APR in APRIL, BIS MAY Make Changes to Restrict Re-Exports, Comments Due in JUNE

A link to the proposed rule is here. The original rationale for this provision was likely because countries in Country Group A:1 are the Wassenaar Arrangement participating countries and so have agreed to the same controls and export license requirements as the United States on items controlled for national security (NS) reasons. While Hong Kong is not a Wassenaar participating state, Hong Kong has adopted the Wassenaar control list and long worked collaboratively with the United States on its export control laws and regulations, including in some cases verifying that US export control requirements have been met prior to issuing a Hong Kong authorization for import or export. So the idea is, if our fellow Wassenaar members are issuing licenses under the Wassenaar Arrangement, why should we require double licensing: the United States requires a reexport license and the other Wassenaar members will require an export license?

However, while these countries may have the same license requirements, as noted in the BIS proposed rule, license review standards may vary. Specifically, BIS notes the proposed change is “due to variations in how the United States and its partners, including partners located in Country Group A:1, perceive the threat caused by the increasing integration of civilian and military technology development in countries of concern.”

While the term “countries of concern” is used, and the change would apply to all D:1 countries, it is clear the concern is largely (if not completely) related to reexports to China as the remainder of the other countries are likely subject to a more aligned licensing and foreign policy, including Russia, which is still subject to certain EU sanctions and is coincidentally a fellow Wassenaar Arrangement member. As discussed in our accompanying alerts, this proposed rule is also being announced on the same day at BIS is making other regulatory changes impacting a number of countries, but with an intent most likely primarily aimed at China (the removal of License Exception CIV, and changes to the military end use/end-user restrictions in Part 744 of the Export Administration Regulations (EAR)).

Of course, what is not known is how often reexporters in Country Group A:1 and in Hong Kong are utilizing License Exception APR, in particular, if they are using it purposefully, or unknowingly relying on it when they did not realize their items were subject to the EAR and just complied with their local export control regulations (shhh, you did not hear me say that …).

BIS is seeking comments to this proposed rule to help determine this (well for the ones that know they are using APR) and the potential impact this change would have on re-exporters. BIS notes that it does not currently have a way to readily account for how many items are being authorized for reexport or transfer (in-country) under APR, so BIS is seeking information as to:

1. the volume of transactions affected by this proposed change,
2. how the proposed change would affect the amount of time necessary to complete such transactions in the future, and
3. how the proposed change would otherwise affect current business.

Comments are due no later than June 29, 2020, 60 days from publication of the proposed rule. Comments must be submitted to the Federal rulemaking portal with the ID BIS-2020-0010. Note that comments will be publicly available.