Doing Business With Foreign Nationals—The Deemed Export Rule

April 2007

Under the "deemed export rule," the sharing of technology with a foreign national located in the United States is treated the same as an export of technology overseas. The deemed export rule is enforced by the Bureau of Industry and Security, and the purpose of the rule is to afford the government an opportunity to prevent or place certain conditions on the sharing of technology with non-U.S. citizens in situations that might implicate national security concerns.

The definition of "technology" under the Export Administration Regulations (EAR) is broad. Part 772 of the EAR defines "technology" as "specific information necessary for the development, production or use of a product." This information may take the form of technical data or technical assistance. Thus, a U.S. firm that hires a software development company where foreign nationals will be doing the development work should be cognizant of the deemed export rule. If the software development company is hired to modify an existing software application, then there is no question that "technology" (in the form of source code) is being provided to foreign nationals. If the software development company is hired to create a new software program without using the client's existing code base, the deemed export rule may still apply because it is inconceivable that the client would not provide some form of technical assistance, technical data, or information relating to the development, production or use of the end product.

Firms intending to comply with the deemed export rule may not need to apply for an export license, however. The first step is to submit a Commodity Classification Request, which is a relatively simple online form in which the project is described generally and certain information is provided about who will be doing the work, etc. The Bureau of Industry and Security will respond to a Commodity Classification Request by assigning a Commodity Classification Number to the applicant for the specific project that is the subject of the Commodity Classification Request. The Commodity Classification Numbers are based on the kind of technology involved and the type of national security concerns that are implicated. The number "EAR99" signifies that no export license is necessary. If an applicant receives any number other than an EAR99, then an application for an export license must be submitted. Both the Commodity Classification Request and the export license may be applied for on the Bureau of Industry and Security website at

The Bureau of Industry and Security website also provides guidelines for the preparation of export license applications involving foreign nationals. The purpose of these guidelines is to assist companies in complying with the deemed export rule. To acess the guidelines, go to, click on "Search," and enter "guidelines export applications foreign nationals."

The penalties for failing to comply with the export rules can be stiff. On March 28, 2007, the U.S. Department of Justice announced that ITT Corp. agreed to plead guilty to illegally exporting night-vision technology to China and other countries. As part of the plea bargain, ITT Corp. agreed to pay $100 million, which is one of the larges penalties ever imposed in a criminal prosecution.


Amicable photo of Toni

Antoinette M. Tease, P.L.L.C.