§734.1 IMPORTANT EAR TERMS AND INTRODUCTION …Export Administration Regulations August 2001...

Scope of the Export Administration Regulations Part 734-page 1

Export Administration Regulations August 2001

§734.1

INTRODUCTION

(a) In this part, references to the Export Adminis-tration Regulations (EAR) are references to 15CFR chapter VII, subchapter C. This part de-scribes the scope of the Export AdministrationRegulations (EAR) and explains certain key termsand principles used in the EAR. This part pro-vides the rules you need to use to determinewhether items and activities are subject to theEAR. This part is the first step in determiningyour obligations under the EAR. If your item oractivity is not subject to the EAR, then you do nothave any obligations under the EAR and you donot need to review other parts of the EAR. If youalready know that your item or activity is subjectto the EAR, you do not need to review this partand you can go on to review other parts of theEAR to determine your obligations. This partalso describes certain key terms and principlesused in the EAR. Specifically, it includes thefollowing terms: "subject to the EAR", "itemssubject to the EAR", "export", and "reexport".These and other terms are also included in part772 of the EAR, Definitions of Terms, and youshould consult part 772 of the EAR for the mean-ing of terms used in the EAR. Finally, this partmakes clear that compliance with the EAR doesnot relieve any obligations imposed under foreignlaws. (b) This part does not address any of the provi-sions set forth in part 760 of the EAR, RestrictiveTrade Practices or Boycotts.

(c) This part does not define the scope of legalauthority to regulate exports, including reexports,or activities found in the Export AdministrationAct and other statutes. What this part does do isset forth the extent to which such legal authorityhas been exercised through the EAR.

§734.2

IMPORTANT EAR TERMS AND PRINCIPLES

(a) Subject to the EAR - Definition

(1) "Subject to the EAR" is a term used in theEAR to describe those items and activities overwhich BXA exercises regulatory jurisdictionunder the EAR. Conversely, items and activitiesthat are not subject to the EAR are outside theregulatory jurisdiction of the EAR and are notaffected by these regulations. The items andactivities subject to the EAR are described in§734.2 through §734.5 of this part. You shouldreview the Commerce Control List (CCL) and anyapplicable parts of the EAR to determine whetheran item or activity is subject to the EAR. How-ever, if you need help in determining whether anitem or activity is subject to the EAR, see §734.6of this part. Publicly available technology andsoftware not subject to the EAR are described in§734.7 through §734.11 and Supplement No. 1 tothis part.

(2) Items and activities subject to the EAR mayalso be controlled under export-related programsadministered by other agencies. Items and activi-ties subject to the EAR are not necessarily ex-empted from the control programs of other agen-cies. Although BXA and other agencies thatmaintain controls for national security and foreignpolicy reasons try to minimize overlapping juris-diction, you should be aware that in someinstances you may have to comply with more thanone regulatory program. (3) The term "subject to the EAR" should not beconfused with licensing or other requirementsimposed in other parts of the EAR. Just becausean item or activity is subject to the EAR does notmean that a license or other requirement automat-ically applies. A license or other requirementapplies only in those cases where other parts ofthe EAR impose a licensing or other requirementon such items or activities.



(b) Export and reexport

(1) Definition of export. “Export” means anactual shipment or transmission of items subjectto the EAR out of the United States, or release oftechnology or software subject to the EAR to aforeign national in the United States, as describedin paragraph (b)(2)(ii) of this section. See para-graph (b)(9) of this section for the definition thatapplies to exports of encryption source code andobject code software subject to the EAR.

(2) Export of technology or software. (Seeparagraph (b)(9) for provisions that apply to en-cryption source code and object code software.)“Export” of technology or software, excludingencryption software subject to “EI” controls,includes:

(i) Any release of technology or software sub-ject to the EAR in a foreign country; or

(ii) Any release of technology or source codesubject to the EAR to a foreign national. Suchrelease is deemed to be an export to the homecountry or countries of the foreign national. Thisdeemed export rule does not apply to personslawfully admitted for permanent residence in theUnited States and does not apply to persons whoare protected individuals under the Immigrationand Naturalization Act (8 U.S.C. 1324b(a)(3)).Note that the release of any item to any party withknowledge a violation is about to occur is prohib-ited by §736.2(b)(10) of the EAR.

(3) Definition of "release" of technology orsoftware. Technology or software is "released"for export through:

(i) Visual inspection by foreign nationals ofU.S.-origin equipment and facilities;

(ii) Oral exchanges of information in theUnited States or abroad; or

(iii) The application to situations abroad of

personal knowledge or technical experienceacquired in the United States.

(4) Definition of reexport. "Reexport" means anactual shipment or transmission of items subjectto the EAR from one foreign country to anotherforeign country; or release of technology or soft-ware subject to the EAR to a foreign nationaloutside the United States, as described in para-graph (b)(5) of this section.

(5) Reexport of technology or software. Anyrelease of technology or source code subject tothe EAR to a foreign national of another countryis a deemed reexport to the home country orcountries of the foreign national. However, thisdeemed reexport definition does not apply topersons lawfully admitted for permanent resi-dence. The term "release" is defined in paragraph(b)(3) of this section. Note that the release of anyitem to any party with knowledge or reason toknow a violation is about to occur is prohibited by§736.2(b)(10) of the EAR.

(6) For purposes of the EAR, the export orreexport of items subject to the EAR that willtransit through a country or countries or be trans-shipped in a country or countries to a new countryor are intended for reexport to the new country,are deemed to be exports to the new country.

(7) If a territory, possession, or department of aforeign country is not listed on the Country Chartin Supplement No. 1 to part 738 of the EAR, theexport or reexport of items subject to the EAR tosuch destination is deemed under the EAR to bean export to the foreign country. For example, ashipment to the Cayman Islands, a dependentterritory of the United Kingdom, is deemed to bea shipment to the United Kingdom.

(8) Export or reexport of items subject to theEAR does not include shipments among any ofthe states of the United States, the Com-monwealth of Puerto Rico, or the Commonwealthof the Northern Mariana Islands or any territory,



dependency, or possession of the United States.These destinations are listed in Schedule C & E,Classification of Country and Territory Designa-tions for U.S. Export Statistics, issued by theBureau of the Census.

(9) Export of encryption source code andobject code software.

(i) For purposes of the EAR, the export ofencryption source code and object code softwaremeans:

(A) An actual shipment, transfer, or transmis-sion out of the United States (see also paragraph(b)(9)(ii) of this section); or

(B) A transfer of such software in the UnitedStates to an embassy or affiliate of a foreigncountry.

(ii) The export of encryption source code andobject code software controlled for “EI” reasonsunder ECCN 5D002 on the Commerce ControlList (see Supplement No. 1 to part 774 of theEAR), except for source code eligible for exportunder §§740.13(e) and 740.17(a)(5)(i), includesdownloading, or causing the downloading of,such software to locations (including electronicbulletin boards, Internet file transfer protocol, andWorld Wide Web sites) outside the U.S., or mak-ing such software available for transfer outsidethe United States, over wire, cable, radio, electro-magnetic, photo optical, photoelectric or othercomparable communications facilities accessibleto persons outside the United States, includingtransfers from electronic bulletin boards, Internetfile transfer protocol and World Wide Web sites,unless the person making the software availabletakes precautions adequate to prevent unautho-rized transfer of such code.

(iii) Subject to the General Prohibitions de-scribed in part 736 of the EAR, such precautionsfor Internet transfers of products eligible for ex-port under §§740.17 (a)(2) (encryption software

products), (a)(5)(ii) (certain encryption sourcecode) and (a)(5)(iii) (encryption toolkits) shallinclude such measures as:

(A) The access control system, either throughautomated means or human intervention, checksthe address of every system outside of the U.S. orCanada requesting or receiving a transfer andverifies such systems do not have a domain nameor Internet address of a foreign government end-user (e.g. “.gov,” “.gouv,” “.mil” or similar ad-dresses);

(B) The access control system provides everyrequesting or receiving party with notice that thetransfer includes or would include cryptographicsoftware subject to export controls under theExport Administration Regulations, and anyonereceiving such a transfer cannot export the soft-ware without a license or other authorization; and

(C) Every party requesting or receiving atransfer of such software must acknowledge affir-matively that the software is not intended for useby a government end-user, as defined in part 772,and he or she understands the cryptographic soft-ware is subject to export controls under the Ex-port Administration Regulations and anyonereceiving the transfer cannot export the softwarewithout a license or other authorization. BXAwill consider acknowledgments in electronic formprovided they are adequate to assure legal under-takings similar to written acknowledgments.

§734.3

ITEMS SUBJECT TO THE EAR

(a) Except for items excluded in paragraph (b) ofthis section, the following items are subject to theEAR:



(1) All items in the United States, including in aU.S. Foreign Trade Zone or moving intransitthrough the United States from one foreigncountry to another;

(2) All U.S. origin items wherever located;

(3) U.S. origin parts, components, materials orother commodities incorporated abroad intoforeign-made products, U.S. origin software com-mingled with foreign software, and U.S. origintechnology commingled with foreign technology,in quantities exceeding de minimis levels as de-scribed in §734.4 and Supplement No. 2 of thispart;

(4) Certain foreign-made direct products of U.S.origin technology or software, as described in§736.2(b)(3) of the EAR. The term "direct prod-uct" means the immediate product (includingprocesses and services) produced directly by theuse of technology or software; and

(5) Certain commodities produced by any plantor major component of a plant located outside theUnited States that is a direct product of U.S.-origin technology or software, as described in§736.2(b)(3) of the EAR.

(b) The following items are not subject to theEAR:

(1) Items that are exclusively controlled for ex-port or reexport by the following departments andagencies of the U.S. Government which regulateexports or reexports for national security or for-eign policy purposes:

(i) Department of State. The InternationalTraffic in Arms Regulations (22 CFR part 121)administered by the Office of Defense TradeControls relate to defense articles and defenseservices on the U.S. Munitions List. Section 38 ofthe Arms Export Control Act (22 U.S.C. 2778).

(ii) Treasury Department, Office of Foreign

Assets Control (OFAC). Regulations adminis-tered by OFAC implement broad controls andembargo transactions with certain foreign coun-tries. These regulations include controls on ex-ports and reexports to certain countries (31 CFRchapter V). Trading with the Enemy Act (50U.S.C. app. section 1 et seq.), and InternationalEmergency Economic Powers Act (50 U.S.C.1701, et seq.)

(iii) U.S. Nuclear Regulatory Commission(NRC). Regulations administered by NRC controlthe export and reexport of commodities related tonuclear reactor vessels (10 CFR part 110).Atomic Energy Act of 1954, as amended (42U.S.C. part 2011 et seq.).

(iv) Department of Energy (DOE).Regulations administered by DOE control theexport and reexport of technology related to theproduction of special nuclear materials (10 CFRpart 810). Atomic Energy Act of 1954, asamended (42 U.S.C. section 2011 et seq.).

(v) Patent and Trademark Office (PTO).Regulations administered by PTO provide for theexport to a foreign country of unclassifiedtechnology in the form of a patent application oran amendment, modification, or supplementthereto or division thereof (37 CFR part 5). BXAhas delegated authority under the ExportAdministration Act to the PTO to approve exportsand reexports of such technology which is subjectto the EAR. Exports and reexports of suchtechnology not approved under PTO regulationsmust comply with the EAR.

(2) Prerecorded phonograph records reproducingin whole or in part, the content of printed books,pamphlets, and miscellaneous publications,including newspapers and periodicals; printedbooks, pamphlets, and miscellaneous publicationsincluding bound newspapers and periodicals;children's picture and painting books; newspaperand periodicals, unbound, excluding waste; musicbooks; sheet music; calendars and calendar



blocks, paper; maps, hydrographical charts,atlases, gazetteers, globe covers, and globes(terrestrial and celestial); exposed and developedmicrofilm reproducing, in whole or in part, thecontent of any of the above; exposed anddeveloped motion picture film and soundtrack;and advertising printed matter exclusively relatedthereto.

(3) Publicly available technology and software,except software controlled for EI reasons underECCN 5D002 on the Commerce Control List,that:

(i) Are already published or will be publishedas described in §734.7 of this part;

(ii) Arise during, or result from, fundamentalresearch, as described in §734.8 of this part;

(iii) Are educational, as described in §734.9of this part;

(iv) Are included in certain patentapplications, as described in §734.10 of this part.

Note to paragraphs (b)(2) and (b)(3) of thissection: A printed book or other printed materialsetting forth encryption source code is not itselfsubject to the EAR (see §734.3(b)(2)). However,notwithstanding §734.3(b)(2), encryption sourcecode in electronic form or media (e.g., computerdiskette or CD ROM) remains subject to the EAR(see §734.3(b)(3)).

(4) Foreign made items that have greater than thede minimis U.S. content based on the principlesdescribed in §734.4 of this part.

(c) "Items subject to the EAR" consist of theitems listed on the Commerce Control List (CCL)in part 774 of the EAR and all other items whichmeet the definition of that term. For ease ofreference and classification purposes, i temssubject to the EAR which are not listed on theCCL are designated as "EAR99."

§734.4DE MINIMIS U.S. CONTENT

(a) There is no de minimis level for the exportfrom a foreign country of a foreign-madecomputer exceeding 28,000 MTOPS containingU.S.-origin controlled semiconductors (other thanmemory circuits) classified under ECCN 3A001or high speed interconnect devices (ECCN4A003.g) to Computer Tier 3 and 4 countriesdescribed in §742.12 of the EAR.

(b) There is no de minimis level for itemscontrolled for EI reasons under ECCNs 5A002,5D002 and 5E002 absent written authorizationfrom BXA. Exporters may, as part of aclassification request, ask that software controlledunder ECCN 5D002 and eligible for export underthe "retail" or "source code" provisions of licenseexception ENC, and parts and componentscontrolled under ECCN 5A002, be made eligiblefor de minimis treatment. The review of deminimis eligibility will take into account nationalsecurity interests.

!(c)Except as provided in paragraph (a) and (b)of this section for certain computers and itemscontrolled for EI reasons, the following reexportsare not subject to the EAR when made to eitheran embargoed country listed in part 746 of the

EAR or to a terrorist-supporting country listed inCountry Group E:1 (see Supplement No. 1 topart 740 of the EAR):

(1) Reexports of a foreign-made commodityincorporating controlled U.S.- origin commoditiesvalued at 10% or less of the total value of theforeign-made commodity;

(2) Reexports of foreign-made softwareincorporating controlled U.S.-origin softwarevalued at 10% or less of the total value of theforeign-made software; or

(3) Reexports of foreign technology commingledwith or drawn from controlled U.S.-origintechnology valued at 10% or less of the total



value of the foreign technology.

(d) Except as provided in paragraph (a) of thissection for certain computers, for all othercountries not included in paragraph (b) of thissection the following reexports are not subject tothe EAR:

(1) Reexports of a foreign-made commodityincorporating controlled U.S.-origin commoditiesvalued at 25% or less of the total value of theforeign-made commodity;

(2) Reexports of foreign-made softwareincorporating controlled U.S.-origin softwarevalued at 25% or less of the total value of theforeign-made software; or

(3) Reexports of foreign technology commingledwith or drawn from controlled U.S.-origintechnology valued at 25% or less of the totalvalue of the foreign technology.

(e) For purposes of determining de minimislevels, technology and source code used to designor produce foreign-made commodities or softwareare not considered to be incorporated into suchforeign-made commodities or software.Commodities subject only to short supplycontrols are not included in calculating U.S.content.

(f) You are responsible for making the necessarycalculations to determine whether the de minimisprovisions apply to your situation. SeeSupplement No. 2 to part 734 for guidanceregarding calculation of U.S. controlled content.

(g) See §770.3 of the EAR for principles thatapply to commingled U.S.-origin technology andsoftware.

(h) Notwithstanding the provisions of paragraphs(c) and (d) of this section, U.S.-origin technologycontrolled by ECCN 9E003a.1 through a.12, and.f, and related controls, and encryption softwarecontrolled for “EI” reasons under ECCN 5D002

or encryption technology controlled for “EI”reasons under ECCN 5E002 do not lose theirU.S.-origin when redrawn, used, consulted, orotherwise commingled abroad in any respect withother software or technology of any other origin.Therefore, any subsequent or similar software ortechnology prepared or engineered abroad for thedesign, construction, operation, or maintenance ofany plant or equipment, or part thereof, which isbased on or uses any such U.S.-origin software ortechnology is subject to the EAR.

§734.5

ACTIVITIES OF U.S. AND FOREIGN PERSONS SUBJECT TO THE EAR

The following kinds of activities are subject tothe EAR:

(a) Certain activities of U.S. persons related tothe proliferation of nuclear explosive devices,chemical or biological weapons, missiletechnology as described in §744.6 of the EAR,and the proliferation of chemical weapons asdescribed in part 745 of the EAR.

(b) Activities of U.S. or foreign personsprohibited by any order issued under the EAR,including a Denial Order issued pursuant to part766 of the EAR.

(c) Technical assistance by U.S. persons withrespect to encryption commodities or software asdescribed in §744.9 of the EAR.

§734.6

ASSISTANCE AVAILABLE FROM BXAFOR DETERMINING LICENSING AND

OTHER REQUIREMENTS

(a) If you are not sure whether a commodity,software, technology, or activity is subject to theEAR, or is subject to licensing or other



requirements under the EAR, you may ask BXAfor an advisory opinion, classification, or adetermination whether a particular item oractivity is subject to the EAR. In many instances,including those where the item is speciallydesigned, developed, configured, adapted, ormodified for military application, the item mayfall under the licensing jurisdiction of theDepartment of State and may be subject to thecontrols of the International Traffic in ArmsRegulations (22 CFR parts 120 through 130)(ITAR). In order to determine if the Departmentof State has licensing jurisdiction over an item,you should submit a request for a commodityjurisdiction determination to the Department ofState, Office of Defense Trade Controls.Exporters should note that in a very limitednumber of cases, the categories of items may besubject to both the ITAR and the EAR. Therelevant departments are working to eliminate anyunnecessary overlaps that may exist.

(b) As the agency responsible for administeringthe EAR, BXA is the only agency that has theresponsibility for determining whether an item oractivity is subject to the EAR and, if so, whatlicensing or other requirements apply under theEAR. Such a determination only affects EARrequirements, and does not affect the applicabilityof any other regulatory programs.

(c) If you need help in determining BXAlicensing or other requirements, you may askBXA for help by following the proceduresdescribed in §748.3 of the EAR.

§734.7

PUBLISHED INFORMATION AND SOFTWARE

(a) Information is "published" when it becomesgenerally accessible to the interested public inany form, including:

(1) Publication in periodicals, books, print,electronic, or any other media available forgeneral distribution to any member of the publicor to a community of persons interested in thesubject matter, such as those in a scientific orengineering discipline, either free or at a pricethat does not exceed the cost of reproduction anddistribution (See Supplement No. 1 to this part,Questions A(1) through A(6));

(2) Ready availability at libraries open to thepublic or at university libraries (See SupplementNo. 1 to this part, Question A(6));

(3) Patents and open (published) patentapplications available at any patent office; and

(4) Release at an open conference, meeting,seminar, trade show, or other open gathering.

(i) A conference or gathering is "open" if alltechnically qualified members of the public areeligible to attend and attendees are permitted totake notes or otherwise make a personal record(not necessarily a recording) of the proceedingsand presentations.

(ii) All technically qualified members of thepublic may be considered eligible to attend aconference or other gathering notwithstanding aregistration fee reasonably related to cost andreflecting an intention that all interested andtechnically qualified persons be able to attend, ora limitation on actual attendance, as long asattendees either are the first who have applied orare selected on the basis of relevant scientific or technical competence, experience, orresponsibility (See Supplement No. 1 to this part,Questions B(1) through B(6)).

(iii) "Publication" includes submission ofpapers to domestic or foreign editors or reviewersof journals, or to organizers of open conferencesor other open gatherings, with the understandingthat the papers will be made publicly available iffavorably received. (See Supplement No. 1 tothis part, Questions A(1) and A(3)).



(b) Software and information is published whenit is available for general distribution either forfree or at a price that does not exceed the cost ofreproduction and distribution. See SupplementNo. 1 to this part, Questions G(1) through G(3).

(c) Notwithstanding paragraphs (a) and (b) ofthis section, note that encryption softwarecontrolled under ECCN 5D002 for “EI” reasonson the Commerce Control List (refer toSupplement No. 1 to part 774 of the EAR)remains subject to the EAR (refer to §§740.13(e)and 740.17(a)(5)(i) of the EAR for release underLicense Exception).

§734.8

INFORMATION RESULTING FROM FUNDAMENTAL RESEARCH

(a) Fundamental research

Paragraphs (b) through (d) of this section and§734.11 of this part provide specific rules thatwill be used to determine whether research inparticular institutional contexts qualifies as"fundamental research". The intent behind theserules is to identify as "fundamental research"basic and applied research in science andengineering, where the resulting information isordinarily published and shared broadly withinthe scientific community. Such research can bedistinguished from proprietary research and fromindustrial development, design, production, andproduct utilization, the results of which ordinarilyare restricted for proprietary reasons or specificnational security reasons as defined in §734.11(b)of this part. (See Supplement No. 1 to this part,Question D(8)). Note that the provisions of thissection do not apply to encryption softwarecontrolled under ECCN 5D002 for “EI” reasonson the Commerce Control List (refer to§§740.13(e) and 740.17(a)(5)(i) of the EAR forrelease under License Exception).

(b) University based research

(1) Research conducted by scientists, engineers,or students at a university normally will beconsidered fundamental research, as described inparagraphs (b)(2) through (6) of this section.("University" means any accredited institution ofhigher education located in the United States.)

(2) Prepublication review by a sponsor ofuniversity research solely to insure that thepublication would not inadvertently divulgeproprietary information that the sponsor hasfurnished to the researchers does not change thestatus of the research as fundamental research.However, release of information from a corporatesponsor to university researchers where theresearch results are subject to prepublicationreview, is subject to the EAR. (See SupplementNo. 1 to this part, Questions D(7), D(9), andD(10)).

(3) Prepublication review by a sponsor ofuniversity research solely to ensure thatpublication would not compromise patent rightsdoes not change the status of fundamentalresearch, so long as the review causes no morethan a temporary delay in publication of theresearch results. (4) The initial transfer of information from anindustry sponsor to university researchers issubject to the EAR where the parties have agreedthat the sponsor may withhold from publicationsome or all of the information so provided. (SeeSupplement No. 1 to this part, Question D(2)).

(5) University based research is not considered"fundamental research" if the university or itsresearchers accept (at the request, for example, ofan industrial sponsor) other restrictions onpublication of scientific and technical informationresulting from the project or activity. Scientificand technical information resulting from theresearch will nonetheless qualify as fundamentalresearch once all such restrictions have expired orhave been removed. (See Supplement No. 1 tothis part, Question D(7) and D(9)).



(6) The provisions of §734.11 of this part willapply if a university or its researchers acceptspecific national security controls (as defined in§734.11 of this part) on a research project oractivity sponsored by the U.S. Government. (SeeSupplement No. 1 to this part, Questions E(1) andE(2)).

(c) Research based at Federal agencies orFFRDCs

Research conducted by scientists or engineersworking for a Federal agency or a FederallyFunded Research and Development Center(FFRDC) may be designated as "fundamentalresearch" within any appropriate system devisedby the agency or the FFRDC to control the releaseof information by such scientists and engineers.(See Supplement No. 1 to this part, QuestionsD(8) and D(11)).

(d) Corporate research

(1) Research conducted by scientists or engineersworking for a business entity will be considered"fundamental research" at such time and to theextent that the researchers are free to makescientific and technical information resultingfrom the research publicly available withoutrestriction or delay based on proprietary concernsor specific national security controls as defined in§734.11(b) of this part.

(2) Prepublication review by the company solelyto ensure that the publication would compromiseno proprietary information provided by thecompany to the researchers is not considered tobe a proprietary restriction under paragraph (d)(1)of this section. However, paragraph (d)(1) of thissection does not authorize the release ofinformation to university researchers where theresearch results are subject to prepublicationreview. (See Supplement No. 1 to this part,Questions D(8), D(9), and D(10)). (3) Prepublication review by the company solelyto ensure that publication would compromise no

patent rights will not be considered a proprietaryrestriction for this purpose, so long as the reviewcauses no more than a temporary delay inpublication of the research results.

(4) However, the initial transfer of informationfrom a business ent ity to researchers is notauthorized under the "fundamental research"provision where the parties have agreed that thebusiness entity may withhold from publicationsome or all of the information so provided.

(e) Research based elsewhere

Research conducted by scientists or engineerswho are not working for any of the institutionsdescribed in paragraphs (b) through (d) of thissection will be treated as corporate research, asdescribed in paragraph (d) of this section. (SeeSupplement No. 1 to this part, Question D(8)).

§734.9

EDUCATIONAL INFORMATION

“Educational information” referred to in§734.3(b)(3)(iii) of this part is not subject to theEAR if it is released by instruction in catalogcourses and associated teaching laboratories ofacademic institutions. Dissertation research isdiscussed in §734.8(b) of this part. (Refer toSupplement No. 1 to this part, Question C(1)through C(6)). Note that the provisions of thissection do not apply to encryption softwarecontrolled under ECCN 5D002 for “EI” reasonson the Commerce Control List (refer to §§740.13(e) and 740.17(a)(5)(i) of the EAR for releaseunder License Exception).



§734.10

PATENT APPLICATIONS

The information referred to in §734.3(b)(3)(iv) ofthis part is:

(a) Information contained in a patent applicationprepared wholly from foreign-origin technicaldata where the application is being sent to theforeign inventor to be executed and returned tothe United States for subsequent filing in the U.S.Patent and Trademark Office;

(b) Information contained in a patent application,or an amendment, modification, supplement ordivision of an application, and authorized forfiling in a foreign country in accordance with theregulations of the Patent and Trademark Office,37 CFR part 51; or

(c) Information contained in a patent applicationwhen sent to a foreign country before or withinsix months after the filing of a United Statespatent application for the purpose of obtaining thesignature of an inventor who was in the UnitedStates when the invention was made or who is aco-inventor with a person residing in the UnitedStates.

§734.11

GOVERNMENT-SPONSORED RESEARCHCOVERED BY CONTRACT CONTROLS

(a) If research is funded by the U.S. Government,and specific national security controls are agreedon to protect information resulting from theresearch, §734.3(b)(3) of this part will not apply

to any export or reexport of such information inviolation of such controls. However, any exportor reexport of information resulting from theresearch that is consistent with the specificcontrols may nonetheless be made under thisprovision.

(b) Examples of "specific national securitycontrols" include requirements for prepublicationreview by the Government, with right to withholdpermission for publication; restrictions onprepublication dissemination of information tonon-U.S. citizens or other categories of persons;or restrictions on participation of non-U.S.citizens or other categories of persons in theresearch. A general reference to one or moreexport control laws or regulations or a generalreminder that the Government retains the right toclassify is not a "specific national securitycontrol". (See Supplement No. 1 to this part,Questions E(1) and E(2).)

§734.12

EFFECT ON FOREIGN LAWS AND REGULATIONS

Any person who complies with any of the licenseor other requirements of the EAR is not relievedof the responsibility of complying with applicableforeign laws and regulations. Conversely, anyperson who complies with the license or otherrequirements of a foreign law or regulation is notrelieved of the responsibility of complying withU.S. laws and regulations, including the EAR.

1 Regulations issued by the Patent and TrademarkOffice in 37 CFR part 5 pro vide for the ex port to a

foreign country o f unclassified technical data in the

form of a patent app lication or an a mendm ent,

modification, or supplement thereto or division there of.

Scope of the Export Administration Regulations Supplement No. 1 to Part 734Spage 1


QUESTIONS AND ANSWERS - TECHNOLOGY AND SOFTWARE SUBJECT TO THE EAR

This Supplement No. 1 contains explanatoryquestions and answers relating to technology andsoftware that is subject to the EAR. It is intendedto give the public guidance in understanding howBXA interprets this part, but is only illustrative,not comprehensive. In addition, facts orcircumstances that differ in any material wayfrom those set forth in the questions or answerswill be considered under the applicable provisionsof the EAR. Exporters should note that theprovisions of this supplement do not apply toencryption software (including source code)transferred from the U.S. Munitions List to theCommerce Control List consistent with E.O.13026 of November 15, 1996 (61 FR 58767) andpursuant to the Presidential Memorandum of thatdate. See §742.15 of the EAR. This Supplementis divided into nine sections according to topic asfollows:

Section A: Publication of technology andexports and reexports of technology that hasbeen or will be published.

Section B: Release of technology at

conferences.

Section C: Educational instruction.

Section D: Research, correspondence, and

informal scientific exchanges.

Section E: Federal contract controls.

Section F: Commercial consulting.

Section G: Software.

Section H: Availability in a public library.

Section I: Miscellaneous.



Section A: Publication

Question A(1): I plan to publish in a foreignjournal a scientific paper describing the results ofmy research, which is in an area listed in the EARas requiring a license to all countries exceptCanada. Do I need a license to send a copy to mypublisher abroad?

Answer: No. This export transaction is notsubject to the EAR. The EAR do not covertechnology that is already publicly available, aswell as technology that is made public by thetransaction in question (§§734.3 and 734.7 ofthis part). Your research results would be madepublic by the planned publication. You wouldnot need a license.

Question A(2): Would the answer differdepending on where I work or where I performedthe research?

Answer: No. Of course, the result would bedifferent if your employer or another sponsor ofyour research imposed restrictions on itspublication (§734.8 of this part).

Question (A)3: Would I need a license to sendthe paper to the editors of a foreign journal forreview to determine whether it will be acceptedfor publication?

Answer: No. This export transaction is notsubject to the EAR because you are submittingthe paper to the editors with the intention thatthe paper will be published if favorably re-ceived (§734.7(a)(4)(iii) of this part).

Question A(4): The research on which I will bereporting in my paper is supported by a grantfrom the Department of Energy (DOE). The grantrequires prepublication clearance by DOE. Doesthat make any difference under the Export

Administration Regulations?

Answer: No, the transaction is not subject tothe EAR. But if you published in violation ofany Department of Energy controls you haveaccepted in the grant, you may be subject toappropriate administrative, civil, or criminalsanctions under other laws.

Question A(5): We provide consulting serviceson the design, layout, and construction ofintegrated circuit plants and production lines. Amajor part of our business is the publication forsale to clients of detailed handbooks andreference manuals on key aspects on the designand manufacturing processes. A typical cost ofpublishing such a handbook and manual might be$500; the typical sales price is about $15,000. Isthe publication and sale of such handbooks ormanuals subject to the EAR?

Answer: Yes. The price is above the cost ofreproduction and distribution (§734.7(a)(1) ofthis part). Thus, you would need to obtain alicense or qualify for a License Exceptionbefore you could export or reexport any ofthese handbooks or manuals.

Question A(6): My Ph.D. thesis is on technology,listed in the EAR as requiring a license to alldestinations except Canada, which has never beenpublished for general distribution. However, thethesis is available at the institution from which Itook the degree. Do I need a license to sendanother copy to a colleague overseas?

Answer: That may depend on where in theinstitution it is available. If it is not readilyavailable in the university library (e.g., by filingin open stacks with a reference in the catalog),it is not "publicly available" and the export orreexport would be subject to the EAR on thatground. The export or reexport would not be

subject to the EAR if your Ph.D. research qualified as "fundamental research" under §734.8



of this part. If not, however, you will need toobtain a license or qualify for a LicenseException before you can send a copy out of thecountry.

Question A(7): We sell electronically recordedinformation, including software and databases, atwholesale and retail. Our products are availableby mail order to any member of the public,though intended for specialists in various fields.They are priced to maximize sales to persons inthose fields. Do we need a license to sell ourproducts to foreign customers?

Answer: You would not need a license forotherwise controlled technology or software ifthe technology and software are made publiclyavailable at a price that does not exceed the costof production and distribution to the technicalcommunity. Even if priced at a higher level, theexport or reexport of the technology or softwaresource code in a library accessible to the publicis not subject to the EAR (§734.7(a) of thispart).

Section B: Conferences

Question B(1): I have been invited to give apaper at a prestigious international scientificconference on a subject listed as requiring alicense under the EAR to all countries, exceptCanada. Scientists in the field are given anopportunity to submit applications to attend.Invitations are given to those judged to be theleading researchers in the field, and attendance isby invitation only. Attendees will be free to takenotes, but not make electronic or verbatimrecordings of the presentations or discussions.Some of the attendees will be foreigners. Do Ineed a license to give my paper?

Answer: No. Release of information at an openconference and information that has beenreleased at an open conference is not subject tothe EAR. The conference you describe fits the

definition of an open conference (§734.7(a) ofthis part).

Question B(2): Would it make any difference ifthere were a prohibition on making any notes orother personal record of what transpires at theconference?

Answer: Yes. To qualify as an "open"conference, attendees must be permitted to takenotes or otherwise make a personal record(although not necessarily a recording). If notetaking or the making of personal records isaltogether prohibited, the conference would notbe considered "open".

Question B(3): Would it make any difference ifthere were also a registration fee?

Answer: That would depend on whether the feeis reasonably related to costs and reflects anintention that all interested and technicallyqualified persons should be able to attend(§734.7(a)(4)(ii) of this part).

Question B(4): Would it make any difference ifthe conference were to take place in anothercountry?

Answer: No.

Question B(5): Must I have a license to send thepaper I propose to present at such a foreignconference to the conference organizer forreview?

Answer: No. A license is not required underthe EAR to submit papers to foreign organizersof open conferences or other open gatheringswith the intention that the papers willbedelivered at the conference, and so made publicly available, if favorably received. The

submission of the papers is not subject to theEAR (§734.7(a)(4)(iii) of this part).



Question B(6): Would the answers to any of theforegoing questions be different if my work weresupported by the Federal Government?

Answer: No. You may export and reexport thepapers, even if the release of the paper violatesany agreements you have made with yourgovernment sponsor. However, nothing in theEAR relieves you of responsibility forconforming to any controls you have agreed toin your Federal grant or contract.

Section C: Educational Instruction

Question C(1): I teach a university graduatecourse on design and manufacture of veryhigh-speed integrated circuitry. Many of thestudents are foreigners. Do I need a license toteach this course?

Answer: No. Release of information byinstruction in catalog courses and associatedteaching laboratories of academic institutions isnot subject to the EAR (§734.9 of this part).

Question C(2): Would it make any difference ifsome of the students were from countries towhich export licenses are required?

Answer: No.

Question C(3): Would it make any difference if Italk about recent and as yet unpublished resultsfrom my laboratory research?

Answer: No.

Question C(4): Even if that research is funded bythe Government?

Answer: Even then, but you would not bereleased from any separate obligations you haveaccepted in your grant or contract.

Question C(5): Would it make any difference if I

were teaching at a foreign university?

Answer: No.

Question C(6): We teach proprietary courses ondesign and manufacture of high-performancemachine tools. Is the instruction in our classessubject to the EAR?

Answer: Yes. That instruction would notqualify as "release of educational information"under §734.9 of this part because yourproprietary business does not qualify as an"academic institution" within the meaning of§734.9 of this part. Conceivably, however, theinstruction might qualify as "release at an openseminar, or other open gathering" under§734.7(a) of this part. The conditions forqualification of such a seminar or gathering as"open", including a fee "reasonably related tocosts (of the conference, not of producing thedata) and reflecting an intention that allinterested and technically qualified persons beable to attend," would have to be satisfied.

Section D: Research, Correspondence, andInformal Scientific Exchanges

Question D(1): Do I need a license in order for aforeign graduate student to work in mylaboratory?

Answer: Not if the research on which theforeign student is working qualifies as"fundamental research" under §734.8 of thispart. In that case, the research is not subject tothe EAR.

Question D(2): Our company has entered into acooperative research arrangement with a researchgroup at a university. One of the researchers inthat group is a PRC national. We would like toshare some of our proprietary information withthe university research group. We have no way ofguaranteeing that this information will not get



into the hands of the PRC scientist. Do we needto obtain a license to protect against thatpossibility?

Answer: No. The EAR do not cover thedisclosure of information to any scientists,engineers, or students at a U.S. university in thecourse of industry-university researchcollaboration under specific arrangementsbetween the firm and the university, providedthese arrangements do not permit the sponsor towithhold from publication any of theinformation that he provides to the researchers.However, if your company and the researchershave agreed to a prohibition on publication,then you must obtain a license or qualify for aLicense Exception before transferring theinformation to the university. It is importantthat you as the corporate sponsor and theuniversity get together to discuss whetherforeign nationals will have access to theinformation, so that you may obtain anynecessary authorization prior to transferring theinformation to the research team.

Question D(3): My university will host aprominent scientist from the PRC who is anexpert on research in engineered ceramics andcomposite materials. Do I require a licensebefore telling our visitor about my latest, as yetunpublished, research results in those fields?

Answer: Probably not. If you performed yourresearch at the university, and you were subjectto no contract controls on release of theresearch, your research would qualify as"fundamental research" (§734.8(a) of this part).Information arising during or resulting fromsuch research is not subject to the EAR(§734.3(b)(3) of this part).

You should probably assume, however, thatyour visitor will be debriefed later aboutanything of potential military value he learnsfrom you. If you are concerned that giving suchinformation to him, even though permitted,could jeopardize U.S. security interests, the

Commerce Department can put you in touchwith appropriate Government scientists whocan advise you. Write to Department ofCommerce, Bureau of Export Administration,P.O. Box 273, Washington, DC 20044.

Question D(4): Would it make any difference ifI were proposing to talk with a PRC expert inChina?

Answer: No, if the information in questionarose during or resulted from the same"fundamental research."

Question D(5): Could I properly do some workwith him in his research laboratory inside China?

Answer: Application abroad of personalknowledge or technical experience acquired inthe United States constitutes an export of thatknowledge and experience, and such an exportmay be subject to the EAR. If any of theknowledge or experience you export in this wayrequires a license under the EAR, you mustobtain such a license or qualify for a LicenseException.

Question D(6): I would like to correspond andshare research results with an Iranian expert inmy field, which deals with technology thatrequires a license to all destinations exceptCanada. Do I need a license to do so?

Answer: Not as long as we are still talkingabout information that arose during or resultedfrom research that qualifies as "fundamental"under the rules spelled out in §734.8(a) of thispart.

Question D(7): Suppose the research in questionwere funded by a corporate sponsor and I hadagreed to prepublication review of any paperarising from the research?

Answer: Whether your research would stillqualify as "fundamental" would depend on the



nature and purpose of the prepublication review.If the review is intended solely to ensure that yourpublications will neither compromise patentrights nor inadvertently divulge proprietaryinformation that the sponsor has furnished to you,the research could still qualify as "fundamental."But if the sponsor will consider as part of itsprepublication review whether it wants to holdyour new research results as trade secrets orotherwise proprietary information (even if yourvoluntary cooperation would be needed for it todo so), your research would no longer qualify as"fundamental." As used in these regulations it isthe actual and intended openness of researchresults that primarily determines whether theresearch counts as "fundamental" and so is notsubject to the EAR.

Question D(8): In determining whether researchis thus open and therefore counts as"fundamental," does it matter where or in whatsort of institution the research is performed?

Answer: In principle, no. "Fundamentalresearch" is performed in industry, Federallaboratories, or other types of institutions, aswell as in universities. The regulationsintroduce some operational presumptions andprocedures that can be used both by thosesubject to the regulations and by those whoadminister them to determine with someprecision whether a particular research activityis covered. Recognizing that common andpredictable norms operate in different types ofinstitutions, the regulations use the institutionallocus of the research as a starting point forthese presumptions and procedures.Nonetheless, it remains the type of research,and particularly the intent and freedom topublish, that identifies "fundamental research,"not the institutional locus (§734.8(a) of thispart).

Question D(9): I am doing research onhigh-powered lasers in the central basic-researchlaboratory of an industrial corporation. I am

required to submit the results of my research forprepublication review before I can publish themor otherwise make them public. I would like tocompare research results with a scientificcolleague from Vietnam and discuss the results ofthe research with her when she visits the UnitedStates. Do I need a license to do so?

Answer: You probably do need a license(§734.8(d) of this part). However, if the onlyrestriction on your publishing any of thatinformation is a prepublication review solely toensure that publication would compromise nopatent rights or proprietary informationprovided by the company to the researcher yourresearch may be considered "fundamentalresearch," in which case you may be able toshare information because it is not subject tothe EAR. Note that the information will besubject to the EAR if the prepublication reviewis intended to withhold the results of theresearch from publication.

Question D(10): Suppose I have already clearedmy company's review process and am free topublish all the information I intend to share withmy colleague, though I have not yet published?

Answer: If the clearance from your companymeans that you are free to make all the infor-mation publicly available without restriction ordelay, the information is not subject to theEAR. (§734.8(d) of this part)

Question D(11): I work as a researcher at aGovernment-owned, contractor-operated researchcenter. May I share the results of my unpublishedresearch with foreign nationals without concernfor export controls under the EAR?

Answer: That is up to the sponsoring agencyand the center's management. If your researchis designated "fundamental research" withinany appropriate system devised by them tocontrol release of information by scientists and



engineers at the center, it will be treated as suchby the Commerce Department, and the researchwill not be subject to the EAR. Otherwise, youwould need to obtain a license or qualify for aLicense Exception, except to publish or otherwisemake the information public (§734.8(c) of thispart).

Section E: Federal Contract Controls

Question E(1): In a contract for performance ofresearch entered into with the Department ofDefense (DOD), we have agreed to certainnational security controls. DOD is to have ninetydays to review any papers we proposed beforethey are published and must approve assignmentof any foreign nationals to the project. The workin question would otherwise qualify as"fundamental research" section under §734.8 ofthis part. Is the information arising during orresulting from this sponsored research subject tothe EAR?

Answer: Under §734.11 of this part, any exportor reexport of information resulting fromgovernment-sponsored research that isinconsistent with contract controls you haveagreed to will not qualify as "fundamentalresearch" and any such export or reexportwould be subject to the EAR. Any such exportor reexport that is consistent with the controlswill continue to be eligible for export andreexport under the "fundamental research" ruleset forth in §734.8(a) of this part. Thus, if youabide by the specific controls you have agreedto, you need not be concerned about violatingthe EAR. If you violate those controls andexport or reexport information as "fundamentalresearch" under §734.8(a) of this part, you may

subject yourself to the sanctions provided forunder the EAR, including criminal sanctions, inaddition to administrative and civil penalties forbreach of contract under other law.

Question E(2): Do the Export AdministrationRegulations restrict my ability to publish theresults of my research?

Answer: The Export AdministrationRegulations are not the means for enforcing thenational security controls you have agreed to.If such a publication violates the contract, youwould be subject to administrative, civil, andpossible criminal penalties under other law.

Section F: Commercial Consulting

Question F(1): I am a professor at a U.S.university, with expertise in design and creationof submicron devices. I have been asked to be aconsultant for a "third-world" company thatwishes to manufacture such devices. Do I need alicense to do so?

Answer: Quite possibly you do. Applicationabroad of personal knowledge or technicalexperience acquired in the United Statesconstitutes an export of that knowledge andexperience that is subject to the ExportAdministration Regulations. If any part of theknowledge or experience your export orreexport deals with technology that requires alicense under the EAR, you will need to obtaina license or qualify for a License Exception.

Section G: Software2 Question G(1): Is the export or reexport ofsoftware in machine readable code subject to the

2 Exporters should note that these provisions do

not apply to software controlled under the

Internationa l Traffic in Arm s Regulation s (e.g., certain encryption software).



EAR when the source code for such software ispublicly available?

Answer: If the source code of a softwareprogram is publicly available, then the machinereadable code compiled from the source code issoftware that is publicly available and thereforenot subject to the EAR.

Question G(2): Is the export or reexport ofsoftware sold at a price that does not exceed thecost of reproduction and distribution subject tothe EAR?

Answer: Software in machine readable code ispublicly available if it is available to acommunity at a price that does not exceed thecost of reproduction and distribution. Suchreproduction and distribution costs may includevariable and fixed allocations of overhead andnormal profit for the reproduction anddistribution functions either in your company orin a third party distribution system. In yourcompany, such costs may not include recoveryfor development, design, or acquisition. In thiscase, the provider of the software does notreceive a fee for the inherent value of thesoftware.

Question G(3): Is the export or reexport ofsoftware subject to the EAR if it is sold at a priceBXA concludes in a classification letter to besufficiently low so as not to subject it to theEAR?

Answer: In response to classification requests,BXA may choose to classify certain software asnot subject to the EAR even though it is sold ata price above the costs of reproduction anddistribution as long as the price is nonethelesssufficiently low to qualify for such aclassification in the judgment of BXA.

Section H: Available in a Public Library

Question H(1): Is the export or reexport ofinformation subject to the EAR if it is available ina library and sold through an electronic or printservice?

Answer: Electronic and print services for thedistribution of information may be relativelyexpensive in the marketplace because of thevalue vendors add in retrieving and organizinginformation in a useful way. If suchinformation is also available in a library -- itselfaccessible to the public -- or has been publishedin any way, that information is "publiclyavailable" for those reasons, and theinformation itself continues not to be subject tothe EAR even though you access theinformation through an electronic or printservice for which you or your employer pay asubstantial fee.

Question H(2): Is the export or reexport ofinformation subject to the EAR if the informationis available in an electronic form in a library at nocharge to the library patron?

Answer: Information available in an electronicform at no charge to the library patron in alibrary accesible to the public is informationpublicly available even though the library paysa substantial subscription fee for the electronicretrieval service.

Question H(3): Is the export or reexport ofinformation subject to the EAR if the informationis available in a library and sold for more than thecost of reproduction and distribution?

Answer: Information from books, magazines,dissertations, papers, electronic data bases, and

other information available in a library that isaccessible to the public is not subject to theEAR. This is true even if you purchase such abook at more than the cost of reproduction anddistribution. In other words, such informationis "publicly available" even though the author



makes a profit on your particular purchase for theinherent value of the information.

Section I: Miscellaneous

Question I(1): The manufacturing plant that Iwork at is planning to begin admitting groups ofthe general public to tour the plant facilities. Weare concerned that a license might be required ifthe tour groups include foreign nationals. Wouldsuch a tour constitute an export? If so, is theexport subject to the EAR?

Answer: The EAR define exports and reexportsof technology to include release through visualinspection by foreign nationals of U.S.-originequipment and facilities. Such an export orreexport qualifies under the "publicly available"provision and would not be subject to the EARso long as the tour is truly open to all membersof the public, including your competitors, andyou do not charge a fee that is not reasonablyrelated to the cost of conducting the tours.Otherwise, you will have to obtain a license, orqualify for a License Exception, prior topermitting foreign nationals to tour yourfacilities (§734.7 of this part).

Question I(2): Is the export or reexport ofinformation subject to the EAR if the informationis not in a library or published, but sold at a pricethat does not exceed the cost of reproduction anddistribution?

Answer: Information that is not in a libraryaccessible to the public and that has not beenpublished in any way, may nonetheless become"publicly available" if you make it bothavailable to a community of persons and if yousell it at no more than the cost of reproductionand distribution. Such reproduction anddistribution costs may include variable andfixed cost allocations of overhead and normalprofit for the reproduction and distributionfunctions either in your company or in a third

party distribution system. In your company,such costs may not include recovery fordevelopment, design, or acquisition costs of thetechnology or software. The reason for thisconclusion is that the provider of theinformation receives nothing for the inherentvalue of the information.

Question I(3): Is the export or reexport ofinformation contributed to an electronic bulletinboard subject to the EAR?

Answer: Assume each of the following:

1. Information is uploaded to an electronicbulletin board by a person that is the owner ororiginator of the information;

2. That person does not charge a fee to thebulletin board administrator or the subscribersof the bulletin board; and

3. The bulletin board is available forsubscription to any subscriber in a givencommunity regardless of the cost ofsubscription.

Such information is "publicly available" andtherefore not subject to the EAR even if it is notelsewhere published and is not in a library. Thereason for this conclusion is that the bulletinboard subscription charges or line charges arefor distribution exclusively, and the provider ofthe information receives nothing for theinherent value of the information.

Question I(4): Is the export or reexport ofpatented information fully disclosed on the publicrecord subject to the EAR?

Answer: Information to the extent it isdisclosed on the patent record open to thepublic is not subject to the EAR even thoughyou may use such information only after paying



a fee in excess of the costs of reproduction anddistribution. In this case the seller does receive afee for the inherent value of the technical data;however, the export or reexport of theinformation is nonetheless not subject to the EARbecause any person can obtain the technologyfrom the public record and further disclose orpublish the information. For that reason, it isimpossible to impose export controls that denyaccess to the information.



CALCULATION OF VALUES FOR DE MINIMIS RULES

(a) Use the following guidelines in determiningvalues for establishing exemptions or forsubmission of a request for authorization:

(1) U.S. content value.

(i) U.S. content value is the delivered cost tothe foreign manufacturer of the U.S. origin parts,components, or materials. (When affiliated firmshave special arrangements that result in lowerthan normal pricing, the cost should reflect "fairmarket" prices that would normally be charged tosimilar, unaffiliated customers.)

(ii) In calculating the U.S. content value, donot include parts, components, or materials thatcould be exported from the United States to thenew country of destination without a license(designated as "NLR") or under LicenseException GBS (see part 740 of the EAR) orunder NLR for items classified as EAR99.

(2) The foreign-made product value is thenormal selling price f.o.b. factory (excludingvalue added taxes or excise taxes).

(3) To determine the value of the U.S.-origincontrolled content, you should classify the U.S.-origin content on the Commerce Control List,determine those items that would require a licensefrom BXA for reexport to the ultimate destinationof the foreign-made product if such parts,components, or materials were reexported to thatdestination in the form received, and divide thetotal value of the controlled U.S. parts,components, and materials incorporated into theforeign-made item by the sale price of theforeign-made item.

(4) If no U.S. parts, components or materialsare incorporated or if the incorporated U.S. parts,components, and materials are below the de

minimis level, then the foreign-made item is notsubject to the EAR by reason of §734.4 of thispart, the classification of a foreign-made item isirrelevant in determining the scope of the EAR,and you should skip Step 4 in §732.2(d) and goon to consider Step 6 in §732.2(f) of the EARregarding the foreign-produced direct productrule.

Note to paragraph (a) - U.S. origin peripheral oraccessory devices that are merely rack mountedwith or cable connected into foreign equipmentare not deemed to be incorporated componentseven though intended for use with products madeabroad. Rather, such items are treated as U.S.items that retain their identity and remain subjectto the EAR.

(b) One-time report prior to reliance upon the deminimis exclusion.

(1) Report requirement. Before you may relyupon the de minimis exclusion for foreignsoftware and technology commingled with U.S.software or technology, you must file a one-timereport for the foreign software or technology.The report must include the percentage of U.S.-content by value and a description of yourcalculations including relevant values,assumptions, and the basis or methodologies formaking the percentage calculation. The threecriteria important to BXA in its review of yourreport will be the export price of the U.S.-content,the assumption regarding future sales of software,and the choice of the scope of foreign technology.Your methodologies must be based upon theaccounting standards used in the operation ofyour business, and you must specify that standardin your report. Regardless of the accountingsystems, standard, or conventions you use in theoperation of your business, you may notdepreciate the fair market values reported orotherwise reduce the fair market values by other



accounting conventions such as depreciation.You may rely upon the de minimis exclusion fromthe commingled rule only to the extent you havereported the relevant calculations, values,assumptions, and the basis or methodologies forthe calculations. These values may be historic orprojected. You may rely on projected values onlyto the extent that and for so long as they remainconsistent with your report or future valuesreduce the U.S.-content under your reportedassumptions, basis, and methodologies. You arenot required to file the above report if you do notchoose to take advantage of the de minimisexclusion from the commingled rule.

(2) Export price. The report must include adescription of the U.S.-content including itsclassification on the Commerce Control List, itsperformance characteristics and features, and themethod of calculating its fair market value. Thefair market value shall be the arms-lengthtransaction price, if it is available. If an arms-length transaction price is unavailable, then thereport will describe the valuation method chosento calculate or derive the fair market value. Suchmethods may include comparable market pricesor costs of production and distribution. This ruledoes not require calculations based upon any oneaccounting system or U.S. accounting standards.However, you must specify the acceptedaccounting standards you have chosen, and cost-based methods of valuation must be based uponrecords you maintain in the normal course ofbusiness. You should also indicate whetherreported values are actual arms-length marketprices or derived from comparable transactions orcosts of production, overhead, and profit. Forexample, if you chose to make calculations underthe transfer pricing rules of the United StatesInternal Revenue Code at section 482, your reportshould indicate that this is the source for yourmethodology, and you should also indicate whichof the several methodologies in these transferpricing rules you have chosen.

(3) Future software sales. For calculations of

U.S.-content in foreign software, you shallinclude your estimate of future software sales inunits and value along with the rationale and basisfor those estimates in the report. Unlike partsincorporated into commodities, the cost of U.S.software code will be attributed or allocated tothe future sales of foreign-made softwareincorporating the U.S. code, to determine thepercentage of U.S. controlled content. In makingthis calculation for foreign-made software, youmust make an estimate of future software sales ofthat foreign software if it is commingled with orincorporated with the U.S. code. The value of theU.S. code commingled with or incorporated intothe foreign made software shall be divided by thetotal selling price of all foreign-made softwareunits already sold, plus the total selling price ofall foreign-made software units estimated forfuture sales.

(4) Foreign technology and software. Forcalculations of U.S.-content in foreign technologyand software, you shall include in the report adescription of the foreign technology or softwareand a description of its fair market value alongwith the rationale and basis for the selection andvaluation of such foreign software or technology.The report does not require information regardingdestinations and end users for reexport. Thepurpose of the report is solely to permit the U.S.Government to evaluate the reasonableness ofU.S.-content calculations.

(5) Report and wait. If you have not beencontacted by BXA concerning your report withinthirty days after filing the report with BXA, youmay rely upon the calculations in your report andthe de minimis exclusions for software andtechnology for so long as you are not contactedby BXA. BXA may contact you concerning yourreport to inquire of you further or to indicate thatBXA does not accept the assumptions or rationalefor your calculations. If you receive such acontact or communication from BXA, you maynot rely upon the de minimis exclusions forsoftware and technology in §734.4 of this part



until BXA has indicated whether or not you maydo so in the future. You must include in yourreport the name, title, address, telephone number,

and facsimile number of the person BXA maycontact concerning your report.

§734.1 IMPORTANT EAR TERMS AND INTRODUCTION …Export Administration Regulations August 2001...

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