This article was written by Laura Luo, Thomas Hsieh.
On August 1, 2018, the Bureau of Industry and Security (“BIS”) issued a rule amending the Export Administration Regulations (“EAR”) by adding forty-four Chinese entities to the Entity List. A list of the newly added companies can be found here.
Export Administration Regulations Overview
The EAR are a set of regulations issued under the Export Administration Act that governs the export of certain U.S.-origin commodities, including foreign-made products that incorporate certain U.S.-origin goods, technology, or software. Generally, companies seeking to export, reexport, or transfer (in-country) goods covered by the EAR must obtain a license or license exemption from BIS depending on the purchasing entity and the country on destination. Additional information concerning the EAR and long-arm jurisdiction in export control can be found here.
Placement on the Entity List signifies that the End-User Review Committee (“ERC”) has determined that the listed entities have been, or pose a significant risk of, acting contrary to U.S. national security and foreign policy interests. As a result, the EAR impose additional license requirements on, and limit the availability of most license exceptions for, exports, reexports, and transfer (in-country) of U.S.-origin controlled goods and technology to such companies.
With respect to the forty-four newly-added Chinese companies, BIS has provided that:
- there is a presumption of denial for any license review, and
- there are no license exceptions available for any of these entities.
Despite being listed of the Entity List, these Chinese companies may still sell goods and services to purchasers in the U.S. because the EAR concern only the export, reexport, and transfer (in-country) of certain goods to listed entities. However, if the goods involved are controlled goods within the meaning of the EAR, such Chinese entities must still comply with the EAR or otherwise find themselves subject to penalties for violations of the EAR.
Requesting Removal from the Entity List
Only listed companies may appeal a decision by submitting a written request to the ERC to modify or remove their entries. Because the ERC will deliberate with other agencies and examine information from public and non-public sources, including law enforcement data and classified information, third parties are not allowed to file requests on behalf of any listed company. Any requests must be made in English and supported by the party’s basis for removal or modification. The ERC must review any such requests and provide a written decision within thirty calendar days of receiving such requests.
Prior to filing a request with the ERC, a listed entity should conduct its own internal due diligence to first determine whether it does wish to appeal the ERC’s decision and to then gather all relevant information for preparation of its submission and ensuing discussions with the ERC. A listed entity should consider:
(1) the national security or foreign policy interests involved,
(2) whether the entity poses any risk to such interests, and
(3) whether there is a reasonable basis for the ERC’s initial placement of the entity on the Entity List.
Appealing parties remain subject to any additional licensing requirements until (1) the ERC approves of the party’s appeal, and (2) a formal notice of the party’s removal is published in the Federal Register.
The bar for removal, however, is rather high. All decisions to remove or modify an entry on the Entity List must be made by unanimous vote of the ERC, whereas inclusion on the list only requires a majority vote. Decisions made by the ERC are final and unappealable. Due to national security concerns and the confidential nature of the business information reviewed by the ERC, BIS will not share with the public any detailed information on which the ERC relied to make its determination or any information exchanged between the applying entity and the ERC.
Despite this high voting standard, companies have previously been successful in petitioning for removal. On September 25, 2017, the ERC removed China National Commercial New Tone Trading Company Ltd from the Entity List, after having initially placed the company on the Entity List on July 28, 2015 and subsequently receiving a request for removal.
Finally, even if a listed entity fails to obtain a positive outcome with respect to a request for removal, the Entity List is constantly changing, as the ERC reviews the Entity List on an annual basis to determine whether any listed entities should be removed or modified.
Additional Recourse for Listed Entities
Should a listed entity choose to pursue the matter further, it must turn to the federal judicial system in hopes of overturning the ERC’s determination. This avenue of recourse presents yet another uphill battle for the listed entity to overcome, as the courts will generally give deferential treatment to an agency’s decision, unless it is shown to either violate the law or otherwise be arbitrary and capricious.