The US Commerce Department’s Bureau of Industry and Security (“BIS”) has issued a final rule (“Final Rule”), effective July 23, 2024, expanding the jurisdictional scope of the Export Administration Regulations’ (“EAR”) Iran Foreign Direct Product Rule (“Iran FDP Rule”) over more foreign-made items and imposing a licensing requirement for the in-country transfer within Iran of items subject to the EAR under the Iran FDP Rule. This expansion of controls was made to implement the requirements of the “No Technology for Terror Act” (“Act”), which was passed by the US Congress on April 24, 2024, and is part of US foreign policy initiatives to prevent Iran from procuring technology and components that may be used for military systems, including unmanned aerial vehicles, that threaten US forces and allies.
Prior to July 23, 2024, the Iran FDP Rule at 15 C.F.R. 734.9(j) subjected the following foreign-produced items (“FPI”) to the jurisdiction of the EAR:
- The direct product of US-origin “software” or “technology” specified in Supplement No. 7 to part 746 of the EAR or classified under an Export Control Classification Number (“ECCN”) in Categories 3 through 5 and 7 of the Commerce Control List (“CCL”), or
- Items produced by a plant or major component of a plant that is itself the direct product of such CCL-controlled “software” or “technology.”
The Final Rule revises the Iran FDP Rule in four respects:
- There are now two circumstances in which FDPs are subject to the EAR under the Iran FDP Rule: (1) items meeting both the product scope in paragraph 15 C.F.R. 734.9 (j)(1) and the destination and end-use scope of paragraph 15 C.F.R. 734.9(j)(2); or (2) items meeting both the product scope and a new end-user scope of paragraph (j)(3).
- The product scope is expanded from those ECCNs in Categories 3 through 5 and 7 of the CCL to include now all ECCNs in Categories 3 through 9.
- Paragraph (j)(2) (the destination and end-use scope) is revised structurally to make it easier to apply correctly and clarify that paragraph (j)(2) is met if there is “knowledge” that an FDP meets either the destination scope in (j)(2)(i) or the combined end-use and destination scope in (j)(2)(ii) (i.e., is either (i) destined to Iran or (ii) will be incorporated into or used in the “production” or “development” of parts, components or equipment (including modified items) identified in Supplement 7 to Part 746 or any ECCN in Categories 3 through 9 and located in or destined to Iran.)
- A new end-user scope is added in paragraph (j)(3) that applies if there is “knowledge” that the Government of Iran is a “party” (e.g., purchaser, intermediate consignee, ultimate consignee, end-user) to any transaction involving the FDP.
The Final Rule also revises the license requirements for Iran (15 C.F.R. 746.7(a)(1)(iii)) by:
- Imposing a license requirement for the in-country transfer of items that are captured by the revised Iran FDP Rule within Iran; and
- Adding exclusions for food, medicine, and medical devices classified as EAR99 (as defined under the EAR) and certain items ordinarily incident and necessary to communications classified as ECCN 5A992.c or 5D992.c in accordance with EAR Section 740.17 or classified as EAR99.
The Final Rule includes a savings clause for items that (1) were on dock for loading, on lighter, laden aboard an exporting carrier, or en route aboard a carrier to a port of export on or before July 26, 2024, and (2) are exported, reexported, or transferred (in-country) before midnight on August 26, 2024. Please contact any member of our Outbound Trade Compliance team if you have any questions or would like more information.
