China Should Provide Clearer Definitions, Clarify Scope of Upcoming Export Controls, USCBC Says

China took a “few positive steps” to revise the draft of its export control law (see 2001100047) but should address several key areas of concern for U.S. and Chinese companies, the U.S. China Business Council said in comments released this week. The USCBC asked China to clarify the scope of its export controls and the term “national security,” provide a clearer definition for activities that are “deemed exports,” and consider more relaxed requirements for end-user statements and certificates.

The term “national security” has a “very broad connotation” that has “not been well articulated” in the draft, the USCBC said. China uses “national security threat” throughout the draft as one of the “key grounds” for issuing embargoes and should specify the scope of the activities that constitute a national security threat before finalizing the laws. China should also adhere to internationally recognized best practices when developing its export control lists, such as those agreed to at the Wassenaar Arrangement, it said.

In addition, the draft’s “lack of clarity” surrounding China’s “deemed export” concept may cause “significant challenges” for companies operating in China and may limit research and development for Chinese companies operating overseas. Because the concept is not clear, USCBC members said they are unsure whether a host of activities is subject to the export control law, including technical meetings held in China, conference calls with foreign nationals and a technical information storage in a data center outside of China.

China should also ease requirements for end-user statements and certificates by allowing buyers to certify “on their own account” that they will comply with those commitments, the USCBC said. China should only require government-issued end-user certificates and other documents for transactions “that are strategic in nature,” the council said. USCBC members also asked China to consider a voluntary self-disclosure regime wherein penalties for violations could be waived or mitigated.

USCBC members also suggested that China identify the “ultimate authority” for determining approvals for exports, and establish an “appeals process” that “allows escalation by the applicant to higher levels of the government for sensitive cases.” In addition, the draft provides requirements for chambers of commerce and other associations, but the USCBC said it is unsure what role those organizations play in export control. “Will these organizations take an active role in reviewing the company’s internal compliance processes?” the USCBC said. “What services could they provide to members in terms of export control?”

The USCBC also requested more information about the standards for assessment conducted by China on destination countries of export-controlled items. China should clearly provide its principles of assessment and the potential control measures it may impose, the comments said.

China should be mindful of implementing the export control laws after a “lengthy and orderly transition period,” the USCBC said, and only after industry has “received adequate notice of all legal changes and requirements.” The transition period should include separate phases for control regimes of different technologies so that all the export controls are not implemented simultaneously, the council said. The USCBC also asked for a nine- to 12-month “delay in enforcement” from the last phase of implementation.