On December 23, 2020, the US Department of Commerce, Bureau of Industrial Security (BIS) published a rule (https://www.federalregister.gov/documents/2020/12/28/2020-26552/amendment-to-country-groups-for-ukraine-mexico-and-cyprus-under-the-export-administration) which amended its EAR Country Group designations for Ukraine, Mexico, and Cyprus in order to bring them more in line with current national security and foreign policy priorities. As we noted in a February 26, 2020 post, this is part of a “larger effort to re-structure and re-align the Country Groups.” (https://www.steptoe.com/en/news-publications/commerce-expands-us-export-controls-on-russia-and-yemen.html). The rule moves Ukraine from Country Group D (countries of national security concern to the United States) to Country Group B (countries eligible for favorable treatment for certain exports of national security-controlled items) while adding both Mexico and Cyprus to Country Group A:6. The rule will have the effect of making more license exceptions available for each country.
New Export Controls on Ukraine
The key change made by BIS is the change of Ukraine from Country Group D to Country Group B. This makes various license exceptions available to Ukraine, thereby allowing more exports, reexports and in-country transfers to Ukraine without specific licenses, when certain conditions are met and the general restrictions in § 740.2 (Restrictions on All License Exceptions) do not apply. The newly-available license exceptions are:
- 740.3 – Shipments of limited value (LVS)
- 740.9 – Temporary imports, exports, reexports, and transfers (in-country) (TMP)
- 740.10 – Servicing and replacement of parts and equipment (RPL)
- 740.12 – Gift parcels and humanitarian donations (GFT)
- 740.14 – Baggage (BAG)
- 740.15 – Aircraft and vessels (AVS)
- 740.16 – Additional permissive reexports (APR)
- 740.17 – Encryption, commodities, software, and technology (ENC)
Notably, despite Ukraine’s new Country Group placement, License Exceptions Shipments to Country Group B Countries (GBS) (§ 740.4) and Technology and Software Under Restriction (TSR) (§ 740.6) remain unavailable for exports, reexports and in-country transfers for Ukraine.
In addition to the above changes, there is now a less restrictive licensing policy for Ukraine of items controlled for national security reasons. Such items will no longer be subject to a case-by-case licensing policy in § 742.4(b)(2), and will now be subject to a licensing policy of approval in accordance with § 742.4(b)(1)(i). Finally, §744.17 (restrictions on certain exports, reexports, and transfers (in-country) of microprocessors and associated software and technology for military end users), § 744.7 (restrictions on certain exports to and for the use of certain foreign vessels or aircraft), and § 736.2(b)(3) (licensing requirements for reexports of the foreign-produced direct product of US-origin technology and software) no longer apply to Ukraine.
BIS stated that these rule changes were undertaken due to “the Government of Ukraine’s continuing engagement with regional and international export control authorities,” and in order to serve US national security and foreign policy interests toward Ukraine. BIS noted that this rule does not change the status of the Crimea Region of Ukraine under the EAR. The Crimea region also remains subject to stringent sanctions administered by the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).
New Export Controls on Mexico
Now that Mexico is listed as Country Group A:6, License Exception Strategic Trade Authorization (STA) is available for exports, reexports and in-country transfers of lesser sensitivity items controlled for national security reasons only as set forth in § 740.20(c)(2). This new change is in addition to Mexico’s existing Country Group B status, which allows the use of License Exemptions GBS and TSR.
As justification for the rule change, BIS cited Mexico’s multilateral export control regime memberships and national security approaches and interests compatible with the United States.
New Export Controls on Cyprus
Cyprus’s existing Country Group B status and recent addition to Country Group A:6 means that License Exceptions STA, GBS, and TSR are available just as with Mexico. The main difference is that Cyprus is also in Country Group D:5 (US Arms Embargoed Countries), which means consideration of license exceptions includes extra scrutiny, with restrictions on items in a 9×515 or “600 series” ECCNs as described in § 740.2(a)(12)-(13). This includes items with a potential “military end use.”
BIS noted Cyprus’s European Union membership and like-minded export controls as motivation for making the rule change.
Conclusion
BIS has stated specifically that more changes to the EAR’s country groups are to be expected, and we predict that US export controls will continue to evolve and change in the new Administration. Companies that conduct cross-border business with Ukraine, Mexico and Cyprus should consider changes to their internal export compliance procedures and order processing/export licensing requirements to take into account the additional license free opportunities brought about by these changes.