Export controls administered by the United States and other NATO Export controls administered by the United States and other NATO Member States restrict the sharing of sensitive goods, services and technology, with significant impacts on NATO's ability to develop and deploy on the battlefield emerging technologies like artificial intelligence-enabled and hypersonic defensive and offensive weapons systems. Indeed, recent export control legislation enacted by the United States—and implementing regulations that are currently being written—will play a major role in determining the NATO community's ability to field interoperable equipment and prevent hostile powers from dominating leading-edge research and development.
On August 13, 2018, President Trump signed into law the most sweeping changes to the U.S. export control regime in decades.1 Among other things, the Export Control Reform Act of 2018 ("ECRA") modernises the United States' primary authority for export controls on dual-use items (items with both civil and military applications) by requiring the President for the first time to identify and establish both export and foreign investment controls on "emerging" and "foundational" technologies that are essential to national security. The U.S. Department of Commerce has now begun the process of drafting regulations to identify particular "emerging" and "foundational" technologies and to develop corresponding licensing requirements for transfers of these technologies with U.S. allies and adversaries. In addition to new export licensing requirements, any investments, including investments that do not result in foreign person control, in U.S. businesses working with the technologies identified will also be subject to foreign investment review and potential blocking by the Committee on Foreign Investment in the United States ("CFIUS").2
How the United States implements these new controls will significantly shape when, where and how disruptive dual-use technologies like artificial intelligence ("AI") and hypersonics ultimately develop.3 Unilateral implementation of stringent controls on these important new technologies could restrict international cooperation on their development or use, even among close U.S. allies. Application of these new authorities could, for example, hinder the interoperability of important military platforms even among the United States' NATO allies. There is some expectation that the U.S. Department of Commerce may make its efforts to control these technologies multilateral and collaborate with NATO Member States, among other U.S. allies, to impose uniform controls. But there is no guarantee that international agreement can be reached or that the United States will not "go it alone."4 In fact, the United States has already shown some reluctance to offer favourable treatment for its NATO allies when applying both new and old international trade authorities under U.S. law.5
To help members of the NATO community better understand these coming developments, this article proceeds as follows. In Section I, we explain how U.S. export controls work and the policy rationale(s) behind them. In Section II, we provide a high-level overview of recent legislative changes to the U.S. export control regime, and explain the rulemaking process, currently underway, through which the United States will develop controls on so-called "emerging" and "foundational" technologies. In Section III, we describe the various factors, such as whether innovation of a particular technology is centralized or diffuse, that will affect how impactful these new controls are likely to be. Finally, in Section IV, we conclude by illustrating how U.S. export controls are likely to impact two areas of emerging technologies- hypersonics and artificial intelligence-the successful development and deployment of which will likely be critical to NATO's future military capabilities.
I. Background: U.S. Export Controls Explained
As a policy matter, U.S. export controls attempt to balance the needs to protect U.S. national security, support American industry and technological superiority, and permit coordination and exchange with U.S. allies. These controls are rooted in multilateral cooperation that allows for the supply of dual-use goods to allied nations and keeps these items and their underlying technology out of the hands of U.S. adversaries. The Wassenaar Arrangement6-the multilateral agreement that underlies much of the Export Administration Regulations ("EAR")7-grew out of Cold War-era coordination by the NATO nations to restrict the sale and shipment of strategically important, dual-use items to the communist nations closely allied with the Soviet Union. After the Cold War, as NATO's attention shifted, these nations initiated a renewed export control initiative to restrict the proliferation of arms and dual-use items to rogue states and terrorists.8
The agreement concluded in 1995 in the city of Wassenaar, Netherlands among these nations is not a treaty and, as such, does not independently have the force of law. The economic and security benefits of a standardized export control system continue to encourage Wassenaar nations to largely maintain multilateral export controls and have encouraged the development of additional international regimes to coordinate export controls, including the Nuclear Non-Proliferation Treaty, the Australia Group Controls, as well as UN Security Council Resolutions. However, there is no overarching legal requirement that these controls remain multilateral. Countries may implement unique, unilateral controls. Straying from the multilateral origins of the current export control regime by imposing unilateral controls, however, may negatively impact technological development, coordination and exchange among NATO allies.
- What Do They Regulate?
U.S. export controls regulate the provision of U.S.-origin items to other countries or to foreign persons. The United States maintains two primary legal regimes for implementing these controls. The International Traffic in Arms Regulations ("ITAR") apply to certain items designed for and used in military and intelligence applications.9 The EAR applies to certain military items, items in short supply, and items that may have military and civilian uses-"dual-use" items-a broad category covering almost all items not captured under the ITAR. Although these regimes have important distinctions, there are significant similarities in the scope of items and activities they regulate and the structure of their restrictions.
Items subject to these export control regimes include goods, software, and technology (i.e., information on the development, production or use of controlled items) that are physically present in the United States, as well as items that were produced in or otherwise originated from the United States.10 Both export control regimes may also apply to items that are made outside of the United States. Under the ITAR, foreign-made items that incorporate an ITAR-controlled part or component are subject to the same restrictions as that part or component. The ITAR effectively "sees through" the end-item to its ITAR-controlled component and applies those same controls to the end-item. The ITAR also control items made from ITAR-controlled software and technology, the provision of defence services, and the brokering of defence articles and services.
The EAR takes a more permissive approach. Foreign-made items may incorporate a minimal amount of U.S.-origin content (typically 25%) and remain outside the scope of the EAR. However, foreign-made items that incorporate more than that allowable minimum are treated as U.S.-origin items and are subject to the EAR.11 In certain limited circumstances, the EAR also controls foreign-made items that contain any amount of certain, highly controlled U.S.-origin content or that are the direct product of certain other U.S.-origin technology and software.12
Both the ITAR and EAR control the export of the items to which they apply. Under both programs, an export of a covered item must be authorized or exempt from the need for authorisation before the export occurs. Exports not only include the actual shipment or transmission of an item out of the United States, but also include the release of technology to a foreign person, even when that foreign person is physically located in the United States (a "deemed export").13 For example, emailing design specifications of a controlled item to a French national colleague or discussing with that same colleague the process for using the item is considered an export of that controlled technology
In addition to controlling the initial export of covered items from the United States, these regimes also restrict the re-export and transfer of those items. A re-export occurs when a covered item that has previously been exported out of the United States is again shipped or released to a third country. A transfer occurs when a controlled item previously exported to a foreign country is provided to a different user or applied to a different enduse within that same country. In this regard, U.S. export controls typically follow the items they cover, even restricting transactions that occur entirely outside of the United States and that involve only non-U.S. persons.
Both regimes also generally restrict to whom covered items may be exported, re-exported, or transferred. The ITAR's restriction is quite broad: the provision of all covered defence articles and defence services to any foreign person must either be authorized or exempt from the need for authorisation.14 The EAR only controls the provision of certain covered items to certain destinations or end-users or for certain end-uses. Different restrictions may apply to the export of an EAR-controlled item depending on where it is to be shipped, who will use it, and how it will be used. The same item exported to France, to a Russian energy company, or for use by the Chinese military would likely be subject to different EAR-based controls in each case.
- Tools for Regulating - Item-Based, End-User and End-Use Controls
The U.S. Department of State (in the case of the ITAR) and the U.S. Department of Commerce (in the case of the EAR) implement these export controls through an item-based classification system and end-use and enduser controls, related licenses, and enforcement actions.
- Item-Based Controls
Under both legal regimes, item-based controls are premised on classification systems that provide detailed descriptions of physical characteristics and performance parameters of the items subject to the controls. In order to evaluate what controls apply to an item for export, prospective exporters of U.S.-origin items must first determine which list-either the ITAR's United States Munitions List ("USML") or the EAR's Commerce Control List ("CCL")-includes a description of their item (i.e., the item's export controls jurisdiction) and then match their item to a description on the appropriate list to determine the item's classification (on the CCL, an item's classification is rendered as an alphanumeric sequence called the Export Controls Classification Number, or "ECCN"). The item's classification-taken together with its proposed destination, end-user, and end-use-determine which controls apply. On the CCL, different classifications of items are controlled for differing reasons (e.g., concerns about chemical weapons proliferation, human rights abuses, or crime control) and to differing extents. Depending on the applicable reasons for control and an item's destination, some exports may be effectively prohibited while others may be exported without further action.
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1. See, e.g., Congressional Research Service, 'The U.S. Export Control System and the Export Control Reform Initiative' R41916, (Jan. 28, 2020) 2; Samuel Rubenfield, 'Law Formalizes Export Control Rules' Wall Street Journal (Aug. 17, 2018).
2. CFIUS is an interagency committee authorized to review the national security implications of investments made by foreign companies and persons in U.S. businesses ("covered transactions"), and to block transactions or impose measures to mitigate any threats to U.S. national security.
3. "Disruptive technology is an innovation that significantly alters the way that consumers, industries, or businesses operate. A disruptive technology sweeps away the systems or habits it replaces because it has attributes that are recognizably superior." Tim Smith, 'Disruptive Technology' Investopedia (Mar. 21, 2020).
4. See, e.g.., Modification of License Exception Additional Permissive Reexports (APR), 85 Fed. Reg. 23,496 (Apr. 28, 2020).
5. See, e.g., Provisions Pertaining to Certain Investment in the United States by Foreign Persons, 84 Fed. Reg. 50,174, 50,179 (Sept. 24, 2019)
6. WASSENAAR ARRANGEMENT, 'About Us' (May 30, 2019).
7. 15 C.F.R. § 730 et seq.
8. In 1995, these nations met in Wassenaar, Netherlands to outline a new trade control regime. Significantly, China did not participate in these initial negotiations and remains outside of the current Wassenaar system.
9. 22 C.F.R. § 120 et seq.
10. 15 C.F.R. § 734, 22 C.F.R. § 120.
11. 15 C.F.R. § 734.4.
12. 15 C.F.R. § 734.3(a).
13. 15 C.F.R. § 734.13; 22 C.F.R. § 120.17.
14. 22 C.F.R. § 123.1.
Originally published in the NATO Legal Gazette, Issue 41 on October 2020
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