Strategic Trade Management

John Haberstock Regional Export Control Officer U.S. Department of Commerce,

Hong Kong

BIS regulates dual-use items: Items with both commercial and military or proliferation applications.

Use of Concern Legitimate Use

Machine Tools

Gas centrifuge, Fabrication of WMD

Parts & components of various machinery

Carbon Fibers

Missile Components Golf club shafts, Fishing rods

Thiodiglycol Mustard Gas Plastics, Dyes, Inks

Moscow

Abu Dhabi

New Delhi

Singapore

Hong Kong

Beijing

BIS Export Control Officers

Purpose and Method of Strategic Trade Management

United Nations Security Council Resolution 1540 (2004): “. . . all States shall take and enforce effective measures to establish domestic controls to prevent the proliferation of nuclear, chemical, or biological weapons and their means of delivery, including by establishing appropriate controls over related materials . . . , including appropriate laws and regulations to control export, transit, trans-shipment and re-export . . . .”

United Nations Security Council Resolution 1540 (2004): “. . . all States shall take and enforce effective measures to establish domestic controls to prevent the proliferation of nuclear, chemical, or biological weapons and their means of delivery, including by establishing appropriate controls over related materials . . . , including appropriate laws and regulations to control export, transit, trans-shipment and re-export . . . .”

United Nations Security Council Resolution 1540 (2004): “. . . all States shall take and enforce effective measures to establish domestic controls to prevent the proliferation of nuclear, chemical, or biological weapons and their means of delivery, including by establishing appropriate controls over related materials . . . , including appropriate laws and regulations to control export, transit, trans-shipment and re-export . . . .”

Basic Jurisdiction (Items)

Items “Subject to the EAR” – the U.S. Export Administration Regulations.

Includes commodities, software, and technology:

• Located in the United States

• U.S.-origin items, wherever located

• Foreign-made items abroad with controlled U.S.-origin content that exceeds de minimis levels, – Greater than 10% if destined to Iran, North Korea,

Sudan, or Syria

– Greater than 25% if destined to any other country

Export: an actual shipment or transmission of items subject to the EAR out of the United States

Reexport: an actual shipment or transmission of items subject to the EAR from one foreign country to another foreign country

“Release” of Technology to foreign national is deemed to be an export or reexport

Basic Jurisdiction (Transactions)

The United States maintains a control list derived from the multilateral export control regime lists, with some additional items that are controlled unilaterally.

• Used to determine Export Control Classification Number (ECCN)

• Used to determine license requirements

The Commerce Control List (the CCL)

Control List Examples

Hong Kong United States 2B230 All types of “pressure transducers” capable of measuring absolute pressures and having all of the characteristics described in this ECCN (see List of Items Controlled). Items: a. Pressure sensing elements made of or protected by aluminum, aluminum alloy, aluminum oxide (alumina or sapphire), nickel, nickel alloy with more than 60% nickel by weight, or fully fluorinated hydrocarbon polymers; b. Seals, if any, essential for sealing the pressure sensing element, and in direct contact with the process medium, made of or protected by aluminum, aluminum alloy, aluminum oxide (alumina or sapphire), nickel, nickel alloy with more than 60% nickel by weight, or fully fluorinated hydrocarbon polymers; and c. Either of the following characteristics: c.1. A full scale of less 13 kPa and an “accuracy” of better than ± 1% of full scale; or c.2. A full scale of 13 kPa or greater and an “accuracy” of better than ± 130 Pa when measuring at 13 kPa.

2B230 "Pressure transducers" capable of measuring absolute pressures at any point in the range 0 to 13 kPa and having both of the following characteristics: (a) Pressure sensing elements made of or protected by

aluminium, aluminium alloy, nickel or nickel alloy with more than 60% nickel by weight; and

(b) Having either of the following characteristics: (1) A full scale of less than 13 kPa and an 'accuracy' of better than

+1% of full-scale; or

(2) A full scale of 13 kPa or greater and an 'accuracy' of better than +130 Pa; (L.N. 65 of 2004)

Technical Note: For the purposes of 2B230, "accuracy" includes non-linearity, hysteresis and repeatability at ambient temperature.

The Commerce Control List (the CCL)

AT = Anti-Terrorism

CB = Chemical & Biological Weapons

CC = Crime Control

CW = Chemical Weapons Convention

EI = Encryption Item

FC = Firearms Control

MT = Missile Technology

NP = Nuclear Nonproliferation

NS = National Security

RS = Regional Stability

SI = Significant Item

SL = Surreptitious Listening

SS = Short Supply

UN = United Nations Embargo

Chemical and biological weapons

Nuclear nonpro.

National Missile tech

Regional Crime control Anti-terrorism

security stability

CB 1 CB 2 CB 3 NP 1 NP 2 NS 1 NS 2 MT 1 RS 1 RS 2 CC 1 CC 2 CC 3 AT 1 AT 2

Australia3 X X X X

Burma X X X X X X X X X X X

Cambodia X X X X X X X X X X

China X X X X X X X X X X X

Hong Kong X X X X X X X X X X

India X X X X X X X X X X

Indonesia X X X X X X X X X X

Japan3 X X X X

Korea, North1 See Sections 742.19 and 746.4 of the EAR to determine whether a license is required.

Korea, South34 X X X X X X X

Laos X X X X X X X X X X

Macau X X X X X X X X X X X

Malaysia X X X X X X X X X X

Mongolia X X X X X X X X X X X

Philippines X X X X X X X X X X

Singapore X X X X X X X X X X

Taiwan X X X X X X X X X X X

Thailand X X X X X X X X X X

Timor-Leste X X X X X X X X X X

United Arab Emirates X X X X X X X X X X X

Vietnam X X X X X X X X X X X

Red Flag Indicators

– The consignee has little or no business background. – The consignee is unfamiliar with the product's performance

characteristics but still wants the product. – Routine installation, training, or maintenance services are declined by

the consignee. – Delivery dates are vague, or deliveries are planned for out-of-the-way

destinations. – A freight forwarding firm is listed as the product's final destination. – The shipping route is abnormal for the product and destination. – Packaging is inconsistent with the stated method of shipment or

destination. – When questioned, the consignee is evasive and especially unclear

about whether the purchased product is for domestic use, for export, or for re-export.

End-Use Checks

• Types of End-Use Verifications – Pre-License Check (PLC)

– Post-Shipment Verification (PSV)

• Conducted by Export Control Officer, Commerce Department official from local embassy or consulate, or official from United States

• State Department also conducts checks for munitions items.

End-Use Check Goals – Verify the bona fides of the parties to the transaction – Ensure the end-user is aware of the license conditions

or has received appropriate information from exporter – Help ensure that the foreign party (usually the

ultimate consignee or end-user) understands its responsibilities under foreign and domestic law

– Assess the risk of transshipment or diversion of the commodities or technology

– Verify whether or not the proposed disposition of the items is consistent with normal business practices

– Confirms whether or not goods exported actually were received by the appropriate ultimate consignee

GOAL: FACILITATE SECURE TRADE

U.S. Regulation Changes to Hong Kong in 2017

• Support Document Requirements with Respect to Hong Kong (15 CFR Parts 740, 748 & 762) published January 19, 2017

– https://www.bis.doc.gov/index.php/forms-documents/about-bis/1643-82-fr-6218-1/file

• New Rule takes effect on April 19, 2017

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• “Persons intending to export or reexport to Hong Kong any item subject to the Export Administration Regulations (EAR) and controlled on the Commerce Control List (CCL) for National Security (NS), Missile Technology (MT) nuclear nonproliferation (NP column 1), or chemical and biological weapons (CB) reasons to obtain prior to such export or reexport, a copy of a Hong Kong import license or a written statement that such a license is not required. This rule also requires persons intending to reexport from Hong Kong any item subject to the EAR and controlled for NS, MT, NP column 1, or CB reasons to obtain a Hong Kong export license or a statement from the Hong Kong government that such license is not required.”

US Regulation Changes to Hong Kong in 2017

ECCN Examples

• 3A001

• 5A002

• 1C210

• 2B350

• EAR99

• 3A991

• 9A991

• 0A987

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• The US Department of Commerce and The Hong Kong Government work closely to insure a robust and reasonable Strategic Trade Control Program

• Both Systems Complement each other and are based primarily on Multilateral Control Regimes ..Australia Group, Wassenaar Arrangement, Missile Technology Control Regime and the Nuclear Suppliers Group.

US and Hong Kong Strategic Trade Partnership

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• The US Final Rule is intended to reinforce Hong Kong Strategic Commodities Regulations already in place.

• Hong Kong Strategic Commodities Regulations already require that you obtain an import and/or export license for items on the HK Strategic Commodities List.

• It only requires companies follow HK controls already in force.

• It does not place any further burden on Hong Kong companies except for the requirement to get a “No license required statement from the HK Government” – only very limited controlled item.

Hong Kong Business Impact

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• Example 1 - When conducting a business transaction with a US exporter, the US Company will need a copy of the import license or NLR Statement before they can export the item to HK for the EAR compliance and 2017 Hong Kong Rule.

• Example 2 - If a Hong Kong company plans to reexport the items from HK and it is subject to the EAR and the 2017 Final Rule, the Hong Kong exporter must obtain and keep a copy of the Hong Kong Export License or the NLR statement from the HK Government.

Hong Kong Business Impact Examples

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• Know your HK Strategic Trade Control Regulations.

• Know if the items are on the HK Strategic Commodities List.

• Know that Hong Kong TID is a major resource and advisor to ensure compliance ( )

• Know that Export Control Office at the US Consulate Hong Kong is a major resource

• Ask questions of your US business partners on the US items to be exported and make sure they are providing all necessary information to you

Best Practices for Hong Kong Compliance

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• US Export Regulations require US companies to keep all records of an export transaction for at least 5 years.

• ECO Office recommends that Hong Kong companies keep records of business transactions with US exporters for 5 years also (Potential PSV and EUCs verification)

• Get the required Hong Kong import and/or export licenses as required and most issues associated with the US 2017 Final Rule will be minimal.

Best Practices for Hong Kong Compliance #2

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• HK companies will not be able to legally import US EAR controlled items to HK and business revenue in both US and HK will be negatively impacted

• Hong Kong companies found to be in non compliance with Hong Kong Strategic Trade Regulations and 2017 Final Rule may be subject to placement on the US Department of Commerce, Bureau of Industry and Security Unverified List and Entity List

Issues for non compliance with HK Trade Laws (Hong Kong Companies)

Lists of Parties of Concern

• Department of Commerce – Bureau of Industry and Security – Denied Persons List – Individuals and entities that have been

denied export privileges. Any dealings with a party on this list that would violate the terms of its denial order are prohibited.

– Unverified List – End-users who BIS has been unable to verify in prior transactions. The presence of a party on this list in a transaction is a “Red Flag” that should be resolved before proceeding with the transaction.

– Entity List – Parties whose presence in a transaction can trigger a license requirement supplemental to those elsewhere in the Export Administration Regulations (EAR). The list specifies the license requirements and policy that apply to each listed party.

Issues for non compliance with HK Trade Laws (U.S. Companies)

• US companies in violation of EAR will be subject to potential administrative and criminal prosecution under US law

• US Companies in violation of EAR may be subject to potential denial of export privileges (11H)

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Thank You! U.S. Consulate General Hong Kong & Macau

John.Haberstock@trade.gov or Carrie.Chan@trade.gov

www.export.gov/hongkong

www.bis.doc.gov