China's Export Control Law is about to be implemented, and the United States has banned six more key emerging technologies

From the "ZTE case", "Meng Wanzhou case", "Fujian Jinhua case", to the "Huawei case", "TikTok case", and even the "Shenzhen Chichuang Wu Zhenzhou case" as early as 2008, all of them have the shadow of the US "Entity List" and "Export Control Law". They all use completely different means to sanction entities that the United States considers to be a major threat, all on the grounds of national security. This series of discriminatory export control policies against Chinese high-tech companies indicates that the United States has already used the export control stick as one of the means to target China's high-tech strategy.

At the same time, China has made great progress in high-tech fields such as aerospace, artificial intelligence, and communications in recent years. In the process of rapid development of foreign trade, how to effectively safeguard the legitimate rights and interests of enterprises and ensure the dominant position of core technologies and key products (such as 5G, quantum communications, etc.) and their export security has become an important issue that China urgently needs to solve. It is necessary to come up with a corresponding counter-measure basis at the legislative level as soon as possible.

Source: King & Wood Mallesons

Since the Ministry of Commerce announced the "Export Control Law (Draft for Comments)" in 2017, there has been heated discussion about how China can formulate an export control legal system that suits its national conditions. Due to the Sino-US trade war, the legislative process of China's export control law has always attracted much attention. Finally, after three deliberations in 10 months, the 22nd meeting of the Standing Committee of the 13th National People's Congress of China voted to pass the "Export Control Law" on October 17, which will be officially implemented on December 1 this year, which means that China has the first special law in the field of export control.

Subsequently, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce announced on its official website that six emerging technologies will be added to the Commerce Control List (CCL) of the Export Administration Regulations (EAR), namely hybrid additive manufacturing/computer numerical control tools; specific computational lithography software; certain technologies for finishing wafers for 5nm production; limited digital forensic analysis tools; certain software for monitoring telecommunications service communications; and suborbital spacecraft. The total number of emerging technologies subject to export control has now reached 37, and the United States "will continue to evaluate and determine which technologies need to be controlled in the future."

Shortly after the BIS announcement was released, on October 22, Gao Feng, spokesperson of the Ministry of Commerce, stated at the Ministry of Commerce’s regular press conference that the Export Control Law has made clear provisions on the scope of export control, control system, control measures, and strengthening of international cooperation. The control list will be further improved and released in a timely manner in accordance with legal provisions.

The Xinhua News Agency report emphasized that China's Export Control Law has strengthened the maintenance of trade security, demonstrated support for trade equality, and promoted resistance to trade protectionism.

The lawyer said that the promulgation and implementation of China's Export Control Law effectively filled the gaps in China's export control legal system and comprehensively improved the legislative level of China's export control system. It laid a solid foundation for the improvement of China's export control-related legal system and the effective implementation of the export control system in the future, and also provided a more powerful legal guarantee for doing a good job in export control under the new situation.

Gradually improving, China has a legal basis to fight back against trade bullying

Technology import and export refers to the cross-border flow of technology ownership or use rights between domestic and foreign entities. Technology export refers to the flow of domestic technology from domestic to foreign countries, while technology import refers to the flow of foreign technology from foreign countries to domestic countries. Specifically, the types of behavior subject to technology import and export control mainly involve the transfer and licensing of technological intellectual property rights, including patents (applications), integrated circuit layout design rights, computer software copyright transfer, plant variety rights, and the transfer and implementation license of technical secrets, etc. 

Although China has taken the first step to fill the legislative gap in export control, compared with the highly sophisticated export control systems and mature and sophisticated law enforcement in developed countries such as the United States, Japan and the European Union, there are still many areas that need to be improved.

The original purpose of US export control was to strictly restrict the flow of weapons into enemy countries and their falling into enemy hands, and establishing alliances to jointly implement control was considered a more effective method. Today, the US export control system still follows this idea. In addition to military products, it also restricts the export of dual-use products, constantly seeking a balance between national security, foreign policy, and the interests of industry and commerce. Since World War II, the current US export control system has formed a set of strict and complex legal systems, including the Export Control Reform Act (ECRA), the Export Administration Regulations (EAR), the Arms Export Control Act (AECA), the International Traffic in Arms Regulations (ITAR), and the International Emergency Economic Powers Act (IEEPA). According to these written laws, multiple US government agencies are involved in export control supervision.

On December 18, 2017, the White House released the first national security strategy report during Trump's term, listing China as a competitor. The report believes that China will restrict the United States' free competition in key business areas in peacetime. On August 13, 2018, the United States passed the revised Export Control Reform Act ("ECRA"). The bill expands the scope of application of the US export control system. In particular, it adds export controls on the United States' "emerging and basic technologies" (including 14 items such as artificial intelligence, robotics, augmented reality technology and virtual reality). Any export behavior that transfers technology in the 14 areas to China or other countries that are considered to pose a national security threat must be approved by the US competent authorities. At the same time, the United States has blocked China's access to US technology through investment. Using US patents to develop products in China may also be subject to control. The above new regulations are highly targeted at China, and the chips that many Chinese high-tech companies rely on for survival will face new blockades.

In short, ECRA expands the U.S. understanding of "national security" to include restrictions on key business sectors in peacetime, reflecting the U.S.'s view of "pan-national security" that is different from the usual sense.

China's export control legal system is mainly composed of three levels: laws, administrative regulations and departmental regulations. Before the "Export Control Law" was issued, the "Foreign Trade Law" was the legal basis for my country to implement export control, and some provisions of the "Customs Law" and "Criminal Law" also provided relevant legal basis for prohibiting or restricting exports. In addition, there is a "Catalogue of Technologies Prohibited and Restricted from Export in China".

Compared with the United States, China's export control system has a lower degree of legalization, and administrative measures lack a superior legal basis. Secondly, the status of various ownership entities is unequal, which violates the principle of "market neutrality"; finally, the scope of China's control is not as "wide" as that of the United States, and there is a lack of effective management methods. The overall export control system is fragmented and low-level. The implementation of the "Export Control Law" in December, coupled with the "Unreliable Entity List Regulations" officially announced and implemented by the Ministry of Commerce of China on September 19, will hopefully usher in a unified era of legalization.

China's Entity List system is similar to the economic sanctions and export control systems implemented by the U.S. Treasury Department's Office of Foreign Assets Control, the U.S. State Department, and the U.S. Department of Commerce. Both are list-based systems with delisting and licensing mechanisms. Both are unilateral systems of the relevant countries. Both involve prohibitions on financial transactions, trade, and visa privileges - this is intended to prevent individuals and entities from taking actions that the government deems to be contrary to national security, foreign policy, and economic interests. As the business environment becomes increasingly influenced by politics, the Entity List system is likely to be used to achieve regulatory goals and foreign policy games at the same time.

It is worth noting that in the past, China’s technology export controls were more biased towards military technology, but in recent years, the Sino-US technology war has intensified in the fields of 5G communications, artificial intelligence (AI), quantum technology, semiconductors, etc. The "Export Control Law" will regulate the export of sensitive materials and technologies on the control list. If the new law is combined with China’s existing "Catalogue of Technologies Prohibited and Restricted from Export" and "Unreliable Entity List", China will be able to have more effective and flexible control and application of technology exports in the future.