[Federal Register Volume 89, Number 144 (Friday, July 26, 2024)]
[Rules and Regulations]
[Pages 60563-60565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16566]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 734 and 746

[Docket No. 240723-0203]
RIN 0694-AJ75


Iran Foreign Direct Product Rule

AGENCY: Bureau of Industry and Security, Department of Commerce.

ACTION: Final rule.

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SUMMARY: 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.

DATES: This rule is effective July 23, 2024.

FOR FURTHER INFORMATION CONTACT: 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: 
[email protected].

SUPPLEMENTARY INFORMATION:

Background

    Division N of Public Law 118-50, the No Technology for Terror Act 
(the Act), which is available at https://www.congress.gov/bill/118th-congress/house-bill/815/text#, 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 Sec.  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. See Sec. Sec.  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 Sec. Sec.  
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 Sec.  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

[[Page 60564]]

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.g., 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 Sec.  734.9(e) of the EAR.

Section 746.7 (Iran)

    In addition to expanding the EAR's Iran FDP rule set forth in Sec.  
734.9(j), the Act made changes to the license requirements for Iran set 
forth in Sec.  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 Sec.  740.17 of the EAR or 
designated as EAR99.

Savings Clause

    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.

Export Control Reform Act of 2018

    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.

Rulemaking Requirements

    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 et 
seq.) (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 https://www.reginfo.gov/public/do/PRAMain and using the search function to 
enter either the title of the collection or the OMB Control Number.
    3. Pursuant to Section 1762 of ECRA (50 U.S.C. 4821), this action 
is exempt from the Administrative Procedure Act (APA) (5 U.S.C. 553) 
requirements for notice of proposed rulemaking, opportunity for public 
participation and delay in effective date.

List of Subjects

15 CFR Part 734

    Administrative practice and procedure, Exports, Inventions and 
patents, Research, Science and technology

15 CFR Part 746

    Exports, Reporting and recordkeeping requirements.

    Accordingly, parts 734 and 746 of the Export Administration 
Regulations (15 CFR parts 730 to 774) are amended as follows:

PART 734--SCOPE OF THE EXPORT ADMINISTRATION REGULATIONS

0
1. The authority citation for part 734 is revised to read as follows:

    Authority: 50 U.S.C. 4801-4852; 50 U.S.C. 4601 et seq.; 50 
U.S.C. 1701 et seq.; E.O. 12938, 59 FR 59099, 3 CFR, 1994 Comp., p. 
950; E.O. 13020, 61 FR 54079, 3 CFR, 1996 Comp., p. 219; E.O. 13026, 
61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 3 
CFR, 2001 Comp., p. 783; E.O. 13637, 78 FR 16129, 3 CFR, 2014 Comp., 
p. 223; Notice of November 1, 2023, 88 FR 75475 (November 3, 2023); 
Pub. L. 118-50.


0
2. Section 734.9 is amended by revising paragraph (j) to read as 
follows:


Sec.  734.9  Foreign-Direct Product (FDP) Rules.

* * * * *
    (j) Iran FDP rule. A foreign-produced item is subject to the EAR if 
it meets both the product scope in paragraph (j)(1) of this section and 
the destination and end-use scope in paragraph (j)(2) of this section 
or meets both the product scope in paragraph (j)(1) of this section and 
the end-user scope in paragraph (j)(3) of this section. See Sec.  746.7 
of the EAR for license requirements and license application review 
policy applicable to foreign-produced items that are subject to the EAR 
pursuant to this paragraph, as well as certain

[[Page 60565]]

exclusions from those license requirements.
    (1) Product scope of the Iran FDP rule. The product scope applies 
if a foreign-produced item meets the conditions of either paragraph 
(j)(1)(i) or (ii) of this section.
    (i) ``Direct product'' of ``technology'' or ``software.'' A 
foreign-produced item meets the product scope of this paragraph 
(j)(1)(i) if the foreign-produced item meets both of the following 
conditions:
    (A) The foreign-produced item is the ``direct product'' of U.S.-
origin ``technology'' or ``software'' subject to the EAR that is 
specified in any ECCN in product groups D or E in Categories 3 through 
9 of the CCL; and
    (B) The foreign-produced item is identified in supplement no. 7 to 
part 746 of the EAR or is specified in any ECCN on the CCL in 
Categories 3 through 9 of the CCL; or
    (ii) Product of a complete plant or `major component' of a plant 
that is a ``direct product.'' A foreign-produced item meets the product 
scope of this paragraph (j)(1)(ii) if it meets both of the following 
conditions:
    (A) The foreign-produced item is produced by any plant or `major 
component' of a plant that is located outside the United States, when 
the plant or 'major component' of a plant, whether made in the United 
States or a foreign country, itself is a ``direct product'' of U.S.-
origin ``technology'' or ``software'' subject to the EAR that is 
specified in any ECCN in product groups D or E in Categories 3 through 
9 of the CCL; and
    (B) The foreign-produced item is identified in supplement no. 7 to 
part 746 of the EAR or is specified in any ECCN on the CCL in 
Categories 3 through 9 of the CCL.
    (2) Destination and end-use scope of the Iran FDP rule. A foreign-
produced item meets the scope of this paragraph (j)(2) if there is 
``knowledge'' that the foreign-produced item:
    (i) Is destined to Iran; or
    (ii) Will be incorporated into or used in the ``production'' or 
``development'' of any ``part,'' ``component,'' or ``equipment,'' 
including any modified or designed ``components,'' ``parts,'' 
``accessories,'' and ``attachments'' therefor, identified in supplement 
no. 7 to part 746 of the EAR or specified in any ECCN in Categories 3 
through 9 of the CCL, and located in or destined to Iran.
    (3) End-user scope of the Iran FDP rule. A transaction meets the 
end-user scope of this paragraph (j)(3) if the reexporter or transferor 
has ``knowledge'' that the Government of Iran is a party to any 
transaction involving the foreign-produced item, e.g., as a 
``purchaser,'' ``intermediate consignee,'' ``ultimate consignee,'' or 
``end-user.''
* * * * *

PART 746--EMBARGOES AND OTHER SPECIAL CONTROLS

0
3. The authority citation for part 746 is revised to read as follows:

    Authority: 50 U.S.C. 4801-4852; 50 U.S.C. 4601 et seq.; 50 
U.S.C. 1701 et seq.; 22 U.S.C. 287c; Sec 1503, Pub. L. 108-11, 117 
Stat. 559; 22 U.S.C. 2151 note; 22 U.S.C. 6004; 22 U.S.C. 7201 et 
seq.; 22 U.S.C. 7210; E.O. 12854, 58 FR 36587, 3 CFR, 1993 Comp., p. 
614; E.O. 12918, 59 FR 28205, 3 CFR, 1994 Comp., p. 899; E.O. 13222, 
66 FR 44025, 3 CFR, 2001 Comp., p. 783; E.O. 13338, 69 FR 26751, 3 
CFR, 2004 Comp., p 168; Presidential Determination 2003-23, 68 FR 
26459, 3 CFR, 2004 Comp., p. 320; Presidential Determination 2007-7, 
72 FR 1899, 3 CFR, 2006 Comp., p. 325; Notice of May 8, 2024, 89 FR 
40355 (May 9, 2024); Pub. L. 118-50.


0
4. Section 746.7 is amended by revising paragraphs (a)(1)(iii) and (iv) 
to read as follows:


Sec.  746.7  Iran.

* * * * *
    (a) * * *
    (1) * * *
    (iii) Foreign-produced items subject to the EAR under Sec.  
734.9(j) of the EAR (Iran FDP rule). Except as described in paragraph 
(a)(1)(iv) of this section, a license is required to reexport or export 
from abroad to, or transfer (in-country) within Iran any foreign-
produced item subject to the EAR under the Iran FDP rule that is 
located in or destined to Iran. A Department of Commerce license is not 
required for transactions described in this paragraph (a)(1)(iii) that 
would have otherwise met all of the terms and conditions of an OFAC 
general license or other authorization if the transactions had been 
subject to OFAC jurisdiction.
    (iv) Exclusion from license requirements under paragraph 
(a)(1)(iii) of this section. (A) Exports from abroad or reexports from 
the countries described in supplement no. 3 to this part are not 
subject to the license requirements described in paragraph (a)(1)(iii) 
of this section, unless a limit to the exclusion is described in the 
``Scope'' column in supplement no. 3 to this part.
    (B) An item is excluded from license requirements under paragraph 
(a)(1)(iii) of this section if the item is any of the following:
    (1) Food, ``medicine,'' or ``medical devices'' designated as EAR99;
    (2) Necessary and ordinarily incident to communications, designated 
as EAR99 or specified in ECCN 5A992.c or 5D992.c, and classified in 
accordance with Sec.  740.17 of the EAR; and would otherwise meet all 
of the terms and conditions of an OFAC general license or other 
authorization if the transaction were subject to OFAC jurisdiction.
* * * * *

Thea D. Rozman Kendler,
Assistant Secretary for Export Administration.
[FR Doc. 2024-16566 Filed 7-24-24; 11:15 am]
BILLING CODE 3510-33-P