Background

A new law set to take effect in China Dec. 1 appears aimed at creating a Chinese policy counterweight to the U.S. government’s use of export control authorities to restrict the transfer of U.S. dual-use technology to China, including provisions for retaliatory action and extraterritorial jurisdiction, according to a recent report from the Congressional Research Service. China has also taken other actions in recent months that could further restrict exports.

Export Control Law

The report states that over the past two years the U.S. and other countries have tightened China’s access to sensitive technology through strengthened export control authorities and licensing practices. Relatedly, there has been a marked increase over the past year in the number of countries that have sought to ban or impose conditions on the participation of China’s telecommunications firm Huawei in their 5G networks, particularly in Europe.

In an apparent response, the export control law gives the Chinese government new policy tools and justifications to deny and impose terms on foreign commercial transactions, both inside and outside of China, on the grounds of China’s national security and national interest. Specifically, the report states, the law authorizes the Chinese government to exercise export controls in retaliation against other countries’ actions, to impose temporary (up to two years) export controls on items not on a control list, and to broadly justify actions with several open-ended clauses.

The law also (1) includes an entity’s “social credit” rating in the factors to be considered for export licenses, “highlighting how the government may seek to leverage and enhance the emerging role of China’s social credit system as a policy tool to influence corporate activity,” and (2) provides for China’s participation in international discussions and regimes and global rulemaking on export controls, “a sign that China could become more active in trying to set rules and norms that advantage China.”

Export Catalogue

The report states that in August China’s Ministry of Commerce and Ministry of Science and Technology amended the Catalogue of Technologies Prohibited or Restricted from Export to impose new controls in various technological areas, including the following.

- biotechnology, pharmaceuticals, and medical equipment

- 3-D printing

- construction, petroleum, and power equipment

- machine tools

- high-speed wind tunnel design

- aerospace bearings

- unmanned aerial vehicles

- space-related remote sensing image acquisition, measurement instruments, and data transmission

- vacuum technology

- mapping

- information processing technologies (e.g., personal interactive data algorithms, speech synthesis, artificial intelligence-based interactive interface, voice evaluation, and intelligent scoring)

- cryptographic and cyber-related technologies

According to the report, China’s national industrial plans prioritize these technology areas, and the Chinese government prohibits or restricts foreign investment in these areas while seeking technology transfer through foreign partnerships and acquisitions.

Unreliable Entity List

In September China’s Ministry of Commerce issued an order calling for the establishment of an Unreliable Entity List to identify and respond to entities that endanger China’s sovereignty, security, or development; violate “normal” market transaction principles; and cause serious damage to the legitimate rights and interests of Chinese companies, organizations, or individuals. The report states that while this list triggers export control action similar to the U.S. Department of Commerce’s Entity List, China’s justifications for including an entity on the list appear to be much broader. Entities placed on this list may be subject to fines as well as restrictions or prohibitions on participation in China-related trade and investment.

Copyright © 2020 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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