ABOVE: Rep. Ed Royce

When the Export Administration Act lapsed years ago, it meant that every year the President had to issue an executive order under the International Emergency Economic Powers Act (“IEEPA”) resurrecting the Export Administration Regulations for another year.  (Declarations of emergency, the premise for any IEEPA resuscitation of the EAR, can only last one year under the National Emergencies Act.)  The proposed bi-partisan Export Control Reform Act of 2018, sponsored by Rep. Ed Royce (R-Ca) is mostly designed to give the President the authority to re-promulgate the Export Administration Regulations on a more permanent basis.  He or she will still have to renew annually the Executive Orders that impose economic sanctions on people, places, and things (mostly boats).

Nobody can really argue with the elimination of the annual renewal requirement for the EAR.  Presumably the President has better things to do, like Easter Egg rolls, Thanksgiving turkey pardons and the such.  But Congress took the opportunity to meddle with the definition of a U.S. person to create a whole new class of exports that are certain to cause headaches, if not nightmares.  Under the proposed new definition, a U.S. business entity is not a U.S. person for export purposes if foreign citizens or corporations own 50 percent or more of the corporation.  Under the old definition, a business entity was a U.S. person if  it was organized under the law of any jurisdiction in the United States.

If you previously thought that “deemed exports”  already were the stuff of nightmares, well, as they say, you ain’t seen nothin’ yet.  Here are some scenarios that I’m optioning to start a new horror series on Netflix.

• Company A in Chicago wants to sell some microprocessors classified as ECCN classified as 3A001 to Company C, a U.S. corporation, in Detroit.  It can’t do that until Company C gives it information on foreign ownership and, if Company C is owned 51% by Chinese corporation, then Company A cannot send the items from Chicago to Detroit without a [bad word] export license.  Scared yet?
• Company D, a manufacturer of computers in Seattle wants to use Company F in Boston to manufacture certain components specially designed for its computers.  The computers and the specially designed parts are classified as ECCN 4A001.  In order to do that, Company D must transfer 4E001 technology relating to the production of these parts to Company F.   Company F is owned 60 percent bought by a Russian-Italian joint venture.  Is Company F Russian or Italian?  If the latter, no license is required; if the former, it is.  This gives Freddie Kruger a run for his money.
• Company G, which is 60 percent French owned, creates designs for a CNC-machine.   That technology can be exported without license to France.  Can the French parent build the machine and ship it to China without license?  That will depend on whether the designs created by the U.S. company that is now a foreign person in the United States are U.S. technology or foreign technology.  Warning: violent ending for mature audiences only.

You have to imagine that these nightmare scenarios never crossed the minds, such as they were, of the drafters of this legislation.  Nor did they focus on the numerous compliance questions and problems that the new definition would create.  But not to worry:  section 108 is designed to provide “compliance assistance.”   Whew.  In fact, in section 108(c)(1), Congress mandates that the President “shall develop and submit to Congress a plan to assist small- and medium-sized United States [sic] in export licensing and other processes under this title.”  I always thought we were a big, indeed great, United States, so I’m not so sure who are the small- and medium-sized United States that Congress hopes to help.

UPDATE: Kevin Wolf, who you may remember was running export control reform at BIS during the Obama administration, points out, in the comments, that the definition of U.S. person which resulted in the nightmares described above was, ahem, a mistake:

Everyone should relax. The definition of US person in the bill was a drafting error. The title I export definition got combined with the title II antiboycott definition. Committee staff is aware of the issue and will fix it during mark-up to get it back to the EAR status quo. You were not wrong in pointing out the absurdities as written, btw. When things seem weird though, it is good to ask the drafters if that is what they really meant. They did not in this case. Reg and leg writers do make mistakes.

That’s good news. It also goes to show that we all would have been better off if the antiboycott regulations had been left to die a deserved death. Those regulations never put even a dent in the Arab boycott but instead merely enriched lawyers (myself included) who had to decipher their ridiculously byzantine complexity and seventeenth-century syntax to advise clients on what language could and could not appear in letters of credit.