The February 24 sanctions imposed on Russia by the BIS have put in place a vastly expanded definition of the foreign-direct product rule, which will pose significant compliance challenges.
Watch as George Thompson details which products are affected by the new rule and how it will affect exports to Russia.
Transcript of The New Foreign-Direct Product Rule for Third-Country Exports to Russia
Hello there. This is George Thompson. Today, I’d like to cover the new foreign direct product rule for third-country exports to Russia. You’ll recall that the rule is a means of extraterritorial application of U.S. export controls to foreign-made products. The February 24th sanctions imposed on Russia have put in place a vastly expanded definition of the rule, which I believe will pose significant compliance challenges.
For Russia, the rule now covers a foreign-made item that “is not designated EAR99 and 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 Commerce Control List.” Previously, only national security-controlled items to Russia were covered.
The expanded rule also covers items made in foreign plants, or with a “major component” thereof, that is, capital equipment, which 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, that is, software or technology, in Categories 3 through 9. The foreign-made product is covered unless it would be classified as EAR99.
Think about the consequences of this new rule. Foreign manufacturers will now have to determine whether any U.S.-origin technology or software classified in the referenced CCL categories is used in development or production of their products. They also must evaluate whether their plant or major component is a direct product of technology or software in any of the referenced CCL categories.
In the past, the rule implicated only NS-controls, that is, National Security. The control status of software, technology, plant and equipment was not otherwise really relevant under the U.S. regulations. Now, however, foreign manufacturers will have to identify both the origin and the control status of those items to comply with the BIS sanctions on Russia. And if this part of the rule covers them, they also have to determine whether their products are EAR99 or not.
This really is uncharted compliance territory. We have to take it seriously since the U.S. government has announced it will dedicate substantial enforcement capability to ensure that the Russian sanctions are followed.
I’ll keep you posted on developments as they get announced by the Bureau of Industry and Security.
Thompson & Associates, PLLC provides representation in all aspects of customs laws and regulations, specializing in export and import regulations and international business counseling. We can be reached at 202-772-2039 or online.
