Yesterday, the State Council issued its legislative proposal for 2018. Amongst the proposed bills for submission to the Standing Committee of the National People’s Congress, this year are the Export Control Law and the Encryption Law, both released previously in draft form. There is no guarantee that either or both of these bills will be passed into law this year but this is certainly tangible progress.
Summary of the Draft Export Control Law
On 16 June 2017, China published its draft Export Control Law requesting a public consultation. This draft is China’s first comprehensive export control law. If the final law remains unchanged, it will significantly change China’s export control regime for dual-use, military, and nuclear items.
The draft law both broadens the scope of current controls and strengthens enforcement for more serious violations and non-compliance. Significantly, the draft law also introduces new controls such as sanctions, embargoes, controls on dual-use goods, military, and nuclear-related goods, as well as technology and services.
In addition, and of particular note, is the inclusion of re-export controls on items of Chinese-origin or foreign-made items with Chinese components that exceed de minimis thresholds.
Enforcement and Liabilities
Violations of the Export Control Law could result in:
- An administrative penalty of up to 10 times the illegal business revenue or a fine of up to RMB 500,000 (USD 73,660) could be imposed if the illegal business revenue is less than RMB 50,000 (USD 7,366); and
- Any illegal income could be subject to confiscation.
In addition, the draft law includes a provision for personal liability for those directly responsible for any violations that could include fines of up to RMB 300,000 (USD 44,196). Finally, businesses also risk suspension or revocation of export privileges and licenses, being negatively marked in China’s Enterprise Credit Management System (changes to which we detailed last week) and other non-financial penalties. More serious cases may even bear the risk of criminal charges. Finally, the draft text also incorporates measures to encourage compliance including internal compliance mechanisms, self-policing, and a voluntary self-disclosure provision.
Commentary
This is a significant over-haul of China’s existing export control regime. The new Export Control Law, if it remains identical or similar to the draft circulated for comment, potentially collides with the comprehensive US export controls particularly with regard to re-export provisions. I will be closely monitoring these developments and keeping you. Up-to-date.