[Federal Register: May 31, 2006 (Volume 71, Number 104)]
[Proposed Rules]
[Page 30840-30844]
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DEPARTMENT OF COMMERCE
Bureau of Industry and Security
15 CFR Parts 734 and 772
[Docket No. 050316075-6122-03]
RIN 0694-AD29
Revisions and Clarification of Deemed Export Related Regulatory
Requirements
AGENCY: Bureau of Industry and Security, Commerce.
ACTION: Withdrawal of advance notice of proposed rulemaking.
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SUMMARY: The Bureau of Industry and Security (BIS) has reviewed the
public comments received in response to the ``Advance Notice of
Proposed Rulemaking: Revision and Clarification of Deemed Export
Related Regulatory Requirements'' (ANPR) published in the Federal
Register on March 28, 2005. The ANPR identified recommendations
contained in the U.S. Department of Commerce Office of Inspector
General (OIG) Report entitled ``Deemed Export Controls May Not Stop the
Transfer of Sensitive Technology to Foreign Nationals in the U.S.''
(Final Inspection Report No. IPE-16176--March 2004). This action
discusses concerns raised by the OIG and summarizes public comments
received in response to the ANPR. This document also states that the
current BIS licensing policy related to deemed exports is appropriate
and confirms that the existing definition of ``use'' adequately
reflects the underlying export controls policy rationale in the Export
Administration Regulations (EAR). As such, BIS is withdrawing the ANPR.
In addition, this action addresses comments on the scope of the
[[Page 30841]]
fundamental research provisions in the EAR.
ADDRESSES: Although there is no official comment period for this
document, you may submit comments, identified by Docket No. 050316075-
6122-03, by any of the following methods:
E-mail: publiccomments@bis.doc.gov. Include ``050316075-
6122-03'' in the subject line of the message.
Fax: (202) 482-3355.
Mail or Hand Delivery/Courier: U.S. Department of
Commerce, Bureau of Industry and Security, Regulatory Policy Division,
14th & Pennsylvania Avenue, NW., Room 2705, Washington, DC 20230, ATTN:
Docket No. 050316075-6122-03.
FOR FURTHER INFORMATION CONTACT: Alexander Lopes, Director of the
Deemed Exports and Electronics Division, Office of National Security
and Technology Transfer Controls, Bureau of Industry and Security,
telephone: (202) 482-4875 or e-mail: alopes@bis.doc.gov or Marcus
Cohen, Bureau of Industry and Security, telephone: (202) 482-2440 or e-
mail: mcohen@bis.doc.gov. Copies of the referenced OIG Report are
available at: http://www.oig.doc.gov/oig/reports/2004/BIS-IPE-16176-03-2004.pdf.
Public comments received by BIS in response to the ANPR are
available at: http://efoia.bis.doc.gov/.
SUPPLEMENTARY INFORMATION:
Background
The Bureau of Industry and Security (BIS) has reviewed public
comments received in response to the ``Advance Notice of Proposed
Rulemaking: Revision and Clarification of Deemed Export Related
Regulatory Requirements'' (ANPR) published in the Federal Register on
March 28, 2005 (70 FR 15607; comment period extended, 70 FR 30655). The
ANPR described recommendations contained in the U.S. Department of
Commerce Office of Inspector General (OIG) Report entitled ``Deemed
Export Controls May Not Stop the Transfer of Sensitive Technology to
Foreign Nationals in the U.S.'' (Final Inspection Report No. IPE-16176-
March 2004).
In its report, the OIG concluded that existing BIS policies under
the Export Administration Regulations (EAR) could enable foreign
nationals from countries and entities of concern to access otherwise
controlled technology. These concerns prompted the OIG to recommend the
following:
(1) Base the requirement for a deemed export license on a foreign
national's country of birth and not on country of citizenship or
permanent residency;
(2) Revise the definition of ``use'' in Section 772.1 of the EAR;
and
(3) Modify regulatory guidance in Supplement No. 1 to Part 734
regarding licensing of technology to foreign nationals involved with
academic research and government-sponsored research projects.
Adopting certain of the OIG's recommendations would entail
regulatory changes to the EAR. Accordingly, the ANPR requested comments
from industry, the academic community, and U.S. government agencies
involved in research on the potential impact the proposed revisions
would have on their activities. In response to the ANPR, BIS received
311 comments from 88 academic institutions (many academic institutions
submitted more than one comment), 22 companies, 25 trade associations,
14 individuals, 20 academic associations, 6 law firms and legal
associations, 4 U.S. national laboratories, 4 U.S. agencies, 3 members
of Congress, and 2 foreign governments. All public comments received by
BIS in response to the ANPR are currently posted on the EFOIA page of
the BIS Web site.
Based upon a thorough review of the public comments and a review of
foreign immigration requirements, BIS has determined that the current
licensing requirement based upon a foreign national's country of
citizenship or permanent residency is appropriate. The current deemed
export licensing policy, based on a foreign national's most recent
country of citizenship or permanent residency, recognizes the
significance of declarative assertion of affiliation over the mere
geographical circumstances of birth. BIS has also concluded that the
existing definition of ``use'' in Section 772.1 of the EAR should
remain unchanged. The existing definition of ``use'' appropriately
implements the underlying export control policy rationale in the EAR.
Finally, BIS intends to expand outreach to help the regulated community
understand the questions and answers in Supplement 1 to Part 734 of the
EAR. Moreover, the public should be aware that BIS provides guidance on
fundamental research on its Web site. (See Deemed Export FAQ's at
http://www.bis.doc.gov/policiesandregulations/index.htm).
In sum, BIS is not adopting those recommendations of the OIG which
would have required regulatory changes to the EAR and, accordingly, is
withdrawing the ANPR.
A review of the public comments, as well as BIS's response to the
recommendations of the OIG and to certain issues raised in the public
comments, follows.
Scope of Agency Action
The current review focused on recommendations made by the OIG, and
was not intended to address broader issues related to the operation of
the deemed export rule. For example, some comments suggested that the
deemed export rule should simply be abolished. Others suggested reforms
of U.S. export control policies that would extend far beyond the deemed
export rule, while still others questioned the constitutionality of the
deemed export rule. Such criticisms and suggested reforms were beyond
the scope of the review of the public comments related to this notice,
but like all issues of deemed export policy, they will be subject to
review by the Deemed Export Advisory Committee (DEAC). For further
information related to the establishment of the DEAC, see the notice
entitled ``Establishment of Advisory Committee and Clarification of
Deemed Export-Related Regulatory Requirements,'' published in the
Federal Register on May 22, 2006 (71 FR 29301).
All of the public comments received in response to the ANPR,
including those public comments that raised issues beyond the scope of
review related to this notice, will be made available to members of the
Deemed Export Advisory Committee (DEAC). All aspects of the deemed
export policy will be subject to review by the DEAC.
In general, the comments focused on the OIG's recommendations
regarding the proposal that deemed export license requirements be based
on a foreign national's country of birth and a proposed revision to the
definition of ``use.'' While few of the public comments received
directly addressed the OIG's recommendation to revise the regulatory
guidance in Supplement No. 1 to Part 734 of the EAR, many comments
indirectly discussed the potential effect of such regulatory
modifications on fundamental research. The general themes expressed in
the public comments, as well as BIS's response to the recommendations
of the OIG and to certain issues raised in the public comments, are
described in more specificity below.
A. Public Comments Received in Response to the ANPR
Country of Birth
Almost without exception, the comments stated clear opposition to
the OIG's recommendation that deemed export licenses be based on a
foreign
[[Page 30842]]
national's country of birth rather than country of citizenship. (See 15
CFR 734.2(b)(2)(ii)) Comments from all sources stressed that deemed
export controls must take into account the integral and critical
contribution of foreign nationals to U.S. fundamental research.
Numerous comments expressed concern that excessive and bureaucratic
requirements will foster a perception among foreign students and
researchers that the United States does not welcome foreign nationals
in its high-technology research community. Many comments observed that
the decrease in the number of foreign nationals in U.S. academic
institutions and U.S. industry has already been detrimental to the
economy of the United States. These comments argued that a change in
the deemed export licensing policy from country of citizenship to
country of birth would further adversely impact the United States.
Various comments discussed other methods by which prospective
foreign national students and employees are screened. Comments from
both academia and industry noted that their organizations rely on
existing U.S. visa requirements as a means of guarding against the
unlawful release of technology. Many of these comments recommended that
the deemed export licensing policy should operate in conjunction with
other established systems of screening foreign nationals.
Comments also expressed concerns related to potential conflicts of
laws. Some comments noted that if forced to apply a country of birth
criteria to their employees, companies might run afoul of both U.S. and
foreign anti-discrimination and privacy laws. Comments from companies
that operate on a global scale stated that the recommendation by the
OIG would present formidable legal and operational hurdles.
Another trend among the comments was a concern about the
fundamental unfairness of the change recommended by the OIG. Many
comments suggested that the current deemed export licensing policy
which focuses on a foreign national's country of citizenship is more
appropriate because obtaining citizenship demonstrates an affirmative
declaration of affiliation and loyalty toward a particular sovereign
entity in ways that the circumstance of a person's birth does not.
Further, many comments argued that the OIG failed to present any
evidence to support the recommended change in licensing policy and that
the envisioned improvements to national security have not been
persuasively presented.
Definition of ``Use''
The OIG recommended that BIS revise the definition of ``use'' in
Section 772.1 of the EAR. The OIG effectively recommended replacing the
word ``and'' with the word ``or,'' as follows: `` `Use' (All categories
and General Technology Note)--Operation, installation (including on-
site installation), maintenance (checking), repair, overhaul, or
refurbishing.'' (Emphasis added)
The public comments voiced general opposition to this
recommendation as well. Many comments stated that revising the
definition with the disjunctive ``or'' would capture too many routine
operations carried out by students/employees, and thus constitute a
large (and generally unnecessary) compliance burden on organizations.
In addition, many comments argued that the OIG failed to proffer any
evidence to support the recommended change in licensing policy and,
further, that envisioned improvements to national security have not
been satisfactorily presented in the OIG's report.
The general theme among comments from the academic community was
that the conjunctive reading of the ``use'' definition properly
reflects the policy rationale that currently underlies the controls on
the transfer of use technology to foreign national students and
researchers. These comments argued that the current ``use'' definition
correctly requires the presence of technology relating to all six
activities (i.e., operation, installation, maintenance, repair,
overhaul, and refurbishing) because it is the totality of those
activities that triggers the requirement for a deemed export license.
Many comments asserted that by changing ``and'' to ``or'' in the
definition, mere operation of a controlled item by a foreign national
would trigger a requirement for a deemed export license. Numerous
comments stressed that the proposed revision would thus result in a
large expansion of deemed export license applications submitted to BIS.
They claim that this will impose a substantial financial and
administrative burden on their respective organizations and will also
increase the licensing burden on BIS. While many comments cited the
number or percentage of foreign nationals in the commenters'
organizations, the comments generally do not provide the actual number
of items for which ``use'' technology is controlled within their
respective organizations.
Some of the comments from industry suggested that OIG's recommended
change would have little practical impact. Those comments reflect that
many companies already interpret the definition of ``use'' in the
disjunctive and, further, that the current definition could reasonably
be interpreted to be an illustrative list of activities constituting
use. As such, they stated that the suggested definition revision would
have minimal, if any, effect on business operations.
However, organizations from all sectors appear concerned that a
change in the definition would restrict the scope of fundamental
research by capturing more routine activities that are currently not
subject to the EAR. Many public comments noted that such narrowing of
the scope of fundamental research would have a chilling effect on U.S.
research efforts conducted by industry and universities alike.
In addition, several comments note that although the OIG speculated
in its report that many academic and Federal laboratories might need to
seek deemed export licenses, the OIG failed to offer evidence in
support of this claim. These comments pointed out that the report
contained no findings that controlled ``use'' technology has been
illegally transferred to foreign nationals, either in Federal
laboratories, university facilities, or within industry.
Regulatory Guidance Related to Fundamental Research
Supplement No. 1 to Part 734 of the EAR provides guidance in the
form of questions and answers to further elucidate the deemed export
regulations. In its report, the OIG found two of the answers therein
may be inaccurate or unclear. The OIG recommended modification to
guidance (answers to Questions A(4) and D(1), respectively) covering
the following topics:
(1) Whether prepublication clearance by a government sponsor would
void the publishability exemption in the EAR and trigger the deemed
export rule; and
(2) Whether a license would be required for a foreign graduate
student to work in a laboratory.
A large percentage of public comments addressed the OIG's proposed
revisions to the answers provided in the deemed export guidance.
Although less than 2% of the public comments received directly
addressed the OIG's recommended modifications, a significant number of
comments discussed the suggested revisions in relation to the possible
effect such guidance would have on the
[[Page 30843]]
scope of fundamental research as discussed in Section 734.8 of the EAR.
Only a few of the comments focused on the impact of prepublication
clearance by a government sponsor as it relates to Section
734.7(a)(4)(iii) of the EAR. Even within that small number, there was
no unanimity of opinion. Some agreed with the OIG that research results
that are subject to prepublication clearance of a government agency are
subject to the EAR. However, other comments noted that Section 734.11
should itself be understood as an exemption to the EAR and, as such,
the answer to Question A(4) is correct as currently stated. Still other
comments noted that while the answer to Question A(4) is essentially
correct, slight modification of the answer is required for purposes of
clarification.
With regard to the OIG's suggested revision of the answer to
Question D(1), the comments highlighted a theme of serious concern
about the effect as it relates to the jurisdictional scope of
fundamental research. While only a handful of comments addressed
Question D(1) directly, those that did so noted that the apprehension
regarding the OIG's revision stems in large part from the OIG's
proposed change in the definition of ``use.'' It appears that many in
the research community view the revised answer to Question D(1) as a
codification that mere operation of a piece of controlled laboratory
equipment by a foreign national student will trigger the requirement
for a deemed export license. Thus, comments from all sectors appeared
to reflect concern that the OIG's recommended modification to the
guidance in Supplement No. 1 to Part 734 in conjunction with a
disjunctive reading of the ``use'' definition will either significantly
erode or abolish the exemption for fundamental research in the academic
laboratory environment.
B. BIS Response to the Recommendations of the OIG and the Public
Comments Received in Response to the ANPR
As a result of the extensive nature of the public comments, BIS is
establishing a Deemed Export Advisory Committee (DEAC) under the terms
of the Federal Advisory Committee Act (FACA) (Pub. L. 92-463, 5 U.S.C.,
App. 2). The DEAC will serve as forum to address complex questions
related to an evolving deemed export control policy. Specifically, the
DEAC will be charged with reviewing the current deemed export policy
and determining whether to recommend any changes to that policy. For
further information related to the establishment of the DEAC, see the
notice entitled ``Establishment of Advisory Committee and Clarification
of Deemed Export-Related Regulatory Requirements,'' published in the
Federal Register on May 22, 2006 (71 FR 29301).
Country of Birth
While the deemed export rule plays a crucial role in preventing
foreign nationals from countries of concern from obtaining controlled
U.S. technology, BIS also recognizes that export controls must take
into account the integral and critical contribution of foreign
nationals to U.S. fundamental research. U.S. research institutions play
a vital role in advancing science and technology for future
generations. Part of the vitality of the research enterprise is the
contribution made by foreign national students, faculty, and visiting
scientists.
There are substantial concerns associated with the OIG's
recommendation to adopt the ``country of birth'' of foreign nationals
as policy for deemed export license determinations. Due in large
measure to the concerns raised in the public comments received in
response to the ANPR, BIS has determined that the current licensing
requirement related to deemed exports is appropriate.
BIS recognizes that many individuals may have ethnic ties to a
particular nation, but bear no loyalty towards states where they were
born. Further, BIS notes that an individual's act of obtaining
citizenship or permanent residency adequately demonstrates affiliation
and allegiance to the adoptive nation. Thus, the current deemed export
licensing requirement, based on a foreign national's most recent
country of citizenship or permanent residency, recognizes the
importance of declarative assertion of affiliation over the mere
geographical circumstances of birth.
BIS recognizes concerns that may arise in instances where a foreign
national maintains dual citizenship or multiple permanent residence
relationships. The deemed export rule accounts for the possibility of a
foreign national maintaining dual citizenship and specifies that a
release of technology or source code subject to the EAR to a foreign
national is ``deemed to be an export to the home country or countries
of the foreign national.'' (Emphasis added) (15 CFR 734.2(b)(2)(ii))
Under existing interpretations of this provision, a home country is a
country in which a foreign national is a citizen or permanent resident.
If the status of a foreign national is not certain, exporters can
request the assistance of BIS to determine where the stronger ties lie,
based on the facts of the specific case. In response to such a request,
BIS will look at the foreign national's country, family, professional,
financial, and employment ties.
Based upon the recommendations of the OIG, a thorough review of the
public comments, and a detailed analysis of the deemed export rule and
its impact on the regulated community, BIS has determined that the
current licensing requirement based upon a foreign national's country
of citizenship or permanent residency is appropriate.
Definition of ``Use''
After thorough review, BIS has concluded that the existing
definition of ``use'' in Section 772.1 of the EAR should remain in the
conjunctive. As such, the word ``and'' is appropriate and the
definition of ``use'' remains unchanged: All six activities in the
definition of ``use'' must be present to trigger a license requirement.
Changing ``and'' to ``or'' in the definition, as suggested by the OIG,
would lead to a situation in which mere operation of a controlled item
by a foreign national could trigger the requirement for a deemed export
license. Consequently, BIS has determined that revision to the existing
definition would result in an expansion of deemed export license
applications imposing a substantial licensing burden on the regulated
community, without a corresponding benefit to national security. Hence,
the definition of ``use'' remains unchanged.
Moreover, the conjunctive word ``and'' in the current ``use''
definition reflects the policy rationale that underlies the controls on
the release of controlled ``use'' technology to foreign nationals. The
current ``use'' definition lists all six activities (i.e., operation,
installation, maintenance, repair, overhaul, & refurbishing) because
the totality of those activities would provide the foreign national
with enough knowledge to replicate or improve the performance
capabilities of the controlled item. As such, all of the activities
listed in the definition of ``use'' are required to trigger a license
requirement.
``Use'' controls are predicated on Cold War-era reverse-engineering
concerns. Under the Coordinating Committee on Multilateral Export
Controls (COCOM), the multilateral organization that cooperated in
restricting strategic exports (conventional and dual use items) to
Eastern Bloc (communist-governed) countries, export controls on
technology were based on the concern that the release of technical
information to a foreign national of an Eastern Bloc country would
enable a controlled item
[[Page 30844]]
to be replicated by an Eastern Bloc country. The Wassenaar Arrangement
(WA), the successor to COCOM, was established to address post-Cold War
security concerns. However, the Cold War-inspired ``use'' definition
was adopted by WA without revision and subsequently included in Part
772 of the EAR.
The OIG highlighted inconsistent interpretations of ``use'' that
exist throughout industry, academia, and within BIS. However, a
regulatory revision of the definition of ``use'' from the conjunctive
to the disjunctive is not the most appropriate vehicle for resolving
disparate interpretations. Instead, BIS is clarifying that the
definition of ``use'' is properly read in the conjunctive. This
clarification resolves the inconsistency suggested by the OIG Report
and restates a coherent, bright line rule, which will resolve any
misunderstanding and increase compliance with the regulations.
Regulatory Guidance Related to Fundamental Research
As noted in many of the comments, there has been some
misapprehension as to the scope of the existing regulations as they
relate to academic and research institutions. While the domain of items
subject to the EAR is large, it is not infinite. There are four broad
classes of items that are not subject to the EAR: (1) Items controlled
for export exclusively by another agency of the U.S. government, (2)
products such as books, movies, magazines, and recordings; (3) publicly
available technology and software; and (4) foreign-made items that have
less than a de minimis percentage of controlled U.S. content.
Although the OIG Report refers to an ``exemption'' for fundamental
research, the EAR generally does not refer to items or activities that
are not subject to the EAR as ``exemptions.'' As outlined in Part 734,
items and activities are either subject to the EAR or they are not
subject to the EAR. (See 15 CFR 734.2 & 734.3) In Part 734, the EAR
addresses the jurisdictional scope of fundamental research and sets
forth specific parameters and limitations that would take such
activities and products resulting from fundamental research outside of
the scope of the EAR.
Section 734.8 states that the information resulting from
fundamental research is usually not subject to the EAR if the intent is
to make the information resulting from the fundamental research
publicly available. As such, a product of basic and applied fundamental
research would often be captured within the broader category of items
that are ``publicly available,'' and thus is not subject to the EAR.
Such research can be distinguished from proprietary research and from
research related to industrial development, design, and production, the
results of which ordinarily are restricted for proprietary reasons or
specific national security reasons. (See 15 CFR 734.8(a) & 734.11(b)).
It is essential to distinguish the information or product (which
may be in the form of a scientific paper or publication that describes
and/or details the results of the fundamental research) that results
from fundamental research from the conduct that occurs within the
context of the fundamental research. While the product of the
fundamental research is not subject to the EAR because the results of
that research are intended for publication and dissemination within the
scientific community, authorization may be required if during the
conduct of the research controlled technology is released to a foreign
national.
The regulated community has expressed concern that the deemed
export rule is inconsistent with National Security Decision Directive
189 (NSDD-189). The stated purpose of NSDD-189 is as follows:
``This directive establishes national policy for controlling the
flow of science, technology and engineering information produced in
federally funded fundamental research at colleges, universities, and
laboratories. Fundamental research is defined as follows:
`Fundamental research' means basic and applied research in science
and engineering, the results of which ordinarily are published and
shared broadly within the scientific community, as distinguished
from proprietary research and from industrial development, design,
production, and product utilization, the results of which ordinarily
are restricted for proprietary or national security reasons.''
(Emphasis added) (NSDD-189, section II, Policy)
The description of fundamental research found in Section 734.8 of the
EAR closely mirrors this section of NSDD-189. Further, the directive
clarifies that the product that results from fundamental research is
distinct from the conduct involved in the research itself. NSDD-189
also distinguishes proprietary research from basic and applied
research.
The regulated community has expressed concerns that license
requirements within the EAR for the release of controlled technologies
to foreign nationals from countries of concern are in opposition to the
Administration's stated policy with respect to fundamental research.
However, NSDD-189 expressly notes that the United States government may
place restrictions on the release of controlled information. The
pertinent section of NSDD-189 states as follows:
``No restriction may be placed upon the conduct or reporting of
federally funded fundamental research that has not received national
security classification, except as provided in applicable U.S.
Statutes.'' (Emphasis added) (NSDD-189, section II, Policy)
The Export Administration Act (EAA) and the International Emergency
Economic Powers Act (IEEPA), the principal statutes authorizing dual-
use export controls, constitute applicable U.S. statutes within the
meaning of NSDD-189. Pursuant to the EAA, the EAR implement U.S.
government restrictions related to fundamental research when the
conduct of the research involves the transfer of controlled
technologies to foreign nationals. As such, there is no inconsistency
between the technology controls listed in the EAR and the type of
restrictions on fundamental research specified in NSDD-189.
Based on the extensive and varied public comments received, BIS has
concluded that expanded outreach is required to clarify the guidance
provided in the questions and answers in Supplement 1 to Part 734 of
the EAR. Furthermore, as indicated by the findings of the OIG, the
extensive and varied response to the ANPR, and the number of questions
and issues that have been raised in recent outreach efforts, it is
apparent that an expanded outreach program must be supplemented by a
collaborative effort between BIS and the regulated community to ensure
that the deemed export policy is consistent with evolving technologies
and national security concerns.
Dated: May 24, 2006.
Matthew Borman,
Deputy Assistant Secretary of Commerce for Export Administration.
[FR Doc. E6-8370 Filed 5-30-06; 8:45 am]
BILLING CODE 3510-33-P
