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On September 30, 2024, China issued PRC Regulations on the Export Control of Dual-use Items (dual-use items regulations or regulations), which became effective on December 1, 2024. These regulations, based on the Export Control Law promulgated in October 2020, are set to significantly impact global supply chains, particularly those involving goods, technologies and services that can be used for both civil and military purposes.
Jurisdiction-specific supply chain challenges
Key elements of the regulations
The dual-use Items regulations adopt the same definition of dual-use items as the Export Control Law, encompassing goods, technologies and services that can enhance military potential or be used in the development of weapons of mass destruction. The regulations introduce several critical measures:
- Export license. Exporters must obtain an export license for dual-use items subject to export control.
- Risk management system. A system for managing risks associated with end-users and end-uses is required.
- Watch list and control list. Enhanced oversight of entities and transactions that could pose risks to national security must be put in place.
Unified list of dual-use items
Article 11 of the regulations authorizes the Ministry of Commerce to formulate and publish a unified list of dual-use items subject to export control (unified list). This list will be implemented simultaneously with the regulations and is expected to consolidate existing measures and catalog documents into a unified system. This could streamline the export control process but also introduce new compliance challenges for supply chain managers.
Prior to the issuance of the regulations, the Ministry of Commerce and the General Administration of Customs have been jointly issuing and regularly updating the catalogs for the administration of dual-use Items and technology import and export permits under China’s existing export control framework. The latest and currently effective version was issued in December 2023, taking effect from January 1, 2024. In our previous article, “Tomorrow’s supply chain: China imposes restrictions on export of gallium and germanium-related products” we discussed the July 3, 2023, joint announcement of the PRC Ministry of Commerce and General Administration of Customs regarding the export control of gallium- and germanium-related products. The export control restrictions set forth by this joint announcement have been fully incorporated into the latest catalog, listing such gallium- and germanium-related products as special dual-use items and technologies.
End-user and end-use management
A notable development in the regulations is the stricter management of end-users and end-uses. Exporters are now required to provide detailed information about the end-users and intended end-uses of the exported items. Any changes to the end-user or end-use must be reported to the Ministry of Commerce, and the relevant license holder must cease the export immediately and cooperate with government investigations.
Watch list and control list
The regulations introduce a comprehensive watch list and control list system to monitor entities and transactions that could pose risks to national security. Entities on the watch list may face restrictions on licensing conveniences, while those on the control list could be prohibited from acquiring dual-use items from China. This system aims to prevent the misuse of dual-use items and ensure they do not fall into the hands of entities that could endanger national security.
Implications for supply chains
The new regulations have several implications for global supply chains:
- Increased compliance burdens. Companies involved in the export of dual-use items need to navigate complex licensing requirements and ensure strict compliance with end-user and end-use reporting obligations.
- Supply chain disruptions. The introduction of the unified list and the potential for temporary controls on certain items could lead to supply chain disruptions, particularly for industries reliant on dual-use technologies.
- Enhanced due diligence. Companies need to conduct thorough due diligence on their trading partners to avoid transactions with entities on the watch list or control list.
- Strategic planning. Businesses may need to reassess their supply chain strategies and consider alternative sourcing options to mitigate risks associated with the new export control regulations.
Conclusion
China's new export control regulations on dual-use items represent a significant development in the global regulatory landscape. Supply chain managers and businesses involved in the export of dual-use items must stay informed about these changes and take proactive steps to ensure compliance and mitigate potential risks. By understanding the key elements of the regulations and their implications, companies can better navigate the complexities of the new export control environment and maintain resilient and secure supply chains.