The future of the Bureau of Industry and Security’s (BIS) Validated End-User (VEU) program remains uncertain in the wake of the Commerce Department’s off-again, on-again actions related to the program in recent months, the continuing opposition to the program by some in Congress and the change in administrations. Authorization VEU permits exports of specific items, such as certain semiconductor manufacturing equipment and materials, to endusers who have been pre-approved or “validated” by BIS, without the need to apply for individual export licenses. Envisioned by BIS as a means for easing export licensing requirements for US companies for certain high-tech exports to end-users in the Peoples Republic of China and India, use of export authorization VEU to date has been limited, with no additional end-users having been added to the original list of five China-based VEU-approved companies since that list was adopted in October 2007. According to recent reports, only one of those five approved end-users actually has received exports under the VEU program.
Questions regarding the ability of the US government to monitor VEU end-users appear to have been the primary reason for the program’s limited application to date, as well as the basis for opponents of the program to call for its abandonment. A key qualification for end-users seeking VEU approval is that they agree to onsite reviews by US government representatives to ensure adherence to the conditions of the VEU authorization. Controversy with regard to whether the US government would have onsite access to the five VEU-approved end-users in China, their agreement to such access notwithstanding, grew last year after China’s government announced that the VEU program had been implemented without recognizing its authority to determine whether and how US officials would be permitted to visit and verify VEU end-user facilities in China. A GAO report released in October 2008 called for the program to be suspended because, without a VEU-specific inspection agreement with China, the United States could not ensure that goods exported to China under the VEU program were being used as intended, and not for military purposes. The inability of the United States and China to reach agreement formalizing procedures for onsite inspections led to an announcement by Undersecretary of Commerce Mario Mancuso in December that the United States might decide to suspend the VEU program.
Prospects for the VEU program appeared to brighten early this year after China, perhaps in response to the US threat that the program might be suspended, signed an agreement with the United States on January 12 to allow BIS representatives to conduct on-site audits of compliance records of VEU-approved end-users and to interview their employees. BIS announced that the agreement would allow BIS to approve five additional VEU applications that had been pending before BIS for more than a year. A BIS source reportedly estimated that these five additional companies, together with the five previously approved VEU users, would account for about 90 percent of exports subject to BIS licensing to China.
However, the future of the VEU program remains uncertain. The five additional VEU-approved end-users touted in BIS’ announcement in January have yet to be formally designated, and the decision on whether to do so now rests with the Obama Administration. With no additional end-user applications in the offing, BIS reportedly has disbanded the staff assigned to review new VEU applications. There is also opposition to the VEU program among members of Congress. Rep. Ed Markey (D-Mass.), who views the VEU program as misguided, recently criticized the agreement’s provisions that would give China’s government 60-days advance notice before onsite reviews could be conducted, allowing in his view the VEU-approved end-users a 60-day head start on hiding improper transfers or other information from US inspectors.