China Sanctions Lockheed Martin and Raytheon Missile and Defense

February 16, 2023 by Leave a comment

China announced that it is adding Lockheed Martin Corporation and Raytheon Missile and Defense to its Unreliable Entity List. This means that Lockheed Martin Corporation and Raytheon Missile and Defense are forbidden from exporting to China (under Chinese law).

The official reason for these two companions being added to the Unreliable Entities List is because they have sold arms to Taiwan; but some in the media believe that the action may have been taken in retaliation for recent US sanctions related to a Chinese balloon that was shot down over the United States. The US added six Chinese aerospace companies to its own sanctions lists – these six Chinese companies are listed in the Federal Register.

China’s Unreliable Entity List is a sanctions list established and maintained by China’s Ministry of Commerce. The recent Chinese Unreliable Entity List Order prohibits Lockheed Martin Corporation and Raytheon Missile and Defense from engaging in import and export activities related to China. It is not yet clear whether this also inhibits the import into China of products made by each of these companies (but exported to China by third parties, like distributors).

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US Sanctions Six Companies over Balloon Issue

February 16, 2023 by 1 Comment

The United States (US) added six Chinese aerospace companies to its sanctions lists – these companies now appear on the ITA Consolidated Screening List as denied entities. The six Chinese companies are listed in the Federal Register:

  • Beijing Nanjiang Aerospace Technology Co., Ltd.
  • China Electronics Technology Group Corporation 48th Research Institute
  • Dongguan Lingkong Remote Sensing Technology Co., Ltd.
  • Eagles Men Aviation Science and Technology Group Co., Ltd.
  • Guangzhou Tian-Hai-Xiang Aviation Technology Co., Ltd.
  • Shanxi Eagles Men Aviation Science and Technology Group Co., Ltd.

The US Government explained that these six businesses were sanctioned for their support to China’s military modernization efforts, specifically the People’s Liberation Army’s (PLA) aerospace programs including airships and balloons and related materials and components. The same US Government notice explains that the PLA is using High Altitude Balloons for intelligence and reconnaissance activities.

Persons subject to US export regulation are forbidden from exporting to a denied party except where a US government export license or other provision of US law specifically permits the transaction

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New Semiconductor Rule Unlikely to Affect the ASA Community; Except for Semiconductor Manufacturing Articles, Materials, Software or Technology

October 10, 2022 by Leave a comment

The United States’ Bureau of Industry and Security (BIS) is promulgating new rules designed to protect the U.S. semiconductor industry. Our initial review of these new rules suggests that they are unlikely to affect most aircraft parts (including avionics), but ASA members who export (or re-export) articles, materials, software or technology related to the production of semiconductors should pay attention to the standards set by these new rules.

The interim final rule is scheduled to be published on October 13, but an advance copy is already available for public inspection. It will be immediately effective when it is published, with elements being retroactively effective to last week (October 7). It will be open for public comment for 60 days.

The new rules create new Export Commodity Classification Numbers (ECCNs) for goods, materials, software and technology related to the production of semiconductors. They also set new standards for limiting export of these items.

An important element of this is the expansion of the foreign direct product rule. This rule typically extends U.S. export jurisdiction over foreign articles that are produced with U.S. content, or based on U.S. technology. The new foreign direct product rule, though, will extend U.S. export jurisdiction to include foreign-produced items that are produced by any foreign production site when the plant itself is a “direct product” of U.S.-origin “technology” or “software.” This could mean that the U.S. intends to extend jurisdiction over certain products produced in some Chinese facilities, which could produce the unusual result of declaring in-country transfers of certain semiconductor chips (within China) to be subject to U.S. export jurisdiction. It is unclear if this is the intended result of the new regulation, but the fact that this rule expands the scope of the foreign-produced item rule to include twenty-eight existing entities that are located in China suggests that China is certainly a focus of the new rule. The preamble to the new rule clarifies that the U.S. government intends to require licensing in order to support certain semiconductor chip manufacturing activities in China.

At present, the export treatment of avionics does not appear to be changed.

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Exporters: New Additions to the “Unverified List”

February 8, 2022 by Leave a comment

If you’ve attended one of my export training classes in the past twenty years, then you’ve probably heard me talk about the “Unverified List.” It is a list of non-U.S. businesses that have special restrictions attached to their export transactions under U.S. law. You may still be able to export to them, but you are going to have to meet some additional requirements to complete the transaction.

The U.S. government added 33 new entries to the BIS Unverified List, today. The changes can be found in the Federal Register. All 33 of the additions to the list are located in China. Some may engage in aerospace business transactions.

The Unverified List is a list of companies that (1) the U.S. government has tried to “verify,” and has been unable to find or (2) the U.S. government has tried to validate the end use of a perviously received item and has been unable to verify that end use. The list may include businesses that are unable to be found because they may be shells with no physical existence (businesses without a physical location that expect to receive goods exported from the United States pose a higher threat of unwanted or illegal diversion) or businesses that pose a higher level threat of diversion because of their inability to answer end use questions.

For the unverified list countries, BIS does not have actual evidence of export non-compliance for these businesses – BIS simply has a higher degree of concern. There may be insufficient basis to add such businesses to the BIS entity list (which would typically prohibit exports to these targets without a license). Instead, they are added to the Unverified List and this reflects a “red flag.” This is meant to reflect a caution that must be cleared by the exporter before the export can be consummated.

You cannot use a license exception to ‘clear’ the red flag inherent in a listing on the Unverified List. 15 C.F.R. § 740.2(a)(17). Instead, you typically need to clear it through the use of a “UVL Statement.” 15 C.F.R. § 744.15(b). This statement will need to meet regulatory requirements and be signed by the unverified business.

Be careful about which version of the Unverified List you are using!! I went to the Unverified List published on the BIS website, today, and it was issued on July 12, 2021, so it does not include the newest additions to the unverified list. I also spot-checked a few of the businesses thorough the International Trade Administration’s consolidated screening list and the were not yet in the list (they are supposed to be there).

The new additions are effective immediately (that is, they are effective today) so they apply to all export transactions starting today!

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New Military-Intelligence Rules Apply to Certain Transactions

January 15, 2021 by Leave a comment

New US rules published today create new restrictions on support of certain military-intelligence end uses and end users. This will authorize the addition of new entities to the export control lists, and will also impose a de facto requirement to ensure your transactions are not supporting restricted military-intelligence end uses. This new restriction comes on the heels of new restrictions related to military end uses and military end users.

15 C.F.R. is being amended to create new restrictions on the support of certain military-intelligence end uses and end users.

The specific restrictions apply to transactions – of any item subject to the Commerce Department export regulations – because there is an unacceptable risk of use in, or diversion to, a ‘military-intelligence end use’ or a ‘military-intelligence end user’ in the People’s Republic of China, Russia, or Venezuela; or a country listed in Country Group E:1 or E:2 (currently Cuba, Iran, North Korea, Sudan and Syria).

Two key definitions are also added to the regulations, to explain the scope of the new restrictions:

‘Military- intelligence end use’ means the design, ‘‘development,’’ ‘‘production,’’ use, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of, or incorporation into, items described on the U.S. Munitions List (USML) (22 CFR part 121, International Traffic in Arms Regulations), or classified under ECCNs ending in ‘‘A018’’ or under ‘‘600 series’’ ECCNs, which are intended to support the actions or functions of a ‘military- intelligence end user,’ as defined in this section.

15 C.F.R. § 744.22(f)(1) (March 16, 2021).

‘Military-intelligence end user’ means any intelligence or reconnaissance organization of the armed services (army, navy, marine, air force, or coast guard); or national guard. For license requirements applicable to other government intelligence or reconnaissance organizations in China, Russia, or Venezuela, see § 744.21 of the EAR. Military-intelligence end users subject to the license requirements set forth in this § 744.22 include, but are not limited to, the following:

(i) Cuba. Directorate of Military Intelligence (DIM) and Directorate of Military Counterintelligence (CIM).

(ii) China, People’s Republic of. Intelligence Bureau of the Joint Staff Department.

(iii) Iran. Islamic Revolutionary Guard Corps Intelligence Organization (IRGC– IO) and Artesh Directorate for Intelligence (J2).

(iv) Korea, North. Reconnaissance General Bureau (RGB).

(v) Russia. Main Intelligence Directorate (GRU).

(vi) Syria. Military Intelligence Service.

(vii) Venezuela. General Directorate of Military Counterintelligence (DGCIM).

15 C.F.R. § 744.22(f)(2) (March 16, 2021).

In summary, the recent expansion to the military end use/user rules is further expanded to include military intelligence services (in the seven affected countries) as well.

The most difficult compliance target may be China, because of the complicated manner in which the private sector and the state are intertwined (and also because of the large volumes of trade between these two nations). Compliance in China in particular will require special attention to detail, and to ensuring that regulatory obligations are understood and that compliance is well-documented.

The new rules apply to both direct exports and also to certain transactions that are not U.S. exports. There are some limited, specific cases where the U.S. export laws apply to transactions that are not U.S. exports. The best known case is re-exports, where U.S. origin products that are exported from one third-country location to another are nonetheless subject to U.S. export regulations.

Another special case involves weapons of mass destruction, the restrictions for which have been summarized in subsection 730.5(d). Current regulations provide:

“(d) U.S. Person Activities. To counter the proliferation of weapons of mass destruction, the [Export Administration Regulations] restrict the involvement of “United States persons” anywhere in the world in exports of foreign-origin items, or in providing services or support, that may contribute to such proliferation.”

15 C.F.R. § 730.5(d) (2020).

In today’s Federal Register, the government expanded the scope of subsection 730.5(d) to read as follows (note that restrictions on missiles and nuclear, chemical, and biological weapons already existed in the regulations, but the text dealing with them is also expanded in the new rule change):

(d) ‘‘U.S. person’’ activities. The[Export Administration Regulations] restrict specific activities of ‘‘U.S. persons,’’ wherever located, related to the proliferation of nuclear explosive devices, ‘‘missiles,’’ chemical or biological weapons, whole plants for chemical weapons precursors, and certain military-intelligence end uses and end users, as described in § 744.6 of the [Export Administration Regulations].

15 C.F.R. § 730.5(d) (March 16, 2021).

This should be of note to ASA members because it expands the scope of this rule to include certain military-intelligence end uses and end users – which means that some transactions that are not strictly U.S. exports will nonetheless be restricted when the participants include U.S. persons.

The new regulation is an interim final regulation. It is exempt from the APA’s requirements for notice and comment so it will go into effect on March 16, 2021 without comment. In the interest of effective rule-making, the government is nonetheless collecting comments on this rule.

As always, if you think that your transactions may be affected by the new rule, please consider seeking our legal advice to support your compliance program.

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China to Sanction U.S. Aerospace Manufacturers

October 30, 2020 by 1 Comment

The Chinese Government has said that China will sanction several US defense companies for selling arms to Taiwan. All three companies are active in the aerospace realm.

On Monday, Chinese Ministry of Foreign Affairs spokesperson Zhao Lijian called on the U.S. to break ties with the government on Taipei, and he announced plans to sanction Lockheed Martin, Raytheon Technologies and Boeing Defense. He did not provide further details of the sanctions, and we’ve waited this week to learn of the details, but none have yet been released.

Zhao’s specificity in naming Boeing Defense could mean that Boeing Commercial Aircraft Group is not affected by the sanctions. This is mere supposition, though; the actual reach of the sanctions is not yet known.

Adam Ni, director of the China Policy Center in Canberra, Australia, suggested that he “suspect[s] the strategy will not be formal sanctions, but rather through administrative regulatory means.” This could include punitive tariffs or similar means that effectively prevent certain business with these sanctioned entities.

We will continue to watch, to learn how this might affect other U.S. aerospace companies.

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WTO Rules Against US Tariffs (including Aircraft Parts)

September 15, 2020 by Leave a comment

The WTO issued a ruling against the United States’ punitive tariffs on Chinese goods, but it might not change the 25% duty rate on aircraft parts imported from China.

The United States imposed punitive tariffs on a variety of goods imported from China, including aircraft parts. The duty on aircraft parts from China was 25% of their value (even though typically aircraft parts are imported duty-free under the harmonized tariff schedules).

The World Trade Organization (WTO) released a ruling today that concluded that the tariffs were inconsistent with the General Agreement on Tariffs and Trade (to which the United States is a signatory).

This does not necessarily mean that the tariffs will be revoked! The United States may appeal this ruling, which could suspend application of the ruling.

The U.S. Trade Representative has objected to the WTO Appellate Body, claiming that it has failed to follow agreed-upon rules. In 2016 (during President Obama’s term) the United States blocked the appointment of a WTO Appellate Body judge. The Administration of President Trump has continued this practice and it now appears that the United States’ blockage will result in the body being unable to conduct business. Which could mean that a US appeal would never be heard. rendering the WTO ruling effectively moot.

So keep paying those tariffs for imports – at least until you hear that the law has changed!

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China Approves ASA-100

September 15, 2020 by 1 Comment

The Aviation Suppliers Association is pleased to announce that the Civil Aviation Administration of China (CAAC) has approved the ASA-100 Quality System Standard for use under Chinese law.

Under CAAC guidance, Chinese air carriers who purchase parts from distributors need to ensure that the distributor has been appraised and accredited by one of the recognized industry organizations. AC-120-FS-058 Rev. 3. Recognized organizations are listed in CAAC’s IB-FS-MAT-001 (rev. 1) (see below). The first such organization was the Civil Aviation Maintenance Association of China (CAMAC). The second is now ASA (see approval letter, below.

2020-09-16-IB-FS-MAT-001-R1Download
September 15, 2020 letter from CAAC, appointing ASA as a “recognized organization” under IB-FS-MAT-001 with respect to the ASA-100 Quality System Standard

This is the culmination of a multi-year dialogue between ASA and CAAC (and CAMAC). This should alleviate one of the concerns that ASA members have raised with respect to their efforts to support Chinese Air Carriers.

USM Alert

Members have also raised concerns about recently-published CAAC standards for Chinese air carrier purchase of parts from aircraft-disassemblies and other used serviceable material. ASA has been speaking with CAAC about this issue and is developing a solution to propose to CAAC. The solution will be designed to protect the interests that CAACis trying to protect, while also providing a reasonable path that allows safe aircraft parts to be sold.

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Hong Kong is China: No Longer Entitled to Special Treatment

July 20, 2020 by Leave a comment

President Trump has signed an executive order declaring that the Hong Kong Special Administrative Region (SAR) is no longer sufficiently distinct from China to warrant special treatment, and therefore it shall be treated as the same as the rest of China for U.S. legal purposes.

This is import for members of the ASA community who are exporting goods to Hong Kong, because the executive order is intended to affect both ITAR-controlled articles and EAR-controlled articles.  Exporters will have to make sure that they meet the regulatory requirements as those requirements change.

Here are just a few examples of the differences between Hong Kong and China for export purposes (these are the differences that are expected to be eliminated by impending regulatory change):

  • China was excluded from certain exceptions because it is in country group D:1; while Hong was treated as country group B and exporters to Hong Kong could take advantage of those exceptions that excluded country group D:1 participants – one important provision affected by this change is the AVS license exception that is widely used by aircraft parts exporters;
  • Commerce-controlled exports subject to CB column three need a license when exported to China, but did not necessarily need a license when exported to Hong Kong;
  • Hong Kong is considered to be a Computer Tier 1 Eligible Destination, while China is considered to be a Computer Tier 3 Eligible Destination; this distinction means that one could use the License Exception APP for exports of computer commodities to Hong Kong, but not to China;
  • For purposes of the GOV License Exception, Hong Kong was considered to be a cooperating government (and China was not);
  • Re-exports from Hong Kong were treated like re-exports from a country group A:1 nation under License Exception APR (re-exports from China are not treated the same way).

Consequences for the ASA Community

By July 29th, the export-controlling agencies like BIS, OFAC and DDTC are required to begin changing the regulations (including license exceptions) where China and Hong Kong are treated differently.

These changes do not change our commitment to safety; nor does it change our commitment to supporting the Chinese aviation community in any way that is legal and safe.

This does NOT change the broader mechanisms for exporting to China, although the White House has added some conditions for blocking transactions with certain individuals in Hong Kong and China.  So always carefully check your transaction partners through the consolidated screening list before your ship to them.

This executive order directs agencies to make changes to the Hong Kong provisions and exceptions, so make sure that the provisions and exceptions on which you rely have not changed before each transaction.  They will be changing, soon.

The rules are not yet changed, but this executive order signals that they will change; and they may change soon.  This is a difficult time for the ASA community and anything that hinders aviation safety trade can impede an important sale.  It will typically still be possible to engage in transactions with ChIna (including the Hong Kong SAR), but the compliance path for aircraft parts destined for Hong Kong may change for certain transactions.  We plan to keep the community apprised of changes as they are developed.

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Chinese Aircraft Parts Conference Postponed

February 19, 2020 by Leave a comment

I have heard from the organizers of the 5th Annual Civil Aviation Parts Management Forum (CAPMF).  They have told me that the conference is being postponed.

Originally scheduled for March 31-April 2, the Conference is now expected to be affected by both domestic and international travel restrictions.  Conference organizer YANG Yanchao (known to his American friends as “Shine”) explained:

We have to put off the CAPMF until later this year, but exact date has not been decided, simply because we have to wait until the coronavirus has been totally annihilated.

The conference has been held in a number of Chinese cities in its short history.  This year it was expected to be held in Chengdu, China: the home of Sichuan Airlines and numerous aviation manufacturing ventures.

I have explained in the past that this conference is essential for anyone who is serious about selling aircraft parts into China.  In terms of the Chinese MRO and airline business contacts, it is the best I’ve attended.  So we will carefully watch for new dates and let the aviation suppliers community know when the conference is rescheduled.

At present, there is not yet an update on the English language website for the conference.

 

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