Due to the recent Russia-Ukraine conflict, the United States and other western countries have increased sanctions against Russia. After being subject to export control and economic embargo by the United States and other western countries, Russia is bound to choose to increase cooperation with other countries. The US government has frequently threatened to impose severe penalties on China if it continues to provide relevant products to Russia and fails to comply with its so-called economic sanctions against Russia. Against this background, it can be predicted that China's economic and trade exchanges with Russia will also likely be greatly affected. This article analyzes the current laws related to export controls in the United States against Russia, in order to maximize the prevention of legal compliance risks in future trade transactions between Chinese enterprises and Russian related entities.

1、 Legal Requirements for Export Control in the United States

The U.S. export control supervision and enforcement agency is the Department of Industrial Safety under the U.S. Department of Commerce. Under the authorization of IEEPA, it has issued a set of Export Administration Regulations to guide and manage the export control of U.S. goods. Its specific form is the Commercial Control List (CCL). Restricted items can only be exported and re exported with a license. Specifically, restrictions fall into four categories:

01 Classification based on the item itself and control in the country of destination

On the business control list, all export commodities are classified into ten categories, and export control classification codes (ECCNs) are assigned based on materials, samples, finished products, or technology, with varying degrees of prohibition or restriction. These ten categories of commodities include: (0) nuclear weapons and their equipment and facilities, (1) biochemical and toxin, (2) material processing, (3) design, development and manufacturing of electronic products, (4) computers, (5) telecommunications and information technology, (6) sensors and lasers, (7) navigation, (8) navigation, and (9) aviation and thrusters. Goods that are not on the control list are classified as EAR99 licenses. This commodity classification code is combined with the country list and faces the implementation of hierarchical export controls.
02 Control based on "end use"

The main task is to implement comprehensive control over exports related to nuclear weapons, missiles, biological and chemical weapons, and non-proliferation. At the same time, export controls are implemented on military units for military purposes and in countries such as Russia, China, Iran, and Venezuela, as well as users listed on the "entity list" by the United States government.

03 Control based on "destination country"

Implementing specific control measures with different levels of control by country. Currently, the United States has a de facto comprehensive trade embargo against the following countries - Cuba, Iran, North Korea, North Sudan, and Syria - so any exports are prohibited. Control over its friends such as Canada is very loose. The degree of control over Russian exports is somewhere in between. The following is the extent to which Russia is regulated under the United States export control system.

04 "End user" based control

Any transaction is prohibited for any unit or individual that is listed as a "Denied Party (Blacklist)" by the United States government in the form of a statute. In addition, sales to entities and individuals on the "Entity List" also require a license.

05 Arms embargo

Due to the comprehensive prohibition of arms trading with Russia under the International Traffic in Arms Regulations of the United States, it is a minefield. This part of management is mainly implemented by the United States Department of State (Foreign Ministry). We will not discuss it here. However, some dual-use goods are also subject to export control regulations, which are covered in the discussion above.

06 The latest US export control measures to Russia after the Russia-Ukraine conflict

On February 24, 2022, the Industry and Security Bureau of the United States Department of Commerce implemented new export control measures against Russia. The latest export control measures are based on the "Final Rules" of the Federal Register Export Administration Regulations Implementation of Sanctions Against Russia, which focus on Russia's defense, marine industry, and aerospace fields. The rules have been published in the Federal Register and come into force on March 3, 2022. Mainly focused on the following aspects:

(1) Implement new licensing requirements for business control lists.

The new export control measures add new licensing requirements to all ECCN codes in categories 3-9 of the Commerce Control List, and add licensing restrictions on export, re export, and domestic transfer to 58 ECCN codes. The 58 ECCN codes cover microelectronics, sensors, navigation equipment, avionics, marine equipment, and aircraft components, some of which were not previously subject to export controls.

(2) Implement a refusal of license policy for exports, re exports, or transfers within Russia.

The new export control measures require that, in addition to the adoption of case studies in areas such as navigation safety, maritime safety, humanitarian, and government space cooperation, applications for permission to export, re export, or transfer items to Russia will be directly presumed to be denied permission.

(3) Expand the scope of "military end use" and "military end user" in Russia to all projects covered by EAR, with the exception of the following two items:

A. Food and drugs designated as EAR99;

B. Projects classified in ECCN 5A992. c or 5D992. c, as long as they are not "end users of the Russian government" or Russian state-owned enterprises.

(4) Create new foreign direct product rules and military end-user rules for Russia to limit Russia's ability to obtain foreign products.

The foreign direct product rule originates from the EAR, and its function is to establish export control regulations that exceed a red line ratio of 10% or 25% for the EAR to control the export, re export, and domestic transfer of items of American origin to Russia. The Russian military end-user version of the FDP rules applies extraterritorial restrictions on items that are not originating in the United States.

(5) Exceptions to restrictions on Russian exports, re exports, and transfers using EAR licenses.

(6) Add 49 Russian entities to footnote 3 of the list of entities.

"To export, re export, or transfer all items subject to EAR restrictions to these entities, a license is required, but these license applications will be presumed to be rejected.".
The six export control measures mentioned above are actually aimed at expanding the scope of export controls imposed by the United States on Russia, thereby weakening or restricting Russia's ability to acquire software, technology, and the inability to produce high-tech products on its own.

2、 Compliance Suggestions for Chinese Enterprises Against U.S. Trade Control Laws

The United States Export Control Act governs all items used under United States export control regulations, including products, technology, and software. According to our understanding, if there are products and software originating in the United States or using physical technology from the United States in China's exports to Russia, it is necessary to confirm whether the United States export control regulations have restrictions on their export. If an item is listed on a commercial control list, it may be prohibited or require a license to export.

The products exported from China to Russia use the technology and raw products and software exported from the United States, and are further developed and produced into finished products in China. If the proportion of American technology or raw products and technologies (items) is greater than a negligible proportion (for goods exported to Russia, the upper limit of this proportion is 10% or 25%. The calculation formula for this proportion is to divide the purchase price of American technology or raw products and software by the sales price of products subsequently developed in China), even if the goods developed and produced in China are still considered as American items, Subject to United States export control laws. However, if it falls within the jurisdiction of EAR99, that is, it belongs to licensed goods, and there are no export restrictions, and there is no need to apply for an export license.

It is worth noting that even if an item is subject to U.S. export controls, there are potential avenues for obtaining exemptions. That is, if it can be proven that when purchasing an export controlled item from the United States, a Chinese procurement company does not directly provide it to Russia, but first enters the inventory warehouse of a Chinese company, or the finished product produced by further research and development and production of the American item is then sold to Russia. In this way, when purchasing from the United States, it is not known which batch of items may be sold to Russia in what form in the future. If there is a disruption between the two transactions of US exports and re exports from China to Russia, the actions of Chinese companies may not be considered as purchasing in the US for Russian exports.
In addition, if a Chinese enterprise has an affiliated company or subsidiary (branch) company in the United States, or if the company's executives have U.S. citizenship or green card status, these executives are considered to be subject to U.S. law, even if they are outside the United States and work for a Chinese company. "If these executives participate in any transaction with Russia, it constitutes a violation of export control laws. Regardless of whether the goods they contact are governed by U.S. export control laws, they must be strictly prohibited.". In other words, export controls prohibit the direct or re export of certain products and technologies from the United States to Russia, targeting companies and individuals from third countries outside the United States. "If it is an American or a US subsidiary, it is not allowed to engage in transactions with Russia, except for a few humanitarian activities.".