Protect Your Company from Violations by Staying Informed of Deemed Export Rules

Does your company know the current U.S. deemed export rules? According to a recent government report1it is likely that many companies, even yours, may not fully understand and comply with deemed export rules. Companies must understand that even the slightest exposure of technology or information by a company to any foreign national is subject to deemed export rules and may result in a violation of U.S. export regulations. Such a release could cause criminal and civil penalties as well as imprisonment for employees involved in the violation. Even U.S. companies selling electronics to U.S. customers must be aware of deemed export rules. All companies must pay close attention because the U.S. government is changing deemed export rules in the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR). So, does your company really know everything that it needs to know about deemed export rules? If the answer is anything other than a resounding “yes,” then your company may be in serious violation of the law.

A February 2011 Government Accountability Office (GAO) report found that confusion surrounding deemed export rules is prevalent amongst both industry and the government. As a result, businesses may not be aware of deemed export licensing requirements and obtaining the licenses required. Deemed export rules require companies conducting business in the U.S. to obtain licenses for any controlled intellectual property that their foreign national employees may have access to. According to the government, the deemed export rule is the release of controlled technology and/or information to a non-U.S. person. A non-U.S. person can be a foreign national, a foreign government entity, a foreign company, a foreign military, or anyone who is not legally considered a U.S person under the terms of the EAR and ITAR. Once technology is released to a foreign national, the U.S. government considers it “deemed” to be an export.

Deemed export rules can have an adverse effect on U.S. industry by imposing added costs not incurred by overseas competitors. According to the Deemed Export Advisory Committee, an official advisory committee to the Secretary of Commerce comprising industry, government, and academia representatives, the United States is the only nation that implements a deemed export control system and participates in multilateral export control regimes. Other nations depend largely on their visa processes, intelligence information, and commercial intellectual property controls rather than a formal deemed export licensing system.2 Companies must spend resources to comply with deemed export rules.

In addition to knowing the current deemed export rules, companies must be aware of ongoing changes to deemed export rules. In May 2011, the State Department finalized a change to ITAR that creates a new licensing exemption for deemed exports. The State Department made this change in order to reduce the deemed export licensing burden on both industry and the government. Prior to the new deemed export rules, companies had to perform significant due diligence regarding the nationality of employees working on programs requiring a license from the government.

The new change to deemed export rules in ITAR, which will take effect on August 15, 2011, creates a license exemption for certain deemed exports of unclassified defense articles and technical data under ITAR. The new license exemption allows companies to choose to either use the new exemption or apply for a license from the government. It does not allow companies to freely export controlled items. The new exemption is expected to alleviate some of the burdens on U.S. companies associated with monitoring non-U.S. person employees and preparing license applications. The new licensing exemption only applies directly to defense articles and technical data under ITAR. Under this new exemption, employees of licensed foreign end-users, consignees, and sub-licenses are exempted from separate licensing requirements for technical data and defense articles provided primary conditions are met. View the final rule and in-depth background information.

Companies dealing with deemed export rules will also be impacted by the U.S. government’s future changes to ITAR and EAR. The U.S. government is currently updating two different export control lists, the Commerce Control List (CCL) and the U.S. Munitions List (USML), to reflect current global conditions and global availability. The CCL is a list of controlled items in the EAR. The USML is a list of controlled defense-related articles, services and technology in ITAR. It is expected that by the end of the year the government will propose changes on the level of control required for items and move some items from the USML to the CCL. Since electronics are listed in nearly all categories in the USML, it is expected that any changes to ITAR will undoubtedly impact electronics companies. The entire supply chain, from OEMs to printed board manufacturers to designers and everyone in between, must comply with changes to ITAR and EAR to ensure compliance. All companies need to stay apprised of the changes to ITAR and EAR to understand how those changes will affect their ability to conduct business.

IPC is actively involved in providing input to the government’s proposed changes to U.S. export controls. IPC submitted comments3 to the State Department that suggested improvements to the proposed licensing exemption that would ensure national security, clarify definitions, and better define the screening requirements. IPC will host an ITAR/EAR workshop on December 6–8, 2011, in Washington, D.C. in order to help the industry better understand and comply with the new U.S. export control regulations.

Electronics companies must be aware of the changes in deemed export rules. Will you be prepared to continue supplying electronics to your current and potential customers once the changes in U.S. export controls take effect?

To find more information on U.S. deemed export rules and to get involved contact Ron Chamrin, IPC manager of government relations, at +1 703-522-3964.

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