New Chinese Dual-Use Export Control Regs Cover Licensing, Enforcement, Foreign Firms
China released new dual-use export control regulations Oct. 19, including details about its export licensing system, how Beijing will verify end-users of export-controlled items, how the rules may apply outside the country, and a method for adding restricted foreign importers, end-users and others who violate Chinese export controls to a new “control list.”
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The regulations, effective Dec. 1, are designed to “safeguard national security and interests, fulfill international obligations such as non-proliferation, and strengthen and standardize export controls on dual-use items,” the country’s Ministry of Commerce said, according to an unofficial translation.
Language in the regulations suggests foreign companies may be subject to the controls if they deal in certain goods and technologies made in China or with Chinese-origin technology. Beijing said it may require those foreign “operators to refer to the relevant provisions of these regulations” if they are dealing in:
- dual-use items manufactured abroad that contain, integrate or are mixed with certain dual-use items originating in China
- dual-use items manufactured abroad using certain technologies or other dual-use items originating in China
- other “specific dual-use items originating in” China.
The regulations list several criteria that China may use to decide whether to restrict an export or adopt new controls, including whether a transaction could impact China’s “national security and interests” or prevent it from complying with U.N. Security Council resolutions, non-proliferation efforts and other “international obligations.” China also can decide to impose export controls based on “other factors that need to be considered,” but it didn’t explicitly list those factors.
A section on export licensing outlines how exporters should apply for dual-use export permits. Those applications must include “copies of contracts or agreements” involving the export, a technical description or “test report” of the items, information about the end-user and end-use of the items, and “other materials required by the commercial administration department of the State Council.” Some exporters may qualify for a “general license” if they have a “good” export control compliance system, keep sales records and have “relatively fixed export channels and end users.”
China said it plans to issue decisions on export licenses within 45 days after receiving an application. Exporters and other parties to a transaction may not be eligible for a license if they have previously faced criminal penalties for export violations, if they have faced administrative penalties within the last five years “and the circumstances are serious,” or if they are listed on China’s new “control list.”
This list will include foreign importers or end-users that have violated the regulations’ end-user or end-use rules, that “endanger national security and interests,” or that are using dual-use items for terrorism. People and companies on the list may be blocked from China-related transactions involving dual-use items or face “other necessary measures,” the regulations said.
The regulations also call on the government to “establish and improve a cooperative law enforcement system” to oversee China’s dual-use exports and “strengthen supervision throughout the entire process.” If China finds that a company or person may be at risk of violating its controls, it may “take measures such as supervisory talks” or issuing a “warning letter.”
The regulations also outline various levels of fines for different export control violations. Exporters may have their “illegal gains” confiscated and could face a fine of up to 3 million yuan (about $420,000) or a fine of “not less than 5 times but not more than 10 times the illegal turnover,” depending on the seriousness of the violations. Freight forwarders, customs brokers, financial services companies or other third-party firms may also face fines for an illegal export.
Beijing also said Chinese companies that receive requests from foreign governments for on-site export control inspections must “immediately report” this to the country’s State Council and “may not accept or promise to accept” a visit without Chinese government approval. Violators may be fined up to 500,000 yuan (about $70,000), according to the regulations. “If the circumstances are serious,” China may impose a fine of up to $420,000, or it may order the company to suspend business.