The Bureau of Industry and Security (BIS) has:
- restricted Cuba's access to commercial aircraft and other goods;
- lowered de minimis for foreign items containing US content to 10%; and
- restricted the temporary sojourn by aircraft in Iran, Syria, Sudan, North Korea and Cuba.
On 19 October 2019 the BIS announced another major policy change towards Cuba by further restricting the Cuban government's access to items subject to BIS's Export Administration Regulations (EAR).
This new rule will have a significant impact on exporters and re-exporters currently using certain licence exceptions to export to Cuba that:
- export non-US origin products with US-origin content to Cuba; and
- lease commercial aircraft to Cuban state-owned airlines.
While billed as a change to exports and re-exports to Cuba, the amended rule has potential implications for non-US airlines that fly to other countries (eg, Iran, Syria, Sudan and North Korea).
The purpose of the rule is to support:
the Administration's national security and foreign policy decision to hold the Cuban regime accountable for its repression of the Cuban people and its support for the Maduro regime in Venezuela; the Cuban regime denies its people fundamental freedoms while keeping Maduro in power using Cuban military intelligence and state security services.
According to Secretary of Commerce Wilbur Ross, this "action by the Commerce Department sends another clear message to the Cuban regime – that they must immediately cease their destructive behavior at home and abroad". He further noted that [t]he Trump Administration will continue to act against the Cuban regime for its misdeeds, while continuing to support the Cuban people and their aspirations for freedom and prosperity".
In short, the rule will amend the EAR as follows:
- Aircraft and vessels will be ineligible for licence exception aircraft, vessels and spacecraft (AVS) if they are leased to or chartered by a Cuban national or a state sponsor of terrorism.
- A general 10% de minimis level will be established for Cuba. The de minimis level for Cuba was increased to 25% on 22 July 2015, when Cuba was removed from the list of state sponsors of terrorism and added to Country Group E:2.
- The rule revises licence exception support for the Cuban people (SCP) to make the Cuban government and communist party ineligible for certain donations.
- The rule removes an authorisation for promotional items that generally benefit the Cuban government.
- The rule clarifies the scope of telecoms items that the Cuban government may receive without a licence.
The rule removes BIS's general policy of approval for applications to export or re-export aircraft leased to Cuban state-owned airlines. This means that there is now a general policy of denial for licence applications to lease aircraft to Cuban state-owned airlines. In addition, within seven days, BIS will revoke licences through individual notifications to licensees for aircraft that were leased to Cuban state-owned airlines under BIS's former policy.
According to BIS's press release, the Cuban regime had been transporting tourists on aircraft subject to BIS jurisdiction in order to generate revenue. Therefore, BIS has chosen to revoke existing licences for aircraft leases to Cuban state-owned airlines and stated that it will deny future applications for aircraft leases.
Licence exception AVS authorises the export or re-export of certain aircraft and vessels on temporary sojourn. The rule clarifies that:
- aircraft leased to or chartered by a Cuban national are ineligible for licence exception AVS; and
- aircraft are ineligible for licence exception AVS if leased to or chartered by a national of a destination in Country Group E:1 (terrorist supporting countries), which currently includes Iran, Syria, Sudan and North Korea.
This is a significant change to licence exception AVS, which had previously allowed temporary sojourn by aircraft subject to the EAR provided there was no "sale or transfer of operational control" where "operational control" was defined by a listing of nine criteria.(1) The new rule adds a tenth criterion which must be met – namely, the aircraft cannot be "leased to or chartered by a national of a destination in Country Group E:1 or E:2". This means that, for example, although European airlines can continue to fly aircraft subject to the EAR to Cuba (or Iran, Syria, Sudan or North Korea), they cannot do so in cooperation with national airlines located in any of those countries. Airlines flying on temporary sojourn to those destinations should check the terms of any agreements that they have with nationals (individuals or companies) of those countries to see whether they could be considered a lease or charter of the aircraft to those nationals.
Under the EAR, non-US origin products are subject to export and re-export controls if they contain more than a certain percentage (by value) of US-origin controlled content. For all destinations except Iran, Syria, Sudan and North Korea (which were at 10%), EAR re-export jurisdiction is triggered under the de minimis rules only when an item contains more than 25% US-origin controlled content (except in some special cases where de minimis drops to zero).
The rule amends the EAR to make Cuba subject to the general 10% de minimis rule, meaning that a BIS licence or licence exception is required for the re-export to Cuba of foreign-made items containing more than 10% of US-origin controlled content. What content is considered 'controlled' is another story. For Cuba, Syria and North Korea, EAR 99 items (ie, items that are not listed on the Commerce Control List and do not require a licence for export to most destinations) are US-controlled content. As such, those countries' de minimis levels are effectively much lower than for Iran or Sudan. Further, 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 continue to be subject to the EAR regardless of the level of US-origin content.
The rule notes that there is a general policy of denial for licence applications for such items, unless they are eligible for another licensing policy described in Section 746.2(b) of the EAR.
Cuba became eligible for the general 25% de minimis level in 2015 when it was removed from Country Group E:1 and added to Country Group E:2, thus putting the de minimis level on par with most other destinations.
The new rule, reducing the de minimis level to 10%, will primarily affect non-US manufacturers that incorporate:
- US-origin materials, parts or components in their non-US products;
- US-origin software in their non-US software; or
- US origin technology in their non-US technology.
In short, those relying on a 25% de minimis to re-export non-US origin products to Cuba must revisit their calculations.
The rule also amends licence exception SCP, which authorises:
certain exports and reexports to Cuba that are intended to support the Cuban people by improving their living conditions and supporting independent economic activity; strengthening civil society in Cuba; and improving the free flow of information to, from, and among the Cuban people.
Under licence exception SCP, the "export or reexport to Cuba of certain donated items for use in scientific, archeological, cultural, ecological, educational, historic preservation, or sporting activities provided specified conditions are met" is authorised. However, under the rule, exporters or re-exporters must now apply for a licence to donate items to organisations administered or controlled by the Cuban government or communist party. According to the rule, "this change will give the US Government the opportunity to determine whether donations to those entities would benefit the Cuban people".
Licence exception SCP also "authorizes the export or reexport to Cuba of certain items for telecommunications infrastructure creation and upgrades". The rule clarifies that licence exception SCP "is limited to eligible items for the creation and upgrades of telecommunications infrastructure to improve the free flow of information to, from, and among the Cuban people". The rule notes that infrastructure items that would be used to connect specific end users (ie, non-backbone items) "may be used to connect individual Cubans or the Cuban private sector only"; however:
[a] license is required for the export or reexport to Cuba of items for telecommunications infrastructure that would be used to connect other specific end users (e.g., Cuban government ministries and state-owned hotels).
Finally, the rule eliminates an authorisation under licence exception SCP for items given away for free for promotional purposes. Licence applications for such exports will be reviewed pursuant to a general policy of denial. However, items for use by the Cuban private sector for private sector economic activities may be eligible for Paragraph (b)(1) of licence exception SCP if certain conditions are met.
Given the widespread participation of the Cuban government in the Cuban economy, these restrictions are likely to substantially eliminate the availability of licence exception SCP in cases of donations and telecoms infrastructure upgrades.
This rule is one more step in the Trump administration's efforts to restrict exports and tighten US foreign policy towards Cuba. The rule comes in the wake of the US Department of Treasury's Office of Foreign Assets Control's amendments to the Cuban Assets Control Regulations, effective 9 October 2019, which re-imposed limitations on 'U-turn' transactions and remittances. These transactions – a version of which had been allowed since 2015 – recently enabled US banking institutions to process most funds transfers originating and terminating outside the United States even though those funds transfers were to or from Cuba or otherwise involved property in which Cuba or a Cuban national had an interest. Under the amendments, US banking institutions are no longer allowed to process such transactions.
Companies that are exporting or re-exporting from third countries to Cuba under one of the above licence exceptions, or that have been re-exporting foreign-made items incorporating US-origin controlled content under de minimis, should:
- review their de minimis calculations to determine whether these fall above the now applicable 10% de minimis limit;
- review whether they are currently leasing or chartering aircraft to nationals of Cuba, Iran, Syria, Sudan or North Korea if they are using licence exception AVS temporary sojourn to fly to these countries;
- prepare to have licences revoked if they have a BIS licence to lease or charter aircraft subject to the EAR to Cuban state-owned airlines;
- assess agreements for force majeure provisions or other provisions excusing performance for legal compliance issues and create contingency plans for passengers who have already booked flights;
- review whether they are currently donating items subject to the EAR to the Cuban government and communist party under licence exception SCP;
- review whether they are exporting or re-exporting to Cuba items subject to the EAR for telecoms infrastructure creation and upgrades; and
- review whether they are currently giving items subject to the EAR to Cuba for free for promotional purposes.
- hiring of cockpit crew – right to hire and fire the cockpit crew;
- dispatch of aircraft – right to dispatch the aircraft;
- selection of routes – right to determine the aircraft's routes (except for contractual commitments entered into by the exporter for specifically designated routes);
- place of maintenance – right to perform or obtain principal maintenance on the aircraft, where the principal maintenance is conducted outside a destination in Country Group E:1 (see Supplement 1 to this part) under the control of a party that is not a national of any of these countries (the minimum necessary in-transit maintenance may be performed in any country);
- location of spares – spares are not located in a destination in Country Group E:1 (see Supplement 1 to this part);
- palace of registration – the place of registration is not changed to a destination in Country Group E:1 (see Supplement 1 to this part);
- no transfer of technology – no technology is transferred to a national of a destination in Country Group E:1 (see Supplement 1 to this part), except the minimum in-transit maintenance necessary to perform flight line servicing required to depart safely;
- colour and logos – the aircraft does not bear the livery, colours or logos of a national of a destination in Country Group E:1 (see Supplement 1 to this part); and
- flight number – the aircraft does not fly under a flight number issued to a national of a destination in Country Group E:1 (see Supplement 1 to this part), as such number appears in the Official Airline Guide.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.