Deemed Exports and Hiring of Foreign Nationals: Time to Reevaluate?

It may be time to reevaluate your company’s approach to “deemed exports” and the hiring of foreign nationals, based on the recent changes to the country designations of Myanmar/Burma, Russia and Hong Kong, as well as the addition of certain items to the Commerce Control List (CCL) as “emerging technology” and the movement of other items from the U.S. Munitions List (USML) to the CCL.

Background

Two executive agencies govern exports — the Department of State’s Directorate of Defense Trade Controls (DDTC) and the Department of Commerce’s Bureau of Industry and Security (BIS). DDTC implements and enforces the International Traffic in Arms Regulations (ITAR), which regulate items on the USML. BIS implements and enforces the Export Administration Regulations (EAR), which regulate items on the CCL. These regulations cover more than just the export of physical items. They cover re-exports between countries, transfers within countries, and releases of software, technology, technical data and technical assistance (collectively “items”). All of these terms, “export,” “re-export,” “release,” “transfer,” “software,” “technology,” “technical data” and “technical assistance” are defined terms in the ITAR and the EAR.

Under the ITAR, “technical data” related to defense articles is controlled and broadly defined. As a general rule, if an item is on the USML, all data besides very public, generic marketing data is controlled.

Where an item is subject to the EAR, then generally “production,” “development” and “use” “technology” related to the item is also controlled unless it is “publicly available.” These terms are in quotations because they are defined under 15 CFR 772 and 15 CFR 734. As a general rule, production and development technology is defined in a way which comports with its normal meaning. “Use” technology, however, does not mean “use” in a conventional sense. Under 15 CFR 772, it is defined as “[o]peration, installation (including on-site installation), maintenance (checking), repair, overhaul and refurbishing.” BIS has, in the past, read the “and” in the definition as requiring all six listed elements. If this definition applies, then “use” goes beyond a mere operator’s manual.

When controlled technology and software exist, they are also controlled for “deemed export” and “deemed re-export.” Releases of controlled technology or software source code in the United States to a foreign national are “deemed” an export to the foreign national’s country of nationality. The release of controlled technology or software source code that has already been exported from the United States to nationals of a third country is a “deemed re-export” to the foreign nationals’ country of nationality. Technology is “released” for export when it is available to foreign nationals for visual inspection (such as reading technical specifications, plans, blueprints, etc.), when technology is exchanged orally, or when technology is made available by practice or application under the guidance of persons with knowledge of the technology. See 15 CFR 734.2(b)(3).

Any foreign national is subject to the “deemed export” rule except a foreign national who (1) is granted permanent residence, as demonstrated by the issuance of a permanent resident visa (i.e., Green Card), or (2) is granted U.S. citizenship or (3) is granted status as a “protected person” under 8 U.S.C. § 1324b(a)(3). As noted, one exception to this general statement is a “protected person.” “Protected persons” include political refugees and political asylum holders. Be aware that individuals seeking “protected person” status must satisfy all of the terms and conditions that are fully set forth in 8 U.S.C. § 1324b(a)(3).

It should be emphasized that although the deemed export rule may be triggered, this does not necessarily mean that a license is required. Whether a license is required depends on a) the classification of the technology or technical data and b) the nationality of the person to whom it is being released or transferred.

Where a person is a citizen or permanent resident of two countries, BIS usually considers the last in time to prevail. However, DDTC considers all countries of citizenship when considering whether a license is required.

Implication of New Rules

Due to the above rules, any change in the designation of countries with respect to the ITAR or the EAR or changes in the items that are classified on the USML or CCL can change the license determination when a non-U.S. person is hired.

Specifically, the following regulatory changes may affect the license determinations for new hires:

• Since June 17, 2020, BIS has added certain “emerging” technologies to the CCL, including most recently:
  • Hybrid additive manufacturing (AM)/computer numerically controlled (CNC) tools
  • Certain computational lithography software designed for the fabrication of extreme ultraviolet masks (EUV)
  • Technology for finishing wafers for 5nm production
  • Forensics tools that circumvent authentication or authorization controls on a computer or communications device and extract raw data
  • Software for monitoring and analysis of communications and metadata acquired from a telecommunications service provider via a handover interface
  • Suborbital aircraft
• On July 14, 2020, President Trump directed DDTC and BIS to discontinue preferential treatment to Hong Kong for licensing determinations (exports to Hong Kong are now considered exports to China for licensing determination purposes).
• On March 8, 2021, BIS amended the EAR to add Myanmar/Burma to a more restrictive list of countries for licensing determinations.
• On March 18, 2021, DDTC amended the ITAR to add Russia to its list of countries to which it applies a policy of denial for export licenses.

Therefore, we encourage companies to review any new hire and licensing procedures previously developed to confirm they take account of the recent changes to the regulations. Should licensure be required, we recommend initiating that process when you start the visa petition process to avoid, to the extent possible, a potential delay in the foreign national’s ability to fully perform their job. Unless and until a required license is issued, companies must prevent access to the controlled technology or technical data by the foreign national employee.