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	The China Rule – Validated End-Users Policy In June, the Bureau of Industry & Security (BIS) issued the “China Policy Rule” which creates a “Validated End-User” (VEU) Program to facilitate exports of possible dual-use items to trusted customers. American companies were complaining about lost sales because of export restrictions while China was able to obtain similar products worldwide. The VEU Program will begin in China with the cooperation of its government. A Chinese company, or the U.S. shipper on behalf of their Chinese partner, can submit an application for VEU status. Once approved, the names will be published and the Chinese company can receive shipments from any U.S. exporter without having to reapply for each shipment. The rule removes restrictions on licensed exports to trusted customers while tightening controls on some 20 targeted products considered dual-use items which are identified by 31 Export Classification Control Numbers (ECCN). These 20 distinct products and associated technologies and software have new controls and will require a license if the exporter knows they are intended for military use. Items under EAR99 are not affected in any way. Conducting thorough due diligence upfront will naturally protect U.S. exporters and help to get the VEU status for their Chinese customer. On-going due diligence is ideal but not exactly required to maintain awareness of the final uses and transfers to a reasonable degree. Chinese companies applying for VEU status can expect on-site visits by BIS with Chinese sanctions to verify and monitor end-uses. Getting approval will be a subjective process relying on known information like the company’s line of business and reputation. Also, a letter from the Chinese company attesting that the imported item will not be used for military gains will be essential. This letter will also cover the possibility that the Chinese company is already engaged in military sales or actually is a military unit, but in this case the product will not be used to that effect. Two examples that might be approved are: 1) a Chinese company selling clothing to the military attempting to buy a personal computer or 2) a military hospital using monitoring devices to treat patients. For clarification, the objective is to deter transfer of goods for military use, development, production, or deployment. The focus is on controlling the sale of any item that “would” by its intended purpose, not “could” in the wrong hands, be used for the modernization of China’s military. Obviously, some types of companies will have a higher bar for approval such as distributors and those already selling to the military. China’s Ministry of Commerce will be working with BIS to obtain “end-use statements” and other required information like ownership and internal recordkeeping. This information will be used to evaluate each company first-hand and create a viable list of VEU companies that will import products for appropriate civilian uses. If a Chinese company is denied VEU status, it will not be considered a “negative mark” against the company and they can reapply. By and large the expectation is that denials will be due to the company’s lack of reputation or visibility rather than any negative characteristics. The first VEU list will be published on-line possibly in August and updated as needed. No specific documentation will be required for each shipment, but there will be changes made per the Bureau of Census to modify the Electronic Export Information (EEI formally SED) filings to capture VEU status. This program is expected to ease the burden on as much as $100 million worth of export licensed cargo each year. The U.S. exported $55 billion to China in 2006 and licensed cargo accounted for 6/10ths of one percent. But if it’s your company that is affected, then as they say…it’s 100% impact!!! For more information, see the VEDP Fast Facts on “Licensing, Regulations, & Compliance”. Resources: BIS China Rule: http://www.bis.doc.gov/usChinaExportRule.htm Financial Times: http://www.ft.com/cms/s/ab8d3892-1d24-11dc-9b58-000b5df10621.html