Regulatory intelligence for US exporters

Commerce's Military Exports Rule Will Create 'Unmanageable' Compliance Burdens, Industry Says

The Commerce Department’s increased restrictions on shipments to military end-users is causing widespread confusion and could cripple exporters struggling to survive during the global COVID-19 pandemic (see 2005010037), industry groups said. The Bureau of Industry and Security's April 28 final rule (see 2004270027), set to take effect June 29, is too complex and was released with “poor” timing and without industry input, the National Customs Brokers & Forwarders Association of America said.

“The final rule was published abruptly without first … allowing the trade to understand what was being considered,” the NCBFAA said in a June 8 letter to BIS. The group said exporters will have an “extraordinarily difficult time” adjusting to the new licensing, due diligence and filing requirements.

Several other trade groups agreed, adding that BIS -- in its effort to restrict sales to China -- could displace U.S. goods in international supply chains, ceding their spots to foreign competitors. “This uncertainty threatens to create unmanageable compliance burdens for industry and upend tens of billions of dollars in commercial exports,” 19 industry groups said in a May 28 letter to BIS released this month.

The groups -- including the Information Technology Industry Council, the National Association of Manufacturers and the Semiconductor Industry Association -- asked BIS to clarify the scope of the rule, remove certain Export Control Classification Numbers from those impacted, and delay the effective date of the rule for 60 more days. NCBFAA asked BIS to delay the rule for 120 days. A BIS spokesperson declined to comment, saying the agency does not release information about “internal deliberations.”

A BIS official recently told industry representatives that the agency plans to issue guidance on the rule (see 2004280052), which could lead to licensing delays and burdensome vetting processes for all exporters shipping to China (see 2005050035). The rule will also increase restrictions on exports to Russia and Venezuela and expand certain Electronic Export Information filing requirements to cover filings for exports regardless of the shipment’s value.

The NCBFAA said it is “unclear … whether BIS has conducted any analysis of the impact” of the rule on U.S. companies. Businesses are struggling with how to identify whether customers are military end-users, saying the rule is too broad to be used as guidance. If BIS does not clarify the rule and its due diligence expectations, exporters and freight forwarders should expect to be hit with a large “economic burden” as shipments are delayed due to “exporters’ misunderstanding of the new requirements.” The NCBFAA said CBP will inevitably be forced to detain more shipments destined for export due to “inadvertent non-compliance with a rule that many simply won't have time to understand.”

Industry groups are mainly concerned that the terms for military end-uses and end-users are defined too broadly, and that they could include customers that have very remote associations with military entities. Many companies do not understand how they can be expected to gather enough information to determine whether their customers will be caught by the rule, the groups said. The terms are defined with “such breadth and ambiguity that they appear to extend beyond the intended goal and into commercial, mass market products and sales to end-users with indirect or limited connection to the military,” they said.

BIS’s guidance needs to address these concerns to clarify due diligence requirements for industry, the groups said. “BIS’s clear, written answers will, as a practical matter, determine whether the new rule is something close to an embargo … or a manageable increase in license and other due diligence efforts,” the 19 industry groups said. “The absence of responses from BIS will catalyze industry uncertainty.”