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18-0913 Thursday “Daily Bugle”

18-0913 Thursday “Daily Bugle”

Thursday, 13 September 2018

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The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, DOE/NRC, Customs, NISPOM, EAR, FACR/OFAC, FAR/DFARS, FTR/AES, HTSUS, and ITAR), plus news and events.  Subscribe 
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  1. Commerce/BIS Publishes Correction Concerning 4 Sep EAR Amendment Revising the Entity List
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  4. EU Prolongs Sanctions Over Actions Against Ukraine’s Territorial Integrity Until 15 March 2019
  1. Bloomberg: “Canada to Propose WTO Reform Amid U.S. Protectionism”
  2. The New York Times: “Lawmakers, Citing Muslim Camps, Ask Commerce Dept. to Limit Technology Sales to China”
  3. Reuters: “U.S. Imposes North Korea-Related Sanctions on Russian, Chinese Tech Firms”
  4. ST&R Trade Report: “China to Seek $7 Billion in Retaliation Against U.S. Goods in WTO Dispute”
  1. K.J. Wolf, T.J. McCarthy & S.C. Emme: “The Export Control Reform Act of 2018 and Possible New Controls on Emerging and Foundational Technologies” [Part II of III]
  2. M.E. Leiter, I.A. Schlager & D.L. Vieira: “Tightened Restrictions on Technology Transfer Under the Export Control Reform Act”
  1. ECS Presents “Boot Camp: Achieving ITAR/EAR Compliance” in Orlando, FL on 6-7 Feb 2019
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (12 Jun 2018), DOD/NISPOM (18 May 2016), EAR (13 Sep 2018), FACR/OFAC (29 Jun 2018), FTR (24 Apr 2018), HTSUS (14 Aug 2018), ITAR (30 Aug 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1

Commerce/BIS Publishes Correction Concerning 4 Sep EAR Amendment Revising the Entity List  

(Source: 
Federal Register, 13 Sep 2018.) [Excerpts.]
 
83 FR 46391-46392: Addition of Certain Entities to the Entity List, Revision of Entries on the Entity List and Removal of Certain Entities From the Entity List; Correction
 
* AGENCY: Bureau of Industry and Security, Commerce.
* ACTION: Final rule; correction. … 
* DATES: This correction is effective September 13, 2018. …
* SUPPLEMENTARY INFORMATION: On September 4, 2018, at 83 FR 44821, BIS published a rule amending the Entity List in 15 CFR part 744, supplement 4. An amendatory instruction noted the addition of two entities for Pakistan, but provided the name of one only. Both entities appeared in the amendment’s regulatory text and were codified on the rule’s effective date. This document clarifies the rule by correcting the amendatory instruction to carry the names of both entities as originally intended.
    Therefore, in FR Rule Doc. No. 2018-18766, published September 4, 
2018, at 83 FR 44821, the following correction is made:
 
— 1. On page 44824, in the third column, amendatory instruction 2.d is corrected to read as follows:
— 2. * * *
— d. Under Pakistan, by adding in alphabetical order two Pakistani entities “Technology Link PVT. Ltd.” and “UEC (Pvt.) Ltd.”;
 
  Dated: September 7, 2018.
 
Karen Nies-Vogel, Director, Office of Exporter Services.

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OGSOTHER GOVERNMENT SOURCES

OGS_a12. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

* President; EXECUTIVE ORDERS; Elections, U.S.; Imposing Sanctions in the Event of Foreign Interference (EO 13848) [See today’s White House item in today’s Daily Bugle; Publication Date: 14 Sep 2018.]
 
* Commerce/BIS; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals:
License Transfer and Duplicate License Services [Publication Date: 14 Sep 2018.]

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OGS_a5
5. 
EU Prolongs Sanctions Over Actions Against Ukraine’s Territorial Integrity Until 15 March 2019

(Source: 
Council of the European Union, 13 Sep 2018.) 
 
The EU Council has prolonged the restrictive measures over actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine for a further six months, until 15 March 2019. The measures consist of asset freezes and travel restrictions. They currently apply to 155 persons and 44 entities.
 
An assessment of the situation did not justify a change in the sanctions regime. The relevant information and statement of reasons for the listing of these persons and entities were updated as necessary. 
 
The legal acts were adopted by the Council by written procedure. They will be available in the EU Official Journal of 14 September 2018.
 
Other EU measures in place in response to the Ukraine crisis include:
  – economic sanctions targeting specific sectors of the Russian economy, currently in place until 31 January 2019;
  – restrictive measures in response to the illegal annexation of Crimea and Sevastopol, limited to the territory of Crimea and Sevastopol, currently in place until 23 June 2019.

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NWSNEWS

(Source: 
Bloomberg, 12 Sep 2018.) [Excerpts.] 
 
The Canadian government is poised to release a blueprint to reform the World Trade Organization (WTO) as countries adjust to a newly protectionist America that has threatened to leave the organization entirely.
 
Canadian trade officials, who spent August working on a draft of the proposal called “Strengthening and Modernizing the WTO,” are seeking to forge an alliance of like-minded countries to “restore confidence in the multilateral trading system and discourage protectionist measures and countermeasures,” according to a copy of the draft obtained by Bloomberg.
 

A group of senior-level trade officials will gather in Geneva on Sept. 20 to discuss the Canadian proposal and prepare the groundwork for ministerial talks scheduled to take place in Ottawa from Oct. 24 to Oct. 25. … 

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NWS_a2
7
The New York Times: “Lawmakers, Citing Muslim Camps, Ask Commerce Dept. to Limit Technology Sales to China”

(Source: 
The New York Times, 12 Sep 2018.) [Excerpts.] 
 
Members of Congress sent a letter on Wednesday to Commerce Secretary Wilbur Ross pressing him to impose limits on the sale of certain technologies by American companies to Chinese companies or agencies. The lawmakers argued that Chinese security forces might use the technologies for overbearing surveillance and other human rights abuses.
 
The two signers of the letter, Senator Marco Rubio, Republican of Florida, and Representative Christopher H. Smith, Republican of New Jersey, wrote that their concerns were “particularly acute” in relation to technologies used by security forces that are maintaining surveillance and mass internment camp systems on Muslim minorities in the northwest region of Xinjiang. … 
 

The letter, which represents the views of the Congressional-Executive Commission on China, was issued as discussions intensify within the United States government about how to punish China for the camps, and is the second one the commission has sent to Mr. Ross this year on this issue. … 

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NWS_a3
8
Reuters: “U.S. Imposes North Korea-Related Sanctions on Russian, Chinese Tech Firms”

(Source: 
Reuters, 13 Sep 2018.) [Excerpts.] 
 
The new sanctions target China-based Yanbian Silverstar Network Technology Co, its North Korean chief executive Jong Song Hwa, and a Russian-based sister company, Volasys Silver Star, the U.S. Treasury Department said in a statement. 
 
  “These actions are intended to stop the flow of illicit revenue to North Korea from overseas information technology workers disguising their true identities and hiding behind front companies, aliases, and third-party nationals,” Treasury Secretary Steven Mnuchin said in a statement.
 
Mnuchin warned companies across the globe “to take precautions to ensure that they are not unwittingly employing North Korean workers for technology projects.” … 
 
Washington has also accused Russia of violating U.N. sanctions on North Korea by granting work permits to North Korean laborers despite Russia’s denial of any such actions.

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NWS_a4
9
ST&R Trade Report: “China to Seek $7 Billion in Retaliation Against U.S. Goods in WTO Dispute”

(Source: 
Sandler, Travis & Rosenberg Trade Report, 13 Sep 2018.)
 
According to press reports, China has requested that the World Trade Organization authorize it to take retaliatory measures against $7 billion in U.S. exports to that country on the grounds that Washington has made “no substantive effort” to meet an Aug. 22 deadline for complying with a 
WTO ruling against various aspects of the way the Department of Commerce calculates antidumping duties.
 
China said its measures would take the form of a suspension of concessions or other obligations. Typically that means an increase in import tariffs, but given that the U.S. and China have already imposed or threatened to impose higher tariffs on nearly all of their bilateral trade, other forms of retaliation could be a possibility.
 
The WTO is scheduled to take up China’s request Sept. 21. At that time the U.S. could object to the amount of retaliation requested, which would send the matter to arbitration. It could also seek the establishment of a panel to determine whether it has in fact complied with the WTO ruling, though the Trump administration acknowledged last month that it is continuing to “consult with interested parties on options to address” the ruling.

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COMMCOMMENTARY

 
* Authors: Kevin J. Wolf, Esq., 
kwolf@akingump.com, +1 202-887-4051; Thomas J. McCarthy, Esq., 
tmccarthy@akingump.com, +1 202-887-4047; and Steven C. Emme, Esq., 
semme@akingump.com, +1 2020887-4368. All of Akin Gump Strauss Hauer & Feld LLP.
 
[Editor’s Note: Part 1 in this series was included in yesterday’s 12 September 2018 edition of the Daily Bugle.  Part 3 in this series will be included in tomorrow’s 14 September 2018 edition of the Daily Bugle.]
 
III. Elements of Section 1758 – the ECA’s Emerging and Foundational Technologies Provision
 
A. The process for identifying technologies must be an interagency process.
 
Some of the ideas floated during the FIRRMA debate would have given CFIUS or individual agencies, such as the Department of Defense, the authority to nominate and have controlled emerging and foundational technologies. The ECA requires the President to establish an interagency process to do so that involves the departments of Commerce, Defense, Energy and State, and any other necessary department or agency. The motive behind this provision was to ensure that the equities and expertise of all relevant agencies would be considered when identifying such technologies. Because BIS’s mission includes coordinating such interagency efforts, and because any new controls would be published in the EAR, which BIS administers, BIS has the lead role in the identification effort.
 
B. The interagency emerging and foundational technology identification process must be a “regular, ongoing” effort.
 
This reference in the provision makes it clear that the identification and addition of new controls over emerging and foundational technologies is not just a one-time event. It is now, as a statutory matter, rather than just a standard interagency practice, a regular part of the U.S. export control system. The technologies at issue are, by definition, emerging. They are not what the export control system has a history of controlling and analyzing. They are not technologies that have been specially designed for military or intelligence applications because such technologies are already controlled by either the EAR or the International Traffic in Arms Regulations (ITAR). Thus, BIS and the other agencies are likely setting up more formal processes to regularly search for and, as needed, amend the export controls over commercial technologies of concern as they emerge.
 
C. The emerging and foundational technologies to be identified are limited to those “essential to the national security of the United States.”
 
During the debates over the CFIUS and export control reform bills, there was some discussion about whether controls should be imposed on such technologies for purely economic reasons, such as for use as part of protectionist or industrial policy efforts. Export control statutes dating back to the Export Control Act of 1949 have expressly limited the reasons for control to national security, foreign policy and short supply. Although an administration has broad authority to define what constitutes a national security concern, the law conspicuously limits the scope of any new controls to not only those that would address “national security” concerns, but also to those that are “essential” to our national security.
 
D. The emerging and foundational technologies to be identified must not include technologies that are already subject to export controls or that become subject to controls under other authorities.
 
This means that any technologies that are already identified in the export control regulations, primarily the EAR and the ITAR, or that would be added to such regulations later under other authorities, must not be part of the process described in Section 1758. The government thus still has extraordinary discretion to identify items for control, and none of that discretion is affected by this provision, which is focused on resolving a specific policy issue raised during the debate over FIRRMA. If Section 1758 were not included in the law, the administration would have the same authority to do what is required under Section 1758. The only difference is that Congress is requiring the administration to conduct the special effort and setting standards for how to do so.
 
E. The interagency process must be informed by multiple sources of information, including (i) publicly available information, (ii) classified information, (iii) information developed during the CFIUS process and (iv) information developed by BIS’s technical advisory committees.
 
The export control system has always drawn upon such information sources when considering which technologies to control, but not always as part of a formal process. The provision is also a subtle congressional reminder to export control officials to ensure that they expand their technology review horizons over what are, by definition, novel, emerging technologies to get the benefit of those who may have contact with such technologies before they do. Thus, for example, it effectively requires export control officials to reach out to industry and academic experts who may not otherwise interact with the government. It also indirectly emphasizes the need for the intelligence community to commit resources to analyzing emerging technology issues and to provide its work product to export control officials for consideration.
 
The provision requires that technology issues generated during the review of CFIUS fillings be formally fed back into the export control system for broader consideration. The export control agencies are core members of CFIUS, and there is a long history of their considering whether issues developed during CFIUS cases warrant changes to export controls. The only difference now is that this practice is a formal, statutory requirement. Finally, the provision reconfirms the need for industry experts on BIS’s multiple technical advisory committees to provide their input to export control officials about emerging and foundational technologies. Indeed, BIS is in the process of creating an additional technical advisory committee to focus on such issues, as described 
here. For those with significant expertise in the emerging and foundational technologies at issue, participating in the new, or in any of the existing, technical advisory committees is a significantly important way to contribute to the quality of the controls.
 
F. Before imposing new controls on an emerging or foundational technology, the government must consider whether comparable technologies are being developed outside the United States.
 
This provision does not prohibit the imposition of controls on technologies being developed outside the United States. When read with other parts of Section 1758, however, foreign availability is clearly an important variable the government must consider when deciding whether technologies should become subject to the new controls. Thus, when responding to BIS’s notices asking for comments on new technologies to control, those potentially affected should provide information about which comparable technologies are and are not being developed outside the United States. Such commercial information, which often is not available to the government, should be as specific as possible if it is to be effective. That is, conclusory comments, such as “This technology is widely available in many countries outside the United States” will not be helpful. Comments such as “This technology is available from Company A in Country X (brochures and specifications attached),” on the other hand, are what the government needs to see in order to make a sensible judgment about whether to impose new controls.
 
G. Before imposing new controls on an emerging or foundational technology, the government must consider the effect that the imposition of a unilateral export control “may have on the development of such technologies in the United States.”
 
As a matter of logic, expectations and history, unilateral controls tend to discourage research and investment in the United States in the affected technologies. Indeed, the ECA states that “[e]xport controls applied unilaterally to items widely available from foreign sources generally are less effective in preventing end-users from acquiring those items. Application of unilateral export controls should be limited for purposes of protecting specific United States national security and foreign policy interests.” This does not mean that unilateral controls are 
per seprohibited or ineffective, only that this standard is a high bar for the government when deciding whether to propose a new unilateral control. Those in potentially affected industries will thus want to provide in their public comments a thoughtful analysis of whether-and how-a unilateral control over a specific emerging or foundational technology is or is not likely to harm the domestic development of such technologies.
 
H. Before imposing new controls on an emerging or foundational technology, the government must consider whether they would be effective in “limiting the proliferation of emerging and foundational technologies to foreign countries.”
 
This standard is basically a corollary to the other provisions above, but it nonetheless emphasizes the point that imposing controls on technologies being developed outside the United States or with the substantial assistance in the U.S. of foreign scientists and engineers will not likely accomplish the objectives of this section. If commenters have any other reasons that a proposed new control would or would not be effective, then this is the statutory provision to cite in support of why it should or should not be imposed.
 
I. Before any new controls may be imposed, the government must provide the public with a notice and an opportunity to comment.
 
This is the most critical step for industry to comment formally on actual regulatory text and whether the proposed controls do or do not meet the standards in Section 1758. Based on the experience of the Obama administration’s export control reform effort, which involved the publication of dozens of proposed rules for public comment, career staff at the agencies are likely to take well-supported, thoughtful comments seriously.
 
J. The new controls will be published as amendments to the EAR.
 
Earlier versions of the CFIUS and the export control reform bills were unclear about whether or, if so, where new investment or export controls on emerging and foundational technologies would be published. Section 1758 effectively requires that they will be identified in the EAR’s Commerce Control List (CCL).
 
K. BIS has broad authority to decide when, and under what circumstances, licenses or other types of authorizations will be required to export identified emerging and foundational technology.
 
Criteria that BIS, in coordination with the other agencies, must consider when imposing controls include whether the destination is subject to U.S. arms and other embargoes, as well as the potential end uses and end users of such technology. The group of countries subject to such embargoes includes China, Russia and Iran.
 
L. Commerce is not required to impose licensing requirements on finished items that are destined to regular customers or on technology when the acquisition would not give the foreign recipient the ability to produce critical technologies.
 
This exception reflects the provision’s emphasis on emerging and foundational technologies, rather than finished products, that can be used to enhance the indigenous manufacturing capability outside the United States of items essential to U.S. national security.
 
M. The Secretary of State, in coordination with the other export control agencies, is required to propose each year for three years any new controls to the relevant multilateral export control regimes for control.
 
This element of the control reflects Congress’ view that multilateral controls are more effective than unilateral controls. If the regimes do not accept a new control, then Commerce must decide whether national security concerns warrant the continuation of unilateral controls with respect to the technology at issue. Another part of ECA commits the U.S. government to “carry out obligations and commitments under international agreements and arrangements, including multilateral export control regimes.” The most relevant such regime to this issue is the Wassenaar Arrangement, which was “established in order to contribute to regional and international security and stability, by promoting transparency and greater responsibility in transfers of conventional arms and dual-use goods and technologies, thus preventing destabilizing accumulations. The aim is also to prevent the acquisition of these items by terrorists. Participating States seek, through their national policies, to ensure that transfers of these items do not contribute to the development or enhancement of military capabilities which undermine these goals, and are not diverted to support such capabilities.” Thus, to remain consistent with its obligations under ECA, the administration should propose only new controls on emerging or foundational technologies that meet this standard or one of the corresponding standards in the other multilateral regimes (i.e., those pertaining to controlling the proliferation of missiles, nuclear items, and chemical or biological weapons, and related items).
 
N. Commerce must report to CFIUS and Congress every 180 days of the actions that it and the other agencies have taken to implement this section.
 
Normally, congressional reporting requirements do not get much public attention, but this regular obligation to show progress likely will keep the process for identifying and controlling emerging and foundational technologies high on the list of priorities for this and subsequent administrations. This fact further reinforces the need for industry to stay engaged with the government with respect to identifying emerging and foundational technologies that are and are not essential to the national security of the United States.
 
O. BIS has broad authority to impose “interim controls” on exports and reexports of emerging or foundational technologies by specific persons.
 
The EAR contain multiple “is informed” provisions allowing BIS to inform parties that, to address a specific national security or foreign policy concern, a license is required to export an item that would not normally require a license. Section 1758 explicitly gives BIS the authority to create any form of interim controls, such as through the use of similar “is informed” actions imposing licensing requirements on the export by specific persons of specific technologies in a particular transaction, before regulations controlling such technologies are promulgated and made generally effective.
 
Used properly, this new authority could be a way for BIS to surgically address policy concerns about the transfer of specific kinds of technology in unique circumstances without imposing controls on entire types of technologies or destinations. Thus, for example, if BIS has information that a specific foreign entity plans to use a specific type of EAR99 technology deemed to be “emerging” or “foundational” that would be released during a joint venture for an activity contrary to U.S. national security interests, BIS could prohibit the technology transfer without having to sanction the foreign entity (such as by using the entity list process) or imposing an across-the-board control on the same technology for all exports. In a way, this new omnibus “is informed” authority, which is tucked into a parenthetical in Section 1758, is the broad authority that the proponents of the original FIRRMA bill contemplated when they sought to give CFIUS jurisdiction over outbound investments by critical technology companies. They wanted the U.S. government to have the authority to block otherwise uncontrolled technology transfers in specific circumstances on case-by-cases bases. Such authority now exists, but within BIS (rather than CFIUS) pursuant to Section 1758.

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(Source: 
Skadden, 11 Sep 2018.) 
 
* Authors: Michael E. Leiter, Esq., 
michael.leiter@skadden.com; Ivan A. Schlager, Esq., 
ivan.schlager@skadden.com; Donald L. Vieira, Esq., 
donald.vieira@skadden.com. All of Skadden. 
 
On August 13, 2018, President Donald Trump signed into law the John S. McCain National Defense Authorization Act (NDAA) for fiscal year 2019. A key focus of legislation contained in the NDAA is to protect U.S. technological advances through closer scrutiny of technology transfer to foreign persons and its implications on U.S. national security and foreign policy. In addition to the Foreign Investment Risk Review Modernization Act (FIRRMA), which enhances the review of foreign investment in the U.S. and which we discussed extensively in our 
August 6, 2018, client alert, the NDAA includes the Export Control Reform Act (ECRA).[FN/1]ECRA makes significant changes to U.S. export controls, particularly with respect to emerging and foundational technologies, and imposes additional restrictions on the transfer of technology to foreign persons.[FN/2]
 
Although ECRA largely codifies existing U.S. export controls on commercial and dual-use (both civil and defense applications) commodities, software and technology, it also expands the jurisdictional reach of export controls and tightens restrictions in ways that will have a meaningful impact on cross-border transactions. As discussed in more detail below, in addition to providing a permanent statutory authority for U.S. export controls, ECRA:
 
  – establishes an interagency review process to identify emerging and foundational technologies and impose appropriate export controls;
  – requires collaborative arrangements (
i.e., joint ventures) to disclose “significant foreign ownership” to obtain export licenses for such technologies;
  – directs immediate review of restrictions and license requirements on the export of U.S. items to embargoed countries, including China;
  – requires more rigorous and far-reaching analysis of the impact to the U.S. defense industrial base in connection with granting export licenses; and
  – authorizes export controls on activities by U.S. persons related to foreign military intelligence services.
 
Permanent Statutory Authority for US Commercial and Dual-Use Export Controls
 
ECRA provides a permanent statutory authority for the Export Administration Regulations (EAR), the first such authority since the Export Administration Act of 1979 lapsed in 2001. [FN/3]
Administered by the U.S. Department of Commerce’s (Commerce) Bureau of Industry and Security, the EAR broadly regulate the movement around the world of U.S. commercial and dual-use items (including commodities, software and technology). The EAR impose restrictions and licensing requirements on the export and subsequent movement of these items to other countries or end users (
i.e., re-export or in-country transfer) based on the type of item, its intended end use, the ultimate end user and the destination. Items are classified by an Export Control Classification Number (ECCN) based on the item’s characteristics and applications, as defined in the Commerce Control List (CCL), and may require a license from Commerce that authorizes the export, re-export, deemed export, deemed re-export or in-country transfer of the item.
 
Emerging and Foundational Technologies
 
Interagency Review Process
 
For many years, the Department of Defense and other agencies – as well as Congress – have expressed concerns about the current export control regulatory processes, arguing that technology has outpaced regulators’ ability to adequately protect the technological advantages of the U.S. military and intelligence services as well as U.S. economic leadership. ECRA directs the establishment of a formal, ongoing process to identify and review “emerging and foundational technologies that are essential to the national security of the United States” and requires appropriate export controls for these technologies.
This interagency review process is intended to address a concern that current export controls do not adequately restrict the transfer of newly developed technologies. Although Commerce has the authority under the EAR to impose controls (including interim controls by assigning a temporary ECCN)[FN/4] on new technology for military, intelligence or foreign policy reasons, companies are not obligated to seek Commerce review before exporting such technologies. Items that are subject to the EAR – but not designated on the CCL – are classified as “EAR99” and subject to only limited export restrictions. For this reason, new technologies could be potentially exported as “EAR99” without review by Commerce. 
 
The new ECRA interagency review process will involve the Departments of Commerce, Defense, State and Energy, along with other federal agencies, as appropriate, and will draw on publicly available information, classified information and information from Commerce advisory committees and the Committee on Foreign Investment in the United States (CFIUS) to identify “emerging and foundational technologies.” ECRA does not define such technologies, but it excludes items already on the CCL, the U.S. Munitions List of the International Traffic in Arms Regulations, certain nuclear equipment and material, and certain biological agents and toxins. The review process is expected to focus on cutting-edge technologies, including robotics; artificial intelligence; machine learning; positioning, navigation and timing; 5G; aerospace; financial technology; and virtual/augmented reality. ECRA directs the interagency review process to consider multiple factors in assessing whether a technology is “emerging and foundational,” including (i) the development of similar technologies in foreign countries, (ii) the impact export controls would have on the development of the technology in the U.S., and (iii) the effectiveness of export controls on limiting the proliferation of the technology to foreign countries. Significantly, ECRA does not dictate a timeline for designating a technology as “emerging and foundational,” but such a designation is subject to a public notice and comment period.
 
Designation of a new technology as “emerging and foundational” triggers Commerce to impose export controls with consultation from other federal agencies, which includes interim restrictions on the export of the technology until export controls are finalized. Although Commerce has broad discretion to specify the appropriate level of control, ECRA mandates that – subject to limited exceptions discussed below – all technologies identified as “emerging and foundational” must at a minimum require a license for their export, re-export, or transfer to or in a country subject to a U.S. embargo or arms embargo, which includes China. [FN/5] 
 
Regulation of Collaborative Arrangements
 
Under ECRA, Commerce may require collaborative arrangements, including a “joint venture, joint development agreement, or similar collaborative arrangement,” to disclose significant foreign ownership interests in applications for a license to export emerging and foundational technologies. However, transactions that do not transfer the underlying technology or technical capability to foreign persons may be exempted from export licensing requirements. Specifically, ECRA authorizes Commerce to make exceptions to export licensing requirements for emerging and foundational technologies – including for exports to embargoed countries (
e.g., China) – pursuant to any of the following transactions:
 
  – the sale or license of a finished item and the provision of associated technology if the U.S. person generally makes the finished item and associated technology available to its customers, distributors or resellers;
  – the sale or license to a customer of a product and the provision of integration or similar services if the U.S. person generally makes such services available to its customers; 
  – the transfer of equipment and the provision of associated technology to operate the equipment if the transfer could not result in the foreign person using the equipment to produce “critical technologies”;
  – the procurement by the U.S. person of goods or services, including manufacturing services, from a foreign person, if the foreign person has no rights to exploit any technology contributed by the U.S. person other than to supply the procured goods or services; and
  – any contribution and associated support by a U.S. person to an industry organization related to a standard or specification, whether in development or declared, including any license of or commitment to license intellectual property in compliance with the rules of any standards organization.
 
Tighter Restrictions on Export Licensing
 
Immediate Review of Export Controls on Arms Embargoed Countries
 
ECRA requires the Departments of Commerce, State, Defense and Energy, along with other federal agencies as appropriate, to conduct an immediate review of the license requirements for the export, re-export and in-country transfer of items to countries with a comprehensive arms embargo (
e.g., China). The focus of this review is an assessment of existing export controls on items that currently do not require an export license and items destined for military end uses or end users. Commerce must implement any changes to the existing export controls within 270 days of the enactment of ECRA, or by about May 2019. This review may result in tighter controls on exports, re-exports and in-country transfers to China, in particular, with an emphasis on military applications and military or government end users (
e.g., modify the current case-by-case review policy to a policy of denial).
 
Enhanced Review of Export License Applications
 
The ECRA introduces a new policy consideration that Commerce must weigh in granting export licenses – the impact of the export on the U.S. defense industrial base. Specifically, Commerce must deny an application for a license to export, re-export or transfer an item if it will have a “significant negative impact” on the U.S. defense industrial base. ECRA provides that a proposed export would have a “significant negative impact” if the export would result in any of the following:
 
  – a reduction in the availability or production of an item in the U.S. that is likely to be required by the U.S. government for the advancement of national security;
  – a reduction in the production of an item in the U.S. that is the result of research and development carried out or funded by either the U.S. government or a federally funded research and development center; and
  – a reduction in the employment of U.S. persons whose knowledge and skills are necessary for the continued production in the U.S. of an item that is likely to be acquired by the U.S. government for the advancement of national security.
 
To inform this assessment, Commerce may require license applicants to provide additional information on the purpose and effect of the export on the production of items relevant for the defense industrial base outside of the United States.
 
Expanded Export Controls on Activities of US Persons
 
In a noteworthy jurisdictional expansion, ECRA now provides Commerce authority to regulate the activities of U.S. persons, wherever located, related to the provision of foreign military intelligence services. The EAR primarily regulates U.S.-origin items (commodities, software, technology) and not the activities of U.S. persons with respect to items that are not subject to the EAR. The few activities of U.S. persons, wherever located, that previously were and continue to be restricted under the EAR relate to the export, re-export or transfer of any item (whether or not subject to U.S. export control jurisdiction) if the U.S. person has knowledge that such item will be used in connection with nuclear explosive devices, chemical or biological weapons, and missile technology and the performance of any related contract, service or employment. In addition to codifying these existing restrictions, ECRA has added “foreign military intelligence services” to the list of covered activities by U.S. persons. Although ECRA does not define “foreign military intelligence services,” licensing requirements under the EAR may complicate the provision of services in the defense, aerospace and intelligence industry.
 
Increased Civil and Criminal Penalties
 
ECRA increases the current inflation-adjusted maximum civil penalty for violations of the EAR to the greater of $300,000 or twice the value of the underlying transaction. Criminal penalties for willful violations remain the same at the greater of $1 million per violation or twice the value of the gain or loss from the transaction. Criminal penalties also may include imprisonment for a maximum of 20 years. Notably, these penalties also will apply to violations of the anti-boycott regulations.
 
Key Takeaways
 
ECRA is part of a concerted effort to curtail the transfer of sensitive U.S. technologies, particularly to China. The changes highlighted above – the tightening of export controls on emerging and foundational technologies, increased scrutiny of export license applications and expanded jurisdiction over U.S. persons providing foreign defense intelligence services – are all designed to preserve and protect U.S. national security and technological advancement. Enhanced coordination between CFIUS and Commerce is likely to capture more transactions involving critical technology for a close examination of the associated technology. Foreign access to emerging and foundational technologies is likely to require export licenses issued by Commerce under increased scrutiny, including in connection with pre-existing arrangements such as joint ventures and with respect to current foreign national employees of U.S. companies. Furthermore, companies engaged in the aerospace, defense or intelligence industries may see increased licensing obligations for the provision of services by U.S. persons.
 
Critically, however, many of the new provisions in ECRA do not take immediate effect and are not subject to a set time frame for implementation. Unless otherwise noted (
e.g., the immediate review of controls for embargoed countries), ECRA extends the status quo until modified, superseded, set aside or revoked by Commerce. In some instances, such a change will require a formal rulemaking process (
e.g., the interagency review process and controls on foreign military intelligence services), including public notice and comment. As a result, the full impact of ECRA will not be seen for some time.
 
———-
  [FN/1] The NDAA, including both FIRRMA and ECRA, is available 
here.
  [FN/2] ECRA also encompasses the Anti-Boycott Act of 2018, which provides statutory authority for the anti-boycott regulations that govern the participation of U.S. persons in unsanctioned foreign boycotts. 
  [FN/3] Since 2001, presidential executive orders under the International Emergency Economic Powers Act have authorized the EAR. 
  [FN/4]The EAR currently allow for the imposition of temporary controls on items by classifying the item under ECCN 0Y521 for up to one year with the ability to extend the temporary classification for two additional one-year periods. 
  [FN/5]Of note, technology designated as “emerging and foundational” also is considered “critical technology” that may trigger CFIUS review even for noncontrolling, non-passive foreign investments. ECRA requires Commerce to provide a report to Congress and CFIUS every 180 days on the results of the interagency review process. 

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MSEX/IM TRAINING EVENTS & CONFERENCES

MS_a112.
ECS Presents “Boot Camp: Achieving ITAR/EAR Compliance” in Orlando, FL on 6-7 Feb 2019

(Source: S. Palmer,
spalmer@exportcompliancesolutions.com.)
 
* What: Boot Camp: Achieving ITAR/EAR Compliance; Orlando, FL
* When: February 6-7, 2019
* Sponsor: Export Compliance Solutions (ECS)
* ECS Instructors:  Suzanne Palmer; Mal Zerden
* Register 
here or by calling 866-238-4018 or e-mail

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ENEDITOR’S NOTES

 
Clara Schumann (née Clara Josephine Wieck; 13 Sep 1819 – 20 May 1896; was a German musician and composer, considered one of the most distinguished pianists of the Romantic era.  Her husband was the composer Robert Schumann.)
 – “My health may be better preserved if I exert myself less, but in the end doesn’t each person give his life for his calling?”

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EN_a314
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. 
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 12 Jun 2018: 83 FR 27380-27407: Air Cargo Advance Screening (ACAS)
 
DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M

  – Last Amendment: 18 May 2016: Change 2
: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and cancelled Supp. 1 to the NISPOM (Summary 
here
.)


EXPORT ADMINISTRATION REGULATIONS (EAR)
: 15 CFR Subtit. B, Ch. VII, Pts. 730-774

  – Last Amendment: 13 Sep 2018: 
83 FR 46391-46392: Addition of Certain Entities to the Entity List, Revision of Entries on the Entity List and Removal of Certain Entities From the Entity List; Correction

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

  – Last Amendment: 29 June 2018: 83 FR 30541-30548: Global Magnitsky Sanctions Regulations; and 83 FR 30539-30541: Removal of the Sudanese Sanctions Regulations and Amendment of the Terrorism List Government Sanctions Regulations 

 
*
FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30
  – Last Amendment: 24 Apr 2018: 3 FR 17749-17751: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (30 Apr 2018) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and approximately 250 footnotes containing case annotations, practice tips, Census/AES guidance, and explanations of the numerous errors contained in the official text. Subscribers receive revised copies in Microsoft Word every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance websiteBITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR. Government employees (including military) and employees of universities are eligible for a 50% discount on both publications at www.FullCircleCompiance.eu.  
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jan 2018: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  –
Last Amendment: 14 Aug 2018: Harmonized System Update 1812, containing 27 ABI records and 6 harmonized tariff records.
 

  – HTS codes for AES are available 
here.
  – HTS codes that are not valid for AES are available 
here.
 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.
  – Last Amendment: 30 Aug 2018:
83 FR 44228-44229
, USML Chapter XI(c).

  – The only available fully updated copy (latest edition: 30 Aug 2018) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III. The BITAR contains all ITAR amendments to date, plus a large Index, over 800 footnotes containing amendment histories, case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text. Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.
The BITAR is available by annual subscription from the Full Circle Compliance
 
website
. BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please
contact us
to receive your discount code.

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EN_a0315
Weekly Highlights of the Daily Bugle Top Stories

(Source: Editor) 

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published 
here

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, Alex Witt. The Ex/Im Daily Update is emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOE/NRC, DOJ/ATF, DoD/DSS, DoD/DTSA, FAR/DFARS, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission, provided attribution is given to “The Export/Import Daily Bugle of (date)”. Any further use of contributors’ material, however, must comply with applicable copyright laws.  If you would to submit material for inclusion in the The Export/Import Daily Update (“Daily Bugle”), please find instructions here.

* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.


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