China Enacts First Export Control Law

China

On 17 October 2020, the National People's Congress of the People's Republic of China ("PRC") has adopted the first Export Control Law of the PRC ("PRC Export Control Law"). The new law will become effective on 1 December 2020.

The PRC Export Control Law consists of 49 articles and is divided into five chapters, i.e., general provisions, control policies, control lists and control measures, supervision and administration, legal liability and supplementary provisions. Its aims are to protect the national security and interests of the PRC, to fulfill the PRC's nonproliferation and other international obligations, and at the same time, to strengthen and regulate the PRC's export control. (Nonproliferation is an obligation of the member countries including the PRC to the Treaty on the Nonproliferation of Nuclear Weapons ("NPT", effective as of 5 March 1970) to prevent the spread of nuclear weapons and nuclear weapon technologies, to promote the international cooperation in the peaceful use of nuclear energy and to further the goal of achieving nuclear disarmament.)

Below is a brief of its major content.

1. Extraterritorial Application to Entities and Individuals Outside the Territory of the PRC

Most of the currently effective PRC laws and regulations which impose prohibitions and restrictions on export from the PRC to abroad, Article 44 of the PRC Export Control Law expressly states that, any violation of any regulatory requirement on export control by any entity or individual outside the territory of the PRC which endangers the national security and interests of the PRC or obstructs the fulfillment of nonproliferation or other international obligations shall be handled and investigated for legal liabilities. This means that the PRC Export Control Law may also apply on activities conducted outside the territory of the PRC. Entities or individuals outside the territory of the PRC may also be prohibited from or restricted in their business operation with Chinese entities and individuals as well as be subject to certain types and amounts of penalties.

2. Extended Scope of Items under Export Control

a) Set-up of a Uniform Export Control Regime

Currently, relevant provisions relating to export control are scattered in various regulations covering various areas, including, but not limited the following:

(1) Trade

  • PRC Foreign Trade Law
  • PRC Customs Law
  • PRC Administrative Regulations on Technology Import and Export
  • PRC Administrative Regulations on the Import and Export of Goods

(2) Chemicals

  • PRC Regulations on the Management of Controlled Chemicals and its Implementing Rules
  • Regulations on the Administration of Precursor Chemicals

(3) Military Products

  • PRC Regulations on Administration of Arms Export

(4) Biology

  • PRC Regulations on the Export Control of Dual-Use Biological Agents and Related Equipment and Technologies

(5) Missiles

  • PRC Regulations on Export Controls of Missiles and Missile-related Items and Technologies

(6) Nuclear Items

  • PRC Regulations on the Export Controls of Nuclear-Related Dual-Use Items and Technologies
  • PRC Regulations on Nuclear Export Control

The PRC Export Control Law, for the first time, introduces a uniform export control regime and administrates export control by administrating different items under control.  As a specific law, the PRC Export Control Law prevails where there are any conflicts with the previous administrative regulations in regard to matters regulated under the PRC Export Control Law. For matters not covered under the PRC Export Control Law, the current relevant laws or administrative regulations continue to apply. Article 2 of the PRC Export Control Law comprehensively lists most of the items which are currently subject to export control and stipulates that export control shall cover dual-use items, military products, nuclear materials and other goods, technologies, services and items that are related to the protection of national security and interests or the fulfillment of nonproliferation or other international obligations ("Controlled Items"). From the wording of Article 2 of the PRC Export Control Law, however, it is so far unclear whether export of certain items which are currently regulated (controlled chemicals, for example) will be also subject to the PRC Export Control Law if they are not or not in relation to dual-use items, military products, nuclear materials and other goods, technologies, services and items that are related to the protection of national security and interests or the fulfillment of nonproliferation or other international obligations.

Additionally, Article 2 stipulates that Controlled Items shall include any technical materials or other data related to the above-mentioned items. This definition is rather vague. For example, it is unclear whether technical materials or data on Controlled Items shared between employees in China and abroad of the same multinational company group will fall into such definition and will,  therefore, be subject to export control under the PRC Export Control Law or not. Therefore, implementing regulations to the PRC Export Control Law, related administrative practice or court interpretations will be necessary to provide guidance and more legal certainty in regard to the definition and scope of the Controlled Items. 

b) Introduction of Control Lists and Temporary Control

According to Articles 4 and 9 of the PRC Export Control Law, the export control departments under the State Council and the Central Military Commission ("State Export Control Authorities") in China will develop and update control lists, checklists or catalogues for the export of Controlled Items ("Control Lists") in cooperation with other relevant departments and shall timely publish such Control Lists.

However, as stipulated under Article 9 of the PRC Export Control Law, goods, technologies and services which are not included in the Control Lists may still be subject to a temporary control of their export ("Temporary Control"), if this is needed for protecting national security and interests or for fulfilling nonproliferation or other international obligations of the PRC. Such Temporary Control must be either approved by the State Council, or jointly approved by the State Council and the Central Military Commission and shall be publicly announced with an effective term not exceeding two years. Prior to the expiration of such term, an evaluation shall be timely carried out by the respective in-charge authority to decide whether to cancel or to extend the Temporary Control, or to add items subject to Temporary Control into the Control Lists.

If certain items fall into the Control Lists or are subject to a Temporary Control, according to Articles 2 and 45 of the PRC Export Control Law, the below activities in relation to such Controlled Items will be prohibited or restricted:

(1) transfer of Controlled Items from the territory of the PRC to overseas,

(2) provision of Controlled Items by any citizen or incorporated or non-incorporated entity of the PRC to any foreign entity or individual,

(3) transit, transshipment, through transportation or re-export of Controlled Items, and

(4) export of Controlled Items from any bonded areas, export processing zones or other special customs supervision zones or export supervised warehouses, bonded logistics centers or other bonded supervision premises to overseas.

Notwithstanding the above, the stipulations of the PRC Export Control Law are unfortunately vague and lack clarification of certain issues. For example, it is still unclear, how exactly the export control on Controlled Items under the Control Lists or items subject to Temporary Control which are imported from abroad to the PRC and then re-exported from the PRC to abroad will  be carried out in accordance with the PRC Export Control Law. This needs to be further clarified by implementing rules and in the actual practice.

3. Requirements on License for Export of Controlled Items

Articles 12 and 13 of the PRC Export Control Law stipulate that the PRC applies a license system for export of Controlled Items on the Control Lists and items which are subject to Temporary Control. Exporters shall apply with the relevant State Export Control Authorities for a license before they export any Controlled Items. The relevant State Export Control Authorities will review the applications and make their decisions based on factors such as (i) the PRC's national security and interest, (ii) the PRC's international obligations and commitments to foreign parties, (iii) type of export of the exporter, (iv) degree of sensitivity of the Controlled Item to be exported, (v) the destination country or region of the exportation, (vi) the end user and end use of the Controlled Items, and (vii) the relevant credit records of the exporter.

According to Article 15 of the PRC Export Control Law exporters shall, for example, submit documentation proving the end user and end use of the Controlled Items to the relevant State Export Control Authorities. According to Article 16 of the PRC Export Control Law, the end user shall undertake not to change the end use of the Controlled Items or transfer them to any third party without the approval of the State Export Control Authorities. Where exporters or importers find out that the end user or end use may have been changed, they shall immediately report the case to the State Export Control Authorities.

Also, even when certain goods, technologies or services to be exported do not fall into the Control Lists or are not subject to any Temporary Control, if an exporter knows or ought to know or is notified by the relevant State Export Control Authorities that such goods, technologies or services may (i) endanger the PRC's national security, (ii) be used to design, develop, produce or use any weapon of mass destruction or its delivery vehicle, or (iii) be used for terrorist purposes, it shall still apply for a license from the relevant State Export Control Authorities.

Further, according to Article 10 of the PRC Export Control Law, in order to protect national security and interests or fulfill nonproliferation or other international obligations, subject to the approval of the State Council or the joint approval of both the State Council and the Central Military Commission, the State Export Control Authorities may, together with relevant departments, prohibit the export of any relevant Controlled Items or prohibit the export of any relevant Controlled Item to any specified destination country or region or to any specified organization or individual.

4. Establishment of A List of Entities under Export Control

Similar to the Provisions on List of Unreliable Entities which was issued by the PRC Ministry of Commerce on 19 September 2020, Article 18 of the PRC Export Control Law requires the establishment of a list of entities under export control. According to Article 18 of the PRC Export Control Law, importers and end users which (i) breach the regulatory requirements regarding end users or end uses under the PRC Export Control Law, or (ii) pose a potential endangerment to national security and interests of the PRC, or (iii) use any Controlled Item for any terrorist purpose, may be put on such list ("List of Entities Under Export Control").

The importers and end users on the List of Entities Under Export Control will be prohibited or restricted to trade inf the relevant Controlled Items, can be ordered to suspend their export of the relevant Controlled Items or will be subject to other measures as considered necessary by the State Export Control Authorities. Meanwhile, exporters are not allowed to trade with importers and end users which are on the List of Entities Under Export Control, unless under special circumstances the exporters have applied and obtained an exemption approval for trading from the State Export Control Authorities. However, the prohibition on the export of any relevant Controlled Items or the prohibition on the export of any relevant Controlled Items to any specified destination country or region or to any specified organization or individual is quite strict, can only be approved by the State Council or jointly approved by the State Council and the Central Military Commission.

An importer or the end user on the List of Entities Under Export Control may apply for its removal from such list with the relevant State Export Control Authorities after it has taken remedial measures and the circumstances leading to them being included on the list no longer exist. Alternatively, the relevant State Export Control Authorities may decide to remove an importer or end user from such list at their own discretion.

5. Legal Consequences of Violations

Articles 33 to 44 of the PRC Export Control Law provide stipulations on the legal liabilities for violation of the PRC Export Control Law.

Article 33 of PRC Export Control Law stipulates that any exporter that is engaged in the export of relevant Controlled Items without obtaining the corresponding export business qualification shall be given a warning, be ordered to cease the illegal activity, be subject to confiscation of  its illegal gains, and shall be fined between five and ten times of the illegal proceeds, if the illegal proceeds exceed RMB 500,000, or be fined between RMB 500,000 and RMB 5 million, if there are no illegal proceeds or the illegal proceeds are below RMB 500,000. If any exporter exports any Controlled Item without a license, beyond the licensed scope of the export license or prohibited to be exported, such exporter shall be ordered to cease the illegal activity, be subject to confiscation  of its illegal gains, and shall be fined between five and ten times of the illegal proceeds if the illegal proceeds exceed RMB 500,000, or be fined between RMB 500,000 and RMB 5 million if there are no illegal proceeds or the illegal proceeds are below RMB 500,000. In serious cases, the exporter can be ordered to suspend business for rectification up to the revocation of its export business qualification for the relevant Controlled Item.

Further, according to Article 37 of the PRC Export Control Law, any exporter that trades with an exporter or end user on the List of Entities Under Export Control shall be given a warning, be ordered to cease the illegal activity, be subject to confiscation of its illegal gains, and shall be fined between ten and twenty times of the illegal proceeds if the illegal proceeds exceed RMB 500,000, or be fined between RMB 500,000 and RMB 5 million if there are no illegal proceeds or the illegal proceeds are below RMB 500,000. Inn serious cases, the exporter shall be ordered to suspend business for rectification up to the revocation of its export business qualification for the relevant Controlled Item.

The State Export Control Authorities may reject an export license application made by an exporter who has been subject to any penalty under the PRC Export Control Law for a period of five years from the effective date of the penalty decision. Any directly liable officer or any other directly liable individual of the exporter's entity may be banned from engaging in relevant export business activities for a period of five years. Further, those who have been subject to any criminal penalty for any export control violation shall be banned from engaging in relevant export business activities for life. The State Export Control Authorities shall also include the violations of any exporter in its social credit records.

Further, any violation of any regulatory requirement on export control under the PRC Export Control Law which endangers national security and interests shall be handled and subjected to penalties as well as any relevant laws or administrative regulations. Any export of a Controlled Item prohibited from export or without a license in violation of the PRC Export Control Law can also be investigated for criminal liability under the PRC Criminal Law.  

6. Conclusion

The PRC Export Control Law is the PRC’s first unified law on export control. However, some of its provisions are still quite vague. Therefore, we regard it as an urgent task of the PRC legislative authorities and the competent administrative authorities to issue implementing regulations to provide more legal certainty and practical guidance on the export of Controlled Items.

Enterprises in the PRC that engage in trade / export business of Controlled Items on the Control Lists and/or other sensitive goods, technologies and services that could, on a case-by-case basis, be potentially subject to a Temporary Control are well advised to pay attention to the new law and to timely consult their advisors in order to prepare themselves for being compliant with the new PRC export control administration. Where such enterprises cannot internally decide whether a certain item shall be subject to  export control under the PRC Export Control Law, they should  make inquiries to the relevant State Export Control Authorities so that they may obtain official opinions or confirmations to stay on the safe side.

Enterprises in the PRC shall make a more throughout check on the concerned items of and the relevant parties to their ongoing contracts and the contracts that they are going to conclude. They should carefully check whether any of the contract items falls into the Control Lists or may have a risk of being subject to Temporary Control or any contracting party is on the List of Entities under Export Control. Finally, it remains to be seen what effect the extraterritorial application of the PRC Export Control Law will have on foreign companies doing business in the PRC. To avoid risks on their business activities in the PRC, they are also well advised to comply with the law.