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23 March 20218 minute read

United States imposes significant new export controls and sanctions on Russia and China

The US Departments of Commerce and State last week announced new export controls that impact exports, reexports and transfers to Russia of goods, technology, and software. Also last week, new sanctions and export controls went into effect on certain Chinese and Russian individuals and on transactions with or involving military intelligence services in these countries. Coming on the eve of a two-day summit with China, the announcement of Commerce Department investigations of Chinese “information and communications technology” companies operating in the United States, and strongly worded US statements directed at China and Russia, these new export controls and sanctions reflect further entrenchment of a hard line US national security approach towards the two countries.

I. New US export controls on Russia

On March 18, the US Department of Commerce and the US Department of State implemented new, broad-based export control restrictions on the provision of goods, technology, and software to Russia. These new restrictions were issued based on a finding by Secretary of State Anthony John Blinken pursuant to Executive Order 12851 and the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 that the Russian government “had used chemical or biological weapons in violation of international law or lethal chemical or biological weapons against its own nationals.”

A. New ITAR controls on Russia

Effective March 18, 2021, Russia has been added to the list of proscribed countries under the US International Traffic in Arms Regulations (ITAR). The addition of Russia to Section 126.1(d)(2) of the ITAR now prohibits the provision to Russia or Russian persons of “defense articles” and “defense services,” including most military weapons systems, satellites, rocket and missile systems, and sensitive “technical data” related to such items. Under the new controls, it is the policy of the United States to deny applications for a license or agreement for the export, reexport, transfer or release of ITAR-controlled defense articles, technical data, or the provision of defense services to Russia or Russian persons.

These restrictions on Russia apply to new and pending ITAR license applications, as well as potentially to existing licenses and agreements. Limited exceptions remain for US-Russia space cooperation and for commercial space launches that take place prior to September 1, 2021.

While there is little existing defense-related trade between the United States and Russia, the latest rule change is likely to have an impact particularly on aerospace and defense companies that may employ Russian citizens or dual nationals. The ITAR changes may also impact companies that provide products or technologies to Russian space and satellite companies and research institutions.

B. New EAR controls on Russia

Also effective March 18, the US Department of Commerce added significant new restrictions on the export, reexport, or transfer to Russia or Russian persons of non-military or “dual use” goods, software, and technology that are controlled for national security (NS) reasons under the Export Administration Regulations (EAR). The list of such “NS-controlled” items is extensive and includes advanced semiconductors, optics, advanced electronics, machine tools, composites and other advanced materials, and many other chemical, material, and machinery products and technologies and software used in a wide variety of industries. While EAR license requirements already exist for these items with regard to Russia, a range of EAR license exceptions has permitted a significant amount of trade to continue without prior licensing requirements. The latest changes narrow the range of available EAR license exceptions significantly.

Specifically, the new EAR controls suspend License Exception RPL (Service and Replacement of Parts and Equipment), License Exception TSU (Technology and Software Unrestricted), and License Exception APR (Additional Permissive Reexports) for transactions involving items controlled for national security reasons that are destined to Russia. Such license exceptions are frequently used to supply items needed to service existing machinery and equipment in Russia, to export or transfer NS-controlled software to Russia, or to transfer export-controlled items from Russia to third countries. Licenses will now be required for these transactions, and license applications will be reviewed with a presumption of denial (meaning that an applicant will generally need to make an extraordinarily convincing case for why the license application should be granted).

Certain EAR license exceptions will remain available for Russia. These include License Exception TMP (Temporary Imports, Exports, and Reexports); License Exception GOV (Governments, International Organizations, and International Inspections under the Chemical Weapons Convention); License Exception BAG (Baggage); License Exception AVS (Aircraft and Vessels); and License Exception ENC (Encryption Commodities and Software). In addition, license applications for certain transfers of controlled items to Russian nationals (ie, so-called “deemed exports”), to Russian subsidiaries of US companies, and for certain non-military space-related activities will continue to be reviewed more favorably.

The bottom line is that the EAR changes will force many companies engaged in trade with Russia that involves NS-controlled items to apply for licenses. In many cases, the prospects of such license applications being granted now seem remote.

II. Restrictions on US person “support” for WMD and military intelligence related activities

In a further rule change, the US Department of Commerce has also modified the EAR to implement provisions of the Export Control Reform Act of 2018 to impose additional restrictions on US persons who may be involved with nuclear, chemical or biological weapons, foreign maritime nuclear projects, and foreign military intelligence service activities. These changes went into effect on March 16, 2021.

As a result, any US person (including US citizens, green card holders, and US organized entities) must obtain an EAR license prior to engaging in any activity that “supports” the design, development, production, operation, installation, maintenance, repair, overhaul, or refurbishing of nuclear explosive devices, missiles, chemical or biological weapons, or plants used to make certain chemical weapons precursors in certain specified countries (including China and Russia). In addition, a license is now required for the export, reexport, or transfer of any item subject to EAR jurisdiction (including EAR99 items such as consumer goods and basic commodities) to military-intelligence end uses and end users in China, Russia, Venezuela, Cuba, Iran, North Korea, and Syria. Also prohibited without a license are any “support” services provided to or for such military-intelligence end users by US persons – even if such support services do not involve items subject to the EAR.

In this context, the term “support” is very broadly defined to include almost any conceivable activity, including shipping, transferring, or transmitting items (or facilitating such activities) and performing any contract, service, or employment activity that may assist or benefit any of the end uses or end users described above. Also considered to be “support” within the meaning of these prohibitions are activities such as ordering, buying, removing, concealing, storing, using, selling, loaning, disposing, servicing, financing, transporting, freight forwarding, or conducting negotiations in furtherance of prohibited end uses or end users. In other words, the latest changes impose what are effectively comprehensive sanctions on any activity by US persons that is at all related to the prohibited nuclear, chemical, biological and missile related end uses or any designated “military-intelligence” end user or end use in China, Russia or any of the other designated countries.

III. Additional sanctions on Chinese and Russian individuals and entities

In addition to the ITAR and EAR changes discussed above, the United States has also continued to add sanctions on specific Chinese and Russian individuals and entities. For example, on March 17, 2021, the US Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned over twenty Chinese and Hong Kong officials by adding them to the List of Specially Designated Nationals and Blocked Persons pursuant to Executive Order 13936. This follows similar actions regarding Russian individuals, entities, and vessels under the authority of the Countering America’s Adversaries Through Sanctions Act (CAATSA) sanctions.

IV. Conclusion

The latest export controls and sanctions on China and Russia reflect a further hardening of US foreign policy and national security policy positions with those two countries. Companies with operations and investments that may be impacted should closely examine the latest changes and take appropriate steps to protect their interests. Please contact the authors should you have any questions concerning these latest changes to the US export control and sanctions laws.

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