One of the most vexing problems in export control is the deemed export rule. The deemed export rule applies under the U.S. Commerce Department’s Export Administration Regulations and the State Department’s International Traffic in Arms Regulations.
The basic idea is that revealing controlled technology to a foreign national in one country is the same thing as exporting that technology to the foreign national’s home country and is, therefore, subject to the same export rules. That much is understandable although Commerce and State rules differ in detail.
The recent transfer to Commerce jurisdiction of items previously controlled by State has caused Commerce to issue new deemed reexport guidelines that permit the recipient of any controlled technology that is subject to the Export Administration Regulations, including technology recently transferred to Commerce jurisdiction from State (the so-called 600 series), to choose one of three possible ways of determining whether a reexport license is necessary:
One is to apply what Commerce calls its “Legacy Guidance,” that is, the guidance in effect prior to issuance of the new guidelines; the second is to apply the ITAR section 124.16 provisions in effect on the date the new Commerce guidance was published (Oct. 31st); the third is to apply the ITAR section 126.18 provisions or relevant State Department guidance in effect on such date.
According to Commerce, this means, in essence, that an entity located outside the United States may, without a license from Commerce, reveal to employees who are dual- or third-country nationals controlled technology or source code that it has lawfully received if:
- The employee’s most recent country of citizenship or residency is (1) the same as the recipient entity’s or (2) one to which an export of the technology would not require a license;
- The employee is (1) a “bona fide regular and permanent employee, (2) a national exclusively of a NATO country, the EU, Australia, Japan, New Zealand or Switzerland and (3) release of the technology or source code “takes place completely within the physical territory of any such country;” or
The employee is (1) a “bona fide regular and permanent employee, (2) release of the technology or source code “takes place completely within the physical territory of the country where [the recipient is located], conduct[s] official business, or operate[s] and (3) any of the following situations appertains:
- The employee has a security clearance approved by the host nation government;
- has the employee execute a non-disclosure agreement;
- screens the employee for substantive contacts with any country on a list of 24 countries subject to various U.S. embargoes or trade restrictions, including Afghanistan, Burma, China, Cuba, Iran, Iraq, North Korea, Lebanon, Libya, Somalia, Sudan, Syria and Venezuela; and
maintains a technology security plan;
- The recipient is a UK, Canadian, Australian or Dutch entity implementing various sections of the ITAR.
Commerce notes, in addition, that a Commerce license, as compared to the general authorization described above, permitting the release of technology to an entity also permits release of the technology to the entity’s dual- and third-country nationals if they are “permanent and regular employees of the entity’s facility or facilities authorized on the license.” This would be a good reform if it is actually effectuated.
But Commerce goes on to say that this general rule applies “except to the extent a license condition limits or prohibits the release of the technology to nationals or specific countries or country groups.” If this is the intended reform, everything else would be essentially unnecessary. So does the left hand take away what the right hand giveth?
Commerce bills its new guidance as an effort to lay a foundation for harmonizing disparate regulatory regimes and avoid what might otherwise constitute unwarranted licensing burdens. Burdensomeness is to some extent in the eye of the beholder, however, but it is a fair bet that, despite best efforts, the new guidance will continue to vex some in their attempts to grapple with obviously complex deemed export rules.