Written by: Jing Yunfeng Li Jia Wang Hui Li Xinyan Corporate&Commercial Group
The revised Catalogue of Technologies Prohibited or Restricted from Export of the PRC (“Catalogue“) was finally issued on August 28, 2020. This is the first revision of the Catalogue since 2008, coinciding with an extremely special period of China-US relations. Therefore, the Catalogue aroused wide attention at home and abroad. We will interpret the adjustments made to the Catalogue in the form of Q&A to assist enterprises in improving their internal control systems for technology export compliance and effectively guarding against relevant legal risks.
1. What are the main adjustments made to the Catalogue?
The revision of the Catalogue involves 53 technology items, among which 4 items prohibited from export and 5 items restricted from export are removed, the controlling points and technical parameters of 21 items are revised, and 23 new items restricted from export are added. One newly added controlling point under the item of information processing technology, “personalized information push service technology based on data analysis”, has drawn attention. One of the most hotly debated issues is whether the relevant information may contain national security information.
The details of the revision are summarized as follows:
|Deletions||4 technology items prohibited from export||Delete 4 technology items prohibited from export, namely, microbial fertilizer technology, caffeine production technology, riboflavin production technology, vitamin fermentation technology.|
|5 technology items restricted from export||Delete 5 technology items restricted from export, namely, Newcastle disease vaccine technology, natural medicine production technology, functional polymer material preparation and processing technology, synthetic and semi-synthetic drug production technology, and information security firewall software technology.|
|Revisions||Controlling points and technical parameters of 21 technology items||The revisions involve crop breeding technology, aquatic germplasm breeding technology, chemical raw material production technology, bio-pesticide production technology, spacecraft measurement and control technology, space data transmission technology, mapping technology, information processing technology, vacuum technology, etc.|
|Additions||23 technology items restricted from export||Add 23 technology items restricted from export, including artificial breeding technology for agricultural wild plants, genetic engineering (genes and vectors), space material production technology, aerospace bearing technology, unmanned aerial vehicle technology, laser technology, cryptographic security technology, artificial intelligence interactive interface technology, and personalized information push service technology based on data analysis.|
2. What is the background of this revision of the Catalogue and the future trend?
A responsible official from the Department of Service Trade of the Ministry of Commerce (“MOFCOM”) said that the revision is aimed at improving the technology export regulation, promoting the science and technology development and the foreign economic and technological cooperation, and maintaining the national economic security. It has been 12 years since the last revision of the Catalogue. With the rapid development of science and technology and the continuous improvement of scientific and technological strength and industrial competitiveness of China, it is imperative to revise the Catalogue in a timely manner in accordance with international practice.
The official also stated that in the future, China will strengthen the cooperation with other countries in technology trade, so as to optimize the business environment and promote the healthy, orderly and sustainable development of China’s technology trade. Next, the Catalogue will be further cut and adjusted, and will be significantly streamlined according to the Administrative Measures for Technologies Prohibited or Restricted from Import revised and issued at the end of 2019 to further highlight the role of market mechanism. In addition, the MOFCOM will continue to introduce more technology trade facilitation measures and constantly improve technology trade promotion platform. Therefore, it is necessary for technology import and export enterprises to pay continuous attention.
3. What is technology export?
According to Article 2 of the Regulations on the Administration of Technology Import and Export (“Regulations”), technology export refers to the transfer of technologies from within the PRC to outside of the PRC by ways of trade, investment, or economic and technological cooperation, including patent rights transfer, patent application rights transfer, patents licensing, technical secrets transfer, technical service and other forms of technology transfer. Given such, it can be understood that all technology transfers to foreign countries, regardless of the transaction mode, should all comply with the Regulations.
4. How to supervise technology export?
According to relevant provisions of the Regulations and the Administrative Measures for Technologies Prohibited or Restricted from Export, technology exports are classified into three categories: free export, restricted export and prohibited export. Corresponding differences are as follows:
|Freely Exportable Technologies||Export contracts registration.|
|Export-restricted Technologies||Subject to license management, and shall not be exported without approval from the commerce authorities.|
|Export-prohibited Technologies||Prohibited from export.|
5. How to go through contract registration formalities for freely exportable technologies?
China implements online registration for contracts for import and export of unrestricted technologies. According to the Administrative Measures for the Registration of Technology Import and Export Contracts, a technology import/export operator shall register a contract within 60 days after the contract comes into effect.
Specifically, a technology export operator may log onto the Information Management System of Technology Import and Export Contracts on the website of the MOFCOM (jsjckqy.fwmys.mofcom.gov.cn) to register such contract and go through registration formalities with the competent commerce authority with the application for registration of technology export contract, a copy of the technology export contract (including a Chinese translation), documents evidencing the legal status of the contracting parties and other necessary documents. The commerce authority shall verify the contents of the contract registration and issue a Technology Export Contract Registration Certificate to the technology export operator within 3 working days from receipt of the above documents.
With regard to the latest practice regarding the registration of technology export contracts, the General Office of the MOFCOM released the Notice of Further Facilitating the Work on Technology Import and Export during the Prevention and Control of the Epidemic on February 3, 2020, in an effort to actively promote the paperless registration of technology import and export contracts. At this point, we have noticed that some local commerce authorities such as the Shanghai Municipal Commission of Commerce have made positive responses.
6. How to determine whether a technology is prohibited or restricted from export?
China implements catalogue management on technologies prohibited or restricted from export. The MOFCOM, jointly with other relevant departments of the State Council, formulate, revise and issue the Catalogue. The Catalogue was issued in 2001, and revised in 2007 and 2008. In July 2018, the MOFCOM sought public comments for further revision of the Catalogue. On August 28, 2020, the MOFCOM, jointly with the Ministry of Science and Technology, issued the Announcement on Adjustment and Issuance of the Catalogue of Technologies Prohibited or Restricted from Export of the PRC, making adjustments to the Catalogue for the third time.
The technologies listed in the Catalogue are prohibited or restricted from export, and the technologies not specified in the Catalogue can usually be understood as freely exportable technologies. Where an enterprise is unable to determine accurately whether the technology involved in a transaction is freely exportable, it can consult with a professional organization, or with the local commerce authority (usually the service and trade office of the commerce bureau), or submit the relevant materials first so that the personnel of the commerce authority shall review and give feedback based on the details of the materials submitted, and notify the enterprise of the subsequent specific formalities.
7. How to go through export licensing formalities for export-restricted technologies?
In 2007, the MOFCOM delegated the authority of import and export licensing of restricted technologies to the commerce authorities at the provincial level. The main procedures for export licensing are as follows:
- Step1: The applicant submits an application to the provincial commerce authority.
- Step2: Upon receipt of an application for technology export, the commerce authority shall review the application jointly with the science and technology authority, decide on approval or non-approval within 30 working days from the date of receipt of the application, and issue the PRC Letter of Intent of the PRC on Licensing of Technology Export in case of approval.
- Step3: After obtaining the letter of intent, the applicant may conduct substantive negotiations with the foreign party and conclude the technology export contract.
- Step4: After concluding the technology export contract, the applicant must apply for the Technology Export License of the PRC.
- Step5: The commerce authority shall review the veracity of the technology export contract and decide on approval or non-approval of the technology export within 15 working days from receipt of relevant documents, and issue a Technology Export License of the PRC in case of approval. The technology export contract shall come into force as of the date of issuance of the Technology Export License.
In addition, it is noteworthy that, according to Article 5 of the Administrative Measures for Technologies Prohibited or Restricted from Export, for export-restricted technologies that are state secrets, confidentiality review formalities are required under the Provisions on the Review of Export of State Secret Technologies before license application, and the Confidentiality Review Approval for the Export of State Secret Technologies from the competent authority is required for the export application.
The following is the flowchart of Beijing Municipal Commerce Bureau for export licensing for export-restricted technologies. The specific procedures may slightly differ in the commerce authority of each province and city. It is suggested to confirm with the competent commerce authority at the provincial level in advance.
8. What are the administrative liabilities for illegal export of technologies?
According to the Regulations, the potential administrative liabilities for illegal export of prohibited or restricted technologies include: 1) warning from the MOFCOM; 2) confiscation of illegal gains; 3) a penalty of 1 to 5 times (prohibited technology export) or 1 to 3 times (restricted technology export) of the illegal gains; 4) suspension or revocation of the foreign trade operation license.
In addition, the Regulations also provide that depending on different circumstances, penalties may be imposed in accordance with customs laws. In accordance with Article 18 of the Administrative Measures for Technologies Prohibited or Restricted from Export, for any item of export-restricted technologies approved to be exported, technology export operators shall, when going through the customs procedures, provide the Technology Export License on their own initiative, and the customs shall grant clearance after verification. In accordance with Article 2 of the Customs Law, the objects of supervision of the Customs are the inward and outward means of transport, goods and articles. Therefore, where technology export is combined with goods, etc. (such as chips, CDs which store important technical information or software), and the consignor is unable to submit the license at the time of declaration, the customs may, pursuant to Article 14 of the Implementation Regulations on Customs Administrative Penalties, grant no clearance for the goods and impose a fine of not more than 30% of the value thereof. In case of violation of the regulations on import and export administration by importing/exporting goods prohibited from import/export by the state, it shall be ordered to transport the goods back and a fine not more than 1 million RMB shall be imposed.
In case of intentional act, more severe penalties will be imposed. In accordance with Article 7 to Article 9 of the Implementation Regulations on Customs Administrative Penalties, where anyone smuggles goods prohibited from import/export by the state, the goods smuggled and the illegal gains shall be confiscated, and a fine not more than 1 million RMB may be imposed concurrently. Where anyone fails to submit the license that should be submitted but does not evade the tax, and smuggles goods or articles prohibited to enter/exit the territory by the state, the goods or articles and the illegal gains shall be confiscated, and a fine not more than the equivalence of the goods or articles smuggled may be imposed concurrently.
9. What are the criminal liabilities for illegal export of technologies?
Those who export technologies that are prohibited from export, or export technologies that are restricted from export without licenses, shall be investigated for criminal liabilities in accordance with the related crimes of smuggling, illegal business activities, divulgation of state secrets, or other crimes listed in the Criminal Law. Persons or organizations export the restricted technologies which are out of their licensed scope shall be prosecuted for criminal liabilities according to illegal business activities or other crimes listed in the Criminal Law. Taking the crime of smuggling goods or articles prohibited from import/export by the state as an example, the entity may be fined, and the responsible person may be sentenced to up to 15 years in prison and fined.
10. What is the difference between the technologies prohibited or restricted from export under the Catalogue and the technologies subject to export control?
(1) Different regulatory perspectives
The Regulations define the import and export of technologies as “transfer of technologies by ways of trade, investment or economic and technological cooperation”. That is to say, the technology export regulated by the Regulations and the Catalogue are limited to technology export in economic activities. On the contrary, the export regulated by the Export Control Law (Draft) is defined as “provision of controlled items (technologies) to foreign organizations and individuals”. Therefore, the regulated objects are not limited to transfer of technologies to foreign countries by ways of “trade, investment or economic and technological cooperation”, and technology transfer not carried out in economic activities (such as disclosure of controlled technologies to foreign individuals) is also subject to control.
(2) Different natures of the regulated technologies
In the announcement on adjusting and issuing the Catalogue, the MOFCOM and the Ministry of Science and Technology stated clearly that technologies which are used for both civil and military purposes shall be subject to export control. The Regulations also stipulate that the export of nuclear technologies, technologies related to dual-purpose nuclear products, controlled chemicals production technologies, military technologies and other technologies subject to export control shall be subject to relevant administrative regulations. As for the export control of technologies, China has formulated the Regulations on the Export Control of Dual-purpose Nuclear Products and Relevant Technologies, the Regulations on the Export Control of Dual-purpose Biological Products and Relevant Equipment and Technologies, and the Regulations on the Export Control of Missiles and Relevant Items and Technologies. However, many technologies may not be identified accurately from a technical or a practical point of view. Take nuclear technologies as an example, the third generation nuclear power unit design technology is added as export-restricted technology in the Catalogue, but if all or part of such technology can be used for military technology development or military purposes, the Regulations on the Export Control of Dual-purpose Nuclear Products and Relevant Technologies and relevant regulatory catalogues shall also be applied, and the problem of double regulation may arise. Therefore, the effective integration of two regulatory systems and catalogues based on the nature of technologies needs to be further discussed.
(3) Different regulatory methods
If the technology to be exported is listed in the Catalogue, the relevant laws and regulations on export-prohibited or export-restricted technologies shall apply. If the technology to be exported is a dual-purpose technology, or is an above-mentioned special technology such as nuclear, biological, chemical or missile-related technology, laws and regulations of export control shall apply. Take dual-purpose technologies for example, the Export License for Dual-purpose Items and Technologies shall be obtained in advance before export.
In addition, when it is planned to export a technology listed in the Catalogue, the Letter of Intent on Licensing of Technology Export issued by the commerce authority is required prior to substantive negotiations and the conclusion of the technology export contract, and the technology export contract and the Letter of Intent on Licensing of Technology Export shall be submitted when applying for the Technology Export License. On the contrary, for the application of the Export License for Dual-purpose Items and Technologies, in addition to related contracts and agreements, the statement on end-use and end-user is usually also required.
(4) Different legal remedies
Article 53 of the Regulations stipulates that “anyone who does not accept the decision made by the foreign trade department under the State Council on a matter of the approval, license or registration of, or an administrative penalty in respect to, technology import and export, may either apply for an administrative reconsideration, or institute legal proceedings in a people’s court in accordance with the law”. On the contrary, the Export Control Law (Draft) provides that only administrative reconsideration is permitted for the disapproval decision made by the export control authority, and the decision of an administrative reconsideration shall be final.
(5) Different definitions of “export”
According to Article 2 and Article 45 of the Export Control Law (Draft) released in July 2020, the definition of “export” under the export control goes beyond the scope as stipulated in the Regulations. For example, deemed export and re-export of technologies shall also be controlled.
Finally, based on the latest legislation progress, it is speculated that the Export Control Law (Draft) is likely to be released after the third reading of the Standing Committee of the National People’s Congress within this year. Therefore, it is suggested that enterprises pay attention to the recent legislative trend of the Export Control Law and its supporting regulations, especially the treatment of the above regulatory differences in the system design, in order to plan ahead and avoid export-related legal risks to the greatest extent.
Thanks to senior associate Zhang Bo and legal assistant Li Huibin for their contribution to this article.