China: What To Watch: Draft Export Control Law Of China

Last Updated: 19 January 2018
Article by Jon Cowley, Anne H.Y. Peng, Frank Pan and Di Wu

The Ministry of Commerce ("MOFCOM") of the People's Republic of China ("China") published the draft Export Control Law ("ECL") for public comments via a circular on 16 June 2017. If enacted, the ECL will be the first set of comprehensive and unified export control legislation in China, which is aimed at upgrading the country's existing regime consisting of various administrative regulations and rules. The ECL is still in the draft form and no further update has been announced since its publication last year, but it is widely expected to be introduced in the National People's Congress within 2018.

1. Controlled Items, Blacklists and Embargoes

The draft ECL sets forth four categories of controlled items ("Control Lists"), including dual-use items which may be used for civilian and military purposes, military items, nuclear items, as well as other goods, technologies, services and items that are related to national security. Items outside the Control Lists could also be temporarily controlled for up to two years, subject to the approval of the State Council, the Central Military Commission and their designated authorities ("Competent Authorities"). In addition, activities subject to ECL control need not involve items on the Control Lists as long as the exporter knows or should know that the export may give rise to national security and terrorism concerns.

The Competent Authorities may also maintain blacklists of foreign importers and end-users that breach the ECL, and may prohibit the export of controlled items to such persons

Furthermore, the draft ECL provides that if China is subject to any discriminatory export control measures by any country, the State may adopt retaliatory measures against such country. The State may also put in place any necessary controls over the export of any goods, technologies and services in order to safeguard security and interests during wartime or urgent situations concerning international relations.

If the draft ECL is passed in its current form, companies must be prepared to regularly monitor dynamic updates to the scope of controlled items, countries and persons in order to ensure full compliance with the law.

2. Controlled Activities and Licensing

The draft ECL introduces the concepts of deemed export and re-export in China, which will bring China's system many steps closer to the export control regimes in western countries. Deemed exports include the provision of controlled items by a citizen, legal person or other organization in China to any foreign person; the item need not be physically exported from China. Re-export controls cover the export of controlled items (i.e. items comprising a prescribed amount of content controlled by China) from one overseas jurisdiction to another.

It remains unclear whether or precisely how China will implement provisions controlling deemed export and re-export transactions. Given their potentially extra-territorial reach, there may be practical challenges in enforcing such requirements. Furthermore, if ultimately adopted, the deemed export provisions may significantly impact multinational corporations with a presence in China or with access to Chinese controlled items and technology outside of China. In view of the breadth of the draft legislation, even the sharing of information related to controlled items between colleagues (one of whom is employed by a Chinese subsidiary) may be included within the scope of the ECL's control regardless of whether there is actual cross-border transfer.

The ECL requires licences (categorized into General Licences and Individual Licences) to be obtained from the Competent Authorities for carrying out controlled activities. Additionally, exporters may also be subject to recordkeeping and monopoly qualification requirements.

3. End-Use Requirements

The Competent Authorities may request the exporters to submit end-use certificates or documents issued by the importers or the relevant agencies in the countries of import. The exporters are also under a positive obligation to review the end-users and uses of the exported items, and to immediately report to the Competent Authorities of any change in end-users or uses. Further , the importers shall undertake not to alter the ultimate uses of the imported items, or transfer the imported items to any third parties other than the end-users, without the approval of the Competent Authorities. In this regard, the Competent Authorities are empowered under the ECL to conduct on-site verifications on the end-users and end uses.

4. Enforcement and Penalties

The draft ECL grants Competent Authorities broad investigative powers. They may, for example, enter the business premises of parties under investigation, conduct interviews with relevant parties, access and copy relevant documents, examine the conveyance used for export, seize items and even freeze bank account of the export operators.

The draft ECL prescribes the following key penalties:

  • Export without a Permit – The operator may receive a warning from the Competent Authorities, as well as administrative penalty of not more than 10 times the illegal business revenues and confiscation of any illegal gains derived from such activity. Persons directly in charge and other persons directly held liable (not expressly defined, but may include employees or agents of the exporter) may also be given a warning and fined up to CNY 300,000.
  • Fraudulent Acquisition or Trading of a Permit – In addition to the above penalties, the Competent Authorities may withdraw the licence of any party that obtains it by fraud, bribery or other illegal means, or falsifies, alters, leases, lends, or trades a licence for the export of controlled items.

5. Implications

The ECL is still in the draft form and it remains to be seen how the legislative provisions will be enforced, whether any exemptions will be introduced, and if there will be any meaningful updates to the draft before it is introduced to the National People's Congress. Given the potentially wide-sweeping impact, multinationals that may be affected are well advised to start early to understand the implications of the new law on their compliance obligations, supply chains, and business operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions