BIS expands Iran Foreign Direct Product Rule under No Technology for Terror Act

Mechanism

The Iran Foreign Direct Product (FDP) rule, codified at 15 CFR 746.7, extends U.S. export-control jurisdiction over foreign-produced items that are themselves "direct products" of U.S.-origin technology or software, or that are produced by a plant or major component thereof that is itself a direct product of U.S.-origin technology or software, when those items are destined for Iran. This July 2024 final rule implements the "No Technology for Terror Act" (NTTA), enacted as Division N of Public Law 118-50 on April 24, 2024, which directed BIS to broaden the Iran FDP rule to capture additional categories of items — particularly those relevant to Iran's unmanned aerial vehicle (UAV/drone), missile, and related military production lines that have been used to support Russia's war against Ukraine and to threaten U.S. forces and allies in the Middle East.

The expansion operates by widening the universe of foreign-produced items that fall within EAR jurisdiction when destined for Iran, thereby requiring a BIS license (with a policy of denial) for export, reexport, or in-country transfer. The rule also provides specified exclusions — notably for certain humanitarian, agricultural, medical, and informational items consistent with statutory carve-outs — and for items meeting EAR99-equivalent criteria where the statute permits.

Severity 4 reflects a meaningful expansion of an already-restrictive FDP perimeter: the rule is qualitatively significant because it extraterritorially extends U.S. licensing requirements to foreign fabs and foreign-assembled goods that incorporate U.S. technology inputs, which is the same mechanism used in the China-semiconductor FDP rule (15 CFR 734.9(e)–(h)) and which materially raises compliance burden for non-U.S. semiconductor and electronics manufacturers selling into supply chains that might reach Iran.

Downstream implications

• Raises compliance burden on non-U.S. fabs, OSATs, and electronics

contract manufacturers in Asia and Europe whose goods could reach Iran via diversion routes (UAE, Türkiye, Malaysia, Hong Kong).

• Anchors a statutory basis (NTTA, P.L. 118-50) for subsequent

Entity-List additions targeting Iran-diversion networks — the 2024-08-27 BIS Entity List wave that named 123 entities for Russia/China/Iran diversion sits downstream of this expanded FDP rule, since the expanded rule extends the EAR's reach to the foreign-produced inputs those entities procure.

• Strengthens BIS's ability to pursue extraterritorial enforcement

against non-U.S. distributors and freight-forwarders that ship semiconductors and dual-use electronics to Iranian end-users.

Open questions

• How aggressively will BIS enforce the expanded perimeter against

non-U.S. semiconductor distributors in third countries (UAE, Türkiye, Hong Kong, Malaysia) that the August 2024 Entity List wave identified as diversion hubs?

• Will the NTTA's licensing requirements be incorporated into

subsequent Iran-focused executive orders under Trump 2.0 (e.g., EO 14382 secondary-tariff authority, NSPM-2 maximum-pressure restoration) to create overlapping perimeters?