U.S. expands the use of export controls to target human rights … – Lexology

Credit: Original article can be found here

In 2021, the Export Controls and Human Rights Initiative (“ECHRI”) was launched at the first Summit for Democracy as part of the Presidential Initiative for Democratic Renewal. This year, during the Summit for Democracy 2023 (“the Summit”), the United States and twenty-four countries adopted a non-binding ECHRI Code of Conduct outlining the Subscribing States’ commitment to use export control tools to prevent the proliferation of goods, software, and technologies that enable serious human rights abuses. In addition to the ECHRI Code of Conduct, effective on March 28, 2023, the Department of Commerce’s Bureau of Industry and Security (“BIS”) amended the Export Administration Regulations (“EAR”) to clarify that the foreign policy interest of protecting human rights is a basis for adding entities to the Entity List. These two significant actions further the US government’s efforts to protect human rights worldwide.

The ECHRI Code of Conduct

Currently, in addition to the United States, the Subscribing States of the ECHRI Code of Conduct include Albania, Australia, Bulgaria, Canada, Costa Rica, Croatia, Czechia, Denmark, Ecuador, Estonia, Finland, France, Germany, Japan, Kosovo, Latvia, the Netherlands, New Zealand, North Macedonia, Norway, Republic of Korea, Slovakia, Spain, and the United Kingdom.

The non-binding ECHRI Code of Conduct calls the Subscribing States to:

  • Take human rights into account when reviewing potential exports of dual-use goods, software, or technologies that could be misused for the purposes of serious violations or abuses of human rights.
  • Consult with the private sector, academia, and civil society representatives on human rights concerns and effective implementation of export control measures.
  • Share information with each other on emerging threats and risks associated with the trade of goods, software, and technologies that pose human rights concerns.
  • Share best practices in developing and implementing export controls of dual-use goods and technologies that could be misused, reexported, or transferred in a manner that could result in serious violations or abuses of human rights.
  • Encourage their respective private sectors to conduct due diligence in line with national law and the UN Guiding Principles on Business and Human Rights or other complementing international instruments, while enabling non-subscribing states to do the same.
  • Aim to improve the capacity of States that have not subscribed to the Code of Conduct to do the same in accordance with national programs and procedures.

The ECHRI Code of Conduct is another example of multilateral efforts to coordinate export control strategies following the unprecedented coordination on trade controls in response to the war in Ukraine.

Amendment of the BIS Entity List designation factor

During the Summit, BIS published the Final Rule  amending 15 C.F.R. § 744.11 of the EAR. The Final Rule clarifies the criteria for Entity List designation to address human rights by “explicitly confirm[ing] a longstanding position that the protection of human rights throughout the world is a foreign policy interest considered in assessing whether the activities of an entity – and those acting on behalf of such entity – are contrary to the national security or foreign policy of the United States.” 

This amendment is consistent with U.S. foreign policy objectives set forth in 50 U.S.C. 4811(2)(D), as well as a recent decision by the U.S. Court of Appeals for the District of Columbia Circuit in Changji Esquel Textile Co. Ltd. v. Raimondo, 40 F.4th 716 (2022). In this case, the Court found that “[a]dding human-rights violators to the Entity List falls comfortably within” the scope of 50 U.S.C. 4813(a)(16), which authorizes the Secretary of Commerce to “undertake any other action as is necessary to carry out this subchapter that is not otherwise prohibited by law,” and that it did not “discern any clear and mandatory prohibition on adding entities to the [Entity] List for human-rights abuses, particular given the breadth of section 4813(a)(16) and the deference we owe to the Executive Branch in matters of foreign affairs.” Id. at 723, 725.

Under the amended EAR, the first sentence of Section 744.11(c)(3) now reads:

The export, reexport, or transfer (in-country) of specified items to a certain party because there is reasonable cause to believe, based on specific and articulable facts, that the entity has been involved, is involved, or poses a significant risk of being or becoming involved in activities that are contrary to the national security or foreign policy interests of the United States, including the foreign policy interest of the protection of human rights throughout the world, and those acting on behalf of such entity. (emphasis added)

In the published Final Rule, BIS also added 11 entities to the Entity List–from Burma, China, Nicaragua, and Russia– for engaging in activities contrary to U.S. foreign policy interests in the area of human rights abuses.

BIS Human Rights FAQ

BIS also issued Human Rights Frequently Asked Questions (“FAQ”), which provide helpful insights to the implementation of the recent EAR amendment. Specifically:

  • BIS confirmed that it considers human rights concerns when reviewing license applications.
  • When BIS reviews license applications for items that may implicate human rights concerns, the agency reviewer considers the items involved, country of destination, end-user(s), the specific nature of the end-use(s), and the risk of unauthorized use or diversion, as well as any assurance or safeguards to minimize such risk.
  • Exporters are expected to exercise due diligence with regard to identifying human rights concerns. When submitting a license application, exporters should include all facts and circumstances relevant to human rights concerns. Exporters are responsible for knowing their customers and all parties to the transactions (including consignees, end users, and purchasers).
  • BIS has and will place parties engaged in or enabling human rights violations and abuse on the Entity List. 
  • There are items currently on the Commerce Control List (“CCL”) specifically controlled for human rights reasons.

Crossover among Export Controls, Sanctions and Customs

On August 4, 2022, the U.S. Department of Homeland Security (“DHS”) published a Federal Register Notice (“the Notice”) which added entities to the Uyghur Forced Labor Prevention Act (“UFLPA”) Entity List (which is separate from the BIS Entity List discussed above). The Notice outlines a process for the addition of further entities to the UFLPA Entity List, and sets forth how entities may petition for removal from the UFLPA Entity List. The UFLPA requires the Forced Labor Enforcement Task Force (“FLETF”) to develop and maintain a list of entities that produce goods using forced labor in the Xinjiang Uyghur Autonomous Region (“Xinjiang” or “XUAR”) or are otherwise connected to forced labor in the XUAR. U.S. Customs and Border Protection (“CBP”) will apply a rebuttable presumption that all goods made in whole or in part by entities on the UFLPA Entity List are prohibited from entry into the U.S.

Any FLETF member agency may submit recommendations for additions to the UFLPA Entity List. The FLETF member agencies (DHS, the Office of the U.S. Trade Representative (“USTR”), and the Departments of Labor, State, Justice, the Treasury, and Commerce) will review and vote on the recommended additions. Entities will be added to the UFLPA Entity List by majority vote of the FLETF member agencies. 

Similarly, the BIS Entity List additions are determined by the interagency End-User Review Committee (“ERC”), comprised of the Departments of Commerce (Chair), Defense, State, Energy, and where appropriate, the Treasury. The ERC makes decisions regarding additions to, removals from, or other modifications to the BIS Entity List. The ERC makes all decisions to add an entity to the BIS Entity List by majority vote and makes all decisions to remove or modify an entity by unanimous vote. 

Although the UFLPA and BIS Entity Lists are administered by different committees, some of the government agencies that compose the FLETF and the ERC are the same. It is worth noting that some of the entities designated under the UFLPA Entity List are also designated under the BIS Entity List for human rights violations.

Looking Ahead

Currently there are numerous Chinese government and commercial entities on the BIS Entity List because of their alleged engagement in, or enabling of, human rights violations and abuses against the Uyghur people in Xinjiang, as well as ethnic and religious minorities and democracy activists throughout China. There are also a number of commercial entities on the BIS Entity List due to their alleged use of technology to enable foreign governments to maliciously target democracy activists, opposition politicians, academics, and journalists at home and abroad. We expect that more entities (particularly companies with connections to Xinjiang) will be designated on both BIS and UFLPA Entity Lists due to human rights concerns.

BIS maintains controls on an array of items specifically for human rights reasons – also known as “Crime Control” items. Crime Controlled items include shotguns and less lethal ammunition, stun guns, batons, restraints and certain biometric equipment, and software such as fingerprint analyzers, polygraphs, and computer voice stress analyzers. Additionally, BIS controls a number of items for “National Security” “Regional Stability” and “Surreptitious Listening” reasons because the items’ misuse may implicate human rights concerns. These items include certain non-automatic and semi-automatic firearms and ammunition, disguised microphones, and mobile communications intercept devices.

Next Steps

The ECHRI Code of Conduct has a commitment to “control the export of dual-use goods or technologies to end-users that could misuse them for the purposes of serious violations or abuses of human rights.” Accordingly, companies doing business in China and other countries should assess the risks related to future item-based controls, particularly surveillance systems and technologies. BIS continually reviews whether circumstances and technological changes warrant control of additional items for Crime Control reasons as well as for relevant National Security, Regional Stability, and Surreptitious Listening reasons. In addition, when applying for licenses from BIS, companies should address any red flags indicating potential human rights abuses, as this could become the basis of a denial or additional inquiries from BIS.