The China Question

www.worldecr.com 31 ThE ChInAquESTIOn By Steven Brotherton and Elizabeth Shingler, KPMG LLP I n many industries, China plays a key role for sourcing and manufacturing products, in addition to providing a critical consumer base. However, with escalating trade tensions, China accelerated the development of an advanced export control regime that could create significant complexities for many exporters. 2020 saw major developments in the establishment of China’s export control policies. As a first step, in late 2020, China implemented the Export Control Law (‘ECL’) that consolidated regulations and established a uniform framework for controlling the export of dual-use items, or any item or technology that may impact national security. One day later, the first product- based control lists addressing commercial cryptography were announced, and became effective on 1 January 2021, creating new licensing requirements. Exporters had little time to adjust to these new requirements that exist in parallel to China’s other long- standing export requirements. However, it is likely that the changes have only just begun as the implementing regulations that will specifically define the ECL’s requirements have not been issued. Yet exporters should not wait to assess and adjust their compliance programmes, particularly as the Chinese Ministry of Commerce (‘MOFCOM’) recently released guidance about establishing an export compliance programme. A proactive, methodical approach to analysing the ECL’s impact on both current and future supply chains will give most exporters a head-start on achieving compliance. In this article, we propose a process for getting ahead of China’s export control law so that once the implementing regulations are released the business is positioned to seamlessly continue operations. 1) Familiarise yourself with China’s Export Control law China’s ECL is intended to unify and centralise China’s export control regulations of dual-use items with both civilian and military applications, military arms and goods, nuclear items and any item necessary for ‘safeguarding national security and interests’. It also includes technical data. Given the focus on both ‘national security’ and ‘interests’, it will be broadly applicable to a wide swathe of companies doing business in China. Although the implementing regulations that will provide granularity into the law’s mechanics have not yet been issued, there is some information about how the law will operate. e ECL established a framework for State export control authorities to identify controlled products or technologies through published control lists and has incorporated the Cryptography Control List. Further, this law is applicable to citizens, corporations, and unincorporated organisations who provide controlled products to foreign organisations or individuals. e law further imposes a high burden China’s Export Control Law: 10 steps to se ing up a compliance programme