"I Didn't Know" Won't Work for U.S. Exports. The Latest Export Control Regulations, Trump Tariffs, and What Is Really Happening on the Ground

This is Hamamoto from TIMEWELL. Exporting to the U.S. market remains an attractive growth opportunity for Japanese companies. But the export control framework operating behind the scenes has changed so dramatically over the past year or two that it is almost unrecognizable. In particular, the EAR Affiliate Rule introduced in autumn 2025 and the confusion surrounding Trump tariffs — which reached the Supreme Court in February 2026 — carry impacts that no practitioner can ignore.

In my own work supporting clients' export control operations, there were several moments when I found myself thinking "how much can this really change?" This time, I want to lay out, as much as possible from a ground-level perspective, the points that most commonly lead to trouble in exports to the United States.

Walk the EAR flow with the sheet in front of you: "Subject to the EAR? → an ECCN on the CCL? → EAR99?", plus the part people get wrong most often — when EAR99 still needs a licence (embargoed destinations, end-use, end-user) — de minimis and the FDP rules, counterparty screening, and the two-track cross-check against Japan's own classification (FEFTA / Appended Table 1). Based on primary sources (15 CFR, the Federal Register, BIS, METI), and the completed sheet stands as the written record behind your determination. → Download the EAR Classification Flow & EAR99 Practical Checklist(Free. Your company name and work email are required.)

The Background to Tightening U.S. Export Controls

U.S. export control is not a matter of procedure — it is a matter of national security. Under the objective of preventing the military diversion of advanced semiconductors and AI-related technology and the flow of supplies to state sponsors of terrorism, regulations are tightening year by year.

The penalties for violations are serious. Per incident, civil fines of up to $300,000 are possible, or fines of twice the transaction value. Criminal penalties can reach fines of up to $1 million and 20 years in prison. If a company's export privileges are revoked, the business itself becomes unviable.

Since 2025, this trend has been accelerating further.

The Affiliate Rule Has Changed the Rules of the Game

On September 29, 2025, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce announced an interim final rule. The most impactful element was the "Affiliate Rule," also known as the "50% Rule."

The EAR (Export Administration Regulations) is the law that regulates the export and re-export of specific goods, software, and technology on grounds of U.S. national security and foreign policy. Depending on the item and the transaction counterparty, a license from BIS may be required.

Previously, EAR regulations applied only to the companies themselves listed on the Entity List and similar lists. Subsidiaries and affiliated companies, as separate legal entities, were outside the scope of regulation.

The Affiliate Rule turned this on its head.

Foreign companies directly or indirectly 50% or more owned by entities on the Entity List, the MEU List (Military End-User List), or certain SDN (Specially Designated Nationals) Lists are now automatically subject to the same restrictions as the parent company.

Watch for Chains of Indirect Ownership

The tricky part is the calculation method for "indirect ownership." BIS's official FAQ contains this example:

Entity List-designated company A owns 50% of unlisted company B. Company B owns 50% of unlisted company C. In this case, company B is subject to regulation under the Affiliate Rule, and company C — as a 50% subsidiary of company B — is also subject to regulation.

This is not calculated by mathematically "diluting" it as "50% of 50% = 25%." Rather, the approach is to determine at each stage whether 50% is reached. This follows the same method as OFAC's (Office of Foreign Assets Control) 50% Rule. It has become necessary to investigate the capital relationships of counterparties — not just the surface but through multiple layers.

When a Company Is Owned by Multiple Listed Entities

Another point to understand is the application of the "most restrictive rule." Suppose a company is 48% owned by an MEU List-designated company and 2% owned by an Entity List-designated company. The combined 50% makes it subject to the Affiliate Rule, but the regulations applied are those of the stricter Entity List standard. Even a 2% ownership stake causes the strictest regulations to apply across the board.

Red Flag No. 29 and Strict Liability

Together with this rule, BIS created "Red Flag No. 29." When you know that an Entity List or MEU List designee is among the owners of your foreign counterparty, you have an affirmative duty to confirm the ownership percentage. If you cannot confirm it, the only option is to apply for a license.

This rule is enforced on a strict liability basis. "I didn't know" is not a defense. Due diligence frameworks of a fundamentally different dimension than before are required — including introducing third-party screening tools capable of analyzing ownership structure.

CSL Search Alone Is No Longer Enough

When it comes to screening counterparties, the Consolidated Screening List (CSL) search tool provided by the U.S. government — commonly known as CSL Search — has been the standard approach. Since it allows a single search across multiple regulatory lists such as the Entity List and SDN List, many companies have been using it for initial screening.

However, the introduction of the Affiliate Rule changed the situation. Companies that have newly become subject to regulation under the Affiliate Rule are not listed on the CSL. Even if the parent company appears on the list, the names of its 50% subsidiaries do not appear in the CSL.

A scenario where CSL Search returns "no hits" but the counterparty turns out to be a subsidiary of a regulated company is a real possibility. The CSL remains a useful tool, but relying solely on it is now too risky. An investigation process that digs into capital structure and beneficial ownership must be incorporated into the screening flow.

Japan's Regulations Cannot Be Ignored Either — List Controls and Catch-All Controls

It is easy to focus exclusively on U.S. regulations, but Japan's export control system must naturally also be complied with. Japan's system under FEFTA consists of two pillars: list controls and catch-all controls.

List controls specifically enumerate goods and technology that could be diverted for the development of WMDs or conventional weapons, and require Ministry of Economy, Trade and Industry Minister permission for export. The process of determining whether an export item falls under the list is called export classification.

Catch-all controls serve as a "net" that requires permission even for items not subject to list controls when there are concerns about the intended use or end-user involving weapons development — covering virtually all items with the exception of food, timber, and similar goods.

An easy oversight here is that Japan's regulations and U.S. regulations are completely independent. Even if an item is determined "non-controlled" under Japanese export classification, there may be cases where it is subject to regulation under the EAR. For example, if U.S.-origin components or software are incorporated into a product, it may be subject to re-export controls. A framework for checking both Japanese and U.S. regulations in parallel is essential.

Not Just Federal Law — State Law as an Invisible Hurdle

When doing business in the United States, what tends to be overlooked is the dual structure of federal and state law.

Export control regulations themselves (EAR, ITAR) are set by federal law, and license applications go to federal agencies. Many companies have this much in their awareness.

The problem is that when you actually get to the stage of selling products, separate state laws additionally apply.

Area	Specific example	Impact
Product liability (PL law)	Originating in state law; litigation conditions and damage caps differ by state	Particularly important for consumer-facing products
Environmental regulation	California Proposition 65 (warning label obligation for chemicals)	May require changes to product labels
Data privacy	California CCPA, individual state privacy laws	Compliance required for software and IoT products
Commercial law	Differences in state adoptions of the Uniform Commercial Code (UCC)	Affects contract term design

Even if federal export control is cleared, neglecting state law compliance carries the risk of sales bans or class action lawsuits. America is not one market — it is a collection of 50 different legal jurisdictions. The laws that need to be checked differ depending on which state you are exporting to. Whether or not you have this awareness makes a significant difference in the frequency of problems.

The Trump Tariff Confusion — What Is Happening at the Ports

From here, I want to touch on the impact that Trump administration tariff policies, which have continued since 2025, are having on the field.

The Legal Confusion Surrounding Tariffs

In 2025, the Trump administration invoked the International Emergency Economic Powers Act (IEEPA) to impose successive additional tariffs on China and other countries. Tax rates swung wildly between 25% and 170%, leaving companies unable to even properly calculate costs.

On February 20, 2026, the U.S. Supreme Court ruled tariffs under IEEPA to be unlawful. In a 6–3 decision, the justices concluded that IEEPA does not grant the president authority to impose tariffs.

However, the Trump administration quickly activated an alternative measure — a 10% surcharge on all imports under Section 122 of the Trade Act of 1974. USTR also announced the launch of a new investigation under Section 301, and uncertainty over tariffs has not been resolved.

What Is Happening at the Ports

This confusion is causing direct damage to port logistics.

At the Port of Los Angeles, the nation's largest, cargo volume in January 2026 decreased 12% year-on-year — the lowest level in roughly three years. Port Executive Director Gene Seroka described China-bound exports as "dismal." Containerized exports fell 26% year-on-year, with soybeans down as much as 80%.

The decline in cargo volume has led to falling ocean freight rates, and shipping companies are responding with blank sailings (cancelling voyages). As a result, "rollovers" — containers sitting at Asian ports for one to two weeks — are occurring frequently. Goods not arriving in the United States on schedule is becoming the new normal.

As a side note: China's share of Los Angeles port imports has fallen from 60% in 2018 to 40% as of 2026. Imports from Vietnam, Thailand, and Indonesia have surged, and tectonic shifts are occurring in supply chains. However, as Seroka himself says, "not even one province in China can be replaced by another country" — that is the reality.

There is also no visibility on when refunds for IEEPA tariffs already paid will materialize, and they continue to squeeze companies' cash flows.

Using TRAFEED to Streamline Affiliate Rule Compliance

In an era where companies that don't appear on the CSL can be subject to regulation, it is not realistic to dig into group structures manually. TRAFEED (formerly ZEROCK ExCHECK), the tool we at TIMEWELL have developed, uses an AI agent to make visible the concern level of counterparties in five seconds, achieving 95%+ accuracy through multi-LLM consensus cross-checking.

It can streamline screening that digs beyond direct Entity List and SDN List matches into affiliated company structures as well. Please check the actual operation through our free demo.

What Is Required for Future U.S. Exports

Based on everything covered above, here is a summary of key action points:

Area	What to do
Affiliate Rule compliance	Investigate counterparty capital structure based on the 50% Rule. Also confirm chains of indirect ownership
Screening framework	In addition to CSL Search, introduce tools capable of ownership analysis
Japan export control	Conduct export classification for list controls and catch-all control checks in parallel with EAR compliance
State law compliance	Confirm in advance the PL laws, environmental regulations, and privacy laws applicable in the destination state
Logistics risk	Secure inventory plans and alternative routes premised on port delays and blank sailings

Personally, I believe the introduction of the Affiliate Rule is the most significant turning point. The fact that companies not named on the CSL can be subject to regulation fundamentally negates the previous operational approach of "if a list search turns up nothing, we're fine."

Export control is no longer solely the work of the legal department. Organization-wide understanding and framework-building encompassing sales, procurement, logistics, and executive leadership is necessary. Regulatory changes are rapid, and it is not unusual for knowledge from six months ago to already be outdated.

This is a difficult environment, but I believe that the companies that correctly understand these risks and respond appropriately are the ones that will earn long-term trust in the U.S. market.

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References

• Baker McKenzie. (2025, October 2). BIS Introduces New "Affiliates Rule" Significantly Expanding Entity List, MEU List, and SDN End User Licensing Requirements Under the Export Administration Regulations. https://sanctionsnews.bakermckenzie.com/bis-introduces-new-affiliates-rule-significantly-expanding-entity-list-meu-list-and-sdn-end-user-licensing-requirements-under-the-export-administration-regulations/

If you are reviewing export-control operations or classification workflows, download the TRAFEED product catalog (PDF) or contact us.