The Bureau of Industry and Security (“BIS”) recently designated five Chinese companies under BIS’s Validated End User Program. Because of that designation, certain dual-use items can be exported to those companies in China without an export license.

The first reviews from China are now in. And they aren’t good:

The government yesterday criticized the United States over a new system that’s likely to reduce China’s imports of hi-tech products. Wang Xinpei, spokesman for the Ministry of Commerce, expressed “strong dissatisfaction” over the US move, as the “US side did not have enough consultation with China to reach a consensus on implementing the new VEU system”. The United States should not visit any companies registered in China for VEU screening without permission from the Ministry of Commerce, Wang said.

We have previously criticized the VEU program because it was unlikely that China would permit on-site inspections as part of that process. The statement by the Chinese spokesman confirms that, although it is not entirely clear that BIS actually visited the Chinese sites of the companies granted VEU status. It does seem likely, however, that the companies at least agreed to future on-site visits — one of the factors set forth as a consideration for granting VEU status under section 748.15 of the Export Administration Regulations

More significantly, one has to wonder if there is a veiled threat behind the puzzling statement that the VEU program “will reduce China’s imports of high-tech products.” If the VEU program operates as anticipated by BIS, it would increase such imports. Perhaps this statement is a harbinger that China may take internal measure to block the program. After all, from the Chinese perspective at least, the VEU program would give advantages to the VEU companies but not to their Chinese competitors. That might serve as a motive for China to block imports to the VEU companies unless they withdrew from the program.

Of course, this is just speculation based on a somewhat puzzling statement in a Chinese state-owned news outlet. But it will be interesting to see if China does adopt countermeasures.

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