On November 1, 2017, the Department of Commerce’s Bureau of Industry and Security (BIS) introduced clarifications to the Export Administrative Regulations (EAR) for the use of license exception “Governments, International Organizations, International Inspections under Chemical Weapons Convention, and the International Space Station” (GOV), and license exception “Strategic Trade Authorization” (STA). BIS explained that the agency is not changing the requirements for the use of these exceptions, instead it is only providing guidance to answer questions frequently received from the public.
Donald Trump’s victory in the 2016 Presidential election put the Republican Party in charge of the White House and Congress for the first time in a decade. President-elect Trump ran as an anti-establishment candidate who departed from many traditional Republican positions and promised bold and in some respects controversial reforms. How his administration will govern and the extent to which its policies will be supported in Congress are key questions facing companies and investors.
This report comments on aspects of international trade, sanctions and export control policies that are currently at the forefront of discussion.
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.