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November 01, 2007 

BIS Update 2007, Day 1, Breakout Session: Validated End-User Program

During the morning break-out session on the Validated End-User (VEU) Program, Thomas Andrukonis and Karen Swasey of the Bureau of Industry and Security (BIS) provided an overview of the inter-agency review process for end-user applicants. The program, designed to eliminate export licensing requirements for exporters that ship to pre-approved or “validated” users, was initially launched in June 2007, when the BIS granted eligibility to the People’s Republic of China to participate in the program. Members of the End-User Review Committee include the Departments of Commerce, Defense, State and Energy.

BIS reiterated that the purpose of the VEU program is to facilitate trade with China, particularly with recognized end-users within economically viable industries, while averting the risk of diversion for military applications. For instance, U.S. exporters have seen considerable growth in China's semiconductor industry. As a result of this boom, certain end-users in China are purchasing large volumes of controlled goods, such as silicone, pumps, valves, raw materials and chemicals. BIS expects the VEU process will streamline export transactions with these customers.

There were many questions with respect to BIS's VEU approval criteria. BIS signaled that the agency remains optimistic about the ability to approve many new VEUs, based on previous pre-license checks. Many end-users in China are good candidates for VEU status based on their established track record during pre-license review. The great potential for VEU would be a significant reduction in licensed shipments and the corresponding reduction in time and effort in shipping goods to VEU countries.

The core precept for VEU is that end-users in a particular country do not necessarily pose the same level of risk to national security. The criteria for the VEU, therefore, is that the end-user must have a demonstrated civilian application. Once the end-user is validated under the VEU program, a U.S. company may ship specific items to those specific end-users. Although any company may export to a validated end-user (not just the company that filed an application on the foreign end-user’s behalf), the commodity being exported must be specifically listed in the Federal Register notice announcing the name of the VEU member.

One member of the audience asked whether the VEU program would replace special comprehensive licenses (SCLs). In response, Michael Rithmire, Chairman of the End-User Review committee, indicated that the VEU will forgo SCLs because the extensive up-front review, if it leads to approval, will effectively eliminate the administrative burdens associated with SCLs.

Also, in response to other audience questions, BIS indicated that the Government of China is not forbidding entities to agree to on-site visits. In fact, BIS said that the U.S. is working closely with the Chinese government and that Chinese companies are being encouraged to engage in the VEU process. BIS remains optimistic that such on-site visits will occur in the future because China has a significant economic incentive to cooperate.

BIS noted that the VEU program may also benefit distributors and reexporters. Such entities may also apply for VEU status, even though the agency is unsure of how to structure such transactions. Given the difficulty in identifying an end-user, distributors and retailers are encouraged to contact the agency for guidance or to make suggestions.

The audience also inquired whether the VEU program would approve primarily multinational corporations in China, as opposed to Chinese companies. Mr. Rithmire suggested that a number of good candidates, i.e, state-owned industries do exist. In fact, one of approved VEUs is a partially state-owned entity. In addition, the U.S. has encouraged the Chinese government to make recommendations on certain state owned industries that would make good VEU candidates.Mr. Rithmire also noted that the VEU program is open to technologies, as well as commodities. Several technology items have already been listed. In a VEU application, exporters should be sure to provide a thorough description of what is being transferred. Items that are not eligible under VEU include missile and crime control technology.

In the event that a company is denied VEU status, Mr. Andrukonis noted that such an entity would not be tainted. The company would be encouraged to re-apply at a later date once it resolved the particular deficiency.

BIS stated that even with only five approvals published, the benefits of the VEU program are measurable. Exporters will be required to report VEU status through the Automated Export System (AES). AES will be used to track the level of trade that goes out under the VEU code. This will enable BIS to monitor the volume of exports to the VEU.

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