The China Question

www.worldecr.com 23 ThE ChInAquESTIOn CHINA that these features of China’s new law are similar to positions the US government itself takes. ‘But companies are not used to the Chinese government taking that approach, and so they are going to have to retool their compliance procedures quite significantly,’ she advises. Circus act Elizabeth Shingler, Manager Export Controls and Sanctions at KPMG in Philadelphia, likewise notes the potential difficulties for businesses arising out of the ECL’s extraterritorial reach. ‘For companies, this will mean juggling two sets of extraterritorial laws. For example, if you have a product that’s controlled under the US rules and it’s sitting in Switzerland and it’s also controlled in China under the ECL, the companies are going to have to work through that and make sure that anything they do is in tandem with both sets of regulations,’ Shingler explains. ‘But on top of that, the person also has to manage the local country’s regulations, in this example Switzerland. So now, you’re asking compliance personnel to juggle three types of regulations. at’s a big ask. It will be challenging to manage,’ she predicts. Shingler says companies operating in China will also face other challenges in complying with the ECL. ‘What’s going to be really tricky in applying China’s Export Control Law for many companies is that the onus is on them to decide if a product that is not controlled under the Chinese regime should be controlled and then proactively apply for a licence. How are they going to do that? And what does that mean on a day-to- day basis?’ she asks. Roy Liu, a partner at Hughes Hubbard inWashington, DC, agrees that there is a lot of ‘uncertainty’ about how the ECL will be enforced. But he notes that, ‘e structure and basic concepts of the China export control laws are nearly modeled aer the US and EU’s.’ Companies will be familiar with the basic approach. As businesses brace for the implications of Chinese trade regulations once they start to be enforced, proponents of the ECL call it an overdue consolidation and simplification of existing regulations. ey see it as a signal from Beijing that it wants to be on a par with developed countries in export controls and non-proliferation. Liu says that while it is true that the ECL largely mirrors other international regulations, there is one ‘caveat’. He explains: ‘China is not a member of the Wassenaar Arrangement, so it’s not really bound by it to impose export control restrictions on particular items. So the kinds of controls are really entirely subject to the discretion of the Chinese government, based on the perceived Chinese interest. ‘At this point there are not a lot of items that are subject to export controls in China, possibly reflecting the fact that China still does not really yet lead in any of those technology sectors as the United States does,’ Liu observes. ‘But as China gradually invents its technology innovation chain, I think it’s possible that we’ll see more Chinese export controls on more items down the road.’ Ryan Fayhee, Liu’s colleague at Hughes Hubbard says that the ECL will make life difficult for businesses because it is designed to be that way. ‘ere’s not much we can say from a technical standpoint other than to say that it presents unique challenges because it’s intended to be in contradiction to US export controls,’ Fayhee adds. ‘From our perspective, the challenge it presents is sort of a conflict of laws that can make life in business complicated.’ o ‘For companies, this will mean juggling two sets of extraterritorial laws.’ Elizabeth Shingler, KpMg Books from the publisher of WorldECR www.worldecr.com/books