BIS Removes Cuba from E:1 Country List

By removing Cuba from Country Group E:1 (terrorist-supporting countries), the rule impacts certain Cuba-related EAR provisions, including foreign-origin items destined for Cuba that incorporate US-origin content and certain license exception restrictions, such as aircraft, vessels, and spacecraft (AVS) and replacement of parts and equipment (RPL).

However, because the US still maintains a comprehensive embargo on trade with Cuba and Cuba remains in Country Group E:2, a license is still required to export or re-export to Cuba any item subject to the EAR unless authorized by a license exception. Thus, the overall impact of this removal is restricted to non-US companies who sell non-US products containing US parts and components and a few other notable exceptions that we describe below.

De Minimis Rule

Foreign-produced products are subject to export and re-export controls under the EAR if they contain more than a certain percentage (by value) of US-origin controlled content or are the “direct product” of certain US technology. Under the de minimis rules, US-origin content is considered controlled when it requires a license to the intended ultimate country of destination for the foreign-made item, which for Cuba includes all items subject to the EAR including EAR99 items not on the Commerce Control List.

This rule primarily impacts non-US manufacturers who incorporate US-origin materials, parts, or components in their non-US  products, or US-origin software in their non-US software, or US origin technology in their non-US technology.

Previously, an item produced outside the United States for export to Cuba was subject to the EAR if it contained more than 10% US-origin content. For most other destinations, EAR re-export jurisdiction is triggered under the de minimis rules only when an item contains more than 25% US-origin content.

By removing Cuba from Country Group E:1, Cuba is now eligible for the general 25% de minimis level. In other words, a foreign-origin item from a non-US-owned or -controlled foreign firm that contains less than 25% US-origin parts and components destined for Cuba will no longer be subject to the EAR, no longer require a BIS license, and no longer be subject to a general presumption of denial. Foreign-made items destined for Cuba that incorporate US-origin 9x515 or ‘‘600 series’’ content (including .y content) and certain encryption and other special items, however, continue to be subject to the EAR regardless of the level of US-origin content, i.e., there is no de minimis for these items when destined for Cuba.

Overall, this change will assist non-US companies provided they are not owned or controlled by US persons. It will have little impact on US companies or their-owned or -controlled foreign subsidiaries. Under the Office of Foreign Assets Control’s (OFAC) regulations, US-owned or -controlled foreign firms must first get a specific license from OFAC to re-export any foreign-made item to Cuba even if no US-origin parts and components are included therein. In addition, all companies exporting non-US items to Cuba will need to continue to confirm that they are not the direct product of certain US technology controlled for national security reasons. Such items will continue to require a license under the foreign direct product rule which has been amended to include E:2 countries – that is, currently Cuba.

License Exceptions

A license exception is an authorization to export or reexport without a license an item that would normally require a license provided certain specific conditions are met. We note that the requirement that only those license exceptions listed in section 746.2(a) may be used to export or re-export to Cuba remains intact. The license exceptions available for exports and reexports to Cuba continue to be the following:

• Temporary exports and reexports (TMP) by the news media (see §740.9(a)(9) of the EAR).
• Operation technology and software (TSU) for legally exported commodities or software (see §740.13(a) of the EAR).
• Sales technology (TSU) (see §740.13(b) of the EAR).
• Software updates (TSU) for legally exported software (see §740.13(c) of the EAR).
• Parts (RPL) for one-for-one replacement in certain legally exported commodities (see §740.10(a) of the EAR).
• Baggage (BAG) (see §740.14 of the EAR).
• Governments and international organizations (GOV) (see §740.11 of the EAR).
• Gift parcels and humanitarian donations (GFT) (see §740.12 of the EAR).
• Items in transit (TMP) from Canada through the US (see §740.9(b)(1)(iv) of the EAR).
• Aircraft and vessels (AVS) for certain aircraft on temporary sojourn (see §740.15(a) of the EAR).
• Permissive reexports of certain spare parts in foreign-made equipment (see §740.16(h) of the EAR).
• Exports of agricultural commodities, classified as EAR99, under License Exception Agricultural Commodities (AGR) and certain reexports of US origin agricultural commodities, classified as EAR99, under License Exception AGR (see §740.18 of the EAR).
• Commodities and software authorized under License Exception Consumer Communications Devices (CCD) (see §740.19 of the EAR).
• License Exception Support for the Cuban People (SCP) (see §740.21 of the EAR).

The removal of Cuba from the E:1 country list, however, results in changes to certain of these license exceptions, including AVS, RPL, and BAG. The changes to these three license exceptions are as follows:

1) License Exception AVS (aircraft only for Cuba)

Flying an aircraft or sailing a vessel to Cuba, even temporarily, constitutes an export or reexport to Cuba. If the aircraft or vessel is subject to the EAR (e.g., those departing from the US and non-US aircraft containing more than 25% US content), then a license is required. A limited number of exports and reexports of aircraft on “temporary sojourn,” however, from the US to Cuba have been eligible for License Exception AVS.  (Note:  vessels do not qualify for temporary sojourn to Cuba due to the restriction in 746.2(a) that AVS can be used only for aircraft.)

Foreign-registered aircraft that that have been in the US on a temporary sojourn can depart to Cuba under license exception AVS only if:

1. there is no sale or transfer of operational control of the aircraft to E:1 nationals while in the United States;
2. the aircraft is not departing for the purpose of sale or transfer of operational control to E:1 nationals; and
3. the aircraft does not carry from the US any item for which an export license is required and had not been granted by the US Government

In addition, to qualify for license exception AVS, the following 9 strict indicia of control must be maintained:

1. retaining the right to hire and fire the cockpit crew;
2. retaining the right to dispatch the aircraft;
3. retaining the right to determine the aircraft’s routes (except for contractual commitments entered into by the exporter for specifically designated routes);
4. prohibiting E:1 nationals from performing or obtaining the principal maintenance on the aircraft;
5. prohibiting the storing of spares in an E:1 country;
6. prohibiting E:1 countries from becoming the place of registration;
7. not transferring flight technology to a national of an E:1 country;
8. preventing the aircraft from bearing the livery, colors, or logos of a national of an E:1 country; and
9. prohibiting the aircraft from flying under a flight number issued to a national of an E:1 country as such a number appears in the Official Airline Guide.

By removing Cuba from Country Group E:1, all these restrictions relating to E:1 countries no longer apply to aircraft on temporary sojourn in Cuba. In other words, foreign-registered aircraft that are subject to the EAR can now depart to Cuba under license exception AVS as long as they do not carry from the US any item for which an export license is required and had not been granted by the US Government. The same aircraft can be owned by, or under the operational control of a Cuban national, Cuban nationals can perform principal maintenance on the aircraft, the aircraft can be registered in Cuba, spare parts can be stored in Cuba (provided any necessary licenses are obtained), the aircraft can bear Cuban colors, and it can fly under Cuban flight numbers PROVIDED the sojourn is temporary and a non-Cuban:

1. retains the right to hire and fire the cockpit crew;
2. retains the right to dispatch the aircraft; and
3. retains the right to determine the aircraft’s routes (except for contractual commitments entered into by the exporter for specifically designated routes).
    

BIS has published the below FAQ on license exception AVS:

Does general aviation qualify for License Exception Aircraft, Vessels and Spacecraft (AVS) in order to fly to Cuba?

General aviation now qualifies for License Exception AVS (15 CFR § 740.15) in order to fly to Cuba, provided that all of the terms and conditions of the license exception are met. With the removal of Cuba from Country Group E:1, there is no longer a requirement for US-registered aircraft destined for Cuba to apply for a license.

Neither the EAR nor the Federal Aviation Administration (FAA) regulations define “general aviation.” However, the FAA’s pilot/controller glossary effective June 25, 2015, defines “general aviation” as “{t}hat portion of civil aviation that does not include scheduled or unscheduled air carriers or commercial space operations.” Thus, it is our understanding that “general aviation” refers to civil aircraft operations other than scheduled passenger transport (i.e., non-commercial passenger airlines). Because this term is undefined and fact-specific, anyone interested in a “general aviation” flight to Cuba under license exception AVS should seek counsel prior to export.”

2) License Exception RPL

License Exception RPL authorizes exports and reexports associated with one-for-one replacement of parts, components, accessories, and attachments.

Previously, there were certain exclusions to using license exception RPL for exports to Cuba. For example, replacement parts, components, accessories, or attachments were prohibited to be exported to Cuba if the commodity to be repaired was:

1. An aircraft;
2. An item controlled for national security (NS) reasons on the Commerce Control List;
3. Explosives detection equipment under 2A983 or related software under 2D983; or
4. Concealed object detection equipment under 2D984.

Now, replacement parts, components, accessories, or attachments can to be exported to Cuba from the US provided all RPL license conditions are met for aircraft, NS controlled items and 2A983, 2D983 and 2D984 items.

3) License Exception BAG

License Exception BAG authorizes individuals leaving the US either temporarily (i.e., traveling) or longer-term (i.e., moving) and crew members of exporting or reexporting carriers to take to any destination, as personal baggage, certain classes of commodities, software and technology.

Previously, individuals leaving the US for Cuba were prohibited from taking, as personal baggage, most commodities and software containing encryption. Now, certain encryption items that were excluded from being taken by travelers to Cuba in their luggage will now be covered by License Exception BAG.

Other

In addition to the above changes, the removal of Cuba from Country Group E:1 has certain other impacts, including the following two changes below.

First, certain licenses previously issued by BIS have contained conditions that restrict the export, reexport, or transfer (in country) to Cuba by reference to Country Group E:1. Many of these restrictions were intended to apply to Cuba but BIS did not always list both Country Groups E:1 and E:2 (where Cuba is now solely listed) in license conditions. To make sure the prior license conditions continue to apply to Cuba even though it is no longer in country group E:1, BIS has added General Order No. 3 to continue all restrictions on transactions with Cuba or Cuban nationals, by reference to Country Group E:1, that are contained in licenses issued prior to July 22, 2015.

Second, despite the removal from Country Group E:1, exporters must still file an Electronic Export Information (EEI) using the Automated Export System (AES) if the item is destined for Cuba, regardless of the value of the shipment. Further, post-departure filing in AES continues to be prohibited.