BIS Subjects 4 More Countries to "Direct Product Rule" for Foreign-Made Items

July 30, 2010 by Kelly Sly|Exports, OFAC and DoD

The Bureau of Industry and Security has issued a final rule, effective July 30, 2010, which expands the number of countries under the “direct product rule,” which requires an export license or license exception for certain foreign-made items.

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BIS’ final rule also makes parallel revisions or clarifications to written assurances required under License Exception TSR (Technology and Software Restricted), information required on the license application for national security controlled technology, and the instructional steps in the EAR that provide guidance on how to apply the direct product rule.

(Under the “direct product rule” (15 CFR 734.3(a)(4) and 736.2(b)(3)), a foreign-made item is subject to the EAR and requires an export license or license exception, if the item meets the following four conditions:

is located outside of the U.S.;
is subject to national security controls under the EAR;
is the direct product of U.S.-origin software or technology that requires a written assurance as a supporting document for a license or as a pre-condition for use of License Exception Technology and Software, Restricted (TSR); and
is being reexported to a destination in a country of national security concern or a terrorist supporting country.)

Direct Product Rule, Etc. Now Applies to Four Additional Countries

BIS’ final rule amends the EAR to apply certain requirements to Country Group E:1 as follows:

Direct product rule. BIS’ rule amends the “direct product rule” in 15 CFR 736.2(b)(3) by expanding the country scope of the rule from Country Group D:1 and Cuba to Country Group D:1 and E:1 (Cuba, Iran, North Korea, Sudan, and Syria).

License Exception TSR. The rule amends License Exception TSR under 15 CFR 740.6, which requires a written assurance prior to using this license exception, to expand the country scope covered by this assurance from Country Group D:1 and E:2¹ to Country Group D:1 and E:1.

Instructions/guidance amended. This rule revises the instructions under paragraphs (i)(2)(x) regarding “parts, components, and materials incorporated abroad into foreign-made products;” and (o)(3)(i) regarding “technology controlled for national security reasons,” of Supplement No. 2 to 15 CFR Part 748, by expanding the country scope from Country Group D:1 and E:2¹ to Country Group D:1 and E:1.

The rule also amends its guidance in 15 CFR 732.2(f)(1)(i),“Step 6: Foreign-made items produced with certain U.S. technology for export to specified destinations,” and 15 CFR 732.3(f)(1)(ii), “Step 11: Foreign-produced direct product,” to expand the country scope of these steps from Country Group D:1 and Cuba to Country Group D:1 and E:1.

¹Cuba is currently the only E:2 country listed in Supplement No. 1 to 15 CFR Part 740.

BIS contact -- Sharron Cook (202) 482-2440

(FR Pub 07/30/10, D/N 080215200-91321-01)