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BIS Publishes Final Regulation Creating 0Y521 ECCNs for Emerging Technologies, Making It Easier for BIS to Control First, Ponder Later

On April 13, 2012, the US Commerce Department's Bureau of Industry and Security (BIS) published a final regulation establishing the 0Y521 ECCN series with a view towards providing a mechanism for identifying and controlling potentially sensitive emerging technologies not yet categorized on the US Commerce Control List or the US Munitions List.

See the regulation here. The high points of the final rule are as follows:

  • Temporary Control Category. The 0Y521 series — composed of 0A521 for hardware, 0B521 for test equipment, 0C521 for materials, 0D521 for software, and 0E521 for technology — is a temporary control category.
  • Described in Supplement to the CCL. The 0Y521 series items will not be described in the ECCNs themselves but rather in a new Supplement 5 to Part 774 of the Export Administration Regulations (EAR). New items will be added by amendments to Supplement 5 published in the Federal Register.
  • Factors for Inclusion. BIS will decide whether to identify an item as included in ECCN 0Y521 based on a determination of whether the item has either (a) “significant military or intelligence advantage to the United States” or (b) for “foreign policy reasons.” The determination will not be based on “a classification of the item's technical characteristics.”
  • No Advance Notice. BIS will confer with the US Departments of State and Defense in making the designations, and will also rely on input received from the Technical Advisory Committees (TACs). The TACs will review the draft amendments to Supplement 5 before they are published. This appears to be the sole avenue for industry input prior to the addition of items to the 0Y521 list. BIS has stated that it will not publish these additions as proposed rules due to the “harm that would likely be done to national security interests if exporters and reexporters were given advance notice. . . .”
  • Foreign Availability Considerations. BIS has stated that it intends the 0Y521 series to be “consistent with the foreign availability provisions” of the Export Administration Act. Given the extent to which BIS recently has taken these into account — particularly in its imposition of unilateral foreign policy controls — it is somewhat unclear what BIS intended by this statement.
  • No Formal Right of Appeal. ECCN 0Y521 classifications are excluded from the part 756 appeals process — meaning that parties cannot appeal from a BIS decision to place a product in a 0Y521 ECCN. BIS points out that the EAR provides that the public may submit a request to amend, revoke, or appeal a regulation at any time. One wonders if such a request has been filed and, if so, whether BIS has ever granted it.
  • Temporary Control for up to Three Years. After designating an emerging technology, the US Government has one year to propose its control to the relevant multi-lateral regime and two additional one-year extensions before the US Government must decide what to do with the technology if it has not been controlled by the multi-lateral regime — a total of three years.
  • Extension Beyond Three Years. The extension may be for longer than three years, if the US Under Secretary for Industry and Security makes a determination that such extension is in the national security or foreign policy interests of the United States.
  • License Required for All Destinations Except Canada. During this period of control, the technology requires a license for all destinations except Canada (through Regional Stability RS Column 1 controls).
  • Limited License Exceptions. Only license exception GOV — items for official use by personnel and agencies of the US Government — is available for items within an 0Y521 designation. When BIS adds a particular item to Supplement 5, however, it has left itself a column in the Supplement 5 chart where it can state that additional license exceptions are available.
  • Licensing Policy. The license review policy for the 0Y521 series is case-by-case — based on “whether the export or reexport could contribute directly or indirectly to any country's military capabilities in a manner that would destabilize a region's military balance contrary to the foreign policy interests of the United States.”
  • Fundamental Research Not Controlled. BIS explained that the 0Y521 series would not result in the control of “fundamental research.” Fundamental research is not subject to the EAR, and the 0Y521 series would apply only to items subject to the EAR. Because of the disconnect between the EAR and the US International Traffic in Arms Regulations regarding the interpretation of fundamental research, this could prove more complicated in practice.

Because the 0Y521 series does not immediately control any emerging technologies, it is difficult to predict exactly how it will be administered. BIS Undersecretary Eric Hirschorn publicly stated at a BIS Export Control Forum on February 27th, that 05Y21 is intended as a spot for otherwise USML items to go on the CCL, when there otherwise would be reluctance to moving the item from the USML to the Commerce Control List, as the item would fall under EAR99 absent this temporary control. If primarily used as such, it would offer a useful avenue for gradual decontrol of items on the USML to 0Y521 and eventually a lower level of control, perhaps even EAR99.

On the other hand, there remains a risk that the 0Y521 series will be used to control emerging dual-use technologies that might otherwise be EAR99 or AT controlled. The US Government already has the ability to impose unilateral controls on technology — and routinely does so in the Anti-Terrorism (AT) and Crime Control (CC) areas among others. This regulation will make it even easier for the US Government to do so and at higher levels of control with fewer license exceptions. No longer need it create a new ECCN and justify the reasons for control and licensing policy: now BIS may simply park a new technology in the awaiting 0Y521 ECCN and ponder what to do with it for up to three years.

In short, a new technology in which US companies and inventors have invested considerable funds and American ingenuity, can go very quickly from EAR99 to 0Y521 with very little warning or opportunity for industry comment outside of the TACs. To its credit, BIS states that “{p}arties would nonetheless be encouraged to provide to BIS information and comments about the item and the ECCN 0Y521 controls on it.” If that information gathering process were associated with a proposed addition to 0Y521, as opposed to a fait accompli with a potential three-year control period, then perhaps the regulation might strike a balance that is fairer to US invention. It is noteworthy in this election year that administrations do change. This 0Y521 structure, though born out of an export reform initiative, could readily be used by a less export-friendly administration in the future.

Finally, the goal of a single list seems ever more remote. Well-intended as it is, we may be witnessing the proliferation of lists within lists — or worse yet, the blurring of the distinctions between the lists. Industry is calling for clarity, predictability, and simplicity. To the extent the export reform initiative furthers those objectives, US exporters are more likely to embrace the effort.

In short, depending on how it is applied in practice, the 0Y521 regulation could act as:

  • a welcome stepping stone for USML items to become decontrolled gradually; or
  • yet another reason for companies to develop their inventions — particularly those that might have military or intelligence promise — outside the United States in hope of avoiding US controls.

We hope for the former outcome.

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