BIS Proposal on License Exception APR Overly Broad, Industry Says

The Bureau of Industry and Security’s proposal to reduce the number of countries eligible for license exception Additional Permissive Reexports (APR) (see 2004270025) could damage U.S. competitiveness and lead to overly broad export restrictions, trade groups and industry said in comments released this month. If BIS follows through on the change, commenters suggested that it first limit the scope of the rule, which could potentially restrict more than 20 countries from receiving certain U.S. reexports that are controlled for national security reasons.

BIS said it proposed the rule because of concerns that countries in Country Group A:1 -- which are authorized to reexport these controlled goods under license exception APR -- do not hold their exports to the same license-review standards that the U.S. does. To address the issue, BIS proposed removing License Exception APR eligibility from countries in Country Group D:1, which includes a number of restricted export destinations such as China, North Korea, Libya and Russia.

Commenters said BIS’s concerns are valid but that some nations in Country Group A:1 can be trusted to implement strict export control measures on U.S. reexports. The National Instruments Corp. (NI) pointed to Hungary, a Group A:1 country whose export control authorities “appear to provide robust scrutiny over the shipments.” NI suggested that BIS should first review which countries implement “a comparable or sufficient degree of scrutiny” over export controlled shipments before placing a blanket restriction on D:1 Countries.

Not only would this avoid unnecessarily restricting U.S. reexports, NI said, but it would also allow the U.S. to pinpoint which countries do not have adequate export control regimes. Such “a determination … would advance the common good of the United States with respect to motivating more controls over shipments of controlled items,” it said. “No such incentives would be created with respect to such countries if BIS were to simply remove License Exception APR.”

Other commenters said removing license exception APR for reexports to D:1 countries, especially China, could hurt U.S. businesses and create more of an administrative burden on BIS. SEMI, a semiconductor manufacturing industry group, said one of its members ships semiconductor materials to China in smaller containers from outside the U.S. and would require as many as 70 export licenses per year if BIS follows through on the change. The U.S.-China Business Council (USCBC) said the extra work to secure licenses may cause foreign companies to remove U.S. technology from their products to avoid the Export Administration Regulations.

SEMI said there are alternative suppliers in China “and elsewhere” for “many materials” that could be captured under this rule change. “With additional license requirements and foreign availability of these items, customers outside the U.S. may seek to reduce reliance on U.S.-origin items in favor of items that are not subject to the EAR,” it said. SEMI and USCBC also said the move could lead to more industry uncertainty surrounding U.S. export regulations.

“The uncertainty that additional license requirements creates can distort purchases of a wide array of related items,” SEMI said. The group said the changes to license exception APR, as well as other recent BIS export control actions (see 2007090075), “may erode the competitiveness of U.S.-origin items and contribute to customer efforts to avoid or ‘design out’ U.S.-origin products and technology.”

The U.S. should push allies to strengthen their export control regimes instead of pursuing these restrictions, USCBC said. “USCBC encourages the US government and BIS to find common ground with our allies in dealing with these regimes and to not implement policy and regulatory changes that might negatively impact the US alliance structure,” the council said.

If the U.S. cannot “harmonize” its export control regimes with “like-minded partners, SEMI said, it should revise the proposed rule to instead limit changes to Export Control Classification Numbers instead of certain Country Groups. “The rule should exclude use of License Exception APR to reexport the particular ECCN from the particular country as to which there is a concern, rather than abolishing the use of License Exception APR even in contexts where the U.S. Government has no concerns about its allies’ licensing policies,” SEMI said. “In other words, the current proposal is overly broad.” Hillary Hess, BIS’ regulatory policy director, said the agency has not yet decided how to move forward on the rule (see 2009150045).