China's New Export Control Law

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The Standing Committee of the 13th National People’s Congress promulgated the Export Control Law of the People’s Republic of China (ECL or the Law) on October 17, 2020.1 The Law will enter into effect on December 1, 2020. 

The Law formalizes China’s export control regime which also includes the recently updated Catalogue of Technologies Prohibited or Restricted from Export that restricts or bans the export of certain cutting-edge technologies on the grounds of national security, public interest or environmental protection, such as AI technologies.2 China has also issued the Provisions on the Unreliable Entities List (the Entities List Provisions) targeting parties that harm the national sovereignty or national security of China, and/or suspend transactions with or discriminate against Chinese entities.3 Both the ECL and the Entities List Provisions, with their extraterritorial reach, provide China with more explicit and powerful tools to retaliate against restrictions by other countries, especially the United States, targeting such prominent Chinese technology companies as Huawei, ByteDance (TikTok), Tencent (WeChat) and Semiconductor Manufacturing International Corporation (SMIC).

Article 1 of the Law makes the performance of international non-proliferation obligations part of its purpose, consistent with China’s commitments under the Nuclear Non-Proliferation Treaty, Chemical Weapons Convention and Biological Weapons Convention to which China is a member. China is currently a member of only one plurilateral export control regime, namely, the Nuclear Suppliers Group. China has not joined any of the other international export control regimes, including the Australia Group, the Zangger Committee, the Missile Technology Control Regime, or the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Technologies. It is unclear whether China is prepared to comply with other international control regimes, but the ECL indicates a greater willingness to do so.  

WilmerHale has previously provided an analysis on the Draft ECL published on December 28, 2019.4 Below please find a summary of the main changes in the Law from the Draft ECL.

  • The Law provides that controlled items (goods, technology and services characterized as (i) dual-use; (ii) military; (iii) nuclear; or (iv) otherwise related to the performance of international obligations and protection of national security and interests) also include such data as technological materials on these items (Article 2). Organizations and individuals in China (including foreign-invested enterprises) may not provide export-controlled information overseas that may harm China’s national security or interests (Articles 1 and 32). This echoes the enhanced effort of the Chinese government to scrutinize cross-border data flows reflected in the Cybersecurity Law and the Draft Data Security Law.5 The reference to national interests, in addition to national security, provides broad flexibility to determine the grounds for the imposition of export controls.
  • In determining whether to approve a license to export controlled items, the export control authority shall take into consideration national security and national interests, the sensitivity of the controlled items, the target country or region and the end user/end use (Article 13).
  • China will establish an export control blacklist system for foreign importers or end users which violate the end user/end use requirements, endanger China’s national security or national interests, or use controlled items for purposes of terrorism. The State will prohibit or restrict transactions with blacklisted entities. Exporters may apply for approval to transact with foreign importers or end users on the export control blacklist under special circumstances. Foreign Importers and end users on the blacklist may apply to be removed from such list if they have adopted measures to no longer violate the end user/end use requirements, endanger China’s national security or national interests, or use controlled items for purposes of terrorism (Article 18). The Entities List Provisions provide similar procedures for Chinese parties applying to transact with entities on the Entities List, and for entities to be removed from the Entities List. We note that China’s conception of terrorism under the Counter-Terrorism Law (2015),6 at least with respect to domestic threats, is not consistent with the perspective of the United States and some other countries.7  
  • The Law provides that no organization or individual may provide such services as agency, freight, delivery, customs declarations, third-party e-commerce trading platforms, or financial services for exporters engaging in illegal export control activities (Article 20).
  • Organizations and individuals outside China will be held accountable for breaking export control regulations, harming Chinese national security or interests, or obstructing the implementation of non-proliferation obligations (Article 44). This gives the Law extraterritorial reach to penalize overseas companies, especially with respect to the re-export of Chinese-origin controlled items or foreign-made items that contain Chinese-origin controlled items to a country or region outside China. A comparable measure can be found in the export control regime of the United States.8  
  • China may adopt retaliatory measures against countries or regions that endanger Chinese national security or interests by abusing its own export control measures (Article 48). This provides China with a more formal legal foundation to respond with tit-for-tat export control measures to export control restrictions by the United States or other countries.

The ECL represents another ratcheting up of efforts by China to respond to export controls by the United States targeting major Chinese technology companies. It also reflects recognition of the benefits of formalization of export controls which, although less flexible than the informal controls which China has applied from time to time in the exercise of “coercive diplomacy,”9 provide greater certainty both domestically and internationally. WilmerHale continues to monitor legal developments in this regard.

Footnotes - 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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