If you read the last item and said, “Oops; I’ve never
heard of this one,” read on.
First, I’d like to reassure you that you are not alone;
in fact, you are in great company. Many exporters have
never heard the phrase “Deemed Export.” Second, this article
will help you answer the questions:
- What is a deemed export?
- How do we apply this concept at our company?
- What are the business impacts?
What is a Deemed Export?
The Export
Administration Regulations (EAR) define deemed exports
in §734.2(b)(ii).
To understand how to apply the phrase deemed export, I
must define:
Technology: Per Part 772 of
the EAR, “Technology” is specific information necessary
for the “development, production, or use” of a product.
Generally, technologies covered by the Deemed Export Rule
are:
- Located in the U.S.; or of U.S. origin and located
in a foreign location.
- Proprietary.
- Controlled for export to a particular country
foreign country, as indicated by inclusion on the CCL.
- Foreign technology with U.S. origin technology
commingled to a degree above a de minimis level is considered
to be subject to the Deemed Export Rule.
Release: Technology is “Released”
for export when it is made available to foreign nationals
for visual inspection, in such forms as technical specifications,
plans, blueprints, etc., through electronic media, or
even by simple visual inspection; 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.
Deemed Export: a “Deemed Export”
occurs when technology or source code (except encryption
and object source code, which is separately addressed
in the EAR under 734.2(b)(9)), is released to a
foreign national within the United States.
Deemed Reexport: a “Deemed
Reexport” occurs when controlled technology or source
code is released to a foreign national in a third country
whether by a U.S. person or a foreign person.
Foreign Person: A “Foreign
Person” is someone who is not a U.S. citizen, permanent
resident alien, or in the U.S. under specific refugee
status.In a sense, the foreign person is considered to
be the embodiment of his or her country of citizenship.
Thus, the essence of the deemed export rule is that providing
technology to a foreign person is the same as exporting
it to that person’s country of citizenship regardless
of where the parties are located when the technology is
provided. For example, providing a French citizen in Chicago
with controlled technology is considered to be an export
of that technology to France.
How Do We Apply This Concept at Our Company?
Assuming a license is required because the technology
is identified on the CCL (i.e., does not qualify for treatment
under EAR99),
is controlled to a particular destination, and no license
exception is available, U.S. entities must apply for an
export license under the Deemed Export Rule when both
of the following conditions are met:
- They intend to transfer controlled technologies
to foreign nationals in the U.S.; and
- Transfer of the same technology to the foreign
national's home country would require an export license.
Any foreign national is subject to the Deemed Export
Rule except a foreign national who:
- Is granted permanent residence, as demonstrated
by the issuance of a permanent resident visa (i.e.,
Green Card); or
- Is granted U.S. citizenship; or
- Is granted status as a “protected person” under
8 U.S.C. 1324b(a)(3). 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).
In situations involving individuals who are citizens
of more than one foreign country or have citizenship in
one foreign country and permanent residence in another,
then ask the BIS to determine the stronger tie based on
the facts of the specific case.
EAR99 technology would not require an export license.
Other technologies that do not require an export license
are those that are publicly available. These include patent
applications, publicly available technology and software
(other than software and technology controlled as encryption
items) that are already published or will be published,
technology that arises during or as a result of fundamental
research, or technology that is educational.
What are the Business Impacts?
Technologies developed in a foreign facility commingled
with or drawn from controlled U.S. origin technology may
require a license if the technologies are considered to
be of U.S. origin and trigger the Deemed Export Rule.
You may need an export license for foreign national
researchers, engineers, technicians and visitors to your
facilities who will have access to items including, but
not limited to, drawings, technology and source code.
If your firm is considering outsourcing production
lines, it is critical to compliance that the production
technology that will be sent to the foreign country
is not controlled on the Commerce Control List or by any
other government entity. If, in fact, that production
technology is controlled, then ensure that the
foreign national has an export license prior to access
to blueprints, drawings and other technical information
for evaluation.
You might want to note that during 2005 BIS considered
changing the rule defining a foreign person’s country
of citizenship to be the country of birth. However, there
is no change in the current policy regarding citizenship
and permanent residents.
The deemed export license exceptions for both microprocessors
and high-performance computers contained an error in the
policy regarding citizenship and permanent residency.
In the preamble under the heading “Deemed Export
Revision,” the last sentence in the second to last paragraph
reads, “Applications for foreign nationals with temporary
or permanent residence status of a third country (i.e.,
non-U.S. and a temporary or permanent residence status
other than a foreign national’s country of origin) should
be based on the foreign national’s country of citizenship.”
This is not correctly stated. The policy in recognizing
the most current citizenship and permanent residency still
applies.
Export Checklist
Let’s revisit the checklist. You can now successfully
check off the last item!
- The buyer, bank, forwarder, and other parties to the
transaction are validated against the restricted party
lists. Orders are held for further research if any party
matches a name or address on the lists.
- Product is reviewed against the CCL, USML, and other
government lists. A database is created identifying
the products as controlled items potentially requiring
an export license.
- The country where goods are destined or where parties
to the transaction are located is compared against embargoed
and trade sanctioned country lists. If there is a match,
the order is held pending review for an export license
by the management team.
- Contracts, purchase orders and other correspondence
with the customer are reviewed for potential boycott
language. If boycott language is found, the order is
held pending resolution and filing of a report with
the BIS.
- Sharing technology, reviewing blueprints, and tours
of facilities are considered potential exports under
the Deemed Export Rule and handled accordingly.
Editing contributions by George Thompson
of Neville
Peterson LLP.
