BIS Issues Rule to Clarify, Correct, Reorganize FDP Rules in EAR

The Bureau of Industry and Security issued a Feb. 3 final rule to reorganize, make corrections and clarify the scope of its foreign direct product rules. The changes, mentioned in the agency’s fall 2021 regulatory agenda (see 2112210044), help to clarify where and how the FDP rules apply and make some corrections to language in the Export Administration Regulations.

BIS said the changes partly seek to address questions it has received from exporters about the scope of production equipment that may be affected by the FDP rule. The agency said the revisions clarify how it defines the terms “direct product, technology, software and equipment,” which “should help the public better understand its obligations.”

The rule also clarifies that FDPs subject to the EAR are “not necessarily subject to a license requirement,” and that license requirements are determined “based on an assessment of the classification, destination, end user, and end use of the items,” the agency said. It also clarifies the circumstances under which the 600 series FDP rule applies to certain items in the EAR.

BIS also made changes to the EAR to consolidate and better organize where the FDP rules are listed. The rules will now be found in part 734 of the EAR, which “clarifies that they are used to determine if a foreign-produced item is subject to, and thus within the scope of, the EAR,” BIS said.

The agency also moved the license requirement, license review policy and license exception “applicability text” for listed entities from the Entity List’s footnote 1 to supplement No. 4 to part 744 of the EAR, “where the overall license requirements pertaining to listed entities are located.” In a May 2020 rule, BIS created a “footnote 1” designation that imposes controls on goods that are the direct product of certain technology or software subject to the EAR (see 2005150058).

In another change, BIS fixed language in the May 2020 rule that was causing uncertainty among exporters. The rule had removed a reference to “U.S.” technology and software in the heading for the FDP rule, which had led to questions about when the FDP rules apply to the direct product of U.S.-origin technology or software. “BIS may have inadvertently caused confusion as to whether the revision was intended to change the product scope of all FDP rules,” the agency said. “For this reason, this rule clarifies the EAR by specifically stating in each of the FDP rules that the application of the rule relates to U.S.-origin technology or software.”

The agency also recognized the FDP rules by separating the provisions into four paragraphs, one each for the National Security FDP rule, the 9x515 FDP rule, the 600 series FDP rule and the Entity List FDP rule. This reorganization “does not make substantive changes to the FDP rules,” BIS said. It only “facilitates reference to and compliance with the rules.”

The rule also clarifies that the definition of the term “major component” applies to all FDP rules, not just the Entity List FDP rule. For all FDP rules, BIS stressed that a major component of a plant located outside the U.S. means “‘equipment’ that is essential to the ‘production’ of an item, including testing ‘equipment.’”