The Department of Commerce is considering separate actions that, if finalised, could have the effect of tightening controls on exports to the mainland. The first such measure is a suspension of the Validated End-User programme, which is designed to facilitate exports of high-technology products to China. The second is the imposition of export controls on foreign encryption items made with U.S.-origin encryption technology or software.

The VEU programme was created in June 2007 to allow select mainland Chinese companies to receive exports, re-exports and transfers of controlled items without a DOC export licence. Instead of being subject to post-shipment verification checks to ensure that the exported goods are being used in accordance with the terms of the authorisation, VEU participants agree to allow federal officials to periodically review their records and conduct on-site reviews. The programme covers a wide range of items and does not have an expiration date, but so far only five Chinese end-users have been approved to participate.

Lawmakers and government watchdogs concerned that sensitive items exported without federal review could find their way to the Chinese military have called on the Bureau of Industry and Security to halt the VEU programme. According to a recent article in a Washington newspaper, the BIS is now moving to do just that. The article indicated that the lack of a bi-lateral agreement to allow VEU-specific reviews in China, which mainland officials see as “an infringement of sovereignty” that could “undermine [the] effort to force the easing of all U.S. export restrictions,” is the proximate cause of the decision. BIS chief Mario Mancuso subsequently issued a statement that corrected what he said were several “inaccuracies” in the article but did not deny that the inspection issue continues to be a problem.

Separately, the BIS has launched an inquiry into the possibility of controlling exports of foreign encryption items that are the direct product of U.S.-origin encryption technology or software. Although the agency offered no specific reasons for its action, it is specifically requesting comments on how such controls would affect U.S. exporters of encryption technology and software, foreign manufacturers of products (including under contract to U.S. companies who own and maintain the intellectual property, branding, marketing and distribution rights to the end-products manufactured offshore) that are derived in whole or in part from U.S.-origin encryption technology or software, the U.S information technology manufacturing base and U.S. employment. The BIS is also interested in information on the various commercial and military applications of foreign products derived in whole or in part from U.S.-origin encryption technology or software, the factors that foreign manufacturers of encryption items or their competitors might consider in deciding to produce or use U.S.-origin encryption technology or software, and the availability of foreign encryption technology and software that is equivalent to that of U.S. origin.