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China’s New Export Control Regulation: Key Information for UK Firms

It seems that the world of international trade is currently defined by Brexit, Brexit, and more Brexit. However, focusing on one area of trade regulations alone can be to UK businesses’ peril.

International trade is a global playing field, so it is important to stay aware of key updates such as the Chinese government’s draft of their new ‘Export Control Law’ (ECL) and the law’s implications.

The US-China relationship

One of the major political dramas to feature in the White House over the past four years has been the tension between the United States and China. From trying to ban TikTok, to sanctions and denial of export privileg

es, the Americans’ relationship with China has been frosty to say the least.

Some experts suggest the ECL from China is an attempt at retaliation, the law is said to streamline and harmonise procedures but crucially it can also enforce new requirements.

To increase licences or not

Previously China had intended to extend the extraterritorial jurisdiction of its law to cover foreign-made products with Chinese content. This ‘re-export control provision’ would require overseas businesses – including the UK – to attain Chinese export licences, even if their products are not expected to enter, transit through, or exit China. Essentially this would mean obtaining a licence from China anytime goods containing Chinese parts crossed borders, Chinese or otherwise.

Luckily, the rules for the re-export of items incorporating controlled content exceeding the de minimis level that appeared in the 2017 draft were removed from the 2019 draft ECL.

For now, UK-produced items with Chinese parts or technologies will not be subject to the ECL. Instead, more focused export controls may apply.

A question of status

Central to these controls is the status of ‘Export Business Operators’ (EBO).

According to the draft of the bill, all “citizens, legal persons or other organizations exporting controlled items according to laws and administrative regulations” are EBOs.

An export would be defined as a transfer of controlled items from the territory of China – including Macau, Taiwan and Hong Kong. The parties can be either Chinese nationals or foreigners.

EBOs fall under this law and are subject to administrative and criminal fines for export violations.

The potential for penalties

Penalties for violations have increased when compared with the 2017 draft. So not paying close attention to regulations could see businesses face unwanted costs. Further fines for transactions with blacklisted entities are also included in the law. In a serious case, the business operation will be suspended, and the relevant exporting certificate could even be revoked.

China’s Minister of Commerce will maintain a blacklist of exporters or end-users who are likely to endanger national security or who use the controlled items for terrorism. What constitutes ‘national security’ is up for interpretation and could very quickly lead to listings.

Entities on the blacklist are restricted from being involved in any transactions related to the controlled items. This is problematic for US businesses that could get caught up in a ‘listing war’.

The implications

This law will affect UK firms who export dual-use items to China, and especially those with ties to the USA no matter how relevant or not they may be.

UK firms will need to have effective export control processes in place to adapt to any sudden change in Chinese legislation.

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