Emerging Technologies: 11-20-2018

DECEMBER 12, 2018 CLIENT UPDATE

Comment Period Extended for List of Emerging Technologies Considered for New Export Controls

At the request of several interested industry associations, BIS is extending until January 10, 2019 the comment period for interested parties to provide input regarding the proposed new export controls on emerging technologies. The extension, announced at a public meeting of the U.S. Department of Commerce Regulations and Procedures Technical Advisory Committee (RPTAC) yesterday, is reflected on the BIS website. and will be published shortly.

We are monitoring developments and comments for clients in several different industries and would be happy to discuss any company or industry-specific concerns you may have.

NOVEMBER 20, 2018 CLIENT UPDATE

Export Control of Emerging Technologies: Preliminary List Open for Comment

On November 19, 2018, the Commerce Department’s Bureau of Industry and Security (BIS) provided industry with the first look at the list of emerging technologies being considered for new export controls. In an advance notice of proposed rulemaking, BIS published a list of fourteen “representative technology categories” which may be sufficiently important to U.S. national security to warrant the creation of new Export Control Classification Numbers (ECCNs) on the Commerce Control List to support the eventual imposition of licensing requirements for export of these technologies.

The list includes 45 specific technologies within 14 general emerging technology areas which may warrant such controls. The technology areas include biotechnology; artificial intelligence; position, navigation and timing; microprocessors; advanced computing; data analytics; quantum information and sensing; logistics, additive manufacturing; robotics; brain-computer interfaces; hypersonics; advanced materials and advanced surveillance technologies.

In this client update, we describe the context and impetus for this rulemaking, the significance of the reforms of which this rule is a part, and the implications for U.S. companies working with these technologies.

The context for this rulemaking lies in several years of increasing concern within the U.S. government that current export controls and CFIUS reviews were not sufficiently protecting critical dual use technologies during the early phases of development. One influential DoD study of Chinese technology acquisition efforts found that with “the blurring of the line between civilian and military use, faster development cycles and the increasing mobility of human capital globally, our current export control system becomes handicapped as a tool to manage how and where technology transfer occurs.” Congress has sought to address these concerns through the National Defense Authorization Act (NDAA) for Fiscal Year 2019, which requires significant reforms to both the Commerce Department’s export controls and to the Treasury-led CFIUS process in order to better protect “emerging and foundational technologies” developed in the U.S. and essential to the national security of the U.S. from being exploited by potential adversaries. The NDAA, however, did not list or identify these technologies.

The Export Control Reform Act of 2018 (ECRA), enacted as part of the FY2019 NDAA, is the immediate impetus for this rulemaking insofar as it requires BIS to lead a regular order interagency process to identify those specific emerging or foundational technologies which are essential to the national security of the U.S. for which effective export controls can be implemented without negatively impacting U.S. technology leadership. As a first step in that process, BIS has requested comments, due by December 19, regarding this preliminary list of emerging technologies, specifically including:

How to define emerging technologies,
Whether “foundational” technologies should be identified separately from this list of “emerging” technologies,
What criteria should be applied to determine whether a specific emerging technology listed within these general categories is critical to national security,
Whether there are other technology categories that warrant review,
The relative status of development of these technologies in the U.S. and other countries, and
The impact that new export controls on a specific emerging technology would have on U.S. technology leadership.

The implications of this rulemaking process are significant for companies having development activities or producing products based on these emerging technologies. Though a final rule amending the EAR may be some months away, potential impacts include:

New classification considerations for commercial, civil end-use development activities – Company development activities which are entirely commercial in nature and intended for civil end-use will have to be scrutinized much more carefully for potential export classification above the EAR 99 level. Application-agnostic artificial intelligence, for instance, may be controlled much earlier in its development cycle than it would be today.

Export Licensing – Though BIS will have discretion as to the licensing requirements to be applied to these emerging technologies, the ECRA requires that, at a minimum, a license be required for the export of emerging technology to any country subject to a U.S. arms embargo. Though this has little practical effect for countries such as Iran or Syria which already are subject to comprehensive sanctions, it would create new licensing requirements for currently unlicensed exports to China, Russia and their nationals.

Employment of Foreign Persons – For U.S. companies utilizing foreign workers in their development programs related to these emerging technologies, the implementation of new export controls will require export authorizations for such workers, even if they are not working on application to any product which is already listed on the CCL. For instance, a company employing Chinese programmers for work on artificial intelligence software for an EAR 99 product may now be required to obtain an export authorization for that work.

Mandatory CFIUS Filings – Any emerging technologies added to the EAR under this rulemaking process also will become a trigger for mandatory CFIUS filing of even certain non-controlling, non-passive foreign investments. Under the CFIUS reforms required by the NDAA, the Treasury Department has established a critical technology pilot program which includes covered transactions relating to emerging or foundational technologies identified by BIS pursuant to ECRA.

Companies requiring assistance in monitoring this expansion of EAR controls to emerging technologies, or in making comments to the proposed categories, should feel free to contact us.