On June 19, 2007, the Bureau of Industry and Security (BIS) announced its long-awaited China rule.

We have attached a copy of the rule, as well as explanatory materials BIS has distributed and posted to its Web site (Fact Sheet: Updated China Dual-Use Export Regulations; Q&As on the Bureau of Industry and Security’s China Policy Rule). A link to these materials can be found here. The materials are comprehensive and answer many questions. Rather than engaging in an in-depth review, the following aims to provide some key take-away steps points for US and foreign exporters, reexporters and distributors who sell items controlled at low levels (AT-controlled) to China:

1) There is a savings clause in the rule, but it is short – just 30 days from publication – and only applies to items for export or reexport that "were on dock for loading, on lighter {sic}, laden aboard an exporting or reexporting carrier, or en route aboard a carrier to a port of export or reexport on June 19, 2007.

In other words, for most purposes, the rule is effective immediately.

At a meeting presenting the rule on June 18, 2007, Under Secretary of Commerce for Industry and Security Mario Mancuso was asked about this immediate effective date and whether, in light of this, enforcement of the rule might be delayed. The Under Secretary refused to answer regarding the enforcement issue, and reiterated that the rule is effective when published.

2) What does that mean? If you are a company that exports, reexports or transfers in China U.S. items that fall into one of the following 31 ECCNs, you need to update your export compliance policies for China very quickly. The 31 ECCNs, reduced from 47 in the proposed rule, are as follows.

NOTE: Just because your ECCN appears on this list does not mean that it is covered. BIS has worked with industry to limit the items controlled in light of foreign availability considerations. Thus for example, encryption items under 5A992 and 5D992 are eliminated altogether, the telecommunications items controlled under ECCN 5A991 is reduced in number, and only aircraft and gas turbine engines controlled under ECCN 9A991 (not other parts) are covered by the rule.

Items Subject to Military End-Use Control

1. Category 1 – Materials, Chemicals, Microorganisms, and Toxins
   1. 1A290 Depleted uranium (any uranium containing less than 0.711% of the isotope U-235) in shipments of more than 1,000 kilograms in the form of shielding contained in X-ray units, radiographic exposure or teletherapy devices, radioactive thermoelectric generators, or packaging for the transportation of radioactive materials.
   2. 1C990 Limited to fibrous and filamentary materials other than glass, aramid or polyethylene not controlled by 1C010 or 1C210, for use in "composite" structures and with a specific modulus of 3.18x106m or greater and a specific tensile strength of 7.62x104m or greater.
   3. 1C996 Hydraulic fluids containing synthetic hydrocarbon oils, having all the characteristics in the List of Items Controlled.
   4. 1D993 “Software” specially designed for the “development”, “production”, or “use” of equipment or materials controlled by 1C210.b, or 1C990.
   5. 1D999 Limited to specific software controlled by 1D999.b for equipment controlled by 1B999.e that is specially designed for the production of prepregs controlled in Category 1, n.e.s.
   6. 1E994 Limited to "technology" for the "development", "production", or "use" of fibrous and filamentary materials other than glass, aramid or polyethylene controlled by 1C990.
2. Category 2 – Materials Processing
   1. 2A991 Limited to bearings and bearing systems not controlled by 2A001 and with operating temperatures above 573 K (300 oC).
   2. 2B991 Limited to “numerically-controlled” machine tools having "positioning accuracies", with all compensations available, less (better) than 9 µm along any linear axis; and machine tools controlled under 2B991.d.1.a.
   3. 2B992 Non-“numerically controlled” machine tools for generating optical quality surfaces, and specially designed components therefore.
   4. 2B996 Limited to dimensional inspection or measuring systems or equipment not controlled by 2B006 with measurement uncertainty equal to or less (better) than (1.7 + L/1000) micrometers in any axes (L measured Length in mm).
3. Category 3 – Electronics Design, Development and Production
   1. 3A292.d Limited to digital oscilloscopes and transient recorders, using analog-todigital conversion techniques, capable of storing transients by sequentially sampling single-shot inputs at greater than 2.5 giga-samples per second.
   3. 3A999.c All flash x-ray machines, and components of pulsed power systems designed thereof, including Marx generators, high power pulse shaping networks, high voltage capacitors, and triggers.
   2. 3E292 Limited to “technology” according to the General Technology Note for the “development”, “production”, or “use” of -digital oscilloscopes and transient recorders with sampling rates greater that 2.5 giga-samples per second, which are controlled by 3A292.d.
4. Category 4 - Computers
   1. 4A994 Limited to computers not controlled by 4A001 or 4A003, with an Adjusted Peak Performance (“APP”) exceeding 0.5 Weighted TeraFLOPS (WT).
   2. 4D993 “Program” proof and validation “software”, “software” allowing the automatic generation of “source codes”, and operating system “software” not controlled by 4D003 that are specially designed for real time processing equipment.
   3. 4D994 Limited to “software” specially designed or modified for the “development”, “production”, or “use” of equipment controlled by 4A101.
5. Category 5 – (Part 1) Telecommunications
   1. 5A991 Limited to telecommunications equipment designed to operate outside the temperature range from 219K (-54 oC) to 397K (124 oC), which is controlled by 5A991.a., radio equipment using Quadrature-amplitude-modulation (QAM) techniques, which is controlled by 5A991.b.7., and phased array antennae, operating above 10.5 Ghz, except landing systems meeting ICAO standards (MLS), which are controlled by 5A991.f.
   2. 5D991 Limited to “software” specially designed or modified for the “development”, “production, or “use” of equipment controlled by 5A991.a., 5A991.b.7., and 5A991.f., or of “software” specially designed or modified for the “development”, “production”, or “use” of equipment controlled by 5A991.a., 5A991.b.7., and 5A991.f.
   5. 5E991 Limited to “technology” for the “development”, “production” or “use” of equipment controlled by 5A991.a., 5A991.b.7., or 5A991.f., or of “software” specially designed or modified for the “development”, “production”, or “use” of equipment controlled by 5A991.a., 5A991.b.7., and 5A991.f.
6. Category 6 – Sensors and Lasers
   1. 6A995 “Lasers”, not controlled by 6A005 or 6A205.
   2. 6C992 Optical sensing fibers not controlled by 6A002.d.3 which are modified structurally to have a “beat length” of less than 500 mm (high birefringence) or optical sensor materials not described in 6C002.b and having a zinc content of equal to or more than 6% by “mole fraction.”
7. Category 7 – Navigation and Avionics
   1. 7A994 Other navigation direction finding equipment, airborne communication equipment, all aircraft inertial navigation systems not controlled under 7A003 or 7A103, and other avionic equipment, including parts and components, n.e.s.
   2. 7B994 Other equipment for the test, inspection, or “production” of navigation and avionics equipment.
   3. 7D994 “Software”, n.e.s., for the “development”, “production”, or “use” of navigation, airborne communication and other avionics.
   4. 7E994 “Technology”, n.e.s., for the “development”, “production”, or “use” of navigation, airborne communication, and other avionics equipment.
8. Category 8 - Marine
   1. 8A992 Limited to underwater systems or equipment, not controlled by 8A001, 8A002, or 8A018, and specially designed parts therefore.
   2. 8D992 “Software” specially designed or modified for the “development”, “production” or “use” of equipment controlled by 8A992.
   3. 8E992 “Technology” for the “development”, “production” or “use” of equipment controlled by 8A992.
9. Category 9 – Propulsion Systems, Space Vehicles and Related Equipment
   1. 9A991 Limited to “aircraft”, n.e.s., and gas turbine engines not controlled by 9A001 or 9A101.
   2. 9D991 “Software”, for the “development” or “production” of equipment controlled by 9A991 or 9B991.
   3. 9E991 “Technology”, for the “development”, “production” or “use” of equipment controlled by 9A991 or 9B991.

3) If your items fall on this list, and your company sells to or in China, your company needs to work to ensure compliance with the new rule. NOTE THAT EXPORTS, REEXPORTS AND TRANSFERS WITHIN CHINA ARE COVERED.

This means implementing additional procedures to ensure that you have enough information from the ultimate end-user to make sure that you are not selling to a "military end-use" as defined in 744.21(f). Military end-use is defined as follows:

1. incorporation into a military item described on the U.S. Munitions List (USML) (22 CFR part 121, International Traffic in Arms Regulations);
2. incorporation into a military item described on the International Munitions List (IML) (as set out on the Wassenaar Arrangement Web site here);
3. incorporation into items listed under ECCNs ending in “A018” on the CCL in Supplement No. 1 to part 774 of the EAR;
4. 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; and
5. for the “deployment” of items classified under ECCN 9A991 as set forth in Supplement No. 2 to Part 744. Deployment is defined as “placing in battle formation or appropriate strategic position.”

4) To assist exporters, reexporters and distributors to identify what end-uses would qualify as military, BIS has published a new Supplement No. 7 to Part 742. You should be aware, however, that this list is exemplary only, and not a complete list! It is reprinted below:

SUPPLEMENT NO. 7 TO PART 742 – DESCRIPTION OF MAJOR WEAPONS SYSTEMS

1. Battle Tanks: Tracked or wheeled self-propelled armored fighting vehicles with high cross-country mobility and a high-level of self protection, weighing at least 16.5 metric tons unladen weight, with a high muzzle velocity direct fire main gun of at least 75 millimeters caliber.
2. Armored Combat Vehicles: Tracked, semi-tracked, or wheeled self-propelled vehicles, with armored protection and cross-country capability, either designed and equipped to transport a squad of four or more infantrymen, or armed with an integral or organic weapon of a least 12.5 millimeters caliber or a missile launcher.
3. Large-Caliber Artillery Systems: Guns, howitzers, artillery pieces combining the characteristics of a gun or a howitzer, mortars or multiple-launch rocket systems, capable of engaging surface targets by delivering primarily indirect fire, with a caliber of 75 millimeters and above.
4. Combat Aircraft: Fixed-wing or variable-geometry wing aircraft designed, equipped, or modified to engage targets by employing guided missiles, unguided rockets, bombs, guns, cannons, or other weapons of destruction, including versions of these aircraft which perform specialized electronic warfare, suppression of air defense or reconnaissance missions. The term “combat aircraft” does not include primary trainer aircraft, unless designed, equipped, or modified as described above.
5. Attack Helicopters: Rotary-wing aircraft designed, equipped or modified to engage targets by employing guided or unguided anti-armor, air-to-surface, air-to-subsurface, or air-to-air weapons and equipped with an integrated fire control and aiming system for these weapons, including versions of these aircraft that perform specialized reconnaissance or electronic warfare missions.
6. Warships: Vessels or submarines armed and equipped for military use with a standard displacement of 750 metric tons or above, and those with a standard displacement of less than 750 metric tons that are equipped for launching missiles with a range of at least 25 kilometers or torpedoes with a similar range.
7. Missiles and Missile Launchers:
   1. Guided or unguided rockets, or ballistic, or cruise missiles capable of delivering a warhead or weapon of destruction to a range of at least 25 kilometers, and those items that are designed or modified specifically for launching such missiles or rockets, if not covered by systems identified in paragraphs (1) through (6) of this Supplement. For purposes of this rule, systems in this paragraph include remotely piloted vehicles with the characteristics for missiles as defined in this paragraph but do not include ground-to-air missiles,;
   2. Man-Portable Air-Defense Systems (MANPADS); or
   3. Unmanned Aerial Vehicles (UAVs) of any type, including sensors for guidance and control of these systems.
8. Offensive Space Weapons: Systems or capabilities that can deny freedom of action in space for the United States and its allies or hinder the United States and its allies from denying an adversary the ability to take action in space. This includes systems such as anti-satellite missiles, or other systems designed to defeat or destroy assets in space.
9. Command, Control, Communications, Computer, Intelligence, Surveillance, and Reconnaissance (C4ISR): Systems that support military commanders in the exercise of authority and direction over assigned forces across the range of military operations; collect, process, integrate, analyze, evaluate, or interpret information concerning foreign countries or areas; systematically observe aerospace, surface or subsurface areas, places, persons, or things by visual, aural, electronic, photographic, or other means; and obtain, by visual observation or other detection methods, information about the activities and resources of an enemy or potential enemy, or secure data concerning the meteorological, hydrographic, or geographic characteristics of a particular area, including Undersea communications. Also includes sensor technologies.
10. Precision Guided Munitions (PGMs), including “smart bombs”: Weapons used in precision bombing missions such as specially designed weapons, or bombs fitted with kits to allow them to be guided to their target.
11. Night vision equipment: Any electro-optical device that is used to detect visible and infrared energy and to provide an image. This includes night vision goggles, forwardlooking infrared systems, thermal sights, and low-light level systems that are night vision devices, as well as infrared focal plane array detectors and cameras specifically designed, developed, modified, or configured for military use; image intensification and other night sighting equipment or systems specifically designed, modified or configured for military use; second generation and above military image intensification tubes specifically designed, developed, modified, or configured for military use, and infrared, visible and ultraviolet devices specifically designed, developed, modified, or configured for military application.

5) The rule also accomplishes the following:

1. clarifies the Validated End User Program (VEU) for Chinese end-users who want to obtain the above items – as well as other items controlled for National Security, Chemical & Biological Weapons and other end-uses – without a license. Some items (Missile Technology and Crime Control) will still require a license even to VEUs. An extensive discussion of the VEU program is beyond the scope of this email, but some highlights are:
   • being turned down for the VEU is not supposed to be a black mark on a Chinese company's record. Items that did not require a license to the company can still go without a license; items that required a license will still be granted a license on a case-by-case basis absent a military end-use (see below). Finally the Chinese company can reapply for VEU status.
   • Chinese subsidiaries of US companies have to go through the same VEU process as non-affiliated companies as do Chinese companies on Special Comprehensive Licenses (SCLs).
   • End-use checks under the VEU review are not part of the official BIS-MOFCOM end-user check agreement, but will take place separately.
   • BIS hopes to announce the first trench of VEUs – described as a "handful" – in the next few weeks.
   • The names of VEUs will be published.
   • BIS is looking to establish VEUs for other countries, such as India, but this rule is just for China.
   • Matthew Borman of BIS indicated that Chinese government-owned companies are welcome to apply for VEU status but noted the VEU requirement that such companies be involved only in non-military activities.
   • Under Secretary Mancuso indicated that the VEU is a new vision of extended export enforcement in a fundamentally different world from that of the Cold War era.
2. Changes the license application review policy for exports, reexports and transfers of items controlled for national security reasons to a policy of denial for those that would make a "direct and significant contribution" to the PRC's military capabilities.
3. Raises the dollar threshold for U.S. exporters to obtain Chinese Ministry of Commerce (MOFCOM) end-user statements from $5,000 to $50,000. BIS expects that due to the higher threshold, even the additional export licenses created by the military end-use rule will not significantly increase the total number of MOFCOM end-user statements obtained.