January saw a number of updates to export compliance regulations and policies to close out a number of Trump administration initiatives. On January 20, 2021, the Biden administration announced a regulatory freeze. How do these relate? Read on.
Regulatory Freeze
Let’s start with the regulatory freeze, since what everyone wants to know is whether new rules are really going into effect or not. The White House announcement requested executive agencies to (1) refrain in most cases from sending new rules to the Federal Register before review by new political appointees, (2) withdraw pending rules not yet published, and (3) postpone the effective dates of published but pending rules. This is typical for changes in administrations. Rules already published and effective may be revised in the future through normal administrative processes and we will report on notable changes. Most of the changes below were effective before January 20th, with a few notable exceptions.
Commerce Updates Chemical Weapons Lists
On January 7, 2021, the Department of Commerce, Bureau of Industry and Security (BIS) published a rule (86 FR 936), also effective January 7th, amending the Chemical Weapons Convention Regulations (CWCR) and the Export Administration Regulations (EAR). This amendment adds three chemical families and one chemical now controlled under the Chemical Weapons Convention (CWC) and revises the definition of “production” of CWC chemicals.
The Chemical Weapons Convention is an international arms control treaty that seeks to eliminate chemical weapons by the parties to the treaty. The parties have agreed to a number of restrictions for listed chemicals. The new changes reflect decisions adopted at the November 2019 CWC Conference of the States Parties.
The specific chemicals are identified in the Federal Register Notice and the full list is in Part 745 of the EAR. The revised definition of “production” applies to the CWCR only, not the EAR.
Commerce Clarifies Vaccine Controls
Also on and effective January 7, 2021, BIS published a rule (86 FR 944) clarifying controls on vaccines under Export Control Classification Number (ECCN) 1C991.
The new rule amends 1C991 to:
- Include vaccines containing or designed for use against pathogens and organisms listed under ECCNs 1C351, 1C353 or 1C354. According to BIS:
Prior to the effective date of this final rule, ECCN 1C991 indicated that it controlled vaccines “against” such items, but was not specific about whether all vaccines “containing” such items were controlled, irrespective of whether the vaccines were designed for use “against” such items. - Control medical products containing genetically modified organisms and genetic elements described in ECCN 1C353.a.3 and adjust definitions.
- Renumber 1C991.c and .d based on level of export control.
These changes are based on a decision of the Australia Group June 2019 Plenary meeting. The Australia Group is a multilateral forum for the harmonization of export controls related to chemical and biological weapons.
Commerce Unmanned Aerial Systems Licensing Policy Amended
On January 12, 2021, BIS published a final rule (86 FR 2252), also effective January 12th, which amends the Unmanned Aerial Systems (UAS) licensing policy in the EAR.
The amended policy replaces a presumption of denial with case-by-case review for systems with “a range and payload capability equal to or greater than 300 km/500 kg but a maximum true airspeed of less than 800 km/hr.”
A corresponding proposal was made to the Missile Technology Control Regime (MTCR), a multilateral export control group, but has not been adopted within the MTCR by the required consensus. The change in U.S. review policy was announced in July 2020.
The Missile Technology licensing policy is located in the EAR at §742.5.
Commerce Removes Anti-Terrorism Controls on Sudan
As anticipated, on January 19, 2021, BIS issued a rule (86 FR 4929), effective January 14th, removing Anti-Terrorism (AT) controls for items destined for Sudan and removing Sudan from Country Group E:1.
Sudan’s removal is based on an agreement reached between the U.S. and Sudan in 2020 resolving claims related to victims of terrorism. Sudan is now listed in Country Group B and is newly eligible for a number of license exceptions and the 25% de minimis level for U.S. content. Notably, Sudan joins Ukraine as the only members of Country Group B not eligible for License Exception GBS (Shipments to Country Group B Countries, EAR §740.4).
Sudan remains subject to an arms embargo, as listed under ITAR §126.1(v) and EAR Country Group D:5.
As revised, there are currently no countries subject to AT controls except to the extent that Cuba, Iran, North Korea, and Syria are subject to comprehensive sanctions.
U.S. Person Activities and ICTS Supply Chain Rules Issued, But Not Yet Effective
On January 15, 2021, BIS issued an interim final rule (86 FR 4865) imposing license requirements on specified U.S. person activities related to “nuclear explosive devices, missiles, chemical or biological weapons, whole plants for chemical weapons precursors, foreign maritime nuclear projects, and foreign military intelligence services.” This rule is effective March 16, 2021 and may be subject to the regulatory freeze described above. It would amend the EAR to control activities by U.S. persons wherever located regardless of whether the items involved are subject to the EAR. Comments have been requested through March 1, 2021.
On January 19, 2021, BIS issued an interim final rule (86 FR 4909) that establishes regulations and requests comments on “Securing the Information and Communications Technology and Services Supply Chain.” This rule is effective March 22, 2021 and may be subject to the regulatory freeze described above. It is intended to provide a process to review information and communications technology and services (ICTS) supply chain transactions, “similar to the process by which entities may inform the Committee on Foreign Investment in the United States (CFIUS) of investments in U.S. businesses.” A related proposal was published in November 2019. Comments have been requested through March 22, 2021.
State Department Precision-Guided Munitions Policy Announced
On January 19, 2021, the Department of State, Directorate of Defense Trade Controls (DDTC) announced a policy for the review of direct commercial sale (DCS) precision-guided munitions (PGMs). Notably, DDTC stated:
“…before authorizing DCS exports, reexports, or retransfer of U.S.-origin PGMs, their critical components, and/or related technical data or defense services, as enumerated below, the U.S. government will confirm the foreign end-user government possesses or is in the process of procuring sufficient U.S., indigenous, or third-party [advanced target development] capabilities…
No action will be required on the part of the U.S. applicant. A valid ATD solution is current for five years, after which the technical support and data need to be refreshed. Within the five-year period of currency, in-scope licenses will be adjudicated as normal.”
This process is intended to ensure that U.S.-origin PGMs are used “consistent with U.S. intent when approving the transfer” including the ability to mitigate the risk of civilian casualties.
Civil Monetary Penalties Adjusted for Inflation
Inflationary adjustments to civil monetary penalties were issued by both the Department of Commerce (86 FR 1764) and the Department of State (86 FR 7804). Maximum penalties depend on the specific kind of violation and both notices also update a number of additional regulatory penalties.
The ITAR §127.10 civil penalties were amended as follows:
- § 127.10(a)(1)(i) increased from $1,183,736 to $1,197,728.
- § 127.10(a)(1)(ii) increased from $860,683 to $870,856 (or five times the amount of the prohibited incentive payment, whichever is greater).
- § 127.10(a)(1)(iii) increased from $1,024,457 to $1,036,566.
The Department of Commerce increased the maximum penalty for a violation of the Export Control Reform Act of 2018 from $305,292 to $308,901.
OFAC Issues Hong Kong-Related Sanctions Regulations
On January 15, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a rule (86 FR 3793), also effective January 15th, creating the Hong Kong-Related Sanctions Regulations. This is the latest step in a series of actions following Hong Kong’s loss of autonomy in 2020. OFAC typically issues separate, but similar, sanctions regulations to implement country-specific sanctions.
ECS will continue to monitor changes to export control regulations and policies, particularly for DDTC, BIS, and OFAC. Watch this space for updates!