Draft PRC Export Control Law Louise ZHANG Senior Legal Counsel 2 février 2018, SIEPS / FIEEC 17, r de l’Amiral Hamelin, Paris Diffusion limitée FRAMATOME

Introduction MOFCOM (The Ministry of Commerce of the PRC) released for public comments a draft of the Export Control Law on 16/06/2017. A first reading by the National People’s Congress is expected in 2018 No information on the effectiveness date.

Purpose Since early 1990s, China has promulgated numerous regulations and measures in the field of export control. Why China needs to promulgate a national law now? To have a law of national law level ; To have the image of a powerful and responsible big country and in the meanwhile to get closer to the international export control regimes ; To establish a unified export control system to protect China’s national security.

Scope of applicability 1/3 According to the nature of items : Dual-use items (both in the field of civil use and military use) ; Military items Nuclear items Other items involving national security Under all these above mentioned 4 categories, it involves goods, technology and services

Scope of applicability 2/3 B. According to the behaviours Crossing board (i.e. transfer) : From the PRC territory (excluding Hong Kong, Taiwan and Macao) to outside the PRC ; “Deemed export” (i.e. providing) : From Chinese citizen, legal person and other organizations to foreign citizen, foreign legal person and other foreign organizations (i.e. even within the PRC, when providing such items/technologies/services to foreign citizen/legal person/other organization are considered as « export » (cf. Art.3), no matter such providing behaviour is in or outside of China.

Scope of applicability 3/3 C. Re-export : 2 kinds To transfer of a Chinese controlled item from a country outside of China to a 3rd country; Items produced outside of China if “the value of the Chinese-controlled goods reached a certain percentage of foreign products” and this foreign product is exported to a 3rd country. No percentage is given under the draft law. D. Catch-all provision (Art. 23) Activities subject to export control need not involve items on the Controlling List, an export license is required, as long as an exporter knows or should have known that such export: may endanger the national security or may give rise to terrorist concern.

The Competent Authorities Dual-Use export is under the charge of : MOFCOM & their local counterparts; The GAC (General Administration of Customs) Military export is under the charge of : SBMPT (the State Bureau of Military Products Trade); SACMPT (the State Administrative Committee on Military Products Trade)

Controlling List/Catalogue There are two Controlling Lists and two supplementary measures. The two to -be - promulgated Controlling Lists/Catalogues concern : Dual-use items Military items The two supplementary measures are : Temporary control measure (cf. Art.14), subject to competent authorities’ approval and not longer than 2 years period; Forbidden export measure (cf. Art. 15).

Blacklist and Embargo A blacklist of foreign importers and end-users which breach export control law will be kept by the Competent Authorities (cf. Art. 29). The export of controlled items to such black listed person is forbidden (cf. Art. 15). Any discriminatory export control measure by any country may lead to retaliatory measures adopted by China against such country (cf. Art. 9). China may also adopt any necessary controls over the export of any goods/technologies/services to safeguard its security and interests during wartime/urgent circumstances (cf. Art. 12)

National Security Assessment A prior national security assessment is required for providing “export control related” information abroad (cf. Art. 10).   No detail procedure. Not clear if there is a link with the national security assessment required under the PRC Cyber Security Law or not.

Administration of export control 1/2 The export control regime is implemented via the 2 following fields : The control over the exporter /operator, which will be authorized by the State through : Monopoly or Record filling The control over the delivery of export license : the license can be: An individual one or A general one.

Administration of export control 2/2 The elements to be taken into consideration when granting such a license are (cf.Art. 22) : 1. National security and development interests; 2. International obligations and commitments to foreign parties; 3. Sensitivity of items; 4. Supply in the market; 5. End users and ultimate uses; 6. Relevant internal compliance mechanisms of exporters; and 7. Other situations stipulated by laws and regulations.

End Use Requirements 1/2 The Competent Authorities may request the exporters : Prior to the signature of export contract, to carry out examination on the end use and the end user (cf. Art. 27); To report immediately to Competent Authorities, as soon as the exporter discovers the change of the end use or the end-user (cf. Art. 27); To submit end-use certificates issued by the importers in the countries of import (cf. Art. 25).

End Use Requirements 2/2 Unless approved by the Competent Authority, the importer shall undertake : Not to alter the end use of the imported items; Not to transfer the imported items to any third parties other than the end-users.   The Competent Authorities are empowered to conduct on-site verifications on the end-users and end uses (cf. Art. 28). How will they inspect oversea end-users?

Competent Authorities’ Enforcement Power They are empowered by the export control law to (cf. Art. 46): Enter the business premises of the parties under investigation; Conduct interviews with concerned parties; Have access to the documents and make copy of them; Check the transport means used for the export; Subject to written approval of the chief of Competent Authorities, seize items and Investigate and freeze the concerned parties bank account.

Penalties The main penalties are as follows : Export without export license Warning from Competent Authorities and penalty < 10 times the illegal gain confiscation of any illegal gains derived from such activity person in charge and other person directly held liable may also be given a warning and fined from 100 000 to 300 000 RMB; Fraudulent acquisition or trading of an export license In addition to the above-mentioned penalties, The Competent Authorities may withdraw the export license. Criminal Liability : where the violation of the law constitues a crime

Encouraging companies to be compliant with the export control regime The Draft Law encourages the companies to establish: their internal compliance mechanism (cf. Art. 36) and join relevant chambers of commerce/associations/ other industry self-discipline organizations which shall provide services concerning export control (cf. Art. 63) The Draft Law has also set up : an expert consulting system (cf. Art. 7): an administrative guidance system (cf.Art.19), a country risk assessment system (cf. Art.17) , a consulting service provided by the Competent Authorities (cf.Art.24)

Conclusion It will be the first national export control law. Its implementation rules and new Controlling List/Guideline are needed to harmonize current numerous regulations and measures. Taking into account of: Its extensive scope of applicability ; Its new measures; The broad empower given to the Competent Authorities for the enforcement of this law. We need to be vigilant to the evolution of this Draft Law so as to better measure its impact on our business.