Our partner Nctm Legal Firm informs us that on October 17, 2020 the National People's Assembly approved the PRC Export Control Law which will come into force on December 1, 2020.
The law reorganizes the matter, hitherto governed by provisions contained in various administrative laws and regulations, establishing a unified export control system. The text of the Law establishes the first regulatory framework for China to limit exports of military and / or dual-purpose products and technologies, for reasons of national security and public order.
The law defines the products subject to control as follows:
• products intended to have a dual application (both civil and military);
• military products and nuclear materials;
• other goods, technologies, services, etc. related to the maintenance of national security and interests and to the implementation of international obligations including non-proliferation;
• data such as technical documentation relating to these products.
In doing so, exports and transfers of these goods, technologies and services can:
• be prohibited or subject to licensing requirements based on product characteristics, end users, destinations or end uses;
• apply for licenses for export operations of products not included in the checklists, for operations that could potentially harm the national security or national interests of China;
• apply for authorizations to restrict exports from foreign companies that are believed to threaten national security;
• request an explicit authorization to react against foreign abuses in the field of export control rules.
The expression "security and national interests" contained in the law provides an interpretative basis in relation to foreign policy or industrial policy objectives, breaking away from the simple concept of national security.
The Act defines export controls as restrictions on the "transfer of products from the territory of the People's Republic of China abroad" and on the "supply by any registered or unregistered citizen or organization of the People's Republic of China of controlled products to any organization or foreign individual ".
The text of the law also applies to "the transit, re-export, transhipment and transport of controlled products, the export of products from areas subject to control, special customs control areas or supervised warehouses for export, supervised logistics centers or other premises subject to customs control to foreign countries ". Therefore, restrictions and licensing requirements can apply to a wide range of operations. The reference to "re-exports" may refer to subsequent transfers of controlled items to third countries (and potentially transfers within the same foreign country). Given the broad definition of controlled goods, the disclosure of controlled technologies to third parties that can be considered as export also fall within the reference to "technologies" and "data".
The state authorities responsible for these checks publish checklists, periodically updated, aimed at identifying the products subject to such export checks. The same authorities may provide for products subject to "temporary checks" where a verification period (not exceeding two years) is necessary to assess whether or not it is necessary to include them in the checklists.
Added to this is a general obligation on exporters to assess independently, or by comparison with state authorities, whether an export could cause problems to national security or national interests to an extent that requires a license, even if the product does not is listed in any checklist or temporary checklist. In addition to product checklists, the Act requires state authorities to establish checklists on importers and users of products in order to avoid violating the restrictions imposed, endangering national security and interests, and prevent the products from being used for terrorist purposes.
State authorities are empowered to prohibit, restrict or suspend trade in controlled products or "take other measures as necessary" against any exporter or user who appears on a given checklist. Exporters must seek authorization from designated entities in order to engage in otherwise prohibited trade.
The powers of investigation into suspected violations such as, for example, workplace inspections, interrogations of interested persons, examination and copying of documents and materials, seizures and storage of products, investigation of bank accounts, can be addressed not only to exporters but addressed to "any interested party and other related organizations or individuals". As a result, both Chinese and foreign branches and personnel may be involved in export control investigations.
Penalties for violating these regulations include fines of up to RMB 5 million or up to ten times the profits earned as a result of illegal activities, suspension of activity, revocation of commercial export licenses and restrictions on possible resumption of export activities by managers. Violations that integrate types of offense provide for criminal sanctions.
The provisions of the law will likely be subject to new implementation and adaptation measures within the existing regulations.
Assessment by Chinese exporters and their customers regarding compliance or potential exposure under this Act as well as the evolution of China's export control policies is appropriate.