Export controls and economic sanctions policy in China

Cheng Shi
Allbright, Shanghai
shicheng@allbrightlaw.com

Liuya Yuan
AllBright, Shanghai
liuyayuan@allbrightlaw.com

The Chinese export control regulatory framework

Administration and Enforcement Agencies

In China, several government departments are involved in export control within their respective jurisdictions. These include the Ministry of Commerce, the Ministry of Industry and Information Technology, the General Administration of Customs, the State Administration of Science, Technology and Industry for National Defense, the China Atomic Energy Authority and the Equipment Development Department of the Central Military Commission. The Ministry of Commerce is primarily responsible for the export control of dual-use items, while the State Administration of Science, Technology and Industry for National Defense and the Equipment Development Department of the Central Military Commission handle the export control of military goods.

Key laws and regulations

China’s main laws concerning export control are the Export Control Law of the People’s Republic of China and the Foreign Trade Law of the People’s Republic of China. Other regulations, such as the Administrative Regulations of the People’s Republic of China on Import and Export of Technologies, also plays an important role.

The Export Control Law governs dual-use items, military products, nuclear and other goods, technologies, services and items that relate to the safeguarding of national security and interests. China has adopted a unified export control system, which is subject to administration through the formulation of a control list, directory or catalogue, and the implementation of export permissions or otherwise.

The Foreign Trade Law is the fundamental legislation governing foreign trade in China. It details the management system for foreign trade, including prohibitive control measures on the import and export of goods. According to the law, the state may restrict or prohibit the import or export of goods or technologies based on specific reasons, such as safeguarding national security, the public interest or public morals. The law authorises the foreign trade department of the State Council jointly with other relevant State Council departments to formulate, regulate and publish a list of restricted or prohibited goods and technologies.

The Administrative Regulations of the People’s Republic of China on Import and Export of Technologies were enacted by the State Council for the purposes of standardising the administration of technology imports and exports, safeguarding the order of technology imports and exports and promoting national economic and social development. The main content consists of three parts: regulations on managing technology imports, regulations on managing technology exports and the related legal liabilities.

Key lists

China has not yet created and published a unified control list encompassing all types of regulated items, similar to the Commerce Control List (CCL) under the United States Export Administration Regulations (EAR). Instead, it has developed and issued separate export control lists, according to the specific legislation for each category of items. For example, according to the Regulations of the People’s Republic of China on Arms Export, the Arms Export Control List has been issued; according to the Regulations of the People’s Republic of China on the Control of Nuclear Export, the Nuclear Export Control List has been issued. In addition to these lists, other catalogues include the Catalogue of Technologies Prohibited or Restricted from Export and the Catalogue of Dual-Use Items and Technologies Subject to the Administration of Export Licenses.

Key components of export control

Under the Export Control Law, controlled items include dual-use items, military products, nuclear and other goods, technologies and services, as well as items that relate to the safeguarding of national security and interests. Specifically, dual-use items are goods, technologies and services that can be used for both civil and military purposes or are conducive to enhancing military potential, especially those that can be used to design, develop, produce or use weapons of mass destruction and their means of delivery. Military products are equipment, special production equipment and other related goods, technologies and services used for military purposes. Nuclear refers to nuclear materials, nuclear equipment, non-nuclear materials used for reactors and relevant technologies and services.

China has also established licensing requirements for the export of controlled items. Exporters must apply for a licence and the authorities will review the application by taking national security and interests, international obligations and commitments made in regard to foreign countries, the sensitivity of controlled items, end users and end uses into account and so on. Exporters are required to submit documents certifying the end user and end use of controlled items to the authorities. Additionally, when the exporter or importer finds out that the end user or end uses are likely to change, it must report the situation to the authorities as required.

In addition to the export control list, China’s Export Control Law also stipulates rules on temporary control. The state authorities may impose temporary control over goods, technologies and services not included in the export control list, upon the approval of the State Council or the Central Military Commission, in light of national security and interests and other international obligations. The duration of temporary control must not exceed two years. Temporary controls allow the government to swiftly address emerging threats or changes in circumstances, while formulating more permanent policies or regulations.

China’s Export Control Law adopts the principle of reciprocity. Where any country or region harms the national security and interests of China by abusing the export control measures, China may take reciprocal measures against such country or region in light of the specific situation. Reciprocity ensures that all parties involved are treated fairly and equally and serves as a deterrent against potential abuse of China’s export control measures by other countries.

The Chinese economic sanction measures

China’s economic sanction measures fundamentally adhere to the principles outlined in the Anti-foreign Sanction Law of the People’s Republic of China. The law provides a legal framework in order to take countermeasures in response to discriminatory and restrictive measures against China. By following this law, China aims to protect its sovereignty, national security and economic stability.

Primarily, the Anti-Foreign Sanction Law specifies two main categories of sanctioned targets. The first category includes individuals and organisations directly or indirectly participating in the formulation, decision on or implementation of discriminatory restrictive measures against China. These targets will be managed by the respective lists. The second category includes related parties linked to the first category, such as their spouses and lineal relatives, senior executives or actual controllers and organisations, where they act as senior executives and organisations they control or where they have participated in the organisation’s establishment and operation.

In addition, the law outlines three types of countermeasures. First, China can refuse to issue a visa or deregister a visa or take measures in regard to a person’s deportation. Second, concerning domestic property, China can seize, distrain or freeze movable, immovable and other types of property belonging to targeted entities within China. Third, regarding transaction restrictions, China can prohibit or restrict domestic organisations and individuals from conducting transactions or their cooperation with targeted entities. Additionally, the law includes a provision on the ability to take other necessary measures, which ensures flexibility in regard to future countermeasures.

According to the Anti-Foreign Sanction Law, the Ministry of Commerce has enacted Provisions on the List of Unreliable Entities. These provisions act as a countermeasure against discriminatory practices and effectively serve as an economic sanction, primarily addressing the increasing protectionism in international trade and investment. However, the Ministry of Commerce has not (except as stated in the below paragraph) officially disclosed the names of the entities and individuals included in the Unreliable Entity List.

On 19 September 2020, the Ministry of Commerce following the Foreign Trade Law, the National Security Law and other relevant legislation, established the Provisions on the Unreliable Entity List. These provisions act as a countermeasure against discriminatory practices and effectively serve as an economic sanction. Subsequently, the Ministry of Commerce has made several announcements that it has listed several entities on the Unreliable Entity List, including Lockheed Martin Corporation and Raytheon Missiles & Defense, etc. The Unreliable Entity List plays a significant role in China’s economic sanctions regime as recently enacted regarding foreign entities and individuals.

Impact analysis with respect to China and US export control and economic sanctions policies

Conflicts of application in regard to US and China’s sanctions laws

According to Article 12 of the Anti-Foreign Sanction Law, no organisation or individual may implement or assist in implementing the discriminatory restrictive measures taken by any foreign state against Chinese citizens or organisations. Furthermore, under Article 12, where any organisation or individual infringes upon the legitimate rights and interests of any citizen or organisation of China in violation of the provisions in the preceding paragraph, the Chinese citizen or organisation may bring a lawsuit before the People’s court in accordance with the law, seeking cessation of the infringement and compensation for any losses.

In accordance with this regulation, if a Chinese subsidiary of a foreign entity refuses to engage in transactions with a particular Chinese entity listed under US economic sanction programs to comply with US sanction regulations, for example, the Chinese subsidiary of the foreign entity can terminate a supply contract and, if the breach of contract results in damage to the Chinese entity, the affected party is entitled to seek legal recourse. This includes the right to sue the foreign entity in court and demand compensation for any financial losses or other damages incurred due to the breach. The assets of the Chinese subsidiary within the jurisdiction of China are subject to enforcement by the People’s court. This measure aims to protect Chinese entities from the adverse effects of foreign sanctions and ensure their legal rights and interests are upheld within the jurisdiction of Chinese law.

Considering both legal provisions and factual circumstances, conflicts may arise between US sanctions regulations and the Chinese Anti-Foreign Sanctions Law, particularly for foreign entities with Chinese subsidiaries. They are obliged to comply with domestic laws regarding sanctions on China, while being prohibited from implementing or assisting in implementing discriminatory restrictive measures imposed by other countries against China. Failure to adhere to these regulations may result in legal action under Chinese laws, highlighting the challenges of compliance across different jurisdictions.

Impact on bilateral relations

The export controls and economic sanctions policies in both the US and China have significant implications for bilateral relations. In recent years, tensions between the US and China have escalated, leading to the implementation of various trade measures, including export controls and sanctions. Notably, the US has imposed restrictions on the export of certain items and technologies to China, addressing national security concerns, while China has responded with retaliatory measures. These actions have strained diplomatic relations between the two countries, contributing to an uncertain geopolitical situation.

Against this backdrop, it becomes imperative for policymakers on both sides to meticulously assess the multifaceted impacts of export controls and sanctions. Beyond the immediate economic implications, these measures possess the potential to profoundly influence trade stability and bilateral relations. Policymakers need to understand these dynamics well to foster constructive engagement between the US and China.

Impact on international trade

The export control policies and economic sanctions established in the US and China have far-reaching consequences for international trade. The US has significant influence over international trade through its export control measures and sanctions. Restrictions on the export of certain technologies or goods to China can disrupt global supply chains and affect trade flows between countries. Furthermore, the imposition of economic sanctions by the US on specific countries or entities can have negative effects on international trade, leading to market volatility and uncertainty.

Similarly, China’s retaliatory measures in terms of its export control and economic sanctions policies may also impact international trade. While the direct impact may not be as pronounced as the tension between the US and China, it nonetheless carries substantial implications. As China is a major trading partner for many countries, its trade policies have influence on global trade dynamics and supply chains.

In conclusion, the export control and economic sanctions policies adopted in the US and China have profound effects on bilateral relations and international trade. While these measures are often implemented in response to security concerns or evolving diplomatic relations, they also lead to strains on bilateral relations and disruptions to international trade. As such, policymakers must carefully consider the impacts of export controls and sanctions on both bilateral relations and global trade stability to mitigate potential risks and promote cooperation.