New FAQ Clarifies BIS Foreign Direct Product Rule

In a new Frequently Asked Question (FAQ) published Oct. 28, 2021, the Bureau of Industry and Security (BIS) clarified a tangible example of the Foreign-Produced Direct Product (FDP) Rule, whether a company may export a non-U.S. product to a designated entity without confirmation that a license was obtained authorizing the incorporation of the components.

Specifically, the hypothetical product is destined for Huawei or one of its non-U.S. affiliates that are listed on the Entity List under footnote 1. "Company X must have received a license or have confirmation that a license was obtained by the manufacturer of the foreign produced component(s) subject to the EAR under footnote 1," the FAQ noted.

The only Entity List entries tagged with the "footnote 1" designation are Huawei and each of its blocked non-U.S. affiliates. In August 2020, BIS added 38 more Huawei affiliates to its Entity List, broadened controls under the FDP rule and expanded controls on blocked firms (see The Export Practitioner, September 2020, page 4).

Failure by the company to either confirm that the component supplier has obtained an export license or obtain an export license itself "implicates General Prohibition 10 [which] prohibits proceeding with transactions with knowledge that a violation has occurred or is about to occur," the agency explained.

"Specifically, absent an applicable license, Company X or its subcontractors 'may not sell, transfer, export, reexport, finance, order, buy, remove, conceal, store, use, loan, dispose of, transport, forward, or otherwise service, in whole or in part' the components for incorporation into or use in the 'production' or 'development' of any 'part,' 'component,' or 'equipment' produced, purchased, or ordered by a footnote 1 entity or where a footnote 1 entity is a party to the transaction without authorization," the FAQ noted.

Volume/Number November 2021 - Vol 35, Num 11

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