[Code of Federal Regulations]
[Title 15, Volume 2]
[Revised as of January 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 15CFR760.3]

[Page 474-492]
 
                  TITLE 15--COMMERCE AND FOREIGN TRADE
 
  CHAPTER VII--BUREAU OF INDUSTRY AND SECURITY, DEPARTMENT OF COMMERCE
 
PART 760_RESTRICTIVE TRADE PRACTICES OR BOYCOTTS--Table of Contents
 
Sec.  760.3  Exceptions to prohibitions.

    (a) Import requirements of a boycotting country.

       Compliance With Import Requirements of a Boycotting Country

    (1) A United States person, in supplying goods or services to a 
boycotting country, or to a national or resident of a boycotting 
country, may comply or agree to comply with requirements of such 
boycotting country which prohibit the import of:
    (i) Goods or services from the boycotted country;
    (ii) Goods produced or services provided by any business concern 
organized under the laws of the boycotted country; or
    (iii) Goods produced or services provided by nationals or residents 
of the boycotted country.
    (2) A United States person may comply or agree to comply with such 
import requirements whether or not he has received a specific request to 
comply. By its terms, this exception applies only to transactions 
involving imports into a boycotting country. A United States person may 
not, under this exception, refuse on an across-the-board basis to do 
business with a boycotted country or a national or resident of a 
boycotted country.
    (3) In taking action within the scope of this exception, a United 
States person is limited in the types of boycott-related information he 
can supply. (See Sec.  760.2(d) of this part on ``Furnishing Information 
About Business Relationships with Boycotted Countries or Blacklisted 
Persons'' and paragraph (c) of this section on ``Import and Shipping 
Document Requirements.'')

 Examples of Compliance With Import Requirements of a Boycotting Country

    The following examples are intended to give guidance in determining 
the circumstances in which compliance with the import requirements of a 
boycotting country is permissible. They are illustrative, not 
comprehensive.
    (i) A, a U.S. manufacturer, receives an order from boycotting 
country Y for its products. Country X is boycotted by country Y, and the 
import laws of Y prohibit the importation of goods produced or 
manufactured in X. In filling this type of order, A would usually 
include some component parts produced in X.
    For the purpose of filling this order, A may substitute comparable 
component parts in place of parts produced in X, because the import laws 
of Y prohibit the importation of goods manufactured in X.
    (ii) Same as (i), except that A's contract with Y expressly provides 
that in fulfilling the contract A ``may not include parts or components 
produced or manufactured in boycotted country X.''
    A may agree to and comply with this contract provision, because Y 
prohibits the importation of goods from X. However, A may not furnish 
negative certifications regarding

[[Page 475]]

the origin of components in response to import and shipping document 
requirements.
    (iii) A, a U.S. building contractor, is awarded a contract to 
construct a plant in boycotting country Y. A accepts bids on goods 
required under the contract, and the lowest bid is made by B, a business 
concern organized under the laws of X, a country boycotted by Y. Y 
prohibits the import of goods produced by companies organized under the 
laws of X.
    For purposes of this contract, A may reject B's bid and accept 
another, because B's goods would be refused entry into Y because of Y's 
boycott against X.
    (iv) Same as (iii), except that A also rejects the low bid by B for 
work on a construction project in country M, a country not boycotted by 
Y.
    This exception does not apply, because A's action is not taken in 
order to comply with Y's requirements prohibiting the import of products 
from boycotted country X.
    (v) A, a U.S. management consulting firm, contracts to provide 
services to boycotting country Y. Y requests that A not employ residents 
or nationals of boycotted country X to provide those services.
    A may agree, as a condition of the contract, not to have services 
furnished by nationals or residents of X, because importation of such 
services is prohibited by Y.
    (vi) A, a U.S. company, is negotiating a contract to supply machine 
tools to boycotting country Y. Y insists that the contract contain a 
provision whereby A agrees that none of the machine tools will be 
produced by any business concern owned by nationals of boycotted country 
X, even if the business concern is organized under the laws of a non-
boycotted country.
    A may not agree to this provision, because it is a restriction on 
the import of goods produced by business concerns owned by nationals of 
a boycotted country even if the business concerns themselves are 
organized under the laws of a non-boycotted country.

    (b) Shipment of goods to a boycotting country.

   Compliance With Requirements Regarding the Shipment of Goods to a 
                           Boycotting Country

    (1) A United States person, in shipping goods to a boycotting 
country, may comply or agree to comply with requirements of that country 
which prohibit the shipment of goods:
    (i) On a carrier of the boycotted country; or
    (ii) By a route other than that prescribed by the boycotting country 
or the recipient of the shipment.
    (2) A specific request that a United States person comply or agree 
to comply with requirements concerning the use of carriers of a 
boycotted country is not necessary if the United States person knows, or 
has reason to know, that the use of such carriers for shipping goods to 
the boycotting country is prohibited by requirements of the boycotting 
country. This exception applies whether a boycotting country or the 
purchaser of the shipment:
    (i) Explicitly states that the shipment should not pass through a 
port of the boycotted country; or
    (ii) Affirmatively describes a route of shipment that does not 
include a port in the boycotted country.
    (3) For purposes of this exception, the term carrier of a boycotted 
country means a carrier which flies the flag of a boycotted country or 
which is owned, chartered, leased, or operated by a boycotted country or 
by nationals or residents of a boycotted country.

 Examples of Compliance With the Shipping Requirements of a Boycotting 
                                 Country

    The following examples are intended to give guidance in determining 
the circumstances in which compliance with import and shipping document 
requirements of a boycotting country is permissible. They are 
illustrative, not comprehensive.
    (i) A is a U.S. exporter from whom boycotting country Y is importing 
goods. Y directs that the goods not pass through a port of boycotted 
country X.
    A may comply with Y's shipping instructions, because they pertain to 
the route of shipment of goods being shipped to Y.
    (ii) A, a U.S. fertilizer manufacturer, receives an order from 
boycotting country Y for fertilizer. Y specifies in the order that A may 
not ship the fertilizer on a carrier of boycotted country X.
    A may comply with this request, because it pertains to the carrier 
of a boycotted country.
    (iii) B, a resident of boycotting country Y, orders textile goods 
from A, a U.S. distributor, specifying that the shipment must not be 
made on a carrier owned or leased by nationals of boycotted country X 
and that the carrier must not pass through a port of country X enroute 
to Y.
    A may comply or agree to comply with these requests, because they 
pertain to the shipment of goods to Y on a carrier of a boycotted 
country and the route such shipment will take.
    (iv) Boycotting country Y orders goods from A, a U.S. retail 
merchant. The order

[[Page 476]]

specifies that the goods shipped by A ``may not be shipped on a carrier 
registered in or owned by boycotted country X.''
    A may agree to this contract provision, because it pertains to the 
carrier of a boycotted country.
    (v) Boycotting country Y orders goods from A, a U.S. pharmaceutical 
company, and requests that the shipment not pass through a port of 
country P, which is not a country boycotted by Y.
    This exception does not apply in a non-boycotting situation. A may 
comply with the shipping instructions of Y, because in doing so he would 
not violate any prohibition of this part.
    (vi) Boycotting country Y orders goods from A, a U.S. manufacturer. 
The order specifies that goods shipped by A ``must not be shipped on 
vessels blacklisted by country Y''.
    A may not agree to comply with this condition because it is not a 
restriction limited to the use of carriers of the boycotted country.

    (c) Import and shipping document requirements.

     Compliance With Import and Shipping Document Requirements of a 
                           Boycotting Country

    (1) A United States person, in shipping goods to a boycotting 
country, may comply or agree to comply with import and shipping document 
requirements of that country, with respect to:
    (i) The country or origin of the goods;
    (ii) The name and nationality of the carrier;
    (iii) The route of the shipment;
    (iv) The name, residence, or address of the supplier of the 
shipment;
    (v) The name, residence, or address of the provider of other 
services.
    (2) Such information must be stated in positive, non-blacklisting, 
non-exclusionary terms except for information with respect to the names 
or nationalities of carriers or routes of shipment, which may continue 
to be stated in negative terms in conjunction with shipments to a 
boycotting country, in order to comply with precautionary requirements 
protecting against war risks or confiscation.

  Examples of Compliance With Import and Shipping Document Requirements

    The following examples are intended to give guidance in determining 
the circumstances in which compliance with the import requirements of a 
boycotting country is permissible. They are illustrative, not 
comprehensive.
    (i) Boycotting country Y contracts with A, a U.S. petroleum 
equipment manufacturer, for certain equipment. Y requires that goods 
being imported into Y must be accompanied by a certification that the 
goods being supplied did not originate in boycotted country X.
    A may not supply such a certification in negative terms but may 
identify instead the country of origin of the goods in positive terms 
only.
    (ii) Same as (i), except that Y requires that the shipping 
documentation accompanying the goods specify the country of origin of 
the goods.
    A may furnish the information.
    (iii) [Reserved]
    (iv) A, a U.S. apparel manufacturer, has contracted to sell certain 
of its products to B, a national of boycotting country Y. The form that 
must be submitted to customs officials of Y requires the shipper to 
certify that the goods contained in the shipment have not been supplied 
by ``blacklisted'' persons.
    A may not furnish the information in negative terms but may certify, 
in positive terms only, the name of the supplier of the goods.
    (v) Same as (iv), except the customs form requires certification 
that the insurer and freight forwarder used are not ``blacklisted.''
    A may not comply with the request but may supply a certification 
stating, in positive terms only, the names of the insurer and freight 
forwarder.
    (vi) A, a U.S. petrochemical manufacturer, executes a sales contract 
with B, a resident of boycotting country Y. A provision of A's contract 
with B requires that the bill of lading and other shipping documents 
contain certifications that the goods have not been shipped on a 
``blacklisted'' carrier.
    A may not agree to supply a certification that the carrier is not 
``blacklisted'' but may certify the name of the carrier in positive 
terms only.
    (vii) Same as (vi), except that the contract requires certification 
that the goods will not be shipped on a carrier which flies the flag of, 
or is owned, chartered, leased, or operated by boycotted country X, or 
by nationals or residents of X.
    Such a certification, which is a reasonable requirement to protect 
against war risks or confiscation, may be furnished at any time.
    (viii) Same as (vi), except that the contract requires that the 
shipping documents certify the name of the carrier being used.
    A may, at any time, supply or agree to supply the requested 
documentation regarding the name of the carrier, either in negative or 
positive terms.
    (ix) Same as (vi), except that the contract requires a certification 
that the carrier will

[[Page 477]]

not call at a port in boycotted country X before making delivery in Y.
    Such a certification, which is a reasonable requirement to protect 
against war risks or confiscation, may be furnished at any time.
    (x) Same as (vi), except that the contract requires that the 
shipping documents indicate the name of the insurer and freight 
forwarder.
    A may comply at any time, because the statement is not required to 
be made in negative or blacklisting terms.
    (xi) A, a U.S. exporter, is negotiating a contract to sell bicycles 
to boycotting country Y. Y insists that A agree to certify that the 
goods will not be shipped on a vessel which has ever called at a port in 
boycotted country X.
    As distinguished from a certification that goods will not be shipped 
on a vessel which will call enroute at a port of boycotted country X, 
such a certification is not a reasonable requirement to protect against 
war risks or confiscation, and, hence, may not be supplied.
    (xii) Same as (xi), except that Y insists that A agree to certify 
that the goods will not be shipped on a carrier that is ineligible to 
enter Y's waters.
    Such a certification, which is not a reasonable requirement to 
protect against war risks or confiscation may not be supplied.

    (d) Unilateral and specific selection.

            Compliance with Unilateral and Specific Selection

    (1) A United States person may comply or agree to comply in the 
normal course of business with the unilateral and specific selection by 
a boycotting country, a national of a boycotting country, or a resident 
of a boycotting country (including a United States person who is a bona 
fide resident of a boycotting country) of carriers, insurers, suppliers 
of services to be performed within the boycotting country, or specific 
goods, provided that with respect to services, it is necessary and 
customary that a not insignificant part of the services be performed 
within the boycotting country. With respect to goods, the items, in the 
normal course of business, must be identifiable as to their source or 
origin at the time of their entry into the boycotting country by (a) 
uniqueness of design or appearance or (b) trademark, trade name, or 
other identification normally on the items themselves, including their 
packaging.
    (2) This exception pertains to what is permissible for a United 
States person who is the recipient of a unilateral and specific 
selection of goods or services to be furnished by a third person. It 
does not pertain to whether the act of making such a selection is 
permitted; that question is covered, with respect to United States 
persons, in paragraph (g) of this section on ``Compliance with Local 
Law.'' Nor does it pertain to the United States person who is the 
recipient of an order to supply its own goods or services. Nothing in 
this part prohibits or restricts a United States person from filling an 
order himself, even if he is selected by the buyer on a boycott basis 
(e.g., because he is not blacklisted), so long as he does not himself 
take any action prohibited by this part.

           Unilateral and Specific Character of the Selection

    (3) In order for this exception to apply, the selection with which a 
United States person wishes to comply must be unilateral and specific.
    (4) A ``specific'' selection is one which is stated in the 
affirmative and which specifies a particular supplier of goods or 
services.
    (5) A ``unilateral'' selection is one in which the discretion in 
making the selection is exercised by the boycotting country buyer. If 
the United States person who receives a unilateral selection has 
provided the buyer with any boycott-based assistance (including 
information for purposes of helping the buyer select someone on a 
boycott basis), then the buyer's selection is not unilateral, and 
compliance with that selection by a United States person does not come 
within this exception.
    (6) The provision of so-called ``pre-selection'' or ``pre-award'' 
services, such as providing lists of qualified suppliers, 
subcontractors, or bidders, does not, in and of itself, destroy the 
unilateral character of a selection, provided such services are not 
boycott-based. Lists of qualified suppliers, for example, must not 
exclude anyone because he is blacklisted. Moreover, such services must 
be of the type customarily provided in similar transactions by the firm 
(or industry of which the firm is a part) as measured by the practice in

[[Page 478]]

non-boycotting as well as boycotting countries. If such services are not 
customarily provided in similar transactions or such services are 
provided in such a way as to exclude blacklisted persons from 
participating in a transaction or diminish their opportunity for such 
participation, then the services may not be provided without destroying 
the unilateral character of any subsequent selection.

           Selection To Be Made by Boycotting Country Resident

    (7) In order for this exception to be available, the unilateral and 
specific selection must have been made by a boycotting country, or by a 
national or resident of a boycotting country. Such a resident may be a 
United States person. For purposes of this exception, a United States 
person will be considered a resident of a boycotting country only if he 
is a bona fide resident. A United States person may be a bona fide 
resident of a boycotting country even if such person's residency is 
temporary.
    (8) Factors that will be considered in determining whether a United 
States person is a bona fide resident of a boycotting country include:
    (i) Physical presence in the country;
    (ii) Whether residence is needed for legitimate business reasons;
    (iii) Continuity of the residency;
    (iv) Intent to maintain the residency;
    (v) Prior residence in the country;
    (vi) Size and nature of presence in the country;
    (vii) Whether the person is registered to do business or 
incorporated in the country;
    (viii) Whether the person has a valid work visa; and
    (ix) Whether the person has a similar presence in both boycotting 
and non-boycotting foreign countries in connection with similar business 
activities.
    Note to paragraph (d)(8) of this section:
    No one of the factors is dispositive. All the circumstances will be 
examined closely to ascertain whether there is, in fact, a bona fide 
residency. Residency established solely for purposes of avoidance of the 
application of this part, unrelated to legitimate business needs, does 
not constitute bona fide residency.
    (9) The boycotting country resident must be the one actually making 
the selection. If a selection is made by a non-resident agent, parent, 
subsidiary, affiliate, home office or branch office of a boycotting 
country resident, it is not a selection by a resident within the meaning 
of this exception.
    (10) A selection made solely by a bona fide resident and merely 
transmitted by another person to a United States person for execution is 
a selection by a bona fide resident within the meaning of this 
exception.

                             Duty of Inquiry

    (11) If a United States person receives, from another person located 
in the United States, what may be a unilateral selection by a boycotting 
country customer, and knows or has reason to know that the selection is 
made for boycott reasons, he has a duty to inquire of the transmitting 
person to determine who actually made the selection. If he knows or has 
reason to know that the selection was made by other than a boycotting 
country, or a national or resident of a boycotting country, he may not 
comply. A course or pattern of conduct which a United States person 
recognizes or should recognize as consistent with boycott restrictions 
will create a duty to inquire.
    (12) If the United States person does not know or have reason to 
know that the selection it receives is boycott-based, its compliance 
with such a selection does not offend any prohibition and this exception 
is not needed.

                          Selection of Services

    (13) This exception applies only to compliance with selections of 
certain types of suppliers of services-carriers, insurers, and suppliers 
of services to be performed ``within the boycotting country.'' Services 
to be performed wholly within the United States or wholly within any 
country other than the boycotting country are not covered.
    (14) For purposes of this part, services are to be performed 
``within the boycotting country'' only if they are of a type which would 
customarily be performed by suppliers of those services within the 
country of the recipient of those services, and if the part of the 
services performed within the boycotting country is a necessary and not

[[Page 479]]

insignificant part of the total services performed.
    (15) What is ``customary and necessary'' for these purposes depends 
on the usual practice of the supplier of the services (or the industry 
of which he is a part) as measured by the practice in non-boycotting as 
well as boycotting countries, except where such practices are instituted 
to accommodate this part.

                           Selection of Goods

    (16) This exception applies only to compliance with selections of 
certain types of goods--goods that, in the normal course of business, 
are identifiable as to their source or origin at the time of their entry 
into the boycotting country. The definition of ``specifically 
identifiable goods'' is the same under this section as it is in 
paragraph (g) of this section on ``Compliance with Local Law.''
    (17) Goods ``specifically identifiable'' in the normal course of 
business are those items which at the time of their entry into a 
boycotting country are identifiable as to source or origin by uniqueness 
of design or appearance; or trademark, trade name, or other 
identification normally on the items themselves, including their 
packaging. Goods are ``specifically identifiable'' in the normal course 
of business if their source or origin is ascertainable by inspection of 
the items themselves, including their packaging, regardless of whether 
inspection takes place. Goods are not considered to be ``specifically 
identifiable'' in the normal course of business if a trademark, trade 
name, or other form of identification not normally present is added to 
the items themselves, including their packaging, to accommodate this 
part.

                                 General

    (18) If a unilateral selection meets the conditions described in 
paragraph (d) of this section, the United States person receiving the 
unilateral selection may comply or agree to comply, even if he knows or 
has reason to know that the selection was boycott-based. However, no 
United States person may comply or agree to comply with any unilateral 
selection if he knows or has reason to know that the purpose of the 
selection is to effect discrimination against any United States person 
on the basis of race, religion, sex, or national origin.

           Examples of Compliance With a Unilateral Selection

    The following examples are intended to give guidance in determining 
what constitutes a unilateral selection and the circumstances in which 
compliance with such a selection is permissible. They are illustrative, 
not comprehensive.

                    Specific and Unilateral Selection

    (i) A, a U.S. manufacturer of road-grading equipment, is asked by 
boycotting country Y to ship goods to Y on U.S. vessel B, a carrier 
which is not blacklisted by Y. A knows or has reason to know that Y's 
selection of B is boycott-based.
    A may comply with Y's request, or may agree to comply as a condition 
of the contract, because the selection is specific and unilateral.
    (ii) A, a U.S. contractor building an industrial facility in 
boycotting country Y is asked by B, a resident of Y, to use C as the 
supplier of air conditioning equipment to be used in the facility. C is 
not blacklisted by country Y. A knows or has reason to know that B's 
request is boycott-based.
    A may comply with B's request, or may agree to comply as a condition 
of the contract, because the selection of C is specific and unilateral.
    (iii) A, a U.S. manufacturer of automotive equipment, is asked by 
boycotting country Y not to ship its goods to Y on U.S. carriers, B, C, 
or D. Carriers B, C, and D are blacklisted by boycotting country Y. A 
knows or has reason to know that Y's request is boycott-based.
    A may not comply or agree to comply with Y's request, because no 
specific selection of any particular carrier has been made.
    (iv) A, a U.S. exporter shipping goods ordered by boycotting country 
Y, is provided by Y with a list of eligible U.S. insurers from which A 
may choose in insuring the shipment of its goods. A knows or has reason 
to know that the list was compiled on a boycott basis.
    A may not comply or agree to comply with Y's request that A choose 
from among the eligible insurers, because no specific selection of any 
particular insurer has been made.
    (v) A, a U.S. aircraft manufacturer, is negotiating to sell aircraft 
to boycotting country Y. During the negotiations, Y asks A to identify 
the company which normally manufactures the engines for the aircraft. A 
responds that they are normally manufactured by U.S. engine manufacturer 
B. B is blacklisted by Y. In making the purchase, Y specifies that the 
engines for the aircraft

[[Page 480]]

should be supplied by U.S. engine manufacturer C.
    A may comply or agree to comply with Y's selection of C, because Y's 
selection is unilateral and specific.
    (vi) A, a U.S. construction firm, is retained by an agency of 
boycotting country Y to build a pipeline. Y requests A to suggest 
qualified engineering firms to be used on-site in the construction of 
the pipeline. It is customary for A, regardless of where it conducts its 
operations, to identify qualified engineering firms to its customers so 
that its customers may make their own selection of the firm to be 
engaged. Choice of engineering firm is customarily a prerogative of the 
customer. A provides a list of five engineering firms, B-F, excluding no 
firm because it may be blacklisted, and then confers with and gives its 
recommendations to Y. A recommends C, because C is the best qualified. Y 
then selects B, because C is blacklisted.
    A may comply with Y's selection of B, because the boycott-based 
decision is made by Y and is unilateral and specific. Since A's pre-
award services are of the kind customarily provided in these situations, 
and since they are provided without reference to the boycott, they do 
not destroy the unilateral character of Y's selection.
    (vii) A, a U.S. aircraft manufacturer, has an order to supply a 
certain number of planes to boycotting country Y. In connection with the 
order, Y asks A to supply it with a list of qualified aircraft tire 
manufacturers so that Y can select the tires to be placed on the planes. 
This is a highly unusual request, since, in A's worldwide business 
operations, choice of tires is customarily made by the manufacturer, not 
the customer. Nonetheless, A supplies a list of tire manufacturers, B, 
C, D, and E. Y chooses tire manufacturer B because B is not blacklisted. 
Had A, as is customary, selected the tires, company C would have been 
chosen. C happens to be blacklisted, and A knows that C's blacklist 
status was the reason for Y's selection of B.
    A's provision of a list of tire manufacturers for Y to choose from 
destroys the unilateral character of Y's selection, because such a pre-
selection service is not customary in A's worldwide business operations.
    (viii) A, a U.S. aircraft manufacturer, receives an order from U.S. 
company C, which is located in the United States, for the sale of 
aircraft to company D, a U.S. affiliate of C. D is a bona fide resident 
of boycotting country Y. C instructs A that ``in order to avoid boycott 
problems,'' A must use engines that are manufactured by company B, a 
company that is not blacklisted by Y. Engines built by B are unique in 
design and also bear B's trade name.
    Since A has reason to know that the selection is boycott-based, he 
must inquire of C whether the selection was in fact made by D. If C 
informs A that the selection was made by D, A may comply.
    (ix) Same as (viii), except that C initially states that the 
designation was unilaterally and specifically made by D.
    A may accept C's statement without further investigation and may 
comply with the selection, because C merely transmitted D's unilateral 
and specific selection.
    (x) Same as (ix), except that C informs A that it, C, has selected B 
on behalf of or as an agent of its affiliated company resident in the 
boycotting country.
    A may not comply with this selection, because the decision was not 
made by a resident of the boycotting country.
    (xi) A, a U.S. management consulting firm, is advising boycotting 
country Y on the selection of a contracting firm to construct a plant 
for the manufacture of agricultural chemicals. As is customary in its 
business, A compiles a list of potential contractors on the basis of its 
evaluation of the capabilities of the respective candidates to perform 
the job. A has knowledge that company B is blacklisted, but provides Y 
with the names of companies B, C, D, and E, listing them in order of 
their qualifications. Y instructs A to negotiate with C.
    A may comply with Y's instruction, because Y's selection is 
unilateral and specific.
    (xii) A, a U.S. exporter, is asked by boycotting country Y not to 
ship goods on carriers B, C, or D, which are owned by nationals of and 
are registered in country P, a country not boycotted by Y.
    A may comply or agree to comply with Y's request even though the 
selection is not specific, because A does not know or have reason to 
know that the request is boycott-based.

    (Note: In example (xii), A has violated no prohibition, because it 
does not know or have reason to know that Y's instruction is boycott-
based. Therefore, A could not act with the requisite intent to comply 
with the boycott.)

    (xiii) A, a U.S. construction company, receives a contract to 
construct a hotel in boycotting country Y. As part of the contract, A is 
required to furnish Y with lists of qualified suppliers of various 
specifically identifiable items. A compiles lists of various qualified 
suppliers wholly without reference to the boycott, and thereafter Y 
instructs A to negotiate with, enter into contracts with, and arrange 
for delivery from each of the suppliers which Y designates. A knows that 
Y's choices are made on a boycott basis.
    A may comply with Y's selections and carry out these post-award 
services for Y, because Y's selections were unilateral and specific and 
A's pre-award services were provided without reference to Y's boycott.

[[Page 481]]

                  Examples of Boycotting Country Buyer

(The factors in determining whether a United States person is a ``bona 
fide resident'' of a boycotting country are the same as in paragraph (g) 
of this section on ``Compliance with Local Law.'' See also the examples 
in that section.)

    (i) A, a U.S. exporter, is asked by B, a U.S. person who is a bona 
fide resident of boycotting country Y, to ship goods on U.S. carrier C. 
C is not blacklisted by Y, and A knows that B has chosen on a boycott 
basis in order to comply with Y's boycott laws.
    A may comply or agree to comply with B's request, because B is a 
bona fide resident of Y.
    (ii) A is a U.S. computer company whose subsidiary, B, is a bona 
fide resident of boycotting country Y. A receives an order from B for 
specific, identifiable products manufactured by company C in connection 
with a computer which B is installing in Y.
    A may comply or agree to comply with B's unilateral and specific 
selection, so long as the discretion was in fact exercised by B, not A.
    (Note: Unilateral selection transactions involving related United 
States persons will be scrutinized carefully to ensure that the 
selection was in fact made by the bona fide resident of the boycotting 
country.)
    (iii) A, a U.S. engineering firm, has chief engineer B as its 
resident engineer on a dam construction site in boycotting country Y. 
B's presence at the site is necessary in order to ensure proper 
supervision of the project. In order to comply with local law, B selects 
equipment supplier C rather than D, who is blacklisted, and directs A to 
purchase certain specific equipment from C for use in the project.
    A may comply with this unilateral selection, because the decision 
was made by a bona fide resident of Y.

(As noted above, unilateral selections involving related United States 
persons will be scrutinized carefully to ensure that the selection was 
in fact made by the bona fide resident of the boycotting country.)

    (iv) B, a branch of U.S. bank A, is located in boycotting country Y. 
B is in need of office supplies and asks the home office in New York to 
make the necessary purchases. A contacts C, a U.S. company in the office 
supply business, and instructs C to purchase various items from certain 
specific companies and ship them directly to B. In order to avoid any 
difficulties for B with respect to Y's boycott laws, A is careful to 
specify only non-blacklisted companies or suppliers. C knows that that 
was A's purpose. C may not comply with A's instruction, because the 
selection of suppliers was not made by a resident of a boycotting 
country.
    (v) Same as (iv), except that A has given standing instructions to B 
that whenever it needs office supplies, it should specify certain 
suppliers designated by A. To avoid running afoul of Y's boycott laws, 
A's designations consist exclusively of non-blacklisted firms. A 
receives an order from B with the suppliers designated in accordance 
with A's instructions.
    A may not comply with B's selection, because the selection was not 
in fact made by a bona fide resident of the boycotting country, but by a 
person located in the United States.

                    Examples of Suppliers of Services

    (i) A, a U.S. manufacturer, is asked by boycotting country Y to ship 
goods to Y on U.S. vessel B, a carrier which is not blacklisted by Y.
    A may comply or agree to comply with Y's request, because compliance 
with the unilateral and specific selection of carriers is expressly 
permitted under this exception.
    (ii) A, a U.S. exporter shipping goods ordered by C, a national of 
boycotting country Y, is asked by C to insure the shipment through U.S. 
insurer B.
    A may comply or agree to comply with C's request, because compliance 
with the unilateral and specific selection of an insurer is expressly 
permitted under this exception.
    (iii) A, a U.S. construction company, is hired by C, an agency of 
the government of boycotting country Y, to build a power plant in Y. C 
specifies that A should subcontract the foundation work to U.S. 
contractor B. Part of the foundation design work will be done by B in 
the United States.
    A may comply or agree to comply with Y's designation, because a 
necessary and not insignificant part of B's services are to be performed 
within the boycotting country, and such services are customarily 
performed on-site.
    (iv) A, a U.S. contractor, is engaged by boycotting country Y to 
build a power plant. Y specifies that U.S. architectural firm B should 
be retained by A to design the plant. In order to design the plant, it 
is essential that B's personnel visit and become familiar with the site, 
although the bulk of the design and drawing work will be done in the 
United States.
    A may comply or agree to comply with Y's unilateral and specific 
selection of architectural firm B, because a necessary and not 
insignificant part of B's services are to be performed within Y, and 
such on-site work is customarily involved in the provision of 
architectural services. The fact that the bulk of the actual work may be 
performed in the United States is irrelevant since the part to be 
performed within Y is necessary to B's effective performance.
    (v) Same as (iv), except that Y specifies that the turbine for the 
power plant should

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be designed by U.S. engineer C. It is neither customary nor necessary 
for C to visit the site in order to do any of his work, but C has 
informed A that he would probably want to visit the site in Y if he were 
selected for the job.
    A may not comply or agree to comply with Y's request, because, in 
the normal course of business, it is neither customary nor necessary for 
engineer C's services to be performed in Y.
    (vi) A, a U.S. aircraft manufacturer, receives a contract from 
boycotting country Y to manufacture jet engines for Y's use. Y specifies 
that the engines should be designed by U.S. industrial engineering firm 
B.
    A may not comply or agree to comply with Y's request, because, in 
the normal course of business, the services will not be performed in Y.
    (vii) U.S. company A has a contract to supply specially designed 
road graders to boycotting country Y. Y has instructed A that it should 
engage engineering firm B in the design work rather than engineering 
firm C, which A normally uses, because C is blacklisted. When A contacts 
B, B informs A that one of B's personnel customarily visits the location 
in which any equipment B designs is used after it is in use, in order to 
determine how good a design job B has done. Such visits are necessary 
from B's point of view to provide a check on the quality of its work, 
and they are necessary from Y's point of view because they make it 
possible for Y to discuss possible design changes should deficiencies be 
detected.
    A may not comply with Y's selection of B, because the services which 
B would perform in Y are an insignificant part of the total services to 
be performed by B.

               Examples of Specifically Identifiable Goods

(The test of what constitutes ``specifically identifiable goods'' under 
this exception also applies to the term ``specifically identifiable 
goods'' as used in paragraph (g) of this section on ``Compliance with 
Local Law.'')

    (i) A, a U.S. contractor, is constructing an apartment complex, on a 
turnkey basis, for boycotting country Y. Y instructs A to use only 
kitchen appliances manufactured by U.S. company B in completing the 
project. The appliances normally bear the manufacturer's name and 
trademark.
    A may comply with Y's selection of B, because Y's unilateral and 
specific selection is of goods identifiable as to source or origin in 
the normal course of business at the time of their entry into Y.
    (ii) Same as (i), except that Y directs A to use lumber manufactured 
only by U.S. company C. In the normal course of business, C neither 
stamps its name on the lumber nor identifies itself as the manufacturer 
on the packaging. In addition, normal export packaging does not identify 
the manufacturer.
    A may not comply with Y's selection, because the goods selected are 
not identifiable by source or origin in the normal course of business at 
the time of their entry into Y.
    (iii) B, a U.S. contractor who is a bona fide resident of boycotting 
country Y, is engaged in building roads. B retains the services of A, a 
U.S. engineering firm, to assist it in procuring construction equipment. 
B directs A to purchase road graders only from manufacturer C because 
other road grader manufacturers which A might use are blacklisted. C's 
road graders normally bear C's insignia.
    A may comply with B's selection of C, because the goods selected are 
identifiable by source or origin in the normal course of business at the 
time of their entry into Y.
    (iv) A, a U.S. company, manufactures computer-operated machine 
tools. The computers are mounted on a separate bracket on the side of 
the equipment and are readily identifiable by brand name imprinted on 
the equipment. There are five or six U.S. manufacturers of such 
computers which will function interchangeably to operate the machine 
tools manufactured by A. B, a resident of boycotting country Y, 
contracts to buy the machine tools manufactured by A on the condition 
that A incorporate, as the computer drive, a computer manufactured by 
U.S. company C. B's designation of C is made to avoid boycott problems 
which could be caused if computers manufactured by some other company 
were used.
    A may comply with B's designation of C, because the goods selected 
are identifiable by source or origin in the normal course of business at 
the time of their entry into Y.
    (v) A, a U.S. wholesaler of electronic equipment, receives an order 
from B, a U.S. manufacturer of radio equipment, who is a bona fide 
resident of boycotting country Y. B orders a variety of electrical 
components and specifies that all transistors must be purchased from 
company C, which is not blacklisted by Y. The transistors requested by B 
do not normally bear the name of the manufacturer; however, they are 
typically shipped in cartons, and C's name and logo appear on the 
cartons.
    A may comply with B's selection, because the goods selected by B are 
identifiable as to source or origin in the normal course of business at 
the time of their entry into Y by virtue of the containers or packaging 
used.
    (vi) A, a U.S. computer manufacturer, receives an order for a 
computer from B, a university in boycotting country Y. B specifies that 
certain integrated circuits incorporated in the computer must be 
supplied by U.S. electronics company C. These circuits are incorporated 
into the computer and are not visible without disassembling the 
computer.
    A may not comply or agree to comply with B's specific selection of 
these components,

[[Page 483]]

because they are not identifiable as to their source or origin in the 
normal course of business at the time of their entry into Y.
    (vii) A, a U.S. clothing manufacturer, receives an order for shirts 
from B, a retailer resident in boycotting country Y. B specifies that 
the shirts are to be manufactured from cotton produced by U.S. farming 
cooperative C. Such shirts will not identify C or the source of the 
cotton.
    A may not comply or agree to comply with B's designation, because 
the cotton is not identifiable as to source or origin in the normal 
course of business at the time of entry into Y.
    (viii) A, a U.S. contractor, is retained by B, a construction firm 
located in and wholly-owned by boycotting country Y, to assist B in 
procuring construction materials. B directs A to purchase a range of 
materials, including hardware, tools, and trucks, all of which bear the 
name of the manufacturer stamped on the item. In addition, B directs A 
to purchase steel beams manufactured by U.S. company C. The name of 
manufacturer C normally does not appear on the steel itself or on its 
export packaging.
    A may comply with B's selection of the hardware, tools, and trucks, 
because they are identifiable as to source or origin in the normal 
course of business at the time of entry into Y. A may not comply with 
B's selection of steel beams, because the goods are not identifiable as 
to source or origin by trade name, trademark, uniqueness or packaging at 
the time of their entry into Y.

 Example of Discrimination on Basis of Race, Religion, Sex, or National 
                                 Origin

    (i) A, a U.S. paper manufacturer, is asked by boycotting country Y 
to ship goods to Y on U.S. vessel B. Y states that the reason for its 
choice of B is that, unlike U.S. vessel C, B is not owned by persons of 
a particular faith.
    A may not comply or agree to comply with Y's request, because A has 
reason to know that the purpose of the selection is to effect religious 
discrimination against a United States person.

    (e) Shipment and transshipment of exports pursuant to a boycotting 
country's requirements.

 Compliance With a Boycotting Country's Requirements Regarding Shipment 
                      and Transshipment of Exports

    (1) A United States person may comply or agree to comply with the 
export requirements of a boycotting country with respect to shipments or 
transshipments of exports to:
    (i) A boycotted country;
    (ii) Any business concern of a boycotted country;
    (iii) Any business concern organized under the laws of a boycotted 
country; or
    (iv) Any national or resident of a boycotted country.
    (2) This exception permits compliance with restrictions which a 
boycotting country may place on direct exports to a boycotted country; 
on indirect exports to a boycotted country (i.e., those that pass via 
third parties); and on exports to residents, nationals, or business 
concerns of, or organized under the laws of, a boycotted country, 
including those located in third countries.
    (3) This exception also permits compliance with restrictions which a 
boycotting country may place on the route of export shipments when the 
restrictions are reasonably related to preventing the export shipments 
from coming into contact with or under the jurisdiction of the boycotted 
country. This exception applies whether a boycotting country or the 
vendor of the shipment:
    (i) Explicitly states that the shipment should not pass through the 
boycotted country enroute to its final destination; or
    (ii) Affirmatively describes a route of shipment that does not 
include the boycotted country.
    (4) A United States person may not, under this exception, refuse on 
an across-the-board basis to do business with a boycotted country or a 
national or resident of a boycotted country.

    Examples of Compliance With a Boycotting Country's Requirements 
             Regarding Shipment or Transshipment of Exports

    The following examples are intended to give guidance in determining 
the circumstances in which compliance with the export requirements of a 
boycotting country is permissible. They are illustrative, not 
comprehensive.
    (i) A, a U.S. petroleum company, exports petroleum products to 20 
countries, including the United States, from boycotting country Y. 
Country Y's export regulations require that products not be exported 
from Y to boycotted country X.
    A may agree to and comply with Y's regulations with respect to the 
export of goods from Y to X.

[[Page 484]]

    (ii) Same as (i), except that Y's export regulations require that 
goods not be exported from boycotting country Y to any business concern 
organized under the laws of boycotted country X.
    A may agree to and comply with Y's regulations with respect to the 
export of goods from Y to a business concern organized under the laws of 
X, even if such concern is located in a country not involved in Y's 
boycott of X.
    (iii) B, the operator of a storage facility in country M, contracts 
with A, a U.S. carrier, for the shipment of certain goods manufactured 
in boycotting country Y. A's contract with B contains a provision 
stating that the goods to be transported may not be shipped or 
transshipped to boycotted country X. B informs A that this provision is 
a requirement of C, the manufacturer of goods who is a resident of 
boycotting country Y. Country M is not boycotted by Y.
    A may agree to and comply with this provision, because such a 
provision is required by the export regulations of boycotting country Y 
in order to prevent shipment of Y-origin goods to a country boycotted by 
Y.
    (iv) A, a U.S. petroleum refiner located in the United States, 
purchases crude oil from boycotting country Y. A has a branch operation 
in boycotted country X. Y requires, as a condition of sale, that A agree 
not to ship or transship the crude oil or products refined in Y to A's 
branch in X.
    A may agree to and comply with these requirements, because they are 
export requirements of Y designed to prevent Y-origin products from 
being shipped to a boycotted country.
    (v) A, a U.S. company, has a petrochemical plant in boycotting 
country Y. As a condition of securing an export license from Y, A must 
agree that it will not ship or permit transshipment of any of its output 
from the plant in Y to any companies which Y lists as being owned by 
nationals of boycotted country X.
    A may agree to this condition, because it is a restriction designed 
to prevent Y-origin products from being exported to a business concern 
of boycotted country X or to nationals of boycotted country X.
    (vi) Same as (v), except that the condition imposed on A is that Y-
origin goods may not be shipped or permitted to be transshipped to any 
companies which Y lists as being owned by persons whose national origin 
is X.
    A may not agree to this condition, because it is a restriction 
designed to prevent Y-origin goods from being exported to persons of a 
particular national origin rather than to residents or nationals of a 
particular boycotted country.
    (vii) A, a U.S. petroleum company, exports petroleum products to 20 
countries, including the United States, from boycotting country Y. Y 
requires, as a condition of sale, that A not ship the products to be 
exported from Y to or through boycotted country X.
    A may agree to and comply with this requirement because it is an 
export requirement of Y designed to prevent Y-origin products from 
coming into contact with or under the jurisdiction of a boycotted 
country.
    (viii) Same as (vii), except that boycotting country Y's export 
regulations require that products to be exported from Y not pass through 
a port of boycotted country X.
    A may agree to and comply with Y's regulations prohibiting Y-origin 
exports from passing through a port at boycotted country X, because they 
are export requirements of Y designed to prevent Y-origin products from 
coming into contact with or under the jurisdiction of a boycotted 
country.
    (ix) Same as (vii), except that Y's export regulations require that 
A not transship the exported products ``in or at'' boycotted country X.
    A may agree to and comply with Y's regulations with respect to the 
transshipment of goods ``in or at'' X, because they are export 
requirements of Y designed to prevent Y-origin products from coming into 
contact with or under the jurisdiction of a boycotted country.

    (f) Immigration, passport, visa, or employment requirements of a 
boycotting country.

Compliance With Immigration, Passport, Visa, or Employment Requirements 
                         of a Boycotting Country

    (1) A United States individual may comply or agree to comply with 
the immigration, passport, visa, or employment requirements of a 
boycotting country, and with requests for information from a boycotting 
country made to ascertain whether such individual meets requirements for 
employment within the boycotting country, provided that he furnishes 
information only about himself or a member of his family, and not about 
any other United States individual, including his employees, employers, 
or co-workers.
    (2) For purposes of this section, a United States individual means a 
person who is a resident or national of the United States. Family means 
immediate family members, including parents, siblings, spouse, children, 
and other dependents living in the individual's home.
    (3) A United States person may not furnish information about its 
employees or executives, but may allow any individual to respond on his 
own to any

[[Page 485]]

request for information relating to immigration, passport, visa, or 
employment requirements. A United States person may also perform any 
ministerial acts to expedite processing of applications by individuals. 
These include informing employees of boycotting country visa 
requirements at an appropriate time; typing, translation, messenger and 
similar services; and assisting in or arranging for the expeditious 
processing of applications. All such actions must be undertaken on a 
non-discriminatory basis.
    (4) A United States person may proceed with a project in a 
boycotting country even if certain of its employees or other prospective 
participants in a transaction are denied entry for boycott reasons. But 
no employees or other participants may be selected in advance in a 
manner designed to comply with a boycott.

 Examples of Compliance With Immigration, Passport, Visa, or Employment 
                  Requirements of a Boycotting Country

    The following examples are intended to give guidance in determining 
the circumstances in which compliance with immigration, passport, visa, 
or employment requirements is permissible. They are illustrative, not 
comprehensive.
    (i) A, a U.S. individual employed by B, a U.S. manufacturer of 
sporting goods with a plant in boycotting country Y, wishes to obtain a 
work visa so that he may transfer to the plant in Y. Country Y's 
immigration laws specify that anyone wishing to enter the country or 
obtain a visa to work in the country must supply information about his 
religion. This information is required for boycott purposes.
    A may furnish such information, because it is required by Y's 
immigration laws.
    (ii) Same as (i), except that A is asked to supply such information 
about other employees of B.
    A may not supply this information, because it is not information 
about himself or his family.
    (iii) A, a U.S. building contractor, has been awarded a construction 
contract to be performed in boycotting country Y. Y's immigration laws 
require that individuals applying for visas must indicate race, 
religion, and place of birth. The information is sought for boycott 
purposes. To avoid repeated rejections of applications for work visas by 
A's employees, A desires to furnish to country Y a list of its 
prospective and current employees and required information about each so 
that Y can make an initial screening.
    A may not furnish such a list, because A would be furnishing 
information about the race, religion, and national origin of its 
employees.
    (iv) Same as (iii), except that A selects for work on the project 
those of its current employees whom it believes will be granted work 
visas from boycotting country Y.
    A may not make a selection from among its employees in a manner 
designed to comply with the boycott-based visa requirements of Y, but 
must allow all eligible employees to apply for visas. A may later 
substitute an employee who obtains the necessary visa for one who has 
had his application rejected.
    (v) Same as (iii), except that A selects employees for the project 
and then allows each employee individually to apply for his own visa. 
Two employees' applications are rejected, and A then substitutes two 
other employees who, in turn, submit their own visa applications.
    A may take such action, because in so doing A is not acting in 
contravention of any prohibition of this part.
    (vi) Same as (v), except that A arranges for the translation, typing 
and processing of its employees' applications, and transmits all the 
applications to the consulate of boycotting country Y.
    A may take such ministerial actions, because in so doing A is not 
itself furnishing information with respect to race, religion, sex, or 
national origin, but is merely transmitting information furnished by its 
individual employees.
    (vii) A, a U.S. contractor, selects U.S. subcontractor B to perform 
certain engineering services in connection with A's project in 
boycotting country Y. The work visa application submitted by the 
employee whom B has proposed as chief engineer of this project is 
rejected by Y because his national origin is of boycotted country X. 
Subcontractor B thereupon withdraws.
    A may continue with the project and select another subcontractor, 
because A is not acting in contravention of any prohibition of this 
part.

    (g) Compliance with local law. (1) This exception contains two 
parts. The first covers compliance with local law with respect to a 
United States person's activities exclusively within a foreign country; 
the second covers compliance with local import laws by United States 
persons resident in a foreign country. Under both parts of this 
exception, local laws are laws of the host country, whether derived from 
statutes, regulations, decrees, or other official sources having the 
effect of law in the host country. This exception is not

[[Page 486]]

available for compliance with presumed policies or understandings of 
policies unless those policies are reflected in official sources having 
the effect of law.
    (2) Both parts of this exception apply only to United States persons 
resident in a foreign country. For purposes of this exception, a United 
States person will be considered to be a resident of a foreign country 
only if he is a bona fide resident. A United States person may be a bona 
fide resident of a foreign country even if such person's residency is 
temporary.
    (3)(i) Factors that will be considered in determining whether a 
United States person is a bona fide resident of a foreign country 
include:
    (A) Physical presence in the country;
    (B) Whether residence is needed for legitimate business reasons;
    (C) Continuity of the residency;
    (D) Intent to maintain the residency;
    (E) Prior residence in the country;
    (F) Size and nature of presence in the country;
    (G) Whether the person is registered to do business or incorporated 
in the country;
    (H) Whether the person has a valid work visa; and
    (I) Whether the person has a similar presence in both boycotting and 
non-boycotting foreign countries in connection with similar business 
activities.
    (ii) No one of the factors in paragraph (g)(3) of this section is 
dispositive. All the circumstances involved will be closely examined to 
ascertain whether there is, in fact, bona fide residency. Residency 
established solely for purposes of avoidance of the application of this 
part, unrelated to legitimate business needs, does not constitute bona 
fide residency.

                     Examples of Bona Fide Residency

    The following examples are intended to give guidance in determining 
the circumstances in which a United States person may be a bona fide 
resident of a foreign country. For purposes of illustration, each 
example discusses only one or two factors, instead of all relevant 
factors. They are illustrative, not comprehensive.
    (i) A, a U.S. radio manufacturer located in the United States, 
receives a tender to bid on a contract to supply radios for a hotel to 
be built in boycotting country Y. After examining the proposal, A sends 
a bid from its New York office to Y.
    A is not a resident of Y, because it is not physically present in Y.
    (ii) Same as (i), except that after receiving the tender, A sends 
its sales representative to Y. A does not usually have sales 
representatives in countries when it bids from the United States, and 
this particular person's presence in Y is not necessary to enable A to 
make the bid.
    A is not a bona fide resident of Y, because it has no legitimate 
business reasons for having its sales representative resident in Y.
    (iii) A, a U.S. bank, wishes to establish a branch office in 
boycotting country Y. In pursuit of that objective, A's personnel visit 
Y to make the necessary arrangements. A intends to establish a permanent 
branch office in Y after the necessary arrangements are made.
    A's personnel in Y are not bona fide residents of Y, because A does 
not yet have a permanent business operation in Y.
    (iv) Same as (iii), except A's personnel are required by Y's laws to 
furnish certain non-discriminatory boycott information in order to 
establish a branch in Y.
    In these limited circumstances, A's personnel may furnish the non-
discriminatory boycott information necessary to establish residency to 
the same extent a U.S. person who is a bona fide resident in that 
country could. If this information could not be furnished in such 
limited circumstances, the exception would be available only to firms 
resident in a boycotting country before January 18, 1978.
    (v) A, a U.S. construction company, receives an invitation to build 
a power plant in boycotting country Y. After receipt of the invitation, 
A's personnel visit Y in order to survey the site and make necessary 
analyses in preparation for submitting a bid. The invitation requires 
that otherwise prohibited boycott information be furnished with the bid.
    A's personnel in Y are not bona fide residents of Y, because A has 
no permanent business operation in Y. Therefore, A's personnel may not 
furnish the prohibited information.
    (vi) Same as (v), except that A is considering establishing an 
office in boycotting country Y. A's personnel visit Y in order to 
register A to do business in that country. A intends to establish 
ongoing construction operations in Y. A's personnel are required by Y's 
laws to furnish certain non-discriminatory boycott information in order 
to register A to do business or incorporate a subsidiary in Y.
    In these limited circumstances, A's personnel may furnish non-
discriminatory boycott information necessary to establish residency to 
the same extent a U.S. person who is a bona fide resident in that 
country could. If this information could not be furnished in

[[Page 487]]

such limited circumstances, the exception would be available only to 
firms resident in a boycotting country before January 18, 1978.
    (vii) A, a subsidiary of U.S. oil company B, is located in 
boycotting country Y. A has been engaged in oil explorations in Y for a 
number of years.
    A is a bona fide resident of Y, because of its pre-existing 
continuous presence in Y for legitimate business reasons.
    (viii) Same as (vii), except that A has just been established in Y 
and has not yet begun operations.
    A is a bona fide resident of Y, because it is present in Y for 
legitimate business reasons and it intends to reside continuously.
    (ix) U.S. company A is a manufacturer of prefabricated homes. A 
builds a plant in boycotting country Y for purposes of assembling 
components made by A in the United States and shipped to Y.
    A's personnel in Y are bona fide residents of Y, because A's plant 
in Y is established for legitimate business reasons, and it intends to 
reside continuously.
    (x) U.S. company A has its principal place of business in the United 
States. A's sales agent visits boycotting country Y from time to time 
for purposes of soliciting orders.
    A's sales agent is not a bona fide resident of Y, because such 
periodic visits to Y are insufficient to establish a bona fide 
residency.
    (xi) A, a branch office of U.S. construction company B, is located 
in boycotting country Y. The branch office has been in existence for a 
number of years and has been performing various management services in 
connection with B's construction operations in Y.
    A is a bona fide resident of Y, because of its longstanding presence 
in Y and its conduct of ongoing operations in Y.
    (xii) U.S. construction company A has never done any business in 
boycotting country Y. It is awarded a contract to construct a hospital 
in Y, and preparatory to beginning construction, sends its personnel to 
Y to set up operations.
    A's personnel are bona fide residents of Y, because they are present 
in Y for the purposes of carrying out A's legitimate business purposes; 
they intend to reside continuously; and residency is necessary to 
conduct their business.
    (xiii) U.S. company A manufactures furniture. All its sales in 
foreign countries are conducted from its offices in the United States. 
From time to time A has considered opening sales offices abroad, but it 
has concluded that it is more efficient to conduct sales operations from 
the United States. Shortly after the effective date of this part, A 
sends a sales representative to boycotting country Y to open an office 
in and solicit orders from Y. It is more costly to conduct operations 
from that office than to sell directly from the United States, but A 
believes that if it establishes a residence in Y, it will be in a better 
position to avoid conflicts with U.S. law in its sales to Y.
    A's sales representative is not a bona fide resident of Y, because 
the residency was established to avoid the application of this part and 
not for legitimate business reasons.
    (xiv) Same as (xiii), except that it is in fact more efficient to 
have a sales office in Y. In fact, without a sales office in Y, A would 
find it difficult to explore business opportunities in Y. A is aware, 
however, that residency in Y would permit its sales representative to 
comply with Y's boycott laws.
    A's sales representative is a bona fide resident of Y, because A has 
a legitimate business reason for establishing a sales office in Y.
    (xv) U.S. company B is a computer manufacturer. B sells computers 
and related programming services tailored to the needs of individual 
clients. Because of the complex nature of the product, B must have sales 
representatives in any country where sales are made. B has a sales 
representative, A, in boycotting country Y. A spends two months of the 
year in Y, and the rest of the year in other countries. B has a 
permanent sales office from which A operates while in Y, and the sales 
office is stocked with brochures and other sales materials.
    A is a bona fide resident of Y, because his presence in Y is 
necessary to carry out B's legitimate business purposes; B maintains a 
permanent office in Y; and B intends to continue doing business in Y in 
the future.
    (xvi) A, a U.S. construction engineering company, is engaged by B, a 
U.S. general contracting company, to provide services in connection with 
B's contract to construct a hospital complex in boycotting country Y. In 
order to perform those services, A's engineers set up a temporary office 
in a trailer on the construction site in Y. A's work is expected to be 
completed within six months.
    A's personnel in Y are bona fide residents of Y, because A's on-site 
office is necessary to the performance of its services for B, and 
because A's personnel are continuously there.
    (xvii) A, a U.S. company, sends one of its representatives to 
boycotting country Y to explore new sales possibilities for its line of 
transistor radios. After spending several weeks in Y, A's representative 
rents a post office box in Y, to which all persons interested in A's 
products are directed to make inquiry.
    A is not a bona fide resident of Y, because rental of a post office 
box is not a sufficient presence in Y to constitute residency.
    (xviii) A, a U.S. computer company, has a patent and trademark 
registered in the United States. In order to obtain registration of its 
patent and trademark in boycotting country Y, A is required to furnish

[[Page 488]]

certain non-discriminatory boycott information.
    A may not furnish the information, because A is not a bona fide 
resident of Y.

    (h) Activities exclusively within a foreign country. (1) Any United 
States person who is a bona fide resident of a foreign country, 
including a boycotting country, may comply or agree to comply with the 
laws of that country with respect to his activities exclusively within 
that country. These activities include:
    (i) Entering into contracts which provide that local law applies or 
governs, or that the parties will comply with such laws;
    (ii) Employing residents of the host country;
    (iii) Retaining local contractors to perform work within the host 
country;
    (iv) Purchasing or selling goods or services from or to residents of 
the host country; and
    (v) Furnishing information within the host country.
    (2) Activities exclusively within the country do not include 
importing goods or services from outside the host country, and, 
therefore, this part of the exception does not apply to compliance with 
import laws in connection with importing goods or services.

   Examples of Permissible Compliance With Local Law With Respect to 
             Activities Exclusively Within a Foreign Country

    The following examples are intended to give guidance in determining 
the circumstances in which compliance with local law is permissible. 
They are illustrative, not comprehensive.

             Activities Exclusively Within a Foreign Country

    (i) U.S. construction company A, a bona fide resident of boycotting 
country Y, has a contract to build a school complex in Y. Pursuant to 
Y's boycott laws, the contract requires A to refuse to purchase supplies 
from certain local merchants. While Y permits such merchants to operate 
within Y, their freedom of action in Y is constrained because of their 
relationship with boycotted country X.
    A may enter into the contract, because dealings with local merchants 
are activities exclusively within Y.
    (ii) A, a banking subsidiary of U.S. bank B, is a bona fide resident 
of boycotting country Y. From time to time, A purchases office supplies 
from the United States.
    A's purchase of office supplies is not an activity exclusively 
within Y, because it involves the import of goods from abroad.
    (iii) A, a branch of U.S. bank B, is a bona fide resident of 
boycotting country Y. Under Y's boycott laws, A is required to supply 
information about whether A has any dealings with boycotted country X. A 
compiles and furnishes the information within Y and does so of its own 
knowledge.
    A may comply with that requirement, because in compiling and 
furnishing the information within Y, based on its own knowledge, A is 
engaging in an activity exclusively within Y.
    (iv) Same as (iii), except that A is required to supply information 
about B's dealings with X. From its own knowledge and without making any 
inquiry of B, A compiles and furnishes the information.
    A may comply with that requirement, because in compiling and 
furnishing the information within Y, based on its own knowledge, A is 
engaging in an activity exclusively within Y.
    (v) Same as (iv), except that in making its responses, A asks B to 
compile some of the information.
    A may not comply, because the gathering of the necessary information 
takes place partially outside Y.
    (vi) U.S. company A has applied for a license to establish a 
permanent manufacturing facility in boycotting country Y. Under Y's 
boycott law, A must agree, as a condition of the license, that it will 
not sell any of its output to blacklisted foreign firms.
    A may not comply, because the agreement would govern activities of A 
which are not exclusively within Y.

              Discrimination Against United States Persons

    (i) A, a subsidiary of U.S. company B, is a bona fide resident of 
boycotting country Y. A manufactures air conditioners in its plant in Y. 
Under Y's boycott laws, A must agree not to hire nationals of boycotted 
country X.
    A may agree to the restriction and may abide by it with respect to 
its recruitment of individuals within Y, because the recruitment of such 
individuals is an activity exclusively within Y. However, A cannot abide 
by this restriction with respect to its recruitment of individuals 
outside Y, because this is not an activity exclusively within Y.
    (ii) Same as (i), except that pursuant to Y's boycott laws, A must 
agree not to hire anyone who is of a designated religion.
    A may not agree to this restriction, because the agreement calls for 
discrimination against U.S. persons on the basis of religion. It makes 
no difference whether the recruitment of the U.S. persons occurs within 
or without Y.

[[Page 489]]

    (Note: The exception for compliance with local law does not apply to 
boycott-based refusals to employ U.S. persons on the basis of race, 
religion, sex, or national origin even if the activity is exclusively 
within the boycotting country.)
    (i) Compliance with local import law. (1) Any United States person 
who is a bona fide resident of a foreign country, including a boycotting 
country, may, in importing goods, materials or components into that 
country, comply or agree to comply with the import laws of that country, 
provided that:
    (i) The items are for his own use or for his use in performing 
contractual services within that country; and
    (ii) In the normal course of business, the items are identifiable as 
to their source or origin at the time of their entry into the foreign 
country by:
    (a) Uniqueness of design or appearance; or
    (b) Trademark, trade name, or other identification normally on the 
items themselves, including their packaging.
    (2) The factors that will be considered in determining whether a 
United States person is a bona fide resident of a foreign country are 
those set forth in paragraph (g) of this section. Bona fide residence of 
a United States company's subsidiary, affiliate, or other permanent 
establishment in a foreign country does not confer such residence on 
such United States company. Likewise, bona fide residence of a United 
States company's employee in a foreign country does not confer such 
residence on the entire company.
    (3) A United States person who is a bona fide resident of a foreign 
country may take action under this exception through an agent outside 
the country, but the agent must act at the direction of the resident and 
not exercise his own discretion. Therefore, if a United States person 
resident in a boycotting country takes action to comply with a 
boycotting country's import law with respect to the importation of 
qualified goods, he may direct his agent in the United States on the 
action to be taken, but the United States agent himself may not exercise 
any discretion.
    (4) For purposes of this exception, the test that governs whether 
goods or components of goods are specifically identifiable is identical 
to the test applied in paragraph (d) of this section on ``Compliance 
With Unilateral and Specific Selection'' to determine whether they are 
identifiable as to their source or origin in the normal course of 
business.
    (5) The availability of this exception for the import of goods 
depends on whether the goods are intended for the United States person's 
own use at the time they are imported. It does not depend upon who has 
title to the goods at the time of importation into a foreign country.
    (6) Goods are for the United States person's own use (including the 
performance of contractual services within the foreign country) if:
    (i) They are to be consumed by the United States person;
    (ii) They are to remain in the United States person's possession and 
to be used by that person;
    (iii) They are to be used by the United States person in performing 
contractual services for another;
    (iv) They are to be further manufactured, incorporated into, refined 
into, or reprocessed into another product to be manufactured for 
another; or
    (v) They are to be incorporated into, or permanently affixed as a 
functional part of, a project to be constructed for another.
    (7) Goods acquired to fill an order for such goods from another are 
not for the United States person's own use. Goods procured for another 
are not for one's own use, even if the furnishing of procurement 
services is the business in which the United States person is 
customarily engaged. Nor are goods obtained for simple resale acquired 
for one's own use, even if the United States person is engaged in the 
retail business. Likewise, goods obtained for inclusion in a turnkey 
project are not for one's own use if they are not customarily 
incorporated into, or do not customarily become permanently affixed as a 
functional part of the project.
    (8) This part of the local law exception does not apply to the 
import of services, even when the United States person importing such 
services is a bona fide resident of a boycotting country and is 
importing them for his own use. In addition, this exception is

[[Page 490]]

available for a United States person who is a bona fide resident of a 
foreign country only when the individual or entity actually present 
within that country takes action through the exercise of his own 
discretion.
    (9) Use of this exception will be monitored and continually reviewed 
to determine whether its continued availability is consistent with the 
national interest. Its availability may be limited or withdrawn as 
appropriate. In reviewing the continued availability of this exception, 
the effect that the inability to comply with local import laws would 
have on the economic and other relations of the United States with 
boycotting countries will be considered.
    (10) A United States person who is a bona fide resident of a foreign 
country may comply or agree to comply with the host country's import 
laws even if he knows or has reason to know that particular laws are 
boycott-related. However, no United States person may comply or agree to 
comply with any host country law which would require him to discriminate 
against any United States person on the basis of race, religion, sex, or 
national origin, or to supply information about any United States 
person's race, religion, sex, or national origin.

        Examples of Permissible Compliance With Local Import Law

    The following examples are intended to give guidance in determining 
the circumstances in which compliance with local import law is 
permissible. They are illustrative, not comprehensive.

                   Compliance by a Bona Fide Resident

    (i) A, a subsidiary of U.S. company B, is a bona fide resident of 
boycotting country Y and is engaged in oil drilling operations in Y. In 
acquiring certain large, specifically identifiable products for carrying 
out its operations in Y, A chooses only from non-blacklisted firms 
because Y's import laws prohibit the importation of goods from 
blacklisted firms. However, with respect to smaller items, B makes the 
selection on behalf of A and sends them to A in Y.
    A may choose from non-blacklisted firms, because it is a U.S. person 
who is a bona fide resident in Y. However, because B is not resident in 
Y, B cannot make boycott-based selections to conform with Y's import 
laws prohibiting the importation of goods from blacklisted firms.
    (ii) Same as (i), except that after making its choices on the larger 
items, A directs B to carry out its instructions by entering into 
appropriate contracts and making necessary shipping arrangements.
    B may carry out A's instructions provided that A, a bona fide 
resident of Y, has in fact made the choice and B is exercising no 
discretion, but is acting only as A's agent.
    (Note: Such transactions between related companies will be 
scrutinized carefully. A must in fact exercise the discretion and make 
the selections. If the discretion is exercised by B, B would be in 
violation of this part.)
    (iii) U.S. construction company A has a contract to build a school 
in boycotting country Y. A's employees set up operations in Y for 
purposes of commencing construction. A's employees in Y advise A's 
headquarters in the United States that Y's import laws prohibit 
importation of goods manufactured by blacklisted firms. A's headquarters 
then issues invitations to bid only to non-blacklisted firms for certain 
specifically identifiable goods.
    A's headquarters' choice of non-blacklisted suppliers is not a 
choice made by a U.S. person who is a bona fide resident of Y, because 
the discretion in issuing the bids was exercised in the United States, 
not in Y.
    (iv) Same as (iii), except that A's employees in Y actually make the 
decision regarding to whom the bids should be issued.
    The choices made by A's employees are choices made by U.S. persons 
who are bona fide residents of Y, because the discretion in choosing was 
exercised solely in Y.
    (Note: Choices purportedly made by employees of U.S. companies who 
are resident in boycotting countries will be carefully scrutinized to 
ensure that the discretion was exercised entirely in the boycotting 
country.)

                     Specifically Identifiable Goods

    The test and examples as to what constitutes specifically 
identifiable goods are identical to those applicable under paragraph (d) 
of this section on ``Compliance With Unilateral Selection.''

       Imports for U.S. Person's Own Use Within Boycotting Country

    (i) A, a subsidiary of U.S. company B, is a bona fide resident of 
boycotting country Y. A plans to import computer operated machine tools 
to be installed in its automobile plant in boycotting country Y. The 
computers are mounted on a separate bracket on the side of the equipment 
and are readily identifiable by brand name. A orders the tools from U.S. 
supplier C and specifies that C must incorporate computers manufactured 
by D, a non-blacklisted company. A would have chosen computers 
manufactured by E,

[[Page 491]]

except that E is blacklisted, and Y's import laws prohibit the 
importation of goods manufactured by blacklisted firms.
    A may refuse to purchase E's computers, because A is importing the 
computers for its own use in its manufacturing operations in Y.
    (ii) A, a subsidiary of U.S. company B, is a bona fide resident of 
boycotting country Y. To meet the needs of its employees in Y, A imports 
certain specifically identifiable commissary items for sale, such as 
cosmetics; and canteen items, such as candy. In selecting such items for 
importation into Y, A chooses items made only by non-blacklisted firms, 
because Y's import laws prohibit importation of goods from blacklisted 
firms.
    A may import these items only from non-blacklisted firms, because 
the importation of goods for consumption by A's employees is an 
importation for A's own use.
    (iii) A, a U.S. construction company which is a bona fide resident 
of boycotting country Y, has a contract to build a hospital complex for 
the Ministry of Health in Y. Under the contract, A will be general 
manager of the project with discretion to choose all subcontractors and 
suppliers. The complex is to be built on a turnkey basis, with A 
retaining title to the property and bearing all financial risk until the 
complex is conveyed to Y. In choosing specifically identifiable goods 
for import, such as central air conditioning units and plate glass, A 
excludes blacklisted suppliers in order to comply with Y's import laws. 
These goods are customarily incorporated into, or permanently affixed as 
a functional part of, the project.
    A may refuse to deal with blacklisted suppliers of specifically 
identifiable goods, because importation of goods by a general contractor 
to be incorporated into a construction project in Y is an importation of 
goods for A's own use.
    (iv) Same as (iii), except that, in addition, in choosing U.S. 
architects and engineers to work on the project, A excludes blacklisted 
firms, because Y's import laws prohibit the use of services rendered by 
blacklisted persons.
    A may not refuse to deal with blacklisted architectural or 
engineering firms, because this exception does not apply to the import 
of services. It is irrelevant that, at some stage, the architectural or 
engineering drawings or plans may be brought to the site in Y. This 
factor is insufficient to transform such services into ``goods'' for 
purposes of this exception.
    (v) Same as (iii), except that the project is to be completed on a 
``cost plus'' basis, with Y making progress payments to A at various 
stages of completion.
    A may refuse to deal with blacklisted suppliers of specifically 
identifiable goods, because the importation of goods by A to be 
incorporated in a project A is under contract to complete is an 
importation of goods for its own use. The terms of payment are 
irrelevant.
    (vi) A, a U.S. construction company which is a bona fide resident of 
boycotting country Y, has a contract for the construction of an office 
building in Y on a turnkey basis. In choosing goods to be used or 
included in the office complex, A orders wallboard, office partitions, 
and lighting fixtures from non-blacklisted manufacturers. A likewise 
orders desks, office chairs, typewriters, and office supplies from non-
blacklisted manufacturers.
    Because they are customarily incorporated into or permanently 
affixed as a functional part of an office building, the wallboard, 
office partitions, and lighting fixtures are for A's own use, and A may 
select non-blacklisted suppliers of these goods in order to comply with 
Y's import laws. Because they are not customarily incorporated into or 
permanently affixed to the project, the desks, office chairs, 
typewriters, and office supplies are not for A's own use, and A may not 
make boycott-based selections of the suppliers of these goods.
    (vii) A, a U.S. company engaged in the business of selling 
automobiles, is a bona fide resident of boycotting country Y. In 
ordering automobiles from time to time for purposes of stocking its 
inventory, A purchases from U.S. manufacturer B, but not U.S. 
manufacturer C, because C is blacklisted. Retail sales are subsequently 
made from this inventory.
    A's import of automobiles from B is not an import for A's own use, 
because the importation of items for general inventory in a retail sales 
operation is not an importation for one's own use.
    (viii) A, a U.S. company engaged in the manufacture of 
pharmaceutical products, is a bona fide resident of boycotting country 
Y. In importing chemicals for incorporation into the pharmaceutical 
products, A purchases from U.S. supplier B, but not U.S. supplier C, 
because C is blacklisted.
    A may import chemicals from B rather than C, because the importation 
of specifically identifiable items for incorporation into another 
product is an importation for one's own use.
    (ix) A, a U.S. management company which is a bona fide resident of 
boycotting country Y, has a contract with the Ministry of Education in Y 
to purchase supplies for Y's school system. From time to time, A 
purchases goods from abroad for delivery to various schools in Y.
    A's purchase of goods for Y's school system does not constitute an 
importation of goods for A's own use, because A is acting as a 
procurement agent for another. A, therefore, cannot make boycott-based 
selections of suppliers of such school supplies.

[[Page 492]]

    (x) A, a U.S. company which is a bona fide resident of boycotting 
country Y, has a contract to make purchases for Y in connection with a 
construction project in Y. A is not engaged in the construction of, or 
in any other activity in connection with, the project. A's role is 
merely to purchase goods for Y and arrange for their delivery to Y.
    A is not purchasing goods for its own use, because A is acting as a 
procurement agent for Y. A, therefore, cannot make boycott selections of 
suppliers of such goods.
    (xi) A, a U.S. company which is a bona fide resident of boycotting 
country Y, imports specifically identifiable goods into Y for exhibit by 
A at a trade fair in Y. In selecting goods for exhibit, A excludes items 
made by blacklisted firms.
    A's import of goods for its exhibit at a trade fair constitutes an 
import for A's own use. However, A may not sell in Y those goods it 
imported for exhibit.
    (xii) A is a bona fide resident of boycotting countries Y and Z. In 
compliance with Y's boycott laws, A chooses specifically identifiable 
goods for its oil drilling operations in Y and Z by excluding 
blacklisted suppliers. The goods are first imported into Y. Those 
purchased for A's use in Z are then transshipped to Z.
    In selecting those goods for importation into Y, A is making an 
import selection for its own use, even though A may use some of the 
imported goods in Z. Further, the subsequent shipment from Y to Z of 
those goods purchased for use in Z is an import into Z for A's own use.

[61 FR 12862, Mar. 25, 1996, as amended at 65 FR 34946, June 1, 2000]