China's Export Control Law brings trade compliance challenges
Enacting this first-ever dedicated Export Control Law in 2020 demonstrates the latest efforts of China to enhance its export control regime. The new law effectively establishes a unified export control system that aims to safeguard China’s national security and interests while upholding other international obligations. What does the new law include and what are the consequences of violations? What are the recommendations for global trade compliance programs? Get the answers here.
What exactly does the Export Control Law (ECL) of China control?
Controlled activities under the ECL
- Exporting controlled items from China by Chinese-domestic companies as well as foreign-invested companies that are incorporated in China
- Provision of controlled items by Chinese citizens, legal persons, or non-legal organizations to any foreign organization or individual
- Re-exporting controlled items, which includes trans-shipments, and through-shipments, as well as exporting controlled items from bonded areas, export processing zones, and other customs-regulated bonded areas such as export warehouses and bonded logistics centers.
Controlled items under the ECL
Dual-use goods (items that can be used for both commercial and military purposes), military, and nuclear items.
Other items (with impact on China’s national security and interest, and on the performance of international obligations).
Goods, technology, services, and data that involve or otherwise relate to any of the controlled items.
Red flags in China's Export Control Law!
- The law could affect information exchanges between Chinese employees and employees of foreign nationalities within the same organization. It may also cover transfers of controlled tangible and intangible items outside the territory of China from a Chinese citizen or entity to a foreign organization or individual.
- License applications may also be required for the export of goods, technologies, and services that are neither controlled nor temporarily controlled items. This can be the case when those items may pose the risk to potentially endanger China’s national security and interests; potentially be used in the design, development, production, or use of weapons of mass destruction and their delivery vehicles; or potentially be used for terrorist purposes.
- As part of license applications, exporters are required to submit documents certifying end-users and end-use. This must be accompanied by relevant certifying documents issued by the end-users or the national or regional government agency where end-users are located. Possible changes to reported end-users or end-use must be reported to the licensing authority in China.
May include staff conversations!
Can involve extraterritoriality!
Control beyond controlled items!
End use certificates required!
The new China Export Control Law: Recommendations
China's new Export Control Law encourages exporters to establish an internal compliance program (ICP) for export control compliance. With such an ICP in place, the governing authority and official regulators in China may grant licensing facilitation measures. This can include general export licenses for relevant controlled items.
Seasoned trade compliance specialists and companies versed in export controls may recognize such recommendations from other governing bodies’ guidelines. For example, the EU Guidance on Internal Compliance Programme (ICP) for dual-use trade controls or the US Framework for OFAC Compliance Commitments.
Software forms an integral part of such trade compliance programs and AEB’s Export Controls delivers powerful protection for your business. China’s new ECL is a new example for the increasing complexity of global export control landscapes. Don’t take any risks.
Timely reminder to automate your export controls
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China’s Export Control Law: Non-compliance consequences
Violating the new Export Control Law of China will result in penalties. And suspected violations of the ECL will result in investigative measures. Both penalties and investigations can only be imposed by authorized parties of the governing authorities, i.e. regulators of the new export control system in China. While non-compliance penalties and investigations will be imposed on exporters based in China (domestic and foreign), the law also stipulates extraterritorial application with impact on foreign organizations or individuals outside of China.
One or more of the following may be imposed:
Investigative measures
- Entering the business site or any other relevant site of the investigated person for inspection
- Interviewing the investigated person, interested parties, or other relevant organizations or individuals, and requesting them to provide explanations relating to the investigated matters
- Examining and duplicating the relevant documents, agreements, accounting books, business correspondence, and other documents and information of the investigated person, interested parties, or other relevant organizations or individuals
- Checking the delivery vehicles used for export, preventing the loading of suspicious export items, and ordering the withdrawal of illegally exported items
- Confiscating and seizing the relevant items involved in the investigation
- Examining the bank accounts of investigated persons
ECL violation penalties
- Warnings
- Orders to stop illegal activities
- Confiscations of illegal gains
- Monetary fines
- Business suspensions
- Revocation of export business qualifications (AEO)
- Revocation of export licenses
- Investigations for criminal responsibility for exporting controlled items or doing so without a license
Olga Pramberger
AEB's product expert
“Can your commercial items also be used for military purposes? Who is involved in your trade transactions from order to end-use? How will today’s sanctions update affect your deliveries across the globe tomorrow? Trade compliance covers a broad range of goods, services, data, and activities. Our Export Controls solution delivers peace of mind without slowing down your business.”