Attn.

Ministry of Commerce, People’s Republic of China

From: The Computing Technology Industry Association (CompTIA), U.S.
National Association of Manufacturers, U.S.
Confederation of European Business (BusinessEurope)
Syndicat des Industries Exportatrices de Produits Stratégiques (SIEPS), France
BOTTICELLI ProjectCenter for Information on Security Trade Control (CISTEC), Japan
Japan Business Federation (KEIDANREN)
The Japan Chamber of Commerce and Industry (JCCI)Japan Machinery Center for Trade and Investment (JMC)
Japan Foreign Trade Council, Inc. (JFTC)Japan Electronics and Information Technology Industries Association (JEITA)
Japan Business Machine and Information System Industries Association (JBMIA)
Japan Chemical Exporters and Importers Association（JCEIA）
Communications and Information Network Association of Japan（CIAJ）
Date:

February 14, 2018

Joint Comments by Industrial Associations of the United States, Europe and Japanon China’s Export Control Law Draft
As industrial associations of the United States, Europe and Japan, and theirmember companies, we greatly welcome China’s work to develop an export control law
system from the viewpoint of seeking to fulfill international obligations underinternational cooperation. We applaud the Government’s decision to establish a legal
foundation for the administration of export controls, not only to ensure that they can bestrengthened, but also to give confidence to industry that the export control regulations
and related measures will be predictably administered in accordance with this legal
foundation and consistently applied on a national basis.
Companies in the United States, Europe and Japan have greatly expanded tradeand investment in China under the Chinese economic development policy of utilizing
foreign capital and promoting foreign trade for many years. China will continue to aim
for further development under international cooperation, and industries from othercountries including the United States, Europe and Japan also intend to further
strengthen trade and investment activities with China.
We also believe that the roles of foreign companies and foreigners will continue to besignificant for the development of products and technologies in the high-tech sector
listed in the national plan such as "China Manufacturing 2025," and for the investment
in China and the trade with China.
In that context, the current China’s Export Control Law Draft has raised someconcerns in terms of the following points and we hope that the China’s Export Control
Law Draft may be further developed to address such concerns.
1. Consistency with international trade rules administered by the World Trade
Organization (WTO) and multilateral export control regimes (e.g. The
Wassenaar Arrangement)
2. The unclear differentiation between “dual-use” items and conventional arms andmunitions which has the possibility of inhibiting trade and investmentcommercial mass-market products and technology.
3. Significant impact on a large number of corporate activities in a wide range ofindustries.
4. Implementation that promotes cooperation with private industry to work
together to achieve common objectives and does not put at risk protections forconfidential business information and that assures ongoing input and comments2and sufficient time periods for enactment.
We understand that various industrial associations of the United States, Europe andJapan have submitted their own comments so far. In this case, we have decided tosubmit these joint comments regarding especially important and common concerns on
the basis of discussions in a cross-sector manner, and thereby ask for your consideration
to address these concerns.
We would like to express our opinions below from the viewpoint of common interest
to further promote trade and investment between China and other countries.
1. Necessity of systems and operations in accordance with WTO and international
export control regimes
In terms of export control policy and regulations, the principal purpose of thesecontrols has been centered on the non-proliferation of arms and dual-use goods andtechnologies. Thus, bolstering international and domestic peace and security, and fromthese common objectives, many countries have developed export control regimes that
conform to the international export control regimes, such as the Wassenaar
Arrangement, Missile Technology Control Regime (MTCR), and Australia Group.
However, the following points which are articulated in the draft Export Control Law of
the People’s Republic of China are considered as diverging and inconsistent from theunderlying purpose of multilateral export controls. There is also concern that
discrepancies may arise in relation to international trade rules administered by the
WTO, which are focused on the multilateral trading system. We would like to ask fordiscreet consultation on a government basis to prevent parties from being dissuaded topursue further trade and investment.
(1) "International Competitiveness," "Supply to International Markets" and "Equal
Principles"
The following points are considered to be elements in industrial promotion and trade
policy, which are inconsistent with the objectives of multi-lateral export control regimes.
As a result, we recommend the deletion of all references to export controls which areadministered for economic and competition policy interests, the areas of the draft law
include:(i)Export Control restrictions and licensing requirements which take into
account factors such as “impact on competitiveness of trade and industry",3

"supply in international market", and "development of technology." Rather,processes should focus on "national security" and "international obligation" forthe formulation of controlled items list (Article 16, 18, and 22)(ii)The provision of "Equality Principles" that establishes appropriate measuresfor countries that have implemented discriminatory export restrictions on China(Article 9).
(2) Scope of Application, Including “Protection of Important Strategic Rare Materials”
Properly developed and administered export control system only focus on those
items that have strategic significance to national and international security interest.
Globally, a very small fraction of goods and technology are subject to export control
because the commercial mass market dwarfs the goods and technology with significant,strategic security interests. The proposed system should not attempt to restrict
commercial mass market items that by volume or distribution are not susceptible tocontrol. Export controls should not be imposed in the face of foreign availability orcapability except for those items with the most strategic significance to security
interests.
In addition, from the discussion in the Draft explanation regarding the need for
drafting this law, we fully understand and welcome the items that came up in putting
together the export control system such as protecting national security, strengthening
investigative authority, implementing international obligations, and strengthening
international cooperation.
However, with respect to protecting important strategic rare materials, there are noother examples of subject materials in security export controls. Furthermore, even a
research report from the Chinese Academy of International Trade and Economic
Cooperation (CAITEC) written during the process speaks of the need to include rarematerials in security export control regulations as a means of coping with the issue ofinternational litigation. From here, we get the impression that the draft utilizes theexport control law on security to justify the rare mineral resource export restrictions.
From such a viewpoint, if rare materials such as rare earth, rare metals and the likeare to be comprehensively controlled as regulated goods, we have serious concerns thatit may cause the disorder that occurred several years ago in relation to the WTO.

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2. Reexamination of Systems That Could Become Major Hindrances to the Trade andInvestment Environment
While it is necessary to develop an export control system, it is also important toimprove the environment to further promote trade and investment. Corporate activities
are being developed globally, and China also has a large share of its activity base. The
proposed system should not attempt to restrict commercial mass market items andtechnology that by volume or distribution are not susceptible to control. Under suchcircumstances, if systems and operations in China were to differ from those that areinternationally common, the burden for handling such inconsistent systems becomesburdensome.
In principle, it is expected that export controls will operate under a common system,
based on agreement in the international export control regime such as the Wassenaar
Arrangement for dual-use items. We appreciate the commitment to “carry out export
control cooperation” with other countries. (Article 10). From such a point of viewpoint, weare concerned that the Chinese Export Control Law Draft may create disadvantage forforeign companies operating in China, which could greatly impede China's trade andinvestment environment. Similarly, language in Article 9 focusing on principles ofreciprocity or retaliation rather than cooperation and common non-proliferation andglobal security objectives, is very concerning as export control decisions based uponreciprocity would be contrary to WTO principles and inappropriate for an export control
regime based on security interests.

In this respect, we also have concern with the unclear definition and regulatory
scope of re-export controls and deemed export controls contained within the Chinese
Export Control Law Draft. While these controls are not administered at the multilaterallevel, there are domestic export control regimes around the world which administer
controls in these areas. We recommend that controls in these areas be developed andimplemented in a manner which is consistent to international best practices andprocedures as to not negatively impact global value chains which rely on imports andexports of commodities and technology from all over the world, including international
employee resources.
(1) Reexamination of reexport regulation
Article 64 stipulates the following 2 types of reexport controls: (i) reexport controls
from a non-Chinese country of items of Chinese origin; and (ii) reexport controls from a5

non-Chinese country of items containing Chinese-origin content where the value
percentage of the Chinese contents exceeds certain levels.
Concerns with this provision include:(i)

Reexport controls have extra-territorial effects, which should be eliminated or
highly limited. If any extra-territorial application is considered, licensing
should be considered.

(ii)

As mentioned above, reexport controls are not best practices amonginternational export control regimes.

(iii)

If the export destination from China is already implementing effective export
restrictions by participating in the international regime, the Chinese
government should not need to establish and implement reexport controls.

These significant side effects and disadvantages could also cause adverse impact to
the China based global value chain to China
In addition to the above, reexport controls would have significant side effects anddisadvantages that could cause great damage to China. If the Chinese government's
permission is required when re-exporting from the importing country (a) products
imported from China or (b) products using more than a certain percentage of parts
imported from China, the use of Chinese products would be associated with atremendous compliance burden and risks. These would create a strong incentive inindustrial sectors in foreign countries to avoid using them for the following reasons.
(i) Difficulty in guaranteeing effectivenessCalculations based on complex formulas will impose tremendous complianceburdens and difficulty, specifically in determining “origin” for intangible
commodities. Furthermore, it would be difficult for the relevant parties todetermine whether a product that has been supplied through a global and diverseof supply chains as being Chines in “origin”, thus subject to reexport controls.,(ii) Possibility of avoidance of procuring from China due to increase of complianceburdens and legal risks
If the reexport controls would be implemented, the compliance burden on theimporter side and the legal risks would increase. This would create a risk that6

multinational companies would seek suppliers and investors outside China to avoid
such burdens and risks. We urge that consultation with industry occurs if re-export
controls are being considered.
(2) Reexamination of deemed export controls
Article 3 stipulates deemed export controls. Namely, it regulates the supply ofcommodities, technologies, and services to foreign national persons (i.e., persons of
non-Chinese nationality) within China and, if the commodities, technologies, or services
would be controlled, a license would be required.
Such deemed export controls would raise concerns that they might impose
tremendous constraints on the activities of foreign affiliated companies in China.
Furthermore, Article 3 seems to regulate internal dealings with foreign national
employees within a company. If so, it would produce a great deal of concern that thetechnical briefings/discussions/consultation/e-mail transmission that take place aregular basis with foreign executives and employees who have been dispatched fromoverseas headquarters/offices could not be undertaken smoothly, along with activities
such as accessing an in-house database.
In the Chinese Export Control Law Draft, it is not clear whether the supply toforeign origin companies within China would be subject to deemed export controls. In
the United States, Europe and Japan, because foreign origin companies in their own
countries are regarded as domestic companies, there are no restrictions for such supply
to foreign origin companies within their own countries. If the supply of commodities,
technologies or services to foreign origin companies within China would be subject todeemed export controls, it would cause a tremendous impediment to overall business in
China. Therefore, we think it necessary to clarify the draft export control law does nothave such a restriction.
Based on the above, we respectfully request that revisions to Article 3 be consideredalong the following lines and that the Government engage in further consultation withindustry.
(i) We recommend China not develop nor implement a deemed export regulation. In
case a deemed export controls rule is considered, the regulation should apply only
in limited circumstances to foreign nationals who are not full-time employees of theorganization, institution, or company transferring the technology
7(e.g., foreign

students, contractors, non-affiliated researchers, etc.).
(ii) Deemed export controls should apply only in case of supplying technologies andsoftware source code with the technology and software specifically enumerated in
an internationally consistent export control list (e.g., following the ECCN
nomenclature of the Wassenaar Arrangement).
(iii) It is necessary to develop comprehensive license systems and license exceptions
which cover all technology and software subject to the export control regulation sothat deemed export controls would not unduly impair normal corporate activities,
research activities, etc. For example, encrypted transfers of controlled technology
for the purpose of data storage (“cloud” computing”) should be excluded as should
encrypted transfers of controlled technology to employees of the same company
located in other countries. Similarly, it is important to permit a de minimis content
level for foreign products containing Chinese regulated items.
(3) Formulating a Controlled Items List Conforming to International Export Control
RegimesIn the Draft explanation, executing international obligations and international
cooperation were identified as the aims that form its central pillar. A tremendous
burden is created when the items and technologies subject to controls differ from thoseof international regimes (e.g., Wassenaar Arrangement Control Lists 1 ). The Draft
explanation states that it seeks to promote links with international statutes andstrengthen international cooperation. Accordingly, we respectfully request that the listof controlled items related to conventional arms be brought into conformance with thecontrol list established under the Wassenaar Arrangement (WA).
(4) Curbing Unreasonable Demands for Technological Disclosure in Export Inspections
While large numbers of advanced industrial products such as information
technology and telecommunications devices are manufactured in and exported from
China, there are more than a few instances of commercial devices and technologies thatare imported to China from foreign countries. They also include products that areexported to China after they have already in compliance with the export control laws ofan exporting country. If China’s export control authorities were to demand technologicaldisclosure, such as source code, design and development technology of commercial1

http://www.wassenaar.org/control-lists/

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devices and technologies that have already been properly classified and approved forexport once, it would be unreasonable from the perspective of implementing regulations
that conform to international export control regimes. The industrial sector would nolonger be able to procure in a timely manner commercial mass-market devices andtechnologies from foreign countries. As a result, it would make it difficult to export
cutting-edge industrial products from China. Therefore, we would suggest that thesubmission of technical materials is made unnecessary by fact of having obtained an
export license or if the export is otherwise in compliance with the export control
regulations of the exporting country.
(5) Reexamination of Methods and Conditions for On-site Investigations Regarding End
Users and Uses
Article 28 of the Draft stipulates on-site verification of an item’s end users and uses
after it has been exported. We understand the need for follow up depending on the caseregarding how it is being used after export. However, we recommend that this provisionbe narrowed in scope (e.g. only applicable for item exported under a military license) or
moved to the military section of the proposed rule.
In addition, stipulating the power to conduct on-site inspections in the export
destination by law would give that Law the character of an extraterritorial application .
Under the international export control regimes and international agreements, theend-user inspection method is generally limited to particularly sensitive items for which
there are concerns of being diverted for use related to WMDs. When obtaining anexport license, an end user generally has to file a report in the form of a promissory
letter on end use that lays out how an item is being used, and when re-exporting theitem under the license, they usually need to request approval from the export control
authorities. Even when on-site verifications are required, we understand they are donein cooperation with the government of the country where the end user is located andusing a method that strikes a balance with the requirements of international law. We
recommend publishing onsite inspection operation details.
From that perspective, we believe careful reexamination is necessary with respect tothe methods and conditions for end-user investigations.
3. Need for sufficient consideration for smooth implementation(1) Adequate publicity regarding work of drafting legislation and insuring opportunities9

for exchange of views with domestic and foreign industrial sectors
Dual use commodities and technologies related to conventional arms are very
different from those related to weapons of mass destruction (WMDs), and an extremely
far-reaching range of civil use products and technologies will become regulated. Asidefrom the fact that these include numerous products produced and exported by domestic
and foreign companies operating in China, it could also target products and the likeincluding those in new technological domains in which start-up companies are planningto conduct research and development, manufacturing, and export activities in China.
Furthermore, in the event that work goes forward on crafting and enacting thislegislation without ensuring the concerned parties fully understand and are prepared
for the possibilities that this state of affairs may produce, it is likely that widespread
confusion could arise in the industrial sector across all industries.
For these reasons, we request that information be released once again about theexistence of the Public Draft and its contents, and that opportunities be guaranteed fora broad and continued exchange of comments. Furthermore, we also request thatmeetings and venues be arranged for receiving an explanation of the plans andenforcement methods for the Draft including its intent, its content, the formulation ofits detailed rules and guidelines, its enforcement, and plans for putting it into practice.
(2) Securing an Adequate Extension after Detailed Information Made Available andStepwise Implementation of Regulations
Regarding regulations, the industrial sectors involved cannot make preparations
without not only the law itself but also the details of how it will operate being madeclear.
Once these points are clarified, the industrial sectors can study the impact on their
supply chains related to China and take the necessary steps to comply. In particular, theregulations regarding dual use items related to conventional arms target a wide rangeof products and technologies. Companies that have actually advanced into China still
comprise an enormous group and range in size from major concerns to SMEs.
Furthermore, they have supply chains that are spread out all through China andelsewhere in the world.
For example, even an SME that manufactures components in Japan and supplies

10them to a Japanese product manufacturing company may not fully understand Japan’s
export regulations. In order to achieve an understanding of the regulations’ content that
includes these companies and ensures they take appropriate measures, we believe thatin some cases the preparations will require an appreciable amount of time in units ofyears. Given this reality, we request that an adequate grace period be guaranteed after
the details have been settled, and also request that consideration be given to
introducing these regulations in a stepwise fashion rather than all at once.
(3) Promoting Implementation that Encourages and Builds on Internal Compliance
Mechanisms
As the law and processes for implementation are further developed, we also
recommend that the export control system seek to incentivize the development ofinternal control systems, through licensing procedures and license exceptions which canbe broadly applied to minimize licensing transactions, especially for high-volume
exporters. General licenses should allow the export of multiple items to multiple
customers. Bonded-to-bonded transactions within China should be eligible for a license
exception since the transaction occurs entirely within the same customs territory.
Intercompany transactions should enjoy a license exception if the exporter has aninternal control system in place. Exporting to destinations where similar export control
regulations are in place should also be exempted from individual licensing requirements(e.g. China to Singapore).
In this regard as well, several portions of the draft law should be modified to reduce
unnecessary burdens, such as the Article 35 six-month report on the extension of an
exception from licensing. Rather than create a new burdensome report, this provision
would more appropriately require internal record-keeping that could be audited by theGovernment. As well, Article 33 identifies the lists of documents that must be submitted
for dual-use items. Unless an exception from licensing is granted under, for example, ablanket authorization, this type of certificate should not be a requirement for eachindividual approval unless special circumstances, such as the sensitivity of the item orof the country of destination, would make it necessary.
In cases of investigations under Article 46(6), we encourage the Government toprovide a process under law providing legal recourse on the part of the exporter before
an operators’ bank account can be frozen.
(4) Protecting confidential business information

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We also seek the inclusion of robust protections for confidential businessinformation provided to the government pursuant to any aspect of this law.
Without such protections, industry compliance and government implementation
would be reduced, with negative effects on the proper operation of this law.

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