International Law Advisory - US Restores Diplomatic Relations With Libya, Will Remove Libya From Terrorist Sponsor List

On Monday, May 15, 2006, the US Department of State formally announced that the United States is restoring full diplomatic relations with Libya, and that it will remove Libya from the Department of State’s list of state sponsors of terrorism.  A copy of the State Department’s announcement is reprinted at the end of this advisory.

The State Department’s decision to remove Libya from the list of state sponsors of terrorism will be subject to a mandatory 45-day Congressional review period beginning on Monday, after which Libya would be removed from the list.  This list, which is known as the “T-6” list and currently includes Libya, Cuba, Iran, North Korea, Sudan, and Syria, is maintained by the Secretary of State under section 6(j) of the Export Administration Act, section 40 of the Arms Export Control Act, and section 620A of the Foreign Assistance Act.

Removal of Libya from the T-6 list in early July could lead to substantial changes in the near term in the laws governing trade between the United States and Libya, including the following:

1. The Department of Commerce, Bureau of Industry and Security will amend the Export Administration Regulations to remove some of the major export controls currently applicable to Libya.  These would include removing antiterrorism (AT) controls with regard to Libya, which would result in substantially fewer products that would require licensing to Libya; and removal of Libya from Country Group E:1, which would make Libya eligible for a wide variety of license exemptions that are currently inapplicable for exports to Libya (including License Exception ENC, which allows for the export and re-export without a license of certain US-origin encryption software).
2. The Securities and Exchange Commission’s Office of Global Security Risk will no longer have a mandate to investigate whether public company (US and non-US with registered securities) activities in Libya present a material risk to shareholder value.  Companies with public holdings and active shareholder groups therefore may be more comfortable conducting trade with Libya, even in areas where it is already lawful.
   
3. It is possible that Libya could be removed eventually from the list of countries that are ineligible to receive US-origin munitions items under the Arms Export Controls Act and the International Traffic in Arms Regulations.  We view this as an unlikely short-term measure (arms sales restrictions are not tied to the T-6 list), but this could occur if relations between the US and Libya continue to improve.
4. Libya would no longer be subject to the restrictions set forth in Section 632 of the Energy Policy Act of 2005, which prohibits the export of nuclear materials to T-6 countries.
   
5. Libya and Libyan entities will also ultimately be subject to fewer restrictions with respect to US Government contracting programs, as we anticipate that eventually procurement rules that are linked to restrictions on state sponsorship of terror will be updated.  In the interim, contractors need to comply with existing acquisition regulations.
6. Finally, financing from international financial institutions will be more likely as there is less of a chance of the United States vetoing such funding, and US financial assistance toward Libya may become more widely available.

For many of these changes, amendments to existing regulations will be required.  Accordingly, an important question is whether there will be significant changes immediately after the 45-day public comment period ends, or if a longer period will be required for the relevant agencies to act.  We are in contact with the agencies and will issue further advisories as soon as we learn of additional developments.  In the meantime, if you have any questions regarding Libya trade issues, please contact Peter Lichtenbaum at 202-429-6263), Ed Krauland at 202-429-8083), or David Lorello at 202-429-6757.

Text of State Department Notice: US Diplomatic Relations With Libya

Secretary Condoleezza Rice:
Washington, DC
May 15, 2006
I am pleased to announce that the United States is restoring full diplomatic relations with Libya. We will soon open an embassy in Tripoli. In addition, the United States intends to remove Libya from the list of designated state sponsors of terrorism. Libya will also be omitted from the annual certification of countries not cooperating fully with United States anti-terrorism efforts.

We are taking these actions in recognition of Libya's continued commitment to its renunciation of terrorism and the excellent cooperation Libya has provided to the United States and other members of the international community in response to common global threats faced by the civilized world since September 11, 2001.

Today's announcements are tangible results that flow from the historic decisions taken by Libya's leadership in 2003 to renounce terrorism and to abandon its weapons of mass destruction programs. As a direct result of those decisions we have witnessed the beginning of that country's re-emergence into the mainstream of the international community. Today marks the opening of a new era in US-Libya relations that will benefit Americans and Libyans alike.

Just as 2003 marked a turning point for the Libyan people so too could 2006 mark turning points for the peoples of Iran and North Korea. Libya is an important model as nations around the world press for changes in behavior by the Iranian and North Korean regimes -- changes that could be vital to international peace and security. We urge the leadership of Iran and North Korea to make similar strategic decisions that would benefit their citizens.

For Libya, today's announcements open the door to a broader bilateral relationship with the United States that will allow us to better discuss other issues of importance. Those issues include protection of universal human rights, promotion of freedom of speech and expression, and expansion of economic and political reform consistent with President Bush's freedom agenda. 2006/493.