Document ID: BIS-2012-0010-0001
Agency: bis
Document Type: Proposed Rule
Title: Revisions to Authorization Validated End-User Provisions: Requirement for Notice of Export, Reexport or Transfer (In-Country), etc.
Posted Date: 2012-04-17T04:00Z

[Federal Register Volume 77, Number 74 (Tuesday, April 17, 2012)]
[Proposed Rules]
[Pages 22689-22691]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9237]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 748

[Docket No. 110331231-1608-02]
RIN 0694-AF19

Revisions to Authorization Validated End-User Provisions: 
Requirement for Notice of Export, Reexport, or Transfer (In-Country) 
and Clarification Regarding Termination of Conditions on VEU 
Authorizations

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: In this rule, the Bureau of Industry and Security (BIS) 
proposes to amend the Export Administration Regulations (EAR) by adding 
a requirement for persons shipping under Authorization Validated End-
User (VEU) to send written notice of such shipments to the recipient 
VEU. BIS further proposes to amend the EAR to clarify that when items 
subject to item-specific conditions under Authorization VEU no longer 
require a license for export or reexport or become eligible for 
shipment under a license exception, as set forth in the EAR, VEUs are 
no longer bound by the conditions associated with such items.

DATES: Comments must be received by no later than June 18, 2012.

ADDRESSES: Comments on this rule may be submitted to the Federal 
rulemaking portal (http://www.regulations.gov). The regulations.gov ID 
for this rule is: BIS-2012-0005. Comments may also be submitted via 
email to publiccomments@bis.doc.gov or on paper to Regulatory Policy 
Division, Bureau of Industry and Security, Room 2099B, U.S. Department 
of Commerce, 14th St. and Pennsylvania Ave. NW., Washington, DC 20230. 
Please refer to RIN 0694-AF19 in all comments and in the subject line 
of email comments.

FOR FURTHER INFORMATION CONTACT: Karen H. Nies-Vogel, Chair, End-User 
Review Committee, Bureau of Industry and Security, U.S. Department of 
Commerce, 14th St. and Pennsylvania Avenue NW., Washington, DC 20230; 
by telephone: (202) 482-5991, fax: (202) 482-3911, or email: 
ERC@bis.doc.gov.

SUPPLEMENTARY INFORMATION:

Background

Authorization Validated End-User (VEU)

    BIS amended the EAR in a final rule on June 19, 2007 (72 FR 33646), 
to create a new authorization for ``validated end-users'' (VEUs) 
located in eligible destinations to which eligible items may be 
exported, reexported, or transferred (in-country) under a general 
authorization instead of a license.
    VEUs may obtain eligible items that are on the Commerce Control 
List, which are identified in Supplement No. 7 to part 748 of the EAR, 
without having to wait for their suppliers to obtain export licenses 
from BIS. Eligible items may include commodities, software, and 
technology, except those controlled for missile technology or crime 
control reasons.
    The VEUs listed in Supplement No. 7 to part 748 of the EAR were 
reviewed and approved by the U.S. Government in accordance with the 
provisions of section 748.15 and Supplement Nos. 8 and 9 to part 748 of 
the EAR. The End-User Review Committee (ERC), composed of 
representatives from the Departments of State, Defense, Energy, and 
Commerce, and other agencies, as appropriate, is responsible for 
administering the VEU program. A unanimous vote by the ERC is required 
to authorize VEU status for a candidate or to add any eligible items to 
an existing authorization. A majority vote of the ERC is required to 
remove VEU authorization or to remove eligible items from an existing 
authorization.
    In addition to U.S. exporters, Authorization VEU may be used in 
accordance with the provisions of the EAR by foreign reexporters and by 
persons transferring in-country. VEUs are subject to regular reviews by 
the U.S. Government to ensure that items shipped under Authorization 
VEU are used for civilian purposes. In addition, VEUs are subject to 
on-site reviews as warranted.
    As of the date of this rule, pursuant to section 748.15(b) of the 
EAR, VEUs are located in the People's Republic of China (PRC) and 
India.

Amendments to Section 748.15 of the EAR

Prior Notification Requirement

    Through this rule, BIS proposes amending the EAR by adding 
paragraph (g)--Notification requirement--to section 748.15--
Authorization Validated End-User. The new paragraph (g) would require 
persons exporting, reexporting, or transferring (in-country) under 
Authorization VEU to send written notification to the recipient VEU 
with details about their shipment within seven days of the shipment. 
Details that would be required in the notification include a list of 
the contents of the shipment and the quantity of such items that have 
been or will be shipped to the respective VEUs under Authorization VEU, 
as well as a list of the applicable Export Control Classification 
Numbers (ECCNs) for items included in the shipment under Authorization 
VEU.
    The purpose of this proposed new requirement is to enhance the 
ability of VEUs to comply with the requirements of the VEU program. 
This amendment to the EAR is not the result of non-compliance with VEU 
requirements by existing VEUs. Rather, BIS proposes making this change 
at the request of VEUs. Some VEUs have informed BIS that compliance is 
challenging when they receive items under multiple authorizations, but 
are unable to determine which authorization is used for each shipment, 
and thus determine which set of conditions applies to the items 
received in each shipment. Because items may be shipped to VEUs under 
different forms of authorization

[[Page 22690]]

(e.g., individual licenses, Special Comprehensive Licenses, and 
Authorization VEU), VEUs may receive items classified under the same 
ECCN but shipped under more than one form of authorization. In 
addition, each form of authorization may be accompanied by different 
conditions with which end-users must comply. With this amendment to the 
EAR, BIS intends to improve the ability of VEUs to determine which 
authorization their suppliers utilized. This will enable VEUs to better 
determine which set of conditions governs their use of the received 
item(s) more efficiently, thereby increasing the VEUs' compliance.
    BIS is not mandating the form of communication (e.g., fax, email, 
letter) for the notification, but does require that it be in a written 
format. As noted above, the notification must be conveyed to the VEU 
within seven calendar days of shipment to the VEU. Exporters, 
reexporters and VEUs are required to maintain the notifications they 
receive pursuant to their recordkeeping requirements.

Clarification Regarding Termination of Conditions on VEU Authorizations

    In addition, BIS proposes amending section 748.15--Authorization 
Validated End-User--by adding paragraph (h)--Termination of Conditions 
on VEU Authorizations. The new paragraph (h) clarifies that VEUs who 
are subject to item-specific conditions and have received items subject 
to such conditions under Authorization VEU would no longer be bound by 
the conditions associated with the items if the items no longer require 
a license for export or reexport to the PRC or India (depending on the 
VEU's location) or become eligible for shipment under a license 
exception to the destination. This proposed amendment would be the 
same, in effect, as existing section 750.7(i) (Terminating license 
conditions), which generally applies to exporters and reexporters who 
have shipped under license. In addition, a new paragraph (i) is added 
to section 748.15 to remind exporters that records requirements for 
shipments that were made under Authorization VEU prior to the removal 
of a license requirement or the availability of a license exception 
remain subject to the review requirements of paragraph (f)(2) of 
section 748.15 on and after the date that the license requirement was 
removed or the license exception became applicable.
    Since August 21, 2001, the Export Administration Act has been in 
lapse and the President, through Executive Order 13222 of August 17, 
2001 (3 CFR, 2001 Comp., p. 783 (2002)), as extended most recently by 
the Notice of August 12, 2011 (76 FR 50661, August 16, 2011), has 
continued the EAR in effect under the International Emergency Economic 
Powers Act. BIS continues to carry out the provisions of the Export 
Administration Act, as appropriate and to the extent permitted by law, 
pursuant to Executive Order 13222.

Rulemaking Requirements

    1. Executive Orders 13563 and 12866 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule has been determined to be not significant for 
purposes of Executive Order 12866.
    2. Notwithstanding any other provisions of law, no person is 
required to respond to nor be subject to a penalty for failure to 
comply with a collection of information, subject to the requirements of 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq.) (PRA), 
unless that collection of information displays a currently valid Office 
of Management and Budget (OMB) Control Number. This proposed rule 
involves information collections previously approved by the OMB under 
control number 0694-0088, ``Multi-Purpose Application'', which carries 
a burden hour estimate of 45.8 minutes to prepare and submit form B18-
748, which involves requirements in connection with Authorization VEU. 
BIS revised the burden hour estimate shown for the 0694-0088 collection 
by two minutes to include the notification requirement proposed in this 
rule. This revision does not represent a significant increase in burden 
hours for submitting information under the collection. Also, the 
notification requirement proposed in this rule is not expected to 
result in an increase in license applications submitted to BIS should 
the agency issue the amendment to the EAR in a final rule subsequent to 
the close of the proposed rule comment period.
    3. This rule does not contain policies with Federalism implications 
as that term is defined under Executive Order 13132.
    4. The Chief Counsel for Regulation of the Department of Commerce 
has certified to the Chief Counsel for Advocacy of the Small Business 
Administration that this proposed rule, if adopted in final form, would 
not have a significant economic impact on a substantial number of small 
entities.

Number of Small Entities

    This proposed rule would affect exporters and reexporters shipping 
to VEUs, as well as persons making in-country transfers to VEUs, under 
Authorization VEU. Currently, BIS does not collect data on the size of 
entities that export, reexport, or transfer in-country under 
Authorization VEU. Although BIS is unable to estimate the number of 
small entities that would be affected by this rule, it does acknowledge 
that this rule will impact some unknown number.

Economic Impact

    This proposed rule requires exporters and reexporters shipping to 
VEUs, as well as persons making in-country transfers to VEUs, under 
Authorization VEU to provide written notification to approved VEUs 
about VEU shipments. It would not require extensive efforts by 
exporters or reexporters, or persons making in-country transfers. The 
proposed action is designed to coincide with other standard 
communications that exporters and reexporters, regardless of size, 
provide to their customers or parties to the transaction regarding, 
among other things, the description of items, sales terms, and 
logistics. Specifically, this rule would require only that exporters 
and reexporters shipping eligible items under Authorization VEU to the 
finite number of approved VEUs at their ``Eligible Destinations'' in 
the PRC and India ensure that those VEUs are notified in writing within 
seven days of shipping such items under the Authorization. Practically, 
BIS does not anticipate that any significant amount of time or other 
resources would be used to perform the proposed required action. BIS 
estimates that the notification requirement proposed in this rule will 
increase the burden hour estimate by two minutes per respondent. Also, 
the notification requirement proposed in this rule is not expected to 
result in an increase in license applications submitted to BIS should 
the agency issue the amendment to the EAR in a final rule subsequent to 
the close of the proposed rule comment period.
    The proposed requirement is intended to facilitate compliance with 
the EAR in general and Authorization VEU in particular. The proposed 
requirement

[[Page 22691]]

will facilitate the VEUs' ability to comply with the specific 
conditions placed on their qualifications as VEUs and distinguish those 
conditions from conditions placed on items received under other 
authorizations. This will enhance accountability and ensuring effective 
control of items shipped under Authorization VEU and other 
authorizations.
    In addition, this action is likely to enhance the attractiveness of 
shipping ``Eligible Items'' under Authorization VEU for exporters and 
reexporters, or persons making in-country transfers. This potential 
benefit outweighs any perceived inconvenience to exporters and 
reexporters, or persons making in-country transfers, who ship under 
Authorization VEU, as they retain the option to ship under an 
individual validated license.
    In this rule, BIS also proposes to amend section 748.15--
Authorization Validated End-User--by adding paragraph (h)--Termination 
of Conditions on VEU Authorizations. This proposed amendment would 
clarify that VEUs who are subject to item-specific conditions and have 
received items subject to such conditions under Authorization VEU would 
no longer be bound by the conditions associated with the items if the 
items no longer require a license for export or reexport to the PRC or 
India (depending on the VEU's location) or become eligible for shipment 
under a license exception to the destination. This proposed amendment 
would be the same, in effect, as existing section 750.7(i) (Terminating 
license conditions), which generally applies to exporters and 
reexporters who have shipped under license.
    For the reasons stated, the Chief Counsel for Regulation of the 
Department of Commerce has certified to the Chief Counsel for Advocacy 
of the Small Business Administration that this proposed rule, if 
adopted in final form, would not have a significant economic impact on 
a substantial number of small entities.

List of Subjects in 15 CFR Part 748

    Administrative practice and procedure, Exports, Reporting and 
recordkeeping requirements.

    Accordingly, part 748 of the Export Administration Regulations (15 
CFR parts 730-774) is proposed to be amended as follows:

PART 748--[AMENDED]

    1. The authority citation for 15 CFR part 748 continues to read as 
follows:

    Authority: 50 U.S.C. app. 2401 et seq; 50 U.S.C. 1701 et seq.; 
E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 
FR 44025, 3 CFR, 2001 Comp., p. 783; Notice of August 12, 2011 (76 
FR 50661 (August 16, 2011)).

    2. Section 748.15 is amended by adding paragraphs (g), (h) and (i) 
to read as follows:

Sec.  748.15  Authorization Validated End-User (VEU).

* * * * *
    (g) Notification requirement. Exporters and reexporters shipping 
under Authorization VEU and persons transferring (in-country) under 
Authorization VEU are required to provide the validated end-users to 
whom they are shipping notice of the shipment. Such notification must 
be conveyed to the VEU in writing and must include a list of the 
contents of the shipment and a list of the ECCNs under which the items 
in the shipment are classified, as well as a statement that the 
shipment is, will be, or was made pursuant to Authorization VEU. 
Notification must be made within seven calendar days of the export, 
reexport or transfer (in-country) to the VEU. Exporters, reexporters 
and VEUs are required to maintain the notifications they receive in 
accordance with their recordkeeping requirements.
    (h) Termination of Conditions on VEU Authorizations. VEUs that are 
subject to item-specific conditions and have received items subject to 
such conditions under Authorization VEU are no longer bound by the 
conditions associated with the items if the items no longer require a 
license for export or reexport to the PRC or India, as applicable, or 
become eligible for shipment under a license exception to the 
destination. Termination of VEU conditions does not relieve a validated 
end-user of its responsibility for violations that occurred prior to 
the availability of a license exception or prior to the removal of 
license requirements.
    (i) Records. Records of items that were shipped under Authorization 
VEU prior to the removal of a license requirement or the availability 
of a license exception remain subject to the review requirements of 
paragraph (f)(2) of this section on and after the date that the license 
requirement was removed or the license exception became applicable.

    Dated: April 10, 2012.
Kevin J. Wolf,
Assistant Secretary for Export Administration.
[FR Doc. 2012-9237 Filed 4-16-12; 8:45 am]
BILLING CODE 3510-33-P