On 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
The advisory does not create any new export compliance obligations, but is intended to assist with the due diligence needed to avoid problems ranging from reputational risk to export compliance violations.