As we noted previously, Congress is considering legislation to reform the process associated with review by the Committee on Foreign Investment in the United States (CFIUS) of inbound foreign investments with potential national security implications. One of the chief critiques of this reform effort is that it could create a redundant transaction-by-transaction review process for technology transfers that are already governed by existing export controls law.

In response, House Foreign Affairs Committee (HFAC) Chair, Ed Royce (R-CA), and Ranking Member Eliot Engel (D-NY), introduced the Export Control Reform Act of 2018 (ECRA, H.R. 5040) to modernize and strengthen the commercial and dual-use export controls regime and provide updated statutory authorization for the Export Administration Regulations governed by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS). HFAC held a hearing on March 14 to discuss the interplay between investment, export controls, and technology transfers. Chairman Royce explained that the ECRA “would repeal the expired and Cold War-era Export Administration Act of 1979 and replace it with a modern statutory authority to regulate ‘dual-use’ items” under which “modernized U.S. export control laws and regulations will continue to have broad authority, governing the transfer of less-sensitive military and dual-use items and technology to foreign persons, whether that transfer takes place abroad or here in the U.S..” Ranking Member Engel noted that while historically “the defense sector nearly always drove the development of high-tech, which later ended up in the commercial sector. Today, the opposite is often quite true. High-tech in the commercial sector is now often the precursor of advanced weapons.”

U.S. manufacturers that export items and technology—and non-U.S. manufacturers that utilize such items in their manufacturing or reexport them to third countries—should stay abreast of ECRA legislative developments, because the bill could impact their operations if passed by Congress and signed into law by President Trump. For example, the bill would require the U.S. government to establish a faster process to identify and classify “emerging critical technologies” for export purposes, including related “information at whatever stage of its creation, such as foundational information and know-how.” This means that manufacturers who create or use these technologies would need to more regularly update their export control procedures if item classifications change more frequently. ECRA also could lead to additional export control reforms with a greater “focus on those core technologies and other items that are capable of being used to pose a serious national security threat”, including allowing exporters to explain why they should not require licenses if comparable foreign versions of their technology are readily available.

We will provide further updates on this legislation in future editions.