New Government Regulation of Emerging Technology

The U.S. Government has instituted a major new initiative to regulate emerging technology, potentially including artificial intelligence, biotechnology, robotics, data analytics and many other types of emerging technology, listed below. The expected outcome of this process will be controls on the export of some of these technologies, and controls on foreign investment into these technologies. 

On November 19, 2018, the Department of Commerce, Bureau of Industry and Security (“BIS”) published an advance notice of proposed rulemaking (“the notice”) soliciting comments on the proposed export control of emerging technologies. BIS intends to identify and control new technologies that are not currently subject to control but that are considered essential to national security. Emerging technologies that become controlled as a result of this process will require an export license to countries like China. In addition, certain foreign investment in these technologies will be subject to government review through the Committee on Foreign Investment in the United States (“CFIUS”). The comment period provides an opportunity for industry to shape the course of how emerging technologies are defined and which ones should be controlled. Comments in response to this notice are due December 19, 2018. 

Background 

Section 1758 of the Export Control Reform Act of 2018 (“ECRA”), enacted as part of the National Defense Authorization Act for Fiscal Year 2019, instructs BIS to identify and establish controls on emerging and foundational technologies. The ECRA does not define “emerging” or “foundational” technologies, other than to note that they are essential to U.S. national security and do not meet specified definitions of “critical technologies,”¹ which are already controlled (e.g. defense articles subject to the International Traffic in Arms Regulation, certain items already identified on the Commerce Control List (“CCL”)² and nuclear commodities). 

Even though emerging and foundational technologies are referenced together in the ECRA, the pending request for public comment focuses only on emerging technologies. 

BIS will issue a separate notice on foundational technologies in the future. However, BIS is, at this time, seeking comments on whether emerging and foundational technologies should be controlled together or through separate processes. BIS is required to evaluate the following legislative factors in determining whether an emerging technology warrants control. In addition to being essential to the U.S. national security, the ECRA requires consideration of: 

• The development of emerging technologies abroad; 
• How controls on emerging technology will impact development in the United States; and 
• If export controls will be effective on limiting foreign proliferation of the emerging technology.³ 

Impact of Controls 

These new controls are intended to capture technologies that have not previously been reviewed for national security purposes by the U.S. government or in the context of a multilateral control regime, and therefore are not listed on the CCL. However, the notice states that BIS is not intending to expand its in-place policies of control. Specifically, BIS is not seeking to include in the emerging technology controls “fundamental research,” which is not subject to BIS’s export control jurisdiction. Also, BIS does not intend to reevaluate or modify the controls for technology already governed by the CCL. 

BIS has not yet indicated what its licensing review policy will be for emerging technologies, or whether specific restrictions will apply based on the end use, end user, or country involved. However, at a minimum, the ECRA requires BIS to impose a license for the export, reexport or transfer of emerging technology to countries subject to a U.S. embargo. That applies to the arms embargoes imposed by the U.S. Department of State, which notably includes China, among others. BIS has not indicated what, if any, license exceptions will be available for controlled emerging technology. 

Additionally, CFIUS review may be required for foreign investments into U.S. businesses that develop or use emerging technologies in connection with their activities in certain industries. 

Categories of Emerging Technology 

BIS has provided a representative list of fourteen general categories of technology as a focus for the comments, with specific examples listed for each category. Additionally, BIS is seeking comment on whether any other general categories of emerging technology should be reviewed for potential control. The fourteen identified categories include: 

• Biotechnology 
• Artificial intelligence (AI) and machine learning technology 
• Position, Navigation, and Timing (PNT) technology 
• Microprocessor technology 
• Advanced computing technology Data analytics technology 
• Quantum information and sensing technology 
• Logistics technology 
• Additive manufacturing (3D printing) 
• Robotics Brain-computer interfaces 
• Hypersonics 
• Advanced materials 
• Advanced surveillance technologies

Request for Public Comments 

BIS has identified seven specific topics on which it is soliciting comments: 

1. How to define emerging technology to assist identification of such technology in the future; 
2. Criteria to apply to determine whether there are specific technologies within these general categories that are important to U.S. national security; 
3. Sources to identify such technologies; 
4. Other general technology categories that warrant review to identify emerging technology that are important to U.S. national security; 
5. The status of development of these technologies in the United States and other countries; 
6. The impact specific emerging technology controls would have on U.S. technological leadership; 
7. Any other approaches to the issue of identifying emerging technologies important to U.S. national security, including the stage of development or maturity level of an emerging technology that would warrant consideration for export control. 

In preparing comments, companies might find it helpful to keep the following points in mind: 

• First, the notice emphasizes that to be controlled, the emerging technology must be essential to the national security of the United States, with potential applications in weapons, intelligence collection or terrorism, or otherwise conferring a military advantage. In other words, the emerging technology controls are not intended to be a vehicle for protection of U.S. competitive advantage, intellectual property rights, or manufacturing. Effective comments will demonstrate how certain technologies are, or are not, linked to U.S. national security interests. 
• Second, explain whether technology already is effectively regulated through existing controls. BIS stated in the notice that it does not intend to capture technology that is already controlled by the CCL. Companies should review the CCL to determine if an emerging technology actually is comprised of or supported by other technologies that already are controlled. 
• Third, companies should utilize lessons learned from the most recent export control reform initiative. Foreign availability of a similar or identical technology reduces the national security concern arising from U.S. variations of the technology. One of the factors BIS must consider when electing to impose controls on emerging technology is the effectiveness the export controls will have. Providing BIS with detailed, concrete examples of foreign availability of similar technology and the position of foreign competitors in the global market reduces the possibility that the technology will become controlled. 

Conclusion 

Regulators and industry face a difficult task in identifying emerging technologies warranting control, without also restraining U.S. innovation and technological leadership due to regulatory barriers against global collaboration. These new controls could have a major impact on existing and prospective R&D projects, especially given the current level of investment and technology exchange among U.S., Chinese and other non-U.S. companies around the globe. U.S. companies with emerging technologies can use this comment period effectively to help BIS understand their technology, the global market and R&D trends for that technology, and the technology’s intersections (or lack thereof) with national security. This is the beginning of the process, and thus this is a critical time to engage with the regulators in framing the scope of the control process that lies ahead. 

How Dechert Can Help 

With international trade and government relations experts in both Washington and London, Dechert is available to advise regarding the impact of these changes and those still to come. For further information, please contact the authors. 

Footnotes 

_{1) ECRA Section 1703 amends Section 721(a)(6)(A) of the Defense Production Act of 1950 by defining “critical technologies” as: defense articles and services subject to the International Traffic in Arms Regulations; Items controlled on the Commerce Control List; specially designed nuclear equipment, parts and components; nuclear facilities; select agents and toxins; and emerging and foundational technologies.
2) 15 C.F.R. Part 774.
3) ECRA § 1758(a)(2)(B).}