On Thursday, December 17, 2015 at 9:00 a.m. Eastern Time, BIS offered a special one and a half hour webinar.  Export Administration officials provided an overview of the Export Administration Regulations involving de minimis, the direct product rule, and second incorporation.  Topics included the new decision tree tool available for direct product and de minimis rules to help you determine if your non-U.S.-made item (located outside the U.S.) is subject to the Export Administration Regulations.  Scenarios involved both “600 series” and non- 600 series items.  Participants were able to submit questions by email during the webinar, and BIS officials responded orally at the end of the presentation

For a recording of this webinar, CLICK HERE.

For a transcript of this webinar, CLICK HERE.

For condensed presentation slides of the webinar in .pdf form, CLICK HERE.

For training scenarios with Q&A on the Direct Product and De minimis rules, CLICK HERE.

Flowchart A, Is Your Non-U.S.-made Item Subject to the Export Administration Regulations (“600 series” and 9x515)? CLICK HERE.

Flowchart B, Is Your Non-U.S.-made Item Subject to the Export Administration Regulations (not “600 series” or 9x515)? CLICK HERE.

Flowchart C, Is Your Non-U.S.-made Item Subject to the Export Administration Regulations (both NOT “600 series” or 9x515 AND “600 series” or 9x515)? CLICK HERE.

For a transcript of Questions and Answers from the webinar, CLICK HERE.

General Prohibition No. 3: Foreign-Produced Direct Product Rule

 

§ 736.2(b)(3) of the EAR

(A) Foreign-produced direct products of U.S.-origin non-“600 series” and non-9x515 “technology” or “software,” OR produced by a foreign manufacturing plant or major-component of a plant (made from U.S.-origin non-“600 series” and non-9x515 “technology” or “software”) are subject to the EAR and may require a license or license exception for export from abroad if all of the following apply:

(1)   1)   The U.S.-origin “technology” or “software” requires a written assurance as a supporting document for a license as defined in paragraph (o)(3)(i) of Supplement No. 2 to part 748, or as a precondition for use of License Exception TSR in § 740.6 or the EAR (Generally, this means the US technology/software is controlled for NS reasons);

(2)    2)  The foreign-produced direct product is subject to national security (NS) controls as designated in the ECCN on the CCL (Supp. No. 1 to part 774 of the EAR), i.e., NS is listed in the reason for control paragraph of the ECCN; and

(3)   3) The foreign-produced direct product is destined to a destination listed in Country Group D:1, E:1 or E:2 (Supp. No. 1 to part 740 of the EAR).

(B) Foreign-produced direct product is produced from U.S. “600 series” or 9x515 “technology” or “software,” OR produced by a foreign-produced manufacturing plant or major component of a plant (made from U.S.-origin “600 series” or 9x515 “technology” or “software”) are subject to the EAR and may require a license or license exception to export from abroad if all of the following apply:

(1) 1) The foreign-produced direct product of “600 series” or 9x515 U.S.-origin “technology” or “software;”

(2) 2) The foreign-produced direct product is specified in a “600 series” or 9x515 ECCN of the CCL (Supp. No. 1 to part 774 of the EAR); and

(3) 3) Either or both of the following are true:

(a) a) For “600 series” foreign-produced direct products, the destination is listed in Country Group D:1, D:3, D:4, D:5, E:1 or E:2 (Supp. No. 1 to part 740 of the EAR); or

(b) b) For 9x515 foreign-produced direct products, the destination is listed in Country Group D:5, E:1 or E:2 (Supp. No. 1 to part 740 of the EAR).

NOTE 1: “600 series” or 9x515 foreign-produced direct products of U.S.-origin “technology” or “software” subject to GP3 do not require a license for export from abroad to the new destination unless the new destination would have been prohibited or made subject to a license requirement or prohibition by part 742, 744, 746, or 764 of the EAR.

NOTE 2: This guidance does not address items classified as ECCN 0A919. Please see that ECCN entry in the Commerce Control List for guidance.

NOTE 3: As specified in Note to paragraph (a)(1) and (a)(2) of License Exception ENC in § 740.17, all items produced or developed with items exported, reexported, or transferred (in-country) under paragraphs (a)(1) or (a)(2) of § 740.17 are subject to the EAR. These items may require the submission of a classification request before sale, reexport or transfer to non‑“U.S. subsidiaries,” unless otherwise authorized by license or license exception.

(C) Entity List Foreign-Produced Direct Product Rule of August 17, 2020 (see footnote 1 to Supp. No. 4 to part 744 and § 736.2(b)(3)(vi) of the EAR)

Foreign-produced items are subject to the EAR if either of the follow applies:

(a) When it is a direct product of “technology” or “software” that is:

  • Subject to the EAR; and
  • Specified in Export Control Classification Number (ECCN) 3D001, 3D991, 3E001, 3E002, 3E003, 3E991, 4D001, 4D993, 4D994, 4E001, 4E992, 4E993, 5D001, 5D991, 5E001, or 5E991 of the Commerce Control List (CCL) in supplement no. 1 to part 774 of the EAR.

(b) When it is produced by any plant or major component of a plant that is:

  • Located outside the United States;
  • Made in either the U.S. or a foreign country; and
  • Is a direct product of U.S.-origin “technology” or “software” subject to the EAR that is specified in ECCN 3D001, 3D991, 3E001, 3E002, 3E003, 3E991, 4D001, 4D993, 4D994, 4E001, 4E992, 4E993, 5D001, 5D991, 5E001, or 5E991 of the CCL.

 

Clarifying Notes.

  1. A major component of a plant located outside the United States means equipment that is essential to the “production” of an item, including testing equipment.

 

  1. A foreign-produced item includes any foreign-produced wafer whether finished or unfinished.

License Requirement. Foreign-produced direct products that are subject to the EAR based on the criteria in (C) above, require a license or license exception when you have “knowledge” that:

  1. The foreign-produced item will be incorporated into, or will be used in the “production” or “development” of any “part,” “component,” or “equipment” produced, purchased, or ordered by any entity with a footnote 1 designation in the license requirement column of the Entity List (Supplement No. 4 to part 744 of the EAR); or

  1. Any entity with a footnote 1 designation in the license requirement column of the Entity List is a party to any transaction involving the foreign-produced item, e.g., as a “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end user.”

License Review Policy.

  • Note to introductory paragraph of footnote 1 to sup. no. 4 to part 744:
  • Sophistication and capabilities of technology in items is a factor in license application review; license applications for foreign-produced items controlled by this footnote that are capable of supporting the “development” or “production” of telecom systems, equipment and devices at only below the 5G level (e.g., 4G, 3G, etc.) will be reviewed on a case-by-case basis.
  • All other license applications
  • will be reviewed using the license review policy in the license requirement column of the Entity List for each footnote 1 designated entity, which is presumption of denial.

 

 

De minimis Rules Guidelines -

§ 734.4 and Supplement No. 2 to part 734 of the EAR

(as modified on 29 October 2015)

 

  • IF ...
    •   Non-U.S.-made commodity incorporates controlled U.S.-origin commodities
    •   Non-U.S.-made commodity is 'bundled' with controlled U.S.-origin software,
    •   Non-U.S.-made software is commingled with controlled U.S.-origin software, or
    •   Non-U.S.-made technology is commingled with controlled U.S.-origin technology,

  • THEN... the Foreign-made item is subject to the EAR if the U.S.-origin controlled content exceeds:
    “600 series” & 9x515 .a - .x items, ‘see-through carve-out’1 item: 0% to Country Group
    D:5, 25% to all other destinations.
    “600 series” & 9x515 .y items: 0% to China or Country Groups E:1 or E:2, unlimited
    to all other destinations.
    Non-“600 series,” non-9x515 or non-‘see-through carve-out’1 items: 10 % to Country
    Group E:1, 25% to all other destinations.
    Non-“600 series,” non-9x515 or non-‘see-through carve-out’1 items AT only: 10% to
    Country Group E:1, unlimited to all other destinations.
    EAR99: 10 % to N. Korea and Syria (except food and medicines), unlimited to all other
    destinations.

    •  “Controlled content” = US-origin items that require a license or License Exception to the ultimate
    destination of the non-U.S.-made product. ‘See-through carve-out items’1 are always counted as
    controlled content.
    •   EAR99 items are considered “controlled content” for certain sanctioned countries.
    •   Fair Market Value of the “controlled content” is needed to calculate de minimis  percentage

    •  Content that you don’t have to count:
    License Exception GBS or items that do not require a license to the ultimate destination of the non- U.S. made product (NLR designated items).

____________________

1 ‘See-through carve-out item’ - Articles described on the U.S. Munitions List (22 CFR part 121) that
pursuant to a specific carve-out note are subject to the EAR when, prior to export, reexport, retransfer, or
temporary import, they are integrated into and included as an integral part of an item subject to the EAR.
These items are always considered controlled content for purposes of the de minimis rule.

  • USML Category VIII(h)(2)-(5), (7), (13), (14), (17)-(19), and (21)-(26) when incorporated into a 9A610 military aircraft
  • USML Category XV(c)(3) and (e) when incorporated into an item subject to the EAR

 

  • Content that is not eligible for de minimis treatment
    •   U.S.-origin “600 series,” 9x515 and ‘see-through carve-out content when the non-U.S.-made items are destined to Country Group D:5 of Supp. No. 1 to Part 740.
    •   Certain 9E003 technology
    •   Certain U.S.-origin components of high performance computers
    •   Encryption 5E002, and encryption commodities and software that don't meet the eligibility criteria in § 734.4(b)
    •   QRS 11 if in commercial standby instrument system or commercial aircraft w/such system
    •  Non-U.S.-made military commodities that incorporate cameras classified under ECCN 6A003.b.4.b

  • U.S. items are 'incorporated' when all of the following conditions are met:
    •  They are essential to the functioning of the non-U.S.-made equipment,
    •  They are customarily included in the sale of non-U.S.-made items, and
    •  They are exported abroad with the non-U.S.-made item.

  • Bundling
    •  Software that is configured for a specific commodity, but is not necessarily physically integrated into the commodity.
    •  Eligible software is software that is listed on the Commerce Control List (CCL) and is controlled for anti-terrorism (AT) reasons or software that is designated EAR99 (subject to the EAR, but not listed on the CCL).

  • One-time report required for technology
    •   Percentage of U.S. content by  value
    •   Description of your calculations
    •   Values, assumptions, methodologies
    •   Export price of U.S. content
    •   Description and fair market value of the non-U.S.-made technology  

  • If over the de minimis limit ...
    •    Classify the non-U.S.-made product (self-classification vs BIS  classification)
    •    Determine License Requirements
    •    Determine License Exception eligibility
    •    Obtain any necessary  authorization

   
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