Earlier this week, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) published a final rule (the “Final Rule”) imposing export controls on additional emerging technologies pursuant to the Export Control Reform Act of 2018 (“ECRA”).[1]  We previously wrote about the process to identify and impose export controls on emerging and foundational technologies under the ECRA, as well as the steps taken in furtherance of that process, here and here.

Specifically, the Final Rule adds software designed for certain nucleic acid assemblers and synthesizers[2] that is capable of designing and building functional genetic elements from digital sequence data, as well as technology for the development of such software, to the Commerce Control List (“CCL”) under the Export Administration Regulations maintained by BIS.[3]  Similar to prior controls on three technologies related to chemical and biological warfare pursuant to the ECRA,[4] these controls previously were adopted on a multilateral basis by the Australia Group.

In the wake of the Final Rule, not only are the covered software and technology subject to more stringent export controls,[5] but such software and technology also are considered critical technologies for purposes of the Committee on Foreign Investment in the United States (“CFIUS”) mandatory notification requirements.  As a result, foreign investments in U.S. businesses that produce, design, test, manufacture, fabricate, or develop such software or technology could require a mandatory CFIUS notification before closing.  We previously summarized the scope of the CFIUS mandatory notification requirements here.  Of course, even if the U.S. business does not engage in activities involving the relevant software or technology or the investment otherwise does not trigger a mandatory CFIUS notification (e.g., because the software/technology does not require a license for export to the country of nationality of the foreign investor), given the recent focus on investments in the biopharmaceutical and life sciences, genetics, and healthcare industries, foreign investors should carefully consider the extent to which CFIUS could be interested in an investment into a U.S. business in those industries from a national security perspective.

The Final Rule, which marks yet another step in the incremental and deliberative process in implementing the “emerging and foundational technology” provisions of the ECRA, shows that BIS continues to focus on imposing new controls through multilateral fora such as the Wassenaar Arrangement and the Australia Group rather than rapidly imposing new unilateral controls.  Although such an approach will continue to delay the imposition of export controls on technologies that the U.S. government considers to be essential to U.S. national security, it also allows for more effective implementation and ensures that U.S. export controls are consistent with the various multilateral export control regimes to which the United States is a signatory or committed party.

We expect that the imposition of new controls on emerging and foundational technologies will remain incremental in nature for the indefinite future, both because identifying technologies currently not subject to multilateral controls but that nonetheless are essential to U.S. national security will take time and resources and because technologies and their importance will continue to evolve.  As a result, companies should continue to monitor developments going forward.

[1]      86 Fed. Reg. 54814 (Oct. 5, 2021).  Interestingly, BIS took a similar action exactly a year before.  We wrote about that here.

[2]      The relevant nucleic acid assemblers and synthesizers are already subject to export controls.

[3]      Specifically, BIS added a new Export Control Classification Number (“ECCN”), 2D352, to the CCL and added technology for the development of software classified under 2D352 to ECCN 2E001.  Certain nucleic acid assemblers and synthesizers were already classified under ECCN 2B352.j.

[4]      See 85 Fed. Reg. 36483 (Jun. 17, 2020).

[5]      In particular, the software and technology are subject to export controls for chemical and biological (“CB”) and anti-terrorism (AT) reasons.  Items subject to CB controls require a license for export to many countries, including China.  Exports do not require a license for export to many NATO member states, many European countries, or a few other U.S. allies.