International Law Advisory - BIS Issues Final Rule Implementing Significant Changes to Commerce Control List

BIS Issues Final Rule Implementing Significant Changes to Commerce Control List
The Department of Commerce’s Bureau of Industry and Security (BIS) has issued a final rule revising the Export Administration Regulations (EAR) to implement agreements by the governments participating in the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies at a December 2005 Wassenaar Plenary Meeting.  See 71 Fed. Reg. 52596. The changes made fall into three broad categories. 

Revisions to the Commerce Control List
First and most importantly, the rule revises the EAR by making necessary changes to the Commerce Control List (CCL).  The revisions include modifications to a number of categories of the CCL, including Materials, Chemicals, Microorganisms and Toxins; Electronics; Sensors; Marine Technology; and Propulsion Systems, Space Vehicles, and Related Equipment.  The most significant changes involve the telecommunications technology and information security category (category 5) and will be of note for companies active in that industry, particularly software manufacturers of products that feature encryption technology.

Perhaps most notable from an industry standpoint is the deletion of the 3A001.a.3.c control on microprocessor interconnects, because of the difficulty of administering such controls given the widespread integration of microprocessor interconnects into mass market products such as handheld computers.

Other significant revisions include the addition of several Export Classification Control Numbers (ECCN) to reflect advances in technology or new arrivals on the market that BIS views as possible threats to national security:

• a control under ECCN 5A001.f for certain sophisticated cellular phone jamming equipment, to address its capabilities to selectively jam cellular phone communications.
• new control parameters regarding network identification codes that could be generated using cryptographic techniques, and systems control characteristics for systems using ultra-wideband modulation techniques under ECCN 5A002.a.6.
• a control under 5A002.a.9 for quantum cryptography, an advancement in cryptography that enables a literally unbreakable “one-time-pad” cipher, which can be used to securely distribute shared keys for conventional digital cryptography algorithms.  This addition is tempered by the qualification of quantum cryptography items for License Exception ENC, authorizing certain exports, reexports, and technical assistance to countries in the European Union’s “license-free zone”, which includes countries such as Australia, Ireland, and Lithuania.

Also significant is the deletion of ECCN 5D001.c.3, which formally addressed source code specially designed for dynamic adaptive routing, reflecting the wide availability of such technology due to the recent expansion of packet telecommunication networks such as the internet.  BIS notes however, that this software and related technology continue to be controlled for antiterrorism reasons under ECCNs 5D991 and 5E991.  Similarly, a clarification is made to 5A002.c.4 to exclude from control certain model-based simulation software that is specially designed and limited to protect libraries, design attributes, or associated data for the design of semiconductor devices or integrated circuits because the underlying encryption functionality is not directly accessible to the end-user.

Other noteworthy changes include the addition of a control for Underwater Electric Field Sensors to 6A006.b to reflect new civil applications such as underwater exploration; the expansion of 9A012 to include associated systems, equipments, and components of non-military “unmanned aerial vehicles” (“UAV”s); and the addition of 9B010 to control “equipment specially designed for the production of ‘UAV’s and associated systems, equipment, and components controlled by 9A012”.

Additional Wassenaar Participating States
Second, the rule adds Croatia, Estonia, Latvia, Lithuania, South Africa, and Malta to the list of Wassenaar participating states in the EAR, affecting semiannual reporting requirements for exports of certain commodities, software, and technology under Part 743.1 of the EAR.

Expansion of Export Controls
Third, the revisions introduce new or revised export controls on certain items to reflect the addition of controls required by Wassenaar.  This includes commodities and related software and technology controlled for anti-terrorism and national security reasons and technology required for the development, production or overhaul of commercial aircraft engines controlled for “significant items” reasons to all countries except Canada.  These revisions do not significantly change existing licensing requirements, but rather add licensing requirements for new ECCN numbers such as those described above.  Moreover, the revisions evidence BIS’s position that under the U.S. Export Administration Act and International Emergency Economic Powers Act, the United States may impose unilateral license requirements in addition to those required by Wassenaar. 

These changes to the EAR were issued as a final rule and made effective as of September 7, 2006.  There will be no notice and comment period.  Should you have any questions regarding the regulation, please contact Ed Krauland at 202-429-8083, Peter Lichtenbaum at 202-429-6263, or Negar Katirai at 202-429-8028.