New Commerce Rule Aims at Easing Licensing Burdens On High-Tech Exports to India

The Commerce Department’s Bureau of Industry and Security (“BIS”) added India as an eligible destination for exports, reexports, and transfers under Authorization Validated End-User (“VEU”) in a final rule issued on October 2, 2007.  This development aims at facilitating U.S. exports to India in high-tech sectors such as electronics, life sciences, and avionics. 

Under the VEU program, entities in India authorized for the VEU status will be eligible to receive controlled U.S.-origin commodities, technology, and software (except for those controlled for crime control or missile technology reasons) without BIS licenses.  BIS established the VEU program in June 2007, but initially China was the only eligible destination.  On October 19, BIS issued a final rule identifying five entities in China as approved for the VEU status.  These entities are: Applied Materials China, Ltd.; BHA Aerocomposite Parts Co., Ltd.; National Semiconductor Corporation; Semiconductor Manufacturing International Corporation; and Shanghai Hua Hong NEC Electronics Company, Ltd.  The rule specifies the eligible items and facilities for each VEU.  According to BIS, these companies imported over $54M worth of U.S. goods under BIS licenses in 2006 (approximately 18% of total licensed exports to China).

U.S. exporters, foreign reexporters of U.S.-origin items, and their affiliates, customers or business partners in India should carefully assess the potential benefits of the VEU status.  For example, U.S. companies engaged in long-term relationships covering manufacturing, distribution, or various forms of technology- and R&D-related activities in India could substantially benefit from the elimination of transaction-specific licensing requirements.  Either entities in India or exporters may submit applications for a VEU status.  To be approved as a VEU, the entity must have a demonstrated record of engagement in civil end-uses, agree to comply with the VEU recordkeeping requirements, permit on-site inspections by U.S. government officials, and meet a number of other criteria. 

Customs Issues “Minimum Security Criteria for Foreign Manufacturers”

On October 1, 2007, U.S. Customs and Border Protection (“CBP”) took a major step forward in expanding the scope of its international supply chain security program, the Customs-Trade Partnership Against Terrorism (“C-TPAT”).  For the first time, Customs issued standards that all foreign manufacturers must meet for purposes of satisfying CBP’s supply chain security expectations under C-TPAT.  (CBP had previously issued such standards for Mexican and Canadian manufacturers only.)  By issuing these standards (known as the “Minimum Security Criteria for Foreign Manufacturers”), CBP has created a more formal structure for foreign manufacturers who want CBP to recognize their supply chain security investments and efforts.  C-TPAT promises participants lower border inspection rates and other trade facilitation benefits in exchange for participants’ commitment to undertake specific measures to increase oversight and security within their supply chains.  

While foreign manufacturers are still not eligible to be certified as “C-TPAT participants,” CBP will likely expect U.S. importers (who are C-TPAT participants) to require their major foreign suppliers to meet the “Minimum Security Criteria for Foreign Manufacturers.”  U.S. importers are well-served to study the new Minimum Security Criteria and assess whether there are areas in which security improvements should be made in their foreign manufacturers’ supply chains and international logistic processes.