BIS Final Rule Revises Export/Reexport Controls/Policy for China, Etc. (Part I - Overview)

The Bureau of Industry and Security has issued a final rule, effective June 19, 2007, which amends the Export Administration Regulations at 15 CFR Parts 742, 743, 744, 748, 750 and 758 to revise and clarify U.S. licensing requirements and licensing policy on exports and reexports to China, among other things.

This is Part I of a multi-part series of summaries of this final rule. It provides an overview of the amendments made by the final rule, and notes certain changes from the proposed rule. See future issues of ITT for additional summaries.

Final Rule Imposes Controls on Military End-Uses, Revises License Review Policy, Etc.

According to BIS, the final rule makes the following changes (partial list):

Military end-use controls for China. The final rule establishes a control, based on knowledge of a "military end-use," on exports and reexports to China of certain items on the Commerce Control List (CCL) that otherwise do not require a license to China. The controls target items that could enhance China's military if incorporated into weapons systems, and are consistent with the longstanding U.S. embargo on arms exports to China.

The list of items covers 20 product categories and associated technologies and software, as described in 31 entries on the CCL. Items subject to the new military end-use control include aircraft and aircraft engines, avionics and inertial navigation systems, lasers, depleted uranium, underwater cameras and propulsion systems, certain composite materials, and some telecommunications equipment for space communications or air defense.

License review policy. BIS states that this final rule makes clear that the overall policy of the U.S. for exports to China of items controlled on the CCL for national security reasons is to approve exports for civil end-uses but generally to deny exports that will make a direct and significant contribution to Chinese military capabilities.

The final rule further revises the EAR to clarify its license review policy for items controlled for reasons of chemical and biological weapons proliferation, nuclear nonproliferation, and missile technology for export to China, requiring that applications involving such items be reviewed in conjunction with this revised national security licensing policy.

VEU program for "trusted customers." The final rule also establishes the Validated End-User (VEU) program to facilitate exports to "trusted customers," in an eligible destination, initially China. Companies that qualify for VEU, with a track record of responsible civilian use of U.S.-controlled technology, will be authorized to receive certain U.S.-controlled items without individual export licenses. According to BIS, the Commerce Department expects to publish an initial list of reviewed and approved VEUs for China as early as next month. The VEU review process is also set forth in this final rule.

End-User Statements. The final rule also revises the circumstances in which End-User Statements, issued by China's Ministry of Commerce (MOFCOM), must be obtained, requiring them for transactions that both require a license to China for any reason and (for most exports) that exceed a total value of $50,000.

(The final rule also includes minor corrections and conforming amendments.)

List of Changes from the Proposed Rule

According to a BIS Q & A document, the final rule is different from the July 6, 2006 proposed rule in that it:

reduces the list Export Control Classification Numbers (ECCNs) subject to military end-use control from 47 to 31, based on military applicability, foreign availability, and commercial impact.

clarifies the VEU program by establishing simpler procedures for applying for VEU authorization and creating an inter-agency committee to decide on requests.

broadens the scope of items that may be denied for making a "direct and significant" contribution to China's military capabilities. Specifically, it revises the license application review policy for items controlled for national security reasons to provide a presumption of denial for license applications to export, reexport, or transfer items that would make a direct and significant contribution to China's military capabilities. The final rule also allows BIS to review license applications involving items controlled for chemical/biological, missile technology, and nuclear nonproliferation reasons to determine if they make such a contribution.

revises the definition of "military end-use" to be similar to one already used in regulations and understood by exporters.

raises the dollar threshold for U.S. exporters to obtain Ministry of Commerce (MOFCOM) End-User Statements from $5,000 to $50,000.

(See ITT's Online Archives or 07/18/06 news, 06071820, for the final part of BP summary of the July 6, 2006 proposed rule, with links to the other parts. See ITT's Online Archives or 11/08/06 news, 06110805, for BP summary of BIS' supplemental guidance on the proposed rule.)

BIS contact - Bernard Kritzer (202) 482-0092

BIS press release (dated 06/15/07) available at http://www.bis.doc.gov/News/2007/06-15-07%20Export%20Rule%20Press%20Release%20-%20FINAL.pdf

Q&A document on the final rule available at http://www.bis.doc.gov/News/2007/Website%20QAs%20FINAL.pdf

Fact Sheet on updated China dual-use export regulations available at http://www.bis.doc.gov/News/2007/06-15-07%20Export%20Rule%20Fact%20Sheet%20-%20FINAL.pdf

BIS final rule (D/N 061205125-7125-01, FR Pub 06/19/07) available at http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/E7-11588.pdf