Commerce Announces Streamlined Encryption Export Regulations

Washington, DC - The U.S. Department of Commerce Bureau of Export Administration (BXA) today issued new encryption export regulations which implement the new approach announced by the Clinton Administration in September.

Today's move permits U.S. companies to export any encryption product around the world to commercial firms, individuals and other non-government end-users under a license exception (i.e., without a license). In addition, "retail" encryption products which are widely available in the market can now be exported to any end-user including foreign governments. In most cases, a one-time product review by BXA continues to be required. Post-reporting requirements are reduced to track industry business models.

"This policy helps business and promotes e-commerce by adjusting our regulations to marketplace realities that U.S. companies face when they try to sell their products overseas. We've also worked very hard to address privacy concerns and to ensure that our law enforcement and national security concerns are met," said Commerce Secretary William M. Daley.

For source code, the regulation reduces controls further than announced in September. Commercial encryption source code, encryption toolkits and components can now be exported under license exception to businesses and non-government end-users for internal use and customization and for the development of new products. In addition, the regulations relax restrictions on publicly available encryption source code, including by posting on the Internet.

The regulation further streamlines requirements for U.S. companies by permitting exports of any encryption item to their foreign subsidiaries without a prior review. Foreign employees of U.S. companies working in the United States no longer need an export license to work on encryption.

In addition, the guidelines also implement agreements reached by the Wassenaar Arrangement in December 1998 by decontrolling 64-bit mass market products, 56-bit encryption items and 512-bit key management products. Today's changes do not affect restrictions on terrorist supporting states (Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria), their nationals, and other sanctioned entities.

In developing this regulation, the Administration worked closely with stakeholders to continue a balanced approach. The government will review the workability of the regulation, receiving public comments for 120 days. A final revised rule will be issued shortly thereafter.

Attached is a comprehensive fact sheet that outlines the new export control guidelines.

FACT SHEET

Today, the Commerce Department published a regulation implementing the Clinton Administration's update to encryption export policy announced in September, 1999. The major components of this regulation are as follows:

Global exports to individuals, commercial firms or other non-government end-users

Any encryption commodity or software, including components, of any key length can now be exported under a license exception after a technical review to any non-government end-user in any country except for the seven state supporters of terrorism. Exports previously allowed only for a company's internal use can now be used for any activity, including communication with other firms, supply chains and customers. Previous liberalizations for banks, financial institutions and other approved sectors are continued and subsumed under the license exception. Exports to government end-users may be approved under a license.

Global exports of retail products

A new category of products called "Retail encryption commodities and software" can now be exported to any end user (except in the seven state supporters of terrorism). Retail encryption commodities and software are those which are widely available and can be exported and reexported to anyone (including any Internet and telecommunications service provider), and can be used to provide any product or service (e.g., e-commerce, client-server applications, or software subscriptions). BXA will determine which products qualify as retail through a review of their functionality, sales volume, distribution methods. Products that are functionally equivalent to products classified as retail will also be considered retail. Finance-specific, 56-bit non-mass market products with a key exchange greater than 512 bits and up to 1024 bits, network-based applications and other products which are functionally equivalent to retail products are considered retail products.

Internet and Telecommunications Service Providers

Telecommunications and Internet service providers can obtain and use any encryption product under this license exception to provide encryption services, including public key infrastructure services for the general public. Provision of services specific to governments (e.g., running a virtual private network for a government agency) will, however, require a license

Global Exports of Unrestricted Encryption Source Code

Encryption source code which is available to the public and which is not subject to an express agreement for the payment of a licensing fee or royalty for commercial production or sale of any product developed with the source code may be exported under a license exception without a technical review. The exporter must submit to the Bureau of Export Administration a copy of the source code, or a written notification of its Internet location, by the time of export. Foreign products made with the unrestricted source code do not require review and classification by the U.S. Government for reexport. This license exception should apply to exports of most "open source" software.

Global Exports of Commercial Encryption Source Code and Toolkits

Encryption source code which is available to the public and which is subject to an express agreement for the payment of a licensing fee or royalty for commercial production or sale of any product developed using the source code (such as "community source" code) may be exported under a license exception to any end-user without a technical review. At the time of export, the exporter must submit to the Bureau of Export Administration a copy of the source code, or a written notification of its Internet address. All other source code can be exported after a technical review to any non-government end-user. U.S. exporters may have to provide general information on foreign products developed for commercial sale using commercial source code, but foreign products developed using U.S.-origin source code or toolkits do not require a technical review.

U.S. Subsidiaries

Any encryption item (including commodities, software and technology) of any key length may be exported or reexported to foreign subsidiaries of U.S. firms without a technical review. Foreign nationals working in the United States no longer need an export license to work for U.S. firms on encryption. This extends the policy adopted in last year's update, which allowed foreign nationals to work for foreign subsidiaries of U.S. firms under a license exception. All items produced with encryption commodities, software, and technology authorized under this license exception will require a technical review.

Export Reporting

Post-export reporting is required for certain exports to a non-U.S. entity of products above 64 bits. However, no reporting is required if the item is a finance-specific product or is a retail product exported to individual consumers. Additionally, no reporting is required if the product is exported via free or anonymous download, or is exported from a U.S. bank, financial institution or their subsidiaries, affiliates, customers or contractors for banking or financial use. Reporting helps ensure compliance with our regulations and allows us to reduce licensing requirements.

Implementation of the December 1998 Wassenaar Arrangement Revisions

Last year, the Wassenaar Arrangement (33 countries which have common controls on exports, including encryption) made a number of changes to modernize multilateral encryption controls. This regulation allows exports without a license of 56 bit DES and equivalent products, including toolkits and chips, to all users and destinations (except the seven state supporters of terrorism) after a technical review. Encryption commodities and software with key lengths of 64-bits or less which meet the mass market requirements of Wassenaar's new cryptography note are also eligible for export without a license after a technical review.