BIS Final Rule Revises Export/Reexport Controls/Policy for China, Etc. (Part III - Validated End-User Program)
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 III of a multi-part series of summaries of this final rule, and highlights the new Validated End-User (VEU) program, which will initially apply to China only, but may be extended to India1 at some future point in time. See future issues of ITT for additional summaries.
VEU Program Currently Applies to China Only
To facilitate legitimate exports to civilian end-users, BIS has added new 15 CFR 748.15 to establish a new authorization VEU. The authorization will allow the export, reexport, and transfer of eligible items to specified end-users in an eligible country, initially China.
VEU Authorization Allows Export, Reexport, Transfer Without Individual License
According to a BIS fact sheet, under the VEU program, certain "trusted customers" with a track record of responsible civilian use of U.S.-controlled technology will be able to receive certain items without individual export licenses.
(BIS notes that if a request for VEU authorization for a particular end-user is not granted, no new license requirement is triggered. In addition, such a result does not render the end-user ineligible for license approvals from BIS.)
Eligibility for Authorization VEU
To be eligible for authorization VEU, exporters, reexporters, and potential VEUs must adhere to the conditions and restrictions outlined below:
VEUs to be approved by end-user committee, listed in Supplement. The only end-users to whom eligible items may be exported, reexported, or transferred under the VEU program are those VEUs to be identified in Supplement No. 7 to 15 CFR Part 748 according to the provisions set forth below, that have been granted VEU status by the End-User Review Committee (ERC).
Requests must be submitted as advisory opinion request, etc. Requests for authorization as a VEU must be submitted in the form of an advisory opinion request, as described in 15 CFR 748.3(c)(2), and should include a list of items (i.e., commodities, software and technology, except as excluded by 15 CFR 748.15(c)), identified by export control classification number (ECCN), that exporters or reexporters intend to export, reexport or transfer to an eligible VEU once approved.
Requests for VEU authorization will be accepted from exporters, reexporters or end-users and should be submitted to BIS (see final rule for addresses). BIS notes that the package should be marked "Request for Authorization Validated End-User."
(VEU authorization requests must include the following information: (1) names of proposed VEU candidates; (2) an overview of the structure, ownership and business of the prospective VEU; (3) a list of items proposed for VEU authorization approval and their intended end-uses; (4) physical address(es) of the location(s) where the item(s) will be used; (5) the destination to which the items will be reexported or transferred, if the prospective VEU plans to reexport or transfer the item; (6) how the prospective VEU's record keeping system will allow compliance with the recordkeeping requirements; and (7) an original statement on letterhead of the prospective VEU, signed and dated by a person who has authority to legally bind the prospective VEU, certifying that the end-user will comply with all VEU requirements.)
Restrictions Under Authorization VEU
New 15 CFR 748.15(c) and (d) set forth the following restrictions for authorized VEUs:
Items controlled under the EAR for missile technology (MT) and crime control (CC) reasons may not be exported or reexported under authorization VEU.
Items obtained under authorization VEU may be used only for civil end-uses. Eligible end-users who obtain items under VEU may only: (1) use such items at the end-user's own facility located in an eligible destination or at a facility located in an eligible destination over which the end-user demonstrates effective control; (2) consume such items during use; or (3) transfer or reexport such items only as authorized by BIS.
Certifications Must be Obtained from VEU Prior to Initial Export/Reexport
Prior to an initial export or reexport to a VEU under authorization VEU, exporters or reexporters must obtain certifications from the VEU regarding end-use and compliance with VEU requirements. Certifications and all records relating to VEU must be retained by exporters or reexporters in accordance with the recordkeeping requirements set forth in 15 CFR Part 762.
Annual Reports, Periodic Record Reviews
New 15 CFR 748.15(f) sets forth the following reporting and review requirements:
Annual reports. Exporters and reexporters who make use of authorization VEU are required to submit annual reports to BIS. Reports are due by February 15 of each year, and must cover the period of January 1 through December 31 of the prior year. Reports must be sent to BIS (see final rule for addresses) and marked on the package as "Authorization Validated End-User Reports."
Periodic record reviews. In addition, records related to activities covered by authorization VEU that are maintained by exporters, reexporters, and VEUs who make use of authorization VEU will be reviewed on a periodic basis. Upon request by BIS, exporters, reexporters, and VEUs must allow reviews of records, including on-site reviews.
End-User Review Committee Procedures for Authorization VEU
New Supplement No. 9 to 15 CFR Part 748 states that the ERC, composed of representatives of the Departments of State, Defense, Energy, and Commerce, and other agencies as appropriate, is responsible for determining whether to add to, to remove from, or otherwise amend the list of VEUs and associated eligible items. The Department of Commerce chairs the ERC.
The ERC will consider a range of information for evaluating VEU authorization, including such factors as the entity's record of exclusive engagement in civil end-use activities; compliance with U.S. export controls; the need for an on-site review prior to approval; capability of complying with the requirements of authorization VEU; agreement to on-site reviews by representatives of the U.S. government; and relationships with U.S. and foreign companies; etc.
Among other things, ERC procedures require a unanimous vote for authorizing a VEU. In addition to VEU requests submitted pursuant to 15 CFR 748.15, the ERC will also consider candidates for VEU authorization that are identified by the U.S. government. End-users are not obligated to accept the government's nomination.
The ERC will make determinations whether to grant VEU authorization to each VEU candidate no later than 30 calendar days after the candidate's complete application is circulated to all ERC agencies. (The period during which the ERC is waiting for additional information from an applicant or potential VEU is not included in the 30 day deadline.)
(BIS states that the VEU authorization is subject to revision, suspension or revocation entirely or in part.)
1During a June 20, 2007 webinar, BIS sources noted that the authorization may be extended to specified end-users in India at some point in the future.
(See ITT's Online Archives or 06/19/07 and 06/21/07 news, 07061925 and 07062115, for Parts I and II of BP's summary of BIS' final rule.)
(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 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
BIS fact sheet available at http://www.bis.doc.gov/News/2007/06-15-07%20Export%20Rule%20Fact%20Sheet%20-%20FINAL.pdf