BIS Issues New China Rule

On June 19, 2007, the U.S. Commerce Department's Bureau of Industry and Security (BIS) published BIS China Regulationswith regard to exports to the Peoples' Republic of China (PRC or China) in the Federal Register at 72 Fed. Reg. 33646. In the view of BIS, the new regulation serves the dual purposes of facilitating trade with trusted civilian end users and prevents the modernization of China's military.

New Military End Use Control: The new rule establishes additional licensing requirements, based on the exporter's knowledge of a "military end-use," for 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. "Knowledge" of a military end-use includes not only positive knowledge or substantial certainty of a military end-use, but also an awareness of a high probability of existing or future military end-use for an export or reexport. Such awareness can also be inferred from evidence of the conscious disregard of facts known to a person or a person's willful avoidance of facts.

Covered Items: Not all U.S. origin items or technology are prohibited from export to the PRC under the new military end use control. The final list of items subject to the military end use restriction covers approximately 20 items and associated technologies, including commercial aircraft and aircraft engines, depleted uranium, certain lasers and optical sensing fibers, flash X-ray machines and components, airborne communication systems and inertial navigation systems, underwater systems, certain types of bearings and machine tools, certain composite materials, high performance computers, space communications, air defense, and certain highly specialized telecommunication equipment.  

Military End Use: The rule's broad definition of military end use covers incorporation into or operation, installation, maintenance, repair, overhaul, refurbishing, development, design, production, manufacture, integration, and testing of any item listed on the United States Munitions List (USML) or the International Munitions List.

Validated End-User Program: The new rule creates a new authorization for "validated end-users" to which specified items may be exported or reexported without a license. Validated end-users (VEUs) will be placed on a list in the Export Administration Regulations (EAR) after review and approval by the U.S. Government. To be certified as VEUs, entities would need to submit an advisory opinion request to BIS that includes, among other things, a list of the items to exported to the candidate VEU, a description of the intended end-uses, details on the end-user's internal control procedures, and overview of the entity's ownership structure, business activities, and any relationship with either government or military organizations. To be approved as a VEU, the entity would have to agree to comply with certain recordkeeping requirements and permit on-site inspections by U.S. government officials. The VEU review request can be initiated by a U.S. exporter, a Chinese end-user, or the U.S. government and will be vetted by the multi-agency End-User Review Committee (ERC).

MOFCOM End-User Statement: The new rule changes what was previously described as "End-User Certificates" to "End-User Statements" (EUS), with respect to the PRC. While significantly increasing the threshold amount necessary before an Import Certificate or End-User Statement is required (from $5,000 to $50,000), BIS now requires the Import Certificate or End-User Statement for any product requiring a license to the PRC for any reason (not only national security controlled items). If a PRC End-User Statement must be 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.