The Challenge
Our client, a mid-sized Japanese manufacturer of semiconductor fabrication equipment, had operated in China for over 15 years. Their China subsidiary in Suzhou handled sales, service, and some technical support.
In 2023, amid heightened geopolitical tensions, China updated its Export Control Law implementation rules. The company's compliance team became concerned about three product lines that might require export licenses:
- Lithography alignment systems — precision positioning technology
- Wafer inspection equipment — defect detection systems
- Process control software — semiconductor manufacturing optimization
The stakes were significant:
- $50M+ annual revenue from China operations
- Risk of criminal penalties for unauthorized exports
- Potential blacklisting affecting global operations
- Supply chain disruption for downstream customers
Our Approach
1. Control List Classification (6 weeks)
China's export control regime uses multiple control lists. We systematically analyzed each product against:
- Dual-Use Items and Technologies Export Control List
- Controlled Goods List
- Unreliable Entity List implications
- Technology Import/Export Catalogue
For each product, we prepared detailed classification memos documenting our analysis and conclusions.
2. End-Use/End-User Assessment
Export controls depend not just on what's being exported, but to whom. We:
- Reviewed customer list for any controlled entities
- Implemented enhanced screening procedures
- Developed end-use certificates for sensitive transactions
3. License Applications (8 weeks)
For products requiring licenses, we prepared and submitted applications to the Ministry of Commerce (MOFCOM), including:
- Detailed product specifications
- End-user information and certifications
- Intended use documentation
- Company compliance program evidence
4. Internal Compliance Program (ongoing)
We helped establish an ongoing compliance program:
- Transaction screening procedures
- Red flag checklists for sales team
- Regular training for technical staff
- Audit protocols for technology transfers
Key Findings
Product Line 1 (Lithography Alignment)
Classification: Controlled under dual-use items list. Required export license for transfers to certain end-users. License obtained after 10-week review.
Product Line 2 (Wafer Inspection)
Classification: Below control thresholds based on technical specifications. No license required, but documentation maintained for audit purposes.
Product Line 3 (Process Control Software)
Classification: Technology transfer controls apply. Required license for providing software updates and technical support to China subsidiary. License obtained after 12-week review.
Lessons for Other Companies
- Classification is not obvious. Technical specifications matter enormously. "Semiconductor equipment" isn't a useful category—specific parameters determine control status.
- Software and data are controlled. Many companies focus on physical products and forget that technical data, software, and even verbal technical assistance can be controlled.
- China's regime is evolving. What didn't require a license last year may require one now. Ongoing monitoring is essential.
- Document everything. Good records of your classification analysis protect you if questions arise later.
- Internal transfers count. Sending technical data from Japan HQ to China subsidiary is an "export" under Chinese law.