 77 entities to the U.S. Department of Commerce Entity List, EAR Supplement No. 4 to Part 744. This announcement was published in the Federal Register on December 22, 2020 with an effective date of December 18, 2020. These seventy-seven entities have been determined by the U.S. Government to be acting contrary to the national security or foreign policy interests of the United States and are under the destinations of the People’s Republic of China (China), Bulgaria, France, Germany, Hong Kong, Italy, Malta, Pakistan, Russia, and the United Arab Emirates (U.A.E.). The designation and inclusion on Supplement No. 4 to Part 744 in most cases triggers a license to export any item including EAR99 items. The specific items and the licensing policy can be found in Supplement No. 4 to Part 744. In most cases there are is a “Presumption of Denial” of any license application. The specifics to the licensing requirements are noted within the list for each listed entity.
Specifically, BIS notes:
BIS also added more than sixty other entities to the Entity List for actions deemed contrary to the national security or foreign policy interest of the United States. These include entities in China that enable human rights abuses, entities that supported the militarization and unlawful maritime claims in the South China Sea, entities that acquired U.S.-origin items in support of the People’s Liberation Army’s programs, and entities and persons that engaged in the theft of U.S. trade secrets.
Again, as with all exports, exporters should screen all parties to any export transaction against all Restricted Parties List including this Entity List. If there is a match to any entity found, then the exporter must review the licensing requirements and licensing policy as noted in Supplement No. 4 to EAR Part 744.
One notable entity included in this most recent update is the Semiconductor Manufacturing International Corporation Incorporated. This addition to the Entity List requires a license requirement but the licensing policy in certain cases is a presumption of denial and in other instances on a case by case basis. SMIC is a large electronic manufacturer and has quite a bit of reach for exporters in the electronics area.
If you need help navigating these restrictions or creating processes to help improve your due diligence, please schedule a no-charge consultation with one of our team members today. Happy New Year!
Rebecca Yeager is a Trade Compliance Consultant for Export Solutions -- a full-service consulting firm that specializes in helping companies comply with U.S. and international import/export regulations.