Category Archives: All

Chinese Telecom Giant Huawei added to Entity List: What You Need to Know Now

On Wednesday, May 15, 2019, the Department of Commerce, Bureau of Industry and Security (BIS) announced the addition of Huawei Technologies Co. Ltd., a Chinese telecommunications and electronics manufacturing giant, to the Entity List.  A Federal Register Notice (84 FR 22961) followed on Tuesday, May 21, 2019.

What is the Entity List?

The Entity List is one of many U.S. Government lists that restricts business dealings with individuals, companies, and other entities worldwide.

As described by BIS:

Additions to the Entity List are decided by the End-User Review Committee which is comprised of officials from the Department of Commerce, Department of Defense, State Department, and Department of Energy. Under § 744.11(b) of the Export Administration Regulations, persons or organizations for whom there is reasonable cause to believe that they are involved, were involved, or pose a significant risk of becoming involved in activities that are contrary to the national security or foreign policy interests of the United States, and those acting on behalf of such persons, may be added to the Entity List.

Why was Huawei Listed?

Huawei’s listing was based on BIS’s conclusion that “Huawei is engaged in activities that are contrary to U.S. national security or foreign policy interest” and includes 68 non-US affiliates in 26 countries (Belgium, Bolivia, Brazil, Burma, Canada, Chile, China, Egypt, Germany, Hong Kong, Jamaica, Japan, Jordan, Lebanon, Madagascar, Netherlands, Oman, Pakistan, Paraguay, Qatar, Singapore, Sri Lanka, Switzerland, Taiwan, United Kingdom, and Vietnam).

What does the Listing Establish?

The listing creates a license requirement with a presumption of denial for items subject to the EAR (including EAR99 or other items that would otherwise be shipped No License Required, or NLR).

The listing was followed by the announcement of a temporary General License that creates a limited 90-day reprieve from May 20, 2019 to August 19, 2019.  During this time, some transactions are authorized when relating to supporting existing networks, supporting existing handsets, and cybersecurity research and vulnerability disclosure, and 5G standards development.

The General License and any subsequent publications should be reviewed closely for their applicability to any transaction.  Use of the General License also requires a certification statement.

Best Practice – Screen Your Customers and Suppliers

The Entity List as well as other government lists are continuously updated.  To ensure compliance, all parties should be screened regularly, using software such as ECS’s own ECScreening.

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)

Finally—ITAR Government Exemption Expanded – and Opportunities to Comment and Contribute to Future Export Controls

State Department Expands §126.4 Government Exemption

On April 19, the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice (84 FR 16398) that expands the International Traffic in Arms Regulations (ITAR) §126.4 licensing exemption for transfers made by or for an agency of the U.S. Government.  A proposed rule was originally published in 2015 and this revision, anticipated since last year, was effective immediately.

Notably, the new rule expands the exemption to include permanent exports, reexports, and retransfers.  It also clarifies when it can be used by contractors, by third parties, or in international agreements or security cooperation programs.

Please Note: The phrase “including technical data” was removed from the exemption as “defense article” is already defined at §120.6 to include technical data.  The notice states that “When the Department refers to defense articles, without modification, the reference includes technical data.”

Portions of the revised exemption (§126.4(a)(1) or (3) and (b)(1)) may be used for 126.1 countries.  As revised, §126.1(a) includes a double negative: “exemptions… except … §§126.4(a)(1) or (3) and (b)(1)… do not apply”).  As always, transactions involving 126.1 countries, even when the US government is involved, should be reviewed carefully and make sure to fully document their usage.  No one wants to be in a position of having to recreate records after a period of time.

Is this the same as the Export Administration Regulations (EAR) §740.11 GOV License Exception?  Almost, as the revised §126.4 exemption has moved closer to, but does not completely mirror, the §740.11 GOV exception.  The EAR exception has a different structure and more uses, including non-US governments and international organizations in some circumstances.  Please read it carefully and the full text of the Federal Register Notice for additional background.

We Finally Have It!!!—Be Sure to Review and Comment on Proposed DS-7788 Single Application Form

On April 19, 2019, the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice (84 FR 16554) requesting comments on the proposed DS-7788 Application for the Permanent Export, Temporary Export, Temporary Import, or Brokering of Defense Articles, Defense Services, and Related Technical Data.  The new form would consolidate existing forms including: DSP-5, DSP-61, DSP-73 and DSP-85 license applications; DSP-6, DSP-62, and DSP-74 license amendments; and proposed forms for changes in end use and brokering.

The proposed “single” form and instructions can currently be downloaded from the DDTC website in nine separate pdfs.

Comments will be accepted until June 19, 2019.  See the Federal Register Notice for more information.

This is an important opportunity to comment on how the proposed licensing changes would impact your business.

Space Enterprise Summit

The Departments of State and Commerce will co-host the Space Enterprise Summit on June 26-27, 2019.  Topics will include the government’s role in stimulating and regulating commercial space activity as well as international collaboration and responsible behavior.

The event will take place in the Loy Henderson Conference Room, Department of State, 2201 C Street Northwest, Washington, DC.

For more information, see the Federal Register Notice (84 FR 13737) or the Space Enterprise Summit webpage.

Commerce Seeks Technical Advisory Committee Representatives

The Department of Commerce, Bureau of Industry and Security (BIS), Department of Commerce is recruiting representatives from industry, academia, and the U.S. government to serve on one of seven Technical Advisory Committees (TACs).  These committees advise the Department of Commerce on the technical parameters and administration of dual-use export controls.

The TACs advise on the following areas:

  1. Information Systems: Categories 3 (electronics), 4 (computers), and 5 (telecommunications and information security);
  2. Materials: Category 1 (materials, chemicals, microorganisms, and toxins);
  3. Materials Processing Equipment: Category 2 (materials processing);
  4. Sensors and Instrumentation: Category 6 (sensors and lasers);
  5. Transportation and Related Equipment TAC: Categories 7 (navigation and avionics), 8 (marine), and 9 (propulsion systems, space vehicles, and related equipment);
  6. Emerging Technology: identification of emerging and foundational technologies; and
  7. Regulations and Procedures: Export Administration Regulations (EAR) and EAR implementation.

Resumes must be submitted before April 1, 2020 and TAC members must obtain secret-level clearances prior to their appointment.  See their Federal Register Notice (84 FR 12195) for more information.

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)

Comment Now on Future Space and Missile Export Controls

DDTC Requests Comments on USML Categories IV and XV

As a part of the ongoing review of the United States Munitions List (USML), the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice on March 8, 2019 (84 FR 8486) requesting comments on USML Categories IV (Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs, and Mines) & XV (Spacecraft and Related Articles).  The Department of Commerce published a companion notice (84 FR 8485) requesting comments on Commerce Control List (CCL) Export Control Classification Numbers (ECCNs) 0A604, 0B604, 0D604, 0E604, 9A604, 9B604, 9D604, and 9E604.

The review seeks to ensure a bright line between the USML and CCL, where the USML:

  • Does not inadvertently control items in normal commercial use
  • Accounts for technological developments, and
  • Properly implements the national security and foreign policy objectives of the United States.

In particular, DDTC requests comments on the following topics:

  • New or emerging technologies that warrant control
  • Articles that have entered into normal commercial use
  • Articles that may enter commercial use in the next five years
  • How to distinguish between space-based optical telescopes for astrophysics missions and those used for Earth observation without specifically listing missions (e.g., the James Webb Space Telescope (ECCN 9A004.u)
  • Definitions regarding space optics in XV(a)(7) & XV(e)(2)
  • Clarification of spacecraft “servicing” under XV(a)(12)
  • Potential control status of the future Lunar Gateway
  • Cost savings for industry from shifting control of items from the USML to CCL

In addition to overlapping topics described above, BIS requests comments on the following:

  • licensing requirements for 9A515 technologies, such as habitats, planetary rovers, and planetary systems such as communications and power
  • space-related technologies which may warrant further review

Comments under both notices may be submitted until April 22, 2019.  Please see the Federal Register Notices (State and Commerce) for additional details.

Comment on the Voluntary Disclosure Process

On March 8, 2019, DDTC also published a notice (84 FR 8558) requesting comments on the Voluntary Disclosure information collection.  This request is part of the Office of Management and Budget (OMB) approval process which evaluates the necessity and reporting burden of the information collection.  The elements of a Voluntary Disclosure are detailed in ITAR §127.12.  Voluntary Disclosures are currently submitted to DDTC in hard copy, but the DS-7787 electronic form is in development.

Comments may be submitted until May 7, 2019.  Please see the Federal Register Notice for additional details.

Test the Next Commodity Jurisdiction Application

On March 15, 2019, DDTC announced testing for the updated Commodity Jurisdiction (CJ) application on the DECCS system.  Visit the DDTC website on March 20th for instructions.  Testing will be open through March 26th.

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)

SUBMIT YOUR ADVISORY OPINIONS ON-LINE TO DDTC! REVIEW AND MAKE COMMENTS ON THE NEW CJ FORM

Advisory Opinions Accepted Online Through DECCS

Following last year’s testing, the Department of State, Directorate of Defense Trade Controls (DDTC) has announced the release of their new Advisory Opinions application for DDTC’s cloud-based Defense Export Control and Compliance System (DECCS).

The new Advisory Opinions application covers the following ITAR requests:

  • 126.9(a) – Whether DDTC would likely grant approval for a particular defense article or service to a particular country.*
  • 126.9(c) – ITAR interpretation
  • 129.9 – Guidance on whether an activity constitutes brokering under Part 129.

*Note that in many cases, it is preferable to submit a DSP-5 technical data license for marketing a defense article rather than a General Correspondence Advisory Opinion request.  While the new application is intended improve the submission and review process, a DSP-5 can avoid the need for two separate submissions for the same activity. (See DDTC’s 2016 guidance on advisory opinions.)

Other General Correspondence requests, such as §123.9 reexports or retransfers are still submitted in hard copy by mail.

The new application can be found at the DECCS Industry Service Portal: https://deccspmddtc.service-now.com/deccs

See the DDTC News & Events page (02/04/2019) for more information on this release.

Comment on Commodity Jurisdiction Form

In related DECCS news, on February 6, 2019, DDTC published a notice (84 FR 2295) requesting comments on the DS-4076 Request for Commodity Jurisdiction Determination form.  This request is part of the Office of Management and Budget (OMB) approval process.

Comments may be submitted until April 8, 2019.  Please see the Federal Register Notice for additional details.

Comment on DDTC Registration Form

On February 13, 2019, DDTC published a notice (84 FR 3846) requesting comments on the DS-2032 Statement of Registration form.  This request is also part of the OMB approval process.  Notably, DDTC plans to remove the fields for Social Security Numbers and home addresses for the various senior officers listed on the form.

Comments may be submitted until March 15, 2019.  Please see the Federal Register Notice for additional details.

State and Commerce Department Licensing On Hold During Shutdown

As the partial government shutdown continues, please note that the Departments of State and Commerce have put export licensing on hold.

The Department of State’s Directorate of Defense Trade Controls published the following notice on their website:

Industry Notice: Lapse in funding

Due to the lapse in funding affecting the Department of State that occurred at 12:01am on Saturday, December 22, 2018, services at the Directorate of Defense Trade Controls are significantly curtailed, including requests for licenses, advisory opinions, and retransfers except for those that provide direct support to the military, humanitarian aid, or other similar emergencies.  In addition, the 3pm daily pick-up and drop-off service is cancelled.  All D-Trade electronic submissions will be rejected by the system and returned to the applicant.  Requests that are currently in process at DDTC as of December 21, 2018, will remain in that status however; further review actions will be delayed until after restoration of funding. If industry applicants believe they have a case (either “In-Review” or new submission required) involving direct support to the military, humanitarian aid, or other similar emergencies, please email the DDTC Response Team (DDTCResponseTeam@state.gov). The subject line of your email MUST read “Request for Emergency License” and the message must include the license number (if already pending with DDTC) the applicant name and registration code, the end-use/end-user, justification for needing an emergency license, and a point of contact. The Directorate will contact the requestor with guidance on how to proceed if the request will be honored. (12.22.19)

Notably, D-Trade is not offline, but new applications will be rejected and will need to be resubmitted once normal operations resume.

SNAP-R, the Department of Commerce’s licensing application, has been taken offline and the following message posted:

Due to the lapse in government funding, snapr.bis.doc.gov and all associated online activities will be unavailable until further notice.

The Department of Defense is not affected by the shutdown and pending case statuses can still be viewed through ELISA.

Update, January 24, 2019

The Department of State’s Directorate of Defense Trade Controls has reopened and posted the following notice:

Effective Thursday, January 24, 2019, the Directorate of Defense Trade Controls (DDTC) will temporarily return to full operational status with all electronic application systems placed in normal operational mode and the 3pm daily pick-up and drop-off service restored. Priority will be placed on issuance of licenses in the system at the time of implementation of lapse of funding operations on December 22, 2018. New licenses will be accepted; however, industry is advised of the likelihood of longer than normal processing times due to the high volume of licenses DDTC expects to receive. The “Emergency License” process described in DDTC’s December 22, 2018 announcement below is hereby suspended.

Update, January 28, 2019

With the “temporary” end to the partial government shutdown, SNAP-R and the Consolidated Screening List are back online.  Licensing delays are anticipated as the offices get back to work.

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)

Be on the Lookout, Stricter License Requirements Expected for Chinese Military; Review the New Emerging Technologies and Send Your Comments to BIS!

Chinese Military End Users Targeted in Commerce Regulatory Agenda

On November 16, 2018, the Department of Commerce published its Fall 2018 Semiannual Agenda of Regulations (83 FR 57998).  In addition to various entries for other parts of the department, it includes an announcement that the Bureau of Industry and Security (BIS) plans to expand license requirements for export, reexports, and transfers (in country) to military end users in the People’s Republic of China.  Currently, Section 744.21 of the Export Administration Regulations (EAR) imposes license requirements on such transactions when the item is intended for a “military end use” in China or a “military end user” in Russia or Venezuela.  The change would likely expand licensing requirements for China to match current requirements for Russia and Venezuela and make other changes, including to EAR “Reasons for Control” and Automated Export System (AES) filing requirements.  A Notice of Proposed Rulemaking is anticipated in February 2019.

Comments Requested on Emerging Technologies

This summer’s Export Control Reform Act (ECRA) directed the Department of Commerce, along with Defense, Energy, and State, to identify “emerging and foundational technologies” that may warrant export controls to include CFIUS review and export licensing.

Proceeding with this review, the Department of Commerce published a notice (83 FR 58201) on November 19, 2018 requesting comments on emerging technologies that are essential to national security due to “potential conventional weapons, intelligence collection, weapons of mass destruction, or terrorist applications” or that may provide the U.S. “qualitative military or intelligence advantage.”

The notice includes the following representative list of technologies currently controlled by the EAR, but with limited licensing requirements:

(1) Biotechnology, such as:

(i) Nanobiology;
(ii) Synthetic biology;
*
(iv) Genomic and genetic engineering; or
(v) Neurotech.

(2) Artificial intelligence (AI) and machine learning technology, such as:

(i) Neural networks and deep learning (e.g., brain modelling, time series prediction, classification);
(ii) Evolution and genetic computation (e.g., genetic algorithms, genetic programming);
(iii) Reinforcement learning;
(iv) Computer vision (e.g., object recognition, image understanding);
(v) Expert systems (e.g., decision support systems, teaching systems);
(vi) Speech and audio processing (e.g., speech recognition and production);
(vii) Natural language processing (e.g., machine translation);
(viii) Planning (e.g., scheduling, game playing);
(ix) Audio and video manipulation technologies (e.g., voice cloning, deepfakes);
(x) AI cloud technologies; or
(xi) AI chipsets.

(3) Position, Navigation, and Timing (PNT) technology.

(4) Microprocessor technology, such as:

(i) Systems-on-Chip (SoC); or
(ii) Stacked Memory on Chip.

(5) Advanced computing technology, such as:

(i) Memory-centric logic.

(6) Data analytics technology, such as:

(i) Visualization;
(ii) Automated analysis algorithms; or
(iii) Context-aware computing.

(7) Quantum information and sensing technology, such as

(i) Quantum computing;
(ii) Quantum encryption; or
(iii) Quantum sensing.

(8) Logistics technology, such as:

(i) Mobile electric power;
(ii) Modeling and simulation;
(iii) Total asset visibility; or
(iv) Distribution-based Logistics Systems (DBLS).

(9) Additive manufacturing (e.g., 3D printing);

(10) Robotics such as:

(i) Micro-drone and micro-robotic systems;
(ii) Swarming technology;
(iii) Self-assembling robots;
(iv) Molecular robotics;
(v) Robot compliers; or
(vi) Smart Dust.

(11) Brain-computer interfaces, such as

(i) Neural-controlled interfaces;
(ii) Mind-machine interfaces;
(iii) Direct neural interfaces; or
(iv) Brain-machine interfaces.

(12) Hypersonics, such as:

(i) Flight control algorithms;
(ii) Propulsion technologies;
(iii) Thermal protection systems; or
(iv) Specialized materials (for structures, sensors, etc.).

(13) Advanced Materials, such as:

(i) Adaptive camouflage;
(ii) Functional textiles (e.g., advanced fiber and fabric technology); or
(iii) Biomaterials.

(14) Advanced surveillance technologies, such as:

Faceprint and voiceprint technologies.

*(1)(iii) was omitted in the published notice.

Comments are requested on how to define emerging technology, control criteria, and other relevant information.  Comments may be submitted until December 19, 2018.  Please see the Federal Register Notice for more information.  A separate notice is planned for “foundational technologies.”

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)

Export Compliance Updates: DECCS, Electronic Waste, and Wassenaar

Be the First to Test On-Line Advisory Opinion & Registration Applications!

DDTC is requesting industry testing of future Advisory Opinion and Registration applications in the Defense Export Control and Compliance System (DECCS).  See the DDTC News & Events page (10/15/2018 & 10/30/2018) for more information.  Testing is expected to continue through mid-November.

Comment on Prior Approval Requests for Brokering

On October 16, the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice (83 FR 52298) requesting comments on Brokering Prior Approval requests.

As described in the notice:

Currently submissions are made via hardcopy documentation. Applicants are referred to ITAR part 129 for guidance on information to submit regarding proposed brokering activity. Upon implementation of DDTC’s new case management system, the Defense Export Control and Compliance System (DECCS), a DS-4294 may be submitted electronically.

Comments may be submitted until December 17, 2018.  Please see the Federal Register Notice for additional details.

And the New Year Will Bring:

  • Movement on USML Categories I-III – see our previous blog posts on the proposed changes to firearms, guns, and ammunition;
  • Revisions to ITAR Exemption 126.4(a) – Shipments by or for U.S. Government agencies;
  • DECCS testing of the DSP-85 – classified hardware & technical data; and
  • Reorganization of the sections of the ITAR.

Commerce Requests Comments on Electronic Waste

On October 23, 2018, the Department of Commerce published a notice (83 FR 53411) requesting public comments on potential export controls on electronic waste.  This request is based on concerns that “counterfeit goods that may enter the United States’ military and civilian electronics supply chain” resulting from unregulated overseas recycling of discarded electronic equipment.  See the Federal Register Notice for additional background, potential definitions, and potential regulatory requirements and exemptions.  Comments may be submitted through December 24, 2018.

Commerce Revises CCL to Reflect Wassenaar Plenary

On October 24, 2018, the Department of Commerce published rule (83 FR 53742) which amends the Commerce Control List (CCL) to reflect changes made to the Wassenaar Arrangement List of Dual-Use Goods and Technologies at the December 2017 Plenary meeting.

The rule revises 50 Export Control Classification Numbers (ECCNs): 0A617, 0A919, 1A002, 1C001, 1C002, 1C007, 1C010, 1C608, 2A001, 2B001, 2B006, 2B007, 2B008, 2E003, 3A001, 3A002, 3B001, 3B002, 3C002, 3C005, 3C006, 3C992, 3E001, 4A003, 4A004, 4D001, 4E001, 5A001, 5A002, 5D002, 5E002, 6A002, 6A003, 6A004, 6A005, 6A008, 6A203, 6D003, 6D991, 6E001, 6E002, 6E201, 7A006, 7E004, 9A002, 9A004, 9D001, 9D002, 9D004, and 9E003.  It also removes ECCNs 6A990 and 6E990, corrects 3A991, and makes other changes to ECCNs 2B206 and 3A001.i.  Furthermore, the rule moves 37 definitions from Part 772 to the relevant ECCNs and makes changes throughout the Export Administration Regulations (EAR) to reference the revised ECCNs.

A follow-up notice was published on November 2, 2018 (83 FR 55099) to correct an omitted reference to the Civil end-users (CIV) exception for some 3A001 items.

Export compliance is always changing.  Subscribe to Our “EAR”… to the ITAR to keep up!

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)

CFIUS EXTENDS LONG ARM TO INCLUDE REVIEW OF DEFENSE ARTICLES/ DEFENSE SERVICES ON THE USML

As anticipated following the August enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the Department of the Treasury has issued new regulations implementing changes to the Committee on Foreign Investment in the United States (CFIUS).

CFIUS Amendments

The first, an interim rule issued October 11, 2018 (83 FR 51316), primarily makes technical amendments to the CFIUS Part 800 regulations.  These changes include:

  • Extending CFIUS review period from 30 to 45 days,
  • Revising various definitions to be consistent with FIRRMA,
  • Providing examples of covered transactions,
  • Implementing electronic submissions,
  • Allowing parties to stipulate that a transaction is a covered transaction, and
  • Revising language regarding violations and remedies.

This rule was effective immediately and comments may be submitted through November 10, 2018.  Please see the Federal Register Notice for more information on how to comment.

Pilot Program

The second notice, also issued on October 11, 2018 (83 FR 51322) implements a “pilot program” expanding CFIUS review and mandatory declarations to a specific list of covered industries when dealing with “critical technologies.”

Under the new rule, “critical technologies” include:

  • Defense articles or defense services included on the United States Munitions List (USML) controlled by the Department of State,
  • Commerce Control List (CCL) items controlled pursuant to multilateral regimes, for regional stability, or surreptitious listening by the Department of Commerce,
  • Nuclear equipment and technology controlled by the Department of Energy,
  • Nuclear facilities, equipment, and material controlled by the Nuclear Regulatory Commission, and
  • Select agents and toxins controlled by the Department of Agriculture or the Department of Health and Human Services.

Companies in or developing products for the industries listed in the new Annex A to Part 801 are covered by the pilot program as follows, including North American Industry Classification System (NAICS) codes:

Industry NAICS Code
Aircraft Manufacturing 336411
Aircraft Engine and Engine Parts Manufacturing 336412
Alumina Refining and Primary Aluminum Production 331313
Ball and Roller Bearing Manufacturing 332991
Computer Storage Device Manufacturing 334112
Electronic Computer Manufacturing 334111
Guided Missile and Space Vehicle Manufacturing 336414
Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing 336415
Military Armored Vehicle, Tank, and Tank Component Manufacturing 336992
Nuclear Electric Power Generation 221113
Optical Instrument and Lens Manufacturing 333314
Other Basic Inorganic Chemical Manufacturing 325180
Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing 336419
Petrochemical Manufacturing 325110
Powder Metallurgy Part Manufacturing 332117
Power, Distribution, and Specialty Transformer Manufacturing 335311
Primary Battery Manufacturing 335912
Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing 334220
Research and Development in Nanotechnology 541713
Research and Development in Biotechnology (except Nanobiotechnology) 541714
Secondary Smelting and Alloying of Aluminum 331314
Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing 334511
Semiconductor and Related Device Manufacturing 334413
Semiconductor Machinery Manufacturing 333242
Storage Battery Manufacturing 335911
Telephone Apparatus Manufacturing 334210
Turbine and Turbine Generator Set Units Manufacturing 333611

Transactions in these areas are covered by the pilot program when the investment would give a foreign investor:

  • Access to material nonpublic technical information;
  • Membership, observer, or nomination rights on the board of directors; or
  • Involvement in substantive decision-making regarding critical technology.

This rule will take effect on November 10, 2018 and comments may be submitted through that date.  Please see the Federal Register Notice for more information on how to comment.

The Department of the Treasury has also published a press release and fact sheet that summarize these changes.

The pilot program is scheduled to end no later than March 5, 2020, once replaced by a full expansion of CFIUS review.

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)

State Department Tweaks ITAR, Requests Comments

On October 4, the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice (83 FR 50003) that made several immediate, but minor, changes to the International Traffic in Arms Regulations (ITAR) and United States Munitions List (USML).  The revisions are in response to a July 2017 request for comments implementing the President’s Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs” and other industry feedback.

Other than USML revisions and notes, the only ITAR change was the removal of the requirement to return expired or exhausted licenses for technical data under 123.22(b)(3)(i) and (c)(2).

The USML revisions are as follows:

  • A note to USML Category IV(d) clarifies that it does not control satellite and spacecraft thrusters (instead, refer to XV(e)(12) and ECCN 9A515).
  • A note to USML Category V clarifies that, except for materials in V(c)(6), (h) or (i), the Department of Commerce licenses materials when incorporated into an item classified under ECCN 1C608 (“Energetic materials and related commodities”).
  • VIII(h)(12) – The description of UAV flight control systems is revised so that collision avoidance alone does not lead to ITAR controls:

(12) Unmanned aerial vehicle (UAV) flight control systems and vehicle management systems with swarming capability (i.e. UAVs that operate autonomously (without human input) to interact with each other to avoid collisions and stay together, fly in formations, and are capable of adapting in real-time to changes in operational/threat environment, or, if weaponized, coordinate targeting) (MT if for an aircraft, excluding manned aircraft, or missile that has a ‘‘range’’ equal to or greater than 300 km);

  • Notes to XI(a)(3)(i) and (xii) add additional technical specifications and a reference to Commodity Jurisdiction determinations to avoid control of airborne radars used by commercial drones.
  • Revisions to XI(c)(4) implement power thresholds to exclude components necessary for 5G wireless technology, including four required criteria and eight explanatory notes.
  • XV(f) is revised to include “to a foreign person” in its definition of satellite and spacecraft defense services.

DDTC also noted that it is working on a possible temporary export exemption for repair/replacement by foreign Original Equipment Manufacturer (OEM) as well as revised definitions proposed in 2015 (80 FR 31525) that were not included in the 2016 interim final rule (81 FR 35611) or final rule (81 FR 62004).

The Federal Register Notice includes additional background and responses to comments that may be of interest.  While these changes are effective immediately, comments may be submitted until November 19, 2018.

In separate notices, DDTC has also requested comments on three existing information collections for Office of Management and Budget (OMB) approval.  Click on the Federal Register Notices for more information and docket and control numbers needed for comments:

  • §123.9 Request to Change End-User, End-Use and/or Destination of Hardware (83 FR 47235).  The notice acknowledges that DDTC is working on a DS-6004 form to be submitted through the Defense Export Control and Compliance System (DECCS).  Comments will be accepted up to November 19, 2018.
  • Part 129 Annual Brokering Reports (83 FR 47390). Comments will be accepted up to November 19, 2018.
  • DS-2032 Statement of Registration (83 FR 48496).  Comments will be accepted up to November 26, 2018.

As always, these are important opportunities to comment on how your business views and is affected by export regulations.

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)

Big Changes Coming to CFIUS, EAR No Longer an Emergency

This year’s defense authorization bill didn’t just fund the Department of Defense, but also set the stage for big changes to foreign investment and export controls.  Signed on August 13, 2018, the John S. McCain National Defense Authorization Act (NDAA) included the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) and the Export Control Reform Act (ECRA).

Foreign Investment Risk Review Modernization Act

The Foreign Investment Risk Review Modernization Act (FIRRMA) expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS).  CFIUS, an interdepartmental committee chaired by the Treasury Department, was already authorized to review certain business transactions involving foreign investment in the United States that involve national security considerations.

FIRRMA expands the scope of transactions subject to CFIUS review to include transactions involving foreign persons including:

  • real estate located in proximity to airports, maritime ports, or sensitive government facilities such as military bases;
  • critical infrastructure, critical technologies, or sensitive personal data of US citizens;
  • membership on the board of directors or other decision-making rights;
  • changes in a foreign investor’s rights resulting in foreign control; and
  • other transactions designed to circumvent CFIUS jurisdiction.

FIRRMA also revises filing and review processes and timelines, expanding the ordinary review period from 30 to 45 days, effective when FIRRMA became law.  Notices received before August 13th will remain subject to the 30 day review period.  FIRRMA also provides for the option for CFIUS to implement filing fees.

The most significant provisions will not be effective until the earlier of eighteen months after the enactment (February 2020) or 30 days after the Secretary of the Treasury publishes a notice that the necessary regulations and resources are in place.  CFIUS may also conduct pilot programs under the new law.

CFIUS has advised businesses to continue to notify transactions as provided in current CFIUS regulations.

The Treasury Department has released a summary of FIRRMA and FIRRMA FAQs.

The International Traffic in Arms Regulations (ITAR) continue to require notification when there are changes to ownership or control (as well as other material changes) under 122.4.  Notification of transfer of ownership or control to a foreign person is required 60 days in advance and is independent of CFIUS processes.  See the State Department’s Directorate of Defense Trade Controls Mergers/Acquisition/Divestitures page for more information.

Export Control Reform Act

The new Export Control Reform Act (ECRA) provides statutory authority for the Export Administration Regulations (EAR) and Antiboycott rules, which have been maintained by emergency executive orders under the International Emergency Economic Powers Act (IEEPA) since the Export Administration Act (EAA) expired in 1994.

Notably, the ECRA also directs the Departments of Commerce, Defense, Energy, and State to “identify emerging and foundational technologies” that may warrant export controls, including CFIUS and export licensing.

Continuing developments from the last year, the ECRA establishes a US government procurement ban on telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation.  It does not reinstate the Department of Commerce’s denial order for ZTE which was lifted in July.  The procurement ban also includes video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company.

The ECRA also increases potential civil penalties to $300,000 (from the most recently inflation-adjusted $295,141).

ECS will continue to monitor developments as new CFIUS regulations and the reviews of “emerging and foundational technologies” are discussed, proposed for comment, and implemented.

(None of the information is intended to be authoritative official or professional legal advice. Consult your own legal counsel or compliance specialists before taking actions based upon this blog or other unofficial sources.)