The Export Administration Regulations apply to US-origin items wherever they are in the world, and to foreign-made items that contain enough US-origin controlled content. The test is the de minimis rule, at 15 CFR 734.4. For most destinations, a foreign-made item is subject to the EAR when US-origin controlled content exceeds 25 percent of the item's value. For Country Group E:1, Cuba, Iran, North Korea, and Syria, the threshold is 10 percent. The percentage is calculated on fair market value, and it counts controlled content only: US-origin content that is not controlled does not count toward the threshold.
The threshold is not the whole rule. Some items have no de minimis threshold at all, which means any amount of US-origin controlled content makes the foreign-made item subject to the EAR. And the International Traffic in Arms Regulations, which cover defense articles, have no de minimis rule: any US-origin defense content in a foreign-made item makes the item subject to ITAR, and the licence requirement follows.
The foreign direct product rule is the rule that catches the products the de minimis test misses. It applies when a foreign-made item is the direct product of US technology or software, or is made in a plant that is itself the direct product of US technology. A semiconductor made abroad in a fab built with US technology can be subject to the EAR even when it contains no US-origin components at all, because the technology, not the parts, is what makes it a US-controlled item.
The rule has been expanded repeatedly, and it now covers the advanced computing and semiconductor equipment that most exporters care about. The test is not the content of the product. It is the provenance of the technology that made it, and the provenance of the plant that made the technology. An exporter who checks only the bill of materials and never checks the technology will miss the rule entirely.
Start with the classification: determine the ECCN of the US-origin content, and whether it is controlled for the destination. Then calculate the de minimis percentage on fair market value, using the controlled content only. Then check the direct product rule: was the product made with US technology, or in a plant that is the direct product of US technology? If any of those tests says the item is subject to the EAR, determine the licence requirement for the destination and the end user, and screen the end user against the denied party lists before the shipment moves.
Document the analysis and keep it with the shipment file. The analysis is the defense if the shipment is questioned, and the analysis has to exist before the shipment, not after it. For the screening that pairs with this, OFAC sanctions screening and the 50 percent rule covers the ownership test, and software export controls explains the licence question for the code that runs the product.
Under 15 CFR 734.4, a foreign-made item is subject to the EAR when US-origin controlled content exceeds 25 percent of its value for most destinations, and 10 percent for Country Group E:1, Cuba, Iran, North Korea, and Syria. The percentage is calculated on fair market value and counts controlled content only.
No. The International Traffic in Arms Regulations have no de minimis threshold. Any US-origin defense content in a foreign-made item makes the item subject to ITAR, and the licence requirement follows.
It makes a foreign-made item subject to the EAR when it is the direct product of US technology or software, or is made in a plant that is itself the direct product of US technology. It can apply even when the item contains no US-origin components at all.
Classify the US-origin content by ECCN, calculate the de minimis percentage on fair market value, check the direct product rule for the technology and the plant, then determine the licence requirement for the destination and screen the end user.