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]
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Federal Register / Vol. 72, No. 117 / Tuesday, June 19, 2007 / Rules and Regulations
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
Bureau of Industry and
Security, Commerce.
ACTION: Final rule.
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AGENCY:
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 enduse,’’ 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.
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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 email 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:
DATES:
DEPARTMENT OF COMMERCE
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
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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
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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.
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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
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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 enduse checks on exports or reexports of
controlled goods and technologies to the
PRC, consistent with the existing enduse 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
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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 enduse’’ 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 enduse,’’ as defined in this final rule. With
regard to foreign availability, indigenous
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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.
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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
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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
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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 enduse’’ 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 enduser 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
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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 endusers that have been validated as
legitimate civilian customers. As a
result of this rule, BIS anticipates
publishing the names of validated endusers. 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.
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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 enduse 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 enduse’’ 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.
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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.
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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.
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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.
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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
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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
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33651
pose a non-tariff barrier to trade, and
without concrete information has no
basis to assess possible FCPAcompliance 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 endusers. In addition, BIS believes that the
requirements for recordkeeping and
reporting associated with VEU status are
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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 endusers 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 endusers 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 endusers will help to expand hightechnology trade and U.S. exports by
making clear to all potential U.S.
exporters that there is a universe of endusers in the PRC that may receive
certain items on the CCL without the
administrative burden of receiving an
individual license.
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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 endusers 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.
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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 noncompliance 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
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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
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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 enduser. 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
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33653
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 jointventure 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
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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
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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
commenters also recommended that the
Entity List and Unverified Parties List
be published in Chinese.
Response: BIS agrees that it is
important to provide as much
information as possible to exporters and
reexporters regarding U.S. export
controls. However, the Federal Register,
which officially publishes all U.S.
Government regulations, only publishes
documents in the English language. In
addition, BIS’s limited resources do not
allow such information to be published
on the BIS Web site at this time. BIS will
continue to consider this
recommendation as part of its outreach
effort to educate exporters and
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customers in the United States and the
PRC.
Comment 43: One commenter argued
that instead of the VEU authorization,
BIS should consider a ‘‘gold card’’
license for certain exporters that would
allow those exporters to export a preidentified range of products to any
qualified customer in the PRC.
Response: The VEU accomplishes the
same goal as that proposed by the
commenter. It allows U.S. exporters to
export a pre-identified range of products
to qualified customers. For national
security reasons, however, the U.S.
Government must retain the ability to
determine who is a ‘‘qualified
customer’’ for controlled items exported
by any exporter, no matter how ‘‘gold.’’
The VEU program facilitates civilian
high-technology trade, in a way that will
be neither overly burdensome nor
intrusive. The VEU program creates
positive, market-based incentives and
rewards for companies that act
responsibly with sensitive products.
Firms with established civilian
credentials and a good record of
handling such products will enjoy better
access to controlled technology than
their competitors, and U.S. exporters
will be able to sell more efficiently to
their best civilian customers.
Comment 44: Some commenters
argued that instead of the VEU
authorization, companies in the PRC
should be allowed to provide
certificates to BIS in which they agree
to end-use checks.
Response: A VEU authorization will
take the place of individual licenses.
Consequently, there are a number of
factors to be considered, in addition to
willingness to host on-site reviews, in
determining whether a customer in the
PRC will be approved as a VEU. As set
forth in section 748.15, these factors
include 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, and the entity’s
capability of complying with the
requirements of authorization VEU, as
well as an agreement to accept on-site
reviews. Moreover, on-site reviews by
U.S. Government officials are to verify
the end-user’s compliance with the
conditions of the VEU authorization.
Thus, VEU on-site reviews are separate
and distinct from End-Use Visits as
defined in the End-Use Visit
Understanding established between the
Governments of the U.S. and the PRC.
Comment 45: Some commenters
argued that BIS should provide another
opportunity for industry to comment on
the VEU authorization before it becomes
effective.
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Response: BIS has considered the 57
public comments received, many of
which included statements regarding
the VEU authorization. Having
thoroughly reviewed these comments,
BIS believes it has a basis to move
forward with the VEU authorization
program. However, BIS accepts
comments on an ongoing basis, as noted
in the ADDRESSES section of this Action.
BIS is always considering how to
improve the EAR, and will consider any
such comments received as it goes
forward with the VEU program.
Changes from the Proposed Rule
After considering the public
comments and consulting with its
interagency partners, BIS is
implementing the proposed rule, with
the modifications described below.
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1. Amendments To License Review
Policy and License Requirements With
Respect to the PRC
With respect to the license review
policy for items controlled for national
security reasons destined for the PRC,
the proposed rule provided that there
would be a presumption of denial for
items that would make a ‘‘material
contribution’’ to the military capabilities
of the PRC. This amendment would
have modified Section 742.4(b)(7) of the
EAR, which previously provided that
applications involving items destined
for the PRC that are controlled for
national security reasons received
extended review or denial if they would
make a ‘‘direct and significant
contribution’’ to certain specified
aspects of PRC military development.
BIS is retaining its ‘‘direct and
significant contribution’’ standard in
this final rule, but has amended the list
of PRC military capabilities. An
illustrative list of PRC military
capabilities is presented in new
Supplement No. 7 to Part 742 of the
EAR (Description of Major Weapons
Systems).
BIS also is implementing the
‘‘military end-use’’ control set forth in
the proposed rule. BIS has reviewed the
proposed list of items covered by this
new control, which are set forth in
Supplement No. 2 to Part 744 of the
EAR, and determined that rather than
the 47 ECCNs identified in the proposed
rule, this final rule will apply the
‘‘military end-use’’ control to items
covered under 31 ECCNs, entirely or in
part, covering commodities, software,
and technology for approximately 20
distinct product groups. All of the 31
full or partial ECCNs included in this
final rule were also included in the
proposed rule.
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With respect to the ‘‘military end-use’’
control, BIS is also changing the
definition of ‘‘military end-use’’ that
was set forth in Section 744.21(f) of the
proposed rule. In this final rule
‘‘military end-use’’ means:
incorporation into a military item
described on the U.S. Munitions List
(USML) (22 CFR part 121, International
Traffic in Arms Regulations);
incorporation into a military item
described on the International
Munitions List (IML) (as set out on the
Wassenaar Arrangement Web site at
https://www.wassenaar.org);
incorporation into items listed under
ECCNs ending in ‘‘A018’’ on the CCL in
Supplement No. 1 to part 774 of the
EAR; or for the ‘‘use’’, ‘‘development’’,
‘‘production’’, or deployment of military
items described on the USML or the
IML, or items listed under ECCNs
ending in ‘‘A018’’ on the CCL. For
purposes of section 744.21, deployment
applies only to commodities covered
under ECCN 9A991 as described in
Supplement No. 2 to Part 744 of the
EAR. In connection with the definition
of ‘‘military end-use,’’ BIS is also
amending the EAR to include a note to
section 744.21(f) that defines, for
purposes of the ‘‘military end-use’’
control, the terms, ‘‘operation,’’
‘‘installation,’’ ‘‘maintenance,’’ and
‘‘deployment.’’
2. Revision of End-User Statement
Requirements
BIS is amending the EAR to provide
that what were previously described as
‘‘End-User Certificates’’ are now
properly termed ‘‘End-User Statements’’
(EUSs) with respect to the PRC. This
amendment affects sections 748.9,
748.10 and 748.12. In the proposed rule,
BIS originally stated that it planned to
expand the requirement for EUSs to
items that require a license for any
reason to the PRC and exceed a total
value of $5,000. In this final rule, BIS
has raised the threshold dollar amount
for required EUSs for the PRC in section
748.10 of the EAR to $50,000 for most
items. The raised threshold will not
apply to items classified under ECCN
6A003 (cameras) and exports to the PRC
of computers subject to section
748.10(b)(3). The threshold amount for
items classified under ECCN 6A003
remains $5,000, as set forth in the
proposed rule. Also in this final rule,
BIS has raised the threshold dollar
amount for required Import Certificates
for items controlled for national security
reasons to any destination listed in
section 748.9(b)(2) from the $5,000
specified in the proposed rule to
$50,000. Finally, BIS is amending
Supplement No. 4 to Part 748 to provide
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33655
the correct name of the branch of the
Government of the PRC that issues
EUSs.
3. Authorization Validated End-User
(VEU)
BIS is adding Authorization Validated
End-User (VEU) to the EAR, in new
section 748.15. With this final rule, BIS
amends the EAR to provide detailed
information to the exporting community
regarding the VEU authorization.
Information required to be submitted
with VEU authorization applications is
set forth in new Supplement No. 8 to
Part 748 of the EAR (Information
Required for Requests for Validated
End-User Authorization). In addition,
section 748.15 establishes the End-User
Review Committee, which is
responsible for making determinations
on VEU candidates. New Supplement
No. 9 to Part 748 sets forth the
membership of the Committee and the
procedures that the Committee will
follow.
In connection with these amendments
to the EAR regarding VEU authorization,
BIS is also making conforming changes.
BIS is adding new paragraph (3) to
section 743.1 (Wassenaar Arrangement),
which informs exporters of the
Wassenaar Arrangement of reporting
requirements related to VEU
authorization; new paragraph (b) to
section 750.2 (Processing of
Classification Requests and Advisory
Opinions), which informs exporters of
the timeframe in which VEU
applications will be considered; and
new paragraph (b)(5) to section 758.1
(The Shipper’s Export Declaration (SED)
or Automated Export System (AES)
record), which informs exporters that
shipping documentation must be filed
with the U.S. Government for all exports
under VEU authorization.
Saving Clause
Shipments of items removed from
eligibility for a License Exception or for
export or reexport without a license
(NLR) as a result of this regulatory
action that were on dock for loading, on
lighter, laden aboard an exporting or
reexporting carrier, or en route aboard a
carrier to a port of export or reexport on
June 19, 2007, pursuant to actual orders
for export or reexport to a foreign
destination, may proceed to that
destination under the previous
eligibility for a License Exception or
export or reexport without a license
(NLR) so long as they are exported or
reexported before July 19, 2007. Any
such items not actually exported or
reexported before midnight on July 19,
2007 require a license in accordance
with this rule.
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Rulemaking Requirements
1. This final rule has been determined
to be significant for purposes of
Executive Order 12866.
2. Notwithstanding any other
provision of law, no person is required
to respond to, nor shall any person be
subject to a penalty for failure to comply
with, a collection of information subject
to the requirements of the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501
et seq.) (PRA), unless that collection of
information displays a currently valid
Office of Management and Budget
(OMB) Control Number. This rule
contains collections of information
subject to the requirements of the PRA.
These collections have been approved
by OMB under Control Numbers 0694–
0088 (Multi-Purpose Application),
which carries a burden hour estimate of
58 minutes to prepare and submit form
BIS–748, and 0694–0093, ‘‘Import
Certificates and End-User Certificates
(End-User Statements when referring to
the PRC),’’ which carries a burden of 15
minutes per submission. This rule also
contains a revision to the existing
collection under Control Number 0694–
0088 for recordkeeping, reporting and
review requirements, which would be
required in connection with
authorization Validated End-User and
would carry an estimated burden of 30
minutes per submission. An amendment
to the existing collection under Control
Number 0694–0088 reflecting this
revision has been submitted to OMB for
approval. This rule is not expected to
result in a significant increase in license
applications or other documentation
submitted to BIS. Send comments
regarding this burden estimate or any
other aspect of this collection of
information, including suggestions for
reducing the burden, to David Rostker,
Office of Management and Budget
(OMB), and to the Regulatory Policy
Division, Bureau of Industry and
Security, Department of Commerce, as
indicated in the ADDRESSES section of
this rule.
3. This rule does not contain policies
with Federalism implications as that
term is defined under Executive Order
13132.
4. The provisions of the
Administrative Procedure Act (5 U.S.C.
553) requiring notice of proposed
rulemaking and the opportunity for
public participation are inapplicable
because this regulation involves a
military or foreign affairs function of the
United States (5 U.S.C. 553(a)(1)).
Further, no other law requires that a
notice of proposed rulemaking and an
opportunity for public comment be
given for this rule. Because a notice of
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proposed rulemaking and an
opportunity for public comment are not
required to be given for this rule by 5
U.S.C. 553, or by any other law, the
analytical requirements of the
Regulatory Flexibility Act, 5 U.S.C. 601
et seq., are not applicable. This
regulation is issued in final form.
Although the formal comment period
closed on December 4, 2006, public
comments on this regulation are
welcome on a continuing basis.
Comments should be submitted to
Sheila Quarterman, Office of Exporter
Services, Bureau of Industry and
Security, Department of Commerce, P.O.
Box 273, Washington, DC 20044.
List of Subjects
15 CFR Part 742
Exports, Terrorism.
15 CFR Part 743
Administrative practice and
procedure, Reporting and recordkeeping
requirements.
15 CFR Part 744
Exports, Reporting and recordkeeping
requirements, Terrorism.
15 CFR Parts 748, 750 and 758
Administrative practice and
procedure, Exports, Reporting and
recordkeeping requirements.
I Accordingly, parts 742, 743, 744, 748,
750 and 758 of the Export
Administration Regulations (15 CFR
Parts 730–774) are amended as follows:
PART 742—[AMENDED]
1. The authority citation for 15 CFR
part 742 continues to read as follows:
I
Authority: 50 U.S.C. app. 2401 et seq.; 50
U.S.C. 1701 et seq.; 18 U.S.C. 2510 et seq.;
22 U.S.C. 3201 et seq.; 42 U.S.C. 2139a; Sec.
901–911, Pub. L. 106–387; Sec. 221, Pub. L.
107–56; Sec. 1503, Pub. L. 108–11,117 Stat.
559; E.O. 12058, 43 FR 20947, 3 CFR, 1978
Comp., p. 179; E.O. 12851, 58 FR 33181, 3
CFR, 1993 Comp., p. 608; E.O. 12938, 59 FR
59099, 3 CFR, 1994 Comp., p. 950; E.O.
13026, 61 FR 58767, 3 CFR, 1996 Comp., p.
228; E.O. 13222, 66 FR 44025, 3 CFR, 2001
Comp., p. 783; Presidential Determination
2003–23 of May 7, 2003, 68 FR 26459, May
16, 2003; Notice of August 3, 2006, 71 FR
44551 (August 7, 2006); Notice of October 25,
2005, 71 FR 64109 (October 31, 2006).
2. Amend § 742.2 by adding paragraph
(b)(4) to read as follows:
I
§ 742.2 Proliferation of chemical and
biological weapons.
*
*
*
*
*
(b) * * *
(4) License applications for items
described in paragraph (a) of this
section, when destined for the People’s
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Sfmt 4700
Republic of China, will be reviewed in
accordance with the licensing policies
in both paragraph (b) of this section and
§ 742.4(b)(7).
*
*
*
*
*
I 3. Amend § 742.3 by adding paragraph
(b)(4) to read as follows:
§ 742.3
Nuclear nonproliferation.
*
*
*
*
*
(b) * * *
(4) License applications for items
described in paragraph (a) of this
section, when destined to the People’s
Republic of China, will be reviewed in
accordance with the licensing policies
in both paragraph (b) of this section and
§ 742.4(b)(7).
*
*
*
*
*
I 4. Amend § 742.4 by revising
paragraph (b)(7) to read as follows:
§ 742.4
National security.
*
*
*
*
*
(b) * * *
(7) For the People’s Republic of China
(PRC), there is a general policy of
approval for license applications to
export, reexport, or transfer items to
civil end-uses. There is a presumption
of denial for license applications to
export, reexport, or transfer items that
would make a direct and significant
contribution to the PRC’s military
capabilities such as, but not limited to,
the major weapons systems described in
Supplement No. 7 to Part 742 of the
EAR.
*
*
*
*
*
I 5. Amend § 742.5 by adding paragraph
(b)(4) to read as follows:
§ 742.5
Missile technology.
*
*
*
*
*
(b) * * *
(4) License applications for items
described in paragraph (a) of this
section, when destined for the People’s
Republic of China, will be reviewed in
accordance with the licensing policies
in both paragraph (b) of this section and
§ 742.4(b)(7).
*
*
*
*
*
I 6. Supplement No. 7 to Part 742 is
added to read as follows:
SUPPLEMENT NO. 7 TO PART 742—
DESCRIPTION OF MAJOR WEAPONS
SYSTEMS
(1) Battle Tanks: Tracked or wheeled selfpropelled armored fighting vehicles with
high cross-country mobility and a high-level
of self protection, weighing at least 16.5
metric tons unladen weight, with a high
muzzle velocity direct fire main gun of at
least 75 millimeters caliber.
(2) Armored Combat Vehicles: Tracked,
semi-tracked, or wheeled self-propelled
vehicles, with armored protection and crosscountry capability, either designed and
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equipped to transport a squad of four or more
infantrymen, or armed with an integral or
organic weapon of a least 12.5 millimeters
caliber or a missile launcher.
(3) Large-Caliber Artillery Systems: Guns,
howitzers, artillery pieces combining the
characteristics of a gun or a howitzer, mortars
or multiple-launch rocket systems, capable of
engaging surface targets by delivering
primarily indirect fire, with a caliber of 75
millimeters and above.
(4) Combat Aircraft: Fixed-wing or
variable-geometry wing aircraft designed,
equipped, or modified to engage targets by
employing guided missiles, unguided
rockets, bombs, guns, cannons, or other
weapons of destruction, including versions of
these aircraft which perform specialized
electronic warfare, suppression of air defense
or reconnaissance missions. The term
‘‘combat aircraft’’ does not include primary
trainer aircraft, unless designed, equipped, or
modified as described above.
(5) Attack Helicopters: Rotary-wing aircraft
designed, equipped or modified to engage
targets by employing guided or unguided
anti-armor, air-to-surface, air-to-subsurface,
or air-to-air weapons and equipped with an
integrated fire control and aiming system for
these weapons, including versions of these
aircraft that perform specialized
reconnaissance or electronic warfare
missions.
(6) Warships: Vessels or submarines armed
and equipped for military use with a
standard displacement of 750 metric tons or
above, and those with a standard
displacement of less than 750 metric tons
that are equipped for launching missiles with
a range of at least 25 kilometers or torpedoes
with a similar range.
(7) Missiles and Missile Launchers:
(a) Guided or unguided rockets, or ballistic,
or cruise missiles capable of delivering a
warhead or weapon of destruction to a range
of at least 25 kilometers, and those items that
are designed or modified specifically for
launching such missiles or rockets, if not
covered by systems identified in paragraphs
(1) through (6) of this Supplement. For
purposes of this rule, systems in this
paragraph include remotely piloted vehicles
with the characteristics for missiles as
defined in this paragraph but do not include
ground-to-air missiles;
(b) Man-Portable Air-Defense Systems
(MANPADS); or
(c) Unmanned Aerial Vehicles (UAVs) of
any type, including sensors for guidance and
control of these systems.
(8) Offensive Space Weapons: Systems or
capabilities that can deny freedom of action
in space for the United States and its allies
or hinder the United States and its allies from
denying an adversary the ability to take
action in space. This includes systems such
as anti-satellite missiles, or other systems
designed to defeat or destroy assets in space.
(9) Command, Control, Communications,
Computer, Intelligence, Surveillance, and
Reconnaissance (C4ISR): Systems that
support military commanders in the exercise
of authority and direction over assigned
forces across the range of military operations;
collect, process, integrate, analyze, evaluate,
or interpret information concerning foreign
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countries or areas; systematically observe
aerospace, surface or subsurface areas,
places, persons, or things by visual, aural,
electronic, photographic, or other means; and
obtain, by visual observation or other
detection methods, information about the
activities and resources of an enemy or
potential enemy, or secure data concerning
the meteorological, hydrographic, or
geographic characteristics of a particular
area, including Undersea communications.
Also includes sensor technologies.
(10) Precision Guided Munitions (PGMs),
including ‘‘smart bombs’’: Weapons used in
precision bombing missions such as specially
designed weapons, or bombs fitted with kits
to allow them to be guided to their target.
(11) Night vision equipment: Any electrooptical device that is used to detect visible
and infrared energy and to provide an image.
This includes night vision goggles, forwardlooking infrared systems, thermal sights, and
low-light level systems that are night vision
devices, as well as infrared focal plane array
detectors and cameras specifically designed,
developed, modified, or configured for
military use; image intensification and other
night sighting equipment or systems
specifically designed, modified or configured
for military use; second generation and above
military image intensification tubes
specifically designed, developed, modified,
or configured for military use, and infrared,
visible and ultraviolet devices specifically
designed, developed, modified, or configured
for military application.
PART 743—[AMENDED]
7. The authority citation for 15 CFR
part 743 continues to read as follows:
I
Authority: 50 U.S.C. app. 2401 et seq. Pub.
L. 106–508; 50 U.S.C. 1701 et seq. Notice of
August 3, 2006, 71 FR 44551 (August 7,
2006).
8. Paragraph (b)(3) is added to § 743.1
to read as follows:
I
§ 743.1
Wassenaar Arrangement.
*
*
*
*
*
(b) * * *
(3) Exports authorized under the
Validated End-User authorization (see
§ 748.15 of the EAR).
*
*
*
*
*
PART 744—[AMENDED]
9. The authority citation for 15 CFR
part 744 continues to read as follows:
I
Authority: 50 U.S.C. app. 2401 et seq.; 50
U.S.C. 1701 et seq.; 22 U.S.C. 3201 et seq.;
42 U.S.C. 2139a; Sec. 901–911, Pub. L. 106–
387; Sec. 221, Pub. L. 107–56; E.O. 12058, 43
FR 20947, 3 CFR, 1978 Comp., p. 179; E.O.
12851, 58 FR 33181, 3 CFR, 1993 Comp., p.
608; E.O. 12938, 59 FR 59099, 3 CFR, 1994
Comp., p. 950; E.O. 12947, 60 FR 5079, 3
CFR, 1995 Comp., p. 356; E.O. 13026, 61 FR
58767, 3 CFR, 1996 Comp., p. 228; E.O.
13099, 63 FR 45167, 3 CFR, 1998 Comp., p.
208; E.O. 13222, 66 FR 44025, 3 CFR, 2001
Comp., p. 783; E.O. 13224, 66 FR 49079, 3
CFR, 2001 Comp., p. 786; Notice of August
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3, 2006, 71 FR 44551 (August 7, 2006); Notice
of October 27, 2006, 71 FR 64109 (October
31, 2006).
10. Section 744.21 is added to read as
follows:
I
§ 744.21 Restrictions on certain military
end-uses in the People’s Republic of China
(PRC).
(a) General prohibition. In addition to
the license requirements for items
specified on the Commerce Control List
(CCL), you may not export, reexport, or
transfer any item listed in Supplement
No. 2 to Part 744 to the PRC without a
license if, at the time of the export,
reexport, or transfer, you know,
meaning either:
(1) You have knowledge, as defined in
§ 772.1 of the EAR, that the item is
intended, entirely or in part, for a
‘‘military end-use,’’ as defined in
paragraph (f) of this section, in the PRC;
or
(2) You have been informed by BIS, as
described in paragraph (b) of this
section, that the item is or may be
intended, entirely or in part, for a
‘‘military end-use’’ in the PRC.
(b) Additional prohibition on those
informed by BIS. BIS may inform you
either individually by specific notice,
through amendment to the EAR
published in the Federal Register, or
through a separate notice published in
the Federal Register, that a license is
required for specific exports, reexports,
or transfers of any item because there is
an unacceptable risk of use in or
diversion to ‘‘military end-use’’
activities in the PRC. Specific notice
will be given only by, or at the direction
of, the Deputy Assistant Secretary for
Export Administration. When such
notice is provided orally, it will be
followed by written notice within two
working days signed by the Deputy
Assistant Secretary for Export
Administration or the Deputy Assistant
Secretary’s designee. The absence of BIS
notification does not excuse the
exporter from compliance with the
license requirements of paragraph (a) of
this section.
(c) License exception. Despite the
prohibitions described in paragraphs (a)
and (b) of this section, you may export
items subject to the EAR under the
provisions of License Exception GOV
set forth in §§ 740.11(b)(2)(i) and (ii) of
the EAR.
(d) License application procedure.
When submitting a license application
pursuant to this section, you must state
in the ‘‘additional information’’ section
of the BIS–748P ‘‘Multipurpose
Application’’ or its electronic equivalent
that ‘‘this application is submitted
because of the license requirement in
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§ 744.21 of the EAR (Restrictions on
Certain Military End-uses in the
People’s Republic of China).’’ In
addition, either in the additional
information section of the application or
in an attachment to the application, you
must include all known information
concerning the military end-use of the
item(s). If you submit an attachment
with your license application, you must
reference the attachment in the
‘‘additional information’’ section of the
application.
(e) License review standards. (1)
Applications to export, reexport, or
transfer items described in paragraph (a)
of this section will be reviewed on a
case-by-case basis to determine whether
the export, reexport, or transfer would
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. When it is determined that an
export, reexport, or transfer would make
such a contribution, the license will be
denied.
(2) Applications may be reviewed
under chemical and biological weapons,
nuclear nonproliferation, or missile
technology review policies, as set forth
in §§ 742.2(b)(4), 742.3(b)(4) and
742.5(b)(4) of the EAR, if the end-use
may involve certain proliferation
activities.
(3) Applications for items requiring a
license for other reasons that are
destined to the PRC for a military enduse also will be subject to the review
policy stated in paragraph (e)(1) of this
section.
(f) In this section, ‘‘military end-use’’
means: incorporation into a military
item described on the U.S. Munitions
List (USML) (22 CFR part 121,
International Traffic in Arms
Regulations); incorporation into a
military item described on the
International Munitions List (IML) (as
set out on the Wassenaar Arrangement
Web site at https://www.wassenaar.org);
incorporation into items listed under
ECCNs ending in ‘‘A018’’ on the CCL in
Supplement No. 1 to part 774 of the
EAR; or 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. ‘‘Military end-use’’
also means ‘‘deployment’’ of items
classified under ECCN 9A991 as set
forth in Supplement No. 2 to Part 744.
Note to paragraph (f) of this section: As
defined in Part 772 of the EAR, ‘‘use’’ means
operation, installation (including on-site
installation), maintenance (checking), repair,
overhaul and refurbishing; ‘‘development’’ is
related to all stages prior to serial production,
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such as: design, design research, design
analyses, design concepts, assembly and
testing of prototypes, pilot production
schemes, design data, process of transforming
design data into a product, configuration
design, integration design, layouts; and
‘‘production’’ means all production stages,
such as: product engineering, manufacturing,
integration, assembly (mounting), inspection,
testing, quality assurance.
For purposes of this section, operation
means to cause to function as intended;
installation means to make ready for use, and
includes connecting, integrating,
incorporating, loading software, and testing;
maintenance means performing work to
bring an item to its original or designed
capacity and efficiency for its intended
purpose, and includes testing, measuring,
adjusting, inspecting, replacing parts,
restoring, calibrating, overhauling; and
deployment means placing in battle
formation or appropriate strategic position.
11. Supplement No. 2 to Part 744 is
added to read as follows:
I
SUPPLEMENT NO. 2 TO PART 744—LIST
OF ITEMS SUBJECT TO THE MILITARY
END-USE LICENSE REQUIREMENT OF
§ 744.21
The following items, as described, are
subject to the military end-use license
requirement in § 744.21.
(1) Category 1—Materials, Chemicals,
Microorganisms, and Toxins
(i) 1A290 Depleted uranium (any
uranium containing less than 0.711% of the
isotope U–235) in shipments of more than
1,000 kilograms in the form of shielding
contained in X-ray units, radiographic
exposure or teletherapy devices, radioactive
thermoelectric generators, or packaging for
the transportation of radioactive materials.
(ii) 1C990 Limited to fibrous and
filamentary materials other than glass,
aramid or polyethylene not controlled by
1C010 or 1C210, for use in ‘‘composite’’
structures and with a specific modulus of
3.18x106m or greater and a specific tensile
strength of 7.62x104m or greater.
(iii) 1C996 Hydraulic fluids containing
synthetic hydrocarbon oils, having all the
characteristics in the List of Items Controlled.
(iv) 1D993 ‘‘Software’’ specially designed
for the ‘‘development’’, ‘‘production’’, or
‘‘use’’ of equipment or materials controlled
by 1C210.b, or 1C990.
(v) 1D999 Limited to specific software
controlled by 1D999.b for equipment
controlled by 1B999.e that is specially
designed for the production of prepregs
controlled in Category 1, n.e.s.
(vi) 1E994 Limited to ‘‘technology’’ for
the ‘‘development’’, ‘‘production’’, or ‘‘use’’
of fibrous and filamentary materials other
than glass, aramid or polyethylene controlled
by 1C990.
(2) Category 2—Materials Processing
(i) 2A991 Limited to bearings and bearing
systems not controlled by 2A001 and with
operating temperatures above 573K (300 °C).
(ii) 2B991 Limited to ‘‘numericallycontrolled’’ machine tools having
‘‘positioning accuracies’’, with all
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compensations available, less (better) than 9µ
along any linear axis; and machine tools
controlled under 2B991.d.1.a.
(iii) 2B992 Non-‘‘numerically controlled’’
machine tools for generating optical quality
surfaces, and specially designed components
therefor.
(iv) 2B996 Limited to dimensional
inspection or measuring systems or
equipment not controlled by 2B006 with
measurement uncertainty equal to or less
(better) than (1.7 + L/1000) micrometers in
any axes (L measured Length in mm).
(3) Category 3—Electronics Design,
Development and Production
(i) 3A292.d Limited to digital
oscilloscopes and transient recorders, using
analog-to-digital conversion techniques,
capable of storing transients by sequentially
sampling single-shot inputs at greater than
2.5 giga-samples per second.
(iii) 3A999.c All flash x-ray machines,
and components of pulsed power systems
designed thereof, including Marx generators,
high power pulse shaping networks, high
voltage capacitors, and triggers.
(ii) 3E292 Limited to ‘‘technology’’
according to the General Technology Note for
the ‘‘development’’, ‘‘production’’, or ‘‘use’’
of digital oscilloscopes and transient
recorders with sampling rates greater that 2.5
giga-samples per second, which are
controlled by 3A292.d.
(4) Category 4—Computers
(i) 4A994 Limited to computers not
controlled by 4A001 or 4A003, with an
Adjusted Peak Performance (‘‘APP’’)
exceeding 0.5 Weighted TeraFLOPS (WT).
(ii) 4D993 ‘‘Program’’ proof and
validation ‘‘software’’, ‘‘software’’ allowing
the automatic generation of ‘‘source codes’’,
and operating system ‘‘software’’ not
controlled by 4D003 that are specially
designed for real time processing equipment.
(iii) 4D994 Limited to ‘‘software’’
specially designed or modified for the
‘‘development’’, ‘‘production’’, or ‘‘use’’ of
equipment controlled by 4A101.
(5) Category 5—(Part 1) Telecommunications
(i) 5A991 Limited to telecommunications
equipment designed to operate outside the
temperature range from 219K (–54 °C) to
397K (124 °C), which is controlled by
5A991.a., radio equipment using Quadratureamplitude-modulation (QAM) techniques,
which is controlled by 5A991.b.7., and
phased array antennae, operating above 10.5
Ghz, except landing systems meeting ICAO
standards (MLS), which are controlled by
5A991.f.
(ii) 5D991 Limited to ‘‘software’’ specially
designed or modified for the ‘‘development’’,
‘‘production, or ‘‘use’’ of equipment
controlled by 5A991.a., 5A991.b.7., and
5A991.f., or of ‘‘software’’ specially designed
or modified for the ‘‘development’’,
‘‘production’’, or ‘‘use’’ of equipment
controlled by 5A991.a., 5A991.b.7., and
5A991.f.
(v) 5E991 Limited to ‘‘technology’’ for the
‘‘development’’, ‘‘production’’ or ‘‘use’’ of
equipment controlled by 5A991.a.,
5A991.b.7., or 5A991.f., or of ‘‘software’’
specially designed or modified for the
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‘‘development’’, ‘‘production’’, or ‘‘use’’ of
equipment controlled by 5A991.a.,
5A991.b.7., and 5A991.f.
(6) Category 6—Sensors and Lasers
(i) 6A995 ‘‘Lasers’’, not controlled by
6A005 or 6A205.
(ii) 6C992 Optical sensing fibers not
controlled by 6A002.d.3 which are modified
structurally to have a ‘‘beat length’’ of less
than 500 mm (high birefringence) or optical
sensor materials not described in 6C002.b
and having a zinc content of equal to or more
than 6% by ‘‘mole fraction.’’
(7) Category 7—Navigation and Avionics
(i) 7A994 Other navigation direction
finding equipment, airborne communication
equipment, all aircraft inertial navigation
systems not controlled under 7A003 or
7A103, and other avionic equipment,
including parts and components, n.e.s.
(ii) 7B994 Other equipment for the test,
inspection, or ‘‘production’’ of navigation
and avionics equipment.
(iii) 7D994 ‘‘Software’’, n.e.s., for the
‘‘development’’, ‘‘production’’, or ‘‘use’’ of
navigation, airborne communication and
other avionics.
(iv) 7E994 ‘‘Technology’’, n.e.s., for the
‘‘development’’, ‘‘production’’, or ‘‘use’’ of
navigation, airborne communication, and
other avionics equipment.
(8) Category 8—Marine
(i) 8A992 Limited to underwater systems
or equipment, not controlled by 8A001,
8A002, or 8A018, and specially designed
parts therefor.
(ii) 8D992 ‘‘Software’’ specially designed
or modified for the ‘‘development’’,
‘‘production’’ or ‘‘use’’ of equipment
controlled by 8A992.
(iii) 8E992 ‘‘Technology’’ for the
‘‘development’’, ‘‘production’’ or ‘‘use’’ of
equipment controlled by 8A992.
(9) Category 9—Propulsion Systems, Space
Vehicles and Related Equipment
(i) 9A991 Limited to ‘‘aircraft’’, n.e.s., and
gas turbine engines not controlled by 9A001
or 9A101.
(ii) 9D991 ‘‘Software’’, for the
‘‘development’’ or ‘‘production’’ of
equipment controlled by 9A991 or 9B991.
(iii) 9E991 ‘‘Technology’’, for the
‘‘development’’, ‘‘production’’ or ‘‘use’’ of
equipment controlled by 9A991 or 9B991.
PART 748—[AMENDED]
12. The authority citation for 15 CFR
part 748 continues to read as follows:
I
Authority: 50 U.S.C. app. 2401 et seq.; 50
U.S.C. 1701 et seq.; E.O. 13026, 61 FR 58767,
3 CFR, 1996 Comp., p. 228; E.O. 13222, 66
FR 44025, 3 CFR, 2001 Comp., p. 783; Notice
of August 3, 2006, 71 FR 44551 (August 7,
2006).
13. Section 748.3 is amended by
adding paragraph (c)(3) to read as
follows:
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I
§ 748.3 Classification requests, advisory
opinions, and encryption review requests.
*
*
*
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*
*
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(c) * * *
(3) Requests for Validated End-User
authorization should be submitted in
accordance with the provisions set forth
in § 748.15 and Supplement Nos. 8 and
9 to this part.
*
*
*
*
*
I 14. Section 748.9 is amended:
I a. By revising paragraph (b)(1)
introductory text;
I b. By revising paragraph (b)(2)
introductory text before the list of
countries;
I c. By revising paragraph (b)(2)(i);
I d. By revising paragraph (c)
introductory text; and
I e. By revising paragraph (c)(1).
The revisions read as follows:
§ 748.9 Support documents for license
applications.
*
*
*
*
*
(b) * * *
(1) Does your transaction involve
items controlled for national security
reasons? Does your transaction involve
items destined for the People’s Republic
of China (PRC)?
*
*
*
*
*
(2) Does your transaction involve
items controlled for national security
reasons destined for one of the
following countries? (This applies only
to those overseas destinations
specifically listed.) If your item is
destined for the PRC, does your
transaction involve items that require a
license to the PRC for any reason?
*
*
*
*
*
(i) If yes, your transaction may require
an Import Certificate or End-User
Statement. If your transaction involves
items destined for the PRC that are
controlled to the PRC for any reason,
your transaction may require a PRC
End-User Statement. Note that if the
destination is the PRC, a Statement of
Ultimate Consignee and Purchaser may
be substituted for a PRC End-User
Statement when the item to be exported
(i.e., replacement parts and subassemblies) is for servicing previously
exported items and is valued at $75,000
or less.
*
*
*
*
*
(c) License applications requiring
support documents. License
applications requiring support by either
a Statement by the Ultimate Consignee
and Purchaser or an Import Certificate
or End-User Statement must indicate the
type of support document obtained in
Block 6 or 7 on your application with
an ‘‘X’’ in the appropriate box. If the
support document is an Import
Certificate or End User Statement, you
must also identify the originating
country and number of the Certificate or
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Statement in Block 13 on your
application. If a license application is
submitted without either the correct
Block or Box marked on the application
or the required support document, the
license application will be immediately
returned without action unless the
satisfactory reasons for failing to obtain
the document are supplied in Block 24
or in an attachment to your license
application.
(1) License applications supported by
an Import Certificate or End-User
Statement. You may submit your license
application upon receipt of a facsimile
or other legible copy of the Import
Certificate or End-User Statement,
provided that no shipment is made
against any license issued based upon
the Import Certificate or End-User
Statement prior to receipt and retention
of the original statement by the
applicant.
*
*
*
*
*
I 15. Section 748.10 is amended:
I a. By revising the section heading;
I b. By revising paragraph (a);
I c. By revising the heading and
introductory text for paragraph (b);
I d. By revising paragraph (b)(4);
I e. By revising paragraph (c); and
I f. By revising paragraph (g).
The revisions read as follows:
§ 748.10 Import Certificates and End-User
Statements.
(a) Scope. There are a variety of
Import Certificates and End-User
Statements currently in use by various
governments. The control exercised by
the government issuing the Import
Certificate or End-User Statement is in
addition to the conditions and
restrictions placed on the transaction by
BIS. The laws and regulations of the
United States are in no way modified,
changed, or superseded by the issuance
of an Import Certificate or End-User
Statement. This section describes
exceptions and relationships true for
both Import Certificates and End-User
Statements, and applies only to
transactions involving national security
controlled items destined for one of the
countries identified in § 748.9(b)(2) of
this part. In the case of the PRC, this
section applies to transactions involving
all items that require a license to the
PRC for any reason.
(b) Import Certificate or End-User
Statement. An Import Certificate or EndUser Statement must be obtained, unless
your transaction meets one of the
exemptions stated in § 748.9(a) of this
part, if:
*
*
*
*
*
(4) Your license application involves
the export of commodities and software
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classified in a single entry on the CCL,
and your ultimate consignee is in any
destination listed in § 748.9(b)(2), and
the total value of your transaction
exceeds $50,000. Note that this $50,000
threshold does not apply to exports to
the PRC of computers subject to the
provisions of § 748.10(b)(3) or to items
classified under ECCN 6A003.
(i) Your license application may list
several separate CCL entries. If any
individual entry including an item that
is controlled for national security
reasons exceeds $50,000, then an Import
Certificate must be obtained covering all
items controlled for national security
reasons on your license application. If
the total value of entries on a license
application that require a license to the
PRC for any reason listed on the CCL
exceeds $50,000, then a PRC End-User
Statement covering all such controlled
items that require a license to the PRC
on your license application must be
obtained;
(ii) If your license application
involves a lesser transaction that is part
of a larger order for items controlled for
national security reasons (or, for the
PRC, for any reason) in a single ECCN
exceeding $50,000, an Import
Certificate, or a PRC End-User
Statement, as appropriate, must be
obtained.
(iii) You may be specifically requested
by BIS to obtain an Import Certificate for
a transaction valued under $50,000. You
also may be specifically requested by
BIS to obtain an End-User Statement for
a transaction valued under $50,000 or
for a transaction that requires a license
to the PRC for reasons in the EAR other
than those listed on the CCL.
(c) How to obtain an Import
Certificate or End-User Statement. (1)
Applicants must request that the
importer (e.g., ultimate consignee or
purchaser) obtain the Import Certificate
and that it be issued covering only those
items that are controlled for national
security reasons. Exporters should not
request that importers obtain Import
Certificates for items that are controlled
for reasons other than national security.
Note that in the case of the PRC,
applicants must request that the
importer obtain an End-User Statement
for all items on a license application
that require a license to the PRC for any
reason listed on the CCL. Applicants
must obtain original Import Certificate
or End-User Statements from importers.
(2) The applicant’s name must appear
on the Import Certificate or End-User
Statement submitted to BIS as either the
applicant, supplier, or order party. The
Import Certificate may be made out to
either the ultimate consignee or the
purchaser, even though they are
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different parties, as long as both are
located in the same country.
(3) If your transaction requires the
support of a PRC End-User Statement,
you must ensure that the following
information is included on the PRC
End-User Statement signed by an
official of the Department of Mechanic,
Electronic and High Technology
Industries, Export Control Division I, of
the PRC Ministry of Commerce
(MOFCOM), with MOFCOM’s seal
affixed to it:
(i) Title of contract and contract
number (optional);
(ii) Names of importer and exporter;
(iii) End-User and end-use;
(iv) Description of the item, quantity
and dollar value; and
(v) Signature of the importer and date.
Note to paragraph (c) of this section: You
should furnish the consignee with the item
description contained in the CCL to be used
in applying for the Import or End-User
Statement. It is also advisable to furnish a
manufacturer’s catalog, brochure, or
technical specifications if the item is new.
*
*
*
*
*
(g) Submission of Import Certificates
and End-User Statements. Certificates
and Statements must be retained on file
by the applicant in accordance with the
recordkeeping provisions of part 762 of
the EAR, and should not be submitted
with the license application. For more
information on what Import Certificate
and End-User Statement information
must be included in license
applications, refer to § 748.9(c) of the
EAR. In addition, as set forth in
§ 748.12(e), to assist in license reviews,
BIS will require applicants, on a random
basis, to submit specific original Import
Certificate and End-User Statements.
§ 748.12
[Amended]
16. Section 748.12 is amended by
removing and reserving paragraph (a).
I 17. Section 748.15 is added to read as
follows:
I
§ 748.15
(VEU).
Authorization Validated End-User
Authorization Validated End-User
(VEU) permits the export, reexport, and
transfer to validated end-users of any
eligible items that will be used in a
specific eligible destination. Validated
end-users are those who have been
approved in advance pursuant to the
requirements of this section. To be
eligible for authorization VEU,
exporters, reexporters, and potential
validated end-users must adhere to the
conditions and restrictions set forth in
paragraphs (a) through (f) of this section.
If a request for VEU authorization for a
particular end-user is not granted, no
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new license requirement is triggered. In
addition, such a result does not render
the end-user ineligible for license
approvals from BIS.
(a) Eligible end-users. The only endusers to whom eligible items may be
exported, reexported, or transferred
under VEU are those validated endusers identified in Supplement No. 7 to
Part 748, according to the provisions in
this section and those set forth in
Supplement Nos. 8 and 9 to this part
that have been granted VEU status by
the End-User Review Committee (ERC)
according to the process set forth in
Supplement No. 9 to this part.
(1) Requests for authorization must be
submitted in the form of an advisory
opinion request, as described in
§ 748.3(c)(2), and should include a list
of items (items for purposes of
authorization VEU include
commodities, software and technology,
except as excluded by paragraph (c) of
this section), identified by ECCN, that
exporters or reexporters intend to
export, reexport or transfer to an eligible
end-user, once approved. To ensure a
thorough review, requests for VEU
authorization must include the
information described in Supplement
No. 8 to this part. Requests for
authorization will be accepted from
exporters, reexporters or end-users.
Submit the request to: The Office of
Exporter Services, Bureau of Industry
and Security, U.S. Department of
Commerce, 14th Street and
Pennsylvania Avenue, NW., Room 2705,
Washington, DC 20230; or to The Office
of Exporter Services, Bureau of Industry
and Security, U.S. Department of
Commerce, P.O. Box 273, Washington,
DC 20044. Mark the package sent to
either address ‘‘Request for
Authorization Validated End-User.’’
(2) In evaluating an end-user for
eligibility under authorization VEU, the
ERC 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 U.S. and foreign
companies. In addition, when
evaluating the eligibility of an end-user,
the ERC will consider the status of
export controls and the support and
adherence to multilateral export control
regimes of the government of the
eligible destination.
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(3) The VEU authorization is subject
to revision, suspension or revocation
entirely or in part.
(4) Information submitted in a VEU
request is deemed to constitute
continuing representations of existing
facts or circumstances. Any material or
substantive change relating to the
authorization must be promptly
reported to BIS, whether VEU
authorization has been granted or is still
under consideration.
(b) Eligible destinations.
Authorization VEU may be used for the
following destinations:
(1) The People’s Republic of China.
(2) [Reserved]
(c) Item restrictions. Items controlled
under the EAR for missile technology
(MT) and crime control (CC) reasons
may not be exported or reexported
under this authorization.
(d) End-use restrictions. Items
obtained under authorization VEU may
be used only for civil end-uses and may
not be used for any activities described
in part 744 of the EAR. Exports,
reexports, or transfers made under
authorization VEU may only be made to
an end-user listed in Supplement No. 7
to this part if the items will be
consigned to and for use by the
validated end-user. 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 enduser demonstrates effective control;
(2) Consume such items during use; or
(3) Transfer or reexport such items
only as authorized by BIS.
Note to paragraph (d): Authorizations set
forth in Supplement No. 7 to this part are
country-specific. Authorization as a validated
end-user for one country specified in
paragraph (b) of this section does not
constitute authorization as a validated enduser for any other country specified in that
paragraph.
(e) Certification and recordkeeping.
Prior to an initial export or reexport to
a validated end-user under
authorization VEU, exporters or
reexporters must obtain certifications
from the validated end-user regarding
end-use and compliance with VEU
requirements. Such certifications must
include the contents set forth in
Supplement No. 8 to this part.
Certifications and all records relating to
VEU must be retained by exporters or
reexporters in accordance with the
recordkeeping requirements set forth in
part 762 of the EAR.
(f) Reporting and review requirements.
—(1)(i) Reports. Exporters and
reexporters who make use of
authorization VEU are required to
submit annual reports to BIS. These
reports must include, for each validated
end-user to whom the exporter or
reexporter exported or reexported
eligible items:
(A) The name and address of each
validated end-user to whom eligible
items were exported or reexported;
(B) The eligible destination to which
the items were exported or reexported;
(C) The quantity of such items;
(D) The value of such items; and
(E) The ECCN(s) of such items.
(ii) 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:
Office of Exporter Services, Bureau of
Industry and Security, U.S. Department
of Commerce, 14th Street and
Constitution Avenue, NW., Room 2705,
Washington, DC 20230. Mark the
package ‘‘Authorization Validated EndUser Reports’’.
(2) Reviews. Records related to
activities covered by authorization VEU
that are maintained by exporters,
reexporters, and validated end-users
who make use of authorization VEU will
be reviewed on a periodic basis. Upon
request by BIS, exporters, reexporters,
and validated end-users must allow
review of records, including on-site
reviews covering the information set
forth in paragraphs (e) and (f)(1) of this
section.
18. Supplement No. 4 to Part 748, is
amended by revising the heading and
the entry for ‘‘China, People’s Republic
of’’, to read as follows:
I
Supplement No. 4 to Part 748—Authorities
Administering Import Certificate/Delivery
Verification (IC/DV) and End-User Statement
Systems in Foreign Countries.
Country
IC/DV authorities
*
*
China, People’s Republic of ..........
*
*
*
Export Control Division I, Department of M, E & HT I, No. 2 Dong
Chang An Street, Beijing Phone: 8610–6519–7366, Fax: 8610–
6519–7926.
*
*
*
19. Supplement No. 7 to Part 748 is
added and reserved to read as follows:
I
SUPPLEMENT NO. 7 TO PART 748—
AUTHORIZATION VALIDATED END-USER
(VEU): LIST OF VALIDATED END-USERS,
RESPECTIVE ELIGIBLE ITEMS AND
ELIGIBLE DESTINATIONS [RESERVED]
20. Supplement No. 8 to Part 748 is
added to read as follows:
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I
SUPPLEMENT NO. 8 TO PART 748—
INFORMATION REQUIRED IN REQUESTS
FOR VALIDATED END-USER (VEU)
AUTHORIZATION
VEU authorization applicants must provide
to BIS certain information about the
prospective validated end-user. This
information must be included in requests for
authorization submitted by prospective
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17:54 Jun 18, 2007
Jkt 211001
*
System administered
*
validated end-users, or exporters or
reexporters who seek to have certain entities
approved as validated end-users. BIS may, in
the course of its evaluation, request
additional information.
Required Information for Validated End-User
Authorization Requests
(1) Name of proposed VEU candidates,
including all names under which the
candidate conducts business; complete
company physical address (simply listing a
post office box is insufficient); telephone
number; fax number; e-mail address;
company Web site (if available); and name of
individual who should be contacted if BIS
has any questions. If the entity submitting the
application is different from the prospective
validated end-user identified in the
application, this information must be
submitted for both entities. If the candidate
PO 00000
Frm 00025
Fmt 4700
*
*
PRC, End-User Statement.
Sfmt 4700
*
*
has multiple locations, all physical addresses
located in the eligible destination must be
listed.
(2) Provide an overview of the structure,
ownership and business of the prospective
validated end-user. Include a description of
the entity, including type of business
activity, ownership, subsidiaries, and jointventure projects, as well as an overview of
any business activity or corporate
relationship that the entity has with either
government or military organizations.
(3) List the items proposed for VEU
authorization approval and their intended
end-uses. Include a description of the items;
the ECCN for all items, classified to the
subparagraph level, as appropriate; technical
parameters for the items including
performance specifications; and end-use
description for the items. If BIS has
previously classified the item, the
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Commodity Classification Automated
Tracking System (CCATS) number may be
provided in lieu of the information listed in
the foregoing provisions of this paragraph.
(4) 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 provided
in paragraph (1) of this supplement.
(5) If the prospective validated end-user
plans to reexport or transfer the item, specify
the destination to which the items will be
reexported or transferred.
(6) Specify how the prospective validated
end-user’s record keeping system will allow
compliance with the recordkeeping
requirements set forth in § 748.15(e) of the
EAR. Describe the system that is in place to
ensure compliance with VEU requirements.
(7) Include an original statement on
letterhead of the prospective validated enduser, signed and dated by a person who has
authority to legally bind the prospective
validated end-user, certifying that the enduser will comply with all VEU requirements.
This statement must include
acknowledgement that the prospective enduser:
(i) Has been informed of and understands
that the item(s) it may receive as a validated
end-user will have been exported in
accordance with the EAR and that use or
diversion of such items contrary to the EAR
is prohibited;
(ii) Understands and will abide by all
authorization VEU end-use restrictions,
including the requirement that items
received under authorization VEU will only
be used for civil end-uses and may not be
used for any activities described in part 744
of the EAR;
(iii) Will comply with VEU recordkeeping
requirements; and
(iv) Agrees to allow on-site reviews by U.S.
Government officials to verify the end-user’s
compliance with the conditions of the VEU
authorization.
21. Supplement No. 9 to Part 748 is
added to read as follows:
pwalker on PROD1PC71 with RULES
I
SUPPLEMENT NO. 9 TO PART 748—ENDUSER REVIEW COMMITTEE PROCEDURES
(1) The End-User Review Committee (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 validated endusers and associated eligible items set forth
in Supplement No. 7 to this part. The
Department of Commerce chairs the ERC.
(2) Unanimous vote of the Committee is
required to authorize VEU status for a
candidate or to add any eligible items to a
pre-existing authorization. Majority vote of
the Committee is required to remove VEU
authorization or to remove eligible items
from a pre-existing authorization.
(3) In addition to requests submitted
pursuant to § 748.15, the ERC will also
consider candidates for VEU authorization
that are identified by the U.S. Government.
When the U.S. Government identifies a
candidate for VEU authorization, relevant
parties (i.e., end-users and exporters or
VerDate Aug<31>2005
17:54 Jun 18, 2007
Jkt 211001
reexporters, when they can be identified) will
be notified, before the ERC determines
whether VEU authorization is appropriate, as
to which end-users have been identified as
potential VEU authorization candidates. Endusers are not obligated to accept the
Government’s nomination.
(4) 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
Committee may request additional
information from an applicant or potential
validated end-user related to a particular
VEU candidate’s application. The period
during which the ERC is waiting for
additional information from an applicant or
potential validated end-user is not included
in calculating the 30 calendar day deadline
for the ERC’s determination.
(5) If an ERC agency is not satisfied with
the decision of the ERC, that agency may
escalate the matter to the Advisory
Committee on Export Policy (ACEP). The
procedures and time frame for escalating any
such matters are the same as those specified
for license applications in Executive Order
12981, as amended by Executive Orders
13020, 13026 and 13117 and referenced in
§ 750.4 of the EAR.
(6) A final determination at the appropriate
decision-making level to amend the VEU
authorization list set forth in Supplement No.
7 to this part operates as clearance by all
member agencies to publish the amendment
in the Federal Register.
(7) The Deputy Assistant Secretary of
Commerce for Export Administration will
communicate the determination on each VEU
request to the requesting party and the enduser.
PART 750—[AMENDED]
22. The authority citation for 15 CFR
part 750 continues to read as follows:
I
Authority: 50 U.S.C. app. 2401 et seq.; 50
U.S.C. 1701 et seq.; Sec. 1503, Pub. L. 108–
11,117 Stat. 559; E.O. 13026, 61 FR 58767, 3
CFR, 1996 Comp., p. 228; E.O. 13222, 66 FR
44025, 3 CFR, 2001 Comp., p. 783;
Presidential Determination 2003–23 of May
7, 2003, 68 FR 26459, May 16, 2003; Notice
of August 3, 2006, 71 FR 44551 (August 7,
2006).
23. Paragraph (b) of § 750.2 is revised
to read as follows:
I
§ 750.2 Processing of Classification
Requests and Advisory Opinions.
*
*
*
*
*
(b) Advisory Opinion requests. All
advisory opinions submitted in
accordance with procedures described
in § 748.3(a) and (c) of the EAR will be
answered within 30 calendar days after
receipt. Requests to obtain Validated
End-User authorization will be resolved
within 30 calendar days as described in
Supplement No. 9 to Part 748 of the
EAR.
PO 00000
Frm 00026
Fmt 4700
Sfmt 4700
PART 758—[AMENDED]
24. The authority citation for 15 CFR
to part 758 continues to read as follows:
I
Authority: 50 U.S.C. app. 2401 et seq.; 50
U.S.C. 1701 et seq.; E.O. 13222, 66 FR 44025,
3 CFR, 2001 Comp., p. 783; Notice of August
3, 2006, 71 FR 44551 (August 7, 2006).
25. Section 758.1 is amended:
a. By removing the conjunction ‘‘or’’
from the end of paragraph (b)(3) and
placing ‘‘or’’ and a semicolon at the end
of paragraph (b)(4); and
I b. By adding paragraph (b)(5) to read
as follows:
I
I
§ 758.1 The Shipper’s Export Declaration
(SED) or Automated Export System (AES)
record.
*
*
*
*
*
(b) * * *
(5) For all items exported under
authorization Validated End-User
(VEU).
Dated: June 12, 2007.
Christopher A. Padilla,
Assistant Secretary for Export
Administration.
[FR Doc. E7–11588 Filed 6–18–07; 8:45 am]
BILLING CODE 3510–33–P
SOCIAL SECURITY ADMINISTRATION
20 CFR Part 404
[Docket No. SSA–2007–0026]
RIN 0960–AG51
Extension of the Expiration Date for
Several Body System Listings
AGENCY:
Social Security Administration
(SSA).
ACTION:
Final rule.
SUMMARY: We use the Listing of
Impairments (the listings) at the third
step of the sequential evaluation process
when we evaluate your claim for
benefits based on disability under title
II and title XVI of the Social Security
Act (the Act). This final rule extends
until July 1, 2008, the date on which the
listings for eight body systems will no
longer be effective. Other than
extending the effective date of the
listings, we have made no revisions to
the listings; they remain the same as
they now appear in the Code of Federal
Regulations. This extension will ensure
that we continue to have the medical
evaluation criteria in the listings to
adjudicate disability claims involving
these body systems at the third step of
the sequential evaluation process.
DATES: This final rule is effective on
June 19, 2007.
E:\FR\FM\19JNR1.SGM
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Agencies
[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
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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
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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