December 23, 2020

Commerce Releases List of Restricted Military End Users in China and Russia, Changes Hong Kong’s Status Under U.S. Export Administration Regulations

On December 21, 2020, the Department of Commerce’s Bureau of Industry and Security (BIS) added 102 Chinese and Russian companies to a new restricted “Military End User” (MEU) list in the U.S. Export Administration Regulations (EAR). Separately, BIS removed the Hong Kong Special Administrative Region (SAR) from the list of destinations in the EAR to reflect that it will now be treated in the same manner for export control purposes as mainland China, completing a series of changes first reported in July 2020. These rules, according to the pre-publication versions (MEU list, Hong Kong SAR removal), are to take effect when published in the Federal Register on December 23, 2020.

The Military End User List

The new MEU List is related to export restrictions that went into effect in June 2020 on “military end users” in China, Russia and Venezuela. The initial restrictions did not identify any specific “military end users” to which they applied. The lack of a list made it challenging for exporters to conduct “know your customer” due diligence to determine if an entity in China, Russia or Venezuela might be considered to be a “military end user” by BIS. As a result, in the span of just a few months, companies submitted over 80 advisory opinion requests and email requests for guidance to BIS and filed several hundred license applications related to the June 2020 military end user rule. The new MEU list is designed to address these concerns and provide greater clarity to industry.

At the same time, BIS has cautioned that the new list is only the “first tranche” of military end users and that more may be added in the weeks and months ahead. Further, BIS has cautioned that companies should pay close attention to Chinese companies that, while not listed by BIS, have been included on the lists made public by the U.S. Department of Defense (DOD) pursuant to Section 1237 of the National Defense Authorization Act of Fiscal Year 1999, 50 U.S.C. § 1701 Note. According to BIS, the involvement of any of the DOD-designated entities is sufficient to raise a “red flag” under the EAR and “require additional due diligence by the exporter, reexporter, or transferor to determine whether a license is required” under the EAR military end user rule.

Removal of Hong Kong as a Separate Export Designation

BIS has now removed Hong Kong as a separate export designation from the EAR. This change was made to implement a July 2020 Executive Order that found that Hong Kong should be treated for export and other trade-related purposes like mainland China due to recent changes implemented by the government of Hong Kong, such as a new national security law.

Takeaways

The new MEU list and the removal of Hong Kong as a separate destination from the EAR continue to highlight the importance of “know your customer” compliance, including knowing the destination, end user, and end use of all items exported out of the U.S. — or otherwise subject to the EAR — and monitoring how these frequent rule changes and designations may affect existing or future export activities. For more information on these new actions, please contact Nate Bolin, Mollie Sitkowski, Qiusi Newcom, or any other member of Faegre Drinker’s Customs and International Trade Team.

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