A multinational carries out export business of certain product from China. Prior to export declaration to the customs, the company obtained a classification opinion from a consultant. The HS code as suggested by the classifying consultant was not subject to any export license requirement. However, the export declaration was not accepted by the customs who raised a challenge that the export product was most probably subject to Export License For Dual-Use Items and Technologies (“Dual-Use Items License”). As per request by the customs, the company consulted with the Ministry of Commerce (“MOFCOM”) from which the company received a letter of reply stating that the product to be exported was indeed subject to Dual-use Items License requirement. Because of this requirement, the Anti-smuggling Bureau of Customs initiated investigation into the case, seized the product to be exported and extended its investigation into two exported shipments of allegedly the same product as no license was produced to the customs. . The company was suspected to have evaded the export license control. This crisis endangered its export business from China, and exposed the company to potential administrative and even criminal liability risks as well.
- What are Dual-use Items and Technologies?
Dual-use Items and Technologies refer to such items and technologies that could be used not only for civil purposes but also military purposes. MOFCOM together with the General Administration of Customs prescribed the Catalogue of Dual-Use Items and Technologies Subject to Import and Export License Administration (“Catalogue”). Any item or technology falls into the control scope is subject to the Dual-use Items License for exportation or importation.
- Is the duel use item license necessary even when the Catalogue does not cover the HS code of the given product?
The Catalogue is distinguished from other lists of import and export license in that the Catalogue does not always list the HS code for each controlled item. A product may still fall into the scope of the Catalogue even though the HS code of a given product is not included in the Catalogue.
- Is the Catalogue the Only Basis for Dual-use Items Control?
No. the Catalogue is not the only basis for determining the scope of dual-use items. If the exporter knows or should have known, or is notified by the relevant administrative department of the State Council that its items and technologies intended for export has a risk of being used for weapons of mass destruction and its carrying vehicles, the exporter is obligated to apply for the Dual-use Items License, regardless of whether such items and technologies are listed in the Catalogue.
- How does the Exporter Deal with Customs Request for Dual Use Item License?
When the company is requested by the customs to consult with MOFCOM for product to be exported, it is advisable that the detailed product information and end use explanation should be included in the statement. In the meantime, factual and legal defenses should also be well prepared if needed.
In the current case, as the letter of reply from MOFCOM was made based on the insufficient documents previously submitted by the exporting company, the opinion from MOFCOM did not reflect the true nature of the product. With our advice, the exporter initiated another consulting process with MOFCOM with clear and sufficient product information and defenses, which eventually accepted by the expert committed entrusted by MOFCOM. MOFCOM finally determined that the product did not fall into the scope of the Catalogue, nor was exposed to the risk of being used for weapons of mass destruction and their carrying vehicles, and therefore the product was not subject to the dual-use items license. This favorable result has saved the exporting business of the company. The ASB also withdrew its investigation decision based on this new confirmation from MOFCOM.
Therefore，in order to avoid such a governmental investigation crisis, it is advised that the company may initiate a consulting to MOFCOM when whether or not to apply for the Dual-use License can still not be decided even after consulting the Catalogue.
- The export and import of Dual-use Items and Technologies Must Be Placed under Legal Risk Management
Given the technicality and complexity of dual-use item and technology control, the export or import of dual-use items and technologies must be placed under control by the legal department or compliance department, and an internal control regime for export and import is advised to be well established within a company, otherwise, the company may run the risk of administrative penalties or even criminal liabilities.