USCBC Comments on the Export Control Law (Second Review Draft)

August 17, 2020

On behalf of the more than 220 members of the US-China Business Council (USCBC), we appreciate the opportunity to submit comments on the second review draft of the Export Control Law of the People’s Republic of China (hereby referred to as “the Draft”) to the National People’s Congress (NPC). We appreciate the NPC’s efforts in unifying China’s export control regime and streamlining relevant regulatory requirements.

USCBC received comments from companies across industries including consumer products, information and communication technology (ICT), chemical manufacturing, pharmaceuticals, automotive manufacturers, and service firms.

We note that the current Draft has taken a few positive steps to reflect previous concerns expressed by our members. We are particularly pleased to see continued improvement in language addressing internal compliance programs. The new Draft mentions that the State Export Control Administrative Departments will release detailed measures to guide companies in developing effective internal programs. We are also pleased to see that if companies establish effective programs, they may be eligible for general export licenses, and that having a perfect record on material violations is no longer a criterion by which companies will be evaluated.

However, beyond commendable progress in the areas mentioned above, USCBC and its member companies would like to encourage the NPC to take note of additional feedback on multiple issues that remain unaddressed to further improve the Draft. In particular, we would like to highlight the following suggestions:

Clarify the scope of export controls and national security: We understand that the Draft prioritizes safeguarding national security, but the term, as defined in other Chinese laws, has a very broad definition. We suggest further clarifying the scope of activities that constitute a “national security threat” for export control purposes. We also encourage China to use internationally accepted best practices and metrics when developing export control lists, such as the multilateral Wassenaar Arrangement.
Explain key terms and authorities: In many places, the Draft is overly general, referencing multiple terms and entities without clear definitions, including controlled items and services, transfer and provision of goods, the State Export Control Administrative Departments, export operators, and temporary controls. We recommend explicitly defining each of these terms.
Define activities considered “deemed exports”: It is unclear whether the Draft intends to address “deemed exports.” Language on the “provision of export control-related information” in Article 32 may cause significant challenges for multinational companies operating and conducting R&D activity in China, as well as limit the R&D activity of Chinese companies operating overseas. Therefore, we recommend clarifying whether “deemed exports” and export-controlled information are meant to be covered by the law. We also suggest that the Draft explain what information could threaten national security, and what would constitute “provision of export control-related information by an organization or individual within the territory of the People’s Republic of China (PRC) to those outside of the territory of the People’s Republic of China.”
Consider relaxing requirements for end-user statements and certificates: We recommend Chinese licensing authorities allow buyers to certify on their own account that they will comply with end-use and end-user commitments, and only require government-issued end-user certificates as supporting documents for specific transactions that are strategic in nature.
Include a voluntary self-disclosure (VSD) regime: We suggest that the final law include a VSD regime, under which exporters can voluntarily disclose violations of the export control law or take remedial actions, and penalties for these exporters can be waived or mitigated.
Grant a lengthy and orderly transition period: We recommend Chinese authorities phase in export restrictions and ensure that the law takes effect only after industry and other stakeholders have received adequate notice of all legal changes and requirements. Ideally, this would result in the phased implementation of control regimes for different technologies and items, so that controls on all items are not implemented simultaneously. We would also recommend a delay in enforcement by 9-12 months from the legislative enactment date or the last phase of implementation.
Consult export control and industry experts: We recommend that Chinese authorities engage industry experts through technical advisory committees to gather necessary information to develop and adjust export control lists.
Explain any extraterritorial application: Article 44 of the Draft suggests that the law will be applicable overseas, but it does not specify how this will be enforced, and it is unclear what kind of behaviors will be considered threatening to national security. We recommend clarifying the extraterritorial scope of the law, the required nexus to the PRC for violations, and what kind of behaviors will be considered threatening. We also suggest providing clear guidelines on legal liability for foreign organizations.
Include a knowledge standard: The Draft suggests export operators must apply for licenses for items that they know or are “supposed to know” would require an export license. We strongly recommend removing or revising this provision, given that it will be very difficult for exporters to know of items not included on controlled lists. If this clause remains, a stated “knowledge” standard should be included to define when an exporter should have known of the relevant risks. We further suggest that this provision apply only to circumstances where an exporter has been explicitly informed by authorities that an item is subject to additional license requirements.
Clarify accountability standards for service providers: Under this Draft, import and export agents, forwarders, logistics service providers, customs brokers, and ecommerce platforms will be held accountable for providing services to exporters that violate export controls. We recommend that any penalty imposed on a service provider be limited to services related to the actual illegal export of goods. We also suggest providing clear obligations for service providers, and specific standards to judge their actual knowledge of and involvement in facilitating export violations.