Commerce Launches Rulemaking Process on Foundational Technologies, Hints at Three Potential Areas of Control

Two years after the Export Control Reform Act of 2018 (ECRA) was signed into law, the Department of Commerce, Bureau of Industry and Security (BIS) finally published the advance notice of proposed rulemaking (ANPRM) on foundational technologies. The ANPRM seeks public comment on criteria for identifying and defining “foundational technologies” essential to US national security. Clocking in at barely five pages double-spaced, the ANPRM explains that BIS will be looking at items that are controlled only for anti-terrorism (AT), crime control (CC), short supply (SS), or United Nations (UN) embargoes or designated as EAR99 in establishing new Foundational Technologies Controls. Comments are due by October 26, 2020.

BIS published the ANPRM as required by ECRA §1758, which requires BIS to establish appropriate controls on the export, re-export, or transfer (in country) of emerging and foundational technologies. During the 2018 congressional debate on expanding the jurisdiction of the Committee for Foreign Investment in the United States (CFIUS), proponents of the Foreign Investment Risk Review Modernization Act (FIRRMA, which was enacted concurrently) sought to give CFIUS jurisdiction over certain overseas joint ventures that they viewed as de facto acquisitions of industrial capabilities related to foundational technologies. That portion of FIRRMA met with opposition from both industry and BIS, and the foundational technologies mandate of ECRA §1758 was crafted and substituted in as a compromise approach in which BIS would remain in the driver’s seat in regulating these types of transactions, instead of CFIUS. As reported in our previous alert, in November 2018, BIS also published an ANPRM seeking public comment on criteria for identifying and defining “emerging technologies” essential to US national security. On January 6, 2020, BIS issued an interim final rule on the first unilateral “emerging technology,” which imposed export controls on certain artificial intelligence software specially designed to automate the analysis of geospatial imagery. (BIS has imposed other emerging technology controls that were also adopted by multilateral export control groups such as the Wassenaar Arrangement and the Australia Group).

While this BIS ANPRM has the potential to establish new export controls on “foundational technologies” under the Export Administration Regulations (EAR), any “foundational technologies” identified by BIS will be “critical technologies” for the purposes of the CFIUS. Therefore, CFIUS may assert its jurisdiction over transactions involving US businesses that produce, design, test, manufacture, fabricate, or develop one or more “foundational technologies” identified by BIS. In our previous alert, we provided an analysis of the CFIUS implications of “foundational technologies” that will be controlled by BIS.

Foundational Technology Categories Identified by BIS

BIS clarified that it is not seeking to expand its jurisdiction over technologies that are not currently subject to the EAR, such as “fundamental research” described in EAR §734.8. The ANPRM requests comments from the public that will inform BIS and its interagency partners’ efforts to identify, reevaluate, and control “foundational technologies.” In the ANPRM, BIS hinted  at the following three areas for potential controls:

1. Items controlled for military end uses/users: The ANPRM notes that “foundational technologies could include items that are currently subject to control for military end use or military end user reasons under Supplement No. 2 to part 744 of the EAR. Many of these items, including semiconductor manufacturing equipment and associated software tools, lasers, sensors, and underwater systems, can be tied to indigenous military innovation efforts in China, Russia or Venezuela. Accordingly, they may pose a national security threat.”

   As reported previously, in April 2020 BIS issued a final rule imposing stricter requirements on a wide range of exports, re-exports, and transfers to China, Russia, or Venezuela for “military end uses” or to “military end users.” Because the military end user/end use rules in part 744.21 cover exports of items listed in EAR 744, Supplement 2, it is unclear why it would be necessary to impose additional controls to target military end users or end uses in these countries.

1. Items required to develop conventional weapons, used in foreign intelligence gathering and WMD applications: The ANPRM also notes that controls may be warranted “if the items are being utilized or required for innovation in developing conventional weapons, enabling foreign intelligence collection activities, or weapons of mass destruction applications.” Part 744 of the EAR already requires a license for exports of all items subject to the EAR for certain specified WMD proliferation activities, and Part 744.21 already covers military end use/user issues for three of the countries of concern.

1. Items that have been subject to illicit procurement efforts: The ANPRM states that more controls may be needed for “technologies that have been the subject of illicit procurement attempts which may demonstrate some level of dependency on US technologies to further foreign military or intelligence capabilities in countries of concern or development of weapons of mass destruction.” The fact that items may have been the subject of “illicit” procurement attempts would seem to indicate that it is already illegal for the persons in question to procure them. If this is in fact the case, one wonders why additional controls are warranted.

When and How to File Comments

BIS welcomes comments on:

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

Comments from the general public should be submitted in writing to BIS by October 26, 2020. Comments can be submitted through the Federal eRulemaking Portal under BIS-2020-0029 or by mail or delivery to Regulatory Policy Division, Bureau of Industry and Security, US Department of Commerce, Room 2099B, 14th Street and Pennsylvania Avenue NW, Washington, DC 20230. Refer to RIN 0694-AH80. Comments are public, so you should not include any proprietary or other sensitive data that you do not want to become publicly available or otherwise disseminated.

Although the ANPRM is a bit vague, the potential for either more strongly controlling items currently controlled as EAR99 or for AT, CC, SS, or UN reasons should prompt companies and universities alike to submit comments. Controls on foundational technologies may have unintended consequences with respect to US innovation and global competitiveness, as well as the ability to collaborate due to non-US person restrictions. Consideration should be given to targeted controls focusing on end-users and end-uses of concern.