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BIS Imposes New Export Restrictions on Software for Biological Equipment


BIS Imposes New Export Restrictions on Software for Biological Equipment

On October 5, 2021, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) published a final rule in the Federal Register that places new controls on software and technology that can potentially be used for manufacturing biological weapons. The rule comes after a decision in May 2021 by the forty-three (43) participant countries in the Australia Group (“AG”) to update the AG Common Control List to include biological equipment, technology and software that could be used to manufacture biological weapons. The AG is an international organization made up of countries dedicated to the eradication of chemical and biological weapons.

BIS is implementing this rule by amending the Commerce Control List to add a new Export Control Classification Number (“ECCN”) 2D352. This new ECCN only applies to software that is (1) designed for nucleic acid assemblers and synthesizers described on the Common Control List; and (2) capable of designing and building functional genetic elements from digital sequence data. Specifically, ECCN 2D352 “applies to software that is designed for nucleic acid assemblers and synthesizers capable of designing and building functional genetic elements from digital sequence data.” Software controlled under the new ECCN 2D352 requires a license for chemical and biological weapons (“CB”) and anti-terrorism (“AT”) reasons when exported, reexported or transferred (in-country) to the destination countries identified in CB Column 2 and AT Column 1.

Additionally, the final rule amends ECCN 2E001 to include export controls on the “technology” for the development of software controlled by the new ECCN 2D352. Technology classified under ECCN 2E001 is controlled for CB and AT reasons and requires a license for export, re-export or transfer (in-country) to the destination countries identified in CB Column 2 and AT Column 1.

During the comment period, certain interested parties expressed concern that the definition is too broad and that controls for these types of software should be implemented multilaterally. BIS rebuffed these comments explaining that the new ECCN 2D352 only applies to software that is designed for nucleic acid assemblers and synthesizers and that controls for this software are multilateral since they are being implemented by all Australia Group member states. These new licensing requirements will likely apply to labs, life science companies, universities and research institutions engaged in research that involves such software and related development technology.


Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.


BIS Updates Hong Kong Recordkeeping FAQs Consistent with Removal of Hong Kong from EAR Country Chart

The merging of Hong Kong with China with respect to Hong Kong’s treatment under the Export Administration Regulations (“EAR”) is now reflected in the Department of Commerce’s Bureau of Industry and Security’s Hong Kong recordkeeping guidance. On February 19, 2021, BIS updated its Hong Kong recordkeeping FAQs to make that guidance consistent with the final rule BIS issued on December 23, 2020 implementing Executive Order 13936 (the “E.O.”). The E.O. was signed in the wake of U.S. objections to Chinese government national security legislation imposed on Hong Kong in 2020, which outlaws any act of “secession,” “terrorism,” or “collusion” with a foreign power.

Since April 19, 2017, exporters of items to Hong Kong and reexporters of items from Hong Kong have been required to comply with an additional recordkeeping requirement if the items are controlled multilaterally for Chemical Biological (“CB”), Missile Technology (“MT”), Nuclear Proliferation (“NP”), or National Security (“NS”) reasons. Documentation demonstrating compliance with Hong Kong import and export licensing requirements must be obtained prior to all such export activities and kept on file. When no Hong Kong import or export license is required, the exporter or reexporter must retain a “NLR Notification” from the Hong Kong government or “website information” confirming the No License Required (“NLR”) status of the item to be imported to or exported from Hong Kong. The Hong Kong export/import licensing recordkeeping requirement does not apply to EAR99 items and items unilaterally controlled by the U.S.

The recent updates to the Hong Kong FAQs were not unexpected.  The updates appear to implicitly take into account recent developments such as Hong Kong’s removal from the Country Chart (because it is now considered a China destination) and Hong Kong’s now suspended preferential treatment under various license exceptions, which BIS recently changed via final rule on December 23, 2020.

The Hong Kong-specific export/import licensing recordkeeping requirement is in addition to the EAR’s other substantial recordkeeping requirements for all export activities detailed in 15 C.F.R. Part 762.


Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.



As we all saw throughout the 2020 elections, Americans and those around the world anxiously awaited the results while international and domestic trade players planned for anticipated policy and regulatory changes to come in the short and long terms. For now, some things are here to stay. Flexibility is a must for maintaining the current trends within the international trade atmosphere. Trade relations with China and Vietnam as well as new tariffs on the horizon remain critical questions. 

The next four years will undoubtedly require careful strategic planning with an emphasis on digital innovation for trade policy experts as COVID-19 continues to add an additional layer of complexity to operations while adjusting to a new administration and policy changes. 

To help you navigate the future, Global Trade talked with Washington, D.C.-based law firm Miller & Chevalier’s international trade experts Richard Mojica and Dana Watts. They weigh in on the 2020 election outcome, how international and domestic trade lane shifts can be anticipated and what traders can do to prepare now for the near future. 

“President Biden will likely continue a trade policy of protectionism,” Mojica says. “Biden’s approach would be more subtle than Trump’s, but his trade policy agenda is centered around the familiar themes of taking a hard line on China and boosting U.S. industries by increasing government purchases of U.S.-based goods and services. Further, although Biden would certainly seek to restore trade relations with long-time allies, he has signaled that his administration would focus on domestic investments before pursuing any new trade agreements. That probably includes not pursuing Phase II of the U.S.-China Agreement, in part due to growing animosity between the countries.

“On the topic of tariffs, Biden has not yet pledged to remove the tariff regime he inherited from Trump and is not likely to do so without getting something in return that would satisfy his base supporters,” Mojica adds. “Biden has also vowed to use other tools to keep China at bay, which may include economic sanctions, the tightening of export controls, anti-dumping investigations, restrictions to foreign investment and investigations into human rights abuses.”

The question on the minds of global traders is what can be done now to prepare for what’s to come and how proactive measures can solidify operations for the future. Supply chains experienced new levels of disruption throughout 2020, requiring changes in established production locations and tapping into new market opportunities for outsourcing. However, these moves do not come without a cost in some form, and right now, the right move is hard to determine beyond what has already been implemented. 

It’s important to note that prior to Donald Trump’s departure from the White House, the U.S.-China deal still remained a key issue for many American manufacturers. With Biden now officially sworn in, relations with China are a constant question. 

“For the last 2-3 years, many companies with supply chains involving China have moved all or some production out of China and into Vietnam, Malaysia and elsewhere in Asia,” Watts explains. “U.S. companies are also considering moving production to Mexico because of its proximity to the United States and the potential cost-savings associated with the U.S.-Mexico-Canada Agreement (USMCA) implemented on July 1.” 

President Biden’s “Made in America” plan–a $400 billion, four-year increase in government purchasing of U.S.-based goods and services–will further incentivize companies to take a closer look at sourcing from the U.S., where there is capacity. “Still, we continue to hear from companies that China’s supply chain ecosystem is unrivaled, so they are experiencing growing pains as they ramp up production in other countries,” Mojica notes.

Having previously served as a U.S. Customs Headquarters attorney, Mojica predicts that under the Biden administration, tariff compliance enforcement from U.S. customs will most likely continue and even become more significant. Not only does this increase the chance for penalties and investigations but also the enforcement of USCMA and importer auditing protocols. Starting from the inside out, USMCA mirrors NAFTA while adding drastic changes to specific sectors, where operating procedures are not a “one-size-fits-all” approach. For many companies, USMCA requires a careful comparison and evaluation from compliance to anticipated penalties. 

“Companies that seek to benefit from cost savings under the USMCA must have a compliance infrastructure in place to verify that its products qualify for preferential treatment under the agreement, Mojica says. “Based on our experience working with multinational companies, developing adequate internal controls requires an effort that may involve stakeholders in various departments, including procurement, finance, supply chain and legal. U.S. Customs afforded companies through the end of 2020 to get up to speed, but that grace period has since expired and will be followed by USMCA audits.”

The Phase One trade deal is an additional key topic that companies are grappling with. Which strategic planning efforts will support business and whether there will be additional conflict between the already strained relationship with China are in question. Future agreements are at a standstill as Phase One requirements have yet to be fulfilled on China’s end and show no progress. 

The question is: Now that Biden is the 46th U.S. President, what will the Phase One Deal look like? 

“Biden has criticized the Phase One deal for not addressing Chinese subsidies and support for state-owned enterprises, cybertheft, and other unfair practices,” Watts points out. 

Mojica and Watts both expect an uptick in investigations into forced labor in the supply chains of companies that import merchandise into the United States.

“The U.S. government has taken a keen interest in human rights abuses around the world, and it is charging companies to ensure that there is no forced labor in their supply chains,” Mojica says. “In response to the rise in U.S. Customs-led investigations and enforcement cases concerning imports made with forced labor, companies are taking steps to enhance their supplier due diligence efforts.”

Short-term resolutions are bleak, and the inevitable shift in policy adds more of a strain on companies aiming to determine what preparations are within their control. Specific strategies can support forward-thinking approaches in the interim, but without concrete provisions, the future does not look favorable for peaceful international relations but rather growing tensions, which are already being felt. 

The future of policies in place and the possibilities for policy implementation have yet to be fully felt under the Biden administration. The future of trade could be completely different from what companies are currently navigating on a domestic and international scale in the coming weeks and months. Nevertheless, companies would do themselves a favor by extending strategic approaches and ensuring compliance while anticipating another year of change.


Richard Mojica is a member of Washington, D.C.-based law firm Miller & Chevalier, where he counsels U.S. and international companies on how to minimize the cost of importing merchandise into the United States through strategic customs planning and duty-savings programs.

Dana Watts is counsel of Miller & Chevalier’s International Practice, focusing on customs law. She advises clients with all aspects of import compliance.

export controls


This is the fourth in a series of articles by Eversheds Sutherland partners Jeff Bialos and Ginger Faulk explaining the legal and regulatory impacts of certain recent US sanctions and export control actions targeting various Chinese entities. Each article explains the regulatory context of the recent rules.

Our previous articles have discussed recent developments in US sanctions and export controls affecting trade with China, including US export controls on software and semiconductor technology, the Department of Defense list of Chinese military companies, the Commerce Department’s “Military End User” rule, and the use of the US “Entity List” to target various concerns from export control to human rights to Iran sanctions. The last month has also seen efforts to restrict foreign investments in publicly traded securities of companies associated with the Chinese military.

The purpose of this article is to provide a framework and practical guidance for complying with existing and emerging US-China export controls and sanctions. In other words, how does a company establish an effective compliance program that appropriately manages risk, limits potential liability exposure, and, at the same time, if things go wrong, confirms to regulators and prosecutors that the company took compliance seriously, thereby mitigating penalties and avoiding a criminal referral?

The best approach to trade compliance is a multidisciplinary approach

As a starting point, if recent developments in US-China trade policies have taught us anything, it’s that US trade restrictions can apply to everything from technical exchanges (internal and external) and product shipments to intracompany shipments and financial transactions and investments. As such, a company’s approach to compliance with US-China trade rules and well as the broader range of other sanctions regimes should be multidisciplinary and capable of responding to emerging requirements in any and all of these areas.

Recent US-China trade policies have targeted certain products, technology, and software; third parties; financial flows and financial institutions; inbound foreign investment; imports and tariffs; and even access to capital market financing. As a result, in considering your multinational company’s compliance obligations and risk exposure, you should consider the implications across business units and functions, including:

-Research and Development

-Sales and Marketing


-Shipping and Logistics

-Finance and Accounting

-Banking and Insurance

-Customer Service

-IT Systems, and others.

These rules can apply to intra-company, as well as external, activities. Even if one segment of your business has a particular type of heightened risk exposure, it does not mean that is the only segment of your business that may be exposed.

Ensure accountability and support for trade compliance

Overall, an effective compliance program requires a number of core elements: 1) leadership commitment and the allocation of resources to the compliance function; 2) robust procedures and processes integrated into the company’s business; 3) internal controls that can test the efficacy of the procedures on an ongoing basis; and 4) training that ensures that the company’s personnel understand their compliance obligations and internalize them in their work routines.

US regulatory agencies expect a company to assign responsibility to a person or function within a company for ensuring trade compliance and to provide that function sufficient access to, and support from, senior management. Often, this means designating a compliance officer who reports to the board of directors. Regulators will look not only at a company’s “culture of compliance,” but also assess whether the company provided adequate compliance resources commensurate with the size and nature of its operations. Recognizing that a corporate parent may be held liable for its subsidiaries’ trade control violations resulting from inadequate supervision, companies are advised to establish centralized policies and procedures for ensuring and monitoring compliance by each of their subsidiaries. Compliance integration under these policies should be part of every post-acquisition integration effort.

Know Thyself: Assessing your own business risks

A centerpiece of modern regulatory compliance is prudent risk management. In many regulatory areas, including sanctions, it is challenging for firms to achieve 100% compliance at all times.  Rather, the goal is to establish a program to appropriately manage and mitigate compliance risk.

US foreign trade and investment regulatory and enforcement agencies emphasize the importance of conducting a risk assessment in order to identify compliance risks that are particular to your business. OFAC’s Framework for Compliance Commitments advises companies in developing compliance measures to consider the risk profiles of the company’s “customers, supply chain, intermediaries, and counter-parties; (ii) the products and services it offers, including how and where such items fit into other financial or commercial products, services, networks, or systems; and (iii) the geographic locations of the organization, as well as its customers, supply chain, intermediaries, and counter-parties.” [1]

You should also understand how sanctions laws may apply in the context of your company’s multinational structure and operations. It is a mistake to believe that companies operating outside of the US cannot be touched by US sanctions and export controls. Many times violations arise from US person “facilitation” of sanctioned activities and interactions by non-US companies with the US financial system, e.g., through US dollar-denominated financial transactions. For this reason, some US-based multinationals have elected to apply sanctions and export control compliance throughout not only their US, but also foreign, operations – even in areas where the controls are not fully extraterritorial. The application of corporate liability rules in a multinational enterprise where US persons have some level of involvement around the globe otherwise makes compliance more challenging than it needs to be.

In assessing its exposure to US trade controls, a company must look not only at the location of management and administrative support personnel, but also the geographic footprint of its entire product and R&D supply chains, i.e., the location of internal technology and software development and the location of manufacturing of products, parts, components and materials and the development of software and technology on which they are based. Consider not only software and technology shared with third parties but also internal (intracompany) cross-border or domestic transfers of software and technology and establish effective internal controls.

Implement a program to manage identified risks effectively, including Know Your Counterparty (KYC) controls

As impressive as a compliance program may appear on paper, the only worthwhile compliance program is one that is effective. To be effective, a compliance program should work with company’s existing structures and information flows and be integrated with day to day internal work instructions. It needs to be able to incorporate and screen in real-time existing third-party information and implement stop-hold procedures for transactions that trigger risk. This usually calls for a customized screening and software solution.

In developing a trade compliance program, US regulators and enforcement agencies encourage companies to build around certain basic core elements

Management Commitment – As discussed above, demonstrate and document senior management approval of the compliance program and foster a “culture of compliance” with a positive “tone from the top.”

(2) Risk Assessment – Again, a compliance program must be responsive to identified risks, and there is no “one-size-fits-all” approach.

(3) Internal Controls – Per OFAC, this refers to “policies and procedures, in order to identify, interdict, escalate, report (as appropriate), and keep records pertaining to activity that may be prohibited by the regulations and laws.” These internal policies should be clearly set out in writing and consistently implemented and enforced. Heightened review is recommended for transfers of dual-use and military items and dealings with high-risk destinations or counter-parties.

Beyond day-to-day KYC screening, numerous companies have recognized that their foreign collaborative engagements can involve significant risk, which can vary depending on the country, industry, and the particular party involved. Thus, firms often establish a special committee to vet engagements with third parties, whether agents, distributors, or joint venture partners. Individual business units may propose these engagements, and the company will evaluate them on an enterprise-wide basis after due diligence and the assessment of risks, advising also on the structuring of legal arrangements to mitigate such risks.

(4) Testing and Auditing – Regular monitoring of trade compliance is encouraged and, in some cases, expected. Regular auditing can occur at a global level or may rotate to focus on certain business units, functions, or procedures. Testing and auditing may be conducted by internal audit or external subject matter experts.

(5) Compliance training – Much of trade compliance depends on employees knowing how to spot and address “red flags” of sanctions and export control issues. Compliance training should provide information that is readily useable and easily accessible, risk-focused, and tailored to the duties and responsibilities of the participants.

To summarize, in today’s global business, complying with US-China trade policies requires a holistic review of a company’s external and internal operations. The best compliance programs are developed on the basis of a realistic review of a company’s compliance risk exposure; designed to be able to respond to ever-changing targets and regulations; and implemented effectively to work with a company’s existing systems and structures.


Ginger T. Faulk, partner at Eversheds Sutherland, represents multinational companies in matters involving US government regulation of foreign trade and investment. She has extensive experience advising and representing global companies, counseling clients in matters arising under US sanctions, export controls, import and other national security and foreign policy trade-related regulations.

Jeffrey P.  Bialos, partner at Eversheds Sutherland, assists clients in making multi-faceted business decisions, structuring transactions and complying with complex regulatory requirements. A former Deputy Under Secretary of Defense for Industrial Affairs, he brings deep experience in defense, homeland security and national security matters, including antitrust, export controls, foreign investment, industrial security, the Foreign Corrupt Practices Act, and mergers and acquisitions, and procurement.


[1] OFAC Framework for Compliance Commitments, at; see also BIS Elements of an Effective Compliance Program, available at at; see also US Department of Justice, National Security Division, “Export Control and Sanctions Enforcement Policy for Business Organizations,” Dec. 14, 2019, available at


BIS Requests Comments on Proposed Controls for Certain Software

Under the Export Control Reform Act of 2018 (“ECRA”), the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) is authorized to establish controls on the export, re-export or in-country transfer of “emerging and foundational technologies.” On August 27, 2020, BIS issued an advance notice of proposed rulemaking, requesting comments on the definition of, criteria for, and identification of certain foundational technologies.

On November 6, 2020, BIS published a proposed rule in the Federal Register proposing to add certain software to the Commerce Control List (“CCL”) and thereby place export controls on it. BIS seeks comments on its proposed rule by December 21, 2020, so that it can ensure the proposed controls are “effective and appropriate” regarding their potential impact on “commercial or scientific applications.”

Specifically, BIS determined that certain software for the operation of nucleic acid assemblers and synthesizers, which are controlled under Export Control Classification Number (“ECCN”) 2B352, are capable of being used to generate “pathogens and toxins without the need to acquire controlled genetic elements and organisms.” In other words, BIS determined that this type of software can be used to effectively circumvent export controls on genetic elements and organisms.

BIS proposes to amend the CCL by adding ECCN 2D352 to control such software, in order to ensure that a lack of controls cannot be exploited to further the development of biological weapons.


Julia Banegas is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

Export Control Law

How China’s New Export Control Law May Impact Your Business

On October 17, the Standing Committee of the 13th National People’s Congress of the People’s Republic of China adopted the Export Control Law of the People’s Republic of China (Export Control Law). The new law becomes effective on December 1, 2020. The Export Control Law comprises 5 chapters and 49 articles. It creates a comprehensive and unified export control regime that regulates the export of goods, technologies, and services that impact China’s national security.

Scope of Applicability and Targeted Parties

The Export Control Law applies to the export of dual-use items, military products, nuclear materials, and other goods, technologies, services, and items that are related to the protection of national security and performance of international obligations. (Controlled Items). Under the new law, the Chinese government will take prohibitive or restrictive measures on the transfer of Controlled Items from the territory of the People’s Republic of China to overseas, and on the provision of controlled items by any citizen or incorporated or non-incorporated organization of the People’s Republic of China to any foreign organization or individual. Furthermore, the Export Control Law will apply to the transit, transshipment, through transportation or re-export of controlled items, or the export of controlled items from any bonded areas, export processing zones or other special customs supervision zones or export supervised warehouses, bonded logistics centers or other bonded supervision premises to overseas.

China will apply the Export Control Law extraterritorially which means that the law will impact any person or entity, in or outside the normal territorial boundaries of China, dealing with the Controlled Items. Furthermore, the Export Control Law specifically prohibits any person or entity from providing any agency, freight, delivery, customs clearance, third-party e-commerce trading platform, financial or other services to any exporter engaged in any violation of export control regulations.

Export Control Measures and Licensing

The Export Control Law authorizes the State Council and the Central Military Commission (Authorities) to take measures and to enforce the new law. The key measures promulgated by the Export Control Law include:

-Export Control Lists. The Authorities shall establish and publish export control lists for the export of Controlled Items (Export Control Lists). Meanwhile, the Authorities are allowed to designate any goods, technologies, or services outside the Export Control Lists as temporarily controlled items (Temporarily Controlled Items) for up to two years.

-Under Article 11 of the Export Control Law, exporters in the business of exporting Controlled Items shall apply for special business qualification.

-Under Article 12 of the Export Control Law, in order to export any Controlled Item on an Export Control List or any Temporarily Controlled Items, exporters shall apply to the Authorities for a license. Furthermore, any exporter who knows or should know, or is notified by the Authorities that any goods, technologies, and services 1) endanger national security and interests; 2) may be used to design, develop, produce or utilize any weapon of mass destruction or its delivery vehicle; or 3) may potentially be used for terrorist purposes must apply for a license even if such goods, technologies, and services are not Controlled Items or Temporarily Controlled Items. The Authorities will approve or reject the issuance of license based on the following considerations: national security and interest; international obligations and commitments to foreign parties; type of export; the degree of sensitivity of the controlled item; export destination country or region; the end-user and end-use; relevant credit records of the exporter; and other factors as prescribed in laws or administrative regulations.

-End-User and End-Use Control. Articles 16 and 17 of the Export Control Law stipulate that exporters shall submit relevant documents and information proving the end-user and end-use to the Authorities and the Authorities shall establish a risk management system for end-users and end uses of Controlled Items.

-Under Article 18 of the Export Control Law, the Authorities shall establish controlled party lists (Blacklists) including importers and end-users that: 1) breach the law and regulations in connection with end-users or end uses; 2) endanger the national security; or 3) use any Controlled Items for any terrorist purpose. Once importers and end-users are included in the Blacklists, exporters are prohibited from transacting business with such importers and end-users. An importer or end-user on the Blacklists may apply with the Authorities to be delisted from the Blacklists if any of the circumstances described above no longer exist.

-The Authorities may restrict or prohibit the export of any Controlled Item to any specified destination country or region or to any specified organization or individual.


Any person or entity violating the Export Control Law will be subject to administrative penalties and criminal penalties, including but not limited to warning, confiscation of products, fines, cancellation of an export license and imprisonment.

Impact on U.S. Companies

Due to the extraterritorial character of the new law, the Export Control Law will impact not only Chinese domestic companies in China but also foreign businesses located outside of China. However, like other Chinese laws, one notable characteristic of the Export Control Law is the vagueness inherent in the wording. For example, the new law does not clearly define what constitutes the provision of controlled items (commonly known as deemed exports). We expect that more specific implementing regulations and interpretations in connection with the Export Control Law will be published by the Authorities in the near future. Nevertheless, any U.S. business dealing with China should establish an internal trade compliance program to comply with China’s new export control regulations.

We have identified the following steps as critical and essential for an effective trade compliance program under the Export Control Law. These steps provide a basis and foundation for the compliance program but do not constitute an exhaustive list.

-Companies should utilize tools and services to constantly screen their goods, services and technologies coming from China, as well as their business partners, suppliers, customers, agents, end-users and other business counterparties (Chinese or non-Chinese) in order to make sure that such entities or persons are not subject to any trade sanction or restriction in China.

-A key in determining whether an export license is needed from the Authorities is finding out if any good, service or technology that companies intend to export falls under any existing Export Control Lists or the category of Temporarily Controlled Items published by the Authorities. Companies should hire qualified international trade attorneys with knowledge of Chinese export control regulations to have technical understandings of the items they import from China; to be familiar with the structures and contents of the Export Control Lists and Temporarily Controlled Items published by the Authorities; and to determine whether or not any authorization is required to export from China. Companies should closely monitor the Export Control Lists, Blacklists and other sanction lists published and updated by the Chinese authorities.

-Companies should design training programs together with international trade attorneys with knowledge of Chinese export control regulations and provide such training to their employees. A good training program should provide job-specific knowledge and communicate the responsibility of each employee dealing with Chinese business.

-Risk Management. Companies should hire qualified international trade attorneys with knowledge of Chinese export control regulations to identify the risks early on in order to assist companies in finding solutions to mitigate such risks. Furthermore, due to the rapid development of Chinese export control and trade sanction regime, companies should work closely with the attorneys to make proper adjustments and prepare for the new changes.


Frank Xue, John Scannapieco and Alan Enslen are attorneys at Baker Donelson and members of the firm’s Global Business Team.

military end user

Unpacking U.S.-China Sanctions and Export Control Regulations: The China “Military End Use” and “Military End User” Rule and the Department of Defense List

This is the second in a series of articles by Eversheds Sutherland partners Jeff Bialos and Ginger Faulk explaining the legal and regulatory impacts of certain recent US sanctions and export control actions targeting various Chinese entities. Each article explains the regulatory context of the recent rules. Recognizing that this is a highly charged political topic, the article does not condone or promote any governmental actions discussed here but is only explanatory in nature.

As part of the overall realignment of US national security strategy toward China, the US government has taken a series of actions this year to target the Chinese military sector through sanctions and export controls imposed against a range of Chinese companies. The recent promulgation of the expanded China “military end-use” and “military end user” rule mark an expansion of a longstanding US policy to bar certain exports of US “dual-use” goods and technologies that can contribute to China’s military capability. This, combined with the recent release by the Department of Defense of a list of companies considered to be “owned or controlled” by the Chinese military – pursuant to a 20-year-old law – signals increased US government pressure on China and its firms that are viewed as instruments of the Chinese government. These rules together threaten to limit significantly the availability of “dual-use” US goods and technology to Chinese companies on the list.

Unpacking the China “Military End User” Rule

A recent amendment to the Export Administration Regulations (EAR) targeting a broader range of “military end-uses” and “military end-users” in China is designed to curtail exports and re-exports of a range of US origin “dual-use” technology, software, and goods to China’s private sector but only where the private sector end-user is determined to support the Chinese military. Per the US Commerce Department, the new rule “will require increased diligence with respect to the evaluation of end-users in China, particularly in view of China’s widespread civil-military integration.”

Previously, the rule applied only when the item was intended for military end-use, e.g., incorporation into a military end-item. The new rule now expands this approach beyond exports for military end-use, and now requires an export license for exports or transfers of listed items to China if the item is intended entirely OR in part for a “military end-user” in these countries. Under this expanded control, the rule potentially proscribes exports and re-exports not only to the military (e.g., the Peoples Liberation Army (“PLA”)) but also to police, national guard, intelligence organizations and “any person or entity whose actions or functions are intended to support ‘military end-uses.’” In other words, an export of a subject item to a private sector company which also contracts with the Chinese government could be prohibited even if the item itself is neither destined for the military (defined in a traditional sense) nor for a military application.

In addition, the new rule expands the definition of “military end-use” by no longer just restricting exports for “the use, development, production of, or incorporation into” military items, but now also extending to an export that “supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, ‘development,’ or ‘production’ of military items.” A subject item that supports even one of these functions triggers the “military end-use” rule.

The rule also adds products to the scope of the rule under the categories of materials processing, electronics, telecommunications, information security, sensors and lasers, and propulsion. Importantly, now subject to the rule are 5G-capable microprocessors, devices, and components. Finally, the new rule subjects certain exports to China to new country-based licensing controls under a “regional stability” control.

Heightened Due Diligence Obligations for Exporters of Goods, Software and Technologies

Significantly, the new “military end user” rule imposes a broader obligation on US exporters to identify potential military links of Chinese counterparts and assure against diversion of technology to the Chinese military. It places the burden on US exporters to not only (i) determine the end-user of subject items, even if those items are transferred to a third country, but also to (ii) evaluate and determine whether the identified end-user would be considered a “military end user” by virtue of potential links with Chinese military agencies. This applies to exports of all subject items (e.g., 5G devices and certain electrical components, among others) regardless of how the export in question will ultimately be used.

In practical terms, this means enhanced due diligence to identify potential military affiliations of Chinese and third-country customers, distributors, procurement agents, and other intermediaries with respect to all dual-use exports to China. It also means re-evaluating technology sharing arrangements between US companies and Chinese joint venture partners such as commercial partners, research institutes, and academic institutions.

Note, the EAR controls apply not just to US goods and equipment but also foreign manufactured goods and equipment that incorporate US-origin content. The “dual-use” items that are subject to the military end-user rule are listed by category at Supplement No. 2 to the EAR 15 CFR Part 744 and include certain controlled materials and materials processing equipment, telecommunications equipment and software (e.g., 5G technologies), sensors and laser technology, and marine and space vessels. So, technology and software companies in any country whose products rely on these US technologies face a binary choice: either to police China business partners for even tangential connections to the military sector or divorce their China supply chains and technology/software flows from the US.

The PLA/DoD List

Similarly, on June 25th, 2020, the US Department of Defense (DoD) issued a list of 20 “communist Chinese military companies” operating in the US that meet the criteria of section 1237 of the National Defense Authorization Act (“NDAA”) for FY 1999. Eleven new additions to the list were issued on August 28, 2020. [1] Companies on these lists include massive Chinese state-owned companies in the aerospace, construction and engineering, chemical, electronics, nuclear, telecommunications, and other sectors. The issuance of this list and the Commerce Department’s new end-user” rules are connected in that this list of companies is likely to guide determinations under the EAR “military end user” rule and the direction of future US-China sanctions actions. The DoD List may be a natural place for the US government to start in identifying Chinese “military end-users” subject to further restriction. Thus the implications for US technology partnerships with Chinese companies in these are potentially quite significant.

In 1999, Congress enacted a provision authorizing the DoD to issue a list of “communist Chinese military companies” operating in the US that are “owned or controlled by the People’s Liberation Army” and are “engaged in providing commercial services, manufacturing, production or exporting.”

On June 24, 2020, nearly 22 years later, DoD finally issued the list. This was in response to a letter sent by a bipartisan group of Senators to Secretary of Defense Mark Esper requesting that DoD issue the list as a tool to confront China and its stated strategy of “military-civilian fusion” to achieve its national objectives. The DoD compiled the list of companies that support the Chinese military as the basis for subsequent US policy actions to address the competitive Chinese threat. The specific risks under consideration included: 1) the transfer of “dual-use” technology to these companies that could, in turn, be used for military purposes given their relationships with the PLA; and 2) the supply chain risks associated with the participation of these companies in US supply chains (e.g., through providing equipment such as semiconductors). Such supply chain risks include the risks that such Chinese firms could introduce malevolent software into US products or use its equipment as a basis for surveillance (i.e., espionage).

It should be recognized that the companies on the DoD List by no means encompass the universe of Chinese government-owned or controlled companies, as there are numerous such state-owned or controlled companies not on the DoD List. Rather, the focus is on companies considered to be owned or controlled by the PLA itself. Further, the term “control,” as used in this context, appears to be broad in scope and seems to be utilized by DoD to reach companies that have some significant engagement with the PLA (i.e., where it might be the case that the PLA supervises or directs some functional activity or area at the company). In this regard, there are at least several companies on the DoD list not generally considered to be government-owned or controlled, let alone PLA owned or controlled in a traditional sense—a small number of which are publicly traded. Thus, in these circumstances, the “control” must relate to some functional areas of engagement.  For example, in the case of Huawei, the control might arguably relate to the idea that the PLA can direct Huawei to utilize its platforms and equipment for surveillance or other activities.

Notably, being listed on the DoD list has no direct and immediate legal consequences for the listed companies. However, the law does make it easier for the president to impose sanctions. Once a company is on the section 1237 list, the president can impose the full array of economic sanctions without any additional finding, including prohibitions on US persons doing business with that company, export restrictions, and the like. Note also that the president can also impose an import ban on companies on the DoD list upon declaring an international economic emergency – an action that, if undertaken, is not subject to challenge in federal courts.

Further, as noted above, the recent listings of Chinese companies on the DoD List are likely to lead to additional export control restrictions on the named parties under the new Commerce rule that requires licenses, and establishes a “presumption of denial” policy, for exports, re-exports, or transfers (in-country) of certain products and technologies to Chinese “military end-users.” Since this new rule defines “military end-users” to include any “person or entity whose actions or functions are intended to support ‘military end uses,” it is reasonably likely that Commerce will find that parties listed on the DoD list would be considered a military “end-user,” and as such, any license applications for covered products and technologies will be subject to a presumption of denial.    

Finally, the list is a tool that can generally build pressure on China. In releasing the list, DoD officials observed that “As the People’s Republic of China attempts to blur the lines between civil and military sectors, ‘knowing your supplier’ is critical … We envision this list will be used as a tool for the US government, companies, investors, academic institutions and like-minded parties to conduct due diligence with regard to partnerships with these entities….”

In conclusion, while the DoD/PLA list itself has no direct legal effect, in combination with the EAR’s military end-user rule, it signals a US desire to limit the availability of “dual-use” American technologies to these companies. To comply with the rule exporters and re-exporters of the listed US technologies must conduct heightened diligence of Chinese SOE end-users and will require a US export license where an end-user also uses, develops or produces items for the Chinese military. This places the impetus on the Chinese companies to demonstrate to US exporters and to the US government that, as applicable: 1) there is sufficient separation between subsidiaries with defense-related operations and those engaged in purely commercial activities; or 2) for those with purely commercial operations, they are not providing US-based dual-use products or technologies to support China’s military.

In some circumstances, it also means that Chinese companies on the list may be forced to look elsewhere (outside of the United States) for the equivalent non-US technologies and products and restructure their supply chains accordingly. Notably, the US position places it as an outlier among allied Western governments. If the US has a new President in 2021, we would expect to see a more multilateral approach on these and other China-related trade issues.


[1] Both lists are available here.

Jeffrey P.  Bialos, partner at Eversheds Sutherland, assists clients in making multi-faceted business decisions, structuring transactions and complying with complex regulatory requirements. As former Deputy Under Secretary of Defense for Industrial Affairs, he brings deep experience in defense, homeland security and national security matters, including antitrust, procurement, export controls, industrial security and the Foreign Corrupt Practices Act.

Ginger T. Faulk, partner at Eversheds Sutherland, represents multinational companies in matters involving US government regulation of foreign trade and investment. She has extensive experience advising and representing global companies, counseling clients in matters arising under US sanctions, export controls, import and other national security and foreign policy trade-related regulations.

foundational technologies

BIS Seeks Comments on Identifying “Foundational Technologies”

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) recently published an Advanced Notice of Proposed Rulemaking (“ANPRM”) regarding the identification and review of controls for certain “foundational technologies.” This ANPRM represents another step toward implementation of the “emerging and foundational technology” provisions set forth in the Export Control Reform Act (“ECRA”) of 2018, which has been slow to get off the ground. Section 1758 of the ECRA requires that “foundational technologies” be identified and that BIS establish appropriate controls for that technology under the Export Administration Regulations (“EAR”).

The ANPRM solicits public comments concerning the definition of and criteria for identifying “foundational technologies” in order to apply controls to “emerging technologies” and “foundational technologies” which are essential to U.S. national security, pursuant to the ECRA. Specifically, BIS is asking interested parties to submit comments by October 26, 2020, responding to the following topics:

-How to further define foundational technology to assist in the identification of such items;

-sources to identify such items;

-criteria to determine whether controlled items identified in AT level Export Control Classification Numbers (ECCNs), in whole or in part, or covered by EAR99 categories, for which a license is not required to countries subject to a U.S. arms embargo, are essential to U.S. national security;

-the status of development of foundational technologies in the United States and other countries;

-the impact specific foundational technology controls may have on the development of such technologies in the U.S.;

-examples of implementing controls based on end-use and/or end-user rather than, or in addition to, technology-based controls;

-any enabling technologies, including tooling, testing, and certification equipment, that should be included within the scope of a foundational technology; and

-any other approaches to the issue of identifying foundational technologies important to U.S. national security, including the stage of development or maturity level of a foundational technology that would warrant consideration for export control.

BIS explained that it does not seek to expand jurisdiction over technologies that are not already subject to the EAR. BIS, through an interagency process, seeks to determine whether there are specific foundational technologies that warrant more restrictive controls.  Interested parties may submit comments through the federal rulemaking portal ( or via mail to BIS.

Husch Blackwell encourages clients and companies to review the recent ANPRM for applicability.


Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Julia Banegas is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.


U.S. Adds 38 New Huawei Affiliates to Entity List While Again Expanding Foreign-Produced Direct Product Rule

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) has announced that it is further restricting access by Huawei Technologies Co. Ltd. and its designated non-U.S. affiliates (“Huawei”) to U.S.-produced technology and software. BIS first added Huawei to its Entity List on May 15, 2019 and has continued to impose additional export restrictions on Huawei under the U.S. Export Administration Regulations (“EAR”). Most recently, BIS published a Federal Register notice to implement the following enhancements. Although BIS published this Federal Register notice on August 20, 2020, the following rule changes took effect retroactively as of August 17, 2020:

Addition of Thirty-Eight New Huawei Affiliates to the Entity List. In its announcement, BIS added thirty-eight (38) additional Huawei affiliates to the Entity List. This action now brings the total number of Entity List-designated Huawei affiliates to one hundred and fifty-two (152). The EAR generally prohibits anyone, anywhere in the world from supplying products, software or technology that is “subject to the EAR” to these Huawei affiliates without a BIS license.

Expiration of Huawei Temporary General License. BIS had previously issued (and then, on multiple occasions, extended) a Temporary General License which permitted certain transactions with Huawei Entity List affiliates in order to support existing networks, equipment and handsets that were in existence prior to Huawei’s initial Entity List designation on May 16, 2019. In its Federal Register notice, BIS announced that it would be allowing the Temporary General License to expire. As a result, pursuant to the expiration date set in its most recent renewal notice, the Huawei Temporary General License expired effective August 13, 2020.

Anyone who previously utilized the Temporary General License was required to obtain certain compliance certifications in connection with transactions conducted pursuant to the Temporary General License and the EAR will require those persons to retain those certifications in accordance with the EAR’s recordkeeping requirements.

Permanent Authorization for Cybersecurity Research and Vulnerability Disclosures to Huawei Entity List Companies. The Temporary General License also contained a provision which authorized the disclosure of certain information to Huawei Entity List companies in order to assist with maintaining the integrity and reliability of existing data networks. After allowing the remainder of the Temporary General License to expire, BIS permanently codified this narrow exception into the EAR in order to promote cybersecurity.

Expansion of the Huawei Foreign-Produced Direct Product Rule. In May 2020, BIS amended the EAR’s foreign-produced direct product (FPDP) rules to designate the following items as “subject to the EAR”: (i) foreign-produced items produced or developed by a Huawei Entity List affiliate through the use of technology or software controlled under certain Export Control Classification Numbers (ECCNs), and (ii) foreign-produced items that are produced using equipment which is the direct product of U.S. origin software or technology controlled under certain ECCNs and also produced according to software or technology specifications produced or developed by a Huawei Entity List affiliate. BIS has now significantly expanded this rule.

As amended, the new Huawei FPDP rule now completely disregards whether foreign-produced items produced by a 3rd party are produced according to Huawei specifications and instead extends the Huawei FPDP rule’s coverage to all foreign-produced items resulting from the specified software, technology or production equipment which are intended for incorporation into or for use in the “production” or “development” of any “part”, “component”, or “equipment” to be produced, purchased or ordered by a Huawei Entity List company or otherwise included in any transaction featuring a Huawei Entity List company as a “purchaser”, “intermediate consignee”, “ultimate consignee” or “end-user” (terms in quotation marks in the previous sentence are defined terms under the EAR).

As a result of these amendments, a much broader range of foreign-produced items are now “subject to the EAR” and therefore prohibited for export, reexport or in-country transfer to any Huawei Entity List company without an appropriate BIS license.  Although BIS will normally review such license applications on a “presumption of denial” standard, these amendments did create an exception which states that BIS will evaluate license applications involving Huawei Entity List companies on a “case-by-case” basis when they involve foreign-produced telecommunications systems, equipment and devices below the 5G level.

The amendment did feature a savings clause, which allowed the continuance of certain qualifying transactions which were initiated prior to August 17, 2020.


Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.



The U.S. Commercial Service in July opened the Rural Export Center (REC) in Fargo, North Dakota, to promote rural America’s exports and equip its companies with the research and resources to compete and win in the global marketplace.

“The Rural Export Center addresses the unique needs of rural American companies by providing in-depth market research and training designed specifically for them,” explained Ian Steff, assistant secretary of Commerce for Global Markets and director general of the United States and Foreign Commercial Service.

“These companies are a crucial part of the continued growth of the American economy,” Steff continued, “and providing them with these essential, customized tools will help bolster their success in both the domestic and international markets and will increase U.S. exports worldwide.”

Companies from anywhere in rural America can request virtual consultations and assistance through the REC and many can apply grants from the Small Business Administration’s State Trade Expansion Program toward REC services. Armed with REC research, the company then collaborates with their local U.S. Commercial Service Trade Specialist to implement plans and strategies informed by REC analysis.

“Together, they leverage the global network of U.S. Commercial Service offices located in U.S. Embassies and Consulates in more than 75 markets around the world,” states a U.S. Commercial Service press release.