China Issues Regulation on Export Control of Dual Use Items

Harry Clark, Martha Wang, Jinsong Zhang
Orrick, Herrington & Sutcliffe LLP
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China has issued the Regulation on Export Control of Dual-Use Items (the “Regulation”), which will take effect on December 1, 2024.

The Regulation aims to provide clearer guidance for export control authorities’ law enforcement and for exporters’ compliance in relation to items that may serve both civilian and military purposes (“Dual-Use Items”).

1. What are the current key legal sources for China’s export regime of Dual-Use Items?

China promulgated and implemented the Export Control Law in 2020, which laid out the foundation of China’s export control system.

After the Regulation comes into force on December 1, 2024, the following existing regulations in the field of export control of Dual-Use Items will be repealed and replaced by the Regulation. As a result, the Regulation will consolidate the current rules and provide a comprehensive and integrated control system for Dual-Use Items.

  • Regulation on Export Control of Nuclear Dual-Use Items and Related Technologies (published on January 26, 2007);
  • Regulation on Export Control of Missiles and Related Items and Technologies (published on August 22, 2002);
  • Regulation on Export Control of Biological Dual-Use Items and Related Equipment and Technologies (published on October 14, 2002); and
  • Measures for Export Control of Relevant Chemicals and Related Equipment and Technologies (published on October 18, 2002).

It is noteworthy that the Regulation on the Administration of Controlled Chemicals (published on January 8, 2011) (“Controlled Chemicals Regulation”) and the Regulation on the Export Control of Military Products (published on October 15, 2002) (“Military Products Regulation”) are still effective and shall apply to the following two types of Dual-Use Items respectively:

  • For the export control of dual-use controlled chemicals, the Controlled Chemicals Regulation shall apply; matters not provided for in the Controlled Chemicals Regulation shall be analogically governed by the Export Control Law and the Regulation.
  • For the export control of certain missiles and related items and technologies listed on the first part of the “Export Control List of Missiles and Related Items and Technologies”, the Military Products Regulation shall apply.

2. What items are subject to export control under the Regulation?

Definition of Dual-Use Items

“Dual-Use Items” refer to goods, technologies and services that have both civil and military uses or help enhance military potential, especially those that can be used for the design, development, production, or use of weapons of mass destruction and their delivery vehicles, including relevant technical information and other data.

Dual-Use Items Export Control List

The Export Control Law stipulates that China shall implement its export control regime through export control lists or catalogues. The Regulation specifies the procedures for the formulation and adjustment of the Dual-Use Items Export Control List (including soliciting commentaries from relevant enterprises, chambers of commerce, trade associations, etc. and conducting industry surveys and assessments if necessary) and authorizes the Ministry of Commerce (“MOFCOM”) to publish the list in a timely manner.

The following export control lists of Dual-Use Items are currently in effect:

  • Catalogue of Dual-Use Items and Technologies Subject to Import and Export Licenses Administration (“Dual-Use Catalogue”) (published in December 2023)
  • Export Control List of Nuclear Dual-Use Items and Related Technologies (published in December 2017)
  • Export Control List of Biological Dual-Use Items and Related Equipment and Technologies (published in July 2006)
  • Export Control List of Relevant Chemicals and Related Equipment and Technologies (published in October 2002)
  • Export Control List of Missiles and Related Items and Technologies (published in August 2002)

The MOFCOM confirmed that it is currently formulating a unified Dual-Use Items Export Control List (“Dual-Use List”), which will be implemented simultaneously with the Regulation. As such, the above various lists will likely be replaced in December 2024 by the unified Dual-Use List.

Temporary Control

In addition to export control on items listed on the Dual-Use List, the MOFCOM also has the authority to impose temporary control and embargo on specific items.

According to the Regulation, the duration of temporary control shall not exceed two years each time; an assessment shall be conducted before the expiration of the temporary control period and a decision shall be made based on the assessment: to cancel the temporary control, to extend the temporary control (no more than twice), or to add the item to the Dual-Use List.

3. Does the Regulation impose export control measures for specific destination countries?

The MOFCOM, together with other government authorities such as the Ministry of Foreign Affairs and the General Administration of Customs, may evaluate and determine the risk levels of certain destination countries (or regions) and take corresponding export control measures based on the following factors:

  1. The impact on China’s national security and interests;
  2. The need to fulfil China’s international obligations such as nonproliferation;
  3. The need to comply with treaties and agreements entered into by China;
  4. The need to implement relevant resolutions and measures passed by the United Nations Security Council; and
  5. Other factors that need to be considered.

With the approval of the State Council, the MOFCOM may also prohibit the export of certain Dual-Use Items to specific countries (or regions), or specific entities or individuals.

China has published several Lists of Dual-Use Items and Technologies Banned from Export to North Korea (2013, 2016, 2017 and 2018) and a Catalogue of Precursor Chemicals which are subject to export license requirement for export to Myanmar, Laos and Afghanistan (April 2024). No risk levels or embargo measures for other specific destination countries have been issued so far.

4. What kinds of licenses should be obtained for exporting controlled items?

To export items on the Dual-Use List or Dual-Use Items subject to temporary control, exporters shall apply for a license from the MOFCOM. There are three types of licenses available:

Individual License

An Individual License allows an exporter to export a specific Dual-Use Item to a single end user within the scope and subject to the conditions specified in the export license. The validity period of an Individual License shall not exceed one year. If the export is completed within the validity period, the export license will automatically become invalid.

General License

A General License allows an exporter to export specific Dual-Use Items multiple times to a single or multiple end users within the scope and subject to the conditions specified in the export license. The validity period of a General License shall not exceed three years.

Export Certificate

Under some circumstances as set forth below under Section 6, exporters are allowed to obtain the Export Certificate by registering with the MOFCOM before each export of specific Dual-Use Items and by reporting relevant information.

5. What are the procedures for applying for Individual Licenses and General Licenses?

Application Qualifications

To apply for General Licenses, the exporter must meet the following conditions:

  • The exporter has established an internal compliance system for dual-use export control and it is operating well. Exporters can refer to the Guiding Opinions on Establishing an Internal Compliance Mechanism for Export Control by Exporters of Dual-Use Items issued by the MOFCOM on April 28, 2021, for details of setting up the internal compliance system.
  • The exporter has relevant dual-use export records.
  • The exporter has relatively fixed export channels and end users.

The Regulation does not specify any prerequisites for applying for Individual Licenses.

Application Documents

To apply for an Individual License, the exporter shall submit the export application form to the MOFCOM together with the following materials:

  1. Identification certificates of the applicant’s legal representative, general manager and agent;
  2. Copies of contracts or agreements related to the export of the Dual-Use Item or other supporting documents;
  3. Technical description or test report of the Dual-Use Item;
  4. Documents proving the end user and end use of the Dual-Use Item; and
  5. Other materials required by the MOFCOM.

To apply for a General License, in addition to the documents above, the exporter shall also submit the following:

  1. Description of the operation of the internal compliance system for export control of Dual-Use Items;
  2. Description of the application and use of dual-use export licenses;
  3. Description of the export channels and end users of Dual-Use Items.

Review Period

The MOFCOM shall review the export license application and make a decision to grant or deny the license within 45 working days from the date of accepting the application.

6. Under which circumstances can Export Certificates be obtained?

The Export Certificate is a new regime introduced by the Regulation and works in a way similar to license exceptions under the Export Administration Regulations (“EAR”) of the United States and General Export Authorisations under Regulation (EU) 2021/821.

The Export Certificate applies in the following circumstances:

  1. Export after temporary import for repair/testing/inspection;
  2. Temporary export for repair/testing/inspection and will be returned within a reasonable time;
  3. Export after temporary import for an exhibition held in China;
  4. Temporary export for an exhibition held outside China and will be returned immediately after the exhibition ends;
  5. Export of civil aircraft parts and spare parts; or
  6. Other circumstances specified by the MOFCOM.

In the following situations, the exporter cannot obtain a General License or an Export Certificate:

  1. The entity has been criminally punished for violation of dual-use export control, or its personnel in charge of export of Dual-Use Items or other directly responsible personnel have been criminally punished for violation of dual-use export control;
  2. The entity has been administratively punished for violation of dual-use export control within five years and the circumstances are significant;
  3. A wholly owned enterprise, representative office or branch established in China by an overseas entity or individual listed on the Control List specified in the Regulation; or
  4. Other circumstances specified by the MOFCOM.

7. What are the requirements under the Regulation based on end uses and end users?

License requirements based on end uses

For goods, technologies and services other than the controlled items listed on the export control lists and temporarily controlled items, if the exporter knows or should know, or is notified by the export control authorities, that the relevant goods, technologies and services may have the following risks, the exporter shall apply for an export license:

  1. Endangering national security and interests;
  2. Being used for the design, development, production or use of weapons of mass destruction and their means of delivery; or
  3. Being used for terrorism purposes.

End-use and end-user review during application and use of export licenses

To apply for export licenses for Dual-Use Items, an exporter must submit documents proving the end user and end use of Dual-Use Items. If an exporter needs to change the destination country, end user or end use of Dual-Use Items during the validity period of an export license, it must apply for a new license and suspend exports until a new license is granted.

The end user of Dual-Use Items shall make commitments as required by the MOFCOM and shall not change the end use or transfer the Dual-Use Items to any third party without approval by the MOFCOM.

If an exporter or importer finds that the end user or end use of Dual-Use Items has changed or is likely to change, it must stop the export and report to the MOFCOM.

Watch List and Control List

Importers and end users are obliged to cooperate with the MOFCOM in verifying end users and end uses. If they fail to cooperate and fail to provide relevant documents within the prescribed period, resulting in the inability to verify the end users and end uses, the MOFCOM can put them on the Watch List.

The consequences of being included in the Watch List include:

  1. Exporters cannot obtain General Licenses or Export Certificates for exporting Dual-Use Items to the listed parties;
  2. When applying for Individual Licenses for exporting Dual-Use Items to the listed parties, exporters shall submit risk assessment reports and make commitments to comply with export control laws and regulations; and the review period for an Individual License application may exceed 45 working days.

The Regulation modifies the Control List regime established by the Export Control Law in the following aspects:

  1. In addition to the MOFCOM taking the initiative, it may also include parties in the Control List based on suggestions and reports of other parties.
  2. In addition to the three situations stipulated in the Export Control Law, the Regulation further specifies two situations where the importers and end users who endanger national security and interests will be included in the Control List:
    1. using Dual-Use Items for the design, development, production or use of weapons of mass destruction and their delivery vehicles;
    2. being prohibited or restricted from certain transactions or cooperation by relevant authorities. This may include being listed on China’s Countermeasure List or Unreliable Entities List.
  3. Parties on the Watch List can be moved to the Control List.

Parties listed on the Control List may apply for removal from the Control List by cooperating with the MOFCOM’s investigation, truthfully stating the relevant facts, stopping illegal activities, taking proactive measures to eliminate harmful consequences, and making and fulfilling commitments as required.

8. What are the legal liabilities and penalties stipulated in the Regulation?

Article

Party

Violation

Penalty

39

Exporters
  1. Export Dual-Use Items without licenses;
  2. Export Dual-Use Items beyond the scope, conditions and validity period specified in the export license or otherwise violate Article 18 of the Regulation regarding use of the export license;
  3. Export Dual-Use Items that are prohibited from export; or
  4. Circumvent the license requirements by modifying Dual-Use Items or splitting Dual-Use Items into parts or components.

Order to stop violations, confiscate illegal gains;

If the illegal turnover is more than RMB 500,000, a fine of five to ten times of the illegal turnover; if the illegal turnover is less than RMB 500,000, a fine of RMB 500,000 – 5 million;

In serious cases, order to suspend business for rectification or be disqualified from engaging in export of relevant controlled items.

40

Exporters

Fail to fulfil reporting obligations such as in the following situations: 

  1. The export is no longer eligible for Export Certificate;
  2. Changes in the end use / user;
  3. Changes in the factors considered in granting export licenses.

Warning, order of rectification;

In serious cases, confiscate illegal gain and a fine of five to ten times of the illegal turnover if the illegal turnover is more than RMB 500,000; if illegal turnover is less than RMB 500,000, a fine of RMB 500,000 – 3 million.

40

Service providers providing services such as agency, freight, delivery, customs declaration, third-party e-commerce trading platform and finance services

Fail to report suspected violations of export control of Dual-Use Items.

Warning, order of rectification, a fine of less than RMB 100,000; 

In serious cases, a fine of RMB 100,000 – 500,000.

41

Anyone

Aid or abet exporters, importers, and end users to circumvent export control regulations or to commit violations of export controls.

Warning, order to stop the violations, and confiscate illegal gains.

If the illegal gains are more than RMB 100,000, a fine of three to five times the illegal gains; if the illegal gains are less than RMB 100,000, a fine of RMB 100,000 – 500,000.

42

Chinese importers and end users

The MOFCOM may issue end-use / end-user statements to other countries based on the application of Chinese importers and end users. In this case, the Chinese importers and end users shall submit relevant documents and fulfil relevant commitments. Failure to fulfil such commitments is a violation. 

Warning, order of rectification, confiscate illegal gains.

If the illegal turnover is more than RMB 500,000, a fine of three to five times the illegal turnover; if the illegal turnover is less than RMB 500,000, a fine of RMB 300,000 – 3 million.

43

Any entities registered in China

Accept or promise to accept visits and on-site inspections, etc. related to export control proposed by foreign governments without approval by the MOFCOM.

Warning and a fine of not more than RMB 500,000;

In serious cases, a fine of RMB 500,000 – 3 million; In especially serious cases, order to suspend business for rectification.

44

Experts or professional institutions providing opinions regarding classification of Dual-Use Items

Violate professional ethics or the rules of the Regulation.

Warning, order of rectification; 

In serious cases, revoke their qualifications and hold them accountable in accordance with the law.

Apart from the above, exporting controlled items without obtaining relevant export licenses may also result in criminal liability on the parties involved under the “Smuggling Crimes” and other sections of the PRC Criminal Code.

9. What is the extraterritorial reach of the Regulation?

Article 49 of the Regulation provides that the MOFCOM may apply relevant provisions of the Regulation when foreign entities or individuals transfer or provide the following goods, technologies and services from a non-China country to specific destination countries and regions, entities and individuals outside China:

  1. A non-China-made Dual-Use Item that incorporates, integrates or contains specific China-origin Dual-Use Items;
  2. A non-China-made Dual-Use Item that is produced with specific technologies that are China-controlled Dual-Use Items; or
  3. Specific Dual-Use Items originated in China.

Appendix

Comparison for Key Concepts under the U.S. Export Control Regime and the Regulation

Extraterritorial reach

 

U.S. Export Controls

China’s Regulation

De Minimis Rule

Traditionally, a non-U.S. origin item outside the United States can be subject to EAR if it contains an over-de minimis (normally, 25% by value) level of controlled U.S.-origin content. The threshold can be reduced to 10% for countries that are embargoed by the United States and may even be 0% in some special cases (certain semiconductor lithography systems are subject to the EAR if they have any controlled U.S.-origin content and are destined for development or production of certain advanced semiconductors). 

The first category of Article 49 of the Regulation is analogous to the De Minimis Rule, but it does not stipulate the minimum proportion of Chinese origin items incorporated, integrated or contained in the foreign product. This ambiguity may cause difficulties in the application of this clause. We expect that this may be clarified in the Dual-Use Items Export Control Compliance Guidelines to be issued by the MOFCOM, or the exporter/importer may have to clarify by consulting the MOFCOM on specific items to be exported. 

Foreign Direct Product (FDP) Rule

A non-U.S. origin item outside the United States can, in some circumstances, be subject to the EAR if it is the direct product of 1) certain U.S.-origin software or technology or 2) equipment that is the direct product of certain U.S.-origin software or technology. Whether the FDP rule applies depends on various factors, including the export control classification number (ECCN) of the final product; the final destination of the product; the end user of the product, etc. 

Though comparable to the FDP rule, the second category of Article 49 of the Regulation is merely a principle provision without offering more details for application.

Reexport

U.S. export controls apply to reexports, i.e., shipments or transmissions from one non-U.S. country to another. 

The third category of Article 49 of the Regulation is similar to the U.S. control over reexports.

However, the extraterritorial reach of the Regulation is more limited. First, Article 49 only applies to specific destination countries, entities, and individuals and specific Dual-Use Items rather than all reexports of all Dual-Use Items. The MOFCOM may decide which specific destination countries, entities, and individuals, and what kinds of specific Dual-Use Items are subject to this rule. Second, by using the wording “may apply” rather than “shall apply”, the Regulation leaves flexibility and discretion to the MOFCOM to decide whether to initiate any legal actions based on specific transactions and international circumstances.

Restricted activities

 

U.S. Export Controls

China’s Regulation

Similarities

Export: definition includes, among other actions, actual shipments or transmissions out of the United States.

Article 2: “Transfer” of Dual-Use Items from China to foreign countries, including the export of Dual-Use Items for trade and the transfer of Dual-Use Items by gifts, exhibitions, cooperation, assistance and other means.

Reexport: definition includes, among other actions, actual shipments or transmissions from one non-U.S. country to another.

Article 49(3): transfer or provide specific Dual-Use Items originated in China from a non-China country to specific destination countries and regions, entities and individuals outside China.

In-country transfer: a change in the end use or end user within the same non-U.S. country.

Article 18: a new export license is required for change of the end user or end use of Dual-Use Items.

Differences

Deemed export: release of technology or source code to non-U.S. nationals.

Article 2: “Provision” of Dual-Use Items by Chinese citizens and entities to foreign entities and individuals

The scope of China’s control on deemed export is broader than that of the U.S. rules, as it applies to all Dual-Use Items, namely goods, technology and services, while the U.S. rules only target technology.

Reexport: actual shipments or transmissions from one non-U.S. country to another.

Deemed reexport:  release of technology or source code to a foreign person overseas.

Article 48: The transit, transshipment, through-transport, reexport or export of Dual-Use Items from special customs supervision areas and bonded areas to overseas shall be handled in accordance with the relevant provisions of the Export Control Law and the Regulation. The specific measures shall be formulated by the MOFCOM and the General Administration of Customs.

The “reexport” in this Article 48 is not defined. Considering the context and the response provided by the Ministry of Justice and the MOFCOM to the press on October 20, 2024, the “reexport” in this Article 48 seems to be more akin to the “re-export” in Regulation (EU) 2021/821 (i.e., items imported into the EU and then exported outside the EU), rather than the “reexport” or “deemed reexport” in the EAR.

Control on services and assistance:

The United States expanded restrictions on services by U.S. persons – U.S. persons are prohibited from assisting with production of certain semiconductors or semiconductor equipment in China. 

According to Article 36 of the Regulation, no entity or individual may provide agency, freight, delivery, customs declaration, third-party e-commerce trading platform and financial services for violations of export control of Dual-Use Items. Such service providers shall promptly report to the MOFCOM if they discover suspected violations of export control of Dual-Use Items. 

Article 41 of the Regulation introduces legal liability for aiding or abetting exporters, importers and end users to circumvent export control regulations or to commit violations of export controls, though the Regulation does not specify what kinds of behaviours may constitute “aiding” under this provision.

Items subject to control 

 

U.S. Export Controls

China’s Regulation

Lists of controlled items

The EAR’s list of export-controlled items – the Commerce Control List (“CCL”) – is divided into Export Control Classification Numbers (“ECCNs”), which are subject to varying types of license requirements. Items subject to the EAR but not listed on the CCL are assigned the catch-all ECCN “EAR99” and may normally be freely exported to most (but not all) destinations and parties. 

As detailed in Section 2 above, Dual-Use Items are controlled through the Dual-Use List to be issued by the MOFCOM and temporary controls and embargos to be imposed by the MOFCOM from time to time. Unlike the ECCNs in the CCL, the Regulation does not require creation of codes or numbers for items on the Dual-Use List.

Controls over items outside the country

Under the De Minimis Rule and the Foreign Direct Product Rule, an item made and existing outside the United States can nonetheless be subject to the U.S. regulations. 

As stated above, Article 49 of the Regulation gives the Chinese government the power to extraterritorially control Dual-Use Items involving controlled China origin items, similar to the U.S. De Minimis Rule and the U.S. Foreign Direct Product Rule, though the extraterritorial reach of the Regulation is more limited than the U.S. rules.

End-use and end-user controls

 

U.S. Export Controls

China’s Regulation

General end-use and end-user controls

The U.S. system requires exporters to obtain licenses for certain transfers of items based on their end uses and end users. The licensing process involves a thorough review to ensure that the items will not be used in ways that could harm U.S. national security or foreign policy interests. 

China’s system also requires licenses based on end uses and end users, with a focus on ensuring that exports do not harm national security or contribute to terrorism uses. Some new U.S. rules on end uses/users are specifically targeting precise chip-making capabilities of Chinese fabricators, while there are not such detailed rules in Chinese regulations.

Lists of specific transaction parties

Unverified List, Entity List and Denied Persons List

Similar to the U.S. Unverified List and Entity List, the Regulation establishes two lists of importers and end users: the Watch List and the Control List (see details in Section 7 above). So far China has not released a Watch List or a Control List, but has released an Unreliable Entities List to restrict certain China-related transactions of the listed entities pursuant to Regulation on the Unreliable Entities List 1 and several Countermeasure Lists to impose countermeasures against certain U.S. military companies and senior executives pursuant to Anti-Foreign Sanctions Law 2.

Unverified List (UVL)

The U.S. can include any entities in the transaction chain involving U.S. items in the UVL.

The Watch List is similar to the UVL as its purpose is also to verify the end user and end use of Dual-Use Items. However, the Watch List will only include importers and end users; and the details of the enforcement of the Watch List (including the risk assessment report regarding listed entities to be submitted by exporters when applying for Individual Licenses) remain to be clarified.

Entity List

  1. Any entities involved in endangering U.S. national security can be included in the Entity List.
  2. Most entities on the list cannot purchase any EAR items without licenses.  

The Control List is similar to the U.S. Entity List, however, 

  1. The Control List will only include importers and end users;
  2. China only prohibits or restricts specific Dual-Use Item transactions, giving law enforcement agencies a certain degree of discretion.

Focus on specific countries

The United States considers China a major threat to U.S. and world security and U.S. export controls focus on technological competition and technology transfer to China. Recently, the United States tightened export controls related to China, particularly restricting advancement of Chinese capability to make leading-edge semiconductors and computers. 

So far China has not imposed specific controls on exports of Dual-Use Items to the United States. 

1 https://interview.mofcom.gov.cn/mofcom_interview/front/swfgk/article?id=20240503510680

2 https://www.mfa.gov.cn/web/wjbxw_673019/202410/t20241010_11504846.shtml

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