China’s revised controls on the export of technology: Possibly a significant escalation in US-China trade tensions

September 2020

As mentioned early on in the US-China trade dispute, China is not without its own methods with which to impact the bi-lateral trade in high-tech goods and technology. It seems after more than two years of some restraint in this regard, China is ready to initiate some of its own measures with more impact than simple tariffs. The impact on ByteDance and its rumoured sale of its US subsidiary have captured most of the attention. However, China’s regulatory change is likely to significantly impact not only multinational users of Chinese technology, but potentially even multinationals with research and design activities in China. The disruption and uncertainty to the trade in technology and high-tech dual-use goods has already begun mere days after its issuance and the worst may well be yet to come.

On 28 August, Announcement No. 38 was jointly issued by China’s Ministry of Commerce (MOFCOM) and the Ministry of Science and Technology, revising the Catalogue of Technologies Prohibited and Restricted from Export pursuant to the Regulations of the People’s Republic of China on the Administration of technology Import and Export (Order 709, amended 2019). These technology export regulations, which were initially promulgated in 2001 and amended in 2008, have become a greater focus of the Central Government as China has developed higher value home-grown intellectual property. Last month’s amendment to the catalogue of restricted and prohibited technologies is the first in more than 10 years with the previous catalogue having been issued in 2008.

A lot has been made in recent months regarding amendments to US export control regulations and enforcement measures targeting China and Hong Kong. Notably, adding prominent Chinese technology companies to the US Bureau of Industry and Security’s Entities List effectively cutting them off from controlled US semiconductor technology as well as amending the foreign direct product rule applicable to certain items produced outside of the US although within US export control jurisdiction. In addition, certain technical changes to license exceptions applicable to China and Hong Kong have also been issued that have cooled substantially the trade in high-tech dual-use goods and technology with end-users in China and Hong Kong. These measures from the US are, arguably, incremental tightening of pre-existing rules. The regulatory update discussed here breaks some new ground and raises new questions which are discussed in brief here.

 

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William Marshall

William Marshall
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