International Law Advisory - BIS Issues Two Significant Notices Regarding Export Controls onTransfers of Dual-Use Technology

The U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) has issued two significant Federal Register notices regarding export controls on transfers of dual-use technology. 

First, BIS issued a Federal Register notice withdrawing its advance notice of proposed rulemaking and confirming that the current deemed export licensing requirement, which is based on a foreign national’s most recent country of citizenship or permanent residency, remains in effect. 

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This decision is a response to recommendations made by the 2004 U.S. Department of Commerce Office of Inspector General (“OIG”) report on deemed export controls, which, among other things, proposed that the decision to grant export licenses in the case of deemed exports be based on a foreign national’s country of birth and not on the person’s current country of citizenship or permanent residency.  In response to public comments, BIS has determined not to implement the changes suggested by the OIG, and will instead maintain the prior restrictions related to deemed exports to foreign nationals. 

A “deemed export” takes place when technology or source code (but not including encryption source code) subject to the Export Administration Regulations (“EAR”) is released to a foreign national within the United States.   In general, the deemed export rule applies to any foreign national except those granted status as a permanent resident, U.S. citizen, or “protected person” (the latter category including political refugees and asylees in certain circumstances). 

A principal issue addressed in the notice is how to determine the country of origin of a foreign national who has citizenship, residency, or other ties relating to more than one country.   On one hand, BIS has reaffirmed its policy of looking to the country of most recent citizenship or permanent residency status in such cases.  As stated in the notice and illustrated by the examples presented on the agency’s website, this reflects BIS’s recognition that an individual’s act of obtaining citizenship or permanent residency demonstrates allegiance to the adoptive nation, as well as an understanding that many individuals bear no loyalty to states where they were born or to which they have ethnic ties.

On the other hand, the Federal Register notice serves as a reminder that in some circumstances it may be difficult to rely on the “most recent” rule in determining a foreign national’s country of origin.   The Federal Register notice states that where the status of a foreign national is not certain, exporters should request the assistance of BIS, which will consider the foreign national’s country, family, professional, financial, and employment ties in making its determination.  In sum, companies can typically rely on the “most recent” rule to determine country of origin, but if other facts call the country of origin into question, it may be appropriate to seek guidance from BIS in determining the appropriate country of origin. 

The notice also addresses another issue of importance to exporters, namely the interpretation of “use” technology.  BIS states that the transfer of technology must relate to all the activities listed in the definition of “use” –operation, installation, maintenance, repair, overhaul and refurbishing –to trigger a license requirement.  This new interpretation narrows the “use” technology controls compared to past industry understanding of the scope of those controls.  Moreover, the new interpretation applies not just to the deemed export context, but also to controls over the actual export of “use” technology from the United States to other countries.

Second, BIS issued a Federal Register notice announcing the creation of the Deemed Export Advisory Committee (“DEAC”), charged with reviewing the current deemed export policy and determining whether to recommend any changes to the Department of Commerce. 

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The DEAC’s mandate includes evaluating the recommendations made by the OIG report mentioned above.  Thus, the Federal Register notice explained above may not represent the final status of BIS policy on deemed exports to foreign nationals.

We will continue to monitor developments regarding BIS’s policy towards deemed exports as well as BIS export control regulations generally.  In the meantime, please contact Ed Krauland at 202-429-8083 or Peter Lichtenbaum at 202-429-6263 if you have any questions.