Amends the Export Administration Regulations
of Commerce has amended the Export Administration Regulations (“EAR”)
so as to impose new licensing obligations on exports and reexports of
over 20 different types of products, software and technology to certain
parties in the People's Republic of China ("PRC"). On June 15,
2007, the Commerce Department’s Bureau of Industry Security (“BIS”)
amended its licensing policy of dual-use exports to China by (i) imposing
new restrictions on dual-use technologies destined for a military end-use
in China, (ii) creating the Validated End-User ("VEU") program
to facilitate certain exports to approved customers in China and (iii)
revising the circumstances under which End-User Statements, issued by
the PRC Ministry of Commerce, must be obtained.
The final regulations implement a new control on exports and reexports
to China of certain items that BIS considers to have the potential to
advance the military capabilities of the PRC.
This rule imposes a new license requirement
for certain items that the exporter knows (as defined under section 772
of the EAR), or has been informed by BIS, will be destined for military
end-use in China.
The list of items subject to this restriction covers 20 products and related
software and technologies as described under the newly added Supplement
No. 2 to Part 774 of the EAR. This list includes specific items in the
Materials, chemicals, microorganisms, and toxins (ECCNs: 1A290, 1C990,
1D993, 1D999, 1E994 and 1C996);
• Materials processing (ECCNs: 2A991, 2B991, 2B992 and 2B996);
• Electronics design, development, and production (ECCNs: 3A292,
3E292 and 3A999);
• Computers (ECCNs: 4A994, 4D994 and 4D993);
• Telecommunications (ECCNs: 5A991, 5D991 and
• Sensors and lasers (ECCNs: 6A995 and 6C992);
• Navigation and avionics (ECCNs: 7A994, 7D994, 7E994 and 7B994);
• Marine (ECCNs: 8A992, 8D992 and 8E992); and
• Certain aircraft, propulsion systems, space vehicles, and related
equipment (ECCNs: 9A991, 9D991 and 9E991).
For purposes of the military end-use restriction rule, the term “military
end-use” means: (i) for incorporation into a military item described
on the U.S. Munitions List (USML); (ii) for incorporation into a military
item described on the International Munitions List (IML); (iii) for incorporation
into items listed under ECCNs ending in “A018” on the Commerce
Control List (CCL) in Supplement No. 1 to Part 774 of the EAR; or (iv)
for the “use,” “development” or “production”
of military items described on the USML or the IML, or items listed under
ECCNs ending in A018 on the CCL. Additionally, the term “military
end-use” means deployment of items classified under ECCN 9A991 as
set forth in Supplement No. 2 to Part 744.
text of the regulations do not explain how the military end-use restriction
will be implemented. Foremost, the regulations do not clarify how much
information exporters will need to know, or will be deemed to know, about
end-users. Accordingly, exporters will need to tread cautiously when dealing
with Chinese business partners and customers. Exporters should also be
attentive to customers and end-users that will have the exported items
incorporated into larger systems, especially where the larger system may
have possible military applications. Foreign parties who reexport U.S.
commodities, technology and software to China should also be cautious
given that the military end-use restriction applies to reexports to China.
The VEU program is designed to provide Chinese companies easier access
to certain specific controlled technology. The VEU program establishes
a mechanism by which Chinese companies that have been reviewed and “validated”
by the U.S. Government will be authorized to receive only certain specific
U.S.-controlled items as indicated in the VEU application, without having
to obtain an individual export license. To be classified as a validated
Chinese company, an entity must meet a number of criteria to be reviewed
by the U.S. government, including, among others, (i) a demonstrated record
of engaging in the use of U.S. controlled items for civil end-use activities,
(ii) a demonstrated history of compliance with U.S. export controls (iii)
and the willingness to agree to on-site reviews by representatives of
the U.S. Government to ensure compliance with the conditions imposed by
the VEU authorization. Any end-user in China, as well as subsidiaries
of U.S. or foreign companies in the PRC, may apply to receive products
from the U.S. under the VEU program.
Certain restrictions apply to the use of the VEU authorization program.
For example, items controlled under the EAR for missile technology and
crime control are not eligible to be exported or reexported under the
VEU program. Additionally, items under the VEU program must be applied
to civil end-uses and must be installed in, or consumed/transformed during
use at, the validated end-user’s facility.
The qualification of an entity to be designated as a validated end-user
will be determined by an End-User Committee composed of representatives
of the Departments of State, Defense, Energy and Commerce, and other agencies.
This committee will be responsible for adding, removing and amending the
list of VEUs published by BIS. At this time it is not clear whether the
VEU mechanism will be a viable efficient means for exporters to engage
in export trade with Chinese parties.
End-User Statements From the PRC Ministry of Commerce
The final regulations also revise the circumstances under which an exporter
must obtain an End-User Statement from the PRC Ministry of Commerce. The
End-User Statement regime facilitates the BIS’ ability to conduct
end-use checks on exports or reexports of controlled articles and technologies
to China. Prior to the final regulations, BIS imposed the End-User Statement
requirement to certain specific controlled items with a dollar threshold
value of $5,000. These items generally required a license from BIS to
be exported to the PRC. The final regulations, however, impose a higher
dollar threshold value of $50,000 to all exports of items to China that
require a license under the EAR (including all items within the new Part
72 Fed. Reg. 33,646 (2007)
(to be codified at 15 C.F.R. Parts 742, 743, 744, 748, 750 and 758).
The items identified by BIS under these regulations as having the potential
to enhance the military capabilities of China were not previously regarded
by BIS as such. Accordingly, they did not require an export license to
Note that the military end-use
restriction is applicable to all foreign reexporters, whether they are
related or unrelated to U.S. entities.