Iran Foreign Direct Product Rule

<RULE> DEPARTMENT OF COMMERCE <SUBAGY>Bureau of Industry and Security</SUBAGY> <CFR>15 CFR Parts 734 and 746</CFR> <DEPDOC>[Docket No. 240723-0203]</DEPDOC> <RIN>RIN 0694-AJ75</RIN> <SUBJECT>Iran Foreign Direct Product Rule</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Bureau of Industry and Security, Department of Commerce. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> On April 24, 2024, President Biden signed “Making emergency supplemental appropriations for the fiscal year ending September 30, 2024, and for other purposes,” into law. The law requires the United States to regulate the export of certain foreign-produced items destined for Iran. This rule implements the law's requirements by expanding the scope of the Export Administration Regulations' (EAR) Foreign Direct Product rule for Iran and applicable license requirements, thereby increasing restrictions under the EAR. </SUM> <DATES> <HD SOURCE="HED">DATES:</HD> This rule is effective July 23, 2024. </DATES> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> For general questions, contact Sharron Cook, Office of Exporter Services, Bureau of Industry and Security, U.S. Department of Commerce at 202-482-2440 or by email: <E T="03">Sharron.Cook@bis.doc.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> Division N of Public Law 118-50, the No Technology for Terror Act (the Act), which is available at <E T="03">https://www.congress.gov/bill/118th-congress/house-bill/815/text#</E> , establishes that certain foreign-produced items are subject to the Export Administration Regulations (15 CFR 730-774) (EAR) under the Export Control Reform Act (ECRA), 50 U.S.C. 4801-4852, if they are to be exported, reexported, or in-country transferred to Iran. Sponsors of H.R. 815 cited the need to restrict transfers of U.S. technology to Iran when that technology may be used for weapons systems, including drones, that threaten U.S. troops overseas or key allies. The Act is effective on July 23, 2024. Accordingly, this rule revises the Foreign-Direct Product (FDP) rule for Iran in § 734.9(j) of the EAR (Iran FDP rule). Under the Iran FDP rule, prior to July 23, 2024, foreign-produced items were subject to the EAR when they were: (1) the direct product of U.S.-origin “software” or “technology” and specified in an EAR supplement (Supp. No. 7 to part 746) or classified under an Export Control Classification Number (ECCN) in Categories 3 through 5 and 7 of the Commerce Control List, Supp. No. 1 to part 774 (CCL), or (2) were produced by a plant or major component of a plant that is itself the direct product of such CCL-controlled “software” or “technology”. Such items may have required a license from the Department of Commerce's Bureau of Industry and Security (BIS) for export, reexport, or transfer (in-country) to Iran. <E T="03">See</E> §§ 734.9(j) and 746.7(a)(iii) of the EAR. Effective July 23, 2024, the Act expanded the scope of the EAR's existing Iran FDP rule to require a license for additional foreign-produced items, while also providing certain exclusions from license requirements that would otherwise apply. This rule revises §§ 734.9 and 746.7 of the EAR to implement the Act's requirements in four respects. First, BIS revises the introduction to paragraph (j) to identify the two circumstances in which foreign-produced items that meet the product scope of paragraph (j)(1) are subject to the EAR: if they fall within either the destination and end-use scope paragraphs of paragraph (j)(2) or the end-user scope set forth in new paragraph (j)(3). Second, this rule expands the range of items in the product scope of the Iran FDP rule. Specifically, this rule revises the product scope in § 734.9(j)(1) by expanding the CCL category range of items in paragraphs (j)(1)(i) and (j)(1)(ii) from “any ECCN in product group D or E in Categories 3 through 5 or 7” of the CCL to include Categories 3 through 9 of the CCL. The expanded product scope now includes “technology” and “software” for Category 6—Lasers and Sensors, Category 8—Marine, and Category 9—Aerospace and Propulsion. Third, BIS has revised paragraph (j)(2) and has made structural changes, including by breaking the revised paragraph into separate paragraphs (j)(2)(i) and (j)(2)(ii) to assist the reader in applying the scope of this paragraph correctly. As revised, the scope of paragraph (j)(2) is satisfied if there is “knowledge” that the foreign-produced item meets the destination scope in paragraph (j)(2)(i) or meets the combined end-use and destination scope in paragraph (j)(2)(ii). The paragraph title is accordingly expanded by adding “and end-use” so that it will refer to both destination and end-use scope. Finally, BIS has added a new end-user scope in new paragraph (j)(3). This new end-user scope applies if there is “knowledge” that the Government of Iran is a party to any transaction involving the foreign-produced item, <E T="03">e.g.,</E> as a “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end-user.” This “knowledge” standard and reference to transaction parties is consistent with language used in the Entity List FDP rule set forth in § 734.9(e) of the EAR. <HD SOURCE="HD2">Section 746.7 (Iran)</HD> In addition to expanding the EAR's Iran FDP rule set forth in § 734.9(j), the Act made changes to the license requirements for Iran set forth in § 746.7(a)(1)(iii) of the EAR. Accordingly, this rule expands the license requirement in paragraph (a)(1)(iii), which applies to items subject to the EAR pursuant to the Iran FDP rule, to apply to in-country transfers of such items within Iran. This rule also makes a correction to paragraph (a)(1)(iv)(A) by removing an inadvertent duplicative reference to the phrase “from the countries described in supplement no. 3”. This rule also redesignates paragraph (a)(1)(iv) as paragraph (a)(1)(iv)(A) and adds a new paragraph (a)(1)(iv)(B) to list exclusions from the license requirements of paragraph (a)(1)(iii). Section 2(d)(2) of the Act added certain exclusions to the Iran restrictions specified in paragraph (a)(1)(iii) for food, “medicine,” or “medical devices” designated as EAR99, and certain items necessary and ordinarily incident to communications that are specified in ECCN 5A992.c or 5D992.c and classified in accordance with § 740.17 of the EAR or designated as EAR99. <HD SOURCE="HD1">Savings Clause</HD> Shipments of items removed from license exception eligibility or eligibility for export, reexport or transfer (in-country) 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 26, 2024, pursuant to actual orders for exports, reexports and transfers (in-country) 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, reexported or transferred (in-country) before August 26, 2024. Any such items not actually exported, reexported or transferred (in-country) before midnight, on August 26, 2024, require a license in accordance with this final rule. <HD SOURCE="HD1">Export Control Reform Act of 2018</HD> On August 13, 2018, the President signed into law the John S. McCain National Defense Authorization Act for Fiscal Year 2019, which included the Export Control Reform Act (ECRA), 50 U.S.C. 4801-4852. ECRA, as amended, provides the legal basis for BIS's principal authorities and serves as the authority under which BIS issues this rule. <HD SOURCE="HD1">Rulemaking Requirements</HD> 1. Executive Orders 12866, 13563, and 14094 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects and distributive impacts and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits and of reducing costs, harmonizing rules, and promoting flexibility. This final rule has been designated a “significant regulatory action” under section 3(f) of Executive Order 12866, as amended by Executive Order 14094. This rule does not contain policies with Federalism implications as that term is defined under Executive Order 13132. 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 <E T="03">et seq.</E> ) (PRA), unless that collection of information displays a currently valid Office of Management and Budget (OMB) Control Number. Although this rule makes important changes to the EAR for items controlled for national security reasons, BIS believes that the overall increases in burdens and costs associated with the following information collections due to this rule will be minimal. • 0694-0088, “Simplified Network Application Processing System,” which carries a burden- hour estimate of 29.6 minutes for a manual or electronic submission; • 0694-0137 “License Exceptions and Exclusions,” which carries a burden-hour estimate average of 1.5 hours per submission (Note: submissions for License Exceptions are rarely required); • 0694-0096 “Five Year Records Retention Period,” which carries a burden-hour estimate of less than 1 minute; and • 0607-0152 “Automated Export System (AES) Program,” which carries a burden-hour estimate of 3 minutes per electronic submission. Additional information regarding these collections of information—including all background materials—can be found at <E T="03">https://www.reginfo.g ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 18k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━