On October 19, 2024, the State Council of China issued the Regulation of the People’s Republic of China on the Export Control of Dual-use Items (the “Regulation”), which will take effect on December 1, 2024. The promulgation of the Regulation completes and supplements China’s existing export control and anti-foreign sanctions regime, which comprises of the Export Control Law, the Anti-Foreign Sanctions Law, the Provisions on the Unreliable Entity List, and the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures.
For enterprises involved in cross-border transactions, the Regulation introduces clearer standards and guidelines for conducting transactions involving China-related dual-use items (i.e., goods, technologies and services that could be used for both civilian and military purposes). We highlight the following key points for your consideration:
- Jurisdiction over Specific Overseas Manufactured Items: Article 49 of the Regulation authorizes the commerce department of the State Council to regulate the export/re-export of China-originated items, specific foreign-made items containing, integrating or combining with China-originated items, and specific overseas manufactured items using China-originated items. This provision establishes extraterritorial jurisdiction, similar to the U.S. “De Minimis Rule” and “Foreign Direct Product Rule”. However, the Regulation does not yet specify details on the application of Article 49, such as whether a minimum content threshold must be met. It is clear, however, that any overseas transactions involving China-originated dual-use items may be subject to such legal restrictions.
- List of Controlled Items: The Regulation stipulates that the commerce department of the State Council will take the lead in formulating a unified export control list for dual-use items. Relevant departments are actively working on this comprehensive list, which is anticipated to be released before December 1, 2024.
- Refinement of the Existing Rules: The Regulation provides for a comprehensive update to the current rules relating to temporary control, export licenses, restricted namelist, etc., as stipulated in the Export Control Law. Meanwhile, based on international best practice, the Regulation introduces a “watch list”, which is similar to a “gray list” (i.e., a list with a certain degree of warnings and restrictions but without a clear ban on the items). Additionally, the Regulation sets up the rules relating to the “obtaining of export certificates by registering and filling in information” for outbound maintenance and exhibition-related exports.
- Reporting Obligations: The Regulation sets out reporting obligations for many types of subjects. For example, export operators and importers are required to report end-user and end-use related risks; and third parties providing services are required to report any suspected violations of dual-use items export control.
- Legal Liability: The Regulation imposes more severe penalties for violations and expands the scope of liability to include those who facilitate or assist in violations, as well as experts and professional organizations that provide advice or other professional opinions.
The promulgation and implementation of the Regulation represent a major improvement in China’s export control and anti-sanctions system. Companies should promptly review and improve the relevant business processes and policies to align with the new requirements of the Regulation. Given that certain areas of the Regulation are still open to further interpretation or clarification, companies should also stay informed of the latest law-making and implementation trends to be well-prepared to adjust relevant response plans in a timely manner.
