Substantial Tightening of Chemical/Biological Controls

Without formally requesting comments, BIS on April 14 published a rule substantially increasing export restrictions on several items subject to controls for chemical or biological weapons reasons (CB). This regulation comes only two weeks after a March 30 rule expanding the scope of CB catch-all controls to include members of the Australia Group (AG), the multilateral group which seeks to limit the proliferation of chemical and biological weapons. Steven Goldman, director of the Office of Nonproliferation and Treaty Compliance, first alerted the exporting community to the prospect of the new rule in a January 27 meeting of the Materials Technical Advisory Committee (MTAC). (This is as good a time as any to remind folks to be sure to read the meeting minutes of the TACs related to your business for all sorts of interesting nuggets, at least from those committees which deign to hold their discussions in open session and bother to publish minutes at all.)

In its background preface to the regulation, BIS states that these changes are necessary to bring the Export Administration Regulations into line with the AG Guidelines for Transfers of Sensitive Chemical or Biological Items, which were published in June 2004. The AG guidelines lay out several factors for governments to consider in evaluating potentially sensitive CB exports including the bona fides of the parties to the transaction and the capabilities and intentions of the CB activities of the recipient state. The guidelines do not specify a blacklist of states prohibited from receiving any dual-use CB items nor any sort of hierarchy of scrutiny for different groups of states. The AG guidelines do not even advise governments to distinguish between AG members and non-members in evaluating proposed exports. To their credit, BIS is candid that the new rule “will likely result in an increase in the number of license applications that will have to be submitted to BIS for exports and reexports of equipment and technology”

These are the primary elements to the new regulation:

• It increases the country scope of CB controls on Export Control Classification Numbers (ECCNs) 1A004, 2A226, 2A292, 2B350, 2B351, 2B352, 2E001, 2E002, 2E201, 2E290, and 2E301 by revising each of them to require a license if the country of destination has an “X in CB Column 2. Previously a license was required only for the countries listed in CB Column 3. This is a major increase in the country scope. The old scope, countries in CB Column 3, was limited to countries of particular concern for proliferation of chemical or biological weapons - meaning mostly former Soviet republics, Middle Eastern states, state sponsors of terrorism, plus China, India, Israel, Pakistan, Taiwan, Vietnam and a few others (including the fearsome proliferator and postage-stamp-sized Caribbean federation of St. Kitts & Nevis.)

But with this revision, a license is now required to export any of these items or technologies to every country except those participating in the AG. Excluding the US and the European Commission, the AG has 37 members - consisting of all 25 EU member states plus Argentina, Australia, Bulgaria, Canada, Iceland, Japan, New Zealand, Norway, Romania, South Korea, Switzerland, and Turkey. If your customer is not in one of those countries, a license is required. (Note that CB Column 2 is a superset of CB Column 3 so every country which required a license prior to the new rule still does.)

New to the license required list are five of the top twenty export markets for US merchandise - Brazil (#15), Hong Kong (#13), Malaysia (#16), Mexico (#2), and Singapore (#11). And that does not include the numerous reexports which will now too require a BIS license.

• Changes to the portion of ECCN 1E001 which controls technology related to ECCN 1A004.c chemical protection and detection equipment in order to put it into better alignment with the Wassenaar Arrangement’s dual-use control list (Word). These alterations increase what 1E001controls, broadening its definition and enlarging the scope of both the CB Column 2 and National Security (NS) Column 1 controls.

• Transfers within a country are now subject to chemical and biological weapons end-use and end-user based controls. A license is required to export, reexport, or transfer (in-country) items subject to the EAR if, at the time of the export, reexport, or transfer, the party responsible for the export, reexport, or transfer knows that the items are intended for chemical or biological weapons activities in or by any country or destination, worldwide. This continues a trend we’ve seen over the past couple years to add in-country transfer controls to various parts of the EAR. This was done previously in the regulation on Iraq and also as part of an amendment to end-use restrictions on rocket systems and unmanned air vehicles.

• Expands the controls on activities by US persons related to the design, development, production, stockpiling, or use of chemical and biological weapons from just those countries suspected of nefarious activities in these dark arts to the entire globe. This brings the US person activity controls into line with the March 30 rule mentioned above, which extended the country scope of end-user/end-use controls catch-all controls on chemical and biological weapons to include all destinations, even AG participants.

Further related to this rule, there is good news and bad news. First, the good news - the regulation includes a savings clause delaying implementation of the new license requirements. Now, the bad news - if your product is not already on dock for loading, on lighter, laden aboard an exporting carrier, or en route to a port of export, it’s too late. The savings clause requires exports or reexports to have been laden by April 29 and to be exported, reexported, or transferred before May 16. Undoubtedly for those of you who now face the prospect of more time wrestling SNAP or snapping up those dwindling supplies of typewriter ribbons to complete 748Ps (and therefore less with your children) this will come as cold comfort. But if savings clause eligibility for deemed exports is a particular concerns, then the situation is a bit cheerier - you have until August 12 to pull together license applications for their foreign national employees involved in the technology at issue.