On July 3, 2020, the Standing Committee of the National People's Congress of China published the second draft of the Export Control Law ("Second Draft") for public comments. Compared with the first draft of the Export Control Law published in December 2019 ("First Draft"), there are many changes in the Second Draft, such as the responsibilities and the extent of authority of regulatory departments, control lists and control measures, supervision and administration as well as legal responsibilities.
I. Responsibilities and authorities of the regulatory departments
Several government departments are involved in export control, including the State Council and the Central Military Commission, the internal departments of the State Council and the Central Military Commission, regional governments and their related departments, and customs. In the Second Draft, the main responsibilities and authorities of each department are shown in the table below:
Government department | Responsibilities and authorities: |
State Council, Central Military Commission | (1) Approving major export control policies (Art.8); (2) Approving temporary controls (Art.9); (3) Approving the prohibition of the export of related controlled items, and prohibition of the export of related controlled items to specific destination countries and regions, to specific organizations and individuals (Art.10); (4) Approving establishment of major military product export projects, major military product export projects, and major military product export contracts (Art.24) |
Internal departments of the State Council and the Central Military Commission that will undertake export control functions (referred to as "National Export Control Administration" in the Export Control Law) | (1) Responsible for export control work according to the division of responsibilities (Art.5); (2) Making export control policies in collaboration with relevant departments (Art. 8); (3) Upon the approval of the State Council, or joint approval of the State Council and the Central Military Commission, in collaboration with relevant departments, prohibiting the export of related controlled items or the export of related controlled items to specific destination countries and regions, to specific organizations and individuals (Art. 10); (4) Establishing an expert consulting mechanism for export control in collaboration with relevant departments (Art.5); (5) Publishing export control guidelines for relevant industries in due course (Art.5); (6) Making export control policies (Art.8); (7) Evaluating the export destination countries and regions, determining the risk level, and adopting corresponding control measures (Art. 8); (8) In collaboration with relevant departments, formulating and adjusting the export control lists of controlled items (Art.9); (9) Implementing temporary control (Art.9); (10) Prohibiting the export of related controlled items, or prohibiting the export of related controlled items to specific destination countries and regions, to specific organizations and individuals (Art.10); (11) Granting licenses to export operators or respond to inquiries (Art. 12, 13); (12) Granting general licenses and other convenience measures (Art.14); (13) Managing and supervising the end use and end user of the controlled items (Art.15-18); (14) Supervising and inspecting export activities and taking investigative measures (Art.28) (15) Conducting supervision talks and issuing warning letters (Art.30); (16) Including illegal activities into credit records (Art.39); (17)Imposing penalties for violations (Art.40). |
Other departments of the State Council and the Central Military Commission | (1) Responsible for related works of export control according to the division of responsibilities (Art.5); (2) Assisting the National Export Control Administration to perform its duties (Art.29) |
Regional governments (provincial level) and their related departments | (1) Responsible for related works of export control in accordance with laws and administrative regulations (Art.5); (2) Assisting the National Export Control Administration to perform its duties (Art.29). |
Customs | (1) Challenging consignor of exported goods, and taking measures in accordance with the identification conclusion made by the National Export Control Administration. During the period of identification or challenge, the customs will not release the exported goods (Art.19); (2) Restricted power of investigation and penalty: the customs have the power of investigation of penalty when expressly granted by the laws or administrative regulations (Art.40). |
Compared with the First Draft, the responsibilities and authorities of the regulatory departments in the Second have changed as follows:
1.In the First Draft, the formulation and adjustment of the export control list for dual-use items and military products must be approved by the State Council and the Central Military Commission. In the Second Draft, the formulation and adjustment of export control list of all controlled items was uniformly granted to the National Export Control Administration.
2.In the First Draft, the provincial regional government can carry out specific works related to export control in accordance with laws and administrative regulations. In the Second Draft, it was revised to be responsible for work related to export control in accordance with laws and administrative regulations. It can be seen from the amendment that, on the one hand, the authority of the administrative departments concerning export control is only granted to provincial government departments, and lower-level governments have no power to exercise jurisdiction. On the other hand, it seems that the legislators intend to expand the authority of regional governments, and the responsibilities of relevant departments of provincial governments may not be limited to the "specific works".
3.Regarding the authority of the customs, there are many changes in the Second Draft. Under the circumstances that the customs has evidence that the exported goods may be within the scope of export control, the processes and measures to be taken by the customs have changed. The First Draft stipulates that the customs should request identification to the National Export Control Administration or challenge the consignor of exported goods; according to the Second Draft, the customs shall challenge the consignor of the exported goods, and may request identification to the National Export Control Administration. In the Second Draft, the request of identification and challenge are no longer alternative. The customs must challenge and can decide whether to request the identification. Further, there are also changes in the treatment measure that the customs can implement. The First Draft stipulates that the customs can take measures according to the identification conclusion made by the National Export Control Administration or the challenge conclusion made by themselves; in the Second Draft, it stipulates that the customs can take measures only according to the identification conclusion made by the National Export Control Administration, and the customs has no authority to take measures based on their own challenge conclusion. In the First Draft, it is stipulated that both the National Export Control Administration and the customs have the right to impose penalties on violators of export control. The Second Draft clarified that the National Export Control Administration should primarily be responsible for imposing penalty and the penalty of customs will be of supplementary character. That is, export control violations will be investigated and penalized by the National Export Control Administration; where laws and administrative regulations grant the customs the power of investigation and penalty, it shall be investigated and penalized by the customs.
Ⅱ. Control Lists and Control Measures
Export control involves two aspects: controlled items and related subjects. The controlled items are based on the export control list, as well as the items subject to temporary control and certain risks. The related subjects include export operators, foreign importers, end users, and third-party service providers. The details of control lists and control measures in the Second Draft are as follows:
Controlled items | Related subjects | ||
Export operators | Foreign importers and end users | Third-party service providers | |
The export licensing system is implemented for the export of controlled items. The scope of controlled items includes: (1) Export control list of controlled items; (2) Temporary control; (3) Items that may have risks of national security, weapons of mass destruction and terrorism. | (1) Operators of some controlled items need to obtain business qualifications; (2)Required to apply for permission; (3) Establishing an internal compliance review system; (4)submitting certificate documents of ultimate user and end use (5) The export operator is required to report change of the end user or end use. | (1) The end users shall promise not to transfer or change the use; (2) The importers are requred to report the change of end users or end uses; (3) The State establishes a control list of foreign importers and end users. | They must not provide services for export operators who engage in export control violations |
Compared with the First Draft, the Second Draft has the following changes regarding control lists and control measures:
1.The temporary control should be announced. Article 9 of the Second Draft stipulates that, with the approval of the State Council or with the joint approval of the State Council and the Central Military Commission, the National Export Control Administration may impose temporary control on goods, technologies and services which are not on the export control list and make an announcement. The announcement is newly added in the Second Draft.
2.The Second Draft further clarified the treatment measures after the expiration of the temporary control. The implementation period of the temporary control shall not exceed two years. It shall be evaluated before the expiry, then the temporary control shall be cancelled, extended or included in the export control list based on the evaluation result.
3.Regarding the qualification management of export operators, the First Draft refers to qualification of franchise or being recorded, and the Second Draft revised this to obtain business qualifications.
4.The Second Draft no longer requires mandatory internal compliance review system established by the export operators. The First Draft requires that export operators must establish an internal compliance review system for export control, and the Second Draft no longer makes mandatory requirements for this. However, the establishment of a compliance review system by export operators is still a prerequisite for obtaining general license and other convenience measures.
5.The Second Draft strengthens the management of end users and end uses. In the First Draft, the method the National Export Control Administration manages the end user and end use is to evaluate the end user and end use certification documents submitted by the export operator. In the Second Draft, the export administration department will investigate and verify the end users and end uses of the controlled items. Comparing the two drafts, it can be seen that the management method of the management department is not limited to verifying the certification documents provided by the export operators, it may also include the management department's proactive investigation and verification, even on-site investigation.
6.The Second Draft clarified the restricted scope of the control list of end user/importer. For importers and end users included in the control list, the First Draft stipulates that the administrative department can prohibit or restrict transactions, but it is not clear which transactions are prohibited or restricted. In the Second Draft, it is clearly stipulated that the prohibited and restricted transactions are related to the transactions of controlled items.
7.The compliance requirement of third parties that provide services is higher. The First Draft stipulates that third parties who provide services such as agency, freight, delivery, customs clearance, third-party e-commerce trading platforms and financial services will only be punished if they are aware of export control violations. In the Second Draft, it is first clarified that no organizations or individuals shall provide such services to export operators who engage in export control violations, and it is not required to know whether they are fully aware. However, in terms of legal liability, punishment will still be imposed under the circumstance of full awareness.
Ⅲ. Supervision and management
In the Second Draft, the main changes in supervision and management are as follows:
1.The protection of personal information is strengthened. The First Draft stipulates that relevant state organs and their staff shall be obliged to keep confidential the state secrets, business secrets and personal privacy acquired during the investigation. On the basis of the above, the Second Draft added the obligation of confidentiality of personal information.
2.The power of law enforcement agencies is expanded. The First Draft stipulates that if the National Export Control Administration learns or discovers that there may be a risk of export control violations in relevant activities or behaviors during supervision and management, it can take measures such as issuing warning letters and conducting supervisory talks to relevant citizens, legal persons and other organizations. In the Second Draft, the content of "discovering that relevant activities or behaviors may have export control violation risks" is deleted. As long as it aims to "strengthen the export management of controlled items and prevent the risks of illegal export of controlled items", the National Export Control Administration can take measures such as supervisory talks and issuing warning letters. In this case, the authority of law enforcement agencies has obviously been expanded.
3.For reporting suspected violations of law to law enforcement agencies, the First Draft stipulates that if the report should be reported in real names and with relevant facts and evidence, the National Export Control Administration shall inform the reporter of the results of the treatment. The Second Draft deleted this part.
4.Article 32 of the Second Draft adds a paragraph, which stipulates that provision of export control-related information by organizations and individuals within China to foreign shall be made according to the law; if it may endanger national security, it shall not be provided. The legislative purpose of this article is still not very clear, but, from the content of this clause, this clause is ambiguous and may cause confusion to relevant people. First of all, there may be problems on the rationality and feasibility that the provision of export control-related information abroad is restricted. Second, companies or relevant people have no ability to judge under what circumstances they will encounter a risk of national security. Third, the application of endangering national security may be extended, thereby making export operators or practitioners such as lawyers to remain silent on this issue.
Ⅳ. Legal responsibility
Regarding legal responsibilities, it shall be noted that responsibilities of foreign entities have been added to the Second Draft. Article 44 of the Second Draft stipulates that organizations and individuals outside the People’s Republic of China that violate the relevant export control regulations of this law, obstruct the performance of international obligations such as non-proliferation, and endanger the national security and interests of the People’s Republic of China, liability shall be pursued in accordance with the law. legal liability. Therefore, in addition to establishing control lists, prohibiting or restricting transactions, foreign entities may also have to bear legal liabilities.
Ⅴ. Suggestions on corporate compliance
For export operators, in addition to paying attention to export control lists, they shall also pay special attention to temporary control and items that may have risks of national security, weapons of mass destruction and terrorism. If the above-mentioned controlled items are involved, permission shall be applied for. If it is unclear whether the above-mentioned items are involved, the management department shall be consulted in time. For overseas importers and end users, they should also keep an eye on the relevant information of China's export control, provide and comply with their promises of “no unauthorized transfer" and “no change in uses”. For third parties who do not directly engage in export-controlled items, they should make an investigation in the process of providing services, otherwise they may also face legal risks.