BIS

Farewell to Supplement No. 1

Over the years, export compliance professionals and other members of the public looked to Supplement No. 1 to Part 734, ‘‘Questions and Answers—Technology and Software Subject to the EAR” (“Supplement No. 1”) to determine how to use exclusions for the release of technology at open conferences, publications, educational instruction, and fundamental research under the Export Administration Regulations (“EAR”).

Although far from perfect, Supplement No. 1 is perhaps the clearest and most useful part of the EAR.

Nevertheless, the Administration’s June 3, 2015 proposed “Harmonization Rule” proposed to remove Supplement No. 1 and bury it among an increasing archive of agency website guidance. [FN 1]  Its stated rationale for removal was that questions and answers in the supplement were illustrative rather than regulatory and thus more appropriately posted as website guidance.

However, Supplement No. 1 is indeed regulatory. It is a codified regulation of substantive interpretations defining the scope of the EAR that was promulgated through formal rulemaking, which carries the force of law. Moving Supplement No. 1 to a website page therefore presents a problem because changes to the substantive scope of the EAR should be made through regulatory amendments that are subject to agency deliberations, public notice, and the opportunity for public comment.

Further, the fact that Supplement No. 1 contains useful illustrations increases its value to the exporting community. Industry experience over the years proves that these illustrations are essential to correct application of EAR exclusions to real world situations.

Today, the Administration published a final rule removing Supplement No. 1 from the EAR. [F/N 2] Supplementary information to the final rule does not identify a single public comment that was in favor of the removal. To the contrary, the final rule notes that thirty comments oppose removal of Supplement No. 1.

Reasons cited in the comments opposing removal of Supplement No. 1 include that the questions and answers in the supplement will not have the same weight if moved to an agency website; that removal of the supplement will create uncertainty; that keeping the supplement lessens the likelihood interpretations will change outside the formal rulemaking process; and that keeping the supplement in the regulations will promote consistency in interpretations.

Commenters also note that keeping Supplement No. 1 is consistent with the Administration’s retention of other supplements that contain substantive guidance. Their reasoning is particularly strong when considering the large volume of explanatory notes and illustrative examples added to the EAR by the Administration in the course of its Export Control Reform Initiative.

The final rule states the Administration is removing the supplement because “[n]one of the thirty comments opposing removal of this Supplement from the EAR identified any substantive provisions that were not adequately incorporated into part 734 or elsewhere in the EAR.” [F/N 3]  The final rule further states that the Administration will move the guidance provided at Supplement No. 1 to FAQs on the BIS website.  This, of course, is the very result that the commenters feared.

*   *   *

[1] 80 Fed. Reg. 31,505 (June 3, 2015).

[2] 81 Fed. Reg. 35,586 (June 3, 2016).

[3] Id. at 35,596.

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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 June 3, 2016. 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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