BIS Invites Comment on Identifying Emerging Technologies Subject to New Export Controls and CFIUS
Update: Note that the comment period has been extended from its original deadline of December 19, 2018 to January 10, 2019.
The US Department of Commerce Bureau of Industry and Security (BIS) recently issued an advance notice of proposed rulemaking (ANPRM) seeking public comment on criteria for identifying "emerging technologies" that will be subject to new export licensing requirements and controls in the future.1 The ANPRM suggests that the emerging technologies subject to additional government regulation could include a broad range of areas—biotechnology, data analytics technology, additive manufacturing, logistics technology, among others—that are not already considered to be sensitive from a national security perspective. The ANPRM is the first step toward BIS adopting rules designating which technologies should be subjected to additional US export controls. This could have a significant impact on US businesses that make these technologies because the law mandates that BIS require a license for the export of emerging and foundational technologies to China and other countries subject to a US embargo, although BIS has discretion to decide whether export licenses will be required for other destinations.
Technologies determined to be "emerging technologies" will now also be subject to scrutiny by the Committee on Foreign Investment in the United States (CFIUS), which reviews certain foreign investments in the United States for national security concerns. Therefore, how BIS makes its "emerging technologies" designations is of great significance both for US companies seeking to export their products and services to non-US persons and companies, and also to foreign persons and entities seeking to invest in US companies involved in designing, testing or producing emerging technologies.
BIS is inviting public comments on the ANPRM only until January 10, 2019, so interested parties should not delay in considering whether to offer input through comments.
As part of the National Defense Authorization Act for Fiscal Year 2019 (NDAA), Public Law No. 115-232, the US government enacted the Export Control Reform Act of 2018 (ECRA) on August 13, 2018.2 The ECRA authorizes BIS to establish appropriate controls, including interim controls, on the export, re-export or in-country transfer of "emerging and foundational technologies," which the ECRA describes as technologies that are essential to US national security but are not currently export-controlled. Pursuant to the ECRA, the designation of emerging and foundational technologies will be determined by an interagency body that will consider both public and classified information as well as information from CFIUS and the US Department of Commerce's Emerging Technology Technical Advisory Committee (ETTAC).3 This process is anticipated to result in regulations for new Export Control Classification Numbers (ECCNs) on the Commerce Control List (CCL).
Along with the ECRA, Congress included in the NDAA the Foreign Investment Risk Review Modernization Act (FIRRMA), which expanded considerably the jurisdiction of CFIUS, the interagency body charged with reviewing and making national security-based recommendations to the US president regarding whether to allow foreign investments in US companies.4 While CFIUS previously was authorized to review only transactions that resulted in foreign control over a US business, under FIRRMA, the covered transactions subject to CFIUS review also include foreign noncontrolling investments in US critical technology or infrastructure used in or designed for use in designated industries. FIRRMA defines "critical technologies" to include, among other things, emerging and foundational technologies controlled under the ECRA. Thus, the designation of emerging technologies pursuant to the process triggered by the ANPRM will be highly significant for foreign investments in certain US businesses, particularly because parties planning investments in US businesses designing, testing or producing such technologies may be required to file a "declaration" with CFIUS describing the transaction at least 45 days before the planned transaction closing date. As a result, a foreign investment could trigger mandatory CFIUS filing requirements if the investment is in a US company that produces, designs, tests, manufactures, fabricates, or develops emerging technologies used in or designed for use in designated industries.
As discussed in one of our recent Advisories,5 interim rules promulgated by CFIUS in October already require the filing of such declarations with respect to any "pilot program covered transaction," which the interim regulations define as certain equity investments in a US business that produces, designs, tests, manufactures, fabricates, or develops a "critical technology" either used or designed for use in certain industries. Thus, if the BIS rules designating emerging technologies are finalized and take effect within the lifespan of the CFIUS interim rules—which could be until March 5, 2020—declarations to CFIUS will be mandatory as of the BIS rules' effective date with respect to certain investments in US businesses that produce, design, test, manufacture, fabricate, or develop an emerging technology. CFIUS's final FIRRMA rules will very likely impose the same mandate.
In identifying emerging and foundational technologies, the interagency body charged with this task must consider:
- The development of emerging and foundational technologies in foreign countries;
- The effect export controls may have on the development of such technologies in the United States; and
- The effectiveness of export controls on limiting the proliferation of emerging and foundational technologies in foreign countries.
To assist in identifying emerging technologies and applying appropriate controls, the ANPRM proposes the following representative technology categories for public comment:
- Artificial intelligence and machine learning technology
- Position, navigation and timing technology
- Microprocessor technology
- Advanced computing technology
- Data analytics technology
- Quantum information and sensing technology
- Logistics technology
- Additive manufacturing (e.g., 3D printing)
- Brain-computer interfaces
- Advanced materials
- Advanced surveillance technologies
The public comment period, ending on January 10, 2019, provides an opportunity for industry and other interested third parties to help inform BIS's process to develop controls that enhance national security without hampering the ability of the US commercial sector to keep pace with international advances in emerging fields.
The ANPRM seeks public comment on criteria for defining and identifying "emerging technologies." Identification of "foundational technologies" will be the subject of a separate ANPRM. Specifically, BIS now invites public comments on:
- How to define emerging technology to assist identification of such technology in the future;
- Criteria to apply to determine whether there are specific technologies within these general categories that are important to US national security;
- Sources to identify such technologies;
- Other general technology categories that warrant review to identify emerging technologies that are important to US national security;
- The status of development of these technologies in the United States and other countries;
- The impact that specific emerging technology controls would have on US technological leadership; and
- Any other approaches to the issue of identifying emerging technologies important to US national security, including the stage of development or maturity level of an emerging technology that would warrant consideration for export control.
For purposes of this ANPRM, BIS does not seek to alter existing controls on technology already specifically described in the CCL. BIS also does not plan to expand jurisdiction over technologies not currently subject to the Export Administration Regulations (EAR), such as "fundamental research" described in 15 C.F.R. § 734.8 (i.e., academic research that is intended to be published).
Although BIS will issue a separate ANPRM regarding identification of foundational technologies that may be important to US national security, BIS currently seeks public comment on the policy of treating emerging and foundational technologies as separate types of technology.
Following this public comment period, BIS will publish a proposed rule outlining export controls on specific emerging technologies. This proposed rule in turn will be subject to its own notice and comment period, which likely also will be short. BIS then may publish additional rounds of proposed rules or may issue a final rule. Providing comments at the outset of the regulatory process can prove critical in some cases in setting the regulatory process in a desired direction, even if the comments are brief.
Industry and other interested persons have an opportunity through this public comment process to influence the interagency process to identify emerging technologies and determine their appropriate level of export control.
Companies potentially affected by these new controls also should prepare for the pending controls by identifying US-origin technologies that may be targeted for control and evaluating the extent to which they intend to share those technologies with non-US persons and whether they anticipate foreign investments that could be subject to CFIUS review.
Given the significance of these regulations and BIS's plan to take into account comments submitted when promulgating the proposed regulations, any entities that may be affected by the regulations may wish to consider filing comments. As noted, comments are due by January 10, 2019.
© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.