The John McCain National Defense Authorization Act of 2018,  in addition to passing the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which reforms the CFIUS process, also enacted the Export Control Reform Act of 2018 (“ECRA”). That name is, I think, something of a misnomer given what the ECRA actually does. Perhaps a better name would have been the Export Administration Act Reenactment Act. After Congress in 1994 was unable to renew the Export Administration Act (“EAA”), which was the statutory authority for the parts of the U.S. export control regime covering dual use items and administered by the Commerce Department’s Bureau of Industry and Security (“BIS”), every U.S. President has resurrected the dead statute each year with an executive order under the International Emergency Economic Powers Act. With the passage of ECRA, that is one less executive order that the White House will need to issue each year.

Most of what ECRA does is provide the statutory authority for BIS that it previously had under the EAA and the yearly executive orders, although now with higher penalties for violations, which have been upped to $300,000 per violation. Why, after all, pass a law if you can’t raise the penalties? The only thing in ECRA which might be called a reform in a traditional sense of making life easier for regulated parties is section 1757 which says the President may authorize BIS to provide export counseling to exporters. This provision has generated so much excitement among exporters that U.S. exporters were popping bottles of Dom Perignon in celebration. Sorry, just kidding.

Rather than making life easier for exporters, the ECRA contains new controls certain to make exporters’ lives more difficult.  (In addition to the higher penalties.  Did I already mention those?) License applications will now have to explain why the export of an item will not have a negative impact on the U.S. defense industrial base. The law also mandates that BIS consider stopping exports of items on the Commerce Control List to countries that are subject to State Department arms embargoes. (Ahem, does anybody think that’s a dog whistle for restricting more exports to China?)

But the biggest change, and potential headache for exporters aside from higher penalties, is section 1758, which requires BIS, in cooperation with the Departments of State, Energy and Defense to identify and control “emerging and foundational technologies.” What on earth, you rightly wonder, is an emerging and foundational technology? The act only says that they are technologies that are “essential to the national security of the United States” but not already subject to export controls. Basically, since all export controls are based on national security, the only real definition of an emerging and foundational technology is something that is not already export controlled but should be. Your guess is as good as mine (and Congress’s) as to what these four agencies will decide to control under this new rubric.

Once the list of these new export controlled items is in force, then the ECRA requires as a minimum level of control that export of this technology to a “country subject to an embargo, including an arms embargo, imposed by the United States” would require a license. (Hello, China!) Embargo is not defined, so it’s not clear if a license would be required for these technologies with respect to a country to which the United States prohibited only a few types of goods or arms. A more significant issue is how this requirement, which applies to any “country” subject to an embargo would affect exports of emerging technologies to the Crimean territory, which is subject to a comprehensive embargo. This provision would impose the license requirement on either Russia or Ukraine depending on which country is considered to own Crimea and whether an embargo of a territory of a country means that the country is subject to an embargo.

The last thing to note about section 1758 is that the license requirement would not apply to what the Senate version referred to as “ordinary business transactions.” In the legislation as passed, these ordinary business transactions are described, for example, as

The sale or license of a finished item and the provision of associated technology if the United States person that is a party to the transaction generally makes the finished item and associated technology available to its customers, distributors, or resellers.

For those used to the EAR’s treatment of technology this provision seems odd and unnecessary. “Associated technology” generally made available to customers would be “published,” as defined in section 734.7 of the EAR, and thus not subject to the EAR or any license requirement, making this exception completely unnecessary. I suspect that the ECRA, which never defines “technology,” is using the term in a loose sense that would cover physical goods in addition to information. In any event, count on these exceptions to cause much confusion when the list of emerging and foundational technologies finally appears.

Oh, and did I mention the higher penalties?

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