US EAR and China's Export Controls Reach Past Their Borders: A Guide for Japanese Exporters

Hello, this is Ryuta Hamamoto from TIMEWELL.

"We are shipping from a Japanese factory to a country that is not the United States. Why would US rules apply?" It is one of the questions I hear most in export control consultations. The opposite misunderstanding is just as common: some people believe that if a single US-made part is inside the product, a US license is always required.

Neither is accurate. Both the US Export Administration Regulations (EAR) and China's export controls extend their legal force to transactions outside their own territory. That is extraterritorial application. But the conditions for reaching abroad come with numbers and exceptions. Without knowing them, you either skip a check you needed or stop a shipment you did not need to stop.

This article lays out the ways the EAR reaches shipments from Japan, explains the de minimis calculation and the foreign direct product rules, and then covers the content of China's 0.1% rule for rare earths and where it stands. It ends with a procedure for checking your own exposure. Everything is as of 19 October 2026.

Three common misunderstandings

Misunderstanding	What the rules say
If I do not ship to the US, US rules do not apply	The EAR applies wherever an item is located, to US-origin items, to foreign-made items that contain US-origin content, and to foreign-made items produced from US technology or software.1
One US-made part inside makes the product subject	If the value of the controlled US-origin content is at or below a set share, the product is not subject (de minimis). But there are exceptions where that share cannot be used.2
China already requires a license whenever rare earths are inside	The announcement came in October 2025, but Announcement No. 70 suspended it until 10 November 2026.3

The third point is about timing. The rule has not been repealed, and it comes back automatically when the date arrives, so "it is suspended, so it does not matter" does not hold either.

Four ways the EAR attaches

The EAR's scope provision (15 CFR 734.3) lists what is subject to the regulations. From the point of view of a Japanese exporter, there are four entry points.¹

Entry point	What it means	What it does for a Japanese exporter
Items in the United States	Items in the US, including items transiting the US from one foreign country to another	Routing through the US can make a shipment subject
US-origin items	Subject wherever they are in the world	If you bought a part or machine from the US and send it from Japan to a third country, that is a "reexport." The item stays subject after leaving the US
Foreign-made items with US-origin content	Foreign products incorporating controlled US-origin parts, or bundled with US-origin software	Subject if the share exceeds the de minimis level (next section)
Foreign direct products	Foreign products made from certain US-origin technology or software, or in plants or major components built from it	A product with no US parts can still be subject if the way it is made is US-derived (the section after next)

A shipment from one country to another country that is not the United States is a "reexport." A shipment from Japan to a third country is one. Releasing technology to foreign nationals inside Japan is treated differently, but this article stays with physical goods.

One point to keep in mind: being "subject to the EAR" and "needing a license" are separate questions. The regulation's own note says that once an item is subject to the EAR, the license requirement must still be determined individually, and not every transaction needs one.⁴ It depends on the classification (ECCN), the destination, the end user and the end use. For how classification works, see What is an ECCN?, and for the difference with EAR99, see What is EAR99?.

The State Department's ITAR for defense items and Treasury's OFAC sanctions are separate regimes. Some categories, such as published information, are outside the EAR altogether.¹

"One part" is a myth: the de minimis calculation

When you build a US-origin part into a foreign-made product, a small enough share takes the reexport outside the EAR. This is de minimis. The regulation (734.4) sets two thresholds.²

• 10% rule (c): if controlled US-origin items incorporated in the foreign-made product are 10% or less of its total value, the reexport is not subject to the EAR, to any country
• 25% rule (d): if they are 25% or less, the reexport is not subject, to every country except those in Country Groups E:1 and E:2

So for destinations in E:1 and E:2 the ceiling is 10%, and for everywhere else it is 25%.

What goes in the numerator, and what does not

The detailed method is in Supplement No. 2 to Part 734. This is where mistakes are most likely.⁵

The numerator counts only US-origin items that are "controlled." That means items that would require a BIS license if reexported, in the form received, to the destination of the foreign-made product. Items that can go to that destination without a license, and items eligible for License Exception GBS, are left out. For example, EAR99 parts that need no license are not counted for most destinations. But where the destination is subject to an embargo and a license is required, EAR99 parts may still count. That is my reading of the supplement, which ties the test to the license requirement for each destination, so check it for each transaction.

A US-origin item also has to count as "incorporated," which takes three conditions: it is essential to the function of the foreign-made product, it is normally included in the sale of that product, and it is reexported with it. Technology or source code used only to design or make the product is not treated as incorporated.⁵

Value is, in principle, the fair market price in the foreign market where the product is made, and in many cases that equals the cost actually paid. If an affiliate sells at a special low price, you restate it to the price normally charged to unaffiliated customers in the same market.⁵

Where the threshold cannot be used

The regulation also lists categories in which the share does not matter. Any US-origin content at all can make the product subject. Paragraph 734.4(a) includes categories such as these.²

• Foreign-made computers above a certain performance level that contain controlled US-origin semiconductors
• Foreign-made encryption technology that incorporates US-origin encryption technology (5E002)
• Foreign-made items incorporating US-origin 9x515 items or military "600 series" items, with differences by destination
• Certain equipment for developing or making advanced-node semiconductors

Before you get to the 10% and 25% calculation, confirm that your product does not fall into any of these.

A worked example with made-up numbers

The following is a hypothetical to show the mechanics, not a judgment on any real transaction.

Say a machine made in Japan has a total value of 100, and it incorporates a US-origin part with a value of 15 that would need a license for the destination. The share is 15%. For a destination outside E:1 and E:2, that is under 25%, so the reexport is generally not subject to the EAR. For a destination in E:1 or E:2, the ceiling is 10%, so it is subject.

The same product gives a different answer depending on destination. Neither "even one part makes it subject" nor "the share is small so it is fine" is right. You need to look at the destination, the classification, the share and the exceptions, in that order.

If you reexport a US-origin part on its own, without incorporating it, there is no share to calculate. The part is itself a US-origin item, subject to the EAR.

When the way you make it is US-derived: foreign direct product rules

A foreign-made product with no US parts at all can still be subject to the EAR if it is a direct product of certain US-origin technology or software. These are the foreign direct product (FDP) rules. The basic idea covers foreign products made directly from specified US-origin technology or software, and foreign products made in a plant or major component that is itself a direct product of that technology.⁴

There are several rules, each with its own product origin and its own destination or party conditions. Here are the main ones.⁴

Rule (734.9)	Product origin	Destination or party condition
National Security FDP (b)	Technology or software tied to national security controls	Country Groups D:1, E:1, E:2
9x515 FDP (c), 600 series FDP (d)	Technology or software for spacecraft and military items	D:5, E:1, E:2 and others
Entity List FDP (e)	Technology or software under specified ECCNs	Where parties designated under specific Entity List footnotes are involved
Advanced Computing FDP (h), Supercomputer FDP (i), SME FDP (k)	Technology or software for semiconductors and computing	Specified destinations or uses

If a Japanese factory uses US-origin technology or software to make a product, you need to check where those inputs come from, not only the parts list.

There is a timing note here. The last three sentences of the main text of paragraph (e), and the last two sentences of (g), appear to concern the BIS 50% rule (the Affiliates Rule), and they have been stayed in the Federal Register until 9 November 2026.⁴ The background and the dates are laid out in The US-China November 10 Deadlines. Appearing on a list is a regulatory classification, not a judgment about the company.

China's rare earth 0.1% rule: what it says and where it stands

China has a mechanism with the same structure. MOFCOM Announcement No. 61 of 2025, issued on 9 October 2025, requires parties outside China to obtain a dual-use export license from MOFCOM before exporting certain items to places other than China. It has three categories.⁶

1. Items made abroad that contain or are mixed with China-origin rare earth-related items, where the value share is 0.1% or more
2. Items produced abroad using China-origin rare earth-related technology
3. China-origin items listed in the announcement

The function resembles US de minimis, but the threshold is a different order of magnitude. Rare earths contribute a lot to performance even when they are a small part of a product's value, which is probably why the threshold is so low. That explanation is my own reading, not something the text says.

The announcement also sets out how applications are judged. Applications involving foreign military users, or importers and end users on China's export control list or watch list (including subsidiaries 50% or more owned by them), are in principle not approved. Research, development and manufacture of logic chips at 14 nm and below, memory at 256 layers or more, and some AI research with potential military use are reviewed case by case. A party abroad that transfers a controlled item onward must also issue a "compliance notice" to the next recipient.⁶

The text alone does not give the calculation method or the item list

This is a major difference from the US side. The body of Announcement No. 61 does not explain how to calculate the 0.1%. The specific elements and items are in Annex 1 (the item list), which is not part of the body.⁶ When the annex and the calculation practice become clear depends on what China does next.

Suspended for now, with a date attached

On 7 November 2025, MOFCOM and the General Administration of Customs suspended the implementation of Announcements No. 61 and 62, among others, until 10 November 2026, through Announcement No. 70.³ It is a suspension, not a repeal.

The US and China have announced that they will extend that date to 10 January 2027, and I covered this in The US-China November 10 Deadlines. As of 19 October 2026, I could not find a separate notice extending Announcement No. 70. On the US side too, I could not confirm that BIS has put an extension document into the Federal Register. I searched BIS-related documents published since 1 October and found none.

China's rare earth controls also include permanent rules that are not part of the suspension. For that picture, see China's Rare Earth Export Controls Map.

The legal basis

China's Export Control Law provides that organizations and individuals outside China who violate export control rules, harm China's national security and interests, and obstruct the fulfilment of international obligations such as non-proliferation will be dealt with according to law and held liable (Article 44). The law also applies to transit, transshipment, through shipment and re-export of controlled items (Article 45).⁷ Announcement No. 61 reads as a concrete application of that approach to rare earth-related items.

The US EAR and China's rules side by side

Item	US EAR	China (Announcement No. 61 of 2025)
How it reaches products abroad	US-origin items, foreign products with US-origin content, products derived from US technology or software	Foreign products containing China-origin rare earth-related items, products made with China-origin technology, China-origin items
Content threshold	10% (E:1 and E:2 destinations), 25% (others)	0.1% (value share)
Calculation detail	Fair market value and related rules in Supplement No. 2	Not described in the body
Where the threshold cannot be used	Categories listed in the regulation	Not described in the body (humanitarian purposes need no license but must be reported)
Treatment by party	Entity List and similar	In principle not approved for the control list and watch list
Status (19 October 2026)	In force (the 50% rule portion is stayed)	Suspended (until 10 November 2026)

I am not assessing which country's policy is better or worse here. What this describes is how far each country reaches into transactions outside its own territory, and the conditions written into the text.

Seven steps to check whether it reaches you

The final classification and the license decision belong to your export control officer. As a way in, go through these seven steps in order.

1. Trace the origin of every part in the bill of materials. List where US-origin parts and China-origin rare earth-related parts sit and how much of them there is. For parts that came through traders or OEMs, go back to first- and second-tier suppliers.
2. Confirm the ECCN of US-origin parts. Ask suppliers for the classification. If they do not know, ask them to say whether the part is EAR99.
3. Check the license requirement for each destination. The same part can need a license for one destination and not for another.
4. Calculate the share, and make sure no zero-percent category applies. Before the 10% and 25% thresholds, confirm that you are not in an exception category. For China-origin rare earth-related parts, compare against 0.1%.
5. Check where the technology and software you used to make the product come from. Products made with US-origin technology or software can fall under the foreign direct product rules.
6. Check the counterparty and end use. You need to screen against lists such as the Entity List and check ownership. Appearing on a list is a regulatory classification, not a judgment about the company.
7. Record your calculation and your reasoning. The regulation requires a record of how value was calculated and whether it used actual market price or substitute transaction or manufacturing cost.²

For a first look, the export control quick diagnostic helps you organize where you stand. On the EAR's affiliate rule, see also What is the EAR Affiliates Rule?.

Summary

The US EAR and China's export controls can both reach products shipped from Japan to countries other than the US or China, and that applies more widely than many people think. But it is neither "one part always makes it subject" nor "it does not matter if we ship from Japan." The answer comes from the combination of destination, classification, share, exceptions, manufacturing method and counterparty.

What I think is the most dangerous habit in practice is treating the check as done once. With the 9 and 10 November dates approaching, and an extension announced but no legal document that I could confirm, the best preparation is to be in a position to decide quickly once the rules come back.

Tracing origin through your bill of materials and then following ownership through your counterparties can outgrow what people can do by hand. That is the range TRAFEED is built to handle: screening counterparties against lists, investigating ownership and affiliate networks, and keeping the reasoning behind each decision on record. The final classification decision remains with your export control officer. If you are not sure your current setup is enough, please reach out through our consultation form.

References

Footnotes

1. 15 CFR 734.3 Items subject to the EAR — eCFR (Electronic Code of Federal Regulations) — as of 15 October 2026 ↩ ↩² ↩³

2. 15 CFR 734.4 De minimis U.S. content — eCFR — as of 15 October 2026 ↩ ↩² ↩³ ↩⁴

3. MOFCOM and General Administration of Customs Announcement No. 70 of 2025 (suspension of Announcements No. 55, 56, 57, 58, 61 and 62) (Chinese) — Ministry of Commerce of China — 7 November 2025 ↩ ↩²

4. 15 CFR 734.9 Foreign-Direct Product (FDP) Rules — eCFR — as of 15 October 2026 ↩ ↩² ↩³ ↩⁴

5. Supplement No. 2 to Part 734 Guidelines for De Minimis Rules — eCFR — as of 15 October 2026 ↩ ↩² ↩³

6. MOFCOM Announcement No. 61 of 2025 on export controls over certain rare earth-related items abroad (Chinese) — Ministry of Commerce of China (reprinted by Xinhua) — 9 October 2025 ↩ ↩² ↩³

7. Export Control Law of the People's Republic of China, Articles 2, 44 and 45 (Chinese) — Ministry of Commerce of China, export control website ↩