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<p>On February 24, 2022, in response to Russia&rsquo;s invasion of Ukraine, the U.S. Department of Commerce&rsquo;s Bureau of Industry and Security (BIS) <a href="https://public-inspection.federalregister.gov/2022-04300.pdf" target="_blank" rel="noopener">issued a final rule</a>, &ldquo;Implementation of Sanctions Against Russia Under the Export Administration Regulations (EAR),&rdquo; adding new Russia export license requirements and making licensing policies more stringent. The final rule is effective as of February 24.</p>
<p>These export restrictions are expansive. Companies should review the products they export directly and indirectly to Russia to determine if the exports now require a license. Both the products themselves and the end-users may activate the restrictions under the expanded export controls.</p>
<p>The new measures introduced with the final rule include but are not limited to:</p>
<ol>
<li>Making all items listed in Categories 3-9 of the Commerce Control List (CCL) subject to a license requirement for Russia;</li>
<li>Creating two new foreign &ldquo;direct product&rdquo; rules (FDP Rules) specific to Russia and Russian military end-users;</li>
<li>Making the license review policies generally more stringent for Russia, with certain limited exceptions;</li>
<li>Imposing significant restrictions on the use of EAR license exceptions;</li>
<li>Expanding the existing Russia military end-use and military end-user scope to all items subject to the EAR, with limited exceptions;</li>
<li>Moving several MEUs to the Entity List; and</li>
<li>Imposing comprehensive export, reexport and transfer (in-country) restrictions for the so-called Donetsk People&rsquo;s Republic (DNR) and Luhansk People&rsquo;s Republic (LNR) regions of Ukraine (&ldquo;Covered Regions of Ukraine&rdquo;).</li>
</ol>
<h2><strong>Commerce Control List Requirements</strong></h2>
<p>The final rule adds new license requirements for Russia. These license requirements apply to export, reexport or transfer (in-country) to or within Russia of any item subject to the EAR and specified in an Export Control Classification Number (ECCN) in Categories 3-9 of the CCL, excluding deemed exports and deemed reexports. Some of these items that were not previously controlled to Russia include microelectronics, telecommunications items, sensors, navigation equipment, avionics, marine equipment and aircraft components.</p>
<h2><strong>Foreign Direct Product Rules</strong></h2>
<p>The final rule adds two FDP Rules specific to Russia and Russian military end users. Under the FDP Rules, the U.S asserts jurisdiction over the export, re-export and in-country transfer of certain foreign made items that are produced using U.S.-origin technology.</p>
<p><strong>Russia FDP Rule:</strong> The new Russia-specific FDP Rule makes the following items subject to the EAR if they meet the product and destination tests described: (1) foreign-produced items that are the &ldquo;direct product&rdquo; of any ECCN in product groups D or E in Categories 3-9 of the CCL, or items produced by a complete plant or &ldquo;major component&rdquo; of a plant that itself is the &ldquo;direct product&rdquo; of such U.S.-origin technology or software, and (2) foreign-produced items that are known to be destined to Russia or intended to be incorporated into or used in the production or development of any part, component or equipment produced in or destined to Russia.</p>
<p><strong>Russia MEU FDP Rule:</strong> The Russia Military-End User FDP Rule (Russia MEU FDP Rule) establishes a license requirement for foreign-produced items that are (1) the &ldquo;direct product&rdquo; of any ECCN in product groups D or E of the CCL, or items produced by a plant or major component of a plant that itself is the direct product of such U.S.-origin technology or software, and (2) known to be intended to be incorporated into or used in the production or development of any part, component or equipment produced, purchased or ordered by any entity with a footnote 3 designation in the license requirement column of the Entity List. The new footnote 3 identifies each Russian military end-user that is being removed from the MEU list and added to the Entity List. Note that in addition to a broader scope of covered products, the Russia MEU FDP Rule has a broader impact as fewer license exceptions may be used for exports to Russian government end-users and SOEs.</p>
<p><strong>Partner Country Exclusions: </strong>In both the Russia FDP Rule and Russia MEU FDP Rule, certain partner countries that are adopting or have expressed intent to adopt similar measures will not be subject to the license requirements. These partner countries are currently Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Netherlands, New Zealand, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and United Kingdom.</p>
<h2><strong>New Review Policy of Denial</strong></h2>
<p>The final rule added a new section &sect; 746.8(b) in the EAR addressing the new licensing review policy for Russia. Under the new licensing review policy, applications for the export, reexport or transfer (in-country) of most items that require a license for Russia will be reviewed under a policy of denial. The following types of license applications will be reviewed on a case-by-case basis to determine whether the transaction in question would benefit the Russian government or defense sector: applications related to safety of flight, maritime safety, humanitarian needs, government space cooperation, civil telecommunication infrastructure, government-to-government activities, items destined to wholly owned U.S. subsidiaries, foreign subsidiaries of U.S. companies that are joint ventures with other U.S. companies, or wholly owned subsidiaries and joint ventures of companies from partner countries identified in Country Groups A:5 and A:6 in supplement no. 1 to part 740.</p>
<h2><strong>Additional Restrictions on License Exceptions</strong></h2>
<p>The final rule also adds significant restrictions on license exceptions available for exports, reexports and transfers (in-country) for Russia. The available license exceptions will be limited to:</p>
<ul>
<li>TMP (Temporary Imports, Exports, Reexports, and Transfers in Country), for items for use by the news media;</li>
<li>GOV, for certain government activities;</li>
<li>TSU (Technology and Software Unrestricted), for software updates to civil end-users that are subsidiaries of, or joint ventures with, companies headquartered in the United States or partner countries;</li>
<li>BAG (Baggage), for baggage, excluding firearms and ammunition;</li>
<li>AVS (Aircraft, Vessels, and Spacecraft), for aircraft flying into and out of Russia;</li>
<li>ENC (Encryption Commodities, Software, and Technology), for encryption items, but not if they are destined for Russian &ldquo;government end users&rdquo; and Russian state-owned enterprises; and</li>
<li>CCD (Consumer Communication Devices), for consumer communication devices, but not if they are destined for government end-users or certain individuals associated with the government.</li>
</ul>
<h2><strong>Expansion of the Scope of Military End-Use and Military End-User Restrictions </strong></h2>
<p>The final rule also expands the scope of military end-use and military end-user restrictions to Russia to encompass all items subject to EAR except for food or medicine designated as EAR99, or ECCN 5A992.c and 5D992.c, unless they are for Russian &ldquo;government end users&rdquo; and Russian SOEs.</p>
<h2><strong>Entity List Expansion (New Footnote 3 Designations)</strong></h2>
<p>The final rule also added a new footnote 3 to the Entity List. Forty-seven entities are being transferred from the MEU List to the Entity List and two new entities designated with footnote 3. The new footnote 3 also applies to the Russian Ministry of Defense, including the Armed Forces of Russia, wherever located.</p>
<p>Under footnote 3, licenses will be required for all exports, reexports or transfers (in-country) of all items subject to the EAR (including foreign-produced items under the Russia MEU FDP Rule) to these entities, with limited exceptions. License applications will be reviewed under a policy of denial.</p>
<h2><strong>Comprehensive Export Restrictions for the Covered Regions of Ukraine</strong></h2>
<p>The final rule also expanded the restrictions in &sect; 746.6 of the EAR, to apply to export, reexport and in-country transfer transactions involving the Covered Regions of Ukraine, i.e., the so-called Donetsk People&rsquo;s Republic and Luhansk People&rsquo;s Republic, consistent with Executive Order 14065 issued on February 21. The new rule requires licenses for the export or reexport to the Covered Regions and transfer within the Covered Regions of all items subject to the EAR, other than food and medicine designated as EAR99 and certain software for internet-based personal communications. The final rule also establishes a policy of denial for all such license applications.</p>

United States Imposes New Russia-Related Export Restrictions

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