Taking a break from reporting on COVID-19 legal developments, we turn for a moment to what is happening now on export control of autonomous vehicle technology.
The autonomous vehicle R&D sector is booming, largely in the last three years. Companies are investing in sensor technology and machine learning, and creating pilot programs to test self-driving cars both for individuals and ride-sharing purposes.
The Current Landscape
Export controls have been lagging behind the technology, however. Large numbers of cross-border collaboration programs have been underway, with little restriction under current export controls.
In the case of technology, an export includes not only sending technical data abroad but also sharing it, visually or orally, with a foreign person in the United States (a “deemed export”).
On the relevant Commerce Control List (CCL) published by the Commerce Department’s Bureau of Industry (BIS), there are several categories of Export Control Classification Numbers (ECCNs) pertinent to autonomous vehicle technology. Among these are:
- Category 3, which covers electronics such as semiconductor devices and integrated circuits;
- Category 5, which includes information security (encryption) items;
- Category 6, which covers cameras and sensors; and
- Category 7, which covers navigation and avionics, including GPS equipment.
Much of the technology relevant to autonomous driving has been either absent from the enumerated ECCNs and therefore in the catch-all category of EAR99 subject to minimal export control, or in ECCNs controlled only for antiterrorism (AT) reasons. To date, therefore, relatively few exports of technology related to autonomous driving R&D have required export licenses. This looks set to change, and the first steps in that direction have already been taken. Recent press reports suggest that additional steps will soon follow.
An expansion of U.S. export controls on “emerging” and “foundational” technologies has been initiated pursuant to the Export Control and Reform Act of 2018 (“ECRA”). ECRA requires the executive branch to identify, and the BIS to control, emerging and foundational technologies that are essential to the national security of the United States and are not already subject to export controls.
It has been widely acknowledged that technological collaboration with companies in China is one area that BIS will be targeting by means of its new controls on emerging and foundational technologies. The concern is that a country that comes to dominate the autonomous driving field will have such an important economic advantage that U.S. national security is at stake.
BIS has already imposed new controls on some emerging technologies through the Wassenaar system of multilateral controls, and it has also issued an interim final rule to control certain geospatial imagery software with specified functionality. These geospatial imagery controls, which include some software pertinent to autonomous driving, require an export license to all destinations except Canada.
We should expect BIS to continue adding other technologies pertinent to autonomous driving pursuant to the ECRA. If the initial steps taken are any guide, the new controls should remain tightly specified in terms of technical criteria. There are, however, recent press reports indicating that other BIS export regulations affecting China will soon be amended. The press accounts indicate that these could include potentially the CIV and APR license exceptions as well as new rules limiting exports to entities in China that are under ultimate military control. CIV has been an important license exception for semiconductor programs involving China, and APR has been important for the China-related business of companies with affiliates and partners in countries that are close U.S. allies like the NATO countries, Australia, Japan, New Zealand and South Korea. The military end user rule presents unique challenges in the case of China because of the vast extent of state control over commercial companies in China.
All of these coming regulatory changes are sure to present urgent compliance issues for U.S. and other companies engaged in autonomous driving development, especially those that are dealing directly or indirectly with collaborators, partners, affiliates, customers and even suppliers in China.
End Note: CFIUS
This article would be incomplete without mentioning CFIUS – the Committee for Foreign Investment in the United States. CFIUS regulates foreign investment in the United States to protect national security, and the same legislation that enacted the ECRA enacted the Foreign Investment Risk Review Modernization Act (FIRRMA). FIRRMA made extensive revisions to CFIUS national security reviews, one of which was to target cross-border investments in U.S. companies with critical technologies, including those that BIS defines as emerging or foundational technologies in its new controls. Under FIRRMA and the FIRRMA implementing regulations recently issued by CFIUS, many technology investments (including investments in foreign companies with U.S. subsidiaries) are now subject to mandatory pre-closing notification to CFIUS, which has the power to impose mitigation conditions or even block the investments. As a result, when BIS adds areas of autonomous driving technology to its emerging or foundational technology controls, foreign investments in those same technologies will become subject to stricter CFIUS scrutiny.
Sheppard Mullin is in the forefront of the autonomous vehicle sector and is close to the technological and regulatory developments that are occurring. We will continue reporting on these developments and are available to assist clients navigating this important and rapidly changing area.