Vedder Price

The Bureau of Industry and Security of the U.S. Department of Commerce (“BIS”) has announced the adoption of new Russia export controls.  According to the draft available for public inspection, entitled Implementation of Sanctions Against Russia under the Export Administrative Regulations, the new rules are effective as of February 24, 2022 and are expected to appear in the Federal Register on March 3, 2022. Specifically, the new export controls include:

• A license requirement for the export, reexport or transfer (in-country) to or within Russia of any item subject to the Export Administration Regulations (“EAR”) and specified in an ECCN in Categories 3, 4, 5, 6, 7, 8, or 9 of the Commerce Control List (“CCL”). Bear in mind that ECCN Category 9A991 includes aircraft and gas turbine engines.
• A Russia foreign direct product (“FDP”) rule requiring a license to reexport, export from abroad, or transfer (in-country) to any destination any foreign-produced items subject to the EAR (i.e., a direct product of certain U.S.-origin technology or software, or items produced by a plant or part of a plant that itself is the direct product of U.S.-origin software or technology) if there is knowledge that the foreign item is destined to Russia or will be incorporated into or used in the production or development of certain items destined to Russia.  This rule does not apply to EAR99 items.
• A Russia Military End User (“MEU”) FDP rule requiring a license to reexport, export or transfer (in country) to or within any destination any foreign-produced item subject to the EAR (i.e., a direct product of any software or technology in an ECCN in any category of the CCL, or items produced by a plant or part of a plant that itself is the direct product of such U.S.-origin technology or software) when it is known that the foreign item will be incorporated into, or will be used in the production or development of, any part, component or equipment by any entity with a footnote 3 designation on the Entity List.  This rule applies to EAR99 items.  It does not apply to certain food, medicine or mass market technology, unless for Russian government end users and Russian state-owned enterprises (“SoEs”).
• A license requirement for the export and reexport to Donbas (also referred to as the “Covered Regions”), and the transfer within the Covered Regions of Ukraine, of all items subject to the EAR other than food and medicine designated as EAR99 and certain software for Internet-based personal communications.  The DNR and the LNR have also been added to the Entity List in supplement No. 4 to Part 744.
• A revision to the Entity List by moving the 45 entities from the MEU List at 744.21 to the Entity List and by adding an additional two entities that are newly listed in the EAR.  These 47 entities are considered MEUs in Russia.  This revision further limits these entities’ ability to obtain items subject to the EAR or obtain the benefit of technology or software subject to the EAR.  For these entities, an export license is required for all items subject to the EAR.
• A revision to 744.21 such that license requirements for MEUs in Russia now apply to all items subject to the EAR, except for food or medicine designated as EAR99 or certain mass market items and software, unless for Russian government end users and Russian SoEs.

The new license requirements apply to many items that did not previously require a license to Russia, such as parts and components used in civil aircraft under ECCN 9A991.d.  They are also intended to further restrict items to the Russian military and defense sector.  Given these new license requirements, many additional items will be treated as controlled U.S.-origin content for purposes of the de minimis calculation under Supplement No. 2 to Part 734 of the EAR.

1.  Licensing Policy

BIS stated in its announcement that it has also adopted a license review policy of denial applicable to all new Russia licensing requirements.  However, license applications for certain categories of items will be reviewed on a case-by-case basis to determine whether the transaction would benefit the Russian government or defense sector.  The categories are: applications related to safety of flight, maritime safety, to meet humanitarian needs, in support of government space cooperation, applications for companies headquartered in certain countries to support civil telecommunications infrastructure, or involving government-to-government activities.

2.  Certain Countries Excluded from License Requirements.

Countries that BIS has determined are committed to implementing substantially similar export controls as part of their domestic sanctions against Russia are subject to full or partial exclusions from the Russia FDP and Russia MEU FDP license requirements.  These countries appear in a list at new Supplement No. 3 to Part 746.

3.  License Exceptions

Except for the Russia MEU FDP license requirement, the new Russia license restrictions are subject to the following license exceptions:  certain sections of License Exception TMP for items for use by the news media; License Exception GOV; License Exception TSU for software and technology updates for civil end users provided those civil end users are subsidiaries or joint ventures of companies headquartered in the United States or a country or countries from Country Groups A:5 or A:6; License Exception BAG, excluding firearms and ammunition; License Exception AVS (limited sections);[5]  License Exception ENC, excluding Russian government end users and Russian SoEs; and License Exception CCD.  Generally, no license exceptions apply to any of the MEUs moved to the Entity List, consistent with the general rule that parties on the Entity List are not eligible for license exceptions.

4.  Savings Clause for Shipments En Route to a Port of Export

As to the new Russia FDP and Russia MEU FDP license requirements, shipments of items removed from eligibility for a license exception or reexport or transfer (in-country) without a license (NLR) that were en route aboard a carrier to a port of export, reexport, or transfer (in country), on or before March 26, 2022, pursuant to actual orders for reexport, or transfer (in-country) to or within a foreign destination, are permitted to proceed to that destination under the previous license exception or NLR eligibility.

For all other revisions, shipments of items removed from eligibility for a license exception or export, reexport or transfer (in-country) without a license that were en route aboard a carrier to a port of export reexport or transfer (in-country) on February 24, 2022, pursuant to actual orders for export to or within a foreign destination, may proceed to that destination under the previous eligibility.

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[1] Although the export or re-export to Russia of aircraft and gas turbine engines having U.S.-controlled content now requires a license (subject to a policy of denial), such exports and re-exports will be permitted under the narrow provisions of the AVS license exception dealing with the temporary sojourn of aircraft, including re-exports thereof, and equipment and spare parts for permanent use on vessels and aircraft, set forth in sections 740.15(a) and (b) of the EAR. Please note that if the United States and Russia deny each other’s air carriers access to their respective airspace, there will be no opportunity to rely on the AVS license exception.