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What You Need to Know about the PRC Export Control Law Draft

Corporate, M&A and Restructuring

On July 3, 2020, the National People’s Congress (NPC) of China issued the second draft of theExport Control Law (the Draft ECL ver. 2) for public comment [1] , which had been deliberated in the 20th meeting of the 13th NPC Standing Committee. Compared to the version released by the NPC in December 2019 (the Draft ECL ver. 1) [2] , the new draft almost retains the structure and key features of the previous one. But the new draft, which should be closer to the law’s final shape, also makes certain substantive changes and clarification. This alert will briefly introduce the key changes in the Draft ECL ver. 2, which reflect the main consideration in the legislative procedure.

1、Emphasizing the national security and interests in the legislative purpose

There is a noticeable change in the legislative purpose clause: the purpose of “safeguarding national security and interests” has been escalated to be the foremost legislative purpose of the ECL, ranking ahead of the purpose of fulfilling international obligations. It suggests that national security and interests will be a major consideration in the export control regime; this may also be reflected in the implementing regulations and policies that follow the law.

2、Extraterritorial application

A new article 44 extends the jurisdiction of the ECL to the organizations and individuals located outside the territory of China, which violate the ECL, impede the fulfillment of non-proliferation or international responsibilities, and threaten the national security and interests of China will be held liable. It echoes the overall scheme to build a legal system with extraterritorial application proposed by the State Council and Central Committee of the Communist Party of China (CPC) starting from 2019.

Concurrently, the definition of “export business operators” (EBO) has been removed in theDraft ECL ver. 2. The previous definition of EBO was “a citizen, legal representative, or organization that engages in exporting controlled items in accordance with the laws and administrative regulations.” The removal is consistent with the inclusion of extraterritorial application in that the word of a citizen may be unsuitable when the jurisdiction of the ECL is extended to foreign individuals or organizations.

3、New restriction on providing export control related information abroad

Another new article relating to foreign individuals and organizations is about providing “export control related information” abroad. Article 32 provides that such information shall be provided abroad in accordance with the laws and regulations, and such provision is not allowed when it may endanger the national security. However, the article does not make it clear whether the information related to export control regime of foreign jurisdictions is covered. It remains to be clarified in the final version of the ECL and implementing regulations.

4、Refining rules on controlled items

A consolidated control list can be expected under the new draft. In the Draft ECL ver. 1, there would be at least three control lists for the controlled items issued by three different competent authorities, i.e. dual-use item list, military item list, and nuclear item list. According to Article 9 of the Draft ECL ver. 2, a consolidated list will be issued by the export control authority. It will be timesaving for companies to conduct a preliminary check of their items based on the single list.

The Draft ECL ver. 2 further clarifies the procedure concerning the temporary control mechanism, which had a two-year duration under the previous draft. It is provided that upon the expiration, the export control authority shall review the temporary control order and decide to cancel or extend the temporary control, or even add the items temporarily controlled into the control list. It means that the two-year temporary control period is extendable based on the assessment by the export control authorities. The factors of assessment remain to be further provided in the implementing regulations, but it is believed that the national security and interests will be a high priority to consider. The Draft ECL ver. 2 also requires any temporary control orders shall be announced, which will add more transparency to the temporary control mechanism and help companies to navigate the risk assessment.

Apart from the items in the control list and in the temporary control mechanism, the ECL has a catch-all provision for the coverage of “controlled items.” The Draft ECL ver. 2 modifies the language of the catch-all provision so that it includes “other items which the exporters know, should now or are notified by the authorities that the exporting of such items will: (i) endanger the national security; (ii) be used to design, develop, produce, use, transport weapons of mass destruction; or (iii) be used for the purposes of terrorism.” The last category – “purposes of terrorism” – could be quite expansive and is not limited to the nuclear, biological or chemical intents as provided in the Draft ECL ver. 1, which may bring great uncertainty to companies. So the new draft also brings forward the provision of consultation process, which was a separate article in the Draft ECL ver. 1, to make it a following paragraph of the same article. It signals that the consultation process will be an important channel to build dialogue with the authority to seek for certainty.

5、Changes in control policies and measures

While retaining the basic control measures, the new draft makes changes to several aspects, for example:

  • It is stipulated in Article 11 of the Draft ECL ver. 2 that the exporters shall get the corresponding qualification if it is required by laws or regulations. However, it is only supplemented by a qualification requirement on the exporting of military items in the following articles. It remained to be clarified whether the qualification is also needed for other controlled items, such as dual-use items.

  • As to the decision period for a dual-use license, the 45-day timeframe is removed from the Draft ECL ver. 2. The reviewing time limits will be left to the implementing regulations, which could bring more flexibility for the licensing mechanism in future practice.

  • In the Draft ECL ver. 2, it is newly added that the export control authority has the power to substantively assess and verify the end-use and end-user of the controlled items, as opposed to the power of mere evaluation based on the documents submitted by the export business operators.

  • The Draft ECL ver. 2 further clarifies the restriction on those individuals or organizations in the blacklist. According to Article 18, the export control authority can prohibit or restrict the transactions relating to the controlled items, suspend the export of the controlled items. In addition, the export business operators are not allowed to deal with those in the blacklist in violation of the laws and regulations. It could become the legal ground for future implementing regulations to decide whether to prohibit other kinds of transactions irrelated to the controlled items, which may result in the same effect as the SDN list in the US sanctions regime.

6、Adding a provision on intermediary services

The Draft ECL ver. 1 only had a provision in Chapter V Legal Liability stipulating the administrative penalty for those who knowingly provide intermediary services for exporters engaged in illegal activities. In the Draft ECL ver. 2, a prohibitive provision is added to emphasize the obligations of the intermediary services providers, i.e. any organization or individual may not provide agency, freight transport, delivery, customs declarations, third-party e-commerce trading platforms, or financial services for exporters engaged in export control violations.

7、Delineating the power of enforcement authority

The Draft ECL ver. 2 clarifies the responsibility of Customs. When the consignor has not submitted any exporting licenses or documents proving the applicable facilitation measures, and the Customs has the proof that the items exported may fall under the scope of controlled items, the Customs can challenge the consignor, but cannot make an immediate decision. It is the power of the export control authority to determine whether the items are controlled. The Customs may apply to the export control authority for a determination procedure. During this period, the Customs could suspend the clearance of the suspected items.

It should call into the attention of those consignors and other parties that, in order to minimize the negative effect on the exporting transactions, they better keep all the relevant documents well and submit timely when necessary to address the concerns of the Customs. They could even approach the Customs to request the determination procedure proactively to avoid unnecessary delay.

8、Voluntary but critical export compliance program

One of the most eye-catching changes is that the exporting compliance program, which was mandatory in the Draft ECL ver. 1, becomes voluntary in the new draft. At the same time, the requirement of no-violation record is no longer a factor in receiving exporting facilitation measures. The remaining factors are the establishment and effective operation of an exporting compliance program. The Draft ECL ver. 2 also gives an example of exporting facilitation measures – i.e. a general license. Therefore, it becomes obvious that effective compliance will be not an essential but an incentive, which can be critical for those who engage in daily exporting activities and may need a general license.

Highlights for MNCs and looking forward

It is strongly advised to pay close attention to the legislative progress and place a compliance program at an early stage, for all stakeholders on the supply chain and especially for those multinational corporations (MNCs). Considering the new article of extraterritorial application, it is important to set up and implement a well-designed compliance program, which should be tailored to the ECL and at the same time coordinate different jurisdictions. In addition, the new restriction on providing the export-control information abroad will set higher demands on the export compliance program of the MNCs when coming across the cross-border data transferring.

The period for public comments on the Draft ECL ver. 2 will last till August 16, 2020. Then there will be one more round of deliberation, which may be probably scheduled in September. Our expectation is that the ECL will be enacted in 2020 and take into effect in 2021. 


[1] http://www.npc.gov.cn/flcaw/userIndex.html?lid=ff80808172b5f24f017313a7ed142bf4.

[2] http://www.npc.gov.cn/flcaw/.


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