On February 15, 2018, Representative Ed Royce, Chairman of the House Foreign Affairs Committee, introduced new legislation intended to “modernize U.S. export control regulations of dual-use items.”
In spite of its title, the Export Control Reform Act of 2018 (H.R. 5040) does little to further the original goals of the Export Control Reform initiative and appears more squarely focused on using the Export Administration Regulations to prevent U.S. adversaries — principally the PRC — from gaining access to U.S. “emerging critical technologies,” whether dual-use or solely commercial. The bill is the newest in a series that have been introduced without success since the Export Administration Act lapsed in 2001. Its fate appears tied to the ongoing CFIUS reform efforts, which this bill seeks to complement by enhancing regulatory controls on technology transfers of concern.
Much of the legislation would codify the current practices of the Department of Commerce and other U.S. export control regulatory agencies, and so do not appear to present significant changes. Notably, however, the bill diverges sharply with respect to its proposed definition of “U.S. Persons,” which excludes entities organized under U.S. law unless U.S. individuals “own, directly or indirectly, more than 50 percent of the outstanding capital stock or other beneficial interest in such legal entity.” The definition appears unworkable; publicly traded companies would have difficulty certifying that they meet a 50 percent U.S. ownership requirement, and, absent a comprehensive licensing mechanism or a broad exemption scheme, foreign-owned U.S. companies would be effectively unable to manufacture and export CCL-controlled items.
Other sections of the legislation appear focused on expanding congressional oversight of the Departments of State and Commerce’s ability to license or otherwise authorize activities with the U.S. embargoed countries or nationals thereof. The provisions reflect a congressional desire to curtail the Executive branch from unilaterally relaxing such export controls, seemingly in reaction to the previous administration’s approach toward Cuba.