New Guidance Provides Insight Into China's Implementation of Export Control Law, Law Firms Say
China’s latest export control compliance guidelines closely mirror U.S. guidance and provide significant new insight into how the country will interpret its export control law (ECL) (see 2011030033 and 2010190033), law firms said. Companies operating in China may find that their U.S. compliance programs translate well to China’s rules, the firms said, which now include guidance for risk assessments, reporting procedures and audits.
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The updated guidance, released in late April, is “extremely similar” to the export control guidelines issued by the Bureau of Industry and Security, Dentons said May 6. That was likely done on purpose and “reflects the Chinese legislators’ intention not only to align with the international rules, but also to provide additional countermeasures to protect the Chinese companies,” the firm said.
Crowell & Moring said China prepared the guidance to closely align with practices in other jurisdictions. Similar to guidance issued by the U.S., the European Union, the United Kingdom and others, China’s guidelines now provide compliance templates, red flag indicators, audit checklists and other tools aimed at helping companies develop an export compliance program. “These similarities with jurisdictions could make it possible for multinationals to localize their existing” compliance programs, the firm said May 12.
But Crowell & Moring also said multinational companies should be “mindful” of the differences in China’s guidelines. Unlike the U.S. and the EU, China recommends that companies set up an “export control compliance committee” or department, the firm said. While those recommendations aren’t mandatory, they may help companies receive licenses from the Chinese government and mitigate potential penalties for violations.
The updated guidance added three new elements to what China views as a successful export compliance program: a comprehensive risk assessment, emergency response measures and compliance audits, according to an unofficial translation of the document. To meet those new elements, companies should tailor their compliance programs to address the “unique” risks faced in China, establish a process for reporting and investigating “suspicious” orders, and “periodically” audit their compliance, Crowell & Moring said.
The guidance also clarified more concepts and terms under China’s ECL and provided additional examples of what constitutes an export and deemed export. Crowell & Moring pointed to two activities that may qualify as a deemed export: hiring foreign employees to work on controlled technologies and releasing information about controlled technologies at trade shows. In addition, exports “not only include situations where technology data is transferred via email, telephone” and social media platforms, the firm said, but also “where technology data or software are stored or transferred” through the cloud.
The guidance can serve as a “useful reference point for export operators across different industries and operational contexts,” Baker McKenzie said May 10. Crowell & Moring stressed that China hasn’t yet issued further implementing regulation[s]” or rules about its ECL in more than a year, but the guidance provides hints about how China’s export law may progress. “Although much remains unconfirmed so far,” the firm said, “the guidelines provide significant new insight into how [China] interprets the ECL.”