Commerce released two new proposed rules governing military and intelligence end uses and end users, including activities by U.S. persons, as well as amendments to the EAR controls on Foreign-Security End Users (FSEUs) and expanding controls on activities of “U.S. persons.”
The proposed rules build on existing Export Administration Regulations (EAR) restrictions on U.S. persons’[1] implement a provision of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2023,[2] originally authored via an amendment by Senator Ron Wyden (D-OR)[3].
These rules propose to implement the broadest expansion of presidential export control authority since the Export Control Reform Act (ECRA) was signed in August 2018.
The specific controls proposed in today’s rules include:
Expansion/Update of U.S. Persons Controls.
BIS proposes establishing certain Foreign-Security End User (FSEU) and “U.S. persons” activities controls and Commerce Control List-based (CCL) controls. The proposed additions would implement expanded authority to control certain “U.S. persons” activities under the EAR.
Specific to the EAR’s “U.S. persons” activities controls, BIS is proposing amendments to control “support” furnished by “U.S. persons” to identified foreign- security end users.
In addition, BIS is proposing to add to the Commerce Control List two new unilateral item controls on facial recognition technology.
In addition to item-based controls and licensing policy, BIS imposes end-user controls to promote the national security and foreign policy interests of the United States, which includes the promotion and protection of human rights.
Entity List additions may be made to address activities that present a risk of being contrary to the national security and foreign policy interests of the United States, including the protection of human rights
With this proposed rule, BIS would add end user, end use, and item-based controls. on “U.S. persons” activities related not only to
BIS proposes to regulate the “U.S. persons” activities described above only to the extent they are not subject to a license requirement or general prohibition administered by another Federal department or agency.
BIS is proposing amendments to the EAR on military and intelligence end user controls, and controls that would restrict U.S. persons’ support of such end users, in a separate rule published concurrently with this rule (see below).
In addition to the “U.S. persons” activities control and foreign-security end user controls, BIS is proposing new item controls for facial recognition systems. The deparmwent has elected to implement end-user controls, rather than "list bast" controls to allow for the continued commercialization of such technology in the consumer space.
The license requirement under this section would apply when a person has “knowledge,” that a CCL item is intended, entirely or in part, for ‘foreign-security end users.’ The proposed rule would also establish a case-by-case license review policy to allow for the approval of items necessary for public health or safety, or for other end uses that do not implicate human rights.
The proposed rule would revise three ECCNs in Category 3 of the CCL (Electronics) and create a new CC1 control for facial recognition systems specially designed for mass- surveillance and crowd scanning.
BIS is proposing amendments to control ‘support’ furnished by “U.S. persons” to military end users and military-production activities, as well as intelligence end users that are not otherwise already regulated under or prohibited by U.S. law.
In addition, BIS is proposing to revise the definition of ‘support’ set forth in the EAR’s “U.S. person” activity control provision in response to requests by the public for clarification.
BIS proposes to revise the “U.S. persons” activities controls on military-intelligence end-use and end- user activities and expand existing restrictions to encompass activities of “U.S. persons” in connection with defined military end users, military-production activities, and intelligence end users.
BIS also proposes to clarify the definition of ‘support’ in the “U.S. persons” activities control provision.
BIS proposes to add new controls on defined military-support end users, as well as revise existing controls on military-intelligence, and military end users and end uses.
Controls related to security services consistent with the NDAA for FY 2023 will be proposed in a separate rule.
Specifically, in this rule, BIS proposes modifying the existing prohibition on “U.S. persons” ‘support’ to military-intelligence end users and end uses to apply to military end users. In addition, BIS proposes to add two new prohibitions corresponding to ‘military-production’ activities and intelligence end users, respectively.
Furthermore, also consistent with its expanded ECRA authority, BIS proposes to add additional end-use and end-user controls in connection with the U.S. person ‘support’ activities subject to the EAR’s general prohibitions.
The definition of ‘support’ remains unchanged, although certain exclusions from the definition are proposed which render explicit BIS’s longstanding policy that restrictions on “U.S. persons” activities do not apply to activities relating to items not subject to the EAR that are specified in § 734.3(b).
Academic / fundamental Research
For example, activities involving items that are not subject to the EAR because they are, e.g.,
are not intended to be restricted under these expanded “U.S. persons” activities controls.
USML / ITAR
This rule would state explicitly that prohibited “U.S. persons” ‘support’ does not include any activity undertaken with respect to defense articles listed on the United States Munitions List (USML) or on the United States Munitions Import List (USMIL), to the extent such activities are subject to control under the International Traffic in Arms Regulations (ITAR)
As an illustrative example, BIS does not propose to regulate the brokering of semi-automatic firearms by “U.S. persons,” an activity that is subject to ITAR licensing requirements.
Brokering / Administrative Services
The rule would exclude from regulation certain activities of “U.S. persons” that do not extend beyond administrative services. The proposed exclusion incorporates language used in an exclusion from the ITAR’s definition of brokering activities (22 CFR § 129.2(b)(2)(iv)) that is already familiar to the regulated industry.
Transportation, shipping, and/or transferring
This proposed exclusion is intended to ensure that the EAR’s “U.S persons”’ ‘support’ controls do not adversely impact the basic business operations of shipping lines and air carriers, companies that are generally not involved in arranging underlying transactions involving the sale of the items at issue.
BIS is excluding the routine business activities of common carriers only with respect to the new military- and intelligence-related activity controls proposed in this rule pursuant to ECRA for consistency with a similar exclusion in complementary ITAR defense services controls proposed in a separate rule in this issue of the Federal Register. (see above).
License Exception GOV
BIS would exclude certain activities that are conducted for, on behalf of, or in connection with the U.S. Government, including specified programs or agreements executed by a U.S. Government department or agency.
DDTC Authorizations
“U.S. persons” who have received a DDTC authorization to engage in defense services are not required to seek additional authorization from BIS to perform services subject to the license requirements of § 744.6 of the EAR, That “U.S. person” may rely on General Order 6 to satisfy the BIS licensing requirement that would otherwise apply.
This rule proposes to update the definition of ‘military end user’; expand the provision’s end-use and end-user controls to apply to all items subject to the EAR (rather than only the items specified in supplement no. 2 to part 744, which this rule proposes to remove and reserve); and expand the country scope of these end-use and end-user controls to apply to all countries identified in Country Group D:5, as well as Macau.
Additionally, this rule proposes a new licensing policy under which license applications would be reviewed. No other changes to§ 744.21 are being proposed at this time,
Through this proposed rule, BIS is expanding the prohibition’s scope to cover countries or destinations subject to a policy of denial for exports of defense articles and defense services, as identified by the Department of State.
Illustrative examples of activities that, depending upon the specific facts of each case, may be subject to this proposed “U.S. persons” activity control include:
(1) Facilitating a military end user's acquisition or procurement of foreign-origin items, which if located in the United States would be subject to the EAR (i.e., not USML defense articles) and also not enumerated on the USMIL.
(2) Performing basic repair or maintenance services with respect to items owned or employed by a military end user, which if located in the United States would be subject to the EAR.
Controls on “U.S. persons” support to ‘military- production activities.’
BIS is proposing a new a section-specific definition of ‘military- production activities,’ (distinct from the § 744.21(f)(1) definition of ‘military end use’) to provide greater clarity for the regulated public and avoid creating a misimpression that the agency is regulating under the EAR services regulated by DDTC under the ITAR.
Illustrative examples of activities that, depending upon the specific facts of each case, may be subject to this proposed “U.S. persons” activity control include:
(1) Assisting a defense contractor in a targeted country in producing an ECCN 0A606.a armored vehicle;
(2) Assisting a defense contractor in a targeted country in installing an ECCN 8A002.g light system in an ECCN 8A620.a submersible vessel; and
(3) Assisting an electronics company in a targeted country in developing ECCN 3A001 integrated circuits that have been ordered by the armed services of a targeted country.
Since the establishment of the military end-use and end-user controls in the EAR, BIS has received numerous questions about the applicability of these controls to persons or entities that provide assistance to military end users and end uses.
This license requirement would apply when a person has “knowledge,” that the item is intended, entirely or in part, for a ‘military-support end user,’ as defined, or wherever located when identified on the Entity List with a footnote 6 designation.
This rule would revise the term ‘military-intelligence end user’ by dropping the qualifier “military,” resulting in the term ‘intelligence end user.’ This revision would expand the scope of controls to all intelligence end users of the covered countries, instead of only intelligence end users that are part of the armed services or national guard of the covered countries.
Consistent with the proposed revisions to the end-user control described above, BIS proposes to to impose controls on “U.S. persons” ‘support’ for ‘intelligence end users’ of the 45 Country Group D and E countries not also listed in Country Groups A:5 or A:6
Note that the Country scope for this revision is broader than the usual suspects, naming “Belarus, Burma, Cambodia, the People's Republic of China (China), Russia, or Venezuela; or a country specified in Country Groups E:1 or E:2., and expanded to include all countries or destinations specified in Country Groups D or E that are not also identified in Country Group A:5 or A:6."
Country Group D comprises countries of national security, nuclear, chemical and biological, and missile technology concerns, along with those subject to U.S. arms embargoes. Country Group E identifies countries that are terrorist-supporting (E:1) or subject to a unilateral embargo (E:2). Country Groups A:5 and A:6 are composed of countries that maintain strong export controls cooperation with the United States.
The 45 Country Group D and E countries that are not also identified in Country Group A:5 or A:6 are as follows:
Afghanistan, Armenia, Azerbaijan, Bahrain, Belarus, Burma, Cambodia, Central African Republic, People’s Republic of China (China), Democratic Republic of Congo, Cuba, Egypt, Eritrea, Georgia, Haiti, Iran, Iraq, Jordan, Kazakhstan, North Korea, Kuwait, Kyrgyzstan, Laos, Lebanon, Libya, Macau, Moldova, Mongolia, Oman, Pakistan, Qatar, Russia, Saudi Arabia, Somalia, South Sudan, Sudan, Syria, Tajikistan, Turkmenistan, United Arab Emirates, Uzbekistan, Venezuela, Vietnam, Yemen, and Zimbabwe.
BIS proposes amending § 744.11 “License requirements that apply to entities acting or at significant risk of acting contrary to the national security or foreign policy interests of the United States” by adding entities that are ‘military end users,’ ‘military-support end users,’ and ‘intelligence end users’ to the Entity List in supplement no. 4 to part 744, designating them by specific footnote, and adding license requirements for these entities to § 744.11 of the EAR.
Changes to the Entity List would be made in a separate final rule.
This rule also proposes to add introductory text to paragraph (a)(2) to clarify that the “standards-related activities” exclusion to the license requirements set forth in paragraph (a)(1) applies to all the footnote designated entities described in paragraph (a)(2).
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Filed on: 07/25/2024 at 8:45 am |
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Filed on: 07/25/2024 at 8:45 am |
[1] 15 CFR 772.1 “U.S. Person”
[2] National Defense Authorization Act for Fiscal Year 2023, Sec. 5589 (b), https://www.congress.gov/bill/117th-congress/house-bill/7776/text.
[3] https://www.congress.gov/amendment/117th-congress/senate-amendment/5915/text.
[4] Such controls also apply to Macau, a territory of the People’s Republic of China (PRC), which is a country subject to a U.S. arms embargo.
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