The new Iran Foreign Direct Product rules go into effect next month, and the unusual way the rule was imposed may have left some practitioners unprepared.
Enacted by Congress with no input from the Deparetment of Commerce, the provisions of the No Technology for Terror Act (HR. 6603) introduced by Rep. Nathaniel Moran (R-TX) were included in the massive emergency supplemental appropriation [HR 815] signed into law April 24th. "This is the first time in the history of Congress that it passed a bill to codify a foreign direct product rule," Mr. Moran's office stated.
And for good reason. Customarily, changes to the EAR are managed by the Department of Commerce, with notices, comment periods, etc. "They totally bypassed BIS on this," an official said, noting that there are no corrections or clarifications to align, adding "whether we do or not, it's going to be effective July 23rd."
Recent BIS Actions on Iran FDP
Effective April 18 BIS imposed additional controls to further restrict Iran’s access to low-level technologies, such as basic commercial grade microelectronics. The action will cut off a wider range of items from reaching Iran’s arsenal – including items manufactured outside the U.S. that are produced using U.S. technology. [12072 4/19/24]
BIS had already in place a Foreign Direct Product (FDP) Rule specific to Iran for items in certain categories of the Commerce Control List (CCL) covering electronics, computers, communications and information security, and navigation and avionics, as well as the EAR99 items identified in Supplement No. 7 to Part 746.
As a result of this new FDP Rule, exporters require a U.S. Government authorization for transfer of these items when produced outside the United States with certain U.S. technology, software, or production equipment when exports are destined to Iran or for use in connection with certain equipment destined to Iran, even when such items were never exported from the United
DIVISION N—NO TECHNOLOGY FOR TERROR ACT
Sec. 1. Short title.
Sec. 2. Application of foreign-direct product rules to Iran.
No Technology for Terror Act
(Sec. 2) This section requires the United States to regulate the export of certain foreign-produced items destined for Iran. Such foreign-produced items to be controlled are items that are direct products of or produced in a plant that is a direct product of U.S.-origin technology subject to the Export Administration Regulations and specified in a covered Export Control Classification Number. A license shall be required to export, re-export, or in-country transfer such controlled items.
DIVISION N—NO TECHNOLOGY FOR TERROR ACT
SEC. 1. SHORT TITLE.
This division may be cited as the “No Technology for Terror Act”.
SEC. 2. APPLICATION OF FOREIGN-DIRECT PRODUCT RULES TO IRAN.
(a) In General.—Beginning on the date that is 90 days after the date of the enactment of this division, a foreign-produced item shall be subject to the Export Administration Regulations (pursuant to the Export Control Reform Act of 2018 (50 U.S.C. 4801 et seq.)) if the item—
(1) meets—
(A) the product scope requirements described in subsection (b); and
(B) the destination scope requirements described in subsection (c); and
(2) is exported, reexported, or in-country transferred to Iran from abroad or involves the Government of Iran.
(b) Product Scope Requirements.—A foreign-produced item meets the product scope requirements of this subsection if the item—
(1) is a direct product of United States-origin technology or software subject to the Export Administration Regulations that is specified in a covered Export Control Classification Number or is identified in supplement no. 7 to part 746 of the Export Administration Regulations; or
(2) is produced by any plant or major component of a plant that is located outside the United States, if the plant or major component of a plant, whether made in the United States or a foreign country, itself is a direct product of United States-origin technology or software subject to the Export Administration Regulations that is specified in a covered Export Control Classification Number.
(c) Destination Scope Requirements.—A foreign-produced item meets the destination scope requirements of this subsection if there is knowledge that the foreign-produced item is destined to Iran or will be incorporated into or used in the production or development of any part, component, or equipment subject to the Export Administration Regulations and produced in or destined to Iran.
(d) License Requirements.—
(1) IN GENERAL.—A license shall be required to export, reexport, or in-country transfer a foreign-produced item from abroad that meets the product scope requirements described in subsection (b) and the destination scope requirements described in subsection (c) and is subject to the Export Administration Regulations pursuant to this section.
(2) EXCEPTIONS.—The license requirements of paragraph (1) shall not apply to—
(A) food, medicine, or medical devices that are—
(i) designated as EAR99; or
(ii) not designated under or listed on the Commerce Control List; or
(B) services, software, or hardware (other than services, software, or hardware for end-users owned or controlled by the Government of Iran) that are—
(i) necessarily and ordinarily incident to communications; or
(ii) designated as—
(I) EAR99; or
(II) Export Control Classification Number 5A992.c or 5D992.c, and classified in accordance with section 740.17 of title 15 Code of Federal Regulations; and
(iii) subject to a general license issued by the Department of Commerce or Department of Treasury.
(e) National Interest Waiver.—The Secretary of Commerce may waive the requirements imposed under this section if the Secretary—
(1) determines that the waiver is in the national interests of the United States; and
(2) submits to the Committee on Foreign Affairs and the Committee on Financial Services of the House of Representatives and to the Committee on Foreign Relations and the Committee on Banking, Housing, and Urban Affairs of the Senate a report explaining which requirements are being waived and the reasons for the waiver.
(f) Sunset.—The authority provided under this section shall terminate on the date that is 7 years after the date of the enactment of this division.
(g) Definitions.—In this section—
(1) the term “Commerce Control List” means the list maintained pursuant to part 744 of the Export Administration Regulations;
(2) the term “covered Export Control Classification Number” means an Export Control Classification Number in product group D or E of Category 3, 4, 5, 6, 7, 8, or 9 of the Commerce Control List;
(3) the terms “Export Administration Regulations”, “export”, “reexport”, and “in-country transfer” have the meanings given those terms in section 1742 of the Export Control Reform Act of 2018 (50 U.S.C. 4801); and
(4) the terms “direct product”, “technology”, “software”, “major component”, “knowledge”, “production”, “development”, “part”, “component”, “equipment”, and “government end users” have the meanings given those terms in section 734.9 or part 772 of the Export Administration Regulations, as the case may be.
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