Overview
On July 22, 2015, the Bureau of Industry and Security (BIS) of the US Department of Commerce issued a final rule implementing the rescission of Cuba’s designation as a State Sponsor of Terrorism. Although the final rule has symbolic significance in the continued diplomatic détente between the United States and Cuba, it has little practical impact on US companies seeking to do business in Cuba. The rule does, however, provide limited relief to foreign companies exporting foreign-made goods to Cuba that contain US-origin content. In addition, a US Senate committee recently passed an amendment to an appropriations bill that proposes to further relax sanctions against Cuba, including by lifting the travel ban, among other things.
Background
On December 17, 2014, President Obama announced that the United States would take steps to normalize diplomatic relations between the United States and Cuba. On January 15, 2015, the US Department of Treasury, Office of Foreign Asset Control (OFAC), and BIS respectively amended the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR) to implement President Obama’s announcement. For more information, please see our previous advisory.
On April 8, 2015, the Secretary of State recommended to President Obama that Cuba no longer be designated as a State Sponsor of Terrorism. President Obama thereafter submitted a report to Congress certifying that Cuba had not provided support for international terrorism during the previous six months and that Cuba had provided assurances that it will not support acts of international terrorism in the future.
On May 29, 2015, the Secretary of State rescinded Cuba’s designation as a State Sponsor of Terrorism.
Effect of Removal of Cuba from List of Terrorist Supporting Countries
The final rule removes Cuba from Country Group E:1 – Terrorist Supporting Countries. Although several provisions of the EAR contain restrictions specific to Country Group E:1, the practical effect of the change for US persons is limited. The United States continues to maintain a unilateral embargo on Cuba. A license or valid license exception is still required to export to Cuba any item subject to the EAR, including EAR99 items, see 15 C.F.R. § 746.2(a), and the restrictions set forth in the CACR continue to be in force.
Removing Cuba from Country Group E:1 provides limited relief to foreign companies operating in Cuba that sell foreign-made goods incorporating US-origin content. Foreign-made goods are not subject to the EAR unless they incorporate more than a de minimis level of US-origin content. See 15 C.F.R. § 734.3(a)(3). Because Cuba is no longer in Country Group E:1, the de minimis level of US-origin content for most items is increased from 10 percent to 25 percent, although there are certain items that remain ineligible for de minimis treatment. See 15 C.F.R. § 734.4.
Removal of Cuba from Country Group E:1 also removes some restrictions on the limited number of license exceptions available to US and foreign firms seeking to do business in Cuba.
The following four license exceptions are impacted by Cuba’s removal from Country Group E:1.
- License Exception RPL. Exporters may now ship parts, components, accessories, or attachments that are subject to the EAR in order to repair, among other things, “aircraft,” explosive detection equipment, and concealed object detection equipment (primarily used for airport security screening).
- License Exception BAG. Individuals leaving the United States for Cuba may now hand-carry software subject to Encryption Item (EI) controls on the Commerce Control List (CCL).
- License Exception AVS. Among other changes, foreign-made aircraft can now depart the United States for the purpose of transfer to Cuban nationals, spares may be located in Cuba, and certain civil aircraft of US registry, including certain private business jets and other aircraft that do not transport passengers or cargo for hire, may depart from the United States to Cuba for “temporary sojourns” (subject to the travel restrictions in the CACR and FAA authorizations).
- License Exception GOV. The GOV-related changes are quite narrow. Among other things, it will no longer be prohibited to use license exception GOV to export, reexport, or transfer to a Cuban national certain items used in support of the International Space Station.
Although the CACR permits certain transactions that are incident to the export of items pursuant to a valid license exception under the EAR, see 31 C.F.R. § 515.533(a), the modest expansion of available license exceptions provides only limited relief for US businesses.
Limitations
To limit the scope of relief provided by removing Cuba from Country Group E:1, the final rule added several restrictions on exports to destinations in Country Group E:2. Cuba remains in Country Group E:2 because it is subject to a unilateral embargo.
- There is no de minimis level of US-origin content for foreign-made items that incorporate 9x515 or “600 series” .y commodities when destined for Country Group E:2.
- License Exception TSR requires written assurances that software or technology controlled for national security reasons will not be transferred to nationals of countries in Country Groups E:2.
- License applications now require, in certain circumstances, a list of technology accompanying shipments to Country Group E:2. License applications also require written assurances that technology controlled for national security will not be transferred to nationals of countries in Country Group E:2.
- An AES filing is required, regardless of value, for any exports destined to countries in Country Group E:2. Further, export to a country in Country Group E:2 is grounds for rejecting an application to file in AES post-departure.
The final rule also added a General Order amending all BIS licenses effective before July 22, 2015. Any condition in those licenses referencing Country Group E:1 is amended to apply to both Country Group E:1 and E:2.
Recent Legislative Activity
In addition to regulatory activity relating to Cuba, Congress has been debating the future of US sanctions against Cuba. On July 24, 2015, the Senate Appropriations Committee voted to approve several Cuba-related amendments to a pending appropriations bill. One amendment would lift the travel ban. Another would lift restrictions on allowing ships that have docked in Cuba to later dock at US ports. The third amendment would allow for US financing of sales of agricultural products to Cuba. The appropriations bill will go on to the full Senate for a vote, and then would need to clear the US House of Representatives, where the Cuba-related provisions are likely to face significant opposition.
Conclusion
Rescinding Cuba’s designation as a State Sponsor of Terrorism is a necessary step in the normalization of diplomatic relations between Cuba and the United States. In the long-term, normalized relations will provide new business opportunities for US firms that wish to operate in Cuba. In the short-term, however, the impact of Cuba’s change in status is primarily symbolic and will have limited impact on the United States’ export control regime.
We will continue to monitor and keep you apprised of sanctions developments. You can also follow us on Twitter (@SteptoeIntlReg).
