A closer look at China’s new Export Control Law

Lately, everyone is focused on changes to U.S. export control regulations and related trade initiatives (such as the new tariffs and FIRRMA/CFIUS). Export Control Reform will shortly see the transitions of items from USML Categories I, II and III from the ITAR to the EAR. Likewise, the reforms to CFIUS are simply awaiting the President’s signature, and the Export Control Reform Act of 2018 is alive and well.

While the landscape is changing here in the United States, let’s not forget about China’s proposed new Export Control Law (“ECL”) which, although still in draft form, has passed the stage of public comments. Just to revisit this new law and its potential requirements, in June 2016 the Chinese Ministry of Commerce (“MOFCOM”) published the draft ECL for public comments. Although China has a number of regulations relating to export controls and has signed numerous nonproliferation agreements, the ECL would be the country’s first law specifically addressing export controls and would implement a controls system that protects China’s national security and consolidates its nonproliferation efforts.

Historically, China began to formulate export control regulations in the 1990s. In the drafting notes, MOFCOM highlighted three reasons to enact a stand-alone ECL now: (1) the existing regulations have weaker legal authority as departmental regulations; (2) the most recent export control regulation was promulgated a decade ago in 2007 and has not been updated regularly; and (3) the current system is unable to support enforcement actions in practice.

China’s law would control four types of items for export

The ECL would establish four lists of controlled items compared to the current two lists. These four lists would be:

  1. Dual-Use Items: Described as “goods, technologies, services, or other items that have civil uses, and also have military use or enhance military potential, particularly the design, development, production, or use of weapons of mass destruction.”
  1. Military Items: This list consists of “equipment, special production equipment and other materials, technology, and related services used for military purposes.”
  1. Nuclear Items: A list to control “nuclear materials, nuclear equipment, non-nuclear materials used in reactors, and related technologies and services.”
  1. Other Items Affecting the National Security of China: The definition of these items is less clear. Some have interpreted that this list will be comprised of items which China wishes to control to protect its own companies, industries and production; not merely for its own National Security, but also for Economic Security.

In addition to the four lists, the new law would also allow certain agencies of the Chinese government to designate a particular product or technology that is not on any controlled list as a “temporarily controlled item.” This could impose controls and possible licensing requirements for up to two years. (This idea sounds very similar to the proposed controls over “emerging technologies” that can be found in the U.S. Export Control Reform Act of 2018.)

New definitions under the China ECL

In addition to the list changes, China’s ECL will create or revise definitions. Some of these are:

  • Export: Defined as the “transfer of controlled items from the People’s Republic of China (PRC) to a foreign country or region,” including Hong Kong, Macao and Taiwan.
  • Re-Exports: The transfer of an item from a country outside of China to a third country.
  • Deemed Exports: The provision of regulated goods or technologies to non-Chinese citizens (or to residents of Taiwan, Hong Kong, or Macao) whether within or outside of China would be considered an export for which an authorization may be required. This addition to the current definition of “export” could regulate activities such as non-citizens who work in China viewing controlled equipment or technical data by requiring that a license specific to the technology or item be obtained.
  • Transit, Transshipment and Export via Special Customs Supervision Areas: The transit and transshipment of controlled items and the export of controlled items via a special customs supervision areas, such as a Foreign Trade Zone, will also be subject to PRC export controls.
  • Embargo: This allows the PRC regulatory authorities to impose a complete ban on the exports of certain controlled items, or prohibit the exports of certain controlled items to specified destinations, individuals or entities.
  • Blacklist: The PRC authorities may place foreign importers and end users violating PRC export control laws on a blacklist. Such action would prohibit the export of controlled items to those foreign importers and end users. They also may revoke the export licenses related to the transactions with such foreign importers and end users.
  • Retaliatory Measures: Authorizing corresponding retaliatory measures against the countries or regions that implement discriminatory control measures on the PRC.
  • Tangibles and Intangibles: (Still to be drafted)

A new licensing system to control Chinese exports

Export licensing would be established under the new ECL for those technologies or products controlled by the lists above. Elements of the review and approval process would include:

  • National security and development interests
  • International obligations or commitments (such as nonproliferation agreements)
  • The sensitivity of the items
  • The supply and demand in the market
  • The end use and end user
  • Other circumstances prescribed by laws and regulations
  • The export control compliance mechanisms of the export operator

When will China’s ECL be implemented?

As with any proposed legislation, it’s difficult to predict when a new law will become effective and what the final version will look like. It was MOFCOM’s desire to introduce the new law during 2018, but that might be delayed with everything else that’s occurring in international trade these days. On the other hand, with sections of the new law providing for things like “retaliatory measures,” the Chinese government could decide to fast-track this new law into existence sooner than expected. Only time will tell.

Jim McShane is a Sr. Consultant, Trade Compliance for Export Solutions -- a full-service consulting firm specializing in ITAR and EAR regulations.