Regulatory intelligence for US exporters

BIS Faces Challenges Applying MEU Rule, May Issue MIEU List

The Bureau of Industry and Security has faced challenges applying some of its new export control rules during the last year, including its military end-use and end-user regulations and broader semiconductor-related policies toward China, a senior BIS official said. Matt Borman, BIS’s deputy assistant secretary for export administration, said he recognizes the rules may also be causing compliance challenges for industry, and the agency is considering more guidance.

Borman, speaking during a Sept. 28 defense industry conference hosted by IDEEA, said one of the “most challenging” aspects of the last year has been “getting consistent application of some of the more recent controls we put in place as they relate to the new military end-use and end-user rule, the semiconductor policy vis-a-vis China,” and the expansion of the foreign direct product rule on Huawei (see 2005150058 and 2008170029). Those rules “have certainly challenged the bandwidth of the interagency system,” Borman said, “just because a lot of them, even though we have policies in place, you've got a lot of variants in fact patterns and technologies that just take more time than normal.”

BIS received about 35,000 license applications last year and averaged about 23 days of processing time per license, Borman said, but some of the more complex licenses involving Chinese military end-users have taken longer. “Clearly, if you have a transaction that involves Huawei, [Semiconductor Manufacturing International Corporation] or a military-end user in China or Russia, you're likely well over that 23 days,” he said. “And that's just because a lot of these present fact patterns we haven't seen, and they require a lot of interagency bandwidth to really think through and analyze properly.”

To help industry conduct due-diligence, BIS may consider issuing a public military intelligence end-user (MIEU) list, Borman said, similar to the military end-user (MEU) list it issued in December (see 2012210047). The agency issued a rule in January targeting certain military-intelligence end-uses and end-users (see 2101140035), which has led to due-diligence challenges for companies, some of which struggle to identify customer affiliations in countries like China and Russia due to complicated ownership chains and a lack of clear, public information (see 2102190042). But an MIEU list could help companies conduct due-diligence by providing a non-exhaustive set of companies that BIS has confirmed is off-limits.

“That's certainly possible,” Borman said of an MIEU list. He said BIS adds to its MEU list based on license applications the agency receives, so the agency could also pull from its MIEU-related applications to make a similar list. “We know that lists are generally easier for companies to use for compliance purposes,” he said. “So I think certainly we’ll be looking at whether we have enough information to also publish a military-intelligence end-user list as well.”

While Borman said he hasn’t heard about smaller companies opting to cancel transactions in China rather than risk violating BIS’s MEU or MIEU rules, he said “it certainly doesn't surprise me.” Chinese companies are “more astute about what they put on their English facing websites versus their Mandarin websites,” he said, “and it's tough for small companies to go find the Mandarin website and have somebody who can translate that.” He urged companies to apply for a license or submit an advisory opinion request if they are unsure about a customer.

“Neither of those are necessarily things that happen quickly, because obviously we have to do the review,” Borman said. “But it's certainly clear that from looking at all the applications we've got, by definition, there are a lot of parties that are military end-users that do legitimate civilian work, either for civilian aircraft programs or often for U.S. civilian aircraft programs, as part of the supply chain.”

If companies do submit a license application because they are unsure whether a customer is an MEU or MIEU, Borman said the company should make that clear on the application. Otherwise, the agency may assume that the company knows the customer is an end-user with ties to a government's military or military intelligence apparatus.

“It's not unreasonable for the reviewing agencies to look at [the application] and say, well, they came in for a license so they must know something, when in fact what they really want to know is: what do we know?” Borman said. Companies should be clear that they “really are not in a position to assess and therefore are really looking for the government to assess.”