Human rights now part of US export licensing review for nearly all export licences

Introduction

On 6 October 2020 the US Department of Commerce, Bureau of Industry and Security (BIS) released a final rule, which took effect the same day, revising its licensing policy for crime control and detection (CC) items, which is designed to promote respect for human rights throughout the world.

Although at first glance the final rule appears to deal only with CC items, BIS also revised the Export Administration Regulations (EARs) so that a review of human rights is part of every licence application review, with the sole exception of short supply (SS) items.

This might have something to do with the administration's disagreements with China. The preamble indicates that abuses of human rights could involve censorship, surveillance, detention and the excessive use of force. BIS also states that:

the revision is necessary to prevent items currently controlled for reasons other than CC, including reasons related to certain telecommunications and information security and sensors, from being used to engage in or enable the violation or abuse of human rights.

Also on 6 October 2020, BIS made another CC-related move, issuing a final rule regarding new controls on water cannon systems and related parts and components, with the preamble specifically describing riot and crowd control in Hong Kong (Export Control Classification Numbers 0A977, 0D977 and 0E977).

Revised licensing policy

BIS's changes in a nutshell

The licensing policy amends 15 Code of Federal Regulations (CFR) Section 742.7 to address two issues:

• Licence applications for items controlled for CC revisions will be considered favourably on a case-by-case basis unless there is civil disorder in the country or region of destination or if BIS assesses that there is a risk that the items will be used in a violation or abuse of human rights.
• Other than items controlled for SS applications, all export-controlled items on the Commerce Control List (CCL) will be considered under this human rights framework.

BIS's change to CC licensing policy

The below side-by-side comparison shows how the licensing policy has been broadened under the final rule.

BIS notes that the:

revision is necessary to clarify to the exporting community that licensing decisions are based in part upon US Government assessments about whether CC-controlled items may be used to engage in or enable violations or abuses of human rights including through violations and abuses involving censorship, surveillance, detention, or excessive use of force.

Notably, the change also removes the requirement that there be actual evidence of past human rights violations, leaving BIS in charge of assessing whether there is merely a risk that the items will be used to violate or abuse human rights.

Addition of new licensing policy

Far more significant from the perspective of most exporters is the addition of:

a new subparagraph (b)(2) to make clear that BIS will consider the [human rights] licensing policy set forth in new subparagraph (b)(1) when reviewing items controlled for reasons other than CC with the exception of items controlled for short supply (15 CFR Section 742.7).

The new licensing policy is in the EARs provision dealing with CC controls. There have been no changes to any other reason-based controls, such as the national security licensing policy, to indicate that licence application reviews will consider human rights concerns. As such, exporters of non-CC items may completely miss this new licence review policy.

According to BIS, the new licensing policy will now allow BIS and other reviewing agencies to consider two factors:

• violations or abuses of human rights by individuals or entities other than the government of the importing country; and
• abuses of human rights by the government in addition to violations of internationally recognised human rights.

What does this mean for exporters?

This final rule is in line with the administration's efforts to combat human rights violations, particularly in China, which has been off limits for CC items since the 1989 Tiananmen Square protests.

For exporters of CC-controlled items, this final rule makes it easier for BIS to deny their licence applications. That said, it was not particularly hard for BIS to do this in the past, so it is unclear whether this will have much of an impact on the number of licences denied.

For the rest of the items on the CCL (except SS-controlled items), the change is more significant and far reaching. BIS can now deny licence applications for non-CC items based on human rights concerns, including those involving censorship, surveillance, detention or excessive use of force. Exporters of items – particularly telecoms and information security and sensors – that require a licence and could be used for censorship, surveillance, detention or use of force (eg, arrest) should anticipate licensing denials for certain countries and regions.

As a practical matter, exporters which export to such countries or regions would be well advised to conduct additional due diligence on end users and end uses prior to filing an export licence application and should address any potential human rights risks in their licence applications.