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June 15, 2007 

BIS Publishes Final Rule on Exports to China

Late this afternoon, the Bureau of Industry and Security (BIS) released the final text of the long-awaited China regulation revising export and reexport controls on certain U.S. products destined to China, creating the new VEU authorization for Chinese importers and clarifying MOFCOM End-User Statement requirements. The rule will take effect when it is published in the Federal Register early next week.

When drafting the final rule BIS took into account many of the public comments that were critical of various aspects of the
proposed rule. In fact, nearly half of the 81-page rule consists of 45 specific responses to submitted comments. The following is a summary of the changes made in the final regulation from the proposed rule:

  • BIS reduced the list Export Control Classification Numbers (ECCNs) subject to the new "military end-use" control from 47 to 31, based on military applicability, foreign availability, and commercial impact. This list of 31 ECCNs covers about 20 distinct product groups, and associated software and technology.
  • Changed definition of “military end-use” to incorporation into a military item described
    on the U.S. Munitions List (USML), the International Munitions List (IML) or incorporation into items listed on the Commerce Control List ending in "A018" or for the
    "use", "development" or "production" of such military items.
  • Clarified the scope of the military end-use control by adding definitions of the terms "operation", "installation", "maintenance" and "deployment".
  • BIS broadened the scope of items that may be denied for making a "direct and significant" contribution to China's military capabilities. Specifically, it revised the license application review policy for items controlled for national security reasons to provide a presumption of denial for license applications to export, reexport or transfer items that would make a "direct and significant contribution" to the China's military capabilities. The rule also allows BIS to review license applications involving items controlled for chemical/biological, missile technology and nuclear nonproliferation reasons to determine if they make such a contribution.
  • The procedures for applying for the Validated End-User (VEU) Authorization program for Chinese end-users were clarified and BIS created an inter-agency committee to rule on requests submitted by VEU applicants.
  • The dollar threshold for U.S. exporters to obtain China Ministry of Commerce (MOFCOM) End-User Statements for goods requiring an export license to China was raised from $5,000 to $50,000.
Many of the concepts and requirements contained in the proposed rule remained unchanged. For example the proposed definition of "knowledge" of military end-use was left intact. Moreover, BIS declined to determine that the final rule was a “major rule” for purposes related to requirements of the Congressional Review Act (CRA). BIS claimed that the overall annual effect on the U.S. economy of this rulemaking "will not be more than about several million dollars, which is well below the $100 million threshold required for a major rule."

The text of the final rule and a list of questions and answers regarding the final rule can be found at the following links:

[6/18 Update: The final rule will be published in the Federal Register on Tuesday, June 19, 2007]

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