BIS Proposes to Expand, Revise its Export/Reexport Controls for China, Etc. (Part III)

The Bureau of Industry and Security (BIS) has issued a proposed rule to amend the Export Administration Regulations (EAR) by expanding and revising U.S. licensing requirements and licensing policy on exports and reexports of goods and technology to the People's Republic of China (PRC), etc.

This is Part III of a multi-part series of summaries of this proposed rule, and highlights the preamble's description of BIS' proposed new authorization validated end user (VEU) for specified end-users in an eligible destination, including China. See ITT's Online Archives or 07/10/06 and 07/13/06 news, 06071015 and 06071305, for Parts I and II. See future issues of ITT for additional summaries.

Proposed New Authorization for Validated End Users

To facilitate legitimate exports to civilian end-users, BIS is proposing to establish a new authorization for validated end-users in 15 CFR 748.15. This proposed authorization would allow the export, reexport, and transfer of eligible items to specified end-users in an eligible destination, including the PRC. These validated end-users would be those who meet a number of criteria, including a demonstrated record of engaging only in civil end-use activities and not contributing to the proliferation of weapons of mass destruction or otherwise engaged in activity contrary to U.S. national security or foreign policy interests.

In conjunction with other relevant agencies, BIS proposes to evaluate prospective validated end-users on the basis of a range of specific factors, which include the party's record of exclusive engagement in civil end-use activities; the party's compliance with U.S. export controls; the party's capability to comply with the requirements for VEU; the party's agreement to on-site compliance reviews by representatives of the U.S. Government; and the party's relationships with U.S and foreign companies.

In addition, when evaluating the eligibility of an end-user, agencies would consider the status of export controls in the eligible destination and the support and adherence to multilateral export control regimes of the government of the eligible destination.

The proposed rule states that requests to be listed as a validated end-user would be submitted in the form of an advisory opinion request as set forth in proposed 15 CFR 748.15(a)(2). In addition, requests would have to include a list of items identified by Export Control Classification Number (ECCN) that would be exported, reexported or transferred to an eligible end-user. Those items would have to be specified to the extent of the applicable subparagraph of the ECCN entry. BIS states that the request also should include a description of how each item would be used by the eligible end-user in an eligible destination. Such requests would be accepted from exporters, reexporters and end-users.

A list of validated end-users, respective eligible items, and eligible destinations would appear in proposed 15 CFR Part 748 Supplement No. 7.

The proposed rule also provides, as set forth in proposed 15 CFR 748.15(c), that some items would not be eligible for export, reexport, or transfer under this authorization. Ineligible items are those restricted by statute.

Finally, under proposed 15 CFR 748.15, exporters, reexporters and end-users who use authorization VEU would be required to comply with recordkeeping and reporting requirements, as described in 15 CFR 748.15(e) and (f). As required in proposed 15 CFR 748.15(e), prior to the initial export or reexport under authorization VEU, exporters or reexporters would be required to receive and retain certifications from eligible end-users that state that they are informed of and will abide by all VEU end-use restrictions; they have procedures in place to ensure compliance with the terms and conditions of VEU; they will not use items obtained under VEU in any of the prohibited activities described in 15 CFR Part 744; and they agree to allow on-site visits by U.S. Government officials to verify their compliance with the conditions of VEU. Validated end-users found to be not in compliance with the requirements of VEU as set forth in 15 CFR 748.15 would be subject to removal from the list of validated end-users and other action, as appropriate.

In addition, as described in proposed section 748.15(f)(1), exporters and reexporters who use authorization VEU would be required to submit annual reports to BIS. These reports must include specific information regarding the export or reexport of eligible items to each validated end-user.

Exporters, reexporters, and end-users who avail themselves of VEU also would be audited on a routine basis, as described in proposed 15 CFR 748.15(f)(2). Upon request by BIS, exporters, reexporters, and validated end-users would be required to allow inspection of records or on-site compliance review. For audit purposes, this rule would require records and information identified in proposed 15 CFR 748.15 to be retained in accordance with the recordkeeping requirements set forth in 15 CFR Part 762.

- written comments due by November 3, 2006

BIS contact - Bernard Kritzer (202) 482-0092

BIS proposed rule (FR Pub 07/06/06, D/N 060622180-6180-01) available at http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/E6-10504.pdf.