BIS Adds New De Minimis EAR Exclusions for Foreign Hardware Bundled With U.S. Software, Etc.
The Bureau of Industry and Security has issued an interim final rule, effective October 1, 2008, which revises the Export Administration Regulations (EAR) to add certain "de minimis" exclusions for foreign produced hardware that is bundled1 with U.S.-origin software. Comments are due by December 1, 2008.
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Prior to the publication of this rule, the de minimis rules did not allow U.S.-origin software to be counted as a part of the content value of the foreign commodity it was bundled with. Rather, calculations of U.S. content value were required to be performed separately for commodities, software, and technology.
According to BIS, this change is in response to the way that systems and software are now being developed and delivered to customers; and because software is such an integral part of the system in which the hardware and software work and is generally customized to work with a specific hardware product.
BIS Adds Bundled Software to 10% and 25% De Minimis Exclusion Rules
BIS' interim final rule amends 15 CFR 734.4 to add bundled software to the de minimis exclusion rules in the EAR, as follows:
10% de minimis exclusion for any country. Reexports of a foreign-made commodity incorporating2 controlled U.S.-origin commodities or "bundled" with U.S.-origin software, valued at 10% or less of the total value of the foreign-made commodity are not subject to the EAR when made to any country in the world (with certain exceptions).
25% de minimis exclusion for all but Country Group E:1. With certain exceptions, reexports of a foreign-made commodity incorporating controlled U.S.-origin commodities or "bundled" with U.S.-origin software valued at 25% or less of the total value of the foreign-made commodity are not subject to the EAR when made to countries other than those listed in Country Group E:1 of Supplement No. 1 to 15 CFR Part 740 (terrorist supporting countries)3.
See Supplement No. 2 to 15 CFR Part 734 for guidance on calculating de minimis values.
(BIS' interim final rule also amends 15 CFR 734.4 to clarify the scope of the de minimis rules by adding the title "10% De Minimis Rule'' to 15 CFR 734.4(c), and the title "25% De Minimis Rule" to 15 CFR 734.4(d).)
Exclusions Do Not Apply to Certain Non-CCL, U.S.-Origin Software, Etc.
These de minimis exclusions only apply to software that is listed on the Commerce Control List (CCL) and has a reason for control of anti-terrorism (AT) only or software that is designated as EAR99 (subject to the EAR, but not listed on the CCL). For all other software, an independent assessment of whether the software by itself is subject to the EAR must be performed.
U.S.-origin software is not eligible for the de minimis exclusions and is subject to the EAR when exported or reexported separately from (i.e., not bundled or incorporated with) the foreign-made item.
BIS' interim final rule also clarifies that foreign produced commodities that incorporate controlled U.S.-origin commodities, foreign produced commodities that are 'bundled' with controlled U.S.-origin software, foreign produced software that is commingled with controlled U.S.-origin software, and foreign produced technology that is commingled with controlled U.S.-origin technology are subject to the EAR if the incorporated controlled U.S.-origin content exceeds the de minimis levels.
One-Time Reporting Requirement for Technology (No Longer for Software)
This rule also amends 15 CFR 734.4(c)(3) and 734.4(d)(3) to clarify that there is a one-time reporting requirement that must be fulfilled before the de minimis rules are relied upon for technology (detailed in Supplement No. 2 to 15 CFR Part 734).
This reporting requirement previously existed for software and technology, but now only exists for technology with the publication of this rule.
(See interim final rule for complete regulations, including a revision of the "Steps for Using the EAR" and General Prohibition Two with regard to the de minimis rules in order to reduce redundancies in the EAR and harmonize the provisions with revisions made by this rule.)
1For the purposes of this interim final rule, "bundled" means software that is reexported together with the item and is configured for the item, but is not necessarily physically integrated into the item. (For instance, printer driver software is generally not incorporated into a printer but is customarily delivered with the printer so that it may be loaded onto the computer to which it will be connected.)
2U.S.-origin controlled content is considered "'incorporated" for de minimis purposes if the U.S.-origin controlled item is: essential to the functioning of the foreign equipment; customarily included in sales of the foreign equipment; and reexported with the foreign produced item. U.S.-origin software may be 'bundled' with foreign produced commodities; see 15 CFR 734.4. For purposes of determining de minimis levels, technology and source code used to design or produce foreign-made commodities or software are not considered to be incorporated into such foreign-made commodities or software.
3The countries currently listed in Country Group E:1 are Cuba, Iran, North Korea, Sudan, and Syria.
BIS contact - Sharron Cook (202) 482-2440
BIS interim final rule (D/N 071204798-81254-01, FR Pub 10/01/08) available at http://edocket.access.gpo.gov/2008/pdf/E8-23142.pdf