Enactment of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) introduced mandatory pre-closing filings with the Committee on Foreign Investment in the United States (CFIUS) for certain transactions, including foreign investments in U.S. businesses that develop or produce “critical technologies,” or technologies subject to certain categories of U.S. export controls. Most of the relevant export controls were already in place, but Congress also contemplated an expansion of the list to include “emerging and foundational technologies” for which export controls would be added by the U.S. Department of Commerce pursuant to the Export Control Reform Act of 2018 (ECRA), FIRRMA’s sister legislation.
Since FIRRMA and ECRA were enacted, CFIUS has promulgated several rounds of regulations implementing FIRRMA, but Commerce has been slower to identify “emerging and foundational technologies.” In fact, in the absence of legislative guidance as to what the terms “emerging” or “foundational” mean, Commerce said it no longer plans to use those terms, instead calling such technologies “Section 1758 technologies,” based on the ECRA provision under which they will be controlled.
Putting aside nomenclature issues, Commerce’s Bureau of Industry and Security (BIS) has, since ECRA was enacted, implemented new export controls over a number of technologies that qualify as critical technologies for CFIUS purposes. Recent examples include the following:
| Technology | Export Control Classification Number(s) | Reason(s) for Control (“critical technology” reasons in boldface) |
| Software specially designed to automate the analysis of geospatial imagery classification | 0D521 (temporary designation under 0Y521) | Regional Stability |
| Chemicals that may be used as precursors for toxic chemical agents | 1C350 | Chemical & Biological Weapons, Chemical Weapons, Anti-Terrorism |
| Middle East respiratory syndrome (MERS)-related coronavirus | 1C351 | Chemical & Biological Weapons, Anti-Terrorism |
| Certain marine toxins | 1C351 | Chemical & Biological Weapons, Chemical Weapons, Anti-Terrorism |
| Single-use cultivation chambers with rigid walls and “technology” for the development of such equipment | 2B352, 2E001 | Chemical & Biological Weapons, Anti-Terrorism |
| Software for the operation of certain automated nucleic acid assemblers and synthesizers | 2D352 | Chemical & Biological Weapons, Anti-Terrorism |
| Gallium oxide and diamond substrates of ultra-wide bandgap semiconductors, and related technologies | 3C001, 3C005, 3C006, 3E003 | National Security, Anti-Terrorism |
| Electronic Computer Aided Design software specially designed for the development of integrated circuits with any Gate-All-Around Field-Effect Transistor structure | 3D006 (new ECCN, effective 14 October 2022) | National Security, Anti-Terrorism |
| Pressure gain combustion technology for production and development of gas turbine engine components or systems | 9E003 | National Security, Anti-Terrorism |
BIS has also sought public comments on new Section 1758 controls on brain-computer interfaces such as neural-controlled interfaces, mind-machine interfaces, direct neural interfaces, and brain-machine interfaces.
BIS may have been authorized to implement some of these controls in the absence of Section 1758 pursuant to existing multinational agreements such as the Wassenaar Arrangement (covering conventional armaments and dual-use civil/military items) and the Australia Group (covering chemical and biological weapons). As noted in some of the implementing regulations, however, Section 1758 sometimes allowed BIS to fill gaps in those multinational regimes or to accelerate the export control process.
BIS’s expansion of export controls qualifying as critical technologies expands the scope of mandatory CFIUS filings. We expect the identification of Section 1758 technologies to accelerate if, as proposed, BIS’s budget increases substantially in the coming fiscal year. Still, as we recently suggested in our recent Linklaters Tech Insights post, BIS’s expansion of export controls with one hand may not be enough to address CFIUS concerns if BIS, with the other hand, also continues to grant the overwhelming majority of export license applications involving tech transfer to China.
For further information, please contact:
Jonathan Gafni, Linklaters
jonathan.gafni@linklaters.com
