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Commerce Issues Long-Awaited Rule
On Exports To China
June 22, 2007

Early this week, the Bureau Of Information And Security (BIS) released its long-awaited rule regarding Export and Reexport Controls for the People’s Republic of China (PRC).

The new rule establishes a prohibition against exporting or reexporting certain goods to the PRC when it is known that the goods will be used for military end-uses. It also establishes a new authorized Validated End-User program for exports to the PRC; and revises the Import Certificate and PRC End-User Statement Requirements for shipments of goods to the PRC that require a license. Over half of the 81-page document is taken up with comments submitted in response to the proposed rule issued on December of 2006. The bulk of the comments address concerns regarding the new “Military End-Use” rule and the new Verified End-User Authorization.

The effective date of the new rule is its date of publication: June 19, 2007.

Summary of Rule

This final rule covers the following four major items:

  1. 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.
  2. 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.
  3. Revises the circumstances in which End-User Statements, issued by the PRC Ministry of Commerce (MOFCOM) must be obtained, now requiring them for transactions that require a license to the PRC for any reason and for most exports exceeding a total value of $50,000.
  4. 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; 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.

New Military End Use Controls

This rule 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 new rule found in section 744.21 of the EAR, prohibits the export or reexport of specified items listed on Supplement 2 to part 772, when the exporter or reexporter has knowledge that such items are destined for “military end-use,” without a license.

Prohibition Requires “Knowledge” Of The Military End Use

Section 772.1 explains that “knowledge” of a “military end-use” includes not only positive knowledge that the circumstance exists, or is substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence. The definition also provides that such awareness can be inferred from evidence of the conscious disregard of facts known to a person from a person's willful avoidance of facts.

In a live webinar conducted on June 20, 2007, Deputy Assistant Secretary Matthew Borman gave a short presentation and question/answer session on the recently published rule, and reiterated that the rule does not expect exporters or reexporters to go out of their way to investigate possible uses to which the listed products will be put.

What Products Are Subject To The Prohibition?

Not all U.S. origin items and technology is subject to the military end use prohibition. No EAR 99 goods or technology is covered. The original list of products subject to this new rule has been substantially reduced. The final list of items subject to this “military end-use” restriction covers approximately 20 products and associated technologies, 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.

Items Subject to Military End-Use Controls: Supplement No. 2 to Part 744


Depleted Uranium



Carbon Fiber and Prepregs for use in Composite Structures

1D993 (related software)
1D999 (related software)
1E994 (related technology)


Certain Hydraulic Fluids



Certain Bearings and Bearings Systems



Machine Tools (two types)

2B991 (numerically controlled better than 9 μm)
2B992 (non-numerically controlled)


Certain Dimensional Inspection/Measuring Systems



Certain Oscilloscopes

3E292 (related technology)


Flash X-Ray Machines and Components of Pulsed Power Systems



High Performance Computers (exceeding 0.5 Weighted Teraflops)

4D994 (software “specially designed or modified for “development, “production”, or “use” of equipment controlled by 4A101).


Program Validation Software



Telecommunications Equipment Operating Outside Normal Temperatures

5D991 (related software)
5E991 (related technology)


Radio Equipment Using Quadrature-Amplitude Modulation

5D991 (related software)
5E991 (related technology)


Phased Array Antennae

5D991 (related software)
5E991 (related technology)


Certain Lasers



Certain Optical Sensing Fibers



Certain Airborne Communications & Inertial Navigation Systems

7D994 (related software)
7E994 (related technology)


Certain Avionics Production and Test Equipment



Certain Underwater Systems

8D992 (related software)
8E992 (related technology)



9D991 (related software)
9E991 (related technology)


Aero Gas Turbine Engines

9D991 (related software)
9E991 (related technology)

What is A "Military End-Use”?

New section 744.21(f) explains that "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 website at http:\\;
  • incorporation into items listed under ECCNs ending in “A018” on the CCL in Supplement No. 1 to part 774 of the EAR;
  • 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.
  • the “deployment” of items classified under ECCN 9A991 as set forth in Supplement No. 2 to Part 744.

For purposes of the military end-use control, BIS has provided a note to Section 744.21(f), defining “operation,” “installation,” “maintenance,” and “deployment.” According to BIS these terms have not been previously defined in the EAR, and BIS intends that such definitions clarify the scope of the military end-use control.

New Authorization Validated End-User (VEU)

To facilitate legitimate exports to civilian end-users, BIS establishes in this rule a new authorization identified as Validated End-User, or “VEU”. This authorization will allow the export, reexport, and transfer of eligible items to specified end-users in an eligible destination. The first eligible destination will be the PRC, with India, perhaps next. Unlike other license authorizations, the VEU authorization will authorize a foreign end-user to receive specifically authorized licensable goods, from multiple U.S. suppliers, without the individual vendors obtaining a license. Think of it as a Special Comprehensive License (SCL) in reverse! The VEU program has the potential to be an important tool for U.S. and foreign multinational companies with major manufacturing operations in China that use licensable materials and equipment. Exporters, reexporters or PRC end-users can submit requests for a VEU authorization.

New section 748.15 “Authorization Validated End-User (VEU)” will permit the export, reexport, and transfer to validated end-users of any eligible items that will be used in a specific eligible destination. An End-User Review Committee (ERC) (composed of representatives from the Departments of State, Defense, Energy, and Commerce) must approve the validated end-users in advance. Once approved, the VEU will be identified in Supplement No. 7 to Part 748, and exporters and reexporters will be able to ship approved ECCNs without a license.

Exporters, reexporters and potential validated end-users that make use of a VEU authorization must adhere to the conditions and restrictions set forth in of section 748.15 before using it, including restrictions of the export or transfer of product made under the VEU authorization, as well as, certification, recordkeeping, reporting, and on-site reviews.

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 a VEU application include commodities, software and technology, except for items controlled for missile technology and crime control reasons), identified by ECCN, that exporters or reexporters intend to export, reexport or transfer to the eligible end-user. To ensure a thorough review, requests for VEU authorization must include the information described in Supplement No. 8 to part 748.

In evaluating an end-user for eligibility under authorization VEU, the ERC will consider a range of information, including: 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.
If a request for VEU authorization for a particular end-user is not granted, no new license requirement is triggered, and the result does not render the end-user ineligible for other license approvals from BIS.

End-Use Restrictions

Items obtained under authorization VEU may only be used 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 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 end-user demonstrates

  1. Effective control;
  2. Consumes such items during use; or
  3. Transfers or reexports such items, only as authorized by BIS.

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 part 748. 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.

Reporting And Review Requirements

Exporters and reexporters who make use of authorization VEU are required to submit annual reports to BIS. For each validated end-user to whom the exporter or reexporter exported or reexported eligible items, these reports must include:

  1. The name and address of each validated end-user to whom eligible items were exported or reexported;
  2. The eligible destination to which the items were exported or reexported;
  3. The quantity of such items;
  4. The value of such items; and
  5. The ECCN(s) of such items.

Revision Of End-User Statement Requirements

BIS is amending Sections 748.9, 748.10 and 748.12 of the EAR to change what was previously described as “End-User Certificates,” with the term “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, BIS now requires the Import Certificate or End-User Statement for any product requiring a license to the PRC for any reason (not just national security controlled goods).

Section 748.10 now requires an Import Certificate or End-User Statement if the transaction involves the export of licensable commodities or software to the PRC, 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.

If your transaction requires the support of a PRC End-User Statement, the following information must be included on the PRC End-User Statement:

  1. Title of contract and contract number (optional);
  2. Names of importer and exporter;
  3. End-User and end-use;
  4. Description of the item, quantity and dollar value;
  5. Signature of the importer and date.

The 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 to it.

Previously, BIS proposed that an End User Statement would be required for any article that required a license for any reason to the PRC, and exceeded a total value of $5,000.

Finally, BIS is amending Supplement No. 4 to Part 748 to provide the correct name of the branch of the Government of the PRC that issues EUS.

Revision Of Licensing Review Policy And License Requirements

BIS has also revised its licensing review policy for items controlled on the Commerce Control List for reasons of national security. 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 to generally deny exports that will make a direct and significant contribution to Chinese military capabilities.

BIS has made additional 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 Sections 742.2, 742.3 and 742.5, respectively; and with the revised licensing policy in Paragraph 742.4(b)(7), which provides 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 the new Supplement No. 7 to Part 742 of the EAR.

Please contact George Tuttle, III, at or (415) 288-0428 if you have any questions regarding this or other customs law matters.

George R. Tuttle, III, is an attorney with the Law Offices of George R. Tuttle in San Francisco.  The information in this article is general in nature and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered such


The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright 2007 by Tuttle Law Offices.

All rights reserved. Information has been obtained from sources believed to be reliable. However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

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