Archive for the ‘Denied Party List’ Category


May

3

De Minimis Rules Create De Maximis Confusion for ZTE Exports


Posted by at 7:53 pm on May 3, 2018
Category: BISDenied Party List

ZTE China via http://res.www.zte.com.cn/mediares/zte/Files/bannerCN/rmrb0424.jpg?h=270&la=en&w=470 [Fair Use]Trade wars, like all wars, inevitably inflict collateral damage on unintended targets. This article in the Wall Street Journal provides an interesting run-down of the collateral damage that the ZTE denial order has had on U.S. companies.  These are companies for which ZTE was a significant customer and which have seen significant drops in their stock prices on the heels of the denial order.

Although most of the attention has been focused on the scope of the order’s impact on exports to ZTE from the United States, less attention has been paid to the issue of foreign made products incorporating U.S. content. Consider the dilemma of the company that makes the Gorilla Glass used on ZTE smartphones:

Corning Inc., GLW -0.49% which makes Gorilla Glass screens used in smartphones from ZTE and others, said it was assessing whether the sales ban applies to its products made at its factories in Taiwan, Japan and South Korea. The company said it wasn’t sure whether Gorilla Glass includes content that falls under U.S. export controls.

There could be a number of reasons for this, including not knowing the origin of the raw materials. But more likely, it could be the confusion over how to apply the de minimis rules in the context of the denial order, which only covers items “subject to the Regulations,” i.e. items “subject to the EAR.” Section 734.4(d)(1) notes that the following items are not “subject to the EAR”:

Reexports of a foreign-made commodity incorporating controlled U.S.-origin commodities … valued at 25% or less of the total value of the foreign-made commodity.

The crucial, and confusing, part of this provision is what is meant by “controlled U.S.-origin commodities,” a term that is never defined in the regulations. The only guidance as to the meaning of this phrase is in Supplement 2 to Part 734 which says this:

To identify U.S.-origin controlled content for purposes of the de minimis rules, you must determine the Export Control Classification Number (ECCN) of each U.S.-origin item incorporated into a foreign-made product. Then, you must identify which, if any, of those U.S.-origin items would require a license from BIS if they were to be exported or reexported (in the form in which you received them) to the foreign-made product’s country of destination. In identifying U.S.-origin controlled content, do not take account of commodities, software, or technology that could be exported or reexported to the country of destination without a license (designated as “NLR”) or under License Exception GBS (see part 740 of the EAR).

Reading the above provision literally, “controlled U.S. origin commodities” for purposes of the ZTE Denial Order would not include EAR99 items and many other items that did not require a license to China because whether something is controlled for de minimis computation depends on whether it is controlled for the “country of destination,” not the recipient.

One suspects that BIS means, and would like to cover, all EAR99 or items that were NLR for China in the de minimis computation for foreign made products exported to ZTE on the notion that these exports are controlled to ZTE. But, of course, if wishes were horses, all beggars would ride or, more to the point in this context, if wishes were rules, all agencies would ride roughshod over fairness. I don’t think BIS can cure this by posting some slapdash FAQ on its website instead of going through the procedures required by the APA to amend Supplement 2 to Part 734 to decouple the meaning of controlled from the country of destination.

Permalink Comments (3)

Bookmark and Share


Copyright © 2018 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Aug

20

The Consolidated Screening List Isn’t


Posted by at 9:01 pm on August 20, 2014
Category: BISCompliance Programs and ProceduresDDTCDebarred ListDenied Party ListEntity ListOFACRussia SanctionsSanctionsSDN ListUnverified List

PortShip by USDA (cropped) via https://www.flickr.com/photos/usdagov/9715983721 [CC BY 2.0 https://creativecommons.org/licenses/by/2.0/]The U.S. Government, over at export.gov, provides a so-called Consolidated Screening List, which you might think would be a one-stop shopping list for your screening needs, something that might be useful if you or your company does not subscribe to or implement one of the commercial screening solutions. Unfortunately, the Consolidated Screening List doesn’t consolidate all the lists you should review and has other significant limitations.

The good news is that the list now does include the Foreign Sanctions Evaders List, which was not included for some time after the list was adopted by Treasury back in February of this year. The description of the list still does not mention the FSE list, but the entries on that list have been quietly added.

However, two other Treasury Department lists are still not included. The relatively new Sectoral Sanctions Identifications List is missing as action. U.S. persons are forbidden from engaging certain transactions with entities on this list, including providing credit in excess of ninety days. Part of the reason for this is probably that the “consolidated” list is infrequently updated. The last update of the list was almost two months ago, on June 26, 2014.

In addition, the Palestinian Legislative Council List, adopted back in 2006, is not included. U.S. financial institutions must reject (not block) transactions with people on the PLC list.

Not only is the “consolidated” list not complete or consolidated, but also it is dangerous to rely on it alone for another significant reason. The search page for the list only retrieves literal matches and does not allow address searching. In addition to searching the consolidated list, you should also rely on OFAC’s sanction list search tool. That tool uses, fairly successfully, “fuzzy logic” to retrieve similarly spelled names. Because many of the names on the list are transliterated versions of Arabic names, meaning that there are many alternate spellings, the “fuzzy logic” will be somewhat more successful in identifying alternate spellings.

Permalink Comments (1)

Bookmark and Share


Copyright © 2014 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)