Authors: Lan Li and Jiayue Zhang
China is looking to strengthen its export control mechanisms by introducing a new Export Control Law. The draft Export Control Law (“Draft Law”) was issued in 2017 for public comments. In recent months, the “State Council’s 2019 Legislative Work Plan” has clearly included the “Export Control Law” in its 2019 legislative plan, which might be read as China’s desire to codify the new law within 2019.
- Highlights of the Draft Law
Export: Defined as the “transfer of controlled items from China 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 newly expanded definition of “export” appears to regulate activities such as non-citizens who work in China viewing controlled equipment or technical data.
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 area, such as a Foreign Trade Zone, will also be subject to China export controls.
Embargo: This allows the Chinese regulatory authorities to impose a complete ban on the export of certain controlled items, or prohibit the exports of certain controlled items to specified destinations, individuals or entities.
Blacklist: The Chinese authorities may place foreign importers and end users violating Chinese 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 transactions with such foreign importers and end users.
Retaliatory Measures: Authorizes corresponding retaliatory measures against countries or regions that implement discriminatory control measures on the Chinese authorities.
Enforcement and Penalties
The Draft Law grants the Authorities significant investigative powers which includes entering the business premises of parties under investigation for violation of the Export Control Law, conducting interviews with the relevant parties, accessing and copying relevant documents, inspecting shipments, seizing assets, and even freezing bank accounts of the exporters found to be in violation.
The Draft Law provides the following key penalties :
- Export without a Permit – The operator may receive a warning from Authorities, as well as an administrative penalty of no more than 10 times the illegal business revenues and confiscation of any illegal gains derived from such activity. In addition to the penalties on the company, the responsible persons may be fined up to RMB 300,000 ( about USD 45,000).
- Fraudulent Acquisition or Trading of a Permit – In addition to the above penalties, Authorities may withdraw the license of any party that obtains it by fraud, bribery or other illegal means, or falsifies, alters, leases, lends, or trades a license for the export of controlled items.
- For exporters and individuals who violate the Draft Law, their information may be added to the national credit database and made public. Export control agencies may deny applications for export licenses filed by these companies or individuals for three years after the penalty decisions.
The Draft Law will strengthen the government’s authority to regulate the export of military, nuclear, biological, chemical and dual-use items. It also includes new restrictions on the transfer of cross-border technical data relating to controlled items. Once the Draft Law passes, the new law will bring China’s system closer to other export control mechanisms, such as the US. For example, the Draft Law introduces tough new penalties against violators. It also allows Beijing to retaliate against any discriminatory export controls targeted at China.
- What exporting companies should know
The Draft Law provides comprehensive provisions on the subject, conduct, control methods, law enforcement supervision, and legal responsibility of export control with the aim to establish a complete Export control system in China.
Specifically, exporting companies or the multinationals are suggested to do the following :
First, continue to track the legislative development, and be aware of how the Law might affect the business in terms of production, sale, and operation actions. At the same time, be ready to establish a competent and long-term export compliance program. Also, pay attention to the guidance and operational guidelines issued by the Authorities to ensure that the company’s compliance management meets the requirements of the export control system.
Second, in the relevant export business activities, ensure the retention of records, working documents, and relevant document information, including memoranda, contracts, books, correspondence, financial data, books, etc., in case they are needed in the future to prove that the company has fulfilled the good management and review obligations of the items they export.
Third, establish a sound internal corporate compliance mechanism and implement it effectively to make it easier to obtain licenses. Employees should be trained in export control compliance policies to ensure that personnel are familiar with relevant compliance policies.