[Federal Register Volume 74, Number 3 (Tuesday, January 6, 2009)]
[Proposed Rules]
[Pages 413-414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-31371]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 736

[Docket No. 0810231384-81391-01]
RIN 0694-XA15


Request for Public Comment on Foreign Produced Encryption Items 
That Are Made From U.S.-Origin Encryption Technology or Software

AGENCY: Bureau of Industry and Security.

ACTION: Notice of inquiry.

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SUMMARY: To determine the appropriate extent and scope of U.S. export 
controls on foreign products that are the direct products of U.S.-
origin encryption technology or software, BIS is seeking information on 
the potential impact of controlling such foreign made items for 
Encryption Items (``EI'') reasons under the EAR (i.e., those that are 
classified under ECCN 5A002 or 5D002) if the direct product of U.S.-
origin ECCN 5E002 technology or ECCN 5D002 software. Specifically, BIS 
is requesting comments regarding the impact this control would have on 
both U.S. exporters of encryption technology and software and foreign 
manufacturers of products that are derived in whole or in part from 
U.S.-origin encryption technology or software.

DATES: Comments must be received no later than March 9, 2009.

ADDRESSES: Written comments may be submitted via http://www.regulations.gov; by e-mail directly to BIS at 
[email protected]; in hardcopy to U.S. Department of Commerce, 
Bureau of Industry and Security, Regulatory Policy Division, 14th St. 
and Pennsylvania Ave., NW., Room H-2705, Washington, DC 20230; or by 
fax to 202-482-3355. Please input ``0694-XA15'' in the subject line of 
the written comments.

FOR FURTHER INFORMATION CONTACT: For General Information Contact: 
Sharron Cook, Office of Exporter Services, Regulatory Policy Division, 
Bureau of Industry and Security at 202-482-2440, or fax 202-482-3355, 
or e-mail at [email protected].
    For Specific Encryption Related Information Contact: C. Randall 
Pratt, Information Technology Division, Office of National Security and 
Technology Transfer Controls at 202-482-0707 or E-Mail: C. Randall 
Pratt at [email protected].

SUPPLEMENTARY INFORMATION:

Background

    The Foreign-Produced Direct Product Rule is found in General 
Prohibition No. 3 under section 736.2(b)(3) of the Export 
Administration Regulations (EAR) and in section 734.3(a)(4) of the EAR, 
``Items Subject to the EAR.''
    Under section 736.2(b)(3)(ii)(A) of the EAR, a foreign-made item is 
considered a direct product of U.S. technology or software if it meets 
the following conditions, it is the direct product of technology or 
software that requires a written assurance as a supporting document for 
a license, as defined in paragraph (o)(3)(i) of Supplement No. 2 to 
part 748 of the EAR, or as a precondition for the use of License 
Exception TSR at section 740.6 of the EAR, and it is subject to 
national security controls as designated on the applicable ECCN of the 
Commerce Control List at part 774 of the EAR.
    Section 736.2(b)(3)(i) provides that if a foreign-made item is a 
direct product of U.S.-origin technology or software pursuant to the 
criteria set forth above, then it is subject to the EAR if it is 
exported from the country of manufacture to a destination in Country 
Group D:1 or E:2 (Cuba) of Supplement No. 1 to Part 740 of the EAR. 
General Prohibition 3 prohibits the reexport or export from abroad of 
items meeting the criteria of foreign direct products of U.S.-origin 
technology or software to Country Group D:1 destinations or Cuba unless 
authorization has been granted via a license or license exception.
    Technology and software controlled under ECCN 5E002 and 5D002 of 
the Commerce Control List (CCL) (Supplement No. 1 to part 774 of the 
EAR) are subject to national security (``NS'') controls. When the 
foreign-produced direct product of such technology or software would be 
classified under ECCN 5A002 or 5D002, it would meet the definition of 
``direct product'' under section 736.2(b)(3)(ii)(A) of the EAR.
    BIS is seeking information on the impact of making the foreign-
produced direct product of U.S.-origin ECCN 5E002 technology or ECCN 
5D002 software, classified under ECCN 5A002 or 5D002 subject to the EAR 
if exported from the country of manufacture to any destination (except 
the United States or Canada). All such foreign-produced direct product 
ECCN 5A002 or 5D002 hardware or software would be subject to the 
license requirements of sections 742.15 (``EI'' encryption items) and 
742.4 (``NS'' national security), or to the review requirements of 
section 740.17 (License Exception ENC). Reporting requirements under 
section 740.17(e) would not apply to exports from the country of 
manufacture of foreign-produced direct products, as reporting is 
required only for export from the United States or reexports from 
Canada.
    The possible revision described above would apply to the foreign 
direct product of ECCN 5E002 technology and 5D002 software exported 
under license, not to the foreign direct product of technology and 
software exported under License Exception ENC of section 740.17 of the 
EAR.
    Under the current provisions of section 736.2(b)(3), if ECCN 5E002 
technology is exported under an export license for purposes of offshore 
manufacture of an encryption item that has previously been submitted to 
the U.S. Government for technical review and has been made eligible for 
export under License Exception ENC, the

[[Page 414]]

foreign-produced direct product of the technology is not subject to the 
EAR unless: (1) It is exported from the country of manufacture to a 
destination in Country Group D:1 or E:2 (Cuba); or (2) it is exported 
from the United States after having been shipped to the United States 
from the country of manufacture.
    However, all foreign-produced direct product of technology or 
software exported under License Exception ENC under either paragraph 
(a)(1) (for internal development of new products by a `license-free 
zone' (Supplement No. 3 to part 740) ``private sector end-user'') or 
(a)(2) (to a ``U.S. subsidiary'' for internal use or development) are 
currently subject to the EAR by the terms of the notes to paragraphs 
(a)(1) and (a)(2).

Request for Comment

    BIS is seeking public comment on the impact such a revision to 
section 736.2(b)(3)(i) would have on both U.S. manufacturers of 
encryption technology and software and foreign manufacturers of 
products (including under contract to U.S. companies who own and 
maintain the intellectual property, branding, marketing and 
distribution rights to the end-products manufactured offshore) that are 
derived in whole or in part from U.S.-origin encryption technology or 
software. BIS is also seeking information about the cost of compliance 
with such a revision, including U.S. Government review of foreign 
direct products prior to export from abroad. BIS is also seeking 
information on the burdens of complying with multiple sets of laws, 
foreign and U.S., which could result from the potential revision.
    BIS would also like information about the various (commercial and 
military) applications of foreign products that are derived in whole or 
in part from U.S.-origin encryption technology or software. In 
addition, BIS is seeking information from foreign-manufacturers of 
encryption items about the factors that they or their competitors might 
consider in deciding to produce or use U.S.-origin encryption 
technology or software.
    Additionally, BIS is interested in specific information (URL 
addresses, technical specifications, etc.) about the availability of 
foreign encryption technology and software that is equivalent to U.S.-
origin encryption technology and software classified under ECCNs 5E002 
and 5D002. Finally, BIS seeks information on the impact on the U.S. 
information technology manufacturing base and American jobs if 
encryption products continue to be not subject to the EAR when exported 
from abroad or reexported to countries other than those listed in 
Country Group D:1 and E:2, simply by being manufactured under an export 
license, when identical products manufactured onshore by U.S. companies 
(or overseas by U.S. subsidiaries pursuant to LE ENC or LE ENC-eligible 
``private sector end-users'') are subject to the EAR.

    Dated: December 29, 2008.
Christopher R. Wall,
Assistant Secretary for Export Administration.
[FR Doc. E8-31371 Filed 1-5-09; 8:45 am]
BILLING CODE 3510-33-P