Commerce's Foundational Tech Rulemaking Process May Take Longer Than Emerging Tech Process

Although foreign investors and U.S. exporters should be closely monitoring the Commerce Department’s effort to restrict foundational technologies, traders should not expect controls anytime soon, Sidley Austin said in an Aug. 27 post. The rulemaking process will likely take longer than Commerce’s emerging technology effort, the law firm said, which began with a 2018 pre-rule and has been criticized by industry for moving too slowly (see 1911070014).

“Any new controls resulting from this rulemaking process will not be imminent,” the firm said, referencing Commerce’s Aug. 27 request for comments on identifying foundational technologies for potential export controls (see 2008260045). The firm said Commerce’s “scoping process will likely be lengthier” than its process for emerging technologies -- “a likelihood underscored by the fact that this initial call for comments was released 21 months after” the advance notice of proposed rulemaking for emerging technologies.

The firm also suggested that the effort to restrict foundational technologies may be more challenging than controls on emerging technologies, as Commerce officials have noted (see 1911050052). “Whereas emerging technologies are considered to cover technologies that have not yet become fully marketable, foundational technologies are those that have achieved a higher level of maturity and are already in commerce,” Sidley Austin said, “making new controls disruptive to existing supply chains.”

The foundational process will, however, be similar to the emerging technology effort in at least one way, the firm said: The controls will likely be issued on a rolling basis. “The ongoing identification of emerging technologies over the last nearly two years suggests that the identification of foundational technologies may also be an iterative process” in coordination with multilateral export control groups, such as the Wassenaar Arrangement, the firm said.

Although it is unclear whether the review process will lead to broad technology-specific controls, Sidley Austin said Commerce appears to be considering military-based end-use and end-user controls, which would impose fewer restrictions than general end-use-based controls. “While the expansion of current military end-use and end-user requirements into technology-based, countrywide licensing restrictions could substantially curtail current export flows,” the firm said, “it would likely impose a less significant due diligence and compliance burden on exporters than the broader application of end-user and end-use controls.”

Sidley Austin stressed that the review process will affect both foreign investors in the U.S. and U.S. exporters. Any controls on foundational technologies will affect the jurisdiction of the Committee on Foreign Investment in the U.S., which has the authority to review transactions involving emerging and foundational technologies (see 2008240017). “Foreign investors should monitor any new controls on foundational technologies,” the firm said, “as such controls may affect the scope of CFIUS jurisdiction and mandatory filing requirements.”