BIS Reportedly Plans to Suspend China VEU Program

The Washington Times reported tonight that the Bureau of Industry and Security (BIS) is close to issuing a new regulation that would suspend the China Validated End-User (VEU) program until China agrees to on-site inspections of the five Chinese companies that have been granted VEU status. The article states that:

A Commerce Department official, who spoke on the condition of anonymity because of ongoing diplomatic negotiations, told The Times that the Bush administration plans to suspend the program unless it can impose safeguards before it leaves office next month.

"This program will either be fixed or ended before Jan. 20," the official said, adding that a decision will be made "in days, not weeks."

China could avoid a suspension of the program by agreeing to U.S. demands for on-site inspections. The official said, however, that it does not appear likely that Beijing will make concessions before the Bush administration leaves office.

In October 2007, the Bureau of Industry and Security (BIS) announced the following five VEUs in China:

* Applied Materials China, Ltd.
* BHA Aerocomposite Parts Co., Ltd.
* National Semiconductor Corporation
* Semiconductor Manufacturing International Corporation
* Shanghai Hua Hong NEC Electronics Company, Ltd.

In January 2008, the Wisconsin Project on Nuclear Arms Control issued a report (PDF) criticizing the selection of two of the five Chinese companies named as VEUs. The report stated that Shanghai Hua Hong NEC Electronics Company, Ltd. and BHA Aerocomposite Parts Co., Ltd. "are affiliated closely to China’s military industrial complex and to companies that have been punished by the U.S. government for proliferation or other improper export behavior."

In October 2008, the Government Accountability Office recommended that the Secretary of Commerce suspend the VEU program until BIS was permitted to conduct on-site reviews in China to ensure that the items shipped to the VEUs in China are used as intended.