Assessing the impact of China's new export control laws

MIC Products | | MIC Customs Solutions |

New export control laws coming into force in China this month will greatly increase complexity for anyone whose supply chain includes the country.

Traders exporting goods from China will have new rules and regulations to contend with from this month, as the country has now enacted its new export control law (ECL).

Approved by the Chinese government in October and taking effect from December 1st, the ECL places new restrictions on certain goods that the country deems to be related to its national security.

The rules have been described by some commentators as an answer to the US' Entity List and will strengthen Beijing's control over the movement of goods, technologies and services. So what does this mean for trading partners and what will they need to do to remain in compliance?

What do the new rules involve?

The ECL sets out a list of products that will be subject to enhanced controls, and gives Chinese authorities more powers to monitor and enforce export rules in these categories.

Controlled items covered by the ECL include military and nuclear products, technologies and services related to national security. It also includes 'dual-use' items that may have both civilian and military applications.

However, in addition to the specifically-defined products, it also adds new controls to other unlisted items that may be deemed a threat to national security or national interests. In order to export such items, operators will need to apply to the State Export Control Administrative Departments (SECADs) for a license.

Some concerns have been raised that as there are no clear guidelines given as to what items may fall under this designation, this gives Chinese authorities significant power to interpret the ECL as narrowly or broadly as they see fit.

Law firm DLA Piper, for instance, noted the 'national interests' phrasing "provides an explicit basis for export control measures designed to advance foreign policy or industrial policy goals unrelated to conventional defense and security risks".

With no clear list of what products will be affected by the new ECL, even after it has come into effect, it remains to be seen exactly what approach the Chinese government will take to enforcement.

Indeed, UK-based consultancy firm Mondaq noted: "At present, the ECL is very vague and lacks the precision required for implementability beyond the basic framework outlined."

What will the impact be for trade?

This will place new requirements on exporters to determine independently whether their goods or services might fall into this category. Given there will be significant penalties if they do not apply for licenses for any items that are deemed by SECAD to affect China's national interests, they will need strict processes in place to avoid falling foul of the new regulations.

However, it is not only exporters that will be affected by the ECL. The rules also affect end users, who will be required to commit not to change the intended end-use of an item or transfer it to any third party without authorization from SECAD.

As a result, any company involved in international trade that has supply capability located in China will need to establish ECL compliance mechanisms and procedures to ensure it is meeting the new rules.

This will involve paying close attention to the applicable Controlled Items List, as well as the Controlled List of Importers and End Users, and ensuring they can adjust quickly when these documents are updated. They will also need to regularly review current customers and end users to avoid direct or indirect sales to any party included in these lists.

All of these will add significant complexity to international trade involving China. However, there are solutions available that can help streamline these processes and ensure businesses remain in compliance with the new rules.

MIC's Export Control Management software allows for centralized management of these tasks, enabling automation of key checks and assessments of any licensing requirements. 

With the complexity of ECLs in China only likely to increase as the rules take effect and real-world cases emerge, such solutions could be invaluable for anyone doing business in the world's second-largest economy.