In the ever-changing world of compliance, it is important to keep in step with new and changing requirements. The Bureau of Industry and Security (BIS) recently rolled out some important changes to Country Groups. For those not familiar with what a Country Group is, the Export Administration Regulations (EAR) has divided countries into 4 main buckets or Country Groups (note: there are technically 5, however, only 4 are actively used as Group C is a reserved category with no countries falling under it). The groups reflect each country’s export control policies, the multilateral regimes they take part in, and the general practices of each country. BIS uses these groups to determine the levels of control for each country, such as license exception requirements. Some license exceptions, such as LVS, for example, are only available to Country Group B. Country Groups can be found in Supplement 1 to part 740 of the EAR are critical in the license review process, end-user/end-use based controls, and in determining whether or not certain General Prohibitions apply.
Recent changes included the move of Mexico, Cyprus, and Ukraine to less restrictive country groups and the move of Hong Kong to a more restrictive group.
A Step Forward for Ukraine, Mexico and Cyprus
Ukraine, Mexico, and Cyprus were all moved to less restrictive Country Groups as a result of a final rule issued by BIS on December 28th, which moved Ukraine from Country Group D to the less restrictive Group B and moves Mexico and Cyprus into Country Group A:6.
For Ukraine, the changes make more license exceptions available as long as requirements are met and the 740.2 restrictions are not applicable. It is important to note that even with this change, Ukraine still remains ineligible for some license exceptions typically available to Country Group B countries. These exceptions are the Technology and Software Restriction (TSR), as well as Country Group B Shipments (GBS) exceptions.
Mexico and Cyprus were moved into Country Group A:6 which makes them now eligible for the Strategic Trade Authorization license exception (STA), an exception key to the export of defense articles listed in 600-series ECCNs. Mexico and Cyprus are also in Country Group B and are eligible for GBS and TSR, among other license exceptions available to that group.
These changes are no doubt positive changes for Ukraine, Mexico, and Cyprus.
A Step Back for Hong Kong Status
As a result, Hong Kong moved to Country Group D, which is more restrictive than the groups it was in previously (Group A:6 and B). This also means that Hong Kong is also no longer listed separately on the Commerce Country Chart (CCL), but will be listed as China when it comes to licensing requirements. This change shouldn’t have come as a complete surprise as restrictions have been changing in regards to Hong Kong over the course of this last year. For example, at the end of July, BIS issued a notice suspending the use of license exceptions which had previously been available to Hong Kong. Export Solutions wrote a blog on these changes in July.
In addition to the changes to the CCL, Hong Kong now being listed as part of China will also mean that other requirements will become more stringent as well. Hong Kong will now be affected by the relatively new military end-use and end-user restrictions for China noted in another Export Solutions blog, as well as being subject to the Arms Embargo in 126.1 of the ITAR.
The move will also affect Electronic Export Information (EEI) requirements. Exports to Hong Kong will now have a mandatory filing requirement of the EEI through the Automated Export System (AES) under 758.1 (b) of the EAR for exports of items on the Commerce Control List, unless the shipment is eligible for license exception GOV.
One important thing to note is that the U.S. Census Bureau’s Foreign Trade Regulations (FTR) requirements, namely, § 30.6(a)(3) Ultimate Consignee; § 30.6(a)(5) Country of Destination; and §30.6(b)(2) Intermediate Consignee of the EEI in the AES do not change. If Hong Kong is the final destination or an entity in Hong Kong is the intermediate consignee, it should be noted as Hong Kong (HK) and not China on the EEI.
These changes are likely not the end. In a recent statement, US Secretary of State, Mike Pompeo, warned of additional sanctions and restrictions being considered after the arrests of politicians and pro-democracy activists on January 6th. Exporters should continue to monitor Hong Kong for additional changes.
In light of recent changes and the possibility of more changes coming, exporters should be diligent in monitoring the Federal Register. Processes should be updated to include these changes. Shipping departments often keep cheat sheets of countries eligible for license exceptions, classifications, and other information. While these can sometimes be helpful, they can also be detrimental when changes are not monitored and processes are not updated.
Do not rely on outdated processes and cheat sheets. If your company is using license exceptions, the regulations should be reviewed prior to each use to ensure you are not using outdated regulations and running the risk of a violation. On the flip side, exporters should be aware that license exceptions not previously available are now available to Ukraine, Mexico, and Cyprus. This means that BIS is likely to RWA (Return without Action) license applications to these countries if an exception is available. This can be a waste of time and resources, so be sure to review conditions before submitting a license.
In addition to reviewing licensing requirements, exporters should also consider the other restrictions that come as a result of the Hong Kong change of status. Exporters will now need to consider the new military end-use and end-user restrictions and review each export to ensure that additional licensing requirements are not triggered. These apply even if the item being exported is for a non-military end use. As always, exporters need to be diligent in knowing their customer and having a full understanding of the industry they are in, how they are using your products, and whether or not they are re-selling.
If you are using a Freight Forwarder to file your EEIs, make sure that they are aware of the new requirements for Hong Kong. Request a copy of the EEI so you can ensure the information was entered correctly and the EEI was filed if the item was on the CCL. This is a best practice for any shipment regardless of destination, however, after any regulatory changes, it is important that documentation is reviewed with more scrutiny.
If you are having difficulty determining if your item requires a license, how it is classified, or the regulations for the country you are exporting to in light of these changes, please reach out to Export Solutions for a free consultation.
Emmalie Armstrong is a Trade Compliance Consultant with Export Solutions – a firm specializing in U.S. import/export regulations.