BIS seeks public comments on potential export controls regarding foundational technologies

Impact on export controls and foreign investment

This long-awaited ANPRM and its anticipated final rule will impact not just U.S. export controls, but also the scope of transactions subject to review by the Committee on Foreign Investment in the United States (CFIUS). ECRA requires that foundational technologies that are essential to the national security of the United States, including those “essential to innovation,” be identified on an export control list and subject to export controls. The interagency process must take into account: (i) the development of foundational technologies in foreign countries; (ii) the effect export controls may have on the development of such technologies in the United States; and (iii) the effectiveness of export controls imposed pursuant to ECRA on limiting the proliferation of foundational technologies to foreign countries.  

The ANPRM welcomes comments on how to identify and define “foundational technologies,” with no proposed definition presented. Foundational technologies may include technology, commodities, and software controlled only for anti-terrorism (AT), crime control (CC), or short supply (SS) reasons, subject to United Nations (UN) embargoes, or designated as EAR99 under the Export Administration Regulations (EAR). Foundational technologies will not capture items that are not currently subject to the EAR, such as technology generated in the course of “fundamental research”. At a minimum, controls on foundational technologies would apply to countries subject to an embargo, including an arms embargo, imposed by the United States, including, for instance, China and Venezuela.

For example, certain items classified on the Commerce Control List (CCL) at the AT level or as EAR99 under the EAR for which an export license currently is not required for countries subject to a U.S. arms embargo, such as China and Venezuela, are expected to be reviewed to determine if such items are foundational technologies essential to U.S. national security (e.g., the control of certain AT-controlled items that enable foreign intelligence collection may be reviewed).  

Further, foundational technologies may also capture some items subject to the recently expanded military end use/end user rule specified in Supp. No. 2 to Part 744 of the EAR.  Specifically, BIS noted semiconductor manufacturing equipment and associated software tools, lasers, sensors, and underwater systems tied to military innovations in China, Russia, or Venezuela as potential threats to U.S. national security.

Given the breadth of items subject to AT controls and the EAR 99 classification, the future implementation of controls on fundamental technologies could potentially result in significant restrictions on exports, reexports and transfers (in country) involving countries such as China, Russia and Venezuela.

This process will also affect the reach of CFIUS.  The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded the definition of covered transactions that are subject to the jurisdiction of CFIUS to include, among other triggers, certain non-controlling investments by a foreign person in a U.S. business that "produces, designs, tests, manufactures, fabricates or develops" critical technologies. FIRRMA's expanded definition of "critical technologies" includes emerging and foundational technologies controlled pursuant to the process set forth in section 1758 of the ECRA.  For more information on CFIUS's expanded jurisdiction, including as it relates to emerging and foundational technologies, see our 17 January 2020 client alert here.

BIS previously released an ANPRM for emerging technologies in November 2018.  So far, no emerging technologies have been identified pursuant to section 1758 of the ECRA.  For more information on the emerging technologies ANPRM, see our 20 November 2018 client alert here.

Areas for comment

With respect to foundational technologies, BIS specifically invites comment on:

• how to further define foundational technologies to assist in identification of such items;
•  sources to identify such items;
• criteria to determine whether controlled items identified in AT level Export Control Classification Numbers (ECCNs), in whole or in part, or classified as EAR99, for which a license is not required for countries subject to a U.S. arms embargo, are essential to U.S. national security;
•  the status of development of foundational technologies in the United States and other countries;
• the impact specific foundational technology controls may have on the development of such technologies in the U.S.;
• examples of implementing controls based on end-use and/or end-user rather than, or in addition to, technology based controls;
• any enabling technologies, including tooling, testing, and certification equipment, that should be included within the scope of a foundational technology; and
• any other approaches to the issue of identifying foundational technologies important to U.S. national security, including the stage of development or maturity level of an foundational technology that would warrant consideration for export control.

Next steps

Industry experts and academics are uniquely qualified to provide relevant, current information that can help guide the process. The ANPRM is an opportunity to weigh in at an early stage in the interagency process that may result in significant new export controls. Comments are due by October 26, 2020.

Authored by: Ajay Kuntamukkala, Adam Berry, Zach Alvarez, Barbra Kim.