
[Federal Register Volume 77, Number 244 (Wednesday, December 19, 2012)]
[Rules and Regulations]
[Pages 75011-75014]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30482]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 748

[Docket No. 110331231-2684-01]
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: Final rule.

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SUMMARY: In this rule, the Bureau of Industry and Security (BIS) amends 
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 
amends 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 the original receipt of such items. On April 
17, 2012, BIS published a proposed rule and requested public comments 
on these topics (77 FR 22689). The comment period closed June 18, 2012. 
BIS has addressed the public comments received in response to the 
proposed rule in this final rule.

DATES: This rule is effective January 18, 2013.

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)

    Validated end-users (VEUs) are those entities 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 and their respective eligible destinations and eligible 
items are identified in Supplement No. 7 to Part 748 of the EAR. VEUs 
may obtain eligible items without having to wait for their suppliers to 
obtain export licenses from BIS.
    VEUs are 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.
    On April 17, 2012, BIS published a rule soliciting public comments 
on two proposed amendments to Section 748.15 of the EAR (Authorization 
Validated End-User (VEU)) (77 FR 22689). BIS proposed requiring 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. In 
addition, BIS proposed explicitly clarifying in the EAR that VEUs that 
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 VEU's location or become 
eligible for shipment under a license exception to the destination. BIS 
received comments from two entities, which are summarized and responded 
to below.

Comments and Responses

    Comment 1: Both commenters indicated their overall support for the 
proposed changes and the VEU authorization as a whole. One commenter 
specifically noted that Authorization VEU had benefited a VEU and its 
supplier by allowing the purchase and supply of equipment to proceed 
without the additional lead-time issues often caused by potentially 
lengthy government approvals.
    Response: BIS appreciates this input regarding the VEU program, 
particularly in light of BIS's efforts to improve the program and make 
it more effective for U.S. exporters.
    Comment 2: Both commenters explained that individual shipments may 
include items shipped under ``multiple authorizations'' including 
Authorization VEU. They asked BIS to clarify that proposed paragraph 
(g) of Section 748.15 would only require that shippers notify VEUs of 
items shipped under Authorization VEU and not of items shipped under 
other authorizations in the same shipment as VEU items. Specifically, 
one commenter recommended that notification be required to include ``a 
list of the VEU authorized contents and a list of their respective 
ECCNs.''
    Response: BIS recognizes that individual shipments may include 
items authorized for shipment or transfer under Authorization VEU as 
well as items being shipped under other EAR authorizations, such as 
licenses or license exceptions. BIS intends that the notification be 
required only for items shipped under Authorization VEU and not for any 
other items shipped with the VEU-authorized items. BIS has amended the 
text of Section 748.15(g) to specify that the notification requirement 
applies only to the ``VEU-authorized'' items in a shipment and to 
specify that the list suggested by the commenter be included as part of 
the notification.
    Comment 3: Both commenters asked BIS to review its approach to the 
timing and frequency of notifications under Section 748.15(g). Both 
commenters recommended that BIS permit consolidated notifications under 
Authorization VEU, rather than require

[[Page 75012]]

separate notifications for each shipment under Authorization VEU. 
Specifically, one commenter provided a semiconductor industry-specific 
example of the multiple transfers of an integrated circuit's layout or 
design that may be necessary between a semiconductor foundry and its 
customer to correct design flaws prior to production. The commenter 
suggested that the exporter should be required to provide only a single 
notification for such shipments. In addition, both commenters asked 
that BIS clarify that notification may be made before shipment occurs. 
One of the commenters specifically suggested that the timing be 
modified to ``no later than seven days after shipment or as mutually 
agreed in writing by both parties.'' This commenter further suggested 
that BIS could require that the terms of VEU notification be included 
in Section 748.15(e), which requires that exporters and reexporters 
obtain from VEUs certifications regarding end use and compliance with 
VEU requirements. The commenter expressed that this approach would 
maximize benefits and minimize burdens associated with notification, 
and would ensure transparency and help to verify compliance.
    Response: BIS has reviewed the timing and frequency of 
notifications and agrees that exporters, reexporters and transferors 
(in-country) should have the option to consolidate notifications to 
VEUs when multiple shipments are made under Authorization VEU. BIS 
therefore has included this as an option in Section 748.15(g). Further, 
as the timeframe for notification that is appropriate for one VEU and 
shipper may be inappropriate for others, BIS agrees with the commenter 
who suggested that notification be within a timeframe that is mutually 
agreed to in writing by both parties. That mutual agreement must, 
however, be reached prior to the shipment or transfer. With reference 
to the comment proposing that BIS require the notification to be 
included in the certification required under Section 748.15(e) of the 
EAR, BIS notes that the 748.15(e) certification is required under the 
EAR only in advance of the first shipment by a supplier to a VEU under 
Authorization VEU and at no other time thereafter and that while 
provision of the 748.15(e) certification is the sole responsibility of 
the VEU, advance agreement on the notification schedule is the 
responsibility of both the VEU and the shipper. Although a VEU and a 
shipper may agree to include the notification schedule in the 
certification, BIS will not require that the schedule be included in 
the certification. BIS has revised Section 748.15(g) by providing that 
notifications should be made within a timeframe agreed to in writing by 
the VEU and the shipper in advance of the initial shipment and has 
removed the reference to ``within seven calendar days'' of the 
shipment. With this modification, BIS clarifies its original intent to 
permit notification in advance of shipment.
    Comment 4: One commenter expressed concern regarding BIS's 
explanation in the proposed rule that, ``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.'' The commenter asked that BIS 
modify this explanation to make clear that the notification 
requirement's purpose is not to require that companies be able to 
distinguish between identical items sent under a VEU authorization and 
other types of authorization. The commenter noted that when identical 
parts and materials shipped or transferred under different 
authorizations are commingled within inventories, some VEUs ensure 
compliance with U.S. law by meeting the requirements of the most 
restrictive conditions associated with a particular stock-keeping unit 
(SKU) and keep track of the total quantity of items received under a 
specific authorization through first-in-first-out (FIFO) and other 
standard inventory accounting methods.
    Response: The use of Authorization VEU requires VEUs to track items 
received under Authorization VEU, but does not require VEUs to 
distinguish between identical items sent under Authorization VEU and 
other types of shipping authorizations. BIS understands that, as a 
practical matter, individual items in inventory may not be easily or 
efficiently tracked, and that there are VEUs that fulfill their 
requirements under Authorization VEU by meeting the most restrictive 
conditions associated with a particular SKU and tracking the total 
quantity of items received under a specific authorization through the 
standard inventory accounting methods described by the commenter.
    Comment 5: One commenter encouraged BIS to consider expanding the 
scope of Authorization VEU by implementing the VEU program in countries 
other than China and India.
    Response: BIS is taking this comment under advisement and is not 
responding to it here as it is outside the scope of BIS's proposed 
rule.

Amendments to Section 748.15 of the EAR

Prior Notification Requirement

    In this rule, BIS adopts the amendment to the EAR proposed on April 
17, 2012 (77 FR 22689) with some changes. In the April rule, BIS 
proposed amending Section 748.15 by adding paragraph (g) to 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. 
The April proposal also specified that the notification must include a 
list of the VEU-authorized contents of the shipment and the quantity of 
such items that are being, have been, or will be shipped to the 
respective VEUs, as well as a list of the applicable Export Control 
Classification Numbers (ECCNs) for VEU-authorized items included in the 
shipment. This final rule adopts the notification requirement in Sec.  
748.15 while making a change from the proposed rule by providing that 
notification must be made within a timeframe agreed to in writing by 
the VEU and the persons exporting, reexporting or transferring (in-
country), rather than within seven days of the shipment as proposed in 
the April rule. This final rule also adds that the VEU and the persons 
exporting, reexporting or transferring (in-country) must agree to the 
notification timeframe in advance of shipment under Authorization VEU.
    As discussed in the proposed rule, the purpose of this 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. With 
this amendment to the EAR, BIS intends to improve the ability of VEUs 
to determine which shipments are made to them under Authorization VEU. 
The use of Authorization VEU requires VEUs to track items received 
under Authorization VEU, but does not require VEUs to distinguish 
between identical items sent under Authorization VEU and other types of 
shipping authorizations. Accordingly, this amendment will enable VEUs 
to better determine which set of conditions governs their use of the 
received item(s) more efficiently, thereby better enabling the VEUs' 
compliance with the EAR.
    With this rule, BIS is not requiring a specific form of 
communication (e.g., fax, email, letter) for the notification, but does 
require that it be in a written format. Similarly, the VEU and the 
shipper may determine if notifications

[[Page 75013]]

need to be made for each Authorization VEU shipment or whether multiple 
shipments may be the subject of a consolidated notification. As noted 
above, the notification must be conveyed to the VEU within the time 
period agreed to in writing by the VEU and the persons exporting, 
reexporting or transferring (in-country) the VEU items in advance of 
the initial shipment. VEUs are required to maintain the notifications 
they receive and exporters and reexporters are required to maintain the 
notifications they send pursuant to their recordkeeping requirements.

Clarification Regarding Termination of Conditions on VEU Authorizations

    In the proposed rule, BIS also proposed amending Section 748.15(h) 
to clarify that 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 VEU's 
authorized location or become eligible for shipment under a license 
exception to the destination. This amendment is 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. No public comments were received on this proposal, and the 
proposed regulatory text is being adopted with minimal changes, 
described below.
    To supplement the proposed regulatory text, BIS is adding phrasing 
in paragraph (h) to clarify that when the EAR are amended such that 
items previously exported, reexported or transferred (in-country) to a 
VEU under Authorization VEU would be eligible for shipment to the VEU 
under a License Exception, the items received under Authorization VEU 
become subject to the terms and conditions of the applicable License 
Exception and not the original conditions associated with export, 
reexport or transfer under Authorization VEU. In addition, when the EAR 
are amended such that items previously exported, reexported or 
transferred (in-country) to a VEU under Authorization VEU would remain 
subject to the EAR but become eligible for export without a license 
under the EAR, the items received under Authorization VEU may only be 
exported, reexported, transferred (in-country) or disposed of in 
accordance with the EAR. These two statements are not substantive and 
were added only in the interest of clarifying the scope of new 
paragraph (h) on requirements under the EAR. These new sentences also 
parallel existing Section 750.7(i) (Terminating license conditions).

Records Review

    In the proposed rule, BIS further proposed adding new paragraph (i) 
is 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. No public comments 
were received on this provision, and BIS is adopting paragraph (i) as 
proposed.
    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 15, 2012 (77 FR 49699, August 16, 2012), 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 final 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 BIS-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.
    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 
certified to the Chief Counsel for Advocacy of the Small Business 
Administration during the proposed rule stage that this rule would not 
have a significant economic impact on a substantial number of small 
entities. The basis for the certification was published in the preamble 
to the proposed rule and is not repeated here. BIS received no comments 
or new information regarding the certification. Therefore, a final 
regulatory flexibility analysis is not required and none has been 
prepared.

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 amended as follows:

PART 748--[AMENDED]

0
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 15, 2012 (77 FR 
49699 (August 16, 2012)).


0
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 VEUs to which they are 
shipping or transferring notice of the shipment or transfer. Such 
notification must be conveyed to the VEU in writing and must include a 
list of the VEU-authorized contents of the shipment or transfer and a 
list of the ECCNs under which the VEU-authorized items in the shipment 
or transfer are classified, as

[[Page 75014]]

well as a statement that the items are being, will be, or were shipped 
or transferred pursuant to Authorization VEU. Notification of the 
export, reexport or transfer (in-country) to the VEU must be made 
within a timeframe agreed to in writing by the VEU and the person 
exporting, reexporting or transferring (in-country). The VEU and the 
person exporting, reexporting or transferring (in-country) must agree 
to the notification timeframe prior to the initial shipment or transfer 
under Authorization VEU. Depending on the agreement between the VEU and 
the person exporting, reeexporting or transferring (in-country), a 
notification may be for individual shipments or for multiple shipments. 
Exporters, reexporters and VEUs are required to maintain the 
notifications they send or 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. Items that become eligible for a License Exception are 
subject to the terms and conditions of the applicable License Exception 
and the restrictions in Sec.  740.2 of the EAR. Items that become 
eligible for export without a license and that remain subject to the 
EAR may only be exported, reexported, transferred (in-country) or 
disposed of in accordance with the requirements of the EAR. 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: December 12, 2012.
Kevin J. Wolf,
Assistant Secretary for Export Administration.
[FR Doc. 2012-30482 Filed 12-18-12; 8:45 am]
BILLING CODE 3510-33-P


