On July 18, 2024, the U.S. Dept. of Commerce, Bureau of Industry and Security (BIS) published a new interim final rule (the "Interim Final Rule") entitled "Standards-Related Activities and the Export Administration Regulations," modifying the "Standards Activity Exception" to the U.S. Entity List rules. On July 24, 2024, BIS sent a correction to this Interim Final Rule to add back certain text from the Export Administration Regulations ("EAR") that was erroneously deleted.
The Interim Final Rule revises the scope and terms used to describe "standards-related activities" that are subject to the EAR. This rule is designed to ensure that export controls and associated compliance concerns do not impede the participation and leadership of U.S. companies in legitimate standards-related activities. The Interim Final Rule became effective on July 18, 2024. It was published with a request for comments.
Purpose and Overview
The new Interim Final Rule is a step towards allowing companies on the U.S. Entity List to participate more fully in U.S.-based standards organizations by revising the terms and scope of "standards-related activities" subject to the EAR. This is done with the aim of ensuring that export controls do not hinder the participation and leadership of U.S. companies in legitimate standards-related activities and give foreign entities the ability to develop and promote their own standards.
Broadly speaking, the Interim Final Rule accomplishes the following: (i) revises and clarifies the scope of what is considered "standards-related activities"; (ii) provides that specified "technology" and "software" are not subject to the EAR when released for standards-related activities; (iii) clarifies that the rule applies to activities of a standards organization that take place after the standard is published, for example, plug-fests; (iv) permits companies on the U.S. Entity List to engage more fully in U.S.-based standards organizations; and (v) adds specific licensing changes to streamline the process and provides clarity for companies seeking to participate in standards development. In addition, BIS clarified what it means to "publish" a standard, acknowledging that when a standards organization releases a standard to its members and membership is open to any member of the interested public and the associated dues could be paid by any member of the interested public, then a standard can be said to be "published".
Expansion of the "Standards-Related Activities" Exception
In September 2022, BIS first published an interim final rule expanding the definition of "standards-related activities." Comments received at the time of publication expressed the need for further expansion of the definition as well as concerns that U.S. companies would continue to be hindered without an expansion of the definition. By publishing the Interim Final Rule, BIS is amending the EAR to ensure that export controls and associated compliance concerns do not continue to impede or jeopardize U.S. participation and leadership in legitimate standards-related activities. Under the new Interim Final Rule, BIS determined that "standards-related activities" are no longer subject to the EAR as long as the "release" of the "software" or "technology" during these activities meets the criteria contained in revised § 734.10 of the EAR.
The conditions in § 734.10(b)(2) further clarify that activities that occur after the publication of a standard are included in the definition of "standards-related activity" – i.e., a "standards-related activity" occurring specific to an already "published" standard is included in the authorization. So, for example, plugfests and interoperability testing that takes place after a specification is published is clarified to be "standards-related activity." Pursuant to the revised § 734.10(b)(2), the "standards-related activity" must be either for a "published" standard or occurs with the intent that the resulting standard will be "published."
In addition, BIS, through a series of responses to questions that have been asked regarding the existing rules, confirmed that the "standards-related activities" exception already explicitly includes the exchange of technical data in the conformity process provided it is for the purpose of standards-development activities. Another question that BIS appears to have answered relates to whether a specification that is published to its members only can be considered "published" under the EAR. BIS has confirmed that, so long as any member of the interested public could pay the associated membership dues and become a member if they so desired, the cost of the membership will not impact the determination that a release to members counts as being "published" for purposes of the EAR.
As a result, under the Interim Final Rule the standards-related activity exception covers a broader range of activities. Ultimately, BIS recognizes the importance of this exception as essential to the free exchange of information that will allow private sector organizations to remain competitive in the global landscape, which has the corresponding result of fostering global participation in standards development. However, if your organization is involved in some activities that will not fall under the definition of "standards-related activities" as newly clarified by BIS, then your organization should consider whether your existing policies are sufficient to account for these rules or, if not, how your organization may need to segregate activities and manage member access should your organization currently have or contemplate permitting members that are currently on the U.S. Entity List to participate.
Recommendations for Standards Organizations
Many standards organizations have developed official or unofficial policies for meeting their legal obligations under the U.S. export control regulations relating to membership and member participation, including monitoring the U.S. Entity List for additional entries. Under the 2024 Interim Final Rule, the extent to which a standards organization will need to continue to monitor the U.S. Entity List will depend upon the activities of the organization and the type of materials exchanged within the group. However, even if the U.S. Entity List is not an immediate issue for a particular standards organization, it should strongly consider continuing to maintain the best practice of having a restricted party screening policy tailored to the organization's activities, given that U.S. economic sanctions and export controls apply strict liability. For example, even though entities that traditionally participate in standards development are rarely placed on the U.S. Department of the Treasury's Specially Designated Nationals and Blocked Persons List (SDN List), it does occur from time to time. U.S. persons, including corporations, are prohibited from engaging in any business with entities on the SDN List. In addition, there are other restricted party lists that the U.S. maintains that could impact standards organizations. We recommend that you consult with legal counsel regarding how to tailor your organization's policies and procedures in light of this Interim Final Rule and in general to remain in compliance with U.S. economic sanctions and export control laws.
Additional Actions
We will monitor the situation, including whether any comments are submitted to BIS for this Interim Final Rule, and, if there are additional areas we see for potential clarification, we may provide more information to clients and/or submit comments on behalf of clients.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.