Deemed Exports

  1. Deemed Exports 101: Exporting without crossing borders
  2. Deemed Exports: Licenses for any controlled IP that a foreign national employee may be able to access
  3. Deemed Export FAQs for Items on the U.S. Munitions List – Items Listed in ITAR
    Revisions to ITAR impacting Deemed Exports
    View IPC's comments on changes to ITAR impacting Deemed Export rules
  4. Deemed Export FAQs for Items on the Commerce Control List – Items Listed in EAR

Deemed Exports 101: Exporting without crossing borders

Employers must understand that even the slightest exposure of technology or information by a company to any foreign national can trigger the deemed export rule and cause the company to violate U.S. export regulations. Such a release could cause criminal and civil penalties as well as imprisonment for employees involved in the violation. 

According to the government, the deemed export rule is basically the release of controlled technology and/or information to a non-U.S. person regardless of where the export takes place. 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 Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR). Once technology is released to the foreign national, the U.S. government considers it “deemed” to be an export to the individual’s home country.

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Foreign Nationals

Deemed Exports: Licenses for any controlled IP that a foreign national employee may be able to access

Deemed export controls require companies conducting business in the U.S. to obtain licenses for any controlled intellectual property (IP) that their foreign national employees may have access to. Regulated IP, such as printed board artwork or technical data, is deemed exported when a foreign national employee has access to this information. The deemed export regulations can apply to the access of common workplace tools such as computers and e-mail where regulated information can be found. The complicated system even requires companies to apply for a new deemed export license if a foreign national employee relocates to another facility within the same company.

The U.S. is the only country requiring licenses for deemed exports. The regulations place an excessive burden on many U.S. electronics companies employing foreign nationals.

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Deemed Export FAQs for Items on the U.S. Munitions List – Items Listed in ITAR

All companies involved in any type of controlled technology must make it a priority to determine whether a license is required long before any activity takes place. Under the ITAR, a deemed export would actually require a DSP-5 license, Technical Assistance Agreement (TAA), or Manufacturing License Agreement (MLA) as applicable. If you are uncertain as to whether you need a deemed export license or an ITAR license, you should seek appropriate assistance from a compliance professional or direction from DDTC before beginning any activity.

For more information please visit http://pmddtc.state.gov/compliance/index.html

New License Exemption Created for Certain Deemed Exports  

On May 16, 2011, the Department of State Directorate of Defense Trade Controls (DDTC) issued a final rule creating a new exemption for “Deemed Exports.” The new exemption is expected to alleviate some of the burdens on U.S. companies associated with monitoring dual and third-country national employees and preparing license applications. This rule amends the International Traffic in Arms (ITAR), 22 C.F.R. Parts 120-130, to add an exemption relating to dual and third-country nationals from certain licensing requirements for exports of unclassified defense articles and technical data.  The Final Rule will take effect on August 15, 2011.

Existing Rule

This rule has required companies, and their foreign licenses, to perform significant due diligence regarding the nationality of employees working on programs requiring a license from the DDTC. In addition to administrative burdens and barriers to trade, the rule required fundamentally different treatment of dual nationals of two foreign countries as compared to dual nationals of the U.S. and another country. 

Provisions of New Rule

The new rule creates a new exemption for certain “deemed exports” if certain requirements are met. The rule adds one new definition, one new exemption to the ITAR, and other conforming changes.  Companies may choose to either use the new exemption or apply for a license from the DDTC.

The new exemption, 22 CFR § 126.18, pertains to “intra-company, intra-organization, and intra-governmental transfers to employees who are dual nationals or third-country nationals.”  The new exemption only applies directly to defense articles and technical data.  Under this new exemption, regular employees of licensed foreign end-users, consignees, and sub-licenses are exempted from separate licensing requirements for technical data and defense articles provided two primary conditions are met:

  1. Only defense articles or technical data authorized by the scope of the DDTC approval may be disclosed, and any transfers must occur within the territory of the country within which the end-user is located. 
  2. All eligible employees must possess a security clearance issued by the country in which the end-user is located or must have been otherwise screened and qualify for the exemption. 
To comply with the second requirement licensed end-users must evaluate their dual and third-country nationals who do not already hold security clearances for “substantive contacts” with the third-country for which they hold citizenship.  Foreign end-users and consignees must also implement a technology security plan (“TSP”) that includes “procedures for screening employees for such substantive contacts.”  Records relating to such TSPs and to employee screening must be maintained for five years.

Under new Section 120.39, a “regular employee” is defined to include not only permanent direct employees, but also long-term contractual employees who work on-site, are exclusively detailed to the company and under the control of the company, and who have executed non-disclosure agreements.  This new definition affects the existing provision at 22 CFR § 124.16. Section 124.16 will now provide that dual or third-country national employees must be “regular” employees of the foreign signatory. 

For official guidance please contact the DDTC directly. To view the federal register notice, please visit http://www.pmddtc.state.gov/FR/2011/76FR28174.pdf.

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IPC's comments on proposed changes to ITAR impacting Deemed Export rules

IPC provided comments to the DDTC on their proposed changes to ITAR impacting Deemed Export rules. DDTC requested public comment on the proposed rule in the Summer of 2010. IPC submitted comments to the DDTC on the proposed changes to ITAR that would create a new exemption for deemed exports provided certain requirements are met.

View IPC's comments on proposed changes to ITAR impacting Deemed Export rules

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Deemed Export FAQs for Items on the Commerce Control List – Items Listed in EAR

  1. What is the “deemed export” rule?
  2. What is a “release” of technology?
  3. What is “technology”?
  4. When do I need to apply for an export license for technology under the “deemed export” rule?
  5. How do I know if a foreign national would be subject to the “deemed export” rule?
  6. How are individuals handled who are permanent residents or citizens of countries other than those of their nationality?
  7. The Bureau of Industry and Security (BIS) processing a “deemed export” license application requires a lot of personal data, including citizenship and country of origin. I understand that my company cannot ask for such information from my employees under the Equal Employment Opportunities Commission (EEOC) rules. How do I get that information?
  8. What is a “deemed re-export”?
  9. What technologies are subject to the Commerce Department controls?
  10. Is software considered “technology” and is it similarly controlled?
  11. What technologies are considered “fundamental research”?
  12. Are exports and “deemed exports” of encryption items handled the same way as other technology items?
  13. What are the Deemed Export requirements under the EAR as they relate to the patent requirements under the United States Patent Trade Office (USPTO) Regulations?

1. What is the “deemed export” rule?
An export of technology or source code (except encryption source code) is “deemed” to take place when it is released to a foreign national within the United States. See §734.2(b)(2)(ii) of the Export Administration Regulations (EAR). For brevity, these questions and answers refer only to “technology” but apply equally to source code.
Deemed Export FAQs

2. What is a “release” of technology?
Technology is “released” for export when it is available to foreign nationals for visual inspection (such as reading technical specifications, plans, blueprints, etc.); 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. See §734.2(b)(3) of the Export Administration Regulations (EAR).
Deemed Export FAQs

3. What is “technology”?
Per Part 772 of the Export Administration Regulations (EAR), “technology” is specific information necessary for the “development,” “production,” or “use” of a product. The General Technology Note states that the “export of technology” is controlled according to the provisions of each Category. It further states that “technology required for the development, production, or use of a controlled product remains controlled even when applicable to a product controlled at a lower level.” Please note that the terms “required,” “development,” “production,” “use,” and “technology” are all defined in Part 772 of the EAR. Controlled technology is that which is listed on the Commerce Control List.
Deemed Export FAQs

4. When do I need to apply for an export license for technology under the “deemed export” rule?
Assuming that a license is required because the technology does not qualify for treatment under EAR99 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: (1) they intend to transfer controlled technologies to foreign nationals in the United States and (2) transfer of the same technology to the foreign national's home country would require an export license.
Deemed Export FAQs

5. How do I know if a foreign national would be subject to the “deemed export” rule?
Any foreign national is subject to the “deemed export” rule except a foreign national who (1) is granted permanent residence, as demonstrated by the issuance of a permanent resident visa (i.e., “Green Card”); or (2) is granted U.S. citizenship; or (3) is granted status as a “protected person” under 8 U.S.C. 1324b(a)(3). This includes all persons in the U.S. as tourists, students, businesspeople, scholars, researchers, technical experts, sailors, airline personnel, salespeople, military personnel, diplomats, etc. As noted, one exception to this general statement is a “protected person.” “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). It should be emphasized that although the deemed export rule may be triggered, this does not necessarily mean that a license is required. For example, the technology may be EAR99 or license exception eligible.
Deemed Export FAQs

6. How are individuals handled who are permanent residents or citizens of countries other than those of their nationality?
As noted above in Question 5, if the individual is a naturalized citizen or permanent resident of the United States, the “deemed export” rule does not apply. In other words, he or she is not subject to the provisions of the “deemed export” regulation. For individuals who are citizens of more than one foreign country, or have citizenship in one foreign country and permanent residence in another, as a general policy, the last permanent resident status or citizenship obtained governs. If, for some reason, the status of a foreign national is not certain, then you should ask the Bureau of Industry and Security (BIS), to determine where the stronger ties lie, based on the facts of the specific case. For instance, the status of a foreign national could be uncertain in situations where information may indicate involvement with prohibited entities or activities, for example, missile or nuclear-related end-uses or end-users as identified in Part 744 of the EAR. In response to a request for the status of a foreign national, BIS will look at the foreign national's family, professional, financial, and employment ties.
Deemed Export FAQs

7. The Bureau of Industry and Security (BIS) processing a “deemed export” license application requires a lot of personal data, including citizenship and country of origin. I understand that my company cannot ask for such information from my employees under the Equal Employment Opportunities Commission (EEOC) rules. How do I get that information?
The information BIS normally request derives from a curriculum vitae/resume or from company background checks. The information that BIS may request as part of the license application process is requested in order to determine whether BIS should authorize the release of such controlled sensitive technology. The hiring of foreign nationals is not prohibited nor regulated by the Export Administration Regulations (EAR). The EAR does not regulate employment matters. The justification for the “deemed export” rule is that there is no more effective way of disclosing sensitive technical information (e.g., design know-how) than to work side-by-side in a laboratory or on the production floor of a company. BIS web page guidance is designed to assist you in pointing out the types of relevant information that BIS examines in connection with the license application review.
Deemed Export FAQs

8. What is a “deemed re-export”?
The term “deemed re-export” is often used to indicate the transfer of controlled U.S. technology to a third-country national overseas. As an example, a U.S. exporter transfers its controlled proprietary technology to a firm in country A. The firm in country A, in turn, employs an individual from country B who is not a permanent employee of the firm in country A and who will need the controlled proprietary technology to perform his or her assigned duties. Before transferring this controlled technology to the country B employee, the firm in country A is responsible for obtaining any required deemed re-export licenses as if it were transferring the technology to country B. Please see Section 734.2(b)(4) of the Export Administration Regulations (EAR).
Deemed Export FAQs

9. What technologies are subject to the Commerce Department controls?
Generally, technologies subject to the Export Administration Regulations (EAR) are those which are in the United States or of U.S. origin, in whole or in part. Most are proprietary. Technologies which tend to require licensing for transfer to foreign nationals are also dual-use (i.e., have both civil and military applications) and are subject to one or more control regimes, such as National Security, Nuclear Proliferation, Missile Technology, or Chemical and Biological Warfare.

Foreign technology with U.S.-origin technology commingled to a degree above a de minimis level is considered to be subject to the EAR. Technologies which may require an export license are those which are subject to the EAR and which are listed in the Commerce Control List, see Parts 734, 738, and 774 of the EAR.

Some technologies are under the exclusive jurisdiction of another agency of the U.S. government and are not subject to the EAR. These include defense services which are under the jurisdiction of the State Department and technology related to the production of special nuclear materials which is under the jurisdiction of the Energy Department.

Still other technologies do not require any authorization because they are already “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 which arises during or as a result of fundamental research; or technology which is educational. See Part 734 of the EAR for details.
Deemed Export FAQs

10. Is software considered “technology” and is it similarly controlled?
The Export Administration Regulations (EAR) definitions distinguish between software and technology. Software is one of the groups within each of the categories of items listed on the Commerce Control List (CCL). Software which is delineated on the CCL is controlled.
Deemed Export FAQs

11. What technologies are considered “fundamental research”?
“Fundamental research” is basic and applied research in science and engineering where the resulting information is ordinarily published and shared broadly within the scientific community. It is distinguished from proprietary research and from industrial development, design, production, and product utilizations, the results of which ordinarily are restricted for proprietary and/or specific national security reasons. Normally, the results of “fundamental research” are published in scientific literature, thus making it publicly available. Research which is intended for publication, whether it is ever accepted by scientific journals or not, is considered to be “fundamental research.” A large segment of academic research is considered “fundamental research.” Because any information, technological or otherwise, that is publicly available is not subject to the Export Administration Regulations (EAR) (except for encryption object code and source code in electronic form or media) and thus does not require a license, “fundamental research” is not subject to the EAR and does not require a license. Please see §734.8 for a full discussion.
Deemed Export FAQs

12. Are exports and “deemed exports” of encryption items handled the same way as other technology items?
Exports of encryption technology and software source code are subject to the same regulatory requirements as other exports of technology and software source code. However, many “deemed exports” of encryption technology and software source code are authorized under License Exception ENC (EAR Part 740.17).

License Exception ENC authorizes foreign employees (other than from Country Group E:1) of U.S. companies coming to the United States to work. However, ENC would not cover employees of a Romanian firm, for example, working at a U.S. company. These foreign nationals are not “employees” of the U.S. company. As far as encryption source and object code are concerned, while in the United States, foreign nationals may use any type of encryption source code and object code. The only deemed export authorization required for encryption relates to encryption technology and when a U.S. person intends to provide technical assistance to foreign nationals using source code. (Please note that Export Administration Regulations (EAR) licensing requirements may apply for transfers of encryption software in the United States to an embassy or affiliate of a foreign country).
Deemed Export FAQs

13. What are the Deemed Export requirements under the EAR as they relate to the patent requirements under the United States Patent Trade Office (USPTO) Regulations?
BIS has provided PTO with the authority to license, on BIS’s behalf, the export and re-export of technology that is subject to the EAR when the technology is in the form of a patent application or an amendment, modification, or supplement thereto or division thereof. (1). During the timeframe from the patent application to the issuance, the patent information remains subject to appropriate export control or classified controls and must be protected as such under the EAR, or the applicable export control jurisdictional authority. (2). If the inventor is a foreign national who is not a legal permanent resident, and the invention is his or her own technology, no deemed export license is required because no transfer has occurred. (3). Information associated with the patent which is not in the patent itself or product made as a result of the patent can still be export controlled and licensable. For additional details see Part 734.3(b)(1)(v) of the EAR and review the Advisory Opinion dated 1/11/2006, titled “Nexus between export and deemed export requirements under the EAR and the foreign filing requirements under the USPTO regulations.”

Deemed Export FAQs

To learn more, please visit http://www.bis.doc.gov/licensing/exportingbasics.htm.

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