The Importance of Compliance with Deemed Export Regulations

Export regulations do not simply control the movement of goods, but can also apply to the sharing of information. In this QAD Precision Report we look at the “deemed export” laws of the United States and what these restrictions mean for manufacturers and universities.

Ask just about anyone what an “export” is and they will define the term as goods — and sometimes services — produced in one country and made available for sale in another. While that is an export, the term encompasses far more than the movement of items or services from one country to another. The term “export” can refer to any one of the following five examples:

1. The physical transfer of goods to a foreign country

2. Physically transferring information to a foreign country by carrying it in on a laptop, USB or other data device

3. Electronically transferring information by uploading it to a foreign server or sending information overseas using email, text messaging or other means of electronic communication

4. Allowing foreign nationals to access information, such as databases or software

5. Other forms of communication or data transfer, including telephonic communication

You will notice that four of the five examples above refer to the transfer, electronic or otherwise, of information. You will also note that this information does not necessarily have to be physically sent to a foreign country — granting a foreign national access to data is the same as exporting it to a foreign country.

What is a Deemed Export?

Manufacturers, exporters and any commercial entity that ship goods internationally must abide by export regulations. These include screening all parties to the transaction against restricted party lists, validating that the country of destination or that parties to the transaction are not subject to sanctions or other embargoes, and ensuring that the licenses are valid and correct where required.

The United States, however, also requires manufacturers and other entities to abide by “deemed export” laws when sharing certain technology with, or disclosing information to, foreign nationals based in the US. Under US law, a “foreign national” is anyone who does not have US citizenship, or who does not have permanent residency or refugee status in the US. 

Technology and information that may be subject to deemed export laws include proprietary technology, dual use goods that have both military and civilian applications, technology controlled for physical export to a particular foreign country, or technology that includes both US and foreign inputs. 

Generally speaking, if an item has a specific Export Control Classification Number (ECCN) and appears on the Commerce Control List (CCL), you would need an export license from the Department of Commerce before you could ship the item from the US to a foreign country. These goods would also be subject to deemed export laws. Manufacturers may not make such technology available to foreign nationals based in the US. Even allowing visual inspection of databases, blueprints, technical specifications and so forth could contravene regulations.

Export Restrictions and Dual Use Goods

It is unsurprising that governments and regulatory bodies place restrictions on dual use goods that can have military as well as civilian applications. Should these goods fall into the wrong hands, they could support terrorist, criminal or other illegal activities.

In the United States, the Export Administration Regulations (EAR) oversees the export of commercial and dual use items. Along with EAR, the International Traffic in Arms Regulations (ITAR) is responsible for controlling the manufacture, export, and import of military goods and technologies. 

Deemed Exports and Foreign Manufacturing

The global nature of contemporary supply chains and manufacturing can make deemed export regulations somewhat tricky to navigate. For example, technologies developed outside of the US, but that contain US-origin technology, may be subject to US deemed export regulations. 

In addition, manufacturers or other enterprises may need an export license if they employee researchers, technicians or experts that are foreign nationals. You may also need an export license if you invite foreign visitors to tour your facility.

Furthermore, manufacturers that outsource production must ensure that the production technology that they plan to send overseas is not on the CCL or subject to other government restrictions. Manufacturers will need the necessary export licenses before sending controlled production technology to foreign nationals or allowing access to this information.

Deemed Export Laws and Universities

Deemed export laws are not restricted to manufacturers and other commercial enterprises — universities must ensure that researchers and students act in accordance with export regulations. 

Should a university be conducting research on technology that has dual use applications, the university must comply with dual use restrictions. If foreign nationals are part of the research team, or if the university is collaborating with an overseas academic institution, deemed export laws are likely to apply.

However, it is important to note that fundamental research conducted by universities is exempt from export controls. Under US export law, this is the Fundamental Research Exclusion (FRE).  

In order for FRE to apply, the following conditions are necessary:

• The researcher or research team must be conducting basic or applied research

• Researchers will publish their results and share them publicly with the scientific community

• No restrictions apply, such as the results being subject to a non-disclosure agreement or requiring approval by sponsors prior to publication

As you can see, FRE does not apply if the researcher or university signs a non-disclosure agreement or accepts other restrictions from a sponsor. Under such circumstances, this becomes “proprietary research” as it is restricted for commercial or national security reasons.

It is important to note that FRE only applies to publishable results — not to inventions, technology or equipment. As a result, research conducted in a number of disciplines such as science, technology, engineering and mathematics, may overlap with export controlled technologies. 

The Importance of Compliance Screening

Enterprises and universities that create, research or in other ways work with restricted technologies and dual use goods must educate staff about the importance of complying with deemed export regulations. It is vital that staff do not commit violations by sharing or transmitting information or technology with those restricted from accessing it.

Any commercial body or research institution that sends technical specifications, blueprints, samples, or sensitive data that is restricted is obliged to screen trading partners, vendors, suppliers and other parties.

Restricted party lists and sanctions and embargoes are subject to change. This can make keeping up to date with the latest restrictions an onerous task if done manually. Nonetheless, compliance is the standard and due diligence is necessary. Automated screening removes much of this burden and helps to ensure that restricted information and technology is not sent to persons that violate deemed export regulations.

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Further Reading

WHY INTEGRATE EXPORT MANAGEMENT AND TRANSPORTATION

IMPORT MANAGEMENT: THE IMPORTANCE OF CORRECT CLASSIFICATION

FIVE WAYS TO SIMPLIFY POST-BREXIT UK/EU TRADE