When are non-US products incorporating US products free from US jurisdiction?

Non-US-manufactured products can often be subject to US reexport authorization requirements because they incorporate US-origin controlled content. Among several exemptions from this requirement under US law for non-US products incorporating US-origin content is the de minimis exemption under the US Export Administration Regulations (EAR). The de minimis exemption can be very cumbersome to apply when a non-US manufactured product or software incorporates unknown levels of US-origin parts and components. The de minimis exemption levels of 10% and 25% are dependent on a non-US manufacturer knowing about the US-origin content in its products or software. While this is generally true, there is a little-known principle called the “second incorporation rule” that provides relief to manufacturers that buy and incorporate components produced by non-US sources.

The US Department of Commerce has published a redacted advisory opinion clarifying the application of the EAR to non-US made products incorporating other non-US products with US-origin content. The advisory opinion permits non-US manufacturers to disregard certain US-origin content incorporated by others into non-US products that are, in turn, incorporated into their product. As a result, non-US manufacturers may more easily apply the de minimis exemption from US reexport control under the EAR.

The full article, Subject to the EAR: When is a non-us product free from the EAR? outlines the de minimis exemption from US extraterritorial re-export controls, explains the application of the second incorporation principle, and provides examples of the application of the principle to non-US made products.