General Prohibition No. 3: Foreign-Produced Direct Product Rule

 

§ 736.2(b)(3) of the EAR

(A) Foreign-produced direct products of U.S.-origin non-“600 series” and non-9x515 “technology” or “software,” OR produced by a foreign manufacturing plant or major-component of a plant (made from U.S.-origin non-“600 series” and non-9x515 “technology” or “software”) are subject to the EAR and may require a license or license exception for export from abroad if all of the following apply:

(1)   1)   The U.S.-origin “technology” or “software” requires a written assurance as a supporting document for a license as defined in paragraph (o)(3)(i) of Supplement No. 2 to part 748, or as a precondition for use of License Exception TSR in § 740.6 or the EAR (Generally, this means the US technology/software is controlled for NS reasons);

(2)    2)  The foreign-produced direct product is subject to national security (NS) controls as designated in the ECCN on the CCL (Supp. No. 1 to part 774 of the EAR), i.e., NS is listed in the reason for control paragraph of the ECCN; and

(3)   3) The foreign-produced direct product is destined to a destination listed in Country Group D:1, E:1 or E:2 (Supp. No. 1 to part 740 of the EAR).

(B) Foreign-produced direct product is produced from U.S. “600 series” or 9x515 “technology” or “software,” OR produced by a foreign-produced manufacturing plant or major component of a plant (made from U.S.-origin “600 series” or 9x515 “technology” or “software”) are subject to the EAR and may require a license or license exception to export from abroad if all of the following apply:

(1) 1) The foreign-produced direct product of “600 series” or 9x515 U.S.-origin “technology” or “software;”

(2) 2) The foreign-produced direct product is specified in a “600 series” or 9x515 ECCN of the CCL (Supp. No. 1 to part 774 of the EAR); and

(3) 3) Either or both of the following are true:

(a) a) For “600 series” foreign-produced direct products, the destination is listed in Country Group D:1, D:3, D:4, D:5, E:1 or E:2 (Supp. No. 1 to part 740 of the EAR); or

(b) b) For 9x515 foreign-produced direct products, the destination is listed in Country Group D:5, E:1 or E:2 (Supp. No. 1 to part 740 of the EAR).

NOTE 1: “600 series” or 9x515 foreign-produced direct products of U.S.-origin “technology” or “software” subject to GP3 do not require a license for export from abroad to the new destination unless the new destination would have been prohibited or made subject to a license requirement or prohibition by part 742, 744, 746, or 764 of the EAR.

NOTE 2: This guidance does not address items classified as ECCN 0A919. Please see that ECCN entry in the Commerce Control List for guidance.

NOTE 3: As specified in Note to paragraph (a)(1) and (a)(2) of License Exception ENC in § 740.17, all items produced or developed with items exported, reexported, or transferred (in-country) under paragraphs (a)(1) or (a)(2) of § 740.17 are subject to the EAR. These items may require the submission of a classification request before sale, reexport or transfer to non‑“U.S. subsidiaries,” unless otherwise authorized by license or license exception.

(C) Entity List Foreign-Produced Direct Product Rule of August 17, 2020 (see footnote 1 to Supp. No. 4 to part 744 and § 736.2(b)(3)(vi) of the EAR)

Foreign-produced items are subject to the EAR if either of the follow applies:

(a) When it is a direct product of “technology” or “software” that is:

  • Subject to the EAR; and
  • Specified in Export Control Classification Number (ECCN) 3D001, 3D991, 3E001, 3E002, 3E003, 3E991, 4D001, 4D993, 4D994, 4E001, 4E992, 4E993, 5D001, 5D991, 5E001, or 5E991 of the Commerce Control List (CCL) in supplement no. 1 to part 774 of the EAR.

(b) When it is produced by any plant or major component of a plant that is:

  • Located outside the United States;
  • Made in either the U.S. or a foreign country; and
  • Is a direct product of U.S.-origin “technology” or “software” subject to the EAR that is specified in ECCN 3D001, 3D991, 3E001, 3E002, 3E003, 3E991, 4D001, 4D993, 4D994, 4E001, 4E992, 4E993, 5D001, 5D991, 5E001, or 5E991 of the CCL.

 

Clarifying Notes.

  1. A major component of a plant located outside the United States means equipment that is essential to the “production” of an item, including testing equipment.

 

  1. A foreign-produced item includes any foreign-produced wafer whether finished or unfinished.

License Requirement. Foreign-produced direct products that are subject to the EAR based on the criteria in (C) above, require a license or license exception when you have “knowledge” that:

  1. The foreign-produced item will be incorporated into, or will be used in the “production” or “development” of any “part,” “component,” or “equipment” produced, purchased, or ordered by any entity with a footnote 1 designation in the license requirement column of the Entity List (Supplement No. 4 to part 744 of the EAR); or

  1. Any entity with a footnote 1 designation in the license requirement column of the Entity List is a party to any transaction involving the foreign-produced item, e.g., as a “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end user.”

License Review Policy.

  • Note to introductory paragraph of footnote 1 to sup. no. 4 to part 744:
  • Sophistication and capabilities of technology in items is a factor in license application review; license applications for foreign-produced items controlled by this footnote that are capable of supporting the “development” or “production” of telecom systems, equipment and devices at only below the 5G level (e.g., 4G, 3G, etc.) will be reviewed on a case-by-case basis.
  • All other license applications
  • will be reviewed using the license review policy in the license requirement column of the Entity List for each footnote 1 designated entity, which is presumption of denial.

 

 

   
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