Administration Moves Toward Strengthening Export Controls and Investment Restrictions on “Emerging Technologies”

Yesterday the US Department of Commerce’s Bureau of Industry and Security (BIS) took its first step towards a potentially significant expansion of US export controls by publishing a Federal Register notice soliciting public comments on how the US government should regulate the export of “emerging technologies.” Under the Export Controls Reform Act of 2018 (ECRA), “emerging and foundational technologies” will be subject to additional export controls and will trigger heightened foreign investment reviews for US companies that produce or develop these technologies.  Commerce has requested public comments on the “criteria for defining and identifying emerging technologies” by December 19, 2018.  Commerce will begin a separate comment process regarding “foundational technologies” at a later date. Export Controls BIS regulates the export of “dual-use” and less sensitive military items through the Commerce Control List (CCL) and the Export Administration Regulations (EAR). Section 1758 of the ECRA, enacted in August 2018 as a part of the National Defense Authorization Act for Fiscal Year 2019, requires BIS to establish “appropriate controls” for the export, re-export, or in-country transfer of “emerging and foundational technologies” that “are essential to the national security of the United States” but are not yet subject to US export controls.  While Commerce will have the discretion to set the level of export controls for any identified emerging and foundational technologies, at a minimum it must require a license for the export of these technologies to countries subject to a US arms embargo. (Section 126.1 of the International Traffic in Arms Regulations (ITAR) identifies several countries, including China, currently subject to an arms embargo by the United States.) Foreign Investments The identification of emerging technologies also will have implications for inbound foreign investments, as investments in US companies that produce or develop these technologies may be subject to increased scrutiny under the “pilot program” created by the Committee on Foreign Investment in the United States (CFIUS) pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).  Under FIRRMA’s Pilot Program, which was announced October 10, 2018 and entered into force on November 10, 2018, foreign investors in a US business that produces, designs, tests, manufactures, fabricates, or develops an “emerging and foundational technology” (or any other “critical technology”) used or designed for use in one of 27 identified Pilot Program industries must file declarations with CFIUS and seek CFIUS’s approval, if the foreign investor acquires control, access to “material non-public technical information,” board of director or equivalent rights, or other involvement in certain substantive decision-making by the US company. For additional analysis of the CFIUS Pilot Program, see our previous post here. Comment Process for Emerging Technologies BIS’s notice lists 14 broad categories of technology on which the agency intends to focus in determining whether there are any specific emerging technologies that merit control:

• Biotechnology;
• Artificial intelligence (AI) and machine learning technology;
• Position, Navigation, and Timing (PNT) technology;
• Microprocessor technology;
• Advanced computing technology;
• Data analytics technology;
• Quantum information and sensing technology;
• Logistics technology;
• Additive manufacturing;
• Robotics;
• Brain-computer interfaces;
• Hypersonics;
• Advanced materials; and
• Advanced surveillance technologies.

BIS is seeking public comments on seven specific topics: (1) how to define emerging technology to assist identification of such technology in the future; (2) criteria to apply to determine whether there are specific technologies within the 14 general categories that are important to US national security; (3) sources to identify such technologies; (4) other general technology categories that warrant review to identify emerging technology that are important to US national security; (5) the status of development of these technologies in the United States and other countries; (6) the impact specific emerging technology controls would have on US technological leadership; (7) any other approaches to the issue of identifying emerging technologies important to US national security. BIS anticipates that this process ultimately will lead to “proposed rules for new Export Control Classification Numbers (ECCNs) on the CCL” that will cover any identified emerging technologies. Conclusion The definition and identification of “emerging technologies” could have broad implications for US export controls and foreign investments, and we anticipate that BIS will carefully review the public input that it receives as part of its process for creating regulations on this topic. If you would like additional information or have any questions about this posting, please contact one of the above-listed authors. As always, we will keep you abreast of additional developments in this space.