Ref: : TRA CR 1015/37

Strategic Trade Controls Circular No. 7/02

Import and Export of Encryption Products

This circular intends to remind traders of the licensing requirement for the import and export of encryption products and introduce a newly-designed cryptography questionnaire (Annex C) (pdf format) which traders need to submit together with their licence or pre-classification applications. Circular No. 10/01 dated 23 October 2001 of the same subject is hereby superceded.

The Legal Basis

2. The legal basis for imposing licensing control over strategic commodities in Hong Kong is the Import and Export (Strategic Commodities) Regulations (to be referred as "the Regulations" hereafter) made under the Import and Export Ordinance, Chapter 60, Laws of Hong Kong. Articles contained in the Schedules to the Regulations are regarded as strategic commodities, the import and export of which must be covered by valid licences issued by the Director-General of Trade and Industry. The Regulations contain four Schedules. Schedule 1 is the full list of strategic commodities subject to import and export licensing control. Schedule 2 contains products which, in addition to being subject to import and export control, are controlled even if they are in transit through Hong Kong. Schedules 3 and 4 are items and activities subject to end-use control (also read paragraph 15 below).

Control on Encryption Products

3. Encryption products are controlled under the Wassenaar Arrangement (WA), an international control regime overseeing the controls over the transfer of both munitions list items and dual-use goods and technology. Encryption products fall under Category 5, Part 2 - Information Security of the Dual-use Goods List of the WA. In implementing licensing control on strategic commodities, Hong Kong follows closely the controls adopted by the international control regimes. According to the current control maintained by the WA, encryption products with a symmetric key length above 56-bits are subject to control. Accordingly, import and export of such encryption items are subject to licensing control under the Import and Export (Strategic Commodities) Regulations of Hong Kong. For traders' easy reference, the broad categorisation of encryption hardware, software and technology subject to control in Schedules 1 and 2 to the Regulations are set out below:

Note : The WA has not imposed specific control on Category 5C002 - Materials.

4. Traders should note in particular that encryption products also fall under Schedule 2 to the Regulations. This means that import and export licences are required even if these products are merely in transit through Hong Kong (i.e. the goods remain at all times on the vessel or aircraft in or on which they are brought into Hong Kong).

Exemptions of Control

5. While the Regulations impose control over encryption products with a symmetric key length above 56-bits, exemptions are granted for products, of whatever key length provided that they are under either one of the following scenarios:
   

   1. accompanying the user, for the user's personal use; or
      

   2. meeting all of the following conditions :
      

      1. Generally available to the public by being sold, without restriction, from stock at retail selling points by means of any of the following :
         

      • Over-the-counter transactions;
        

      • Mail order transaction;
        

      • Electronic transactions; or
        

      • Telephone call transactions;
        

      2. The cryptographic functionality cannot easily be changed by the user;
         

      3. Designed for installation by the user without further substantial support by the supplier; and
         

      4. When necessary, details of the items are accessible and will be provided, upon request, to the appropriate authority in the exporter's country in order to ascertain compliance with conditions described in paragraphs (a) to (c) above.

   (Prior classification by the Trade and Industry Department is required to determine if the product meets the criteria in paragraph 5 (ii) above. Details please refer to paragraph 7 (d) (ii) below)

   For details of the above exemptions, traders may refer to Notes 2 or 3 (also known as the Cryptography Note) under Category 5, Part 2 - Information Security of Schedule 1 to the Regulations. This part of legislation can also be found at our Strategic Commodities Control System Website (SC Website) at http://www.stc.tid.gov.hk/english/checkprod/cat5A002.htm.

Licensing Procedures

6. Licence applications for strategic commodities including encryption products should be made on Import Licence (Strategic Commodities) Form [TID 501] (pdf format) and Export Licence (Strategic Commodities) Form [TID 502] (pdf format) in triplicate. Applicants are required to attach a copy of the technical specifications/data sheets for each application to enable the Classification Section of the Trade and Industry Department to confirm whether or not the goods are strategic commodities. Licence applications should be submitted to the Strategic Trade Controls Branch at Room 516B on 5/F, Trade and Industry Department Tower. Approved import and export licences are valid for six months and three months respectively. Specimen of completed import and export licence applications are at Annexes A (pdf format) and B (pdf format) respectively.

Declaration and Supporting Documents

7. In addition to basic application particulars, the following information/documents will also be required to support a licence application covering encryption products :
   

   1. the name and full address of end-user;
      

   2. the specific end-use of the goods concerned;
      

   3. if the shipment is supported by an export/re-export authorization issued by the supplier (originating) country/place, essential details of the licence or licence exception;
      

   4. other supporting documents
      

      1. a copy of the export licence issued by the supplier (originating) country/ place of the goods giving explicit approval to the export/re-export concerned. If the foreign export licence is written in languages other than English or Chinese, a translated version (either in English or Chinese) prepared by a registered translation company in Hong Kong or certified correct by the relevant embassy in Hong Kong will be facilitative to the processing of the case;
         

      2. the technical specifications and/or the completed questionnaire (Annex C). Annex C (pdf format) is for ascertaining whether the products can meet the criteria listed in paragraph 5(ii) and giving the general technical features of the products. For facilitating purpose, Annex C has been revised to take into account the latest US export regulations on encryption products (paragraphs 11-12 refer) and added with more elaborated and illustrative examples. Such documents should be submitted for every product unless pre-classification has been made;
         

      3. the original End-user Statement duly completed by the end-user (Annex D (pdf format) for import licence application and Annex E (pdf format) for export licence application); and

   Depending on the circumstances of individual case, the following documents may also be required :

   4. original of the Importer/End-user Statement for supporting import licence applications covering the goods (for imports from the UK only) (Annex F) (pdf format); and/or
      

   5. documents in support of the business nature and production situation of the end-user (e.g. HKF5 Form at Annex G (pdf format)); and/or
      

   6. a copy of the valid business registration certificate of the applicant or local end-user; and/or
      

   7. an International Import Certificate or import permit/authorization issued by the relevant authorities of the importing/destination countries/places (for supporting export licence applications).
      

   Blank forms for Annexes C to H can be downloaded from the SC website at http://www.stc.tid.gov.hk/english/download/download.html.

Issuance of Licence

8. Under normal circumstances, applications duly completed and supported by the documents required will be processed within 2.5 clear working days after the date of submission of the licence application. They are ready for collection at Room 516B, 5/F of Trade and Industry Department. For cases with complications or if additional technical details, other documents and information and/or clarifications are necessary, it may take longer time to process the applications. Applicants may check whether their applications have been processed and are ready for collection by visiting the SC website at http://www.stc.tid.gov.hk. In any event, applicants are advised to submit their applications well in advance of shipments. Application forms that are not properly completed or not accompanied by all the necessary documentation will be deferred/rejected.
   

9. The Director-General of Trade and Industry may impose additional conditions on approved licences. At the time of receiving the licences, applicants are advised to read any additional conditions so imposed. For example, prior notice to and approval from the Department may be required if the goods are intended for further resale/transfer. In these cases, applicants should submit written application together with applicable supporting documents to the Strategic Trade Controls Branch of the Department. Applicant should state clearly the relevant Hong Kong licence number, description and quantity of goods concerned, information of the proposed recipients and end-users. Common supporting documents include but not limited to original enduser-statement duly completed by the proposed end-user, copy of business registration certificate of the proposed recipient and end-user, valid export permit/authorization issued by the product's originating/exporting country giving expressive approval to the proposed resale/transfer.

Pre-classification Service

10. For applicants who frequently import or export the same types of encryption products, it is advisable for them to make use of our pre-classification service. In brief, traders will be advised of the control status of a product through this service. Applicants should download the pre-classification application form from SC website, attach with corresponding technical specifications and where applicable, questionnaire(s) mentioned in paragraph 7(d)(ii) above. After pre-classification, the Department will assign a reference number on the case. By quoting this reference number on future applications covering the same goods, the requirement to submit the technical specification/data sheets is waived. For details of the pre-classification procedures, please refer to the relevant circular available in Room 516B of the Department or at the SC website at http://www.stc.tid.gov.hk/english/circular_pub/class_sc.html.

US' Control on Encryption Products

11. Traders importing/exporting encryption products of US-origin should be aware that the US Department of Commerce (DoC) has revised their control over encryption products since 6 June 2002. For details of the latest regulations, we would advise traders to consult their US exporters/manufacturers direct or to visit the relevant US Government's website at: http://www.bis.doc.gov
    

12. One major and important export control policy of Hong Kong is to maintain a licensing system for all strategic commodities including encryption products which is always complementary to the export control arrangement of our trading partners. For cases covering US-origin encryption products, licence applicants should provide additional supporting documents showing that the intended import/re-export is in full compliance with the US export regulations. Such supporting documents can be but need not be confined to: DoC's determination/ classification result indicating that the goods have been reviewed and classified to be eligible for export under Licence Exception Encryption Commodities and Software (ENC), US export licence, the review request/notification submitted by the products' manufacturer to DoC, manufacturer's certification letter etc..
    

13. For an overview on the controls of US-origin strategic commodities, traders may refer to our circular No. 4/02.

Articles in Transit

14. For applications covering transit of encryption products through Hong Kong, in addition to the requirements set out in paragraph 7 above, applicants should :
    

    1. submit import and export licence applications together to the Department; and
       

    2. declare on the licence applications that the goods are in transit, state the name of the vessel or flight number, and expected arrival and departure dates.
       

    Exporters may also be required to provide a landing certificate or delivery verification certificate issued by the country of destination to the Director-General of Trade and Industry within 12 weeks after the date of shipment.

End-use Controls

15. In addition to the control imposed on specific items as set out in Schedules 1 and 2 to the Regulations, traders are reminded that end-use control are imposed under Schedules 3 and 4 to the Regulations. The Regulations impose licensing requirement on articles specified in Schedule 3 to the Regulations (Annex H) (pdf format), or any technological document containing information relating to any such article:
    

    1. if the importer/exporter knows that the article or document is intended or likely to be used in any activity related to nuclear, chemical or biological weapons or missiles capable of delivering them as specified in Schedule 4 to the Regulations (Annex I (pdf format) refers); or
       

    2. if the importer/exporter has grounds for suspecting that the article or document may be used in any activity specified in Schedule 4.
       

    Import and/or export licences are required if the end-use of the goods fall under (a) and/or (b) above.

Reminder

16. Section 6A of the Import and Export Ordinance stipulates that no person shall import or export any article specified in the Schedules to the Import and Export (Strategic Commodities) Regulations except under and in accordance with a licence issued by the Director-General of Trade and Industry. Any person who contravenes the provision commits an offence and is liable :
    

    1. on summary conviction to a fine of HK$500,000 and to imprisonment for two years; and
       

    2. on conviction on indictment to an unlimited fine and to imprisonment for seven years.
       

    In addition to prosecution, the Department may impose administrative actions against these persons. Such administrative actions may involve but shall not necessarily be confined to, suspension of a licence, refusal to issue a licence, debarment of all licensing facilities, etc.

Enquiry

17. If you have any enquiry concerning licensing requirements for encryption products, please contact Miss Helen Cheng at 2398 5639. For specific technical questions or matters concerning classification of the goods and the pre-classification service, please call the general enquiry desk of the Strategic Trade Controls Branch at 2398 5587. Enquiry could also be sent by fax to 2396 3070 or by email to stc@tid.gov.hk.

Strategic Trade Controls Branch
Trade and Industry Department