BIS

Universities Oppose Changes to Fundamental Research Exclusion

The Department of Commerce Bureau of Industry and Security (“BIS”) recently released public comments to the Export Control Reform (“ECR”) Task Force proposed “Harmonization” rule, which seeks to redefine many key terms used in the Export Administration Regulations (“EAR”). [F/N 1] The preamble to the proposed rule states that “it is not intended to change the scope” of the fundamental research exclusion. [F/N 2]

However, among other things, the proposed rule seeks to amend the EAR to remove software from coverage under the fundamental research exclusion, remove guidance on scope of the fundamental research exclusion presently provided at Supplement No. 1 to EAR Part 734, remove the university specific guidance on scope of the exclusion currently provided at EAR Section 734.8(b), and it seeks to impose a definition of “Applied Research” based on only part of the definition currently used in the Defense Federal Acquisition Regulations. Not surprisingly, the vast majority of comments submitted by universities oppose these changes.

Almost every university comment identifies removal of software from the scope of the fundamental research exclusion as a major concern.  Here, proposed Section 734.8(a) states that the exclusion applies to “technology,” with no mention of software.  The proposed rule further refers to a note “that software and commodities are not ‘technology resulting from fundamental research.'”

On removal of the guidance currently provided at Supplement No. 1 to EAR Part 734, many of the university comments note that removal of the guidance will reduce certainty in determining scope of the exclusion because, even if reposted on the agency’s website, information on a website does not have the same weight as actual regulations.

The comments also note that substantive agency interpretations posted on a website can be easily changed without the opportunity for public comment. They further note that, if the supplement is moved to the BIS website, the public would not necessarily have notice of changes that can have a substantial impact on compliance procedures at universities, federally funded research facilities, and private companies engaged in fundamental research.

The proposed rule seeks a 30-day delayed effective date. While some university comments request an extension of this time, others note that an extension would not make a difference because the impact of the proposed changes will cripple industry sponsored research regardless of when they become effective.

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[1] See http://efoia.bis.doc.gov/index.php/electronic-foia/index-of-documents

[2] “Revisions to Definitions in the Export Administration Regulations,” 80 Fed. Reg. 31,504 (June 3, 2015).

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The above is not intended as an exhaustive list of restrictions that may apply to a particular transaction nor advice for a specific transaction because the specifics of an individual case may implicate application of other U.S. laws as well as foreign laws that carry added or different requirements. In addition, U.S. export control and sanctions laws are frequently subject to change. Such changes can affect the continued validity of the information above, which is based on U.S. law existing as of August 20, 2015. For these reasons, assistance from a qualified attorney competent to advise on such matters is highly recommended. Matthew A. Goldstein is an International Trade Attorney in Washington D.C. licensed to practice in the District of Columbia. He can be reached at (202) 550-0040 and Matthew@GoldsteinPLLC.com

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