On December 10, 2009, the State Administration of Encryption (SAE) and the General Administration of Customs (GAC) jointly released a circular (Circular)1 together with a catalogue (Catalogue)2 as an attachment to the Circular, which mandates that importers of encryption products listed in the Category must first receive an Import Permit from the Office of State Commercial Cipher Administration (OSCCA) in order for such products to clear customs.

The R&D, production, sale and use of encryption products are each strictly controlled in China. The Administrative Regulation on Commercial Encryption and the Administrative Provisions on the Use of Commercial Encryption Products make it clear that domestic individuals and entities should not use foreign-produced encryption products, and only foreign-invested companies in China3 can apply to OSCCA to use foreign-produced encryption products for the purpose of maintaining the same technical standards as their foreign investors. An approved foreigninvested company will be required by customs to present the Import Permit issued by OSCCA when importing relevant encryption products into China.

However, prior to the issuance of the Circular and the Catalogue, it was unclear what products would be classified as encryption products because no encryption related laws and regulations had defined the term “encryption product”. In practice, some companies knowingly or unknowingly import foreign-produced encryption products into China for use without receiving the Import Permit, and customs officials have found it difficult, due to the lack of detailed rules, to determine what products should be classified as encryption products and thus require an Import Permit.

The Circular and the Catalogue demonstrate the Chinese government’s attempt to strengthen its regulation of the import of foreign-produced encryption products. According to the Circular, customs officials will release imported products falling under the Catalogue only if the importer has received an Import Permit from OSCCA. The Catalogue includes, among others, encrypting fax machines, wireless encrypting telephones, optical communication encrypting routers, and encryption machines and encryption cards. For products not included in the Catalogue, the Circular states that if an importer know or should have known that the imported products contain encryption technology, it should still apply to OSCCA for an Import Permit and present the Import Permit when clearing customs. In the event of failure to submit an Import Permit for the imported products requiring an Import Permit, the products may be detained and the importer may face a fine.

An Import Permit will not be required under any of the following circumstances: (1) in processing trade situations, the imported goods are bound to be exported; (2) under the supervision of customs officials, goods are imported temporarily and will be exported; and (3) goods enter China’s bonded areas, export processing areas and other such special areas, or flow among these special areas. It should be noted that an Import Permit will not be required if encryption products come from the above special areas into a normal area of China.