New Defense List for Chinese Military Companies

January 10, 2025 by Leave a comment

Several Chinese aerospace companies have been placed on a list of Chinese military companies operating in the United States. This list includes well-known companies like AVIC (including multiple subsidiaries) and COMAC, as well as companies like Guizhou Aviation Tech, Hongdu Aviation, Shanghai Aircraft Manufacturing (SAMC), Shenyang Aircraft Design, and Xi’an Aircraft Industry Group.

This list is part of a DoD requirement introduced in the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021. That law established a yearly reporting obligation: the Department of Defense is required to identify each “Chinese military company” that is operating directly or indirectly in the United States.

This list includes entities engaged in providing commercial services, manufacturing, producing, or exporting, where the entity is (i) owned, controlled, or beneficially owned by, or acting on behalf of, the People’s Liberation Army or any other organization under the Chinese Communist Party’s Central Military Commission; or (ii) identified as a military-civil fusion contributor to the Chinese defense industrial base. There are eight possible categories to determine the criteria for defining a company as a “military-civil fusion contributor.”

Presently, most U.S. business do not have any general legal obligations related to this list. That could change. While this was merely a list for Congress when it was first promulgated, subsequent laws have started to use this list as the basis for legal impediments.

The consequences of this list will begin to be implemented starting in 2026. Under Section 805 of the NDAA for FY 2024, the Department of Defense will be prohibited from entering into, renewing, or extending a contract for the procurement of goods, services, or technology with an entity on the Section 1260H List starting on June 30, 2026. Additionally, from June 30, 2027, Section 805 will also prohibit the DoD from entering into, renewing, or extending a contract for the procurement of goods or services that include goods or services produced or developed by an entity on the Section 1260H List.

Rules for this standard are still forthcoming, but it is likely that the prohibitions will include subcontracting, so this will affect private businesses with defense contracts.

While this does not presently affect most commercial transactions, it is possible that future legislation could expand on the impact of this rule by imposing other sanctions or restrictions related to this list. It is also possible that this 1260H list could influence the Military End User (MEU) List published by BIS, which limits export transactions of a variety of goods, including aircraft parts.

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BIS Continues to Add Aviation Businesses to the Entity List, Including AVIC Entities

December 20, 2022 by Leave a comment

The Bureau of Industry and Security (BIS) End-User Review Committee (ERC) has added several new businesses to its entities list. This list continues to include a focus on aviation companies so it is especially important for ASA members to check these lists before exporting aircraft parts.

One of the aviation companies added to the entities list is the AVIC Research Institute for Special Structures of Aeronautical Composites. This AVIC company is accused of acquiring or attempting to acquire U.S.- origin items in support of China’s military modernization. This is not the only AVIC company that has been sanctioned – the United States has also issued sanctions against these other AVIC companies (do not consider this a complete list!):

  • AVIC AVIATION HIGH-TECHNOLOGY COMPANY LIMITED
  • AVIC HEAVY MACHINERY COMPANY LIMITED
  • AVIC XI’AN AIRCRAFT INDUSTRY GROUP COMPANY LTD.
  • AVIC AVIONICS
  • AVIC AIRCRAFT CO. LTD.
  • AVIC INTERNATIONAL HOLDING CORPORATION

These entities now have a license requirement for all items subject to the export regulations. The BIS license review policy for these companies typically includes a presumption of denial, but there are some exceptions available for some goods, so if you have a potential transaction, you should (1) identify whether government sanctions appear to prohibit the transaction, (2) examine the license presumptions, (3) examine whether the special nature of your transaction changes the presumptions, and (4) consider whether a license may be available for your particular transaction.

Where there is a presumption of denial, there is a significant burden to meet in order to rebut the presumption of denial. An important part of that burden should include a demonstration of the mechanisms that will be use to prevent diversion or redirection of the export from a stated civil end use to a military end use that would not have been licensed. The exporter who wants to get a license should consider this factor, as well as considering the strategies for preventing diversion.

As aviation companies continue to get added to the BIS Entities List, it continues to be very important to check your export customers on every transaction against the Consolidated Screening List.

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