On May 19, 2023, the United States introduced a number of expanded sanctions and export controls on Russia and Belarus. These sanctions were imposed following the G7 Leaders’ Summit meeting conducted the prior week in Japan, and were coordinated with similar measures imposed by the other G7 countries and with Australia in an effort to further curtail the development of Russia’s military and industrial sectors in its ongoing invasion of Ukraine. In this advisory, we focus on the new sanctions and export controls that were imposed by the U.S. Bureau of Industry and Security (“BIS”). These rules were published in the Federal Register as two separate rules, and we discuss each one in turn below:
Additional Entity List Designations
The first rule added 71 Russian and related individuals and entities to the Entity List, 69 of which are located or based in Russia, one Armenian entity, and one Kyrgyz entity—the latter two of whom were designated for preventing the successful accomplishment of end-use checks and/or posing a diversion risk to Russia. The Entity List designations effectively prohibit the export, re-export, or in-country transfer of any goods, software, or technology subject to the EAR to those individuals or entities without a BIS license. In addition, the 69 designated Russian entities also received a “footnote 3” designation as Russian military end-users. This footnote designation means that these entities are subject to the Russia/Belarus- Military End User Foreign Direct Product rule, which prohibits the export, re-export, or in-country transfer of certain foreign-made “direct products” of U.S. software or technology.
Addition and Expansion of BIS Export Controls and Sanctions on Russia
The second rule involves the addition and expansion of various export controls imposed on Russia and Belarus, and can be broken down into four parts:
Part 1: Expansion of products covered under “Part 746: Supplement 4” Russia/Belarus industry sector sanctions.
Under this part, BIS greatly expanded the scope of products subject to prohibitions under Part 746.5(a)(1)(ii) of the Russia/Belarus industry sector sanctions. Specifically, this part adds restrictions to products, regardless of their Export Control Classification Number (“ECCN”), that are classified under 1,224 additional Harmonized Tariff Schedule (“HTS”) six-digit codes. Of note, the new restrictions now adopt export restrictions on all products that are classified under three HTS Chapters: Chapter 84 (nuclear reactors, boilers, machinery and mechanical appliances, and parts thereof); Chapter 85 (electrical machinery and equipment and parts thereof, sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles); and Chapter 90 (optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus, and parts and accessories thereof).
These items were identified “based on a review of public and non-public information regarding which items Russia seeks to further its war against Ukraine, an evaluation of areas in which U.S. trade has continued to provide an economic benefit to Russia, and an assessment of how the United States could better align with its allies and partners to directly or indirectly degrade Russia's war effort.” Applications for an export license for any articles covered under these new Supplement 4 restrictions will be reviewed under a policy of denial, with the exception of certain agricultural, medical, or humanitarian goods—which will be reviewed on a case-by-case basis.
Part 2: Expansion of products covered under “Part 746: Supplement 6” Russia/Belarus industry sector sanctions.
Under this part, and separate to the expansion of products covered by the above rule, the U.S. imposed new restrictions on the export of certain chemical products that are normally designated EAR99, but have been determined to be useful for Russia’s chemical and biological weapons production capabilities, or are at particular risk of diversion from Russia or Belarus for these or other activities of concern. These restrictions are tied to Part 746.5(a)(1)(iii) of the Russia/Belarus industry sector sanctions.
This part was ostensibly updated to “better align these Russian and Belarusian Industry Sector Sanctions with the U.S. allies’ and partners’ controls.” The new restrictions cover lithium chloride, hydrated lithium chloride, and lithium carbonate, and are identified in Supplement 6 by their name and Chemical Abstracts Service (“CAS”) numbers. Similar to the Supplement 4 additions, export license applications for any chemical products covered under these new Supplement 6 restrictions will be reviewed under a policy of denial except for certain agricultural, medical, or humanitarian goods.
Part 3: Expansion of products covered under “Part 746: Supplement 7,” the “Iran UAVs Rule”
This part expands the scope of products that are subject to export restrictions that were imposed on February 24, 2023 to address the shipment and use of Iranian unmanned aerial vehicles (“UAV’s”) in Russia’s war on Ukraine (the “Iran UAVs Rule”). Specifically, this part adds one additional HTS six-digit code (8548.00: Electrical parts of machinery or apparatus, not elsewhere specified or included) to address its inadvertent omission in the February 24, 2023 Iran UAVs Rule.
Part 4: Expansion of Russia/Belarus Foreign Direct Product (“FDP”) Rule.
The FDP Rule establishes U.S. jurisdiction and export restrictions on foreign-made items that are the “direct products” of certain controlled software, technology or equipment that is U.S. origin or otherwise subject to the EAR. BIS had established a specific FDP rule on goods destined to Russia or Belarus with the onset of the invasion of Ukraine on February 24, 2022. Under this new rule part, BIS extends the destination scope of the Russia/Belarus FDP Rule to include restrictions on shipments to the “temporarily occupied” Crimea region of Ukraine.
In addition to the above new or expanded restrictions to exports involving Russia or Belarus, BIS published additional clarifications and corrections to existing export controls. These include the following:
Clarification that the new restrictions on U.S.-origin items and content are subject to the same exception for de minimis calculations (for determining jurisdiction over foreign-made items) when the foreign-made items are produced in a designated partner country that the U.S. has determined is “committed to implementing substantially similar export controls on Russia and Belarus.”
Clarification that the licensing requirements under EAR Part 746.5(a)(1)(i) through 746.5(a)(1)(iii) exclude deemed exports and deemed reexports.
Clarification that License Exception AVS is available as a license exception to the export restrictions set forth in EAR Part 746.5, except for aircraft registered in, owned or controlled by, or under charter or lease by Russia or Belarus or a national of Russia or Belarus.
Clarifications on licensing review policy for certain license applications, including certain replacement licenses and license applications for the divestiture or transfer for reexport of items within Russia or Belarus.
Clarification of limited-scope license exceptions covering certain mass-market encryption items classified under ECCNs 5A992 or 5D992 to also include certain telecommunications items classified under 5A991.
Harmonization of the use of HTS six-digit codes throughout the Supplements to Part 746.
Should you have any questions concerning these developments, please contact one of the trade professionals listed here.