ILMA Compoundings - July 2020 - 15

All combined, these recent
changes and proposed
changes could meaningfully
curtail global trade with China
that involved U.S. goods."
description, if the chemical's end use is used by a parts
manufacturer with limited sales of metal components
that could support military weaponry (ordinary gun parts,
knives, etc.) or items that could support military efforts
(ordinary equipment parts that could be used by military or
nonmilitary). The prohibition applies to military end uses
and end users, but the exporter need not have actual knowledge about that use. A violation can be based on the failure
to seek an export license based on the presumption that the
difficulty with distinguishing between military support users
and truly nonmilitary-related users is extremely difficult.
Consequently, the general prohibition presumes the user to
be military support-related, and the license application is
presumed denied until BIS can determine otherwise.
Under the circumstances, any U.S. exporter (or a
reexporter of U.S. product) that exports any applicable
product to China without first submitting an export license
application would violate the regulation because licenses
are presumed denied unless qualifying circumstances are
affirmatively shown by the exporter (or reexporter). The
operative rule is that the absence of a license for these
exports is a violation waiting to be discovered.
ELIMINATION OF LICENSE EXCEPTION FOR CIVIL
END USERS
The license exception for civil end users has been a method
for exporters to categorically identify their intended end
users as nonmilitary. It has essentially preauthorized exports,
reexports and transfers of items that are otherwise controlled
under the EAR for national security reasons.
To avoid confusion for U.S. export license applicants, this
categorical license exception has been eliminated. The rationale for this is grounded in the extreme difficulty posed by
China's known capability and willingness to mask military
complex suppliers, as well as the breadth of general products that bolster the effectiveness of the Chinese military
supportive industries that must be included in order for this
U.S. export control to be effective.
Exports that have relied on this exception will now be
subject to licensing requirements from the BIS. Here, too, the
export or reexport to China, as well as other Country Group
D:1 countries of national security-controlled items under the

EAR, are subject to the aforementioned "policy of denial,"
meaning that the BIS will approve a license only where it can
affirmatively verify any exceptional circumstances.
MODIFICATION OF LICENSE EXCEPTION APR
The BIS has also proposed to remove availability of the
License Exception Additional Permissive Reexports (APR)
with respect to exports and reexports to China. This License
Exception authorizes the reexport of items subject to U.S.
export control jurisdiction from certain third countries
without the need for a license from the BIS, provided that
the reexport is authorized by the third country. For example,
product exported from the U.S. to a distributor in Canada,
which in turn reexports the product from Canada to China.
License Exception APR is limited to select third countries
that are recognized as countries that are members of an
international agreement on accepted standards for export
controls, known as the Wassenaar Arrangement (plus Hong
Kong), have implemented appropriate licensing requirements of their own and maintain evaluation criteria on
which the U.S. has confidence.
The proposed change by the BIS would modify License
Exception APR to be unavailable for reexports of U.S. items
to China and other EAR Country Group D:1 countries. The BIS has experienced discrepant authorizations
by these countries, where the BIS claims it would not have
approved the reexport. The impact of this step by the BIS
would be significant in that it would impact exports of
items from Hong Kong and the 42 Wassenaar countries
(including much of Europe, Mexico, Canada, Australia,
India, Japan, South Korea and many others) that involve
U.S.-origin products or incorporate controlled U.S. components or that are based on U.S. technology - a broad
description of U.S. products that are purchased by customers in significant trade-partner venues.
All combined, these recent changes and proposed changes
could meaningfully curtail global trade with China that
involved U.S. goods. The direct impact on U.S. exports
by export license requirement alone could be a meaningful
damper on U.S. companies relying on U.S.-China trade.
The looming cloud of the proposed change that curtails
reexport of relevant U.S. products to China by customers
located abroad (in many trade-significant jurisdictions)
could pose a detriment that is not only financially daunting,
but very difficult to measure.
Eggenschwiler, an ILMA consultant, is an international trade attorney and principal, global trade and
chemical regulations services, for the Redstone Group,
a Trinity Consultants company. He can be reached at
614-923-7472 or jeggenschwiler@redstonegrp.com.

ILMA Compoundings - July 2020

Table of Contents for the Digital Edition of ILMA Compoundings - July 2020