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Positions and Statements

 

 

Comment on the Interim Rule, Encryption Regulations

Published on January 14, 2000

 

May 15, 2000

 

Mr. Frank J. Ruggiero

Regulatory Policy Division

Bureau of Export Administration

Department of Commerce

14th Street and Pennsylvania Avenue, N.W.

Room 2705

Washington, D.C. 20230

 

Dear Mr. Ruggiero:

 

The United States Council for International Business (USCIB)[1] appreciates the opportunity to comment on the Interim Rule, Encryption Regulations published on January 14, 2000.  The USCIB is encouraged by the trend toward a more liberal policy for the export of encryption technologies.  The access to robust cryptography to ensure the security of business information and information that relates to a business' customers is essential to the continued growth of electronic commerce and its resulting benefits to society and the global economy.

 

As expressed in previous submissions, USCIB members believe that the marketplace should define the types and strengths of encryption technologies that users access; business and end-users should be able to choose the cryptographic systems and products that best suit their needs.  The Interim Rule is a significant step forward in achieving that objective. 

 

However, USCIB members would like to address several outstanding issues in the Interim Rule that may put U.S. companies at a competitive disadvantage vis-à-vis their foreign counterparts.  Most notably, the costs that businesses will incur to comply with the often complex procedures set forth in the Interim Rule will decrease the competitiveness of U.S. suppliers. 

 

More specific are set forth below.

 

I.          COMPLEXITY

 

The January 14, 2000 Interim Final Rule adds unnecessary layers of complexity.  The unnecessary complexity is confusing, costly, more difficult than need be, and is inconsistent with the general objective of the revisions namely, to make 'retail,' 'mass market' and other forms of encryption products uniformly exportable to almost all end-users in all destinations, save restrictions on terrorist supporting states.  An example of the unnecessary complexity is that there are at least thirteen categories of encryption items, some with sub-categories and each having unique rules.[2]

 

II.         ENCRYPTION ITEM (EI) CONTROLS

 

 The Interim Rule makes progress by releasing certain categories of encryption products from EI controls including:

·         mass market encryption commodities, software up to and including 64-bits after review and classification;

·         unrestricted encryption source code not 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 without review; and

·         certain encryption items exported and reexported to foreign subsidiaries of U.S. companies without technical review and classification;

 

As stated, this is good progress.  Nevertheless, USCIB members believe that this progress could be greatly improved and the regulations could be simplified if EI-controls from encryption items that are generally exportable were eliminated.  At a minimum, USCIB members urge the Department of Commerce to eliminate all EI-controls on all “retail” encryption products.  Again, such controls are unrealistic and inconsistent with the general intent of the revised regulations and other provisions of the revised regulations that permit the export of retail encryption items to most destinations.

 

USCIB members encourage the U.S. Government to take the following steps in conjunction with the elimination of certain EI controls:

 

            A.  De Minimis Content

 

Under the Interim Rule, EI-controlled software is not eligible for de minimis exceptions.  Maintaining EI controls on greater than 64-bit software could make it impossible for U.S. manufacturers to supply their products to foreign manufacturers for incorporation into foreign products.  This will force companies to continue to produce dual versions of products – one weak encryption version that can be free of EI-controls and one strong encryption version.  This will likely lead foreign manufacturers to "design out" U.S. origin components where an EI control creates risk to the foreign manufacturer due to licensing or other review requirements or where the foreign manufacturer is unwilling to accept a weaker version of the product to comply with U.S. rules.  Such "design outs" would significantly impair the competitiveness of U.S. providers in foreign markets.  Therefore, USCIB members recommend thatSection 734.4(b)(2) be eliminated, and 734.4(h) be amended to reflect that deletion.   At a minimum, these paragraphs should be amended to apply only to “non-retail” EI controlled items.

 

            B.  Publicly Available Software

 

Section 734.3(b)(3) – Virtually all "publicly available software" qualifies as "retail commodities software" and, therefore, is exportable to virtually any end-user in all destinations.  Moreover, such software is normally distributed via free or anonymous Internet download and would be exempt from reporting requirements under the draft regulations.  The exclusion for EI-controlled software from the “publicly available” exception is inconsistent with other provisions of the Interim Rule and with actual practice and should therefore be eliminated.

 

            C.  Published Software

 

Similarly, Section 734.7(c) – the exclusion for EI-controlled software from the “published information and software” rule – should be eliminated.  This paragraph (c) was newly added by the January 14 Rule to make it clear that software controlled under ECCN 5D002 for “EI” reasons remains subject to the EAR even if it is “published” as defined in paragraphs (a) and (b) of that section.  This paragraph should be deleted and it should be made clear that “published” encryption software of any key length is not subject to the EAR.

 

III.        RULE INTERPRETATION

 
The Interim Rule has been effective since January 14, 2000.  This has given industry approximately 4 months to assess the application of the Rule by government agencies in actual practice.  Our members have raised several concerns about the application of the Interim Rule in practice.  Classification requests for retail encryption products are routinely taking much longer than the 30 days specified in Supplement 6 to Part 742.  More importantly, restrictive interpretations of the regulations are contrary to the spirit of the promised liberalization and the understanding that industry had with respect to the new rules.  And, in some cases, such interpretations are contrary to the black letter of the regulations.

 

For example, Section 740.17(d) of the regulations states:

 

"Foreign products developed with or incorporating U.S.-origin encryption source code, components or toolkits remain subject to the EAR, but do not require review and classification by BXA and can be exported or reexported without further authorization." 

 

This clear statement, which on its face exempts review and classification, is being applied in a way that continues to require such review and classification of all foreign produced cryptographic modules that are designed to work with closed CAPIs and that have been developed using U.S. origin components.  

It has been suggested that to exclude such foreign-produced modules from review would, in effect, make a closed CAPI an "open cryptographic interface."  But that is not the case.  "Open cryptographic interface"  is defined in the regulations as:

 "A mechanism which is designed to allow a customer or other party to insert cryptographic functionality without the intervention, help or assistance of the manufacturer or its agents, e.g., manufacturer's signing of cryptographic code or proprietary interfaces."

But regardless of whether the U.S. government reviews the cryptographic module, a closed CAPI is still a mechanism that requires the intervention of the manufacturer (e.g. digitally signing the code or a hash of the code).  So despite the fact that the January 14 regulations do not give the U.S. government the authority to review foreign developed cryptographic modules, BXA continues to require such review.

 

IV.        REPORTING

 

One of the stated goals of the Interim Final Rule is to streamline reporting requirements and in fact, it has made significant progress toward achieving that goal. Nevertheless, our members have noted with concern that the reporting requirements as set forth in the Interim Rule remain overly complex and burdensome, present difficult questions regarding actual practice, and do not appear to serve any government purpose.  Several particular concerns expressed by our members are set forth below.

 

The Interim Rule requires reporting of sales of ‘retail’ products to non-individuals.  "Retail" products are sold to both individuals and non-individuals/businesses. Often, a U.S. merchant that electronically transmits "retail" products will not know if the end-user is selling the product to the purchaser in his/her individual or non-individual/business capacity.  Therefore, to ensure compliance with this requirement, U.S. merchants will, in practice, "over-report" their exports.  Given the requirement of one-time review, reporting of retail type products seems to add no value. For example, both the Netscape Navigator web browser and the Internet Explorer component of the Windows operating system have been distributed in quantities greater than the total number of Internet users – so it is safe to assume that virtually every user has both. However, reporting will not reveal what software is actually being used by which user.

 

Similarly, many companies routinely purchase and use several competing products.  For example, over 90% of the largest e-commerce companies run both Oracle and Microsoft SQL servers.  The reporting, however, would not reveal how, and to what extent, each product is actually deployed.  The reporting would tell the government, that for any particular deployment, there would be either an Oracle server, a Microsoft SQL server, or both.  But the same assumption could be made without any reporting whatsoever.

 

Furthermore, the vast majority of commercial products now use standard security protocols.  So, it is unclear what is gained by the knowledge that Company X is using SSL for web security and S/MIME for secure e-mail, since virtually every company is using SSL for web security and S/MIME for secure e-mail.

 

Moreover, the Wassenaar Arrangement – a multilateral export control regime based on national discretion licensing by each member country – does not require reporting for any strong encryption exports.  Prior to December 1998, the Wassenaar Arrangement did include reporting requirements for the very small class of encryption products that did not meet the GSN definitions of mass-market or public domain.  In December 1998, however, encryption items were removed from the “Sensitive List”, thereby removing reporting requirements for even non-mass-market encryption products.[3]  It is particularly troubling that the U.S. Government agreed to eliminate all requirements for our foreign competitors to report exports of any encryption products, while maintaining burdensome reporting requirements on U.S. companies. 

 

In sum, the reporting requirements are overly burdensome; offer the U.S. Government little, if any, useful information about what, how, and the extent to which strong encryption software is actually being used around the world; and will put U.S. companies at a competitive disadvantage in relation to their foreign competitors.

 

V.                  CONCLUSION

 

The Interim Rule is a significant step forward in implementing the Clinton Administration's encryption policy announced on September 16, 1999 and USCIB members appreciate that progress.  Nevertheless, the comments above clearly demonstrate that the Interim Rule will continue to place U.S. merchants at a competitive disadvantage vis-à-vis their foreign counterparts. 

 

Again, thank you for the opportunity to comment on the Interim Rule.  We look forward to continuing our dialogue with you on this important issue.

 

Sincerely,

 

Edward J. Regan

Chairman, Information Policy Committee

 

[1] The United States Council for International Business (USCIB) advances the global interests of American business both at home and abroad.  The USCIB has a membership of over 300 global corporations, professional firms, and business associations.   It is the American affiliate of the International Chamber of Commerce (ICC), the Business and Industry Advisory Committee (BIAC) to the OECD, and the International Organisation of Employers (IOE).  As such, it officially represents U.S. business positions in the main intergovernmental bodies, and vis-à-vis foreign business communities and their governments.

[1] Our members have identified the following categories: (1) authentication-only products;  (2) mass-market products up to 64 bits; (3) non-mass-market products up to 56 bits, with key exchange up to 512 bits; (4) other cryptography products (over 64-bits for mass-market, or over 56-bits for non-mass-market) classified as “retail,”; (5) other cryptography products (over 64-bits for mass-market, or over 56-bits for non-mass-market) classified as “non-retail” – including network infrastructure products such as high end routers or switches designed for large volume communications; customized encryption products; encryption products that require substantial support for installation and use; products with encryption that is easily modified by the user; (6) key management products up to 512 bits; (7) key management products greater than 512 bits; (8) components (chips, toolkits) up to 56 bits; (9) components (chips, toolkits) greater than 56 bits; (10) general purpose toolkits; (11) publicly available, unrestricted source code; (12) publicly available, restricted source code; and (13) non-publicly available source code.

 

[1] The Arrangement imposes reporting requirements on exports from members countries of items on the so-called “Sensitive List” and “Very Sensitive List” of Annexes 1 and 2 to the Wassenaar list of controlled items.  Reporting of exports of such items allows other Wassenaar members to know which of these items are exported to what countries, and allows members to monitor build up of sensitive items and to try to persuade other members not to export certain items to certain end-users.  It provides the only useful enforcement mechanism of the Wassenaar Arrangement. 

 

 

 



 

 

 





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