Tech Firms Fear Safe Harbor Rule Will Backfire

Some worry that proposed changes to U.S. export regulations will interfere with product shipments or trade relationships.

Some high tech firms and other exporters voiced concerns this week over a proposed set of changes to U.S. export rules, fretting that some of the new regulations might backfire on U.S. businesses by prohibiting trade with European supply chain partners, or by spawning delays in international product shipments.

The Commerce Departments Bureau of Industry and Security proposed the changes to the existing Export Administration Regulations—a set of rules governing the export of computers, electronics and many other commercial items—on Oct. 13.

Under the EAR, companies need to obtain licenses from BIS for exporting certain types of items, which are designated in a document called the Commerce Control List, or CCL. Items that fall under Commerce Department jurisdiction but are not listed on the CCL are designated as EAR99. According to BIS documents, EAR99 items usually consist of low technology consumer goods, and in many situations they dont require a license.

But exporters might require licenses, anyway, if EAR99 items are being shipped to an embargoed company, an "end-user of concern," or "in support of a prohibited end-use."

The biggest of the proposed changes, known as the Safe Harbor Rule, is meant to give assurance to companies that they are in compliance with the highly complex body of EAR regulations, said Peter Lichtenbaum, assistant secretary for Export Administration at BIS, during a teleconference with U.S. exporters this week.

From a liability standpoint, the proposed rule would give exporters an optional safe harbor from liability arising from "knowledge-based license requirements, knowledge-based restrictions on use of license exceptions, and other knowledge provisions in the EAR," according to the BIS proposal.

BIS also seeks to amend the current definition of "knowledge" in the EAR to incorporate a "reasonable person" standard, and to make other modifications clarifying the meaning of "knowledge."

"The path [to an optional safe harbor] involves four steps," Lichtenbaum said.

First, exporters should determine whether shipment of the item requires a license, or is subject to any other notification or review requirements, he said.

Second, they should find out whether the end user is subject to denials or restrictions on trade with the United States—whether the user appears on the Commerce Departments Entity List or Unverified List, for example, and whether the transaction is governed by a general order issued by BIS.

Beyond embargoed countries, BIS places trading restrictions on countries designated as supporting terrorist activities, including Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria. There are also worldwide restrictions on exports of certain products.

In the third step in the "safe harbor" process, exporters should "identify and resolve red flags, [and] do further diligence to make sure the red flag has been resolved," Lichtenbaum said.

The rules proposal filed by BIS says: "Look out for red flags. In all transactions subject to the EAR, look out for any abnormal circumstances that indicate [the] transaction may involve an inappropriate end-use, end-user or destination or otherwise violate the EAR. Such circumstances are referred to as red flags."

Finally, after resolving any "red flags" that appear, the exporter can submit a report to BIS asking for safe harbor. Lichtenbaum said that BIS will respond within 45 days with a letter agreeing that all red flags have been removed, disagreeing, or stating that more time is needed to review the case.

In a related set of proposed changes, BIS is seeking to expand upon the 12 red flags listed in the original EAR to a total of 23.

Lichtenbaum also pointed to Internet searches as one way for companies to get the information they need to resolve red flags.

During a Q&A that followed the call, an IBM Corp. employee asked the assistant secretary to clarify one of the proposed additions to BIS red flags, which warns exporters to be watchful if "the customer is known to have or is suspecting of having dealings with embargoed countries."

Lichtenbaum acknowledged that many customers in Europe have dealings with embargoed countries. But, he said, exporters can resolve this Red Flag by determining that the items being sold are "ultimately headed for an unembargoed country. If you know where the end use is, that obviously resolves the Red Flag."

Some of the other exporters on the call expressed concerns over the new Safe Harbor Rules 45-day review period.

"I think thats quite a long time for an exporter to have an order held up," said an employee of Eagle Global Logistics.

"We would certainly try to act as quickly as we could," Lichtenbaum responded. "We appreciate that 45 days is a long time in the business world."

A caller from GE Health Care suggested that giving BIS the option for extending reviews beyond 45 days raises the potential "for a lot of requests to back up."

"The idea—the goal—is to respond within 45 days," said Roger Pincus, acting chief deputy counsel for Export Administration. After the 45 days is up, the exporter "has the option of calling and stimulating further activity," according to Pincus.

BIS is seeking public comments on the proposed changes in writing through Nov. 12, but Lichtenbaum urged people to submit written comments earlier, if possible, to allow BIS ample time to consider their remarks.


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