On November 15, 2024, the Ministry of Commerce of the People's Republic of China, in conjunction with relevant departments, released the "Export Control List of Dual-Use Items of the People's Republic of China," deciding to arrange the controlled items using a coding system, known as China's ECCN, effective from December 1, 2024.
The publication of the List and the control codes provides an essential basis for export operators to apply for export licenses for related items and also facilitates the implementation of administrative licensing and supervision enforcement by the Ministry of Commerce and other departments, ensuring the effective implementation of export control. The detailed content is as follows:
The Historical Evolution of China's ECCN
The "Export Control Law of the People's Republic of China" was enacted on December 1, 2020, clearly stipulating that China's export control should adopt a list management system. Subsequently, in May 2022, the "Regulations on the Export Control of Dual-Use Items (Draft for Public Comments)" (from now on referred to as the "Draft for Public Comments") was released, detailing the procedures for formulating and adjusting the export control list of dual-use items, as well as related requirements. The relevant provisions of the "Draft for Public Comments" explicitly stated that "control codes would be set for items on the list." Since then, the concept of China's ECCN has sparked extensive discussions within the industry.
On September 30, 2024, the "Regulations on the Export Control of Dual-Use Items of the People's Republic of China" (from now on referred to as the "Export Control Regulations") was officially promulgated and will be implemented on December 1, 2024. Although the final version of the "Export Control Regulations" removed the content of setting control codes for controlled items, the formulation of China's ECCN still receives significant attention.
To ensure the effective implementation of the "Export Control Regulations," further strengthen the export control of dual-use items, and promote the healthy and stable development of trade, the Ministry of Commerce, in conjunction with relevant departments, released the "Export Control List of Dual-Use Items of the People's Republic of China" (from now on referred to as the "List") on November 15, 2024. The "List" adopts a coding system to classify controlled items in detail, establishing an international and standardized system for coding dual-use items export control in China.
Coding Rules & Licensing Requirements
The "List" coding system is based on international best practices and considers China's specific circumstances. It systematically integrates all dual-use items currently regulated into ten major industry sectors, and each is further subdivided into five types of items. The coding combines Arabic numerals and English letters, explicitly consisting of "1 Arabic numeral + 1 uppercase English letter + 3 Arabic numerals," a total of 5 elements. The specific meaning of the code is as follows:
Example: 3A201 = Electronics (3) + Systems, equipment, and components (A) + Related to nuclear non-proliferation (2) + Specific sequence (01): "Capacitors, Electromagnets, and Accelerators"
Based on the classification results, enterprises must apply to the commerce authority for a license or obtain export approval by registering and reporting information for the proposed items. According to the Export Control Regulations, the registration method (i.e., exempt from applying for a license) applies to special inbound and outbound situations, including re-export after inbound repair and re-export after inbound exhibition, etc. For average export trade, it is necessary to apply for corresponding licenses.
The licensing method is divided into 1) Individual Licenses and 2) Blanket Licenses.
An individual license is valid for one specific export. A blanket license allows the exporter to export specific dual-use items to one or more end-users within the scope, conditions, and validity period (not exceeding 3 years) specified in the export license.
The Impact on Contract Manufacturers in the Technology Sector
The newly established List systematically consolidates all currently regulated dual-use items, aiming to develop a complete list system and regulatory framework. It does not involve any specific adjustments to the scope of regulation at this stage. Currently, there are approximately 700 dual-use items under control.
The release of the List and its coding system is expected to impact contract manufacturers in the technology sector significantly. Firstly, compliance costs will increase as manufacturers must input more resources into training, hiring compliance experts, and establishing export control compliance management systems to ensure adherence to export control requirements. Furthermore, export restrictions will be tighter, and manufacturers must apply for licenses when exporting products involving controlled technology. Failure to obtain a blanket license may lead to delivery delays or order cancellations, affecting international customers' trust and market share.
Tradewin's Recommendations
The List will come into effect on December 1, 2024. Tradewin recommends that companies actively study the List, conduct a comprehensive review of all items involved in the current business, and determine the corresponding control codes. For items whose control codes are challenging to decide on, companies can apply to the Ministry of Commerce for "Business Consultation" to accurately classify the items intended for export with the help of the expert consultation mechanism.
For license applications, companies with stable exports of dual-use items should actively seek to obtain a blanket license to reduce the cost of license applications and improve customs clearance efficiency, ensuring timely delivery to customers.
To apply for a blanket license, a company must meet certain conditions. In addition to having a continuous and stable record of dual-use item exports, the company should establish a robust internal compliance system for export controls. The Ministry of Commerce has issued Guidelines on Establishing an Internal Compliance Mechanism for Export Controls (MOFCOM Announcement No. 10 of 2021, from now on referred to as the "Guidelines"). Companies should set up internal compliance systems for export controls as soon as possible based on the Guidelines and the actual operations.
According to the Guidelines, the internal compliance system for export controls of a company should include audit requirements, precisely conducting regular audits on the rationality, feasibility, and effectiveness of the internal compliance mechanism for export controls. Therefore, we recommend that companies add specific content related to export controls when performing their annual import and export business internal audits to ensure that the export of controlled items complies with relevant regulations.
As mentioned above, if you need assistance from a professional third party, don't hesitate to contact your Tradewin consultant anytime.
