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Hong Kong Rules, Deemed Exports, Licensing Among Recommended Changes for BIS

Tuesday, September 19, 2017
Sandler, Travis & Rosenberg Trade Report

The Bureau of Industry and Security’s Regulations and Procedures Technical Advisory Committee recently submitted to new BIS officials Mira Ricardel, under secretary of commerce for industry and security, and Richard Ashooh, assistant secretary for export administration, a number of recommendations for updating regulations and improving efficiency and processes. These recommendations include the following.

Practices and Procedures

- remove the new support documentation requirements for exports of specific controlled items to or through Hong Kong, which BIS felt was needed to minimize or eliminate the numerous illegal export diversions occurring from Hong Kong but in reality requires companies to “fix a problem that is owned by the Hong Kong government” and “has no added benefit to U.S. exporters”

- create and implement license exception ICT (intra-company transfer) or another type of authorization (e.g., trusted exporter program) that would provide a licensing alternative for deemed exports for companies that have robust export internal control programs

- initiate a dialogue among BIS, the Directorate of Defense Trade Controls, and the Defense Technology Security Administration in an effort to improve the efficiency of the dual-use export license review and approval process and accelerate export licensing cycle times

- provide that if BIS or another agency feels a letter of assurance is needed to support an approved export license, the need to obtain an LOA should be included in a license condition as opposed to asking applicants to delay the license application process while they wait for a consignee to provide a signed LOA

- move Vietnam from country group D:1 to country group B in the Export Administration Regulations

- transfer the management and enforcement of the anti-boycott laws, which are only tangentially related to exports, from the Commerce Department to the Treasury Department, which would require an act of Congress

- simplify license exception AVS to clearly allow U.S. aircraft overflight and temporary landing as long as there is no change of ownership

- allow exporters to meet with the BIS Office of Export Enforcement in settlement discussions rather than just communicating through counsel, which “violates due process and fundamental fairness” and prevents those with the most knowledge about the case from getting together

Encryption

- eliminate or significantly streamline pre-shipment inspection, as it is “a major problem for those manufacturing overseas to bring new products to the U.S. for inspections that do not seem very meaningful”

- eliminate reporting except for encryption licensing arrangements

- increase control levels, which are not keeping up with changes in individual usage or markets

- remove outdated controls at regular intervals given that technological change continues to eclipse regulatory schemes

- clarify the application of BIS definitions for technology transfers, as it is “very difficult in practice for developers jointly working on a product to determine where a line is crossed to require a license”

- allow self-classification of chips, chipsets, etc. similar to software products, as these are typically for mass market items in widespread use and formal classification may slow product adoption

- revise the treatment of open source and open object items to EAR99 rather than control them under export control classification number 5D002

- move the classification of mass market and EAR 740.17(b) ENC unrestricted items to EAR99, as the classification of mainstream software products is no longer warranted

- eliminate the open cryptographic interface restriction, which “unfairly discriminates against proprietary software and gives a competitive advantage to open source products”

High-Performance Computers

- raise the control threshold, which has remained static for more than 20 years and threatens sales of U.S. computers, and index it to future increases in the Wassenaar Arrangement control threshold

- clarify that export licenses are not required if a product is being used for administrative uses unrelated to sanctioned activity

Other Controls

- modify the EAR and the International Traffic in Arms Regulations to enable BIS licensing of EAR-jurisdiction items that are part of foreign military sales cases

- create a harmonized definition of technology or technical data to relieve companies working with EAR, ECCN 600 series, and ITAR items from having to unnecessarily control and license large parts of their technology

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