Attn.

Legal Working Committee of National People's Congress (NPC) Standing
Committee, People’s Republic of China

From:

Confederation of European Business (BusinessEurope)
Syndicat des Industries Exportatrices de Produits Stratégiques (SIEPS), France
The Export Group for Aerospace, Defence and Dual-Use (EGADD), United Kingdom
Network Against Proliferation (NAP)
Center 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)
Communications and Information Network Association of Japan（CIAJ）
Japan Chemical Exporters and Importers Association（JCEIA）
Japan Chemical Industry Association（JCIA）

Date: January 21, 20201

Joint Comments by Industrial Associations of Europe and Japanon China’s Revised Draft Export Control Law
In response to the call for public comment on China’s draft Export Control Law releasedby the Chinese Ministry of Commerce in June 2017 (hereafter called “Original Draft”), we
submitted our joint comments by nine major industrial associations in Japan in December
2017 and our joint comments by 14 major industrial associations in the US, Europe andJapan in February 2018.
Public comment on China’s Revised Draft Export Control Law (hereafter called “RevisedDraft”) was solicited after deliberation at the 15th meeting of the 13th National People’s
Congress Standing Committee. We have therefore decided to submit new joint commentson the Revised Draft designed to eliminate concerns held by overseas industry and to use
this information as a basis for improving the Revised Draft.
The following joint comments, like those submitted previously, are based on the common
interests of both parties in promoting trade and investment between China and othercountries, and as such, it is hoped that appropriate attention can be given to these comments.
Matters pointed out and requested in the previous joint comments submitted by industrial
associations from the US, Europe and Japan were as follows:* The text of the previous joint comments can also be found on the following CISTEC website.
http://www.cistec.or.jp/service/china_law/180309-01-e.pdf

1. Consistency with international trade rules administered by the World Trade Organization(WTO) and international export control regimes(1) “International Competitiveness,” “Supply to International Markets” and “EqualPrinciples” (Retaliation Clause)(2) Scope of Application, Including “Protection of Important Strategic Rare Materials”
2. Reexamination of Systems That Could Become Major Hindrances to the Trade andInvestment Environment(1) Reexamination of Reexport Regulation(2) Reexamination of Deemed Export Controls(3) Formulating a Controlled Items List Conforming to International Export Control
Regimes(4) Curbing Unreasonable Demands for Technological Disclosure in Export Inspections(5) Reexamination of Methods and Conditions for On-site Investigations Regarding EndUsers and Uses
3. Need for sufficient consideration for smooth implementation(1) Adequate Publicity regarding Work of Drafting Legislation and Ensuring
Opportunities for Exchange of Views with Domestic and Foreign Industrial Sectors(2) Securing an Adequate Extension after Detailed Information Made Available and2

Stepwise Implementation of Regulations(3) Promoting Implementation that Encourages and Builds on Internal Compliance
Mechanisms(4) Protecting confidential business informationIn the Revised Draft of the law, there are the points that reflect our previous jointcomments; points from the Original Draft that were addressed in our previous jointcomments; and points that are considered to have been substituted by other laws andregulations. We would like to address these points one by one as follows.

(1) Our assessment and understanding that our previous joint comments have beenreflected
We understand that our opinions have been reflected in the following points for which wewould like to express our sincere appreciation.
1. From the viewpoint of consistency with international export control regimes, provisions
from an industrial and trade policy perspective, such as “Technological Development”,“International Competitiveness”, and “Supply to International Markets” in the formulationof controlled items and requirements for licensing (Article 16 and Article 22 (4) of theOriginal Draft) have been deleted (Article 13 of the Revised Draft). However, although
the criteria for formulating the list of controlled items are simply referred to in Article 9 as
"in accordance with export control policies", we would like to ask you to limit the criteria
to a viewpoint of security-based export controls, as the temporary control provisions inArticle 10 refer to "In accordance with the needs of fulfilling international obligations andmaintaining national security”. In addition, from the viewpoint of "fulfilling internationalobligations", we would like to ask you that the specifications of controlled items list shouldbe the same as those agreed upon by international export control regimes.
2. The article stipulating on-site verification of end-users and end-uses (the 2nd provision ofArticle 28 of the Original Draft) has been removed and end users’ obligation of pledge isstipulated, and thereby end-users would be listed on list of parties of concern in the eventof their breach of this pledge (Article 18 and 20(1) of the Revised Draft). These arebasically the same as internationally common systems. (We understand Article 30 of theRevised Draft stipulates supervision, audit and investigation of exporters.)
3. It has been stipulated that, in order to encourage internal compliance systems forcompanies and organizations, exporters with good operations in this respect can begiven preferential treatment for licensing (Article 14 of the Revised Draft). However,specific details have been consigned to lower regulations, and so we would like to ask
you to adopt the points requested in Section 3(3) of our previous joint comments (e.g.,3exceptions to export licenses for exports to group companies, and the adoption of amethod that replaces the requirement of reporting every six months for commonlicensees, etc.).

(2) Remaining Concerns
The following are concerns that still remain and should be addressed in future drafts of thedraft law. These are closely related to the trade and investment environment in China, andas such we would like to ask for your continued consideration so as to dispel any suchconcerns.
1. “Equality Principle” (Retaliation Clause)
It is highly appreciated that the “Equality Principle” (or the retaliation clause; Article 9 of
the Original Draft) has been deleted. On the other hand, however, given the following
points, there is no doubt that there could still be substantial retaliatory measures.
-General provisions of the Foreign Trade Law, the related law, have a similar “equalityprinciple” provision (Article 7).

-

The “Unreliable Entity List”, which the Chinese Ministry of Commerce is reported tosoon introduce, is said to be of an adversarial nature.

Suppose this were to lead to a chain of confrontation and retaliation, it would have adramatic impact on corporate activities. We therefore would like to urge that potential
disputes be resolved in accordance with international rules, such as the WTO, to prevent
such a situation arising.
2. “Protection of Important Strategic Rare Materials”
As we indicated in our previous joint comments, there are no other examples whererare mineral resources are subject to security export control regulations. We called for
prudent action based on strong concerns that, in the event that rare materials become
regulated, it may cause the same disorder that had previously occurred in relation toWTO rules.
Meanwhile, Chinese media have reported that the Chinese government has been
considering restricting the export of rare mineral resources such as rare metals and thelike since the middle of last year, and as such we are increasingly worried that ourconcerns may become reality. Restrictions on such exports may encourage thedevelopment of alternative suppliers and alternative resources, which may be
unfortunate for both sides. From this point of view, we would like to once again call for acautious approach to this issue.
3. Re-export controls
Regarding re-export controls, although the independent clause referring to the deminimis rule in the Original Draft (i.e., Article 64 of the Original Draft) has been removed,
the Revised Draft stipulates that re-exports, along with other export types, will “be4

implemented in accordance with relevant provisions of this law” (Article 45).
In this context, the term “re-export” in Article 45 can be taken to mean “re-export ofwhat was exported to China from China” (i.e., reshipment). However, the interpretationprovided by a Chinese law firm states that this is equivalent to what was stipulated in theabove-mentioned Article 64 of the Original Draft (“re-export”).
If this Revised Draft is synonymous with re-exports under Article 64 of the Original
Draft, it means that our strong concerns have not been dispelled and so we would like toonce again clarify these concerns.
As explained in detail in our previous joint comments, re-export controls from nonChinese countries raise not only the question of practicality and burdens on re-exporters,
but also significant side effects and disadvantages on the Chinese economy itself, whichdepends on the global value chain. If re-export of products that incorporate products
imported from China from non-Chinese countries require the approval of the Chinese
government, then the enormous burden and risks involved can create strong incentives
to avoid using Chinese products, which could lead to a change in suppliers.
The general method normally used in international export control regimes (that is, forparticularly sensitive products, a means to obtain approval from the exporting country
authorities when transferring to a third country based on a written pledge from the enduser) is also assured in the Revised Draft through the provision of “prohibition of transfer
to third parties without the permission of the Chinese authorities” (Article 18). As such,
we cannot understand the need to introduce re-export controls based on the de minimis
rule beyond such a general method.
Even if the purpose of Article 45 is not to implement re-export controls immediately but
to stipulate a policy to implement it in the future, such a policy itself is a strong deterrentto importing from and investing in China.
For the above reasons, we would like to request again that the introduction of the reexport controls should be removed. If ”re-export“ in Article 45 of the Revised Draft would
mean the above-mentioned “reshipment”(i.e., re-export of what was exported to Chinafrom China), we would like to ask you to clearly stipulate this meaning.
4. Deemed export controls
Regarding deemed export controls, the provisions are basically the same as originallydrafted (Article 2 of the Revised Draft) and as such it is not clear whether the concernspointed out in Section 2(2) of our previous joint comments have been resolved.
As indicated in our previous joint comments, if it were to be uniformly controlled,including exchanges with foreign employees within a company, there is a strong concernthat daily corporate activities, such as daily meetings, consultations, e-mails, and accessto internal databases could not be conducted smoothly and efficiently.
In order to prevent such situations from happening, we strongly urge the following
systems to be implemented as requested in our previous joint comments.
-Excluding full-time employees of companies and organizations in China from such5controls, and limiting the control to foreign students, contractors, non-affiliatedresearchers, etc.
-Restricting controls to cases of providing technologies and source codes controlled
by international export control regimes in China.

-Developing comprehensive license systems and license exception systems.

5. Curbing unreasonable demands for technology disclosures in export reviews andprotection of confidential business information
We understand that these requests in Section 2(4) and 3(4) of our previous jointcomments are covered by the “Prohibition of Forced Technology Transfer by
Administrative Means” clause in the separately enacted Foreign Investment Law. It is
hoped that this clause will ensure the protection of intellectual property.
On the other hand, however, concerns about whether the protection of intellectual
property can be properly achieved through the implementation of the National
Intelligence Law, the Cyber Security Law and its lower regulations (e.g., data security
management regulations, etc.) from the viewpoint of national security have not beendispelled. Concerns about these laws and regulations are being raised at government
level in the US, Europe and Japan, and we would like to ask that you take measures toensure thorough protection of intellectual property.
6. Obligation to uniformly submit documents in license applications
In Article 33 of the Original Draft, documents to be submitted at the time of license
application were listed, and it was a rule that these documents needed to be submitted
uniformly regardless of the content of the application. In response to this, Section 3(3) inour previous joint comments requested to the effect that, “this type of certificate (thesekinds of documents as those set out in Article 33) should not be a requirement for eachindividual license/approval unless special circumstances, such as the sensitivity of theitem or of the country of destination, would make it necessary.”
In Article 22 of the Revised Draft which corresponds to the above-mentioned Article 33of the Original Draft, it is said to be stipulated in the lower regulations, however, we hopethat our request above can be reflected.
In this regard, Article 17 of the Revised Draft states that “exporters must submit enduser and end-use certificates to the National Export Control Authorities,” which appears
to be a uniform requirement regardless of the sensitivity. The wording “based on thedegree of sensitivity of controlled items and end-users” in Article 25 of the Original Draft
which corresponds to this part has been deleted. We are concerned about this point
because, should it be required to uniformly obtain a certificate regardless of thesensitivity, then there would be a considerable burden for exporters in filing applications
and lengthy amounts of time required for export. Submitting certificates uniformly in sucha way is not stipulated in international export control regimes, and the requirement of thesubmission is limited to “particularly highly sensitive items for which there are concerns
6they may be diverted to uses related to WMD.” The same rule is adopted in the operationof systems in major countries. In light of these circumstances, we would like to ask thatthe phrase “based on the degree of sensitivity of controlled items” be inserted in Article
17 of the Revised Draft.
Conclusion
The Chinese government is working on further improving the trade and investment

environment with the Foreign Investment Law that just came into force this January.
According to statistics from the Chinese Ministry of Commerce, the total imports andexports of foreign-invested enterprises in the period from January to October last year
accounted for 41% of the national total, with 47% of the exports of foreign-invested
enterprises being exports of high-tech new technology products which accounts for 64% ofnational high-tech new technology product exports. In this way, foreign investmentcompanies play a major role in promoting the quantitative and qualitative development ofChina’s foreign trade.
On the other hand, recent tensions between the United States and China are a cause forconcern. While reaching the first stage of an agreement in trade talks is welcome, reachinga fundamental resolution to the conflict will unlikely be easy and unfortunately there is a highchance these tensions will continue into the future. Amid such circumstances, the ways todeal with investment and trade in China and the ways to establish a Chinese-related global
supply chain will continue to be a major issue for industry.
It will be worth watching closely how the draft China Export Control Law will be enacted insuch a situation. While many of the requests put forward in our previous joint comments (inparticular, the removal of provisions for on-site verification of end-users and end-uses) havebeen adequately reflected in the Revised Draft, it is unfortunate that nothing has been
included which can dispel our greatest concerns regarding re-export control and deemed
export control.
In the course of there not having been any restrictions on export control of commercial
mass-market goods and technologies other than items related to weapons of mass
destruction up until now, overseas industries have been actively promoting investment andtrade in China. Under such circumstances, from the viewpoint of fulfilling international
obligations, the introduction of general export control regulations for commercial massmarket goods and technologies was seen as something to be welcomed. However, thecurrently proposed system is not a general system based on international export control
regimes, but rather there are still a re-export control system and a deemed export control
system (the deemed export control in the Revised Draft would be problematic if it would also
control providing items to foreign nationals who are members of a corporation/organization),
which, as we explain in detail, will be a very significant constraint on corporate activities, andas such we cannot help but feel confused about such systems. If these two systems were to
be enacted in this way, it would have to be regarded as a very big negative factor in China’s
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investment and trade environment in comparison with other Asian countries that do not havesuch far-reaching systems in place.
Although the “Equality Principle” (retaliation clause), which was one of the major factors ofconcern, has been removed from this draft, similar clauses are stipulated in the generalprovisions of the Foreign Trade Law. Separate from this Export Control Law draft, theChinese government has been strongly suggesting the introduction of perhaps a more
adversarial system, such as with the “Unreliable Entity List” and “National Technological
Security Management List.”
For businesses, if significant impacts and restrictions on corporate activities occur between
the two governments due to the escalation of opposition and retaliation because of conflict
between the two sides, it would naturally be a major factor in evaluating the investment andtrade environment.
In addition to ensuring that the above-mentioned concerns of overseas industry arereviewed seriously and establishing a system consistent with international export control
regimes, we hope that you will continue to carefully consider ways to further improve China’s
trade and investment environment so as to avoid a system of opposition and retaliation.
(Note):
After we submit these joint comments, we might submit the additional joint comments.

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