International Law Advisory - BIS Expands Eligible Items Under Certain License Exceptions

Earlier this week, the Department of the Commerce, Bureau of Industry and Security (“BIS”) issued a final rule amending the Export Administration Regulations (“EAR”) to expand and clarify eligibility under two widely-used EAR license exceptions, License Exception TMP (“Temporary Imports, Exports, and Reexports”) (§ 740.9) and License Exception BAG (“Baggage”) (§ 740.14).  See 72 Fed. Reg. 238 at 70509-70513 (December 12, 2007).  Specifically, the revisions allow for the export or reexport of technology and technical information subject to the EAR by US persons to US persons or their employees traveling or temporarily assigned abroad, subject to certain important limitations.  Previously, License Exceptions TMP and BAG were focused only on hardware and software and did not authorize technology exports and reexports. 

By way of background, Part 740 of the EAR contains provisions that allow exporters and reexporters to export or reexport, under stated conditions, items subject to the EAR that would otherwise require a license.  License Exception TMP authorizes various temporary exports and reexports; exports and reexports of items temporarily in the United States; and exports and reexports of beta test software intended for distribution to the general public.  License Exception BAG authorizes individuals leaving the United States either temporarily (traveling) or longer-term (relocating) and crew members of exporting or reexporting carriers to take abroad with them certain classes of items subject to EAR controls.  Both license exceptions are subject to specific restrictions as to the uses of the items abroad, eligible items’ destinations, and requirements to return the items to the United States.

Both the TMP and BAG license exceptions contain a specific authorization for “usual and reasonable kinds and quantities of tools of trade.”  Before the new rule came into effect on December 12, such tools of trade were limited to commodities, such as laptop computers or personal communications devices, and software.  In this regard, BIS was of the traditional view that technology could not be temporarily exported, i.e., once the technology had been transferred, disclosed, or released, it was deemed permanently exported.  The rule changes reflect BIS’ recognition that in certain circumstances technology can be temporarily transferred without it being considered a permanent export.  Under BIS’ former policy, a simple matter could lead to technical violations of the EAR when, for example, a US person traveled abroad with a company laptop computer, allowed under TMP, but the laptop contained EAR-controlled dual-use technology or technical information that was then considered transferred to foreign destinations or persons without BIS’ authorization.

The eligible items now are expanded to include technology, either in the form of actual shipments, transmissions, or other “releases.”  Notably, the other categories of exports/reexports authorized under TMP and BAG apart from “tools of trade” – e.g., “kits consisting of replacement parts,” “exhibition and demonstration,” “inspection and calibration,” “assembly in Mexico,” “news media,” “Country Group B” exports to corporate affiliates, etc. – continue to be limited to hardware and software.

It is also important to note that the expansion of the “tools of trade” provisions in TMP and BAG are subject to a number of limitations, including the following:

• The technology exports/reexports may be made only by “ US persons” (defined in the regulation to include citizens, lawful permanent residents, and “protected individuals” under the US immigration laws, and companies organized under the laws of the United States or US state law).  15 C.F.R. §§ 740.9(a)(2)(i)(C), 740.14(b)(4)(i).

• In the case of TMP, the technology exports/reexports may be made only to US persons or employees of US persons traveling or temporarily assigned abroad.  15 C.F.R. § 740.9(a)(1).  BAG authorizes exports/reexports of technology only by US persons who will use the technology abroad for their own use or the use of immediate family members (who also must be US persons) traveling with them.  15 C.F.R. § 740.14(b).

• In the case of exports/reexports under TMP to non-US persons employed by US companies, the US company must document in its internal records that the employee requires the technology for her/his business activities abroad.  15 C.F.R. § 740.9(a)(3)(iv)(A)(2).  An important implication noted by this change is that certain technology can be transferred to foreign persons employed by US companies when traveling abroad using TMP, subject to recordkeeping requirements, without concern of violating “deemed export” rules, particularly if the technology is otherwise NLR (no license required) or another license exception applies (i.e., Technology and Software – Unrestricted (TSU)). 

• As a corollary, the promulgated rule does not authorize “new releases of technology,” and the recipient of the technology abroad must “already be authorized to receive the same technology in accordance with the EAR[.]”  15 C.F.R. § 740.9(a)(1).  This limitation is intended to prevent a loophole in the EAR deemed export rule, which restricts the sharing of certain controlled dual-use technologies with non-US persons (whether inside or outside of the United States).  What this change means is that if a US company intends to export/reexport dual-use controlled technology under TMP to an employee who is a foreign person, that transfer will be compliant with the EAR only if the employee is already authorized to receive the technology in the United States or other countries (either under a license, license exception, or because a license was not required for the initial sharing of the technology).
  

• In the case of TMP, the US person who exports/reexports the technology must maintain “supervision” over the technology (the term “supervision” is not defined).  15 C.F.R. § 740.9(a)(3)(iv)(A)(3).
  

• The exporter/reexporter and recipient must adopt security measures (examples of which are provided in the regulations) to ensure that the technology is not released to unauthorized persons during transmission or while in use abroad.  15 C.F.R. §§ 740.9(a)(3)(iv)(B), 740.14(h)(2).
  

• Encryption technology controlled under ECCN 5E002 is excluded entirely under TMP, and permitted under BAG  for exports/reexports to countries except those in Country Group E:1 (i.e., Cuba, Iran, North Korea, Sudan, and Syria).  15 C.F.R. §§ 740.9(a)(3)(ii)(B), 740.14(h)(4).
  

• Other pre-existing limitations in TMP and BAG continue to apply (including requirements, subject to certain exceptions, to return the items to the United States).

These revisions to the EAR are effective immediately.  There is no formal comment period for the regulation, but BIS has invited public comments on a continuing basis.  Should you have any questions about the new rule or any related export control issues, please contact Ed Krauland at 202.429.8083 or Jack Hayes at 202.429.6491 in Washington, DC, or David Lorello at +44 20 7367 8007 in London.