[Federal Register Volume 77, Number 74 (Tuesday, April 17, 2012)]
[Proposed Rules]
[Pages 22689-22691]
[FR Doc No: 2012-9237]

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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.

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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<EMAIL_ADDRESS>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:<PHONE_NUMBER>, fax:<PHONE_NUMBER>, or email:
<EMAIL_ADDRESS>
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

(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

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