Revision and Clarification of Deemed Export Related Regulatory Requirements, 15607-15609 [05-6057]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security
• Industry and Security Bureau

[Federal Register Volume 70, Number 58 (Monday, March 28, 2005)]
[Proposed Rules]
[Pages 15607-15609]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-6057]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 734 and 772

[Docket No. 050316075-5075-01]
RIN 0694-AD29


Revision and Clarification of Deemed Export Related Regulatory 
Requirements

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Bureau of Industry and Security (BIS) is reviewing the 
recommendations contained in the U.S. Department of Commerce Office of 
Inspector General 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). Certain of these 
recommendations would require regulatory changes that would affect 
existing requirements and policies for deemed export licenses. BIS is 
seeking comments on how these revisions would affect industry, the 
academic community, and U.S. government agencies involved in research.

DATES: Comments must be received by May 27, 2005.

[[Page 15608]]


ADDRESSES: You may submit comments, identified by RIN 0694-AD29, by any 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: scook@bis.doc.gov. Include ``RIN 0694-AD29'' 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: 
RIN 0694-AD29.

FOR FURTHER INFORMATION CONTACT: Alex Lopes, Director, Deemed Exports 
and Electronics Division, Bureau of Industry and Security, telephone: 
(202) 482-4875, or e-mail: alopes@bis.doc.gov. Copies of the referenced 
OIG Report are available at https://www.oig.doc.gov/oig/reports/2004/
BIS-IPE-16176-03-2004.pdf.

SUPPLEMENTARY INFORMATION:

Background

    In its report, the Office of Inspector General (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. Adopting the OIG's 
recommendations to address these concerns would entail regulatory or 
other administrative action that would clarify the definition of 
``use'' technology subject to the EAR, base the requirement for a 
deemed export license on a foreign national's country of birth, and 
modify regulatory guidance on licensing of technology to foreign 
nationals working with government-sponsored research and research 
conducted in universities.

Definition of ``Use'' Technology

    The OIG stated that confusion existed over the definition and 
implementation of controls associated with the ``use'' of equipment by 
foreign nationals in the United States. In Sec.  772.1 of the EAR, the 
term ``use'' is defined as: ``Operation, installation (including on-
site installation), maintenance (checking), repair, overhaul, and 
refurbishing.'' The OIG expressed concern about the presence of the 
word ``and'' in the definition being interpreted to mean that all of 
the activities enumerated in the definition must be present in order to 
constitute ``use.''
    The OIG concluded that whereas, under the ``use'' definition, BIS 
grants approval for foreign entities to operate, install, maintain, 
repair, overhaul, and refurbish equipment exported from the United 
States in order to permit the end-user the full range of uses for an 
exported item, the same ``use'' definition did not seem to apply to 
deemed exports (i.e., to foreign nationals ``using'' the equipment in 
the United States). The OIG concluded that it would be unlikely that 
one individual would have the responsibility or capability of 
accomplishing all of the enumerated tasks that together constitute 
``use'' in most situations. In addition, the OIG also noted that two of 
the four multilateral control regimes defined the term ``use'' either 
with an ``or,'' or without any conjunction (i.e., a bullet point list 
of the activities).
    The OIG further concluded that this difference in interpretation is 
critical in determining how to implement and enforce the deemed export 
provisions in the EAR. The OIG reported that U.S. academic and federal 
research institutions generally use the fundamental research exemption 
under the EAR for most of the research they conduct. However, when 
equipment is used by foreign nationals at a U.S. university or federal 
research facility, the OIG concluded that it is most likely accompanied 
by some transmittal of use or other information or instruction 
constituting ``technology.'' According to the OIG, many of the academic 
and federal officials the OIG met with had not contemplated the 
transfer of technology associated with the ``use'' of equipment as a 
deemed export; others contended that the transfer of ``use'' technology 
related to equipment in furtherance of fundamental research is exempt 
under the regulations. The OIG suggested that BIS revise the definition 
of ``use'' in Sec.  772.1 of the EAR to replace the word ``and'' with 
the word ``or,'' as follows:
    ``Use''. (All categories and General Technology Note)--Means all 
aspects of ``use,'' such as: operation, installation (including on-site 
installation) maintenance (checking), repair, overhaul, or 
refurbishing.

Use of Foreign National's Country of Birth as Criterion for Deemed 
Export License Requirement

    Current BIS deemed export license requirements are based on a 
foreign national's most recent citizenship or permanent residency. The 
OIG expressed concern that this policy allows foreign nationals 
originally from countries of concern to obtain access to controlled 
dual-use technology without scrutiny if they maintain current 
citizenship or permanent resident status in a country to which the 
export of the technology would not require a license. For example, 
transfer of technology to an Iranian who has established permanent 
residency or citizenship in Canada would be treated, for export 
licensing purposes under the existing guidelines, as a deemed export to 
a Canadian foreign national. This policy is described in the deemed 
export guidance provided on the BIS Web site at: https://
www.bis.doc.gov/DeemedExports/DeemedExportsFAQs.html.
    The OIG recommended that BIS amend its policy to require U.S. 
organizations to apply for a deemed export license for employees or 
visitors who are foreign nationals and have access to dual-use 
controlled technology if they were born in a country where the 
technology transfer in question would require an export license, 
regardless of their most recent citizenship or permanent residency.

Clarification of Supplemental Questions and Answers on Government 
Sponsored Research and Fundamental Research

    The OIG reviewed the questions and answers in Supplement No. 1 to 
part 734 of the EAR. OIG noted that whereas the questions and answers 
did not cover all scenarios, the intent was to help potential license 
applicants understand how BIS applies the EAR to specific facts. The 
OIG reported that it considered two of the answers provided may be 
inaccurate or unclear.

Answer to Question A(4)

    Question A(4) from Supplement No. 1 to part 734, which falls under 
the ``publication of technology'' category, discusses whether 
``prepublication clearance'' by a government sponsor (in this case the 
Department of Energy) would void the exemption in the EAR for material 
to be published and trigger the deemed export rule. See Sec.  734.7. 
(Published Information and Software). The answer states, ``no * * * the 
transaction is not subject to the EAR.'' The OIG stated that, according 
to Sec.  734.11 of the EAR, if research is funded by the U.S. 
government and national security controls are in place to protect any 
resulting information, the research is subject to the EAR.
    In its comments on the OIG report, BIS concurred with the OIG that 
the answer to Question A(4) requires clarification. BIS stated that it 
proposed to modify in the answer to Question A(4) to state, by 
reference to Question A(2) in this Supplement, that, if the government 
sponsor reviewer imposed restrictions on publication of the research, 
then the technology would continue to be subject to the EAR.

[[Page 15609]]

Answer to Question D(1)

    Question D(1), which falls under the ``research, correspondence, 
and informal scientific exchanges'' category, discusses whether a 
license would be required for a foreign graduate student to ``work'' in 
a laboratory. The answer provided in the supplement states, ``not if 
the research on which the foreign student is working qualifies as 
`fundamental research' * * *'' However, because allowing scientists, 
engineers, or students to work in a laboratory may necessitate their 
``use'' of equipment, the OIG stated that this answer may lead a 
potential license applicant to assume that ``use'' of equipment is 
covered under the fundamental research exemption.
    In its comments on the OIG report, BIS agreed that the answer to 
question D(1) requires clarification. BIS proposes to revise the answer 
for D(1) to qualify the statement that no license is required, by 
stating that, whereas no license is required for the transfer of 
technology to conduct ``fundamental research,'' a license may be 
required if, in conducting fundamental research, the foreign graduate 
student needs access to technology to ``use'' equipment if the export 
of the equipment to the student would require a license under the EAR.

Request for Comments

    The Department of Commerce is interested in evaluating the impact 
that the changes recommended by the OIG would have on U.S. industry, 
academic institutions, U.S. government agencies, and holders of export 
controlled technology.
    To ensure public participation in the review process, BIS is 
soliciting comments for 60 days on this proposal. BIS is particularly 
interested in views on the impact the proposal will have on technology 
developers and manufacturers, academic institutions, and U.S. 
government research facilities. BIS is interested in receiving specific 
information regarding the impact of the regulations, e.g., data on the 
number of foreign nationals in the United States who will face 
licensing requirements if the OIG's recommendations were adopted, and 
impact of compliance with the new licensing requirements--cost, 
resources, procedures. BIS is also interested in receiving any 
alternative suggestions regarding the concerns raised by the OIG.
    Parties submitting comments are asked to be as specific as 
possible. BIS encourages interested persons who wish to comment to do 
so at the earliest possible date.
    The period for submission of comments will close May 27, 2005, BIS 
will consider all comments received before the close of the comment 
period in developing a final rule. Comments received after the end of 
the comment period will be considered if possible, but their 
consideration cannot be assured. BIS will not accept public comments 
accompanied by a request that a part or all of the material be treated 
confidentially because of its business proprietary nature or for any 
other reason. BIS will return such comments and materials to the 
persons submitting the comments and will not consider them in the 
development of the final rule. All public comments on this proposed 
rule must be in writing (including fax or e-mail) and will be a matter 
of public record, available for public inspection and copying. The 
Office of Administration, Bureau of Industry and Security, U.S. 
Department of Commerce, displays these public comments on BIS's Freedom 
of Information Act (FOIA) Web site at https://www.bis.doc.gov/foia. This 
office does not maintain a separate public inspection facility. If you 
have technical difficulties accessing this Web site, please call BIS's 
Office of Administration at (202) 482-0637 for assistance.

List of Subjects

15 CFR Part 734

    Administrative practice and procedure, Exports, Inventions and 
patents, Research, Science and technology.

15 CFR Part 772

    Exports.

    Dated: March 23, 2005.
Matthew S. Borman,
Deputy Assistant Secretary for Export Administration.
[FR Doc. 05-6057 Filed 3-25-05; 8:45 am]
BILLING CODE 3510-33-P