The de minimis Rule In Practice

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ACI’s 4th Industry Forum on U.S. Export and Reexport Compliance For Canadian Operations

Matthew J. LancasterBusiness AttorneyEsri

The de minimis Rule In Practice -

January 27 – 28, 2015

Tweeting about this conference?

How to Conduct and Submit de minimis Calculationsfor 500 and 600 Series, and Other CCL Items

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Acronomycon• ACI – American Conference Institute• ADOD – Australia Department of Defence• APP – Adjusted Peak Performance• AT – roughly, ‘Anti-Terrorism’ – See EAR Parts 742.8-742.10, 742.19, and Supplement No. 2 to Part 742• BIS – Department of Commerce, Bureau of Industry and Security• CA – California• CCL – Commerce Control List• CFR – Code of Federal Regulations• CIV – License Exception CIV (roughly, ‘CIVil end-user’) – See EAR Part 740.5• D.C. – District of Columbia• DDTC – Department of State, Directorate of Defense Trade Controls• DOD – Department of Defense• EAR – Export Administration Regulations• ECCN – Export Control Classification Number• ENC – License Exception ENC (roughly, ‘ENCryption’) – See EAR Part 740.17• Esri – Environmental Systems Research Institute• ext. – extension• FR – Federal Register• GBS – License Exception GBS (roughly, ‘Group B Shipments’) – See EAR Part 740.4 • IEEPA – International Emergency Economic Powers Act• ITAR – International Traffic in Arms Regulations• J. – John• LVS – License Exception LVS (roughly, “Limited Value Shipments’) – See EAR Part 740.3• NLR – No License Required• No. – Number• NS – roughly ‘National Security’ – See EAR Part 742.4• N.W. – Northwest• OEM – Original Equipment Manufacturer• OFAC – Department of Treasury, Office of Foreign Assets Control• PRC – People’s Republic of China• QRS – Quartz Rate Sensor• Supp. No. – Supplement Number• TSU – License Exception TSU (roughly, ‘Technology and Software Unrestricted’) – See EAR Part 740.13• U.S. – United States of America• US – United States of America• USC – United States Code• USA – United States of America• USML – United States Munitions List• WT – Weighted TeraFLOPS

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The de minimis Rule In Practice

• Background•When an Item is Considered to be a Non-US-

Manufactured ITAR Item• Conducting Calculations for Regular CCL, 500

and 600 Series• Filing de minimis Calculations with BIS and the

Response• Resolving de minimis Issues for Hardware and

Technology Calculations• How to Handle Aggregate Data

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Background

• “de minimis” is New Latin (first known use ~1948) roughly translating to ‘concerning trifles.’

• “de minimis” is defined as ‘lacking significance or importance’ or ‘so minor as to merit disregard.’

• The EAR describes de minimis at Part 734, especially 734.4.• The EAR is the US Export Administration Regulations (15 CFR

§§730-774), which has been extended by successive Presidential Notices under the International Emergency Economic Powers Act (50 USC §§1701-1706), or IEEPA, since the Export Administration Act of 1979 expired on August 20, 2001.

• I don’t use “foreign”; I use “non-US”.• I use “item” to mean hardware, software and/or technology.

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Background

• In general, US de minimis rules, in the context of export, stand for the proposition that if an item made outside the US contains less than a certain percentage of US-origin controlled content, then the US-origin content is released from jurisdiction of the EAR.• When US-origin content is released from the jurisdiction

of the EAR, it is no longer subject to the cradle-to-grave track-and-trace requirements of the EAR.• WARNING – If the US-origin content is extracted from

the non-US-made item, it no longer subject to de minimis and again becomes subject to jurisdiction under the EAR.

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Background

•De minimis levels vary…

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Background0% - Depending

734.4(a)(1) - Non-US-made computer with an Adjusted Peak Performance (APP) exceeding 8.0 Weighted TeraFLOPS (WT) containing US-origin controlled semiconductors (other than memory circuits) classified under ECCN 3A001 to Afghanistan, Algeria, Andorra, Angola, Armenia, Azerbaijan, Bahrain, Belarus, Bosnia & Herzegovina, Burma, Cambodia, China (People's Republic of), Comoros, Djibouti, Egypt, Georgia, India, Iraq, Israel, Jordan, Kazakhstan Kosovo, Kuwait, Kyrgyzstan, Laos, Lebanon, Libya, Macau, Macedonia (The Former Yugoslav Republic of), Mauritania, Moldova, Mongolia, Montenegro, Morocco, Oman, Pakistan, Qatar, Russia, Saudi Arabia, Serbia, Tajikistan, Tunisia, Turkmenistan, Ukraine, United Arab Emirates, Uzbekistan, Vanuatu, Vietnam, or Yemen.734.4(a)(1) - Non-US-made computer with an Adjusted Peak Performance (APP) of 0.002 WT containing US-origin controlled semiconductors (other than memory circuits) classified under ECCN 3A001 or high speed interconnect devices (ECCN 4A994.j) to Cuba, Iran, North Korea, Sudan, or Syria.

734.4(a)(2) - Non-US-produced encryption technology that incorporates US-origin encryption technology controlled by ECCN 5E002 is subject to the EAR regardless of the amount of US-origin content.734.4(a)(3)(i) - Commercial primary or standby instrument systems of the type described in ECCN 7A994 on the Commerce Control List (Supplement No. 1 to part 774 the EAR) when the systems integrate QRS11-00100-100/101 Micromachined Angular Rate Sensors.734.4(a)(3)(ii) - Commercial automatic flight control systems when the systems integrate QRS11-00050-443/569 Micromachined Angular Rate Sensors.734.4(a)(3)(iii) - Aircraft of the type described in ECCN 9A991 when such aircraft incorporate a primary or standby instrument system integrating a QRS11-00100-100/101 sensor or an automatic flight control system integrating a QRS11-00050-443/569 sensor.

734.4(a)(4) - US-origin technology controlled by ECCN 9E003.a.1 through a.8, .h, .i, and .j. when redrawn, used, consulted, or otherwise commingled abroad.734.4(a)(5) - Non-US-made military commodities that incorporate cameras classified under ECCN 6A003.b.4.b if such cameras would be subject to the EAR as separate items and if the non-US-made military commodity is not subject to the International Traffic in Arms Regulations (22 CFR 120-130).734.4(a)(6)(i) - Non-US-made items that incorporate US-origin 9x515 or “600 series” items enumerated or otherwise described in paragraphs .a through .x of a 9x515 or “600 series” ECCN when destined for Afghanistan, Belarus, Burma, Central African Republic, China (PRC), Cote d’Ivoire, Cuba, Cyprus, Democratic Republic of Congo, Eritrea, Fiji, Haiti, Iran, Iraq, Lebanon, Liberia, Libya, Noth Korea, Somalia, Sri Lanka, Sudan, Syria, Venezuela, Vietnam, or Zimbabwe.734.4(a)(6)(ii) - Non-US-made items that incorporate US-origin 9x515 or “600 series” .y items when destined for China (PRC), Cuba, Iran, North Korea, Sudan, or Syria.

734.4(a)(7) - Under certain rules issued by the Office of Foreign Assets Control (OFAC), certain exports from abroad by US-owned or controlled entities may be prohibited notwithstanding the de minimis provisions of the EAR.734.4(a)(7) - De minimis rules do not relieve US persons of the obligation to refrain from supporting the proliferation of weapons of mass-destruction and missiles.734.4(b)(1) - US-origin commodities or software, if controlled under ECCNs 5A002.a.1, .a.2, .a.5, .a.6, .a.9, .b, or 5D002, not authorized for License Exception TSU, or License Excpetion ENC pursuant to § 740.17(b)(1)-(4).734.4(b)(1)(iii) - US-origin commodities or software, if controlled under ECCNs 5A002.a.1, .a.2, .a.5, .a.6, .a.9, .b, or 5D002, authorized for License Exception ENC by BIS after classification pursuant to § 740.17(b)(2) to Cuba, Iran, North Korea, Sudan, or Syria.

De Minimis Levels Vary...

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Background10% - Worldwide

734.4(c)(1) - Reexports of a non-US-made commodity incorporating controlled US-origin commodities or ‘bundled’ with US-origin software valued at 10% or less of the total value of the non-US-made commodity, only if the bundled US-origin software is listed on the Commerce Control List (CCL) and has a reason for control of anti-terrorism (AT) only or bundled US-origin software that is designated as EAR99. For all other software, an independent assessment of whether the software by itself is subject to the EAR must be performed. (See Note 3 to § 734.4(c)(1)) 734.4(c)(2) - Reexports of non-US-made software incorporating controlled US-origin software valued at 10% or less of the total value of the non-US-made software734.4(c)(3) - Reexports of non-US technology commingled with or drawn from controlled US-origin technology valued at 10% or less of the total value of the non-US technology. Before you may rely upon the de minimis exclusion for non-US-made technology commingled with controlled US-origin technology, you must file a one-time report. (See Supplement No. 2 to Part 734 for submission requirements)

25% - Worldwide,Excluding Cuba, Iran, North Korea,

Sudan, and Syria734.4(d)(1) - Reexports of a non-US-made commodity incorporating controlled US-origin commodities or ‘bundled’ with US-origin software valued at 25% or less of the total value of the non-US-made commodity, only if the bundled US-origin software is listed on the CCL and has a reason for control of AT only or bundled US-origin software that is designated as EAR99. For all other software, an independent assessment of whether the software by itself is subject to the EAR must be performed. (See Note 3 to § 734.4(d)(1)) 734.4(d)(2) - Reexports of non-US-made software incorporating controlled US-origin software valued at 25% or less of the total value of the non-US-made software734.4(d)(3) - Reexports of non-US technology commingled with or drawn from controlled US-origin technology valued at 25% or less of the total value of the non-US technology. Before you may rely upon the de minimis exclusion for non-US-made technology commingled with controlled US-origin technology, you must file a one-time report. (See Supplement No. 2 to Part 734 for submission requirements)

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When an Item is Considered to be a Non-US-Manufactured ITAR Item

0% - Depending734.4(a)(5) - Non-US-made military commodities that incorporate cameras classified under ECCN 6A003.b.4.b if such cameras would be subject to the EAR as separate items and if the non-US-made military commodity is not subject to the International Traffic in Arms Regulations (22 CFR 120-130).

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When an Item is Considered to be a Non-US-Manufactured ITAR Item• If a US-origin ITAR-controlled item is incorporated or installed into,

or commingled or bundled with a non-US-manufactured item, the presence of the US-origin ITAR-controlled item taints the non-US-manufactured item with ITAR.

• If a non-US-manufactured item is derived from US-origin ITAR-controlled technology, the resulting non-US-manufactured item is also tainted with ITAR and should be treated under the original licensing jurisdiction of DDTC and the ITAR for reexport or retransfer.

• BEWARE of the US person employee outside the US.• There is no de minimis for US-origin ITAR-controlled items. • Also, if a non-US-manufactured item is described on the USML, and

enters the US, the non-US-manufactured item becomes subject to the licensing jurisdiction of DDTC and the ITAR for export from the US, but, usually, is not treated as a US-origin ITAR-controlled item after exiting the US.

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Conducting Calculations for Regular CCL, 500 and 600 Series• The official guidance for conducting de minimis

calculations is in Supplement No. 2 to EAR Part 734.• Some steps for all de minimis calculations are the

same:• Identify incorporated US-origin controlled content:

• What is the ECCN of each US-origin item incorporated into the non-US-made item?• Which, if any, US-origin items would require a license from BIS if they were exported or

reexported (in the form in which received) to the non-US-made item’s country of destination?• Consider EAR Part 746 – Embargoes and Other Special Controls.• Ignore EAR Part 744 – Control Policy: End-user and End-use Based.• Exclude from de minimis calculations US-origin items that could be exported or reexported

to the country of destination:• without a license (designated as “NLR”), or;• Under License Exception GBS.

• US-origin technology and source code used to design or produce non-US-made hardware or software are not considered to be incorporated into the non-US-made hardware or software.

• De minimis, by itself, cannot justify diversion to a previously stated end-user or end-use.

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Conducting Calculations for Regular CCL, 500 and 600 Series• Incorporated, for purposes of calculating de

minimis, means that the US-origin controlled item is:• essential to the functioning of the non-US-made item;• customarily included in sales of the non-US-made item, and;• reexported with the non-US-produced item.

• Additionally, US-origin software that is listed on the CCL and has a reason for control of AT only or that is designated as EAR99, may be ‘bundled’ with non-US-produced items, and, in such cases, is considered incorporated.

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Conducting Calculations for Regular CCL, 500 and 600 Series• To obtain the ECCN for each US-origin item:• Contact the OEM.• Insert terms into agreements making the failure of the OEM to provide complete US

export classification information (to the subparagraph) grounds for termination for default (maybe with liquidated damages?).

• Find a way to make the OEM responsible for providing the information.• If the US OEM does not have the US export classification information, has the US

OEM already violated US law?• If all else fails with the OEM, contact BIS or outside counsel.• It is highly risky to self-classify someone else’s item on your own.

• Once the ECCN is obtained, determine the reason(s) for control, for example:• If the US-origin content classifies for export from

the US under ECCN 3B001.a.1:

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Conducting Calculations for Regular CCL, 500 and 600 Series•And, once the ECCN is obtained,

ensure the US-origin item is not precluded from inclusion in the de minimis calculation altogether:

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0% - Depending

Conducting Calculations for Regular CCL, 500 and 600 Series

734.4(a)(1) - Non-US-made computer with an Adjusted Peak Performance (APP) exceeding 8.0 Weighted TeraFLOPS (WT) containing US-origin controlled semiconductors (other than memory circuits) classified under ECCN 3A001 to Afghanistan, Algeria, Andorra, Angola, Armenia, Azerbaijan, Bahrain, Belarus, Bosnia & Herzegovina, Burma, Cambodia, China (People's Republic of), Comoros, Djibouti, Egypt, Georgia, India, Iraq, Israel, Jordan, Kazakhstan Kosovo, Kuwait, Kyrgyzstan, Laos, Lebanon, Libya, Macau, Macedonia (The Former Yugoslav Republic of), Mauritania, Moldova, Mongolia, Montenegro, Morocco, Oman, Pakistan, Qatar, Russia, Saudi Arabia, Serbia, Tajikistan, Tunisia, Turkmenistan, Ukraine, United Arab Emirates, Uzbekistan, Vanuatu, Vietnam, or Yemen.734.4(a)(1) - Non-US-made computer with an Adjusted Peak Performance (APP) of 0.002 WT containing US-origin controlled semiconductors (other than memory circuits) classified under ECCN 3A001 or high speed interconnect devices (ECCN 4A994.j) to Cuba, Iran, North Korea, Sudan, or Syria.

734.4(a)(2) - Non-US-produced encryption technology that incorporates US-origin encryption technology controlled by ECCN 5E002 is subject to the EAR regardless of the amount of US-origin content.734.4(a)(3)(i) - Commercial primary or standby instrument systems of the type described in ECCN 7A994 on the Commerce Control List (Supplement No. 1 to part 774 the EAR) when the systems integrate QRS11-00100-100/101 Micromachined Angular Rate Sensors.734.4(a)(3)(ii) - Commercial automatic flight control systems when the systems integrate QRS11-00050-443/569 Micromachined Angular Rate Sensors.734.4(a)(3)(iii) - Aircraft of the type described in ECCN 9A991 when such aircraft incorporate a primary or standby instrument system integrating a QRS11-00100-100/101 sensor or an automatic flight control system integrating a QRS11-00050-443/569 sensor.

734.4(a)(4) - US-origin technology controlled by ECCN 9E003.a.1 through a.8, .h, .i, and .j. when redrawn, used, consulted, or otherwise commingled abroad.734.4(a)(5) - Non-US-made military commodities that incorporate cameras classified under ECCN 6A003.b.4.b if such cameras would be subject to the EAR as separate items and if the non-US-made military commodity is not subject to the International Traffic in Arms Regulations (22 CFR 120-130).734.4(a)(6)(i) - Non-US-made items that incorporate US-origin 9x515 or “600 series” items enumerated or otherwise described in paragraphs .a through .x of a 9x515 or “600 series” ECCN when destined for Afghanistan, Belarus, Burma, Central African Republic, China (PRC), Cote d’Ivoire, Cuba, Cyprus, Democratic Republic of Congo, Eritrea, Fiji, Haiti, Iran, Iraq, Lebanon, Liberia, Libya, Noth Korea, Somalia, Sri Lanka, Sudan, Syria, Venezuela, Vietnam, or Zimbabwe.734.4(a)(6)(ii) - Non-US-made items that incorporate US-origin 9x515 or “600 series” .y items when destined for China (PRC), Cuba, Iran, North Korea, Sudan, or Syria.

734.4(a)(7) - Under certain rules issued by the Office of Foreign Assets Control (OFAC), certain exports from abroad by US-owned or controlled entities may be prohibited notwithstanding the de minimis provisions of the EAR.734.4(a)(7) - De minimis rules do not relieve US persons of the obligation to refrain from supporting the proliferation of weapons of mass-destruction and missiles.734.4(b)(1) - US-origin commodities or software, if controlled under ECCNs 5A002.a.1, .a.2, .a.5, .a.6, .a.9, .b, or 5D002, not authorized for License Exception TSU, or License Excpetion ENC pursuant to § 740.17(b)(1)-(4).734.4(b)(1)(iii) - US-origin commodities or software, if controlled under ECCNs 5A002.a.1, .a.2, .a.5, .a.6, .a.9, .b, or 5D002, authorized for License Exception ENC by BIS after classification pursuant to § 740.17(b)(2) to Cuba, Iran, North Korea, Sudan, or Syria.

De Minimis Levels Vary...

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Conducting Calculations for Regular CCL, 500 and 600 Series• Then compare the reasons for control

to the Commerce Country Chart at EAR Supplement No. 1 to Part 738 against the country of destination, for example:• If the non-US-made product

incorporating the US-origin 3B001.a.1 item is destined for Aruba:

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Conducting Calculations for Regular CCL, 500 and 600 Series• It appears that the US-origin 3B001.a.1 item

is US-origin controlled content for the purposes of the de minimis calculation with respect to an Aruba destination.• Note that the same would not be the case

with respect to an Australia destination (unless the US exporter failed to refrain from supporting the proliferation of weapons of mass-destruction or missiles at the time of export from the US):

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Conducting Calculations for Regular CCL, 500 and 600 Series• Note that the same would not be the case with respect to an

Australia destination (unless the US exporter failed to refrain from supporting the proliferation of weapons of mass-destruction or missiles at the time of export from the US): • And unless an EAR Part 746 Embargo or Other Special

Control comes into play. The EAR Part 746 Embargoes and Other Special Controls pertain, generally, to Cuba, Iran, Syria, and Russia, and Central African Republic, Cote d'Ivoire (Ivory Coast), Democratic Republic of the Congo, Eritrea, Iraq, Lebanon, Liberia, Libya, North Korea, Somalia, and Sudan.• In the case of Australia, it seems unlikely an EAR Part 746

Embargo or Other Special Control will apply.

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Conducting Calculations for Regular CCL, 500 and 600 Series• It appears that the US-origin 3B001.a.1 item is

US-origin controlled content for the purposes of the de minimis calculation with respect to an Aruba destination.• NLR does not apply.• It also seems, in the case of Aruba, unlikely that

an EAR Part 746 Embargo or Other Special Control will apply.• But we must also examine whether License

Exception GBS is available and applies to an Aruba destination:

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Conducting Calculations for Regular CCL, 500 and 600 Series• According to the CCL listing for ECCN 3B001, License

Exception GBS is available for US-origin 3B001.a.1 items.• The scope of License Exception GBS is described at

EAR Part 740.4 – Shipments to Country Group B Countries. It tells us:License Exception GBS authorizes exports and reexports to Country Group B (see Supplement No. 1 to part 740) of those commodities where the Commerce Country Chart (Supplement No. 1 to part 738 of the EAR) indicates a license requirement to the ultimate destination for national security reasons only and identified by “GBS - Yes” on the CCL. See §743.1 of the EAR for reporting requirements for exports of certain commodities under License Exception GBS.

• Turning to EAR Supplement No. 1 to Part 740, we see that Aruba is a Country Group B country:

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Conducting Calculations for Regular CCL, 500 and 600 Series• Also review EAR Part 743.1 for potential reporting

requirements, which, in turn, directs you to EAR Supplement No. 6 to Part 774 – The Sensitive List.• The Sensitive List is a list of items controlled under the

Wassenaar Arrangement.• BIS collects the reports in order to honor US reporting

obligations to other Wassenaar Arrangement member countries.• A BIS reexport license could take the place of a report. • For the US-origin 3B001.a.1 item, there are no

additional reporting requirements:

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Conducting Calculations for Regular CCL, 500 and 600 Series• It appears that the US-origin 3B001.a.1 item,

as incorporated into the non-US-made item, is eligible for inclusion in the de minimis calculation.• Let’s change the hypothetical to a US-origin

item classified for export from the US under ECCN 3B001.a.3 (which is excluded from qualification for use of License Exception GBS) so that we can proceed through the de minimis calculation.

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Conducting Calculations for Regular CCL, 500 and 600 Series• The de minimis calculation is described in EAR

Supplement No. 2 to Part 734:• Value of US-origin controlled content = the fair market price of the US-origin item in the

market where the non-US product is being made• In most cases, this value will be the same as the actual cost of the US-origin item to the non-US

manufacturer, except:• when the non-US manufacturer and the US supplier are affiliated and have special arrangements that

result in below-market pricing, the value of the US-origin item should reflect fair market prices that would normally be charged to unaffiliated customers in the same non-US market. If fair market value cannot be determined based upon actual arms-length transaction data for the US-origin item, then you must determine another reliable valuation method to calculate or derive the fair market value, which may include either:• the use of comparable market prices, or;• costs of production and distribution.

• The EAR does not require calculations based on any one accounting system or US accounting standards, so you may calculate fair market price using another formula.

• However, the method you use must be consistent with your business practices, meaning that it must be supported by both records and consistent practices, and you may not depreciate reported fair market values or otherwise reduce fair market values through related accounting conventions.

• Values may be historic or projected, but projected values may only be relied upon to the extent that such values remain consistent with your documentation.

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Supplement No. 2 to Part 734:• Value of non-US-made product = the fair market price of the non-US item in the market

where the non-US item is sold• In most cases, this value will be the same as the actual cost of the non-US item to a buyer,

except:• when the non-US manufacturer and the buyer of the non-US item are affiliated and have special

arrangements that result in below-market pricing, the value of the non-US item should reflect fair market prices that would normally be charged to unaffiliated customers in the same non-US market. If fair market value cannot be determined based upon actual arms-length transaction data for the non-US item, then you must determine another reliable valuation method to calculate or derive the fair market value, which may include either:• the use of comparable market prices, or;• costs of production and distribution.

• The EAR does not require calculations based on any one accounting system or US accounting standards, so you may calculate fair market price using another formula.

• However, the method you use must be consistent with your business practices, meaning that it must be supported by both records and consistent practices, and you may not depreciate reported fair market values or otherwise reduce fair market values through related accounting conventions.

• Values may be historic or projected, but projected values may only be relied upon to the extent that such values remain consistent with your documentation.

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Supplement No. 2 to Part 734:• After determining:

• the value of all of the US-origin controlled items, and;• the value of the non-US-made product

• Add up the total value of all US-origin controlled items, divide that number by the value of the non-US made product, and multiply the result by 100.• If the number is 10 or less, the non-US-made product is released from US cradle-to-grave

track-and-trace requirements for all destinations, worldwide, insofar as the US-origin content is not later separately extracted from the non-US-made product.

• If the number is 25 or less, the non-US-made product is released from US cradle-to-grave track-and-trace requirements for all destinations, worldwide, except Cuba, Iran, North Korea, Sudan, and Syria, insofar as the US-origin content is not later separately extracted from the non-US-made product.

• Except for non-US technology incorporating US-origin controlled content technology, which, if it appears qualifies for de minimis treatment, additionally requires:• filing one-time report with BIS, and;• a minimum 30-day waiting period prior to any reexport or retransfer. • See EAR Supplement No. 2 to Part 734 at paragraph (b).

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Conducting Calculations for Regular CCL, 500 and 600 Series•What do you do if the number is 26?

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Conducting Calculations for Regular CCL, 500 and 600 Series•What do you do if the number is 14

and the destination is Iran?

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Conducting Calculations for Regular CCL, 500 and 600 Series•What do you do if the number is 14,

the destination is Australia for ADOD, but you have a copy of an end-use statement from your Panama supplier telling the US OEM that the end-user was the US DOD in the US?• (See EAR Part 764.1(g)(2))

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includes 9 parts Regular CCL and 3 parts 600.a Series and the destination is Vietnam?

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includes 9 parts Regular CCL and 3 parts 600.x Series and the destination is China (PRC)?

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includes almost 2 parts Regular CCL and the eensiest smidgeon (.0001) of ITAR and the destination is Tim Hortons in Oakville, Ontario?

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Conducting Calculations for Regular CCL, 500 and 600 Series•What do you do if the item is non-US-

made technology incorporating de minimis-eligible US-origin controlled technology?

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Filing de minimis Calculations with BIS and the Response• EAR Supplement No. 2 to Part 734 also describes the process

for filing a de minimis calculation with BIS.• The only time a one-time report is required for de minimis is

with respect to technology (although BIS does not state such a report cannot be filed for hardware or software, too).

• The report must contain:• a description of the scope and nature of the non-US-made technology;• a description of its fair market value, and;• the rationale and basis for the valuation of the non-US-made technology.• You must include, for the person in your company whom BIS may contact concerning your report, his or

her:• Name;• Title;• Address;• Telephone number;• Email address, and;• Facsimile (fax) number.

• Also, if the value of the US-origin controlled content exceeds 10%, the report must indicate the country of destination for the non-US-made technology.

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Filing de minimis Calculations with BIS and the Response• Send the report, via:• Email to [email protected];• Fax to (202) 482-3355, or;• Mail or Hand-delivery/Courier to:

U.S. Department of CommerceBureau of Industry and SecurityRegulatory Policy Division14th and Pennsylvania Avenue, N.W.Room 2099BWashington, D.C. 20230

mailto:[email protected]

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Filing de minimis Calculations with BIS and the Response• If BIS does not contact your designated person within

thirty (30) days after filing the report with BIS, you may rely upon the calculations described in the report to support reexport and retransfer activities unless and until BIS contacts you and instructs you otherwise.• If BIS contacts anyone in your company about the

report, you may not reexport or retransfer the technology until authorized by BIS via:• reexport/retransfer license, or;• indication from BIS that the de minimis calculations were performed correctly.

• The best way to avoid long waits is to prepare BIS for receipt of your report.

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Resolving de minimis Issues for Hardware and Technology Calculations• The official guidance for conducting de minimis

calculations is in Supplement No. 2 to EAR Part 734.• Some steps for all de minimis calculations are the

same:• Identify incorporated US-origin controlled content:

• What is the ECCN of each US-origin item incorporated into the non-US-made item?• Which, if any, US-origin items would require a license from BIS if they were exported or

reexported (in the form in which received) to the non-US-made item’s country of destination?• Consider EAR Part 746 – Embargoes and Other Special Controls.• Ignore EAR Part 744 – Control Policy: End-user and End-use Based.• Exclude from de minimis calculations US-origin items that could be exported or reexported

to the country of destination:• without a license (designated as “NLR”), or;• Under License Exception GBS.

• US-origin technology and source code used to design or produce non-US-made hardware or software are not considered to be incorporated into the non-US-made hardware or software.

• De minimis, by itself, cannot justify diversion to a previously stated end-user or end-use.

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Resolving de minimis Issues for Hardware and Technology Calculations

• If the hardware and technology are segregable:• Submit a one-time report to BIS for the technology, and wait,

and;• Run the hardware through your internal de minimis calculation

process.

• If the hardware and technology are inextricably linked, submit the entire de minimis calculation in a one-time report to BIS and wait.

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How to Handle Aggregate Data• From 79 FR 0034:

“One commenting party observed that, with regard to technical data directly related to a defense article controlled on the USML and unclassified technical data directly related to parts and components of the defense article that are controlled on the CCL, insofar as the parts and components are directly related to the defense article, certain of the technical data directly related to the defense article by virtue of being directly related to the parts and components of the defense article would not be captured by the technical data control paragraph, depending on whether the parts and components are part of the defense article at the point of export, or are proposed for export apart from the defense article. The commenting party discerns an export jurisdictional conflict. The Department clarifies that unclassified technical data directly related to the parts and components that are controlled under the CCL would not be controlled under the ITAR. The Department would, however, have export jurisdiction over aggregated technical data that included technical data directly related to a defense article. Unclassified technical data directly related to parts and components that would be controlled under the CCL would remain subject to the EAR if they were proposed for export apart from the ITAR controlled technical data.”

79 FR 0034

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Questions?

Matthew J. Lancaster | Business Attorney – Export Compliance Contracts and Legal DepartmentEsri | 380 New York Street | Redlands, CA 92373 | USAPhone: 909-793-2853 ext. 4296 | Email: [email protected] Fax: 909-307-3020 | www.esri.comCell: 512-781-5555

mailto:[email protected]

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Documents

The de minimis Rule In Practice