'Impossible' for US Exporters to Comply With Commerce Restrictions on Transfers Within China, Law Firm Says
It is “impossible” for U.S. exporters to fully comply with Commerce Department restrictions on transfers within China because Chinese courts do not enforce the restrictions, according to an Oct. 13 post by Harris Bricken.
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If a U.S. exporter sells to China, the exporter must prevent its exported goods from being transferred to a Chinese company that is on Commerce’s Entity List, the post said. While U.S. exporters normally ensure protection from this penalty by inserting language in a contact that requires the buyer not to transfer the goods after the sale, Chinese companies, courts and the government do not enforce violations of these contracts, the post said.
“This situation sets out the conflict. It is not possible for any U.S. exporter to comply with the banned entity list rules … because it is impossible by contract for any U.S. exporter to prevent a subsequent transfer of the controlled item within China,” Harris Bricken said. “Moreover, the risk of such transfer is high.”
China can avoid restrictions on its banned entities by calling on non-banned entities to import products from the U.S. before transferring them anywhere in China, the post said. “Any attempt by a foreign seller to control the disposition of the items would simply be ignored by the Chinese courts,” the post said.
Because of this, U.S. companies face “significant” export risks when selling to China, the post said. “The two legal systems are in direct conflict,” Harris Bricken said. “There is no way to mitigate this conflict.”
The law firm also said there is “no way for a U.S. exporter to confidently determine what product or technology is subject to the entity list ban” because “even low-tech commercial items can come under the ban in ways that are impossible to predict.” Every exporter must assume it will need an export license to sell to China, the post said.