Final Version 10/13/06

Supplemental Guidance to BIS proposed rule of July 6, 2006

Proposed Rule Revisions and Clarification of Export and Reexport Controls for the People’s Republic of China (PRC); New Authorization Validated End-User

The Bureau of Industry and Security (BIS) published a proposed rule Revisions and Clarification of Export and Reexport Controls for the People's Republic of China (PRC); New Authorization Validated End-User in the Federal Register (71 FR 38313) on July 6, 2006. This proposed rule included a preamble describing the rule’s main proposed amendments to the Export Administration Regulations (EAR). Due to the level of public interest in the proposed rule, BIS held public meetings on July 17, August 15, August 17, August 21 and August 22 in various cities in the United States to reiterate the rationale for the rule set forth in the preamble and answer questions about the rule’s main proposed amendments. To further public understanding of the proposed rule, BIS provides the following answers to the questions most commonly asked in the public meetings. BIS’s goal in providing this information is to assist the public in providing informed comments on the amendments proposed in the July 6 th rule.

You may click on the following links to download the entire proposed rule in a PDF or ASCII Format.

New Authorization Validated End-User (VEU) (Proposed Section 748.15 of the EAR)

1. What is the proposed new authorization VEU?
   The proposed new authorization VEU is intended to facilitate legitimate exports to civilian end-users. It would allow the export, reexport and transfer of eligible items by all exporters and reexporters to specified end-users in eligible destinations, including the PRC, without a license. Such exports, reexports, or transfers would not require any other authorization from BIS for an indefinite period, subject to periodic U.S. Government reviews of the records of end-users who have been granted VEU status and the records of exporters and reexporters who use authorization VEU. The proposed VEU authorization would be optional; those end-users not wanting such status would continue to be subject to the current export licensing requirements.

2. How does BIS anticipate that requests to become a validated end-user would be reviewed?
   BIS proposes to evaluate, in conjunction with other relevant agencies, prospective validated end-users on the basis of a range of factors. As an initial matter, prospective validated end-users would need to 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. Specific factors to be evaluated by BIS include the party’s compliance with 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 specific end-users, agencies would consider the implementation of relevant export controls in the eligible destination.

3. What does BIS anticipate that a request to be listed as a validated end-user would entail?
   Under the proposed rule, BIS would accept requests to be listed as a validated end-user in the form of an advisory opinion request, as set forth in proposed new section 748.15(a)(2) of the EAR. BIS proposes that such r equests include a list of items identified by 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 further proposes that such requests also should include a description of how each item would be used by the eligible end-user in an eligible destination. BIS also anticipates identifying VEU candidates based on export licensing history.

4. Who does BIS anticipate would be allowed to submit nominations or recommendations for validated end-users?
   Under the proposed rule, requests for specific entities to be validated end-users would be accepted from end-users, exporters, and re-exporters.

5. Where does BIS anticipate the VEU list would be published?
   The proposed rule anticipates that a list of validated end-users, eligible items, and eligible destinations would be published in proposed Supplement No. 7 to Part 748 of the EAR.

6. With what requirements does BIS anticipate exporters, reexporters and validated end-users would have to comply?
   The proposed rule anticipates that e xporters, reexporters and validated end-users that use authorization VEU would be required to comply with certification, recordkeeping and reporting requirements and would be subject to routine auditing as described in proposed sections 748.15(e) and (f). Specificlimitations on the usage of items obtained through authorization VEU are set forth in proposed new section 748.15(d). In addition, this new section provides that authorization VEU could not be used for any activities described in the EAR in part 744, including those military end-use activities covered by proposed new section 744.21.

7. If BIS does not approve an end-user’s validated end-user application, does the presence of that end-user in a transaction trigger a new license requirement?
   No. An end-user's failure to obtain VEU status would not trigger a new license requirement and would not preclude approval of licenses for exports to that end-user. VEU status is pertinent only to transactions where licenses would otherwise be required. Accordingly, lack of approval of a VEU application would neither add to nor take away from the licensing requirements otherwise applicable to exports to a given end-user.

Restrictions on Certain Military End-Uses in the People’s Republic of China (PRC) (Proposed Section 744.21 of the EAR)

1. What are the proposed restrictions on military end-uses in the PRC?
   
   The proposed rule applies only to military end-uses, and does not specifically address military end-users. The items that would be subject to this military end-use restriction are based on careful interagency review of items listed on the Commerce Control List (CCL) that currently do not require a license for export to the PRC but have the potential to advance the military capabilities of the PRC. Exporters should be aware that the export of any item subject to the EAR, including items covered by these 47 ECCNs, currently require a license for export or reexport to China if the exporter knows the item is for a weapons of mass destruction related use as set forth in part 744 of the EAR. In addition, exporters should be aware that the export of any item subject to the EAR is subject to the denial of export privileges set forth in section 764.3(a)(2) of the EAR.

2. Will BIS take foreign availability into account in determining whether all 47 ECCNs should be covered by the proposed military end-use control?
   Yes. BIS encourages the public to submit detailed comments on the foreign availability of these items, including availability from indigenous Chinese sources. Such information will assist the relevant agencies to determine the appropriate scope of the proposed list.

3. Will BIS further refine the definition of “military end-use?
   While the proposed rule contains a detailed definition of military end-use, BIS encourages the public to submit comments regarding the scope of this definition, including specific circumstances that might warrant additional precision for this definition.

4. Does the proposed rule change the de minimis requirements set forth in section 734.4 of the EAR?
   The proposed rule does not revise the de minimis requirements set forth in section 734.4.