The Bureau of Industry and Security (BIS), Department of Commerce issued a final rule adding the new nation of the Republic of South Sudan (South Sudan) to the Export Administration Regulations (EAR) on July 12, 2011. In January 2011, a referendum among the people of Southern Sudan resulted in its secession from The Republic of Sudan (Sudan), leading to formal independence on July 9, 2011. President Obama recognized the new state that same day.
BIS’s new rule provides that South Sudan, as a separate and distinct state, is not subject to the comprehensive trade and economic sanctions in place on Sudan, which the United States continues to identify as a state sponsor of terrorism. In the new rule, BIS adds South Sudan to the Commerce Country Chart (15 C.F.R. Part 738, Supplement 1), and assigns it to Country Group B (15 C.F.R. Part 740, Supplement 1) for purposes of determining the appropriate scope of export controls. BIS recognizes countries in Group B as “raising relatively few national security concerns,” and allows exports for most items besides those designated for National Security controls NS1 and NS2. BIS also makes Group B countries eligible for a number of license exceptions denied to countries in Group D and E, including Sudan.
This categorization also has the effect of requiring a license for exports or reexports to South Sudan of items that the United States unilaterally controls for regional stability and crime control reasons. Exports/reexports also require BIS licenses for items controlled by the four multilateral export control regimes (i.e., the Australia Group, Wassenaar Arrangement, Chemical/Biological Weapons Conventions, Nuclear Suppliers Group, and the Missile Technology Control Regime). Certain additional reasons for control under the EAR are also applicable to the new state.
BIS’s action parallels the announced policy of the Office of Foreign Assets Control (OFAC), Department of the Treasury. In April 2011, OFAC announced that the Sudanese Sanctions Regulations, 31 C.F.R. Part 538 (SSR), which implement broad prohibitions on “US persons” doing business or transacting with Sudan, would not apply to South Sudan after its independence.
While the SSR already carved out the region of Southern Sudan from the SSR (which in addition to certain other specified areas of Sudan will remain exempt under the SSR), the EAR treated that region of the country just as it did most of the rest of Sudan, prohibiting exports and reexports of all items subject to the Commerce Control List (CCL).
Practically speaking, continuing OFAC restrictions on Sudan may continue to impose restrictions on US persons from conducting exports and reexports to South Sudan. Because transactions with South Sudan are not permitted to inure to the benefit of the government of Sudan or its instrumentalities, transactions related to the petroleum and petrochemical sector may still be prohibited by the SSR should US persons be involved. That is because the petroleum infrastructure of South Sudan is currently closely tied to Sudan and its government— for instance, a major export route for South Sudanese oil is a pipeline running north through Port Sudan. South Sudan is reportedly considering alternative shipment routes through bordering countries such as Kenya, however, which should not implicate US sanctions on Sudan. Moreover, OFAC continues to prohibit US persons from being involved in the transshipment of items, whether petroleum-related or not, through much of Sudan, allowing movement only through specified areas of the country. Because logistical links to South Sudan largely traverse Sudan, US persons must use caution when shipping to South Sudan. US persons must also be careful in how they finance such transactions, as a number of Sudanese entities present in South Sudan are Specially Designated Nationals and Blocked Persons or considered part of the government of Sudan, with whom US persons cannot conduct business. (For additional discussion of OFAC sanctions on Sudan and their impact on South Sudan, please see our previous advisory here). BIS’s new rule does not address such issues.
Ultimately, the lifting of EAR restrictions should allow exports and reexports of many more items subject to the CCL to South Sudan. Such trade could potentially contribute to the new nation’s efforts to develop its infrastructure.
US companies now have a more transparent understanding of how the BIS export control regime applies to the new country of South Sudan. However, the new BIS rule is not the whole story from a compliance perspective. As noted above, those conducting trade with South Sudan must also remain focused on the OFAC-administered sanctions as they will continue to impact whether a particular export to South Sudan is lawful.