International Trade Law News

Published by Jacobson Burton Kelley PLLC

The Bureau of Industry and Security (BIS) has released the comments submitted by the public on the proposed rule published on October 13, 2004 (69 Fed. Reg. 60689) that would revise the knowledge definition in the Export Administration Regulations (EAR) to replace the phrase "high probability" with the phrase" more likely than not, update and expand the "red flags" guidance and provide a "safe harbor" from liability arising from EAR provisions utilizing the new definition of knowledge. BIS received a total of 17 comments, ranging from one page to 12 pages, from individuals, trade consultants, exporters, industry coalitions, trade associations and a U.S. Government agency.

The public comments were universally critical of the changes set forth in the proposed rule and virtually all of the comments indicated that the proposed changes to the knowledge standard and the increased number of red flags would impose significant burdens on U.S. exporters. The comments expressed major concerns with the proposed "safe harbor" and noted that the safe harbor would simply lead to a "second round" of licensing that would increase costs and cause excessive delays. Many of the comments indicated that they doubted that exporters would even utilize the safe harbor provision and would opt to file for a license instead. While many of the comments provided suggestions on how the safe harbor provision could be improved several comments suggested that BIS withdraw the safe harbor proposal unless major changes were made to the final rule.

Interestingly, the Office of Advocacy of the U.S. Small Business Administration (SBA) submitted a comment indicating that it did not believe that BIS had properly analyzed "the full economic impact of the proposal on small entities as required by the Regulatory Flexibility Act (RFA)" and questioned BIS's conclusion that the proposal would not have a significant economic impact on small entities. SBA noted that small businesses are more likely to incur legal expenses, fines and penalties under the proposed rule than they would have under the current regulations. In addition, the agency stated that "small businesses may also incur additional legal expenses by having to hire attorneys to help them understand the implications of the new standard as well as incur costs due to expenses related to employee training (including lost man hours) to assure that employees understand the new standard and the additional red flags proposed by BIS." SBA recommended to BIS that it prepare and publish for public comment an initial regulatory flexibility analysis (IRFA) to access the economic impact on small entities before proceeding to a final rule.

The public comments on the proposed rule can be viewed at the following link (opens as PDF file):
http://efoia.bis.doc.gov/pubcomm/Knowledge%20and%20Red%20Flags/Final.pdf.