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

Furthermore, while it is unlikely that a U.S. company involved in the development and production of EVs
would want to do business with such a sanctioned entity, a more likely possibility is that a PRC entity
could re-export U.S. origin EV equipment or technology to sanctioned countries or individuals (for
example to broaden their market share by selling EVs in Iran). The PRC routinely does business with
countries (such as Cuba, Iran, and North Korea, etc.) and certain individuals (including those
designated as Specially Designated Nationals, or “SDNs,” by OFAC) with whom U.S. persons are
prohibited from doing business. As such, safeguards need to be built into any contracts with PRC
companies to ensure they agree to abide with applicable U.S. export and sanctions restrictions. For
example, many compliance-minded companies include a “proceeds” provision in their contracts, to
ensure that any payments they make are not ultimately used for a purpose that would violate U.S. law.
Although EVs normally should be subject to the export controls of the EAR, in the event that an EV was
designed or modified for military use (either U.S. military or foreign military), under current U.S. controls,
the resulting vehicle likely would end up being controlled by the more restrictive export controls of the
International Traffic in Arms Regulations (the “ITAR”). Under the ITAR, the PRC is a “proscribed
destination,” meaning that PRC companies and nationals could not be involved in the development of
such vehicles and the vehicles could not be sold in the PRC. As such, U.S. EV companies should
exercise caution when entering into any arrangements with U.S. or foreign militaries which could
possibly subject their end product to ITAR controls.
Notwithstanding these concerns, based on the current state of U.S. export and sanctions laws and
regulations, U.S. companies should be able to engage PRC companies and individuals on EV design,
development, and production issues as long as they implement appropriate compliance plans to
mitigate areas of potential risk.
II.
U.S. Export Controls and Sanctions: Key Concepts
U.S. export control laws and regulations broadly control exports to foreign persons. In addition, OFAC
also broadly controls a range of transactions with embargoed countries and designated individuals and
entities.
An “Export” for the purpose of U.S. export laws and regulations generally includes any shipment of
products or technology outside of the U.S. Any disclosure of technology to foreign persons (located
either inside or outside the U.S.) is also considered an export. Technology can include tangible items of
any kind, such as drawings, specifications, and email correspondence. Technology can also be
disclosed through less tangible means, such as through teleconferences, plant tours, or other methods.
Delivery of products or technology to a foreign embassy located in the U.S. is an export.
A “Foreign Person” for the purpose of U.S. export laws and regulations, generally includes any natural
person who is not a U.S. citizen, or a lawful permanent U.S. resident (or a member of other very limited
protected classes). A foreign person also includes entities, such as foreign corporations, partnerships,
trusts, societies, that are not incorporated or organized to do business in the U.S.
1. Export Controls of Commercial and “Dual Use” Items and Technology Under the EAR
The Department of Commerce, through the BIS, is responsible for administration of the EAR, 15
C.F.R. Part 730 et seq., which governs the export and re-export of commercial and “dual use”
(items with both military and commercial applications) commodities and related technology. As
a practical matter, the scope of the EAR is enormous, controlling items ranging from the most
benign everyday products, such as pens and pencils, to highly sophisticated and sensitive
items, such as machine tools, encryption products, sensors, lasers, computers, and propulsion
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