By: Maarten Sengers
On March 11, 2008, BIS’ Acting Assistant Secretary of Export Administration, Matthew Borman addressed the Regulations and Procedures Technical Advisory Committee (RAPTAC) and described a number of Bureau of Industry and Security (BIS) regulatory initiatives of interest to exporters and reexporters. This was welcome news after what seems like years of BIS preoccupation with China Military Catch All and Verified End User issues. Some highlights include:
New License Exception ICT – BIS is working on a rule to create a new license exception ITC or Inter-Company Transfers. The new license exception would allow US companies to export (and deemed export) normally license required hardware, software and technology within their companies and overseas affiliates that they control. It’s not clear yet if the new ICT will see the light of day, but a draft rule is currently circulating. The new license exception could potentially make life a lot easier for US companies, especially on the deemed export front. But the bad news is that the company must apply with BIS to use the license exception. It’s not clear what BIS might expect to grant a company ITC status, but at a minimum you would probably have to demonstrate you have a strong compliance program, if not a host of other obligations.
Encryption Rules Rewrite – Addressing one of the most convoluted sections of the EAR, Mr. Borman advised that BIS is working on rewriting the crypto rules. Whenever anybody in Government talks about encryption they are more secretive than Client 9 arranging for a “date,” but Mr. Borman did offer up a few insights. First, the rewrite would clear Key Management Infrastructure (KMI) references and other encryption related deadwood that no one ever uses anymore. Second, he stated that the revisions would attempt to make the crypto rules more akin to other EAR controls to make it more understandable to regular EAR practitioners and less of a stand-alone specialty as it is now.
De Minimis Reform is Still Alive – Before BIS got sidetracked with the whole China thing, BIS was discussing revising the long neglected de minimis rules. Mr. Borman indicated that BIS had not forgotten about de minimis, or in his words “It’s clear we needed to update de minimis requirements.” When this reform proposal was discussed in the past, BIS indicated that the updated rules would allow a combined hardware and software de minimis calculation. Currently, reexporters must calculate hardware and software separately, and if either is over the de minimis thresholds the item becomes subject to EAR jurisdiction. The reality is that many products have hardware and software together, like a laptop. To do separate calculations for laptop hardware and laptop software often resulted in US jurisdiction even when the total combined US hardware and software content on the laptop was well under US de minimis thresholds.
Deemed Export Country of Affiliation Revisions – Mr. Borman indicated that BIS will be soliciting comments about changing the EAR’s deemed export focus to a “country of affiliation” test. I must admit, I did not understand where BIS was trying to go with this, so this is a pretty worthless news report. Mr. Borman used the example of a Canadian who recently worked for a company on the Entities List, stating that fact would be relevant for determining deemed export license requirements. The implication would be that you could not use the standard Canada-No License Required (NLR) eligibility for deemed exports of technology to this type of person. But in the example given, the current Red Flag rules would probably already suffice in potentially restricting technology deemed exports. Hopefully the fog will lift on what BIS is really trying to do here in the coming months.