Date: Tuesday, October 20, 2020
Source: The Wall Street Journal
A new law will allow China to ban exports to protect national security, adding a versatile weapon to Beijing’s arsenal as it fights a war over trade and technology with the U.S.
The law, approved by China’s legislature over the weekend, authorizes tight restrictions on the sale abroad of dual-use goods with both civilian and military applications, nuclear materials and equipment, and other products and services that touch on national security.
Set to go into effect Dec. 1, the new legislation mirrors regulations the U.S. and other countries use to limit sensitive exports. It has been in the works for two years, but the timing of its passage means the Chinese leadership could use it to target exports to the U.S. as the two superpowers trade blows over everything from social media to semiconductors, said China-focused lawyers.
“With recent events, China feels a greater need to have this export law in place,” said Luo Yan, a regulatory lawyer at Covington and Burling LLP in Beijing. Chinese authorities feel that export-control measures have been used against Chinese companies and they need a way to reciprocate, she said.
The wording of the law, which spells out few specifics, makes it difficult to say exactly how it might affect U.S. companies.
“The precise point is we don’t know how they want to apply this,” said Ms. Luo.
The Trump administration has used the Commerce Department’s “Entity List” to block Chinese technology companies like telecom-equipment giant Huawei Technologies Co. from accessing critical U.S. goods and services, threatening their business. Washington has also moved to protect advanced technologies like artificial intelligence that it considers critical to national security, with a governmentwide directive for federal agencies to give priority to centrally designated technologies.
Ms. Luo pointed to a clause in China’s new law that allows for punishment of organizations and individuals outside the country’s borders, meaning Beijing could use it to try to limit goods it deems sensitive being sold from anywhere in the world. It potentially brings China in line with the U.S., which requires foreign companies selling certain products containing U.S. components to Chinese firms like Huawei to apply for permission from U.S. regulators.
Another provision allows China to target data associated with controlled items getting exported, meaning that both foreign and domestic companies conducting research and development in China then exporting goods and services abroad could get targeted. American tech companies Google parent Alphabet Inc. and Microsoft Corp. both maintain research labs in mainland China.
Alphabet and Microsoft didn’t immediately respond to requests for comment.
The law also allows China to take reciprocal measures if another country abuses its export controls to endanger China national interests. “That’s sort of a retaliation clause,” said Ms. Luo.
The Chinese government has had discretion to prevent certain goods from leaving the country, even before export-related restrictions came into effect. As the Covid-19 pandemic was gaining momentum in April, Chinese authorities held back U.S.-bound face masks, coronavirus test kits and other medical equipment, saying they needed to guarantee the quality of exported medical products and ensure that needed goods weren’t being shipped out of China.
In August, Beijing announced new restrictions on artificial-intelligence technology exports, complicating talks between ByteDance and potential American buyers. The Chinese firm is facing pressure from the Trump administration to quickly sell its popular app TikTok’s U.S. operations or face an effective ban on national-security grounds.
Last month, the Beijing leadership debated whether to publish a blacklist of U.S. companies that it had first announced in 2019 as an answer to the U.S.’s Entity List. Since October, the U.S. Commerce Department has imposed strict restrictions on dozens of Chinese companies and individuals buying American technology, with the Trump administration citing human-rights abuses in the far-western Chinese region of Xinjiang and other national-security concerns.
U.S.-based researchers have warned that Beijing might use its dominance in rare-earth minerals—critical to a variety of advanced technologies—as leverage against Washington. With its broad scope, the new law could give Beijing a mechanism for cutting off U.S. supplies of rare earths on security grounds.
The new export-control law gives China one more way to counter countries that may impose trade-related measures against China, as the U.S. has done, says Benjamin Kostrzewa, a former lawyer at the U.S. Trade Representative and a lawyer at Hogan Lovells in Hong Kong.
“China is expanding its legal options to respond,” he said.