Overview
A little more than one month from today, on April 19, 2017, a US Department of Commerce (DOC) Bureau of Industry and Security (BIS) rule imposing new documentation requirements for certain US exports or reexports to and from Hong Kong will take effect. The DOC published the final rule on January 19, 2017. The rule highlights Hong Kong import and export licensing requirements that affect a variety of products. It requires companies using a DOC license or license exception pursuant to the US Export Administration Regulations (EAR) to obtain a Hong Kong import license or a written statement that a Hong Kong license is not required when certain items are exported or reexported to Hong Kong. The rule also imposes a similar requirement for reexports from Hong Kong.
Affected Exports and Reexports
The rule affects certain Hong Kong-related transactions involving any item that is subject to the EAR and that is controlled for National Security (NS), Missile Technology (MT), Nuclear Nonproliferation (NPT) Column 1, or Chemical and Biological Weapons (CB) reasons. A wide range of products falls under this umbrella, including, for example:
- Ground vehicles and components classified under ECCN 0A606
- Protective and detection equipment classified under ECCN 1A004
- Anti-friction bearings and bearing systems classified under ECCN 2A001
- Electronics, such as certain integrated circuits and microwave monolithic integrated circuits (MMICs), classified under ECCN 3A001
- Encryption hardware and software classified under ECCN 5A002 and 5D002, non-cryptographic systems and equipment classified under ECCN 5A003, and systems and equipment for defeating, weakening, or bypassing information security classified under ECCN 5A004
- Certain inertial measurement equipment classified under ECCN 7A003
- Military aircraft classified under ECCN 9A610 and military gas turbine engines classified under ECCN 9A619
New Requirement
The new rule, appearing in Parts 740.2(a), 748.9, 748.13, and 762 of the EAR, requires exporters / reexporters who use a BIS license or an EAR license exception to obtain certain documentation – a copy of a valid import license or a copy of a written statement from the Hong Kong government stating that no import license is required – when exporting / reexporting affected items to Hong Kong. The Hong Kong import license must be issued to the Hong Kong importer by the Hong Kong government, authorizing import of the item to be shipped to Hong Kong. It must also be valid at the time of export / reexport to Hong Kong. The written statement by the Hong Kong government may be a written communication directly to a company informing that a particular item does not require an import license or it may be a statement to the general public that a license is not required for a certain item. Statements contained on a Hong Kong government website meet this requirement. The DOC rule does not specify that a particular agency of the Hong Kong government must issue the written statements.
Similar rules apply when reexporting from Hong Kong. Reexporters shipping affected items from Hong Kong must obtain an export license or a written statement that no license is required from the Hong Kong government. Exports must meet the terms of the Hong Kong export license and be completed during the period of the license.
The exporter / reexporter must maintain copies of the applicable Hong Kong license or written statement in its possession. Recordkeeping requirements in Part 762 of the EAR – including that certain records be retained for a five-year period – apply to the licenses and written statements.
Where to Obtain Required Documentation
Where relevant to a particular transactions, Hong Kong import and export licenses should be obtained from the Hong Kong importer (for an import license) and from the Hong Kong reexporter (for export licenses). If a license is required but not yet obtained, the license may be obtained following application procedures set out in the Hong Kong Import and Export (Strategic Commodities) Regulations from the Hong Kong Director General of Trade and Industry.
The government of Hong Kong has already issued written statements indicating that certain items do not require export or import licenses. Some written statements are available on the Hong Kong government website. For example, the Hong Kong government has stated in an FAQ that certain intangible transfers of technology, such as downloads of encryption software controlled by ECCN 5D002 unrelated to weapons of mass destruction do not require an import or export license from Hong Kong. US export control laws do govern exports by download. Other written statements are available on the Hong Kong government Strategic Commodities Control System website. Such written statements may be maintained and used to meet the US recordkeeping requirement.
Implications
A variety of entities who engage in import or export activities in and out of Hong Kong may be affected by this rule change. The need to obtain – and maintain for five years – import and export authorizations may apply to US companies exporting to or reexporting through Hong Kong, distribution centers operating in Hong Kong, Hong Kong importers and exporters dealing in US products, distributors and resellers, and others. Companies operating in or through Hong Kong should review their logistics and related procedures in light of the new rule to ensure compliance. While not required by the DOC rule, it may also be helpful to review transactional documentation, such as contracts with Hong Kong importers or customers, to determine whether such documentation should include references to the new DOC requirement. Any entity using a BIS license or EAR license exception for transactions to or from Hong Kong will want to update compliance processes and procedures to reflect the new rule, consulting with US and Hong Kong counsel, as needed, to obtain licenses or written statements.
We will continue to keep you informed about export control developments. If you have any questions concerning these changes to the EAR, please contact Alexandra Baj at +1 202 429 6478 or Edward Krauland at +1 202 429 8083 in our Washington office. Further commentary is available on the Steptoe International Compliance Blog. You can also follow us on Twitter (@SteptoeIntlReg).
