Some Israeli Businesses May be Affected by Tightening of U.S. Export Controls to Russia
By Gil Rosen, Adv.
On February 24, 2020, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce, published in the Federal Register changes to the Export Administration Regulations (EAR) of the United States that will affect exports of items to Russia and to Yemen. The changes were implemented due to U.S. national security and foreign policy concerns with respect to these countries, including proliferation-related concerns. As the EAR also restricts re-exports of U.S. items from other countries and non-U.S. goods that include the U.S. items, some Israeli businesses may also be affected by the rule changes, particularly in connection with trade with Russia.
The EAR sets out rules regarding when export licenses are required from BIS prior to exporting goods and technology from the U.S. and when the non-U.S. recipients must obtain prior consent before in-country transfers to third parties or re-exporting the items to other countries. Factors that will determine whether or not an export license is required will depend on a number of factors, such as what Export Control Classification Number (ECCN) has been assigned to the item or technology in question, to where is the intended export, to whom is the intended export and what is the intended end-use for the goods or technology. The export restrictions on some ECCNs will be more stringent, while ECCNS covering less sensitive, entirely civilian products and technology contain little and in many cases no export restrictions. Similarly, certain destinations present a greater concern than others. The same item may require an export license to Russia while not requiring one for exports to the U.K.
One effect of the changes to the EAR result in more items requiring export licenses to Russia for nuclear proliferation concerns. Items being captured by the change include certain frequency changers (otherwise known as converters or inverters) and generators, certain high speed cameras, imaging devices and their components and certain lasers and laser amplifiers and oscillators to name only a few.
Even where an export license might otherwise be required, license exceptions are often available and the availability of license exceptions depends upon into which "Country Groups" the export destination has been placed. Under the EAR, all countries are placed into one or more Country Groups and each Country Group is assigned a level or risk that determines various export control policies towards the countries in the group. Countries that are signatories on various international treaties and pacts concerning the control of weapons of mass destruction, missile technology and exports of military and dual use goods are placed in the most favorable Country Groups while countries considered to be a U.S. national security risk, threat to world peace, supporters of terrorism or are otherwise subject to U.S. or U.N. embargoes are placed in Country Groups that have stringent and restrictive export policies assigned to them.
The rule changes implemented by BIS to the EAR concerning Russia, moves Russia from the more favorable Country Groups A:2 and A:4 to Country Groups D:2 and D:4, based on the U.S.' concerns for Russia's involvement in nuclear and missile technology proliferation. This change will result in a reduction of license exceptions available for exports and re-exports to Russia, meaning U.S. exporters and non-U.S. re-exporters will have to apply for export licenses from BIS where they once could have made use of a license exception. For some context however, Israel is not in Country Groups A:2 or A:4 and is already in Country Group D:2 and D:4, so Russia has effectively been "relegated" to a level similar to that of Israel. However, unlike with Israel, for the export to Russia of a number of items that are considered as sensitive for use with chemical, biological or nuclear weapons or missile technology, the U.S. Government is now adopting a policy of reviewing export license applications under a presumption of denial, meaning it is highly unlikely export applications for these items to Russia will be approved.
How does this affect Israeli businesses? U.S. export controls impose the same restrictions on the foreign recipient as are imposed on the U.S. exporter. Meaning that if an Israeli business has purchased an EAR controlled item for re-export to another country, they must know to check whether or not an export license from BIS is required before they can re-export the U.S. item to that new country. Additionally, where U.S. items controlled by the EAR are purchased by an Israeli business and incorporated into their Israeli manufactured item, if the value of the U.S. item exceeds 25% of the overall value of the Israeli item in most cases (10% in other cases), then the Israeli made item could be subject to the same U.S. restrictions as if it were made in the U.S.
Israeli businesses involved in re-exporting to Russia U.S. acquired products, parts and components or exporting to Russia from Israel their own Israeli made products with U.S. parts and components incorporated into them, must determine if the changes in the rules to the EAR mean that they must now obtain prior export or re-export approval from BIS where once no export license was required. It is very important to make this determination as quickly and as accurately as possible, because the U.S. Government enforces its export controls quite vigorously and violations of the EAR can result in heavy fines, denial of future export licenses, revocation of existing licenses and in some cases, prison sentences.
Gil Rosen has years of experience advising Israeli businesses on compliance with the U.S.' export control laws, including the EAR and the more stringent International Traffic In Arms Regulations (ITAR) that controls the more sensitive military and space equipment and technology. If you believe any of your business with Russia may be affected by the rule changes, Gil will be able to advise you appropriately.