Document ID: BIS-2010-0030-0001
Agency: bis
Document Type: Rule
Title: Foreign Direct Products of U.S. Technology
Posted Date: 2010-07-30T04:00Z

[Federal Register: July 30, 2010 (Volume 75, Number 146)]
[Rules and Regulations]               
[Page 44887-44890]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jy10-5]                         

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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 732, 736, 740, and 748

[Docket No. 080215200-91321-01]
RIN 0694-AE27

 
Foreign Direct Products of U.S. Technology

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Final rule.

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SUMMARY: The Bureau of Industry and Security (BIS) clarifies the scope 
of the

[[Page 44888]]

``direct product rule'' set forth in the Export Administration 
Regulations (EAR). Under the EAR's ``direct product rule,'' foreign-
made items that are located outside of the United States; subject to 
national security controls under the EAR; 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 are 
being reexported to a destination in a country of national security 
concern or a terrorist supporting country, are subject to the EAR and 
require an export license or license exception. This 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.

DATES: Effective Date: This rule is effective July 30, 2010.

ADDRESSES: Although this rule is in final form, written comments may be 
submitted via http://www.regulations.gov; by e-mail directly to BIS at 
publiccomments@bis.doc.gov; in hardcopy to U.S. Department of Commerce, 
Bureau of Industry and Security, Regulatory Policy Division, 14th and 
Pennsylvania Ave., NW., Room H-2705, Washington, DC 20230; or by fax to 
(202) 482-3355. Please insert ``0694-AE27'' in the subject line of the 
written comments.

FOR FURTHER INFORMATION CONTACT: Sharron Cook, Office of Exporter 
Services, Bureau of Industry and Security, U.S. Department of Commerce, 
at (202) 482-2440 or by e-mail: scook@bis.doc.gov.
    Comments regarding the collections of information associated with 
this rule, including suggestions for reducing the burden, should be 
sent to OMB Desk Officer, New Executive Office Building, Washington, DC 
20503, Attention: Jasmeet Seehra, or by e-mail to Jasmeet_K._
Seehra@omb.eop.gov, or by fax to (202) 395-7285; and to the Office of 
Administration, Bureau of Industry and Security, Department of 
Commerce, 14th and Pennsylvania Avenue, NW., Room 6883, Washington, DC 
20230.

SUPPLEMENTARY INFORMATION:

Direct Product Rule

    Items subject to the Export Administration Regulations (EAR) 
include items located in the United States, wherever they are produced; 
items of ``U.S. origin,'' that is, those produced in the United States, 
wherever they are located; and certain foreign produced items, 
including items subject to the EAR only on the basis of the ``direct 
product rule.'' The ``direct product rule'' is found in General 
Prohibition No. 3, section 736.2(b)(3) of the EAR, and in section 
734.3(a)(4). Under the ``direct product rule'' as amended, foreign-made 
items are subject to the EAR and require an export license or license 
exception, if such items are:
     Located outside of the United States;
     Subject to national security controls under the EAR;
     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
     Being reexported to a destination in Country Group D:1 and 
E:1 of Supplement No. 1 to part 740.

As discussed in section 732.2(f), it is necessary to determine whether 
an item is potentially subject to the ``direct product rule'' only with 
regard to foreign-produced items located in foreign countries.
    This final rule changes the ``direct product rule'' as it is 
codified in the EAR, 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). This change is being made to bring the 
``direct product rule'' into harmony with the policies the United 
States maintains against terrorist supporting countries in Country 
Group E:1.

Part 732--Steps for Using the EAR

    This rule amends section 732.2, ``Steps Regarding Scope of the 
EAR,'' by revising paragraph (f)(1)(i) in ``Step 6: Foreign-made items 
produced with certain U.S. technology for export to specified 
destinations,'' specifically paragraph (f)(1)(i) and amending section 
732.3, ``Steps Regarding the Ten General Prohibitions,'' by revising 
paragraph (f)(1)(ii) ``Step 11: Foreign-produced direct product'' to 
expand the country scope of these steps to include all the countries in 
Country Group E:1, namely, Cuba, Iran, North Korea, Sudan, and Syria. 
Because this part of the EAR is merely guidance, it will not affect the 
paperwork burden of the public.

License Exception TSR (Technology and Software Restricted)

    A ``License Exception'' is an authorization contained in part 740 
of the EAR that allows export or reexport under stated conditions of 
items subject to the EAR that would otherwise require a license under 
the provisions of the EAR. License Exception TSR, found in section 
740.6 of the EAR, authorizes exports and reexports of certain 
technology and software to destinations in Country Group B of 
Supplement No. 1 to part 740 of the EAR. Eligible technology and 
software are those that require a license for national security reasons 
only, and are identified by ``TSR--Yes'' in Export Control 
Classification Numbers (ECCNs) on the Commerce Control List (Supplement 
No. 1 to part 774 of the EAR). Prior to using this license exception, a 
written assurance as described in section 740.6 of the EAR must be 
obtained from the consignee. This assurance is required as a 
preventative measure against diversion or release of U.S.-origin 
technology, a national security-controlled foreign direct product of 
such technology, and a national security-controlled foreign direct 
product of a plant or manufacturing equipment made from such technology 
to Cuba or countries with which the U.S. has national security concerns 
and nationals thereof. This rule expands the country scope covered by 
this assurance to include all the countries in Country Group E:1 of 
Supplement No. 1 to part 740 of the EAR. License Exception TSR is 
subject to the restrictions of section 740.2 of the EAR that apply to 
all license exceptions in part 740 of the EAR. This revision will have 
no effect on the paperwork burden of exporters using License Exception 
TSR.

License Applications for Shipments That Include U.S.-Origin Technology

    In addition to the instructions contained in Supplement No. 1 to 
part 748 that describe how to submit an application to BIS, section 
748.9 and Supplement No. 2 to part 748 of the EAR set out requirements 
that license applicants must address for certain items or types of 
transactions. This rule revises the instructions under paragraph (i), 
``Parts, components, and materials incorporated abroad into foreign-
made products'' by expanding the country scope to include all the 
countries in Country Group E:1. With the publication of this rule, 
paragraph (i)(2)(x) now states that if the foreign-made product is the 
direct product of U.S.-origin technology, and U.S.-origin technology 
will accompany a shipment

[[Page 44889]]

to a country listed in Country Group D:1 or E:1 (see Supplement No. 1 
to part 740 of the EAR), Block 24 must describe the type of technology 
and how it will be used. This change is being made to conform to the 
changes being made elsewhere in this rule to the ``direct product 
rule.'' The effect of this amendment on the paperwork burden hours for 
filling out a license application is negligible, as there are rarely 
transactions involving these items to countries in Country Group E:1.

Export Administration Act

    Since August 21, 2001, the Act has been in lapse. However, the 
President, through Executive Order 13222 of August 17, 2001 (3 CFR, 
2001 Comp. 783 (2002)), which has been extended by successive 
Presidential Notices, the most recent being that of August 13, 2009 (74 
FR 41325 (August 14, 2009)), has continued the Regulations in effect 
under the International Emergency Economic Powers Act (50 U.S.C. 1701 
et seq.).

Saving Clause

    Shipments of items removed from license exception eligibility or 
from eligibility for export without a license as a result of this 
regulatory action that were on dock for loading, on lighter, laden 
aboard an exporting carrier, or en route aboard a carrier to a port of 
export, on July 30, 2010, pursuant to actual orders for export to a 
foreign destination, may proceed to that destination under the previous 
license exception eligibility, or without a license, so long as they 
have been exported from the United States before September 28, 2010. 
Any such items not actually exported before midnight, on September 28, 
2010, require a license in accordance with this regulation.

Rulemaking Requirements

    1. This final rule has been determined to be significant for 
purposes of Executive Order 12866.
    2. Notwithstanding any other provision of law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with a collection of information subject to the 
requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.) (PRA), unless that collection of information displays a currently 
valid Office of Management and Budget (OMB) Control Number. This rule 
involves two collections of information subject to the PRA. One of the 
collections has been approved by OMB under control number 0694-0088, 
``Multi Purpose Application,'' and carries a burden hour estimate of 58 
minutes for a manual or electronic submission. The other collection has 
been approved by OMB under control number 0694-0106, ``Reporting and 
Recordkeeping Requirements under the Wassenaar Arrangement,'' and 
carries a burden hour estimate of 21 minutes for a manual or electronic 
submission. Send comments regarding these burden estimates or any other 
aspect of these collections of information, including suggestions for 
reducing the burden, to OMB Desk Officer, New Executive Office 
Building, Washington, DC 20503; and to Jasmeet Seehra, OMB Desk 
Officer, by e-mail at Jasmeet_K._Seehra@omb.eop.gov or by fax to 
(202) 395-7285; and to the Office of Administration, Bureau of Industry 
and Security, Department of Commerce, 14th and Pennsylvania Avenue, 
NW., Room 6622, Washington, DC 20230.
    3. This rule does not contain policies with Federalism implications 
as that term is defined under Executive Order 13132.
    4. The provisions of the Administrative Procedure Act (5 U.S.C. 
553) requiring notice of proposed rulemaking, the opportunity for 
public participation, and a delay in effective date, are inapplicable 
because this regulation involves a military and foreign affairs 
function of the United States (5 U.S.C. 553(a)(1)). Further, no other 
law requires that a notice of proposed rulemaking and an opportunity 
for public comment be given for this final rule. Because a notice of 
proposed rulemaking and an opportunity for public comment are not 
required to be given for this rule under the Administrative Procedure 
Act or by any other law, the analytical requirements of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) are not applicable. BIS 
implements the ``direct product rule'' to require licenses for the 
reexport of items controlled for national security reasons to countries 
in Country Groups D:1 and E:2. If this rule were delayed to allow for 
notice and comment and a delay in the effective date, it would provide 
additional time to the embargoed countries, which are being added to 
the list of countries for which the direct product rule applies, to 
receive items without a license, contrary to the foreign policy and 
national security of the United States. Therefore, this regulation is 
issued in final form. Although there is no formal comment period, 
public comments on this regulation are welcome on a continuing basis. 
Comments should be submitted to Sharron Cook, Office of Exporter 
Services, Bureau of Industry and Security, Department of Commerce, 14th 
and Pennsylvania Ave., NW., Room 2705, Washington, DC 20230.

List of Subjects

15 CFR Part 732

    Administrative practice and procedure, Exports, Reporting and 
recordkeeping requirements.

15 CFR Part 736

    Exports.

15 CFR Parts 740 and 748

    Administrative practice and procedure, Exports, Reporting and 
recordkeeping requirements.

0
Accordingly, Parts 732, 736, 740 and 748 of the Export Administration 
Regulations (15 CFR Parts 730-774) are amended as follows:

PART 732--[AMENDED]

0
1. The authority citation for Part 732 continues to read as follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701-1706; 
E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 
FR 44025, 3 CFR, 2001 Comp., p. 783; Notice of August 13, 2009, 74 
FR 41325 (August 14, 2009).

0
2. Section 732.2 is amended by revising paragraph (f)(1)(i) to read as 
follows:

Sec.  732.2  Steps regarding scope of the EAR.

* * * * *
    (f) * * *
    (1) * * *
    (i) Country scope of prohibition. Your reexport destination for the 
foreign-produced direct product is a destination in Country Group D:1 
or E:1 (see Supplement No. 1 to part 740 of the EAR) (reexports of 
foreign-produced direct products to other destinations are not subject 
to General Prohibition Three);
* * * * *

0
3. Section 732.3 is amended by revising paragraph (f)(1)(i), to read as 
follows:

Sec.  732.3  Steps regarding the ten general prohibitions.

* * * * *
    (f) * * *
    (1) * * *
    (i) Country scope of prohibition. Your reexport destination for the 
direct product is a destination in Country Group D:1 or E:1 (see 
Supplement No. 1 to part 740 of the EAR) (reexports of foreign-produced 
direct products to other destinations are not subject to General 
Prohibition Three described in Sec.  736.2(b)(3) of the EAR);
* * * * *

[[Page 44890]]

PART 736--[AMENDED]

0
4. The authority citation for Part 736 continues to read as follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; 
22 U.S.C. 2151 note; E.O. 12938, 59 FR 59099, 3 CFR, 1994 Comp., p. 
950; E.O. 13020, 61 FR 54079, 3 CFR, 1996 Comp., p. 219; E.O. 13026, 
61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 3 
CFR, 2001 Comp., p. 783; E.O. 13338, 69 FR 26751, May 13, 2004; 
Notice of August 13, 2009, 74 FR 41325 (August 14, 2009); Notice of 
November 6, 2009, 74 FR 58187 (November 10, 2009).

0
5. Section 736.2 is amended by revising paragraph (b)(3)(i), to read as 
follows:

Sec.  736.2  General prohibitions and determination of applicability.

* * * * *
    (b) * * *
    (3) * * *
    (i) Country scope of prohibition. You may not, without a license or 
license exception, reexport any item subject to the scope of this 
General Prohibition Three to a destination in Country Group D:1 or E:1 
(See Supplement No. 1 to part 740 of the EAR).
* * * * *

PART 740--[AMENDED]

0
6. The authority citation for Part 740 continues to read as follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; 
22 U.S.C. 7201 et seq.; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., 
p. 228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 Comp., p. 783; Notice 
of August 13, 2009, 74 FR 41325 (August 14, 2009).

Sec.  740.6  [Amended]

0
7. Section 740.6 is amended by removing the reference to ``E:2'' and 
adding in its place ``E:1'' in paragraphs (a)(1)(i), (a)(1)(ii), 
(a)(1)(iii), (a)(2)(i) and (a)(2)(ii).

PART 748--[AMENDED]

0
8. The authority citation for Part 748 continues to read as follows:

    Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.; 
E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 
FR 44025, 3 CFR, 2001 Comp., p. 783; Notice of August 13, 2009, 74 
FR 41325 (August 14, 2009).

0
9. Supplement No. 2 to Part 748 is amended by removing the reference to 
``E:2'' and adding in its place ``E:1'' in paragraph (i)(2)(x) and 
twice in paragraph (o)(3)(i).

    Dated: July 23, 2010.
Kevin J. Wolf,
Assistant Secretary for Export Administration.
[FR Doc. 2010-18733 Filed 7-29-10; 8:45 am]
BILLING CODE 3510-33-P