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  • International Practice Section Blog
    November 04, 2020

    China’s New Export Control Law: Why US Businesses Should Pay Attention

    With tensions at a high level between U.S. and China regarding trade practices, a new Chinese export control law begins Dec. 1. Ngosong Fonkem discusses the status of the trade tensions between the two countries, and why U.S. businesses should pay attention to the new regulation.

    Ngosong Fonkem

    Previously, I have published two articles in this International Law Blog that focus on the challenges of complying with the very complex U.S. export control and sanctions regulations.1

    This article supplements these two articles, and focuses on the recently enacted Export Control Law of the People’s Republic of China that goes into effect Dec. 1, 2020. I also discuss why this regulation should matter to U.S. companies, large or small, with footprints in China.

    Background

    Since the beginning of President Trump’s presidential campaign in 2016, his rhetoric has focused on reversing Chinese influence in the area of trade, and promising to renegotiate the U.S.-China economic relationship – thereby eliminating what he perceived as “unfair” Chinese business practices.2

    Starting in July 2018, President Trump began setting tariffs and other aggressive trade measures on China, to force it to make changes to what the U.S. government called “unfair trade practices.” Among those trade practices and their effects were the growing trade deficit, alleged intellectual property “theft”, and the alleged forced transfer of American technology to China.

    Ngosong Fonkem Ngosong Fonkem, West Virginia University College of Law 2011 (JD, MBA) and Tulane Law School 2012 (LLM), is a senior advisor at Page•Fura, P.C., Chicago, where he assists businesses with customs and international trade law.

    Over the ensuing 18 months, the two countries engaged in countless back-and-forth negotiations, a tit-fort-at tariff war, introduced foreign technology restrictions, fought several WTO cases, closed consular buildings, designated news and media outlets as foreign missions, and culminated in China being declared a “currency manipulator” by the U.S. Treasury, leading US-China trade tensions to the brink of a full-blown trade war.

    Although President Trump’s approach to handling trade issues have appeared eccentric at times, a 2018 Gallup Poll seemed to suggest that most Americans think China’s trade practices are and have been deeply unfair – substantially supporting President Trump’s “tough on China” policy.

    Moreover, even at a time of intense partisanship polarization in U.S. politics, there currently is bipartisan enthusiasm for Trump’s “tough on China” trade policy.3

    China New Export Control Regulations

    China’s new export control law comes as a result of this ongoing trade war, and is the first of its kind in China’s history restricting “sensitive” exports that the Chinese government deems to threaten its national security.4

    Specifically, and although not defined, the text of the legislation includes a requirement that Chinese exporters obtain licenses to export articles that may harm China’s “national security” or “national interest,” even if the sensitive exports are not listed on China’s controlled items list.5

    Further, Chinese exporters have an obligation to independently assess whether an unlisted export product may pose a risk to China’s national security.

    It should be noted that China is not the only country with export control regulation. Many developed nations with highly sophisticated advance manufacturing industries, such as the U.S., countries in the European Union, countries that are members of the Australia Group, the Missile Technology Control Regime, the Nuclear Suppliers Group, or the Wassenaar Arrangement also maintain lists of items controlled for export.

    Why This Matters to US Businesses

    The current and ongoing geopolitical tensions between the U.S. and China – the two largest economies in the world – for global leadership in technology and economy will likely increase in the foreseeable future, given the bipartisan consensus in the U.S. government.

    The Chinese government, for its part, is also “dogged in.” As recently as Oct. 14, 2020, on a visit to Shenzhen to celebrate its 40th anniversary, Chinese President Xi Jinping reaffirmed China’s stated policy to lead the global technological revolution and to make innovation the primary driver to China’s economic growth.6

    The text of the new law explicitly warns that if any country abuses its own export control laws against China, then China “may reciprocally take measures based on the actual situation.”7

    As we conclude in our book, any U.S. business that operates within this international trading environment must have a plan on managing this inevitable trade risk, especially if its supply chains are tied to China.

    This article was originally published on the State Bar of Wisconsin’s International Practice Section Blog. Visit the State Bar sections or the Business Law Section web pages to learn more about the benefits of section membership.

    Endnotes

    1 SeeHow a Huawei CFO’s Criminal Prosecution Could Signal a New Approach to U.S. Sanctions Enforcement,” April 5, 2019, and “What Increased Enforcement of U.S. Trade Laws Means for Wisconsin Businesses,” Feb. 8, 2018.

    2 This is illustrated in my new book with Bruce Aitken, Trade Crash: A Primer on Thriving & Surviving Pandemics & Global Trade Disruption, Clink Street Publishing, 2020, p. 83.

    3 Id.

    4 Press Conference of the Spokesperson of the Legal Work Committee of the Standing Committee of the National People's Congress, China.net, Oct. 12, 2020.

    5 Instructions to obtain license to export articles, handling guidelines, Bureau of Security and Control, Ministry of Commerce, People's Republic of China.

    6 5 takeaways from Xi Jinping’s speech during 40th anniversary visit to Shenzhen, South China Morning Post, Oct. 14, 2020.

    7 China's top legislature adopts law on export control, Xinhuanet, Oct. 17, 2020.

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    International Practice Section Blog is published by the State Bar of Wisconsin; blog posts are written by section members. To contribute to this blog, contact Betty Eberle and review Author Submission Guidelines. Learn more about the International Practice Section or become a member.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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