Updates to Draft Export Control Law

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Export

On 28 December 2019, the Standing Committee of the National People’s Congress (NPC) released a new draft of the Export Control Law (ECL), an update from the 2017 version circulated by MOFCOM.

The 2019 draft was open for public comment until 26 January 2020. If enacted, the ECL will be China’s first comprehensive and consolidated export control legislation, aimed at upgrading the country’s existing regime, which consists of multiple regulations. The 2019 draft features many key changes from the 2017 draft.

Retaliatory measures. One of the most controversial points arising from the 2017 draft was the power for the Chinese authorities to implement retaliatory measures against discriminatory measures taken by other countries against China. This provision has been removed from the 2019 draft. At this stage, there is no clear indication as to whether the “unreliable entity list” announced by MOFCOM in May last year, if implemented, would be integrated into the export control legislation or would be enacted independently.

Re-export. The definition of “re-export” (i.e., the export of items containing above a de minimis amount of PRC controlled content from one foreign country to another foreign country) has been removed from the 2019 draft, but reference to “re-export” is still included in respect of transshipment and transit activities.

Catch-all. The catch-all provision previously provided for controls in relation to unlisted items that may endanger national security, present risk of circulation, or be used for terrorism purposes. This provision is now clarified to cover items that may be used in the design, development, production or use of weapons of mass destruction and their means of delivery, or used for nuclear, biological, or chemical terrorism purposes.

Determination by authorities. An exporter may make an inquiry to determine whether an item is subject to control under the ECL. The 2019 draft clarified that the scope of the determination includes technologies and services, and it now requires the authorities to respond to such inquiry in a timely manner. Unfortunately, the draft does not further clarify what constitutes “a timely manner”, and whether the determination is binding on authorities (similar to customs rulings under customs law generally).

End-use/end user statement (EUS). The submission of an EUS as a supporting document for an export permit application is now mandatory (previously only where required).

Approval and notification when changing end-user or end-use. Under the 2017 draft, where there is a change of end-user or end-use for an item, the importer is required to obtain approval from the authorities. In practice, this may not be feasible as the importer may not necessarily have knowledge of such change upon delivery of the item to the end-user. Under the revised draft, the end-user is required to obtain such approval.

Additionally, where the exporter or importer finds out that the end-user or end-use for the item may change, the exporter or importer is required to immediately report such change to the authorities. Previously, this requirement only applied to the exporter.

Permit application timeline. Under the previous draft, the application timeline for dual-use items is limited to 45 working days, subject to possible extension due to special circumstances. The 2019 draft clarified that such an extension is for a period of an additional 15 working days.

Increased penalties. Under the 2019 draft, the prescribed penalties for a number of offences have increased significantly, and new categories of offences are introduced. More interestingly, the provision relating to penalty mitigation in the case of voluntary disclosure has been removed. It remains to be seen whether provisions relating to penalty mitigation and power to compound offences and issue administrative penalties would be introduced in the implementing regulations and guidelines.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at danian.zhang@bakermckenzie.com.