Export control in China - New guidelines for dual-use items published

updated on 30 June 2021 | reading time approx. 3 minutes

by Peter Stark and Christina Gigler

On 28 April 2021 the Ministry of Commerce (hereinafter “MOFCOM”) released the “Guiding Opinions of Ministry of Commerce on Establishing the Internal Compliance Mechanism for Export Control by Exporters of Dual-use Items” (Announcement [2021] No.10) (hereinafter the “Guidelines”) improving and updating the previous Announcement [2007] No.69. The Guidelines, which came into effect on the same day, can be seen as implementing regulations of the Export Control Law, which came into force on 1 December 2020.
  

Basic Elements of the Guidelines

The Guidelines mention nine basic elements that any internal compliance mechanism for export control shall have, namely

 
1. Drafting a Policy Statement,
2. Establishing an Organizational Structure,
3. Comprehensive Risk Assessment,
4. Establishing a Review Process,
5. Formulation of Emergency Measures,
6. Education and Training,
7. Improving Compliance Audit,
8. Retention of Data Files and
9. Compiling Management Manual.
  
While most of the above elements were mentioned in the previous Announcement [2007] No.69, the following three are newly added:
   

a) COMPREHENSIVE RISK ASSESSMENT

In light of their organizational scale, industries and modes of operation, exporters shall conduct a comprehensive assessment of the export control risks that they may face, identify the business links that are prone to non-compliance risks and match the compliance resources and contents of examination based on the risk level. The contents of the assessment shall mainly include: information on the items under operation, customers, technology and R&D, export countries/regions, internal operations, third party partners, and risk prevention measures. The exporters may, depending on the results of risk assessment, establish and update their internal compliance mechanism and relevant organizational management system for export control that are suitable for their own characteristics, and analyse risk prevention measures that can be taken. In case of any question during the risk assessment, the State's administrative department of export control or external specialized agencies shall be consulted in a timely manner.

 
b) FORMULATION OF EMERGENCY MEASURES

Exporters shall encourage their employees to improve their risk awareness, set up internal reporting channels and investigation procedures for suspicious matters, and require their employees to, upon discovery of any suspicious order, customer or activity, promptly report to the internal compliance mechanism for export control so that the latter may carry out an investigation and make a final decision. Where the exporters find that they fail to apply for an export license for exported items, or that the end user or end use is changed or the end user or end use is inconsistent with the contract, they shall take emergency remedial measures and report to the governmental departments in a timely manner.
 

c) IMPROVING COMPLIANCE AUDIT

Exporters shall regularly audit the reasonableness, feasibility and effectiveness of their internal compliance mechanism. The audit report shall reflect the operation status of the internal compliance mechanism and the remedial measures The compliance audit may be carried out by a person specially assigned within the enterprise or by an external third-party agency, and shall mainly include whether the examination procedures have been followed in the transaction of various dual-use items, whether the operation of the
organizational structure is smooth, whether the investigation into suspicious matters is effective, and whether there are areas for improvement.

 
New Internal Compliance Guide for the Export Control of Dual-use Items

Furthermore, MOFCOM for the first time released an Internal Compliance Guide for the Export Control of Dual-use Items as Appendix to the guidelines to provide the exporters with specific reference (hereinafter “Appendix”). The Appendix explains each basic element in detail, whereas the structure within each basic element is mostly divided into (1) “Main content” and (2) “Implementation points”. The Appendix is also comprised of templates, archive and audit checklists and further useful tools. 
  

New Import License List and Export Control List for Dual-use Items and Technologies Released

The adjusted Catalogue of Dual-use Items and Technologies Subject to the Administration of Import and Export Licenses (hereinafter “Catalogue”) has been released by MOFCOM and the General Administration of Customs on 31 December 2020 and came into force on 1 January 2021, repealing the previous catalogue from 2019. The Catalogue has 135 pages and is divided into one section for import licenses and one section for export licenses. The export control list mentions inter alia dual-use biological products and related equipment and technologies, missiles and related items and technologies, precursor chemicals and special items and technologies for civil use (such as cutter suction dredgers or bucket dredgers).
Services are not mentioned in the Catalogue. 
   

Outlook

Although the abovementioned guidelines and catalogues are no legally binding law, they are in practice a relevant guidance and reference in assisting companies establishing or enhancing their export compliance program in China.
   
We suggest a thorough assessment of the operational circumstances in China, such as a company’s product range and customer basis, and an in-depth understanding of the released guidelines and catalogues as well as the up-to-date legal obligations under China’s export control regime in order to prevent fines or, in serious cases, suspension of business.