金杜律師事務(wù)所

KING&WOD

MALLESONS

China'sExportControlforDual-UseItems:RisksandCompliance

SincetheExportControlLawofthePeople'sRepublicofChina

(hereinafterthe'ExportControlLaw')cameintoeffectonDecember1,2020,Chinahasfullyenteredaneraoflegallyregulatedexportcontroloverdual-useitems.ThisLaw,togetherwiththeForeignTradeLawof

thePeople'sRepublicofChinaandotherrelevantlegislation,constitutesthesuperiorlegalframeworkgoverningcurrentexportcontrol.As

expresslystatedinArticle1oftheExportControlLaw,itscoreobjectiveistosafeguardnationalsecurityandinterests,fulfilinternational

obligationssuchasnon-proliferation,andstrengthenandstandardizeexportcontrol.Withinthisframework,theRegulationsontheExport

ControlofDual-UseItemsfurtherelaborateonthelicensingsystem,

customsverificationprocedures,andthemanagementofend-usersandend-usesofdual-useitems.

FengXiaopeng

Partner

Compliance&RegulatoryGroup

MaCong

Associate

Compliance&RegulatoryGroup

Inrecentyears,theMinistryofCommerce,theGeneralAdministrationofCustoms,andotherrelevantdepartmentshaveissuedmultipledecisions,bringingkeyitemssuchastungsten,molybdenum,andotherrareearthelementsundercontrol.Atthesametime,enforcementagainstthe

smugglingofdual-useitemshasbeencontinuouslystrengthened,withthenumberofcasesinvolvingthesmugglingofdual-useitemsshowinganupwardtrend.

Inviewoftheforegoing,thisarticleintendstoanalysethelegal

frameworkgoverningdual-useitems,typicalsmugglingmethods

observedinjudicialpractice,associatedlegalrisks,andkeypointsforcriminaldefence,aswellasprovidingpracticalrecommendationsforexportertoensurecompliantexportofdual-useitems.

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I.LEGALFRAMEWORKFOREXPORTOFDUAL-USEITEMS

TheExportControlLawdefinesdual-useitemsasgoods,technologies,andservicesthathavebothcivilianandmilitary

applications,orthatcouldenhancemilitarycapabilities,especiallythosemaybeusedinthedesign,development,

production,oruseofweaponsofmassdestructionandtheirdeliverysystems.Forexample,rareearthmagnets,critical

minerals,drones,telemetryequipment,andsimilaritemsthatmeettechnicalstandardsareallcommondual-useitems.TheeRegulationsontheExportControlofDual-UseItemsfurtherclarifiesthemanagementofexport,any"transferfromdomestictooverseas"issubjecttocontrol,notonlythroughtraditionaltradebutalsoviagifting,exhibitions,collaborations,aid,andotherways,ensuringthatevennon-commercialtransfersareregulated.Inaddition,thetranshipment,re-export,orexportfromcustoms-supervisedorbondedareasmustcomplywiththeExportControlLawandtheRegulationsontheExport

ControlofDual-UseItems.

Generally,dual-useitemsareregulatedbythePromulgationoftheExportControlListofDual-useItems,whichspecifiesthescopeofitemssubjecttoexportcontrol.Inaddition,theMinistryofCommercewill,asneeded,includecertainitemswithinthescopeofcontrolthroughannouncements.Exportersshallassessitemsagainsttheperformanceindicators,primaryuses,andothercriteriaspecifiedinthePromulgationoftheExportControlListofDual-useltemsandrelatedannouncements,in

ordertodeterminewhethertheirexportproductsaresubjecttoexportcontrolbasedonthePromulgationandrelevantannouncements.

Moreover,inaccordancewithArticle12oftheExportControlLawandArticle14oftheRegulationsontheExportControlofDual-UseItems,ifanexporterknowsorisinformedthattheitemsintendedforexportmayposeriskstonationalsecurityormaybeusedforweaponsofmassdestructionorterroristpurposes,alicensemustbeobtainedeveniftheitemsarenotlistedontheexportcontrollist.

Fortheexportofdual-useitems,asingleorgenerallicenseoranexportcertificatebyregisteringtheinformationshallbe

obtained.Thesinglelicenseauthorizesanone-timeexportofaspecificdual-useitemtoasingleenduser,withavalidity

periodofuptooneyear.Thegenerallicenseallowstheexportertomakemultipleexportsofspecificdual-useitemstooneormoreenduserswithinthescope,conditions,andvalidityperiodspecifiedinthelicense,withamaximumvalidityofthree

years.Inaddition,forcertainspecificitems,exportersmayobtainaDual-UseItemExportCertificatethroughregistration.Inpractice,suchexportcertificatesaremainlyusedforpurposesliketesting,inspection,andspare-partexports.

Duringtheexportdeclarationprocess,theexporteroritsagentmustpresentthelicenseissuedtoCustoms.Otherwise,iftheeCustomshasevidenceindicatingthatthegoodsmayfallwithinthescopeofexportcontrol,theCustomsshallraiseinquiriesandrequestanidentificationprocedure.Duringtheperiodofidentificationorinquiry,therelevantexportgoodsshallnotbereleasedinaccordancewiththelaw.

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II.LEGALLIABILITIESFORTHEILLEGALEXPORTOFDUAL-USEITEMS

1.CriminalLiability

Article43oftheExportControlLawprovidesthatanyonewhoexportsprohibitedcontrolleditemsorexportcontrolleditemswithoutalicensemaybesubjecttocriminalliabilityunderthelaw.

UnderArticle151oftheCriminalLawandrelevantjudicialinterpretation,ifapersonknowinglyexportscontrolleditems

throughfalsedeclaration,concealment,orothersimilarmeans,withoutobtainingtherequiredlicense,andtheitemsweighsover20tonsorthevalueexceedsRMB200,000,theactmayconstitutethecrimeofsmugglinggoodsprohibitedfromexport.Thepenaltymaybeuptofiveyearsofimprisonmentorcriminaldetention,shallalsooralternativelybefined.Wherethe

itemsweighover100tonsorvalueoverRMB1,000,000,thepenaltyismorethanfiveyearsofimprisonmentplusafine.

Furthermore,anyonewhorents,borrows,orusesanotherparty'slicensetoexportgoodssubjecttoexportcontrolshallalsobeconvictedandpunishedforsmugglinggoodsprohibitedfromimportorexport.Ifanexporter,whilehavingobtaineda

correspondingexportlicenseforcontrolleditems,actuallyexportsaquantitythatexceedsthequantityspecifiedontheexportlicense,theactshallbeconvictedandpunishedasthecrimeofsmugglingordinarygoods.

2.AdministrativeLiability

(1)Imposefine

AccordingtoArticle34oftheExportControlLaw,ifanexportoperatorengagesintheexportofcontrolleditemswithoutobtainingtherequisiteexportqualification,itshallbegivenawarningandorderedtoceasetheillegalactivities.Itsillegalgainsshallbeconfiscated.Additionally,afineshallbeimposedbasedontheillegalbusinessturnover:

·IftheillegalbusinessturnoverisRMB500,000ormore,afineofnotlessthanfivetimesbutnotmorethantentimesthatturnovershallbeimposed.

·IfthereisnoillegalbusinessturnoverortheturnoverislessthanRMB500,000,afineofnotlessthanRMB500,000butnotmorethanRMB5,000,000shallbeimposed.

(2)Withholdgoodsfromrelease

AccordingtoArticle14oftheRegulationsonCustomsAdministrativePenalties,whereanexporterviolatesthenational

internationaltraderegulatoryframeworkbyexportingrestrictedgoods,andfailstosubmitrequiredlicensesduringcustomsdeclaration,thegoodsshallbewithheldfromrelease.

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(3)Refusetoacceptapplication,suspendorprohibitfromengaginginexport-relatedactivities

AccordingtoArticle34oftheExportControlLaw,inseriouscases,theviolatorshallbeorderedtosuspenditsbusinessforrectificationorevenbedisqualifiedfromexportingrelevantcontrolleditems.

AccordingtoArticle39oftheExportControlLaw,whereanexporterispenalizedforviolatingthisLaw:

·TheMinistryofCommercemayrefusetoacceptitsexportlicenseapplicationsforfiveyearsfromtheeffectivedateofthepenaltydecision;

·Directlyresponsiblepersonnelandotheraccountablepersonsmaybeprohibitedfromengaginginexport-related

activitiesforfiveyears;Thosereceivingcriminalpenaltiesforexportcontrolviolationsshallbesubjecttopermanentprohibitionfromexport-relatedactivities.

II.DEFENSEARGUMENTSAGAINSTALLEGATIONSOFILLEGALEXPORTOFDUAL-USEITEMS

1.WhethertheGoodsConstituteDual-UseItems

Whetherthegoodsinvolvedinthecaseareclassifiedasdual-useitemsdetermineswhethertheconductconstitutesacrimeand,ifso,whichcrime.UnderArticle19oftheExportControlLaw,theMinistryofCommerceholdstheauthoritytodeterminewhethergoodsfallunderdual-useexportcontrols.Inpractice,theremaybecaseswheretheCustomsconsidersanitem

controlledwhileMinistryofCommercedoesnot.Thedeterminationshouldbebasedontheitem'stechnicalspecifications,thePromulgationoftheExportControlListofDual-useItemsandMinistryofCommerce'slatestannouncements.Iftheitemdoesnotmeetthecriteriaforadual-useitem,theexportermayapplytoMinistryofCommerceforanofficialdetermination.

2.WhethertheExportersActedwithIntenttoViolatetheLaw

Oneoftheprerequisitesfordeterminingthatexportershascommittedsmugglingisthattheexportershasthesubjectiveintenttosmuggle.Inpractice,judicialauthoritiesusuallyinferintentfromconductandavailableevidence,includes:

·ConfessionorAdmission:exporters'ownstatementorwitnesstestimonycandirectlyproveknowledge.Forexample,theeexportersadmittedthatheknewadual-useexportlicensewasrequiredbutstillconspiredtosmuggle.Thisadmissionwasusedasdirectproofofintent.

·FalseDeclarationsorConcealment:fthesuspecthastakendeliberatemeasurestoconcealthenatureofthegoodsortheirtruedestination,itisusuallypresumedthattheyareawareofthelicensingrequirementsandareintentionallyevadingthem.

·ProfessionalStatusandDutyofKnowledge:Injudicialpractice,theperpetrator'ssubjectiveknowledgeisusually

comprehensivelydeterminedbasedontheobligationof"knowingorshouldhaveknown"andtherulesofevidence.Onlywhenthereisindeedevidenceshowingthattheperpetratorlackssubjectiveintentmaythecasenotbetreatedasacrime.

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Therefore,insuchcases,thefocusshouldbeonexaminingtheexporters'knowledgeandactions,includingwhetherthereisexplicitorinferredevidenceoftheirviolationofthelaw,andwhetherthebehavioroftheexportersreflectsanintentionto

violateregulation.Itshouldbenotedthatbothlegalpresumptionsandfactualpresumptionsshouldallowforrebuttal.If

thereiscontraryevidencethatcanprovethattheexportersindeedhasnosubjectiveintentorhasbeendeceived,itcanrebutthattheperpetratordoesnothavethesubjectiveintenttosmuggle.

IV.COMPLIANCERECOMMENDATIONSFOREXPORTINGDUAL-USEITEMS

1.IdentifyHigh-RiskItemsandEnsureAccurateDeclarations

ExportersshouldmonitorthelatestExportControlListandpayattentiontokeycriteriaforcontrolleditems,suchaspurity,chemicalcomposition,dimensions,andperformanceindicators.Ifuncertainaftercomparingwiththelist,theyshould

consultMinistryofCommerceunderArticle14oftheRegulationontheExportControlofDual-useItems,providingwrittenmaterialsincludingtheperformanceindicators,mainuses,andreasonsforuncertaintyoftheitemsintendedforexport.

Onceanitemisconfirmedtobecontrolled,theexportermustobtaintheappropriatedual-useexportlicensebefore

shipment.Whendeclaringforcustomsclearance,theexportershallaccuratelyfillinthename,specifications,end-use,andfinaldestinationofthegoods,andsubmitthelicenseinformationcorrectlytotheCustoms.Exportersshouldimplementaninternalreviewmechanismtoensurecompliancechecksbeforeeverydeclaration.

2.StrengthenSupplyChainandCustomerDueDiligence

Dual-usecontrolsrequireverificationofendusersandenduses.Exportersshouldrequirecustomerstoprovideend-userandend-usestatementsandconductreasonableduediligencetoverifytheirauthenticity.Iftheenduser,enduse,orsupportingdocumentschangeorappearfraudulent,theexportershouldsuspendthetransactionandreportittothecompetent

authorities.Upstreamsuppliersshouldalsobescreenedtoensurepurchasedrawmaterialsdonotunintentionallycrosscontrolthresholds,withtestreportsobtainedwhennecessary.

Theexportofdual-useitemsofteninvolvesthereviewofend-usersandend-uses.Exportersshouldrequirecustomersto

provideproofofend-usersandend-usesandconductreasonableduediligencetoverifyth