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18 September 2020
Two years after the Export Control Reform Act 2018 (ECRA) was signed into law, the Department of Commerce, Bureau of Industry and Security (BIS) has finally published the advance notice of proposed rulemaking (ANPRM) on foundational technologies. The ANPRM seeks public comment on criteria for identifying and defining 'foundational technologies' essential to US national security. Clocking in at barely five pages, the ANPRM explains that in establishing new foundational technology controls, BIS will look at items that are:
Comments are due by 26 October 2020.
BIS published the ANPRM as required by Section 1758 of ECRA, which requires BIS to establish appropriate controls on the export, re-export or transfer (in country) of emerging and foundational technologies. During the 2018 congressional debate on expanding the jurisdiction of the Committee for Foreign Investment in the United States (CFIUS), proponents of the Foreign Investment Risk Review Modernisation Act (FIRRMA), which was enacted concurrently, sought to give CFIUS jurisdiction over certain overseas joint ventures that it viewed as de facto acquisitions of industrial capabilities relating to foundational technologies. That portion of FIRRMA met with opposition from both industry and BIS, and the foundational technologies mandate of Section 1758 of ECRA was crafted and substituted in as a compromise approach in which BIS would remain in the driver's seat in regulating these types of transaction, instead of CFIUS. In November 2018 BIS also published an ANPRM seeking public comment on criteria for identifying and defining 'emerging technologies' essential to US national security.(1) On 6 January 2020 BIS issued an interim final rule on the first unilateral emerging technology, which imposed export controls on certain AI software specially designed to automate the analysis of geospatial imagery (for further details please see "First unilateral export control on AI software issued"). (BIS has imposed other emerging technology controls that were also adopted by multilateral export control groups such as the Wassenaar Arrangement and the Australia Group.)
While this BIS ANPRM has the potential to establish new export controls on foundational technologies under the EARs, any foundational technologies identified by BIS will be 'critical technologies' for the purposes of CFIUS. Therefore, CFIUS may assert its jurisdiction over transactions involving US businesses that produce, design, test, manufacture, fabricate or develop one or more foundational technologies identified by BIS.(2)
BIS clarified that it is not seeking to expand its jurisdiction over technologies that are not currently subject to the EAR, such as 'fundamental research' described in Section 734.8. The ANPRM requests comments from the public that will inform BIS and its interagency partners' efforts to identify, re-evaluate and control foundational technologies. In the ANPRM, BIS hints at the following three areas for potential controls.
Items controlled for military end uses or users
The ANPRM notes that:
foundational technologies could include items that are currently subject to control for military end use or military end user reasons under Supplement No. 2 to part 744 of the EAR. Many of these items, including semiconductor manufacturing equipment and associated software tools, lasers, sensors, and underwater systems, can be tied to indigenous military innovation efforts in China, Russia or Venezuela. Accordingly, they may pose a national security threat.
In April 2020 BIS issued a final rule imposing stricter requirements on a wide range of exports, re-exports and transfers to China, Russia or Venezuela for military end uses or to military end users.(3) Because the military end-user and end-use rules in Part 744.21 cover exports of items listed in EAR 744, Supplement 2, it is unclear why it would be necessary to impose additional controls to target military end users or end uses in these countries.
Items required to develop conventional weapons, used in foreign intelligence gathering and weapons of mass destruction applications
The ANPRM also notes that controls may be warranted "if the items are being utilized or required for innovation in developing conventional weapons, enabling foreign intelligence collection activities, or weapons of mass destruction applications".
Part 744 of the EAR already requires a licence for exports of all items subject to the EAR for certain specified weapons of mass destruction proliferation activities, and Part 744.21 already covers military end-use and end-user issues for three of the countries of concern.
Items that have been subject to illicit procurement efforts
The ANPRM states that more controls may be needed for:
technologies that have been the subject of illicit procurement attempts which may demonstrate some level of dependency on US technologies to further foreign military or intelligence capabilities in countries of concern or development of weapons of mass destruction.
The fact that items may have been the subject of illicit procurement attempts would seem to indicate that it is already illegal for the persons in question to procure them. If this is the case, it is unclear why additional controls are warranted.
BIS welcomes comments on:
Comments from the general public should be submitted in writing to BIS by 26 October 2020. Comments can be submitted via the Federal eRulemaking Portal under BIS-2020-0029 or by mail or delivery to:
Regulatory Policy Division
Bureau of Industry and Security
US Department of Commerce
14th Street and Pennsylvania Avenue NW
Washington DC 20230.
Comments should refer to RIN 0694-AH80 and will be public, so should not include any proprietary or other sensitive data that commenters do not want to become publicly available or be otherwise disseminated.
Although the ANPRM is vague, the potential for stronger control of items currently controlled as EAR99 or for AT, CC, SS or UN reasons should prompt companies and universities to submit comments. Controls on foundational technologies may have unintended consequences with respect to US innovation and global competitiveness, as well as the ability to collaborate due to non-US person restrictions. Consideration should be given to targeted controls focusing on end users and end uses of concern.
For further information on this topic please contact Kay C Georgi, David Hanke or Regan K Alberda at Arent Fox LLP's Washington DC office by telephone (+1 202 857 6000) or email (email@example.com, firstname.lastname@example.org or email@example.com). Alternatively, contact Marwa M Hassoun at Arent Fox LLP's Los Angeles office by telephone (+1 213 629 7400) or email (firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
(1) Further information is available here.
(2) An analysis of the CFIUS implications of foundational technologies that will be controlled by BIS is available here.
(3) Further information is available here.
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