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China new export control law: key changes and challenges

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04 November 2020

The long-awaited Export Control Law1, was passed by the Standing Committee of the National People’s Congress of China, and will take effect on 1 December 2020.  It entails a number of substantial changes to China’s current export control regime, while it is ambiguous as to the specific coverage and implementation of certain clauses.  Exporters in China as well as foreign importers and customers will need to navigate the challenges of adapting to certain ambiguous regulatory changes.

The current export control regime of China originated from the Foreign Trade Law, and has been developed for years through implementation of a series of administrative regulations and rules. The Export Control Law aims to unify these various export control legislative pieces into a consolidated code, aiming to provide a more powerful regulatory tool to perfect China’s export control system by adopting international practice. 

Services and data now included in controlled items2

The Export Control Law includes “services” and “data such as technical information relating to the [controlled] items” in the scope of controlled items, in addition to goods and technologies. The insertion of services and data is not a surprise, in light of the increasing volume of cross-border services and current global digitalisation wave.  Technically both can be interpreted in a very broad way to capture varieties of activities which are not subject to the traditional export control regime.  

Expanded coverage of export to capture “deemed export” and intermediary trade

Under the Export Control Law, export control does not only apply to the transfer of controlled items from the territory of the People’s Republic of China overseas, but also to (a) “provision of controlled items by citizens, legal persons and non-legal person organizations of the People’s Republic of China to foreign organizations and individuals”, and (b) transit, transshipment, through transportation, re-export of controlled items, or export of controlled items from special customs surveillance zones such as bonded zones and export processing zones, or from bonded facilities under surveillance such as warehouses under export surveillance and bonded logistics centres.  

New regulatory methods of export control

The current export control regime is primarily governed by way of “controlled catalogues” or “controlled lists”.  The Export Control Law sets out a number of new regulatory methods, such as interim export control; export ban; blacklist of importers and end-users, as well as export control over unlisted items. 

Encouraging establishment of internal compliance system

The Export Control Law directs the export control authorities to issue export control guidelines, and to guide export operators to establish and perfect internal export control compliance systems.  In respect of those exporters who have set up and operated internal compliance systems well, the Export Control Law further directs the export control authorities to provide “general licensing” and other convenience measures for their export of relevant controlled items.

Strengthened supervision of end-users and end-uses

The Export Law requires the end-users to undertake that, without permission from the export control authorities, the end-uses of the relevant controlled items will not be altered and the relevant controlled items will not be transferred to any third party.  The law also requires the exporter and the importer to report immediately to the export control authorities if it is aware that the end-users or the end-uses may have changed.  The end-users and importer breaching their obligations may be blacklisted by the export control authorities.

Significantly increased administrative penalties

As compared to the Foreign Trade Law and various implementing regulations, the Export Control Law significantly increases the penalties for export control offences.  In particular, an administrative fine will be applicable to any violation under the Export Control Law, and the upper limit of the fine for a number of offences has been significantly increased to 10 or even 20 times the illegal “turnover”. In addition, unlike what is commonly possible in other administrative regulations (e.g. in the Anti-Monopoly Law of China), the administrative penalty imposed under the Export Control Law does not appear to be appealable.  Instead, the Export Control Law only offers the possibility of initiating administrative review proceedings if one intends to challenge a penalty decision.

Extraterritorial jurisdiction

Arguably, the Export Control Law appears to have extraterritorial jurisdiction, by providing that “organizations and individuals who violate the relevant export control provisions of this law, endangering the security and interests of China, or impeding the fulfilment of non-proliferation and other international obligations shall be pursued for legal liabilities in accordance with law”. However, to what extent extraterritoriality will apply is unclear at this moment, and it is subject to clarification by further implementing rules and regulators’ interpretation.

Looking forward

While the Export Control Law has significantly broadened the scope of the regulatory measures and enhanced the power of the existing regime, at the same time, it also leaves many unanswered questions as to the specific application of various clauses.  We expect China’s export control regime will continue to evolve with corresponding detailed implementing rules, as are anticipated to be promulgated as a next step.  

Exporters, importers and possible end-users are advised to stay alert, and review, assess and adjust their export-related compliance strategies and practices in accordance with the Export Control Law.  

 

Footnotes

  1. The Export Control Law was on the legislative agenda with the initial draft released in 2017 and a second draft released in 2019. On 17 October 2020, the Standing Committee of the National People’s Congress of China passed the Export Control Law.
  2. Although services may not be something new as it was covered by the Foreign Trade Law since 1994, it was never included in China’s implementing regulations for export control and control lists. In other words, it was not treated as controlled items in practice in the past.