South China Morning Post
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Staff from China National Nuclear Corporation Southwestern Institute of Physics work in the vacuum chamber of the HL-2M Tokamak, China’s new-generation “artificial sun” in Chengdu, Sichuan province, on May 27, 2019. Nuclear technology is one of the areas covered by China’s new export control law. Photo: CNNC Southwestern Institute of Physics/Xinhua
Opinion
Bob Savic
Bob Savic

Are China’s export control law and the RCEP pulling in different directions? Not quite

  • Even as the world’s largest free-trade deal was being negotiated, China was drafting its export control law. This indicates that while Beijing is emphasising economic integration within Asia, its position is more defensive towards countries further afield
Bob Savic
Bob Savic
Why you can trust SCMP
For China’s policymakers, the Regional Comprehensive Economic Partnership marks a new milestone in Asian regional economic integration. In 2019, China’s total trade with RCEP member states accounted for about one-third of its total foreign trade, while investment from other RCEP economies made up more than 10 per cent of China’s total foreign investment.

After the agreement takes effect, which could be as early as mid-2021 depending on it being ratified by several countries, more than 90 per cent of the goods trade in the region will eventually achieve zero tariffs. According to estimates by international think tanks, by 2030, the RCEP is expected to drive a regional net increase of US$519 billion in exports and US$186 billion in national income each year.

As this unfolds, China’s policymakers are stepping up a more combative approach towards the US and other international players outside East and Southeast Asia.
Around the time the RCEP was in the final stages of negotiation, China was finalising its export control law, which took effect on December 1. It is the country’s first comprehensive law on export control, aiming to advance its interests and national security.

Importantly, the law has an extraterritorial ambit. It requires Chinese exporters and their overseas-based clients, whether businesses, organisations or individuals, to comply with the law or be subject to financial and other penalties in cases of endangering China’s security or interests. It also applies to countries or regions which pose a risk to these interests.

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RCEP: 15 Asia-Pacific countries sign world’s largest free-trade deal

RCEP: 15 Asia-Pacific countries sign world’s largest free-trade deal
Although the law does not target any specific overseas individuals, countries or regions, it is more likely to apply to places where similar rules have been enacted and employed against China, especially the United States and European Union.

The law’s broad remit and the threat to retaliate “if any country or region abuses export control measures”, may pose risks to those engaged in trade with China.

The final version of the law also distinguishes between national security and national interests, unlike previous drafts which referred to national security only. This differentiation separates control of exports based on foreign policy (including national security) from industrial policy interests, which would presumably focus on economic issues.

The new law prohibits or restricts the transfer of listed controlled items by Chinese exporters – whether companies or individuals – to parties abroad. The types of exports which are subject to control include technology in the form of goods or services related to national security and interests, items that have both civilian and military uses, and nuclear and military goods.

There is no exhaustive definition of what falls into these control lists as various branches of China’s government may publish their own versions containing additional items.

The new law does, however, contain a broad definition of what constitutes controlled export items. These include the provision of technical information and data to third parties. Transactions are also widely defined to include re-exports, such as transfers to third parties, a provision which mirrors the equivalent US law on “deemed” exports.

Unlike the US export control law, China’s version does not include rules on de minimis principles or whether foreign-produced items are a “direct product” of controlled technology. For instance, the US de minimis requirement considers non-US manufactured goods to qualify as US-origin where they contain certain percentages of US technology.

The government may also impose temporary exports controls on technology, whether as goods or services, not published on export control lists, for up to two years. These particular requirements, which are not typical of other countries’ export control laws, impose an additional burden on Chinese exporters and overseas parties.

The legislation also gives China the authority to take retaliatory measures against so-called excessive export control measures undertaken by foreign governments.

A promoter dressed to look like an astronaut walks past a robot at the China Beijing International High Tech Expo in Beijing, on September 17. Photo: AP
The export control law comes on top of an earlier piece of legislation, the Unreliable Entity List, which would apply to foreign organisations or individuals that pose a risk to national sovereignty, security or development.

Even though that law does not single out any country for sanctions, the timing of its launch, after the US government imposed sanctions on up to 300 Chinese technology companies, does indicate that certain foreign businesses which had blocked supplies to Chinese enterprises could come under its purview.

Chinese officials said the law was aimed only at very specific foreign operators and did not indicate a change in the government’s policy of attracting foreign investment.

The problem for many foreign companies operating in China with associated supply chains across East Asia is that growing sanctions, emanating from the US and other non-regional actors, and potentially from China itself, may ultimately dissuade them from maintaining a presence there, let alone establishing a new one.

Containers are piled up at a port in Qingdao, in eastern China’s Shandong province, on September 1. Photo: AP
As yet, no companies have been placed on the Unreliable Entity List, although China’s foreign ministry spokesman announced plans to sanction Lockheed Martin, Boeing Defence Space and Security and Raytheon, in retaliation for their arms sales to Taiwan. The Chinese government said the arms sales plan should be cancelled to avoid further damaging US-China relations.

The new laws suggest Beijing has modified its position somewhat on broader economic globalisation. The enactment of the new laws related to exports, alongside the launch of the RCEP, indicate a greater emphasis on deepening economic integration with East Asia and the nearby region, irrespective of increasing trade and political tensions with Australia, while engaging in a more reserved and defensive posture to economic relations further afield.

Bob Savic is director of ApacEuroTrade Inc in the Philippines, a visiting professor at Nottingham University, Asia Research Institute, UK, and a senior research fellow at the Global Policy Institute, UK

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