China has passed a new law restricting exports of strategic materials and advanced technology. The law, passed by the National People’s Congress Standing Committee, applies to all companies in China, including foreign-invested ones, and will take effect on December 1, 2020.
While the final version of the legislation has not yet been made public, anticipated highlights of the new law, based upon the latest draft released on July 3, 2020, include:
• Scope of controlled items: Goods subject to export control cover both tangible goods, such as dual-use items, military products, and nuclear products, as well as technologies, services, and relevant data related to national security.
While an official list of controlled items has not yet been published, relevant government departments have been tasked with publishing the list of controlled goods, which will be based on eight criteria: national security and interests, international obligations and external commitments, the type of export, the sensitivity of controlled items, the countries or regions the items are bound for, the end users and end uses, relevant credit records of exporting companies, and “other factors stipulated by laws and administrative regulations.”
One of the biggest uncertainties is whether Beijing will allow the export of rare-earth metals. As China’s market share of rare-earths exceeds 60%, such a ban would have broad implications worldwide.
• End-user and end-use certifications: Chinese exporters must provide documentation, issued by the end-user or the destination’s government, establishing the intended end use and end-user for the controlled items. End-users will not be permitted to change the end-use or transfer the item to any third-party without prior authorization from China’s State Export Control Authorities. The State Export Control Authorities will develop a risk management system for monitoring end-users and end-uses of all controlled items.
• Social Credit Record and Compliance Review System: Companies and individuals will be examined and graded according to their level of compliance and social credit record, which grades their contribution to Chinese society. The rating will determine whether an export license will be issued and the level and intensity of government oversight and scrutiny. Exporters are encouraged to establish an internal compliance review system for export control compliance, which will support their license applications. It is expected that export control authorities will also consider the social credit records of the license applicant/importer.
• Blacklist management system: Individuals, organizations, countries, or regions who violate the management requirements of end-users and end uses, endanger national security and interests, or use controlled items for terrorist-related activities will be added to an Entity List. Exporters are prohibited from entering into transactions with any importer or end-user designated on the Entity List.
• Extraterritorial jurisdiction and enforcement: Individuals or organizations outside the territory of the People’s Republic of China that violate the provisions of the export control law, endanger national security or interests, or hinder the performance of non-proliferation or other international obligations shall be subject to investigation and legal liability.
Companies and individuals, including those outside of China, who violate the export control law could face criminal charges and fines of up to $746,500 USD, up to 20 times the business value of the transaction, and revocation of export licenses.
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Sources
- Nikkei Asia, China passes export control law with potential for rare-earths ban
- The Boston Herald, China passes new law restricting sensitive exports
- Reuters, China passes export-control law following U.S. moves
- Crowell Moring, Recent Changes in Chinese Export Controls: Are Your China Operations Ready?
