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DE RUEHBJ #0376/01 0320735
ZNY CCCCC ZZH
R 010735Z FEB 08
FM AMEMBASSY BEIJING
TO RUCPDOC/USDOC WASHDC
INFO RUEHC/SECSTATE WASHDC 4776

C O N F I D E N T I A L BEIJING 000376 
 
SIPDIS 
 
SIPDIS 
 
USDOC FOR 532/BIS/MMANCUSO/DHILL/ELEE 
USDOC FOR 532/BIS/EA/MBORMAN/MRITHMIRE/BKRITZER 
USDOC FOR 532/BIS/EE/KDELLICOLLI/GKRIZAY/JSONDERMAN 
USDOC FOR ITA/CPADILLA/MDIPAULACOYLE/IKASOFF 
USDOC FOR OIO/ADESSARAN/WZARIT 
SECSTATE FOR EAP/CM 
SECSTATE FOR EB/SEP 
 
E.O. 12958: DECL: CESSATION OF ALL EXPORT CONTROLS TO CHINA 
TAGS: BEXP CH ETRD ETTC PREL
SUBJECT: ASSISTANT SECRETARY OF COMMERCE MATTHEW BORMAN 
MEETS WITH MINISTRY OF COMMERCE DIRECTOR-GENERAL WANG 
QINHUA TO DISCUSS IMPLEMENTATION OF NEW VALIDATED END-USER 
(VEU) PROGRAM 
 
REF: A) BEIJING 247 (01/24/08) B) BEIJING 4701 
     (07/17/07) C) BEIJING 4342 (06/28/07) D) 
     BEIJING 4215 (06/22/07) 
 
Classified By: Jeannette L. Chu, Export Control Officer for reasons 1.4 
 b/h 
 
¶1. (SBU) SUMMARY: On December 10, 2007, Department of 
Commerce Acting Assistant Secretary for Export Administration 
Matthew Borman and Embassy Export Control Officer (ECO) met 
with Director-General (DG) WANG Qinghua, Department of 
Mechanic, Electronic and High Technology Industries, Ministry 
of Commerce (MOFCOM) to discuss possible mechanisms for 
conducting site visits to companies in China who have applied 
for or already received Validated End-User (VEU) status. The 
VEU program affords pre-cleared end-users the ability to 
import U.S. controlled items without having to obtain 
individually validated licenses. The A/S and ECO met with DG 
Wang on the margins of a meeting between Department of 
Commerce Under Secretary for Industry and Security Mario 
Mancuso and Vice Minister (VM) of Commerce Wei Jianguo to 
discuss a range of issues relating to export controls and 
civilian high technology and strategic trade (see REFTEL A). 
USG officials outlined how VEU site visits would differ 
substantially from end-use visits related to licensed 
transactions. DG Wang remained firm in her belief that the 
Exchange of Letters on End-Use Visit Understanding (EUVU), 
which was signed in 2004, is the only mechanism under which 
USG officials can conduct site visits to companies in China. 
Both sides agreed to continue exploring ways of resolving 
these differences so that Chinese companies could benefit 
from the VEU program. END SUMMARY. 
 
¶2. (C) A/S Borman expressed appreciation for DG Wang,s 
leadership and effectiveness in implementing the 2004 EUVU, 
noting that more than 100 end-use visits conducted since then 
have resulted in favourable licensing determinations. The 
Validated End-User program or &VEU8 builds on this success, 
he noted, but remains structurally different because no 
licenses are required for commodities destined to 
VEU-approved companies. Thus, the EUVU does not immediately 
lend itself to VEU site visits; for example, Pre-License 
Check and Post-Shipment Verification end-use visits are 
triggered by a license application. By contrast, the first 
group of VEU companies did not require a site visit prior to 
attaining VEU status but may require a site visit in the 
future to verify that the commodities received without 
license are being used appropriately. New companies applying 
for VEU status may also require a site visit prior to 
attaining VEU status. A/S Borman pointed out that the EUVU 
requires each licensed transaction to have a End-User/End-Use 
Statement issued by MOFCOM, however, VEU transactions would 
not have such documentation. There are two approaches, he 
concluded, to execute another Exchange of Letters similar to 
the EUVU but with an attachment specifically addressing VEU 
site visits, or to attach an Addendum to the existing EUVU 
describing how VEU site visits would be conducted. 
 
¶3. (C) DG Wang noted that the EUVU took a long time and a lot 
of effort to reach agreement, and stressed that to this day 
the United States is the only country permitted by China to 
conduct end-use visits in China. She suggested that if a 
company is interested in attaining VEU status then that 
company could request that a Pre-License Check be conducted. 
There is no need for a new Exchange of Letters, Wang 
declared. DG Wang also stated that Chinese companies must 
follow Chinese law. Therefore, she reasoned, the only 
 legitimate, reason for a visit to be conducted would be an 
end-use check under the current EUVU mechanism. DG Wang asked 
whether BIS would conduct VEU site visits to verify the 
legitimacy of items exported under this program or to check 
the legitimacy of the Chinese company. 
 
¶4. (C) A/S Borman replied that for the five companies that 
have already obtained VEU status, site visits would only be 
necessary to verify the receipt and use of items shipped 
under VEU. He noted that shipments made to these companies 
under the VEU program would not have MOFCOM,s 
End-User/End-Use Statement as VEU lifts the requirement for 
individual export licenses. Additionally, the EUVU requires 
the U.S. to submit requests to conduct Post-Shipment 
Verification (PSV) end-use checks within six months of 
 
 
 
shipment. VEU has no time limit, Borman clarified, and 
therefore requests to visit VEU companies could not be bound 
by the same restriction. 
 
¶5. (C) DG Wang then suggested that companies take greater 
advantage of the Special Comprehensive License (SCL), 
program, and urged the U.S. to increase the value of 
commodities that could be shipped under SCL. (NOTE: SCL,s 
license multiple shipments of certain controlled items from a 
specific exporter to a specific end-user for up to two years. 
There is no dollar limit placed on the value of items that 
can be shipped under an SCL. END NOTE) A/S Borman clarified 
that the SCL is approved to each exporter individually while 
any exporter can ship to a VEU-approved company without first 
obtaining an individual export license. Borman urged,  Let 
the market decide whether an individual validated license, 
SCL or VEU is the most appropriate vehicle for each 
transaction., 
 
¶6. (C) A/S Borman advised the Director-General that the 
several other companies are nearing completion of the VEU 
application process with approval expected imminently. This 
next group of VEU companies will increase the positive impact 
of VEU to more than 50% of the value of U.S. export licenses 
to China. DG Wang exhorted A/S Borman not to publish a second 
list of VEU-approved companies without first obtaining 
MOFCOM,s approval. To do otherwise would negatively affect 
bilateral cooperation, she warned. 
 
¶7. (C) Returning to the existing EUVU, DG Wang declared that 
there is no need for a new set of on-site review procedures 
for VEU companies because all companies are by definition 
end-users and thus covered by the EUVU --  VEU is a 
subcategory of end-users., Further, the stated purpose of 
VEU is to facilitate trade, therefore ascension to VEU should 
be simpler.  I do not want the U.S. to claim that VEU 
facilitates trade but in fact have VEU become more difficult 
and burdensome,, said the DG, and insisted that agreement on 
this is essential to moving forward. 
 
¶8. (C) A/S Borman assured DG Wang that the intent and reality 
of VEU is facilitating the legitimate export of controlled 
items for civilian purposes and pressed DG Wang for a 
commitment to work towards agreement on site visit 
procedures. The meeting concluded with both sides agreeing to 
continue discussions on practical steps to move forward with 
implementing the VEU program. 
 
¶9. () COMMENT: Director-General Wang appeared unable or 
unwilling to grasp the most fundamentaldifferences between 
on-site reviews for VEU purposes and end-use visits that 
relate to individual U.S. export licenses. Wang's overall 
lack of understanding of the VEU program is a roadblock to 
resolving implementation concerns. This is particularly 
disappointing in view of the numerous efforts made by USG 
officials to engage constructively with the Director-General 
on this issue. END COMMENT 
 
¶10. (C) Ministry of Commerce meeting participants included: 
¶1. Wang Qinhua, Director General of the Department of 
Electronic, Technology and Mechanical Industry 
¶2. Zhou Ruojun, Deputy Director General of the Department of 
Electronic, Technology and Mechanical Industry 
¶3. Jin Xu, Deputy Director General of the Department of North 
American and Oceanic Affairs 
¶4. Jiang Qianliang, Office Director of the Department of 
Electronic, Technology and Mechanical Industry 
¶5. Jiang Feng, Staff of Department of Electronic, Technology 
and Mechanical Industry 
¶6. Interpreter 
 
¶11. (U) A/S Borman has cleared this cable. 
Randt 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RANDT