Overview of U.S. Export Controls and Sanctions Issues Relating to ...

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PENALTIES AND ENFORCEMENT INFORMATION,” www.treasury.gov/resource-center/sanctions/Civ Pen/Pages/civpen-index2.apx. III. Current Compliance Considerations Relating to the Design, Development, or Production of Electric Vehicle Production in the PRC 1. Compliance Considerations in Determining Export License Requirements Based on the current regulations, there do not appear to be any insurmountable impediments from an export or sanctions compliance perspective in developing and producing EVs with PRC involvement (either through the use of a PRC company or the use of a PRC national working in the U.S.). Currently the EAR does not contain an ECCN that would cover the EV as a whole or cover any software or technology relating to the EV generally. Category 9 of the CCL of the EAR, which covers Propulsion Equipment, includes a number of different vehicles, including certain rockets, launch vehicles, non-military UAVs (unmanned aerial vehicles), certain non-combat military vehicles and various engines for particularly sensitive applications. However, EVs are not included, which means that the vehicle, as a whole, would be considered “EAR99,” the lowest level of control. Similarly, other major components of an EV, including the EV charger, battery, and motor are not currently listed under a particular ECCN. As a result, to the extent that an export licensing requirement arises, it would most likely occur in connection with the export of products and related software and technology at the subsystem or part or component level. A review of the EAR reveals various types products, software and technology that sometimes require export authorization and potentially could be used as part of the development or production of EVs. Such items could include (but not be limited to) electronics (e.g., frequency extenders, integrated circuits, receivers, semiconductors, etc.); high performance computer equipment; encryption/information security products and software; navigational/directional equipment; sensors/lasers; and even certain lower level parts and components such as valves and bearings. In some cases, various materials could require a license for export. Such materials could include certain high grade plastics; composites; and various cooling or lubricating fluids. In limited cases even certain raw materials, such as particular metals, aluminum, steel, and titanium alloys could require a license. Similarly, certain specialized test equipment (e.g., accelerometers, magnetometers, oscillators, calibration and alignment equipment, equipment to monitor vibration, etc.) could result in a license requirement. Finally, many manufacturers are unaware that certain underlying machine tools used to produce an item could require a license to export. Such machine tools could include items such as dimensional inspection machines, cutting machines, numerically controlled machines, and drilling machines. Note that this description of various products, software and technology is neither intended to be exhaustive nor is it intended to conclusively identify all items that might require a license to ship to the PRC or to otherwise export to PRC nationals. For one thing, not all of the general types of items mentioned above necessarily would require a license. As an example, while certain valves with particular functionality or lined with particular materials might require a license, most valves would not have the same functionality or be made with the same sensitive materials and an export license likely would not be required. In addition, it is unclear at this time what products, software and technology actually would need to be transferred to a PRC national so it 12
is not possible to develop a reliable list of controlled products, software and technology. The items identified above are simply intended to be illustrative, to identify some potential areas for further review and inquiry prior to export. Any company will need to perform a thorough review for export controls purposes of all products, software and technology proposed for transfer to PRC entities, to ensure that it is aware of the export jurisdiction (i.e., the ITAR or the EAR), classification (i.e., applicable ECCN, if any) and export license requirements of all items to be exported. If a license is required from the BIS, advance planning of at least six months or more is advisable. All license applications must be submitted electronically and a company must be registered with the BIS’s online application system in order to submit a license application. Additionally, license applications involving the PRC tend to be considered more sensitive and involve a longer review period by the U.S. government. In addition to a review by Department of Commerce and Department of Defense personnel, it is not uncommon for license applications involving the PRC to also be staffed to the Department of State for further review of potential national security and foreign policy considerations. While it is not likely that the export of any products, software or technology would trigger the application of the “China Rule” described above, exporters would need to be prepared to show why the rule does not apply, as the U.S. government will consider the rule as part of the review of the license application. It is certainly possible that the development of EV technology could involve “publicly available” information that is not subject to the EAR or its licensing controls. However, as mentioned above, the publicly available designation is available in only limited situations. Moreover, by making information “publicly available,” exporters lose all proprietary protections, which is why, in most cases, exporters choose not to make information publicly available even if there is no regulatory prohibition from doing so. Finally, it is possible that as part of initial EV development, companies will want to make use of U.S. government funding, which could include funding made available by the U.S. Army, the Defense Advanced Research Projects Agency or other military entities. Companies should review such arrangements extremely carefully, to ensure they are not subjecting their products and technology to ITAR controls (which would, among other things, preclude the involvement of the PRC and could severely restrict future sales opportunities). 2. Compliance Considerations in Dealing with a Party Ineligible to Receive Exports As mentioned above, the U.S. restricts exports and re-exports to certain foreign and U.S. entities for national security and foreign policy reasons. Individuals and entities can end up being placed on the Denied Persons List, Unverified List, Entity List, Debarred List, or Nonproliferation Sanctions List. There are PRC entities included on the Entity List, SDN List, and Nonproliferation Sanctions List. These entities tend to be research organizations associated with the Chinese government, technology companies, and scientists. As a result, any EV developer or producer looking to engage in research and development activities involving the PRC should be especially careful that it does not end up doing business with an ineligible party, which will require screening all parties to the transaction against U.S. government lists of ineligible parties. There is a particular risk when dealing with the PRC. Unlike European Union countries or other strong U.S. allies who are part of various multilateral regimes, and often impose similar export and re-export restrictions, the PRC does not recognize most export restrictions imposed by the U.S. As a result, a violation of U.S. export regulations would occur if a U.S. EV developer provided certain export controlled technology to a PRC company and the PRC company, in turn, provided the information to a research institution included on the Entity 13
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