Articles Posted in Exports

Published on:

By , , , and

On July 22, 2015, the Department of Commerce’s Bureau of Industry and Security (BIS) released amendments to the Export Administration Regulations (EAR) implementing the Secretary of State’s May 29, 2015 decision to rescind the designation of Cuba as a State Sponsor of Terrorism. The removal of Cuba from Country Group E:1 and “AT” controls under the EAR requires a number of highly-technical changes to U.S. regulations. The key practical impacts are:

  •  The de minimis level for Cuba will be 25 percent instead of 10 percent (with some exceptions);
  •  License exception AVS will be expanded somewhat for aircraft on temporary sojourn in Cuba;
  • License exception RPL will be available to replace, on a one-for-one basis, parts, components, accessories or attachments for aircraft and other items controlled for national security reasons that were previously lawfully exported or reexported to Cuba; and
  • License exception BAG generally will allow travelers to Cuba to carry encryption commodities and software.

It is important to emphasize that the change to Cuba’s status as a state sponsor of terrorism does not remove the U.S. embargo on Cuba. Cuba remains in Country Group E:2, and any export, re-export, or transfer of goods, software or technology that are subject to the EAR to Cuba must still be licensed or be eligible for export under a license exception. Also, there have been no further changes to the U.S. sanctions policy administered by the Office of Foreign Assets Control (OFAC).

Increase in De Minimis Amount of U.S. Content Allowed for Cuba

Under the de minimis exception of the EAR, foreign-made products incorporating “controlled” U.S. content – that is, items that would require a license if exported separately to the country of ultimate destination – below certain threshold amounts are not subject to the EAR.

Previously, foreign made products that incorporated more than 10% U.S.-origin content were subject to the EAR when exported to Cuba from third countries. The amendments increase the threshold de minimis level to 25%, consistent with the threshold applied to most other countries.

As a result of this change, non-U.S. companies may find it easier in some cases to export products to Cuba incorporating U.S.-origin content. Nonetheless, companies should be mindful of continuing U.S. sanctions rules when assessing de minimis eligibility. In particular, because all U.S. content is controlled for export to Cuba (even items classified under EAR99), products that satisfy the de minimis test for export to other countries may not qualify for export to Cuba under the de minimis exception. Also, several categories of items are not eligible for the de minimis exception, including items incorporating content classified as a “600 series” item.

Changes to License Exceptions

License Exception Aircraft, Vessels and Spacecraft (AVS)

License exception AVS (“Aircraft, Vessels and Spacecraft”) (EAR § 740.15) previously allowed non-Cuban airlines to operate flights into Cuba. The amended regulations remove some restrictions on the use of AVS for Cuba, but the modifications currently seem likely to have a limited impact until such time as export licensing requirements for sales of aircraft and aircraft parts to Cuba are relaxed.

License Exception Servicing and Replacement of Parts and Equipment (RPL)

Certain exports and re-exports to Cuba may now be eligible for License Exception “Servicing and Replacement of Parts and Equipment” (EAR § 740.10). This would allow one-for-one replacement of parts, components, accessories, and attachments to be exported or re-exported to Cuba for aircraft; as well as for commodities controlled for national security (NS) reasons. Note that this license exception may only be used for items previously lawfully exported or reexported to Cuba.

License Exception Baggage (BAG)

License Exception “Baggage” (BAG) (EAR § 740.14) was previously available for Cuba. The amendments have the effect of now authorizing travellers to carry in their baggage encryption items (e.g., laptops containing encryption software) for their own use.

Before using any of the above license exception, it is important to review all of the specific requirements under EAR Part 740 and § 746.2 (providing information of the permitted use of license exceptions for Cuba) as well as the FAQ’s that accompanied the release of the amendments.

Published on:

By

On June 31, Congress, led by House Financial Services Committee Chairman Jeb Hensarling (R-TX), allowed the authorization of the U.S. Export-Import bank to expire without any vote. As previously reported, the future of the Ex-Im Bank has been at risk since Tea Party Republicans, especially members of the House Republican Study Committee, targeted the bank as a wasteful government program.

Following the expiration of its charter, the bank will remain open, but only for limited functions. It will not be able to issue any new loans, but will continue to service its current $110 billion portfolio of loans until they expire. The expiration for some of these loans is 18 years away. Bank operations (as opposed to its loan activities) are funded through the normal federal appropriation process, allowing it to service these loans for as long as it receives the necessary budget appropriations. The bank’s current operations, like the rest of the federal government, are funded through September 31, 2015. It is expected that the bank’s operating budget will be funded for fiscal year 2016 under the normal appropriations process, but given the politically charged environment around the bank, nothing is certain. Continue reading →

Published on:

By

Companies wishing to take advantage of the efficiencies of cloud computing face a dilemma—how to do so without running afoul of export controls? In a recent client alert, authors Christopher Wall and Sanjay Mullick examine how newly proposed regulations from the Directorate of Defense Trade Control (DDTC) and the Bureau of Industry and Security (BIS) could potentially solve this problem, allowing companies to store information on servers in foreign countries if that information is sufficiently encrypted. (And that’s an important “if.”)

Client Alert: Proposed Change to Export Controls Would Allow Use of the Cloud for Encrypted Data

Published on:

By

As previously reported, the Obama Administration is actively continuing its rapprochement with Cuba, most recently removing Cuba from the list of state sponsors of terrorism. However, despite this consistent push from the Administration and the strong interest of the U.S. business community to enter the Cuba market as quickly as possible, Congress remains divided on how best to approach Cuba. In recent days, powerful Members of Congress has taken divergent steps to either expand the relationship or put the brakes on the momentum. Continue reading →

Published on:

By and

The leaders of the G7 met for two days of discussions in Elmau, Southern Germany on 7 and 8 June 2015.

High on the agenda was the issue of Russian targeted EU and US sanctions over Moscow’s role in support of Ukrainian rebels.

Russia has already been excluded from what was formerly known as G8 following its annexation of Crimea in 2014.

Following talks between President Obama and German Chancellor Merkel in Elmau, reportedly over a traditional Bavarian meal of sausages and beer, the White House issued a statement confirming: “The duration of sanctions should be clearly linked to Russia’s full implementation of the Minsk agreements and respect for Ukraine’s sovereignty”. Continue reading →

Published on:

By

Companies legitimately employing tools to test how vulnerable their computers and networks may be to cyber-attacks should take note of strict new export controls that may be on the horizon.  Specifically, on May 20, 2015, the Commerce Department Bureau of Industry and Security (BIS) proposed to establish controls on the export of cybersecurity items, which would require a license for all countries except Canada and generally make license exceptions unavailable.  Currently, certain of these items are controlled as encryption items because of their information security functionality, but exporters who believe their items are subject to the encryption controls should exercise caution, to avoid a situation in which they export and then learn after the fact that BIS actually believes the items are subject to the new cybersecurity controls.  Comments to the proposed rule are due by July 2015, but it may prove difficult to strike the right balance between preventing cybersecurity items from falling into the wrong hands to conduct cyberattacks and allowing companies legitimate access to them so they can test their cyber defenses.

For more details on the proposed rule and its potential impacts, please see our recent cybersecurity client alert.

Published on:

By and

U.S., EU and other sanctions and export control regimes continue to target the Russian defense and energy sectors, restricting access to both military and dual use items. This creates demand pressure on the Russia side and as a result potential added compliance risk for exporters. Companies often ask “what are we expected to do try and prevent our exports from going inadvertently to prohibited end users and end uses?”

On May 18, 2015, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) released guidance on due diligence practices for exporters to prevent unauthorized exports to Russia, amidst express concerns of front companies and intermediaries making transshipments to Russia in violation of the Export Administration Regulations (“EAR”).  In particular, the guidance focuses on exports of (a) National Security or “NS”-controlled items and (b) military end-use or end-user controlled items–which both require a license for Russia–to countries with less restrictive licensing requirements.

Continue reading →

Published on:

By

Congress is currently fiercely debating whether to grant the President fast track trade authority, allowing to him to finalize free trade agreements with the EU and a dozen Pacific Rim trading partners. While this debate caused President Obama to join with Republicans to overcome the objections of trade-skeptic Democrats, the coming debate over the U.S. Export-Import Bank will divide the Republican Party along sharply ideological lines that threaten the very existence of the Ex-Im Bank.

Small, medium, and large U.S. businesses that rely on the bank to underwrite their exports may soon be confronted with the loss of a major source of commercial support. Furthermore, it appears that the bank is already placing limits on its operations in case it is forced to wind down. John Hardy, president of the Coalition for Employment through Exports, an advocacy group representing the interests of U.S. businesses, has claimed that the Ex-Im bank is already refusing to support export deals over $100 million. Continue reading →