Revisions and Clarification of Export and Reexport Controls for the People's Republic of China (PRC); New Authorization Validated End-User; Revision of Import Certificate and PRC End-User Statement Requirements, 33646-33662 [E7-11588]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security
• Industry and Security Bureau

[Federal Register Volume 72, Number 117 (Tuesday, June 19, 2007)]
[Rules and Regulations]
[Pages 33646-33662]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-11588]



[[Page 33646]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 742, 743, 744, 748, 750 and 758

[Docket No. 061205125-7125-01]
RIN 0694-AD75


Revisions and Clarification of Export and Reexport Controls for 
the People's Republic of China (PRC); New Authorization Validated End-
User; Revision of Import Certificate and PRC End-User Statement 
Requirements

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: In this final rule, the Bureau of Industry and Security (BIS) 
amends the Export Administration Regulations (EAR) to revise and 
clarify U.S. licensing requirements and licensing policy on exports and 
reexports of items to the People's Republic of China (PRC). BIS 
published a revised policy and related amendments in proposed form in 
the Federal Register with a request for comments.
    This final rule establishes a control, based on knowledge of a 
``military end-use,'' on exports and reexports to the PRC of certain 
items on the Commerce Control List (CCL) that otherwise do not require 
a license to the PRC. It also includes a revision to the license 
application review policy for items destined for the PRC that are 
controlled on the CCL for reasons of national security, and revises the 
license review policy for items controlled for reasons of chemical and 
biological weapons proliferation, nuclear nonproliferation, and missile 
technology for export to the PRC, requiring that applications involving 
such items be reviewed in conjunction with the revised national 
security licensing policy. This rule also creates a new authorization 
for ``validated end-users'' to which specified items may be exported or 
reexported without a license. Validated end-users will be placed on a 
list in the EAR after review and approval by the United States 
Government. The process for such review is also set forth in this final 
rule. This rule also revises the circumstances in which End-User 
Statements, issued by the PRC Ministry of Commerce (MOFCOM), must be 
obtained, requiring them for transactions that both require a license 
to the PRC for any reason and (for most exports) exceed a total value 
of $50,000. This final rule also includes other minor corrections and 
conforming amendments.

DATES: This rule is effective June 19, 2007. Comments may be submitted 
at any time.

ADDRESSES: Although this is a final rule, BIS welcomes comments, which 
should be sent by fax to (202) 482-3355, e-mail to 
publiccomments@bis.doc.gov, or by mail to Sheila Quarterman, Regulatory 
Policy Division, Bureau of Industry and Security, Department of 
Commerce, P.O. Box 273, Washington, DC 20044. Please refer to 
regulatory identification number (RIN) 0694-[AD75 final] in all 
comments, and in the subject line of e-mail comments. Comments on the 
collection of information should be sent to David Rostker, Office of 
Management and Budget (OMB) by e-mail to David--Rostker@omb.eop.gov, or 
by fax to (202) 395-7285.

FOR FURTHER INFORMATION CONTACT: For technology related issues, contact 
Bernard Kritzer, Director, Office of National Security and Technology 
Transfer Controls, Bureau of Industry and Security, Department of 
Commerce, P.O. Box 273, Washington, DC 20044; by telephone (202) 482-
0092; or by e-mail to bkritzer@bis.doc.gov.
    For issues related to the Validated End-User authorization, contact 
Michael Rithmire, Export Administration Intelligence Liaison, Bureau of 
Industry and Security, Department of Commerce, P.O. Box 273, 
Washington, DC 20044; by telephone (202) 482-6105; or by e-mail to 
mrithmir@bis.doc.gov.
    For general questions or a copy of the economic analysis, please 
contact Sheila Quarterman at the address listed in the ADDRESSES 
section.

SUPPLEMENTARY INFORMATION: 

Background

    It is the policy of the United States Government to facilitate U.S. 
exports to legitimate civilian end-users in the People's Republic of 
China (PRC), while preventing exports that would enhance the military 
capability of the PRC. Consistent with this policy, the Bureau of 
Industry and Security (BIS) is amending the Export Administration 
Regulations (EAR) by revising and clarifying United States licensing 
requirements and licensing policy on exports and reexports of goods and 
technology to the PRC.
    As the PRC has increased its participation in the global economy, 
bilateral trade has grown rapidly, and the PRC has emerged as a major 
market for U.S. exports and investment. This greatly expanded economic 
relationship is beneficial for both nations, and has increased the 
prosperity of both the American and Chinese people. The United States 
therefore seeks to encourage and facilitate exports to legitimate civil 
end-users in the PRC. At the same time, the United States has a 
longstanding policy of not permitting exports that would make a direct 
and significant contribution to the PRC's military capability. 
Moreover, the United States has an interest in restricting exports of 
certain dual-use products and technologies that would not otherwise 
need an export license, if those items are destined for a ``military 
end-use'' in the PRC.
    BIS is therefore amending the EAR to revise and clarify U.S. 
licensing requirements and licensing policy on exports and reexports of 
items to the PRC, and to establish a new authorization that is intended 
to facilitate exports to validated civilian end-users in the PRC. On 
July 6, 2006, BIS published a proposed rule and requested public 
comments (71 FR 38313). On October 19, 2006, the original comment 
period deadline of November 3, 2006 was extended until December 4, 2006 
(71 FR 61692). The detailed rationale for the proposed rule's 
provisions is provided in the preamble to the proposed rule and is not 
repeated here. In general, however, this rule proposes certain 
revisions and clarifications to licensing requirements and policies 
with regard to the PRC to more precisely reflect U.S. foreign policy 
and national security interests.

Revision of Licensing Review Policy and License Requirements

    To strengthen efforts to prevent U.S. exports to the PRC that would 
enhance the PRC's military capabilities, this rule revises the 
licensing review policy for items controlled on the Commerce Control 
List for reasons of national security. Specifically, this rule amends 
section 742.4(b)(7) to make clear that the overall policy of the United 
States for exports to the PRC of these items 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. BIS 
makes further revisions to the EAR to clarify that it will review 
license applications to export or reexport to the PRC items controlled 
for chemical and biological weapons proliferation, nuclear 
nonproliferation, and missile technology under sections 742.2, 742.3 
and 742.5, respectively, of the EAR, in accordance with the licensing 
policies in both paragraph (b) of the applicable section and with the 
revised licensing policy in paragraph 742.4(b)(7) of the EAR, which 
provides a presumption of denial for license applications to export, 
reexport, or transfer items that would make a direct and significant

[[Page 33647]]

contribution to the PRC's military capabilities such as, but not 
limited to, the major weapons systems described in new Supplement No. 7 
to Part 742 of the EAR.
    This rule also implements a new control on exports to the PRC of 
certain CCL items that otherwise do not require a license to the PRC 
when the exporter has knowledge, as defined in section 772.1 of the 
EAR, that such items are destined for ``military end-use'' in the PRC 
or is informed that such items are destined for such an end-use. The 
list of items subject to this ``military end-use'' restriction covers 
approximately 20 products and associated technologies, as described in 
the entries of 31 full or partial Export Control Classification Numbers 
(ECCNs). The list was based on a review of public comments and a 
careful interagency review of items listed on the 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. Applications to export, 
reexport, or transfer items controlled pursuant to the ``military end-
use'' control will be reviewed on a case-by-case basis to determine 
whether the export, reexport, or transfer will make a material 
contribution to the military capabilities of the PRC and would result 
in advancing the country's military activities contrary to the national 
security interests of the United States. Other end-use controls in part 
744 of the EAR continue to apply.

New Authorization Validated End-User (VEU)

    To facilitate legitimate exports to civilian end-users, BIS 
establishes in this rule a new authorization Validated End-User. The 
authorization will allow the export, reexport, and transfer of eligible 
items to specified end-users in an eligible destination, initially the 
PRC. Validated end-users will be those entities that meet a number of 
criteria, including a demonstrated record of engaging only in civil 
end-use activities. This rule outlines clear procedures to request 
Validated End-User authorization, the procedures and timelines to be 
used by an interagency committee established to consider such requests, 
and the criteria for evaluating requests.

Revision of End-User Statement Requirements

    To strengthen implementation of the April 2004 end-use visit 
understanding between the Vice Minister of Commerce of the PRC and the 
U.S. Under Secretary of Commerce for Industry and Security, this rule 
requires exporters to obtain PRC End-User Statements from the Ministry 
of Commerce of the PRC for all exports of items on the CCL requiring a 
license to the PRC over a specific value, which for most exports will 
be a new, higher threshold of $50,000. BIS anticipates that this change 
will facilitate BIS's ability to conduct end-use checks on exports or 
reexports of controlled goods and technologies to the PRC, consistent 
with the existing end-use visit understanding with the Government of 
the PRC, without resulting in an overall annual increase in the number 
of such statements required from U.S. exporters. The facilitation of 
end-use checks should, in turn, facilitate increased U.S. exports to 
the PRC.

Comments and Responses

    BIS received 57 public comments, amounting to more than 1000 pages 
of comments on the proposed rule. Summaries of those comments and BIS 
responses appear below by topic. Similar comments are consolidated.

Revised License Review Policy for Items Controlled for National 
Security Reasons to the PRC

    Comment 1: A number of commenters asserted that the ``material 
contribution to military capability'' standard used in the proposed 
rule with respect to BIS's review of license applications involving 
items controlled for national security is too broad. In addition, 
certain commenters stated that the concept of ``material contribution 
to military capability'' is largely subjective, and best left to 
military experts in the Government. Moreover, they asserted that the 
proposed definition of ``military end-use'' goes far beyond even the 
broad scope of the ``material contribution to military capability'' 
standard used elsewhere in the proposed rule and that it is unlikely 
that this problem can be resolved by revising that definition.
    Response: BIS has considered the public comments received regarding 
the appropriate license review standard to apply to license 
applications involving items controlled for national security (NS) 
reasons. BIS had proposed revising section 742.4(b)(7) of the EAR to 
establish a policy of reviewing applications involving items controlled 
for NS reasons to determine if the items would make a ``material 
contribution'' to the PRC's military capabilities. This proposal would 
have changed the review standard in the EAR, in place since 1983, which 
provided that BIS would conduct an extended review or deny applications 
to export or reexport items that would make a ``direct and significant 
contribution'' to a series of listed PRC military activities. Having 
reviewed public comments, BIS and its interagency partners have decided 
to maintain the ``direct and significant'' standard and not to adopt a 
new ``material contribution'' standard. BIS agreed with commenters that 
the ``material contribution'' standard was too broad for a review of 
NS-controlled items. Although the ``direct and significant'' standard 
is being retained, BIS has decided to apply it to PRC military 
capabilities as a whole, rather than a limited list of military 
activities. To update and better inform exporters of this license 
application review policy, and to add clarity to the term ``military 
capabilities,'' BIS is adding new Supplement No. 7 to Part 742 of the 
EAR, which provides an illustrative list of weapons systems that could 
constitute PRC military capabilities. BIS developed this illustrative 
list in conjunction with its interagency partners.

Military End-Use License Requirement for Certain Exports and Reexports 
to the PRC

    Comment 2: Many commenters claimed that, due to widespread foreign 
availability, including production of such items in the PRC, the 
export, reexport, or transfer to the PRC of the listed items to which 
the proposed ``military end-use'' license requirement for the PRC would 
apply (set forth in Supplement No. 2 to Part 744) would not make an 
impact on the military capability of the PRC. Some of those commenters 
claimed that many of the items subject to the new ``military end-use'' 
license requirement have been exempted from most export restrictions 
and national security controls because they were deemed not useful for 
``military end-use'' purposes.
    Response: BIS reviewed each comment received regarding the list of 
ECCNs proposed for the new ``military end-use'' control. In response to 
these comments, BIS conducted a thorough review and analysis of each 
proposed ECCN, considering the following factors: (1) The military 
applicability of each item; (2) the relative foreign availability of 
each item; and (3) the level of U.S. commercial exports of each item to 
the PRC. Each ECCN was evaluated individually against all three 
criteria, with no one criterion being solely determinative. Greatest 
weight was given to the military applicability of each item, based on 
an evaluation of the contribution the items covered by the ECCN could 
make to a military capability if used in a ``military end-use,'' as 
defined in this final rule. With regard to foreign availability, 
indigenous

[[Page 33648]]

availability within the PRC was given greater weight than evidence of 
foreign availability from countries that cooperate with the United 
States in multilateral export control regimes, though all evidence of 
foreign availability was considered. When BIS found significant 
evidence of foreign availability and a high level of commercial 
exports, but limited military applicability, the ECCN was removed from 
the proposed list. When BIS found limited evidence of foreign 
availability and significant military applicability, the item remained 
on the proposed list, even if it was a major commercial export. As a 
result of this analysis, BIS determined that it was appropriate to 
reduce the number of ECCNs subject to the ``military end-use'' 
licensing requirement from 47 to 31 full and partial ECCNs. For certain 
items, the list in Supplement No. 2 to part 744 includes particular 
commodities, as well as the software and technology associated with 
such commodities. Thus, the resulting list of full and partial ECCNs 
covers approximately 20 distinct product areas, including items such as 
aircraft and aircraft engines, underwater systems, lasers, depleted 
uranium, certain composite materials, airborne communications systems 
and inertial navigation systems, and certain highly specialized 
telecommunications equipment useful for electronic warfare, space 
communications, or air defense. The final list published with this rule 
clearly identifies those items that have the potential to contribute to 
the military end-uses that this final rule is intended to control, 
consistent with overall U.S. policy toward the PRC.
    Comment 3: A number of commenters asserted that imposing the 
``military end-use'' control on 47 ECCNs would have a commercial impact 
that extended beyond these items. Several commenters noted that, as 
proposed, the ``military end-use'' control extended to items classified 
under ECCNs 5A992 and 5D992, items that have never been controlled for 
export or reexport to the PRC. At the same time, items with higher-
level encryption functionality would be eligible for export to the PRC 
under License Exception ENC. The commenters asserted that this would 
create an incentive for exporters to add cryptography to their items in 
order to be exempt from the ``military end-use'' licensing requirement.
    Response: As noted in response to Comment 2, this final rule has 
been amended such that ECCNs 5A992 and 5D992 are no longer subject to 
the ``military end-use'' control. As a result, any such incentive that 
might have been present is no longer present.
    Comment 4: A number of commenters asserted that the ``military end-
use'' license requirement will be unilateral because some European 
members of the Wassenaar Arrangement have stated that they do not plan 
to implement the Wassenaar Arrangement Statement of Understanding on 
Control of Non-Listed Dual-Use Items to the PRC.
    Response: The United States is committed to maintaining and 
implementing trade controls decided on a multilateral basis with like 
minded countries, such as other member countries of the Wassenaar 
Arrangement. To that end, this rule is consistent with U.S. commitments 
as a Participating State in the Wassenaar Arrangement. At the December 
2003 Wassenaar Arrangement Plenary, Wassenaar Arrangement members 
agreed in a Statement of Understanding on Control of Non-Listed Dual-
Use Items to adopt and implement measures controlling exports of dual-
use items destined for ``military end-use'' in a country subject to a 
United Nations or relevant regional arms embargo. Commenters are 
correct that some Wassenaar Arrangement members have stated that they 
would not implement similar ``military end-use'' controls on dual-use 
exports to the PRC. However, other Wassenaar Arrangement members have 
said that they would consider such controls. The revisions made by this 
final rule are intended to align U.S. export controls with overall U.S. 
national security and foreign policy interests, consistent with our 
multilateral commitments but also recognizing the unique nature of U.S. 
military and security interests in the Asia-Pacific region.
    Comment 5: Some commenters asserted that the ``military end-use'' 
license requirement will be burdensome to U.S. exporters and would be 
difficult to comply with, as proposed, because the definition of 
``military end-use'' was overly broad and vague. They argued that the 
breadth of the definition would result in encompassing more items and 
transactions than those that potentially could enhance the military 
capabilities of the PRC. Some commenters argued that terms such as 
``deployment'' and ``support'' were too vague to be readily understood 
by exporters screening their transactions, while other commenters noted 
that the definition of ``military end-use'' did not use well-understood 
terms from the EAR.
    Response: To address the commenters' argument that the definition 
of ``military end-use,'' as proposed, may have been insufficiently 
precise, BIS, in conjunction with its interagency partners, has revised 
the definition of ``military end-use'' in section 744.21(f) of the EAR 
to add additional clarity and specificity. The revised definition draws 
extensively on the definition of military end-use already contained in 
section 744.17 of the EAR, which restricts certain exports and 
reexports of general purpose microprocessors for ``military end-use'' 
and to ``military end-users.'' Like the proposed rule, this final rule 
continues to define ``military end-use'' as including incorporation 
into a military item described on the U.S. Munitions List, 
International Munitions List, and items listed under ECCNs ending in 
``A018'' on the CCL. However, it clarifies that ``military end-use'' 
also means for the ``use'', ``development,'' or ``production'' (each as 
defined in part 772 of the EAR) of such items, and that it means for 
the ``deployment'' only of those items covered under ECCN 9A991 as 
described in Supplement No. 2 to Part 744. In addition, for purposes of 
this ``military end-use'' control, in a new note to section 744.21(f), 
BIS has provided definitions for ``operation,'' ``installation,'' 
``maintenance,'' and ``deployment.'' These are terms not previously 
defined in the EAR, and BIS intends such definitions to clarify the 
scope of the military end-use control.
    Comment 6: Some commenters asserted that the license application 
review standard related to the ``military end-use'' control also was 
overly broad and vague. They argued that this, too, would result in the 
rule encompassing more items and transactions than those that 
potentially could enhance the military capabilities of the PRC. They 
pointed out that the ``military end-use'' control would apply to items 
previously removed from control by agreement of various multilateral 
regimes, and commented that the concept of ``material contribution'' 
was imprecise.
    Response: In response to comments received, BIS reviewed the 
breadth and clarity of the license review standard set forth in 
proposed section 744.21(e). This section provided that license 
applications involving the ``military end-use'' control would be 
reviewed on a case-by-case basis to determine whether they would make a 
``material contribution'' to the military capabilities of the PRC and 
would result in advancing the country's military activities contrary to 
U.S. national security interests. This final rule reflects BIS's 
continued belief that this standard is the appropriate basis through 
which it will review such license applications. Items subject to the 
``military end-use'' control were determined to be more sensitive when 
destined for a ``military end-use'' than when they are simply

[[Page 33649]]

controlled for national security reasons, and therefore BIS determined 
that they are more appropriately subject to a different licensing 
review standard, consistent with U.S. foreign and related export 
control policies for the PRC. (BIS's consideration of ``material 
contribution'' is also discussed in response to Comment 1.) In 
addition, in reviewing public comments, BIS determined that the license 
review standard set forth in the proposed rule did not specify how BIS 
would treat a license application if it were determined that the 
criteria set forth in the standard were satisfied. In this final rule, 
BIS is revising the proposed license review standard to specify that 
when it is determined that these criteria are met, the license 
application will be denied.
    Comment 7: A number of commenters stated that U.S. exporters, 
especially those exporting to distributors, would experience an undue 
burden and an increase in liability because they do not always have 
accurate information on the specific end-use of their products. 
Commenters further stated that it is difficult to know about customers' 
intentions with respect to resale, especially after reincorporation 
into a new product. They argued that the lack of clarity as to the 
expected degree of due diligence for complying with the ``military end-
use'' control would exacerbate this problem, particularly because 
knowledge of a ``military end-use'' is determined using the existing 
standard of knowledge in the EAR instead of an actual and positive 
knowledge standard. In this context, some commenters also argued that 
the high costs of compliance U.S. exporters would experience would 
place them at a competitive disadvantage in the PRC market.
    Response: BIS has reviewed the comments received regarding the 
knowledge standard set forth in the proposed ``military end-use'' 
control. Applying the EAR's existing knowledge standard provides 
exporters and reexporters with a familiar standard for screening or 
evaluating intended exports, reexports or transfers of items subject to 
the ``military end-use'' control. Under the EAR, exporters and 
reexporters already are responsible for ensuring that they do not, 
without a license, knowingly export or reexport any item subject to the 
EAR to an end-user or end-use that is restricted by part 744 of the 
EAR. The term ``knowledge'' used throughout part 744 (as defined in 
section 772.1 of the EAR) encompasses both actual knowledge and reason 
to know. Therefore, BIS believes that most exporters and reexporters 
already have screening procedures or internal controls in place to 
address the ramifications of having or gaining knowledge of an 
unauthorized end-use. The comments received did not provide evidence to 
support assertions that exporters will incur high costs of compliance 
related to the new ``military end-use'' control, nor was evidence 
provided to demonstrate that compliance burdens would be any greater 
than those currently required by provisions in part 744 of the EAR, 
which require exporters to apply for licenses based on their 
``knowledge'' of the intended end-user or end-use of an item. Moreover, 
because this final rule reduces the number of ECCNs subject to the 
``military end-use'' licensing requirement and further clarifies the 
definition of ``military end-use,'' BIS believes that the overall scope 
of the control has narrowed in a way that will minimize any additional 
burden of complying with these requirements.
    Comment 8: Some commenters recommended that a better approach to 
the ``military end-use'' control would be for BIS to publish a list, 
similar to the Unverified List or Entity List in the EAR, which would 
name specific prohibited military end-users in the PRC. Commenters 
argued that such a publication would shift the burden from the U.S. 
exporters to the U.S. Government.
    Response: BIS agrees that the EAR should provide exporters with as 
much clarity as possible regarding specific end-users of concern and 
end-users that merit greater scrutiny, as well as end-users that have 
been validated as legitimate civilian customers. As a result of this 
rule, BIS anticipates publishing the names of validated end-users. 
Another proposed rule, published on June 5, 2007 (72 FR 31005), would 
expand the criteria by which BIS could place end-users on the Entity 
List to include military end-users, thereby alerting exporters to the 
need for licenses. Yet even as BIS takes steps to identify for 
exporters customers of concern as well as legitimate civilian 
customers, BIS believes it remains critical for exporters to know their 
customers and perform due diligence to ensure that certain items 
destined for a ``military end-use'' in the PRC are reviewed by BIS. 
With regard to the suggestion that BIS publish a list of military end-
users, it is important to recall that this rule controls certain items 
based on their end-use, not on the end-user. The control depends on the 
circumstances of how the item will be used, not necessarily by whom it 
will be used. Therefore, BIS does not believe that a special list of 
military end-users in the PRC is appropriate for this rule. BIS has 
other end-user controls and other lists to identify end-users of 
concern.
    Comment 9: One commenter suggested that BIS clarify the 
relationship between existing License Exceptions available for the PRC 
and the proposed military end-use control.
    Response: BIS has revised section 744.21(c) to state more clearly 
that certain provisions of License Exception GOV are available for 
items requiring a license as a result of the military end-use control. 
Absent such a license requirement or another relevant license 
requirement set forth elsewhere in the EAR (e.g., for a proliferation 
end-use restricted under part 744), items listed in Supplement No. 2 to 
Part 744 would be exported to the PRC without a license.
    Comment 10: Some commenters stated that because the ``military end-
use'' control will have a significant impact, it should have been 
determined to be a ``major rule'' for purposes related to requirements 
of the Congressional Review Act (CRA) and that BIS's analysis of the 
projected impact of the rule should be made public.
    Response: Under the CRA, the OMB determines whether a rule is a 
``major rule.'' OMB has determined, without regard to whether the 
proposed rule may have been major, that this final rule is not major 
because its annual effect on the economy is well below the $100 million 
threshold provided in the CRA.
    BIS's analysis for this final rule demonstrates that the changes to 
the EAR (End-User Statement (EUS) requirement; Validated End-User (VEU) 
authorization; and ``military end-use'' control) that have the 
potential to have an annual effect on the economy will actually have 
little overall effect.
    The EUS requirement will result in little, if any additional cost 
to U.S. exporters. EUSs are now required for all license exports 
exceeding $50,000 in value (except for computers subject to the 
provisions of section 748.10(b)(3) or to items classified under ECCN 
6A003). While this changes the distribution of license applications 
requiring EUSs, the higher dollar threshold triggering the need for an 
EUS will keep the overall number of license applications that require 
EUSs about the same as it was before this revision. The VEU 
authorization will actually reduce costs of U.S. exporters because it 
will eliminate the need for individual export licenses to specified 
customers in the PRC. Eliminating export license applications could 
save U.S. exporters as much as several million dollars annually. While 
the rule does establish reporting requirements on U.S.

[[Page 33650]]

companies that export without a license under the VEU authorization, 
these requirements are not appreciably more than existing recordkeeping 
requirements and should be far less than the cost of license 
applications avoided by the U.S. exporters.
    Finally, the ``military end-use'' control established by this rule 
covers a small set of items. U.S. exporters should already be screening 
these exports, as well as all items subject to the EAR (items numbering 
in the thousands) for reasons of control that are set forth in part 744 
of the EAR (including weapons of mass destruction end-uses and 
involvement of persons denied export privileges). The most direct 
potential cost of the ``military end-use'' control would be export 
license applications now required when previously they were not. Based 
on existing data, this control could result in additional export 
licenses for approximately $5,000,000 worth of goods annually, with a 
cost, using a very high estimate, of $500,000. Commenters did not 
provide data to allow BIS to evaluate what increased compliance costs, 
if any, entities would incur with this additional screening 
requirement.
    Thus, the overall annual effect on the economy of this rulemaking, 
using a very high estimate, will not be more than about several million 
dollars, which is well below the $100 million threshold required for a 
major rule.
    Comment 11: Two commenters asserted that BIS does not have the 
statutory authority to promulgate this regulation. In particular, one 
commenter asserted that BIS does not have authority to amend the EAR to 
impose unilateral national security controls on exports to China.
    Response: Although the EAA has been in lapse since August 21, 2001, 
BIS amends the EAR under the authority conferred by Executive Order 
13222 of August 17, 2001, as extended most recently by the Notice of 
August 3, 2006 (71 FR 44551 (Aug. 7, 2006)). Therein, the President, by 
reason of the expiration of the EAA, invoked his authority, including 
authority under the International Emergency Economic Powers Act, to 
continue in effect the system of controls that had been maintained 
under the EAA. In addition, as noted in response to Comment 4, BIS is 
imposing this ``military end-use'' control consistent with U.S. 
commitments as a Participating State in the Wassenaar Arrangement, 
under the Arrangement's policy of national discretion in 
implementation. Moreover, other Participating States are considering 
their own measures to implement those commitments.
    Comment 12: Two commenters asserted that, in drafting the final 
version of this rule, BIS should include a provision for contract 
sanctity in order to avoid adverse effects on existing business 
contracts. In particular, one commenter stated that BIS should allow 
exports under open, unshipped orders or contracts and allow companies 
to continue to satisfy warranty obligations for spare parts, service 
and maintenance, as well as non-warranty obligations for machines that 
are already installed.
    Response: BIS recognizes that exporters and reexporters may have 
ongoing contractual obligations to service items previously shipped to 
the PRC. This is the case whenever BIS issues a rule that imposes a new 
license requirement. Accordingly, BIS has a practice of including 
contract sanctity language in the Saving Clause section of such rules, 
and has included such language in this rule. This language provides 
that there is a thirty-day delay between publication of this rule and 
the rule's effective date.

Expansion of End-User Statement Requirement for the PRC

    Comment 13: Many commenters stated that an expansion of the End-
User Certificate (EUC) requirement to encompass items that require a 
license for any reason to the PRC and exceed $5,000 would pose a 
substantial burden for exporters and reexporters because it would 
increase the number of EUCs required for exports of items to the PRC. 
Currently, they argued, U.S. exporters experience delays in obtaining 
EUCs from the PRC's Ministry of Commerce (MOFCOM). They further argued 
that having to obtain additional EUCs from MOFCOM would protract these 
delays because MOFCOM does not have sufficient resources to accommodate 
such an increase in requests. In this context, some commenters also 
asserted that BIS should not implement the expanded EUC requirement 
until the government of the PRC agrees to provide the certificates in a 
timely manner.
    Response: As an initial matter, BIS notes that to conform with 
nomenclature that is recognized by MOFCOM, BIS is amending the EAR to 
label documents previously described as PRC End-User Certificates as 
End-User Statements (EUSs). This change was implemented in response to 
commenters' requests that BIS increase its coordination and cooperation 
with MOFCOM regarding EUSs. In this rule, this amendment to the EAR is 
being made in sections 748.9, 748.10 and 748.12.
    Like the proposed rule, this final rule continues to provide in 
section 748.10(a) that it applies to transactions involving items 
controlled for reasons of national security that are destined for any 
country identified in section 748.9(b)(2) of the EAR and that, in the 
case of the PRC, it applies to transactions involving all items that 
require a license to the PRC for any reason. Based on public comments, 
however, BIS has reassessed the value threshold at which an EUS will be 
required for the PRC. As compared to the proposed rule, this final 
rule, in section 748.10(b)(4), increases the threshold at which an EUS 
will be required for most items from $5,000 to $50,000. In recent 
years, exporters and reexporters to the PRC have obtained between 500 
and 600 EUSs each year. BIS selected the $50,000 threshold so that the 
number of EUSs obtained would remain approximately the same, thereby 
addressing commenters' concerns regarding the burden of obtaining an 
increased number of EUSs and the burden on MOFCOM of processing an 
increased number of requests for EUSs. While some exporters (those that 
export items controlled for reasons other than national security, 
especially in the chemical sector) will face a new requirement to 
obtain EUSs, other exporters (those exporting items controlled for 
reasons of national security valued under $50,000) will have a reduced 
burden. In raising this threshold, BIS has acted to provide some relief 
from burdens commenters state that exporters experience with paperwork 
and the EUS requirement for applicable transactions above $5,000. The 
new $50,000 threshold will not apply to items classified under ECCN 
6A003 (cameras) or to exports to the PRC of computers subject to 
section 748.10(b)(3). BIS's analysis of licensing data revealed that 
nearly all transactions for items controlled under ECCN 6A003 are 
valued at below $50,000. Because BIS believes there is a continued 
national security need to require EUSs to conduct end-use checks on the 
sensitive commodities covered by ECCN 6A003, BIS left the $5,000 
threshold in place for these commodities. Items classified under ECCN 
6A003 are controlled for national security reasons; as a result, this 
action does not result in imposing a new requirement but simply 
maintains an existing one. Excluding computers subject to section 
748.10(b)(3) from the $50,000 threshold also maintains an existing 
requirement. As to any delay in the PRC's implementation of this new 
EUS requirement, as noted above, the U.S.

[[Page 33651]]

Government and the Government of the PRC continue a dialogue to address 
obstacles that may impede the timely processing of requests for EUSs.
    Comment 14: Some commenters argued that the $5,000 threshold for 
the EUC requirement is too low.
    Response: As noted in response to Comment 13, above, BIS is raising 
the EUC threshold for most items to $50,000. The response to Comment 13 
provides BIS's rationale for raising this threshold.
    Comment 15: Commenters also argued that the expansion of the EUC 
requirement would protract delays in export licensing because of the 
lack of sufficient U.S. Government personnel in the PRC to conduct end-
use visits and because the Department of Commerce would use the 
expanded EUC requirement as a basis to increase the number of end-use 
visits in the PRC.
    Response: As noted in the response to Comment 13, BIS does not 
expect this final rule to result in any significant increase in the 
number of EUSs required per year. The application of the EUS 
requirement to items other than those controlled for NS reasons is 
intended to broaden the variety of situations in which end-use visits 
may be performed (to include end-use visits concerning items controlled 
for chemical or biological weapons proliferation reasons, for example). 
The increased dollar threshold is intended to substantially minimize 
any increase in the overall number of such visits.
    Comment 16: Some commenters stated that the issuance of EUCs 
depends on the cooperation of senior officials of the government of the 
PRC. These commenters contend that expanding this requirement would 
harm the bilateral economic relationship, as well as significant 
political, military, and foreign policy relationships, between the 
United States and the PRC, thereby disrupting the necessary 
cooperation.
    Response: As noted in the response to Comment 13, this final rule 
will require EUSs in circumstances where they were not previously 
required, but because of the higher dollar threshold this amendment to 
the EAR is not expected to result in an overall increase in the number 
of EUSs required. The fact that the Governments of the United States 
and the PRC are currently engaged in productive dialogue to facilitate 
end-use visits counters the notion that the changes to the EUS 
requirement would harm the bilateral relationship.
    Comment 17: Some commenters stated that the consequence of the 
expanded EUC requirement would be a decrease in the volume of U.S. 
exports to the PRC because customers in the PRC would look to non-U.S. 
suppliers that do not maintain a similar requirement. They argue that 
this outcome would be contrary to the purpose of facilitating end-use 
visits and increased U.S. exports to the PRC, which was explained in 
the proposed rule.
    Response: As explained in the response to Comment 13, the effect of 
the change to the EUS requirement is not expected to result in a great 
impact either in terms of costs to the exporter or reexporter or in 
terms of compliance burden. As a result, BIS does not anticipate that 
this amendment to the EAR would cause customers in the PRC to turn to 
non-U.S. suppliers.
    Comment 18: Some commenters argued that BIS should exempt companies 
that are granted Validated End-User status from the EUC requirement.
    Response: Section 748.10 of the EAR requires that EUSs be obtained 
in situations in which a license is required. As Validated End-User 
authorization eliminates a license requirement, eligible items 
exported, reexported or transferred under that authorization will not 
need EUSs.
    Comment 19: One commenter stated that the proposed rule should be 
clarified to indicate whether the expanded EUC requirement covered 
exports of technology.
    Response: Section 748.9(a)(7) provides that exports and reexports 
of software and technology are exempt from support documentation 
requirements; BIS proposed no change to this exemption and has made 
none in this final rule.
    Comment 20: One commenter asserted that the EUC requirement 
constitutes a non-tariff barrier to trade with the PRC. Another 
commenter asserted that, given the difficulty of obtaining EUCs and the 
inconsistent information and lack of transparency of MOFCOM in issuing 
EUCs, U.S. exporters may be required to increase their Foreign Corrupt 
Practices Act (FCPA) compliance costs to ensure that no prohibited 
payments are made.
    Response: The need for an EUS has been a long standing requirement 
in the Export Administration Regulations. As noted in response to 
Comment 13, this final rule merely widens the scope of circumstances in 
which an EUS is required without increasing the number of EUSs that 
must be obtained. In addition, BIS notes that the requirement for U.S. 
exporters to obtain an EUS stems from the Chinese determination that 
EUSs are required for end-use checks. BIS does not agree that EUSs pose 
a non-tariff barrier to trade, and without concrete information has no 
basis to assess possible FCPA-compliance issues raised by this 
commenter.
    Comment 21: Some commenters asserted that the expansion of the EUS 
requirement implicates requirements of the Paperwork Reduction Act of 
1955 (44 U.S.C. 3501 et seq.) (PRA).
    Response: The impact of the revision of the EUS requirement has 
been addressed above in the response to Comment 13. BIS prepared a PRA 
package in connection with the EUS element of this rule.

Authorization Validated End-User (VEU)

    Comment 22: Several commenters claimed that the VEU authorization 
may benefit exporters that have a small customer base, but would not 
benefit exporters that sell to a large number of customers in the PRC 
that will in turn act as resellers, distributors, or retailers of those 
products in the Chinese market to a wide variety of customers.
    Response: VEU authorization is intended to facilitate exports by 
removing the requirement for an individual license for end-users that 
meet the criteria for VEU authorization. BIS has set no limit on how 
many customers may apply to receive exports under VEU authorization, 
and has not precluded resellers from receiving VEU status.
    Comment 23: Some commenters asserted that the VEU authorization 
presents an additional administrative burden because of the associated 
VEU certification, recordkeeping and reporting requirements, which are 
similar to the requirements associated with Special Comprehensive 
Licenses (SCLs).
    Response: Authorization VEU is voluntary and therefore does not 
present an additional administrative burden for any entity that does 
not choose to avail itself of the authorization. Exporters or customers 
who believe the VEU requirements are too burdensome may continue to 
apply for individual licenses if they so choose. Nevertheless, 
following our review of comments, in this final rule, BIS has 
established procedures for applying for VEU status that were designed 
to be as straightforward and present as little burden as possible, 
consistent with the requirements of national security. VEU status would 
provide significant benefits for end-users, as well as entities that 
export or reexport to validated end-users. In addition, BIS believes 
that the requirements for recordkeeping and reporting associated with 
VEU status are

[[Page 33652]]

less burdensome than those currently in effect for other authorizations 
such as special licenses that are available under the EAR to companies 
that meet specified criteria.
    Comment 24: Several commenters claimed that the VEU authorization 
would be burdensome because it would require a complex internal control 
commitment from Chinese customers or end-users. Those end-users would 
require assistance from exporters or reexporters in order to request 
the authorization.
    Response: End-users will wish to evaluate the benefit of holding a 
VEU authorization, and exporters, similarly, will want to consider for 
themselves the benefits of working with their customers to apply for 
such authorization. As noted in response to Comment 23, VEU 
authorization is entirely voluntary, but those that meet its criteria 
will be afforded the significant benefit of receiving certain items 
without the need for an individual license for each transaction. Also 
as noted in response to Comment 23, BIS has established procedures for 
applying for VEU status that were designed to be as straightforward and 
present as little burden as possible, consistent with the requirements 
of national security. BIS offers assistance for exporters and end-users 
in complying with the EAR, and anticipates conducting additional 
outreach to clarify the procedures and benefits of the VEU 
authorization.
    Comment 25: Several commenters questioned whether the VEU 
authorization offers a benefit. They asserted that U.S. exporters would 
go through an administratively burdensome and costly process of 
preparing and submitting a request for VEU authorization only to have 
their Chinese customers made public on the BIS Web site. This would 
result in the exporters losing competitive advantage as their 
competitors would have access to their customers.
    Response: See responses to Comments 23 and 24. In developing the 
VEU authorization, BIS reviewed an extensive amount of licensing data, 
which indicated that many Chinese end-users are served by multiple U.S. 
exporters, all of whom would benefit if the end-user were to be granted 
VEU status. BIS believes that identifying Chinese customers as 
validated end-users will help to expand high-technology trade and U.S. 
exports by making clear to all potential U.S. exporters that there is a 
universe of end-users in the PRC that may receive certain items on the 
CCL without the administrative burden of receiving an individual 
license.
    Comment 26: Several commenters stated that BIS should ensure that 
no violations of Section 12(c) of the Export Administration Act of 
1979, as amended (EAA), occur when BIS publishes information related to 
the VEU authorization or information about end-users who are granted 
VEU authorization.
    Response: BIS agrees that it is critical to protect information 
covered by Section 12(c) of the EAA. BIS conscientiously protects all 
proprietary information, and will continue to ensure that the 
requirements of Section 12(c) are met in its administration of VEU 
authorization.
    Comment 27: Some commenters asserted that VEU authorization would 
present problems for companies in the PRC unwilling to submit to U.S. 
legal jurisdiction because of possible penalties under the laws of the 
PRC. They argued that the Government of the PRC might discourage 
companies from applying for VEU authorization, and further claimed that 
MOFCOM would refuse to allow end-use checks to be conducted on such 
companies.
    Response: BIS designed the VEU authorization program to correspond 
to existing requirements of the EAR and to impose as little additional 
burden as possible on exporters, reexporters and Chinese end-users that 
currently use individual licenses or SCLs. BIS notes that Chinese end-
users currently receiving items under individual licenses or SCLs are 
already (and have long been) required by the EAR to maintain certain 
records and to comply with certain license conditions. These activities 
are similar to the activities required of validated end-users in 
section 748.15 of the EAR. Hence, the VEU program will not 
substantially add compliance responsibilities for companies in China 
whose activities are subject to the EAR. BIS will continue to explain 
the VEU authorization to the Government of the PRC, and to encourage 
that Government's cooperation with the program. However, it is 
important to note that decisions regarding export licenses and export 
authorizations for items subject to the EAR are made solely by the 
United States Government.
    Comment 28: Some commenters asserted that the potential benefit or 
usefulness of VEU authorization is reduced because vetted end-users 
would not be allowed to receive all products and technology under all 
ECCNs under the EAR.
    Response: Authorization VEU is not intended to eliminate the 
requirement that exporters or others comply with applicable provisions 
of law or the EAR. By statute, BIS must require a license for items 
controlled for missile technology or crime control reasons that will be 
exported or reexported to the PRC. While BIS recognizes that entities 
designated as validated end-users would like to be exempt from all EAR 
licensing requirements, BIS has designed the VEU authorization to 
ensure that exports under VEU are relevant to the validated end-user's 
business. It would not be appropriate, for example, to permit exports 
under authorization VEU of semiconductor manufacturing equipment to a 
chemical factory, or of aircraft parts to a plant producing computers. 
For that reason, BIS will require applicants for VEU authorization to 
identify those ECCNs that they wish to receive under the authorization, 
and will decide whether those items are appropriate based on the 
circumstances of the case.
    Comment 29: Many commenters asserted that there would be negative 
consequences for companies who apply for and do not receive VEU 
authorization, implicitly creating a ``black list,'' thus posing a risk 
of application that most U.S. exporters would be unwilling to take. 
Commenters further stated that BIS should make clear that applying for 
and not obtaining VEU authorization would not be considered a ``red 
flag'' for a transaction. In addition, one commenter stated that BIS 
should delete language regarding possible ``other actions,'' in 
addition to removal from the VEU list, as a penalty for non-compliance 
with VEU requirements.
    Response: Based on these comments, BIS has specifically noted in 
the chapeau to section 748.15 that if an application for VEU 
authorization for a particular end-user is not granted, no new license 
requirement is triggered and the end-user is not rendered ineligible 
for license approvals from BIS. Moreover, VEU status is pertinent only 
to transactions in which licenses would otherwise be required. 
Accordingly, lack of approval of a VEU request would neither add to nor 
take away from the licensing requirements applicable to exports or 
reexports to an end-user that is not validated. Actions taken in the 
context of VEU authorization, including non-compliance with VEU 
requirements, that violate the EAA, the EAR, or any order, license, or 
authorization issued thereunder may form the basis for enforcement 
action.
    Comment 30: Many commenters claimed that the selection process for 
granting VEU authorization is unclear and the evaluation factors are 
too extensive and ill-defined. The

[[Page 33653]]

commenters further stated that providing illustrative examples of 
evaluation factors, such as an example of the factor ``party's 
relationships with U.S. and foreign companies,'' might increase 
exporters' understanding of the VEU process. Several commenters further 
asserted that a published model VEU request would provide U.S. 
exporters and potential VEUs guidance on BIS's expectations.
    Response: BIS agrees that it is important to be explicit about the 
type of criteria that BIS and its interagency partners will consider in 
evaluating VEU candidates, as well as the process that BIS and its 
interagency partners will use in making such determinations. As a 
result, in this final rule, BIS has attempted to explain in great 
detail how VEU authorizations will be administered by the U.S. 
Government. Section 748.15(a)(1) provides that BIS will accept 
applications from exporters, reexporters, or end-users and identifies 
the address to which such applications must be submitted. Section 
748.15(a)(2) of this rule specifies that, in determining which end-
users will be approved for VEU status, BIS will consider a range of 
information, including such factors as: the entity's record of 
exclusive engagement in civil end-use activities; the entity's 
compliance with U.S. export controls; the need for an on-site review 
prior to approval; the entity's capability of complying with the 
requirements of authorization VEU; the entity's agreement to on-site 
reviews to ensure adherence to the conditions of the VEU authorization 
by representatives of the U. S. Government; and the entity's 
relationships with United States and foreign companies. Section 
748.15(a)(2) also specifies that when evaluating the eligibility of an 
end-user, agencies will consider the status of export controls and the 
support and adherence to multilateral export control regimes of the 
government of the eligible destination. In addition, new Supplement No. 
8 to Part 748 provides details as to the specific information that must 
be submitted to BIS in a VEU authorization request. Finally, new 
Supplement No. 9 to Part 748 provides details as to the decision-making 
process of the End-User Review Committee (ERC), including timeframes 
for decision-making. The ERC is composed of representatives of the 
Departments State, Defense, Energy, and Commerce and other agencies, as 
appropriate. All of these changes are intended to address public 
comments encouraging BIS to explain the VEU authorization process in as 
much detail as possible. In addition, BIS plans to conduct extensive 
outreach to explain to exporters and potential VEU candidates the 
procedures and requirements for applying for this authorization, and 
will consider sample or model requests as part of this outreach and 
education.
    Comment 31: Some commenters stated that BIS should identify a time 
limit for approving or rejecting VEU requests.
    Response: BIS agrees that it is important to establish specific 
time deadlines for approving or rejecting VEU applications. Supplement 
No. 9 to Part 748, paragraph 4, provides that 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. Prior to or during its 
review of an application, BIS or the Committee may determine that it is 
appropriate to request additional information from the applicant or 
potential validated end-user. When BIS or the ERC requests such 
information, the 30-day clock is put on hold while the ERC is waiting 
for additional information.
    Comment 32: One commenter stated that BIS should: expressly limit 
audits associated with VEU authorization to activities that occur under 
the authorization; not extend such audits to other areas of compliance; 
identify which U.S. Government agency would conduct VEU visits; and 
specify how frequently such visits will occur. In this context, the 
commenter stated that visits should occur no more than three times per 
year, and that advance notice should be provided--preferably 14 days in 
advance of the visit.
    Response: In this rule, based on public comments, BIS clarifies 
that reviews for purposes of administering and enforcing the provisions 
of authorization VEU are not financial audits, as the term may have 
been interpreted. As BIS implements the VEU authorization, BIS will 
continue to consider the recommendation that reviews should occur no 
more than three times per year and with 14 days advance notice. Visits 
will be conducted and led by personnel of the Commerce Department, in 
coordination with the U.S. Embassy, and may include representatives of 
other U.S. Government agencies, as appropriate.
    Comment 33: Some commenters stated that BIS should clarify whether 
BIS's reference to ``items'' in the VEU authorization includes 
technology and hardware.
    Response: As stated in section 772.1 of the EAR, ``item'' means 
``commodities, software, and technology.'' As such, commodities, 
software, and technology are eligible items under authorization VEU.
    Comment 34: Some commenters stated that BIS should clarify whether 
the knowledge standard set forth in the EAR applies to exporters' 
actions under the VEU authorization.
    Response: As provided in section 764.2(e) of the EAR, no person may 
take certain actions with respect to any item subject to the EAR with 
knowledge that a violation of the EAA, EAR, or any order, license or 
authorization issued thereunder, has occurred, is about to occur, or is 
intended to occur in connection with the item. The term ``knowledge'' 
is defined in section 772.1. Authorization VEU is an authorization 
covered by section 764.2(e), and the knowledge standard set forth in 
section 772.1 applies to actions under the VEU authorization.
    Comment 35: Some commenters recommended that BIS extend the VEU 
authorization program to other destinations such as India and Taiwan.
    Response: The United States Government believes that authorization 
VEU could be a valuable tool to facilitate exports to civilian end-
users in other destinations, and is actively considering making 
additional destinations eligible for authorization VEU.
    Comment 36: Some commenters advised that the VEU authorization 
should apply to subsidiaries, subcontractors, and multiple facilities 
of the same end-user.
    Response: BIS agrees that it may be appropriate for VEU 
authorization to cover multiple facilities of the same end-user. Such 
entities are free to request authorization for multiple locations or 
facilities. If so, pursuant to the requirements of Supplement No. 9 to 
Part 748, paragraph 1, they must provide with their applications the 
physical addresses of each location in the eligible destination. BIS 
will consider requests to cover multiple facilities according to the 
criteria and procedures listed in new Supplements 8 and 9 to Part 748. 
In particular, as described in Supplement No. 8 to Part 748, BIS 
requires that VEU applications provide an overview of the structure, 
ownership and business of the prospective validated end-user, which 
should include subsidiaries and joint-venture projects. Applicants must 
also provide the physical address(es) of the location(s) where the 
item(s) will be used, if this address is different from the address of 
the prospective validated end-user.
    Comment 37: Some commenters requested that BIS allow a more

[[Page 33654]]

permissive VEU certification process for subsidiaries of U.S. 
companies.
    Response: BIS believes that it is important to maintain the same 
procedure for all applicants for VEU authorization. Subsidiaries of 
U.S. companies are certainly eligible to apply for VEU authorization; 
their applications will be reviewed against the criteria listed in 
section 748.15(a)(2).
    Comment 38: One commenter suggested that the U.S. Government, on 
its own, identify companies to be granted VEU status.
    Response: BIS agrees that it is important for the U.S. Government 
to be able to identify possible VEU candidates. As such, Supplement No. 
9 to Part 748, paragraph 3, specifies that the ERC will consider 
candidates for VEU authorization that are identified by the U.S. 
Government.
    Comment 39: Some commenters suggested that end-users under the 
Special Comprehensive License (SCL) program should be given special 
consideration in obtaining VEU authorization and that the SCL approval 
process for end-users should warrant ``de facto'' authorization for VEU 
status.
    Response: BIS will consider all applicants for VEU status, and 
status as an SCL consignee or end-user will be taken into account if 
such consignees or end-users are VEU candidates. The SCL approval 
process will not, however, be ``de facto'' VEU authorization because 
SCL status and VEU authorization are materially different from one 
another, and consequently the criteria BIS uses to evaluate applicants 
for SCL status (set forth in Part 752 of the EAR) and VEU authorization 
(set forth in section 748.15 of the EAR and in Supplement No. 8 to Part 
748) are different. Because these differing sets of criteria are 
tailored toward the distinct and differing features of SCL and VEU 
status, respectively, BIS has made the decision not to grant special 
consideration to VEU applications from SCL end-users or consignees. 
Such applications will be evaluated on the basis of the criteria set 
forth in section 748.15 and Supplement No. 8 to Part 748 of the EAR.
    Comment 40: One commenter argued that there is a significant 
disconnect between the VEU authorization and BIS's deemed exports 
licensing policy. This commenter urged that BIS allow authorization VEU 
to cover exports of technology to foreign national employees of 
authorized companies normally employed inside the United States, if the 
employees are nationals of a country eligible for VEU status. 
Similarly, another commenter argued that BIS should confirm in this 
final rule that authorization VEU will allow the release of technology 
to PRC nationals in the United States if the PRC national is a full-
time employee of an entity with approved VEU status.
    Response: If a validated end-user is approved to receive specific 
eligible technology, part of that VEU authorization is the 
authorization for Chinese employees of that validated end-user to 
receive the same technology, including through a transfer inside the 
United States.
    Comment 41: One commenter argued that BIS should clarify the impact 
of this rule on deemed exports. In particular, this commenter stated 
that this rule should not apply to technical information that flows 
between affiliated entities, particularly with respect to Chinese 
subsidiaries of U.S. parent corporations.
    Response: Under the new ``military end-use'' control, a license is 
now required for any deemed export covered by section 744.21 of the 
EAR. In addition, the revised licensing policy for items controlled for 
national security reasons will apply to license applications involving 
deemed exports. The intersection between the VEU authorization and 
transfers of technology inside the United States is discussed above in 
response to Comment 39. Under the current regulations, the deemed 
export rule does not regulate the flow of information between exporters 
in the U.S. and affiliated entities overseas that the commenter 
describes as a deemed export transaction. The deemed export rule 
regulates the transfer of controlled technology to foreign nationals 
working in the United States. Under the EAR, unless a License Exception 
applies, an export license is required if technology that requires a 
license is to be released to an affiliated entity overseas.
    Comment 42: Some commenters stated that BIS should publish in 
Chinese the names of entities that receive VEU authorization. These