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New Export Laws Coming to China?

According to a survey released in January 2017 by the American Chamber of Commerce in China, U.S. companies have already started to reconsider doing business in China for a number of reasons.

The labyrinth of regulatory hurdles, the ever-increasing competition from domestic companies, the slowing economy, and chilling social reception (among other restrictive factors like new digital laws), have combined to discourage investment.

The survey revealed more than half of businesses felt they were treated unfairly, and that in light of favorable policies domestic businesses enjoyed significant advantages. Even more eye-opening was that 56% of companies felt China was among their top priorities, down from 78% in the 2012 poll. Taking into account the one-fourth of U.S. companies that plan to, or have already moved capacity out of China to Southeast Asian nations like Indonesia and Vietnam, the downward trends look even bleaker.

Now, further restrictions look to add to encourage further divestment.

Six months ago, China took a huge step toward comprehensive export control law when the Ministry of Commerce released the draft of the Export Control Law of the People’s Republic of China.

The World Trade Controls blog reported that it would impact a vast range of industry, from the chemical and industrial to tech and that the drafted legislation was to reach the National People’s Congress in 2018. According to David Stepp, a partner at an international law firm with offices in China, the specific U.S. industries set to be affected in the event of ratification:

  • aerospace,
  • military and defense
  • energy
  • material-processing
  • electronics
  • semiconductor
  • navigation

If the drafted law is enacted, Beijing will have the authority to retaliate against U.S. companies that implement discriminatory export controls aimed at China. 

Among the specific U.S. companies that operate facilities in China are Intel Corp. (semiconductor maker), Dow Chemical Co. (with facilities in Shanghai), Esterline Technologies Corp. (defense and aerospace technology). These could all potentially be impacted by the legislation.

A list of the exact goods to be controlled has yet to be released, but one closely resembling the Wassenaar Arrangement is likely. The 1996 agreement, with 41 participating countries, comprises a multilateral list of controlled items according to counsel at Bryan Cave, Robert Clifton Burns.

Those involved in the export process of controlled goods -- exporters, end users, agents, foreign importers, customs brokers, freight forwarders e-commerce platforms and financial service providers -- would be required to obtain an export license from the proper authorities.

Heading into 2018, it's apparent U.S. businesses face increasing hurdles to doing business in China.

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