On November 19th, the Commerce Department’s Bureau of Industry and Security (“BIS”) published an Advanced Notice of Proposed Rulemaking soliciting public comments with respect to the so-called “emerging technologies” provisions of the recently enacted Export Control Reform Act of 2018 (“ECRA”). Section 1758 of the ECRA requires the implementation of export controls on emerging and foundational technologies, as well as increased foreign investment reviews for U.S. companies responsible for developing or producing such technologies. The BIS’ notice requests that interested members of the public submit comments on the criteria that the U.S. government should utilize for defining and identifying emerging technologies—comments are due no later than December 19, 2018. A separate request for public comment on “foundational technologies” will be published separately at a later date.

By way of background, the BIS is one of the primary U.S. export agencies that controls exports, reexports and in-country transfers of commodities, software and technologies that are subject to the Export Administration Regulations (“EAR”). See 15 Code of Federal Regulations Parts 730 – 774. Depending upon the classification of items that are subject to the EAR, the end-users and destination countries to which they may be transferred, and their end-use, the BIS may require an export license before such transfers may occur. In addition, in certain situations, such transfers may be prohibited altogether.

The underlying statute of the EAR, the ECRA, was enacted into law in August 2018 as part of the National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-232). Section 1758 of the ECRA specifically requires the implementation of controls on exports, reexports and in-country transfers of emerging and foundational technologies that are essential to the national security of the United States and for which no current U.S. export restrictions exist. Such controls will ultimately require that a license be obtained prior to the export of such technologies to countries that are subject to a U.S. arms embargo, such as the so-called proscribed countries identified in Section 126.1 of the International Traffic in Arms Regulations (ITAR) which include:

  • China
  • Afghanistan
  • Belarus
  • Burma
  • Central African Republic
  • Cuba
  • Cyprus
  • Democratic Republic of Congo
  • Eritrea
  • Haiti
  • Iran
  • Iraq
  • Lebanon
  • Libya
  • North Korea
  • Somalia
  • South Sudan
  • Sudan
  • Syria
  • Venezuela
  • Zimbabwe

In addition, under a new pilot program rolled out on November 10, 2018 under the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), potential foreign investors in U.S. companies that produce, design, test, manufacture, fabricate or develop emerging and foundational technologies intended for use in one of twenty-seven (27) specified industries are required to file declarations with CFIUS and seek CFIUS approval if the foreign investor will acquire control, access to material non-public technical information, board of director rights, or other substantive decision-making authority in the U.S. companies. Currently, foreign investors in U.S. companies can invest in the newest and most relevant technologies, thereby gaining hands-on experience with those technologies at the same rate as the U.S. does. Given that the U.S. government does not currently monitor or restrict venture investing nor transfers of such early-stage technologies, the U.S. may lose key strategic technologies that are of particular interest to the Department of Defense and other vital U.S. national security interests.

The BIS’ Federal Register notice outlines the following fourteen (15) categories of technologies that are proposed to be targeted for the identification and control of emerging technologies:

  • Biotechnology (e.g., nanobiology; synthetic biology; genomic or genetic engineering; or neurotech);
  • Artificial intelligence and machine learning technology (e.g., neural networks and deep learning such as brain modelling, time series prediction, classification; evolution and genetic computation such as genetic algorithms, genetic programming; reinforcement learning; computer vision such as object recognition and image understanding; expert systems such as decision support systems, teaching systems; speech and audio processing such as speech recognition and production); natural language processing such as machine translation; planning such as scheduling and game playing; audio and video manipulation technologies such as voice cloning and deepfakes; AI cloud technologies; or, AI chipsets);
  • Position, Navigation, and Timing (PNT) technology;
  • Microprocessor technology, such as: (i) Systems-on-Chip (SoC); or (ii) Stacked Memory on Chip;
  • Advanced computing technology, such as memory-centric logic;
  • Data analytics technology, such as: (i) Visualization; (ii) Automated analysis algorithms; or (iii) Context-aware computing;
  • Quantum information and sensing technology, such as (i) Quantum computing; (ii) Quantum encryption; or (iii) Quantum sensing;
  • Logistics technology, such as: (i) Mobile electric power; (ii) Modeling and simulation; (iii) Total asset visibility; or (iv) Distribution-based Logistics Systems (DBLS);
  • Additive manufacturing (e.g., 3D printing);
  • Robotics such as: (i) Micro-drone and micro-robotic systems; (ii) Swarming technology; (iii) Self-assembling robots; (iv) Molecular robotics; (v) Robot compliers; or (vi) Smart Dust;
  • Brain-computer interfaces, such as (i) Neural-controlled interfaces; (ii) Mind-machine interfaces; (iii) Direct neural interfaces; or (iv) Brain-machine interfaces;
  • Hypersonics, such as: (i) Flight control algorithms; (ii) Propulsion technologies; (iii) Thermal protection systems; or (iv) Specialized materials (for structures, sensors, etc.);
  • Advanced Materials, such as: (i) Adaptive camouflage; (ii) Functional textiles (e.g., advanced fiber and fabric technology); or (iii) Biomaterials; and,
  • Advanced surveillance technologies, such as: Faceprint and voiceprint technologies.

The notice requests public comments on the following specific issues: (1) how emerging technology should be defined to assist identification of such technology in the future; (2) the criteria for determining whether the above technologies are important to U.S. national security; (3) the sources that should be utilized to identify such technologies; (4) other technology categories that warrant review; (5) the status of development of these technologies in the United States and other countries; (6) the impact that emerging technology controls would have on U.S. technological leadership; and, (7) other approaches that can be used to identify emerging technologies.

Because the definition that will ultimately be applied to the term emerging technologies, as well as the U.S. export controls and foreign investment requirements that may be implemented for such technologies, will significantly impact U.S. companies operating in these high-tech areas, companies should consider filing public comments with the BIS by December 19, 2018, and to monitor closely the developments in this area. Comments may be submitted electronically through the online Federal eRulemaking Portal at http://www.regulations.gov under Identification Number BIS 2018-0024. Comments may also be submitted in hardcopy by mail or courier to: Regulatory Policy Division, Bureau of Industry and Security, U.S. Department of Commerce, Room 2099B, 14th Street and Pennsylvania Avenue NW, Washington, D.C. 20230.  For further details, see: 83 Federal Register 58201 (November 19, 2018) at: https://www.federalregister.gov/documents/2018/11/19/2018-25221/review-of-controls-for-certain-emerging-technologies.

If you have any questions pertaining to the BIS notice, the ECRA or other international trade issues, please contact Melissa Proctor (melissa@millerproctorlaw.com) or Peggy Chaplin Louie (peggy@millerproctorlaw.com) at Miller Proctor Law PLLC (https://millerproctorlaw.com/ )