GAO: Challenges with Commerce’s Validated-End User Program May Limit Its Ability to Ensure That Semiconductor Equipment Exported to China is used

GAO: EXPORT CONTROLS Challenges with Commerce’s Validated-End User Program May Limit Its Ability to Ensure That Semiconductor Equipment Exported to China Is Used as Intended

Highlights of GAO-08-1095, a report to the Committee on Foreign Affairs, House of Representatives

Semiconductors are key components in weapons systems and consumer electronics. Since semiconductors have both civilian and military applications, U.S. export control policy treats the equipment and materials used to manufacture semiconductors as “dual-use” items, and controls the export of these items through licensing requirements to sensitive destinations such as China.

You requested that we update our 2002 report on China’s semiconductor manufacturing capabilities to address the (1) evolution of China’s capabilities since 2002, (2) changes to U.S. export control policies over the sale of semiconductor manufacturing equipment and materials to China since 2002, and (3) the advantages and limitations of these changes.

What GAO Recommends
To enhance oversight, Commerce should suspend the VEU program to China until an amended or new agreement is reached to conduct onsite reviews and VEU-specific procedures for conducting on-site reviews are established.

Commerce disagreed with our recommendation, stating that it can use a classified 2004 agreement with China to conduct on-site reviews. However, use of the agreement imposes an additional burden on validated end-users. Commerce also maintains it has procedures for on-site reviews, but they are still in draft form and have not cleared the interagency review.