On June 3, 2016, both the Department of Commerce (Commerce) Bureau of Industry and Security (BIS) and the Department of State (State) Directorate of Defense Trade Controls (DDTC) issued final rules respectively revising the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) to, among other things, harmonize certain definitions and enhance clarity and consistency across the regulations.
The objectives of the rules, and of the Administration's Export Control Reform (ECR) initiative generally, are to streamline, clarify and update the regulatory text. BIS and DDTC are seeking to improve the alignment between the language in the EAR and ITAR in instances when both sets of regulations share the same purpose, and when there are differences in purpose, BIS and DDTC seek to reflect those differences more clearly in the regulations. The initiative attempts to enhance U.S. national and economic security, facilitate compliance with export controls, update the controls, and further the goal of reducing unnecessary regulatory burdens on U.S. exporters. Terms receiving updated definitions include “access information,” “technology,” “required,” “foreign person,” “proscribed person,” “published,” results of “fundamental research,” “export,” “reexport,” “release,” “transfer,” and “transfer (in-country).”
Additionally, the BIS rule revises the “Scope” part of the EAR at §734 to update and clarify the application of controls to electronically transmitted and stored technology and software, including transmission and storage through cloud computing. The significant substantive change spells out the safe-harbor provision exempting from EAR control data that is transmitted over electronic networks in encrypted form. The new EAR §734.18 states that BIS will not treat as an export, reexport, or transfer “sending, taking, or storing” unclassified technology or software that is secured using “end-to-end encryption.” In essence, transmission of encrypted data meeting these criteria will not be subject to regulation under the EAR. There is no formal comment period, but public comments are welcome on a continuing basis. The rule became effective September 1, 2016. (81 Fed. Reg. 35,586, 6/3/16)
The definitional changes could have a substantial impact on exporters of items controlled on the Commerce Control List or the United States Munitions List. For example, regarding the definition of “release,” formerly the EAR stated that a visual inspection of technology or source code by a foreign person was sufficient by itself to constitute a release of that technology or source code to a foreign person and thereby qualify as a “deemed export” to the home country of that foreign person. Now, under the revised definition of release, the standard is heightened, requiring a “visual or other inspection” of an item that actually reveals technology or source code to the foreign person. BIS explained that the mere act of seeing an item is not necessarily sufficient to constitute a release of the technology required to develop or produce it. Also, a release does not necessarily result from only providing a foreign person with access to controlled equipment, software, or technology in the United States, but oral or written exchanges with a foreign person of technology or source code would constitute a release. DDTC’s updated ITAR definition of “release” accomplishes the same narrow tailoring objectives using harmonized terms. This is merely one among many changes that could impact exporters.
Another example relates to the definition of “export.” DDTC, in response to comments on a 2015 proposed rule, has notably removed the “physical access” requirement from the definition of “export.” Now, theoretical physical access by a foreign person is no longer the test for whether a violation occurred. However, exporters should still be cognizant of the fact that any actual release of technical data will continue to require authorization.
Exporters need to be aware that the EAR and ITAR definitions also still differ in certain significant ways signaling key divergences between the respective regulatory regimes, where the ITAR is fundamentally aimed at imposing stricter controls due to the more sensitive nature of the items controlled therein. Comments on the ITAR amendments were accepted until July 5, 2016. The rule became effective on September 1, 2016. (81 Fed. Reg. 35,611, 6/3/16)