In an early confidential draft of a proposed rule that BIS has shared with a technical advisory committee of industry representatives, trade press is reporting that the Department of Commerce’s Bureau of Industry and Security (BIS) may seek to restrict export transactions with 89 Chinese and 28 Russian companies that are owned or controlled by these countries’ military branches; or at the very least, have military connections. While the draft may change before being published for comment, several significant foreign companies are reportedly identified in the current draft, including: Commercial Aircraft Corp. of China Ltd. (COMAC), Aviation Industry Corporation of China (AVIC) and ten of its subsidiaries, and Irkut Corporation. Each of these aviation companies have existing and significant commercial relationships with U.S. companies for aircraft parts and components.
This draft rulemaking appears to be a follow-on to BIS’ April rule expanding military end use/user controls in China, Russia and Venezuela. That final rule became effective on June 29, 2020, and expanded licensing requirements for these countries where “military end users” or “military end uses” were involved or potentially involved. See Update of April 28, 2020. Importantly, the rule broadened the definition of military end use beyond any item for the ‘‘use,’’ ‘‘development,’’ or ‘‘production’’ to now include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, ‘‘development,’’ or ‘‘production,’’ of military items. Significantly, BIS noted at the time that these expansions “will require increased diligence with respect to the evaluation of end users in China, particularly in view of China’s widespread civil-military integration.” While the full impact of this early draft proposed rule is not known, the listing of these Chinese and Russian companies would likely require U.S. companies to apply for export licenses in order to transact with and export to any listed company. If treated in a manner similar to how those foreign companies placed on BIS’ Entity List are treated, the result could be an overall “policy of denial” when considering such licenses.
BIS has not commented on the confidential draft. Thompson Hine trade attorneys and practitioners are closely following this development and will report further on any formal notifications published by BIS.