（By Wang Haichuan）The new Export Control Law of China (the “Draft”) was published for public comments on December 28, 2019. This is the first law on export control in China. Export control means measures taken to prohibit or restrict the export of certain items such as nuclear, biological products or weapons in order to fulfill international obligations such as non-proliferation obligation, national security and development interests, etc. Currently, there are administrative regulations of export control on chemicals, general nuclear items, nuclear items used for multi-purpose, missiles, military products, biological products (the “Current Regulations”). Compared with the Current Regulations, the Draft makes no change in the current regulatory mechanism and allocation of responsibility and duties, appropriately improves the system and measures and fills blanks in laws. This article will focus on the changes in export control and their possible impact on companies doing business in China.
1.Themeaning of controlled items is broader
Things under export control are collectively called items in Draft, including goods, technologies and services. The meaning of controlled items is in the Draft is broader than that in the Current Regulations.
First, the meaning of the controlled items in Draft is flexible. According to Article 2 of the Draft, the controlled multipurpose items, military products, nuclear as well as other goods, technology and services related to international obligations and national security. Besides chemical, nuclear, military and biological products in the Current Regulations, controlled items also include “other goods, technology and services related to international obligations and national security”. Therefore, any good, technology or service that is considered as related to national security in any field may be subject to export control.
Second, the controlled items include services. In Current Regulations, related services are only included in controlled items in the Regulations of Military Exports. In other regulation-controlled items are defined as equipment, materials, supplies, technologies, etc. The Draft clearly states that the controlled multipurpose items, military products and nuclear include related services.
2.Themeaning of regulated acts is broader
According to Article 2 of the Draft, regulated acts include acts of transferring controlled items from China to foreign countries and of Chinese citizens, legal persons and other organizations providing controlled items to foreign natural persons, legal persons and other organizations. The regulated acts in the Current Regulations are export including trade export, international exchanges, donation, exhibitions, aid, services, and other means of technology transfer. The meaning of regulated acts in the Draft is broadened to include cross-border transfer between people in or “from” different countries. Accordingly, even items that are transferred between people within China should be treated as controlled items as long as they are sent to a natural person, a legal person or an organization from another country. The Draft does not mention acts of transferring controlled items to foreign-invested enterprises. In principle, foreign-invested enterprises established under Chinese laws are Chinese legal persons and should not be subject to export control. However, foreign companies are special organizations, especially when their actual controller is a foreign company and their managers are foreigners. Whether and how the restrictions will affect foreign-invested enterprises may be subject to enforcement of law in future.
Article 45 of the Draft states that transit, transshipment, transport and re-export of controlled items, or export from customs supervised special zones (such as bonded areas, export processing zones) and supervised bonded areas (such as export-controlled warehouses, bonded logistics centers, etc.) shall also be governed by this law. The Current Regulations contain restrictions on transit, transshipment and transport of general and multipurpose nuclear items. The Draft extends the scope of application to all the controlled items. Re-export related provisions are new additions, which mean export of a foreign country imported China-controlled items to another foreign country shall be subject to export control of Chinese authorities.
3.Changes in the list of controlled items
The current export control is based on the list of controlled items. The current list contains five sublists of multipurpose biological products, missiles, multipurpose nuclear items, military products and nuclear items under export control. The export of controlled chemicals is not governed by the list of controlled items. The Draft states that all controlled items shall be governed by the list of controlled items, including lists of multipurpose items under export control, military items under export control and nuclear items under export control.
By the Draft temporary control measures can be taken for items not included in the list of controlled items. In the Current Regulations, temporary control measures can be taken for goods not included in the list of multipurpose biological products, missiles and multipurpose nuclear items. The Draft temporary control measures are applicable to all controlled items, but the implementation period is limited to no more than two years.
4.Control measuresare diversified
In the Current Regulations, control measures are simple. For exporters, registration, authorization or franchise license is required. For export projects, approval is requred on a case-by-case basis. The Draft contains some new control measures to meet different control requirements. Major control measures include:
(1) franchise, registration, etc. provisions in the Draft that exporters should comply with;
(2) the export license for controlled items and a ban on exporting controlled items or exporting to a specific natural person, legal person or organization that is given subject to approval of the state council or the Military Commission of the Central Committee of the CPC;
(3) The Draft also requires monitoring of final use of controlled items exported. Major measures include: requiring submission of proof of the end user and the final use, the end user’s commitment to no unauthorized change of the end use and no transfer to a third party the exporter’s obligation to report any change of end user or final use, establishment of a list of controlled items, etc.
The Draft also provides ways of simplifying control measures. For an exporter with a well-run internal compliance review system and no record of serious violation of law, the export control administration department may grant approval for taking convenient measures to export related controlled items, which can replace the permission for exporting controlled items.
5.Manager’s obligation to examine whether the compliance requirements are met becomes stricter
According to Article 15 of the Draft, in addition to the list of exports, exporters that are or should be aware of or are informed of potential risks below should apply for the permit to the national export control department:
（1）damaging national security;
(2) used to design, develop, produce or use weapons that may cause mass destruction and their carriers;
(3) used for nuclear, biological and chemical terrorism purposes.
The exporter’s obligation to examine whether the compliance requirements are met is stricter than that in the Current Regulations. First, the scope of examination is extended. Second, once finding a potential risk, exporters shall apply for the permit. This clause does not clearly state that “exporters” only mean registered exporters and qualified franchisees in Article 12 of the Draft or include general exporters. If they include general exporters, all exporters shall fulfill the obligation to examine whether the compliance requirements with respect to export control are met.
6.Relevant authorities have a bigger power of investigation
Currently only the Regulations of Export Control Over Multipurpose Nuclear Items and Related Technologies includes the investigation actions that can be taken by the Ministry of Commerce. and no laws or rules contain details of such actions. The Draft gives export control authorities the power of investigation and can take a wide range of investigation actions such as entering a company’s offices, inquiring people involved, reviewing and copying transaction and financial documents, inspecting vehicles, impounding or seizing things, checking bank accounts, etc. To impound or seize things or check bank accounts, written approval of the head of the authority is necessary.
7.Punishment for the law violation is more severe
The Draft states that legal responsibilities for violating export control rules include administrative and criminal responsibilities. People who should take administrative responsibilities may be given a warning or an order to stop illegal acts, have their illegal profits confiscated, need to pay fines, etc. Penalty rules in the Draft is obviously severe than ones in the Current Regulations. For example, there is a significant increase in amounts of fines. According to Article 44 of the Draft, in case of a crime, criminal responsibilities should be pursued in accordance with the laws. The Current Regulations include the crimes of smuggling, doing business illegally, disclosing state secrets, forgery, falsification, selling state documents, certificates, and seals, etc., in connection with export control. Although these crimes are not included in the Draft, we think that provisions relating to the crimes are still in force as relevant provisions in the Criminal Law have not changed.
8.Businesses helping with the illegal activities will be punished
Companies that do not sell multipurpose items, military products, nuclear products and other controlled items but help with the illegal activities should also be responsible for the violation of law. Article 37 of the Draft states that the export control authority or the customs has the right to punish people who deliberately provide agency, freight, delivery, customs clearance, third-party e-commerce platform, financial or other services by violating export control rules.
9.Suggestions based on new changes in export control rules
Based on the new export control rules, we suggest that:
- exporters keep abreast of the list of controlled items and check if items to be exported are included in the list. If the exports are not included in the list but may be related to a multipurposeitem, military product, nuclear item or other goods, technology or services connected with international obligations or national security, the exporter should ask for and act upon the competent department’s instructions.
- companies improve their compliance policies by including provisions relating to their commodities, ultimate purposes of the commodities and the business of their partners.
- businesses that do not sell controlled items learn the export control law. It’s advisable to get acquainted with your customer’s scope of business and check whether your customer has obtained necessary licenses and approval for each shipment of exports of controlled items, if any.