It is well known that China is a top source of U.S. goods imports. What isn’t as widely publicized is that China is a top destination for U.S. exports. In fact, U.S. firms export $180 billion in goods and services to China each year, which represents an increase of over 500% since China joined the World Trade Organization in 2001.
Contrary to common belief, shipping containers heading west across the Pacific Ocean are filled with more than soybeans and scrap metal. Aircraft, chemicals, electronics and production equipment are some of the top exports…and are all areas of potential export control concern.
Complying with U.S. export controls can be complex – overwhelming, even – for many U.S. companies, no matter which country you seek to export items into. Yet, China presents a distinctly different risk profile from other top U.S. export destinations such as Canada, Japan and Germany, all of which are longstanding allies and members of the major multilateral export control regimes. Not only do more items require a license for export to China than to most other countries, U.S. export enforcement authorities are today more keenly focused on China than ever.
So, how can you successfully navigate export controls and achieve compliance in your efforts to export items to China? Consider three strategies:
(1) Understand how basic U.S. export controls apply to your specific item or items. While there are limited exceptions for China and other countries (see below), at least some level of export controls generally apply to nearly all items being exported from the U.S. Therefore, your first task is to determine the proper jurisdiction for your products, technologies or services. This is essential; if you begin by heading down the wrong path, you could waste considerable time, money and effort in the process. And you might expose your organization to significant legal risk. For more on how to establish jurisdiction under the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR), read our recent blog, “Export Compliance Basics of ITAR and EAR – Understanding Key Terms, Issues, Similarities and Differences.”
Once you establish jurisdiction, you’ll need to determine whether the item or items you seek to export to China require a license. If the item is a defense article or defense service described on the ITAR’s U.S. Munitions List (USML), the answer is easy—a license is required. But most items are subject to the EAR, which means a careful review of the Commerce Control List (CCL). Within the CCL there are 10 distinct categories, each with five product groups. Each individual entry in the CCL is an Export Control Classification Number (ECCN). Look for the ECCN that matches your item—and if you’re unsure, you should get the right training or consult with an experienced export compliance professional to be absolutely certain.
One final note on this subject: U.S. export controls apply to more than just finished products. For example:
- Drawings your purchasing department sends to Chinese suppliers…
- Parts or materials you export to China for processing or assembly…
- Technology transfers required for a new joint venture…
- Chinese nationals recently hired as design engineers…
The list goes on, so it’s very important that you cover all your bases as you pursue export compliance.
(2) Keep abreast of recent developments around China-related export controls and exceptions. Recent changes in U.S. export control regulations with regard to China pose new challenges for U.S. companies. If your company seeks to export items to China, it’s essential you understand these and deploy the necessary export compliance strategies.
For example, the U.S. government recently expanded its definition of what is considered to be a military end use or end user. In addition, the CCL subset of affected items has grown—and those items (which notably include many aircraft parts) now require a license for military end uses and military end users in China.
Additionally, the ITAR and EAR historically have distinguished between mainland China and Hong Kong, treating each destination separately for the purpose of determining license requirements. Yet recently, the U.S. has largely eliminated the dividing line between mainland China and Hong Kong, rendering Hong Kong subject to the same export controls as mainland China. The upshot? Many items which could at one time be exported to Hong Kong without a license now require one.
Then there is the issue of license exceptions. In most cases, U.S. exporters prefer not to obtain a license if it’s not necessary, since doing so invites close scrutiny from U.S. government officials (and by extension, uncertainty). While specific exceptions apply to U.S.-based exports to China, some that were in place for decades recently have been eliminated. Therefore, making incorrect assumptions or relying on an outdated understanding could lead to costly penalties.
(3) Execute with relentless precision. Again, given increased focus on U.S.-China export regulations (and the evolving relationship between the countries), you are more likely to need a license to do business with China—and you are more likely to get caught if you proceed in violation of the rules. Therefore, it’s imperative to:
- Determine the correct jurisdiction and classification for your products and technologies
- Follow the proper steps to determine if a license is required
- Identify potential pitfalls and avoid them along your export compliance journey
ECTI Live Webinar Focuses on Export Compliance Success for China Exports
Getting things done properly without breaking U.S. export control rules should be the goal of any U.S. company that seeks to export items to China. As mentioned, recent changes in U.S. export control regulations pose new challenges. Now, a September 29 live webinar, “A New World of Export Controls for China” hosted by the Export Compliance Training Institute. (ECTI) highlights all the important new developments and offers strategies for effectively managing China export compliance.
- Identifying hardware, software and technology which requires a license for export to China
- License exceptions which can overcome certain license requirements
- Details on the recent expansion of military end-use and/or end-user restrictions in China
- The changing status of Hong Kong
- The growing number of Chinese entities on the Entity List and Unverified List
- Options for vetting Chinese customers and other business partners
- Considerations when procuring items from Chinese companies
- Deemed export concerns in employing Chinese nationals
- Illustrative case studies
As we’ve said in previous blogs, complying with U.S. export controls is no easy task. If you are the person in your organization who’s responsible for handling export compliance issues and ensuring successful compliance, there’s a lot riding on your shoulders. Failure to achieve compliance could put your organization at unnecessary risk of financial penalties, and non-compliance can also result in substantial loss of time, money and effort.
We hope this article illuminates some of the key issues surrounding compliance with U.S. export controls as they pertain to China exports. Your company’s investments rely on achieving 100% compliance with all applicable export regulations and controls. That said, it is absolutely achievable—you can do it, provided you take the necessary time up front to align with an established and widely acclaimed export compliance training partner who can guide you step by step toward compliance success.
Do you have questions about exporting to China, U.S. export controls or other export compliance challenges? Visit www.learnexportcompliance.com to learn about our company, our faculty, our staff and our esteemed Export Compliance Professional (ECoP®) certification program. To find upcoming e-seminars, live seminars and live webinars and browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You can also call the Export Compliance Training Institute at 540-433-3977 for more information.
Scott Gearity is President of ECTI, Inc.