Strategic Trade Controls Circular No. 7/2009

Import and Export of Encryption Products

This circular reminds traders of the licensing requirements for the import and export of encryption products. Circular No. 12/2004 dated 16 April 2004 of the same subject is hereby superceded.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 (also read paragraph 18 below). Schedules 3 and 4 are items and activities subject to end-use control (also read paragraph 19 below).

Control on Encryption Products

3. In implementing licensing control on strategic commodities, Hong Kong follows closely the controls adopted by the international control regimes. Encryption products are controlled under the Wassenaar Arrangement (WA), an international control regime overseeing the controls over the transfer of both munition items and dual-use goods and technology. Accordingly, encryption products may fall under "Category 5, Part 2 - Information Security" of the Dual-use Goods List of Schedule 1 to the Regulations. Import and export of the encryption products so specified are subject to licensing control.
   
   
4. Traders should note that encryption products may 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). Please also refer to paragraph 18 below.
   

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.

(Classification advice by the Trade and Industry Department ("TID") is required to determine if the product meets the criteria in paragraph 5 (ii) above. Details please refer to paragraph 7 (e)  below)

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

Licensing Procedures for Paper Applications

(A) Application Forms

6. Licence applications should be made on Import Licence (Strategic Commodities) Application Form [TID 501 (Rev 2009)] (Annex A) (fillable pdf format) or Export Licence (Strategic Commodities) Application Form [TID 502 (Rev 2009)] (Annex B) (fillable pdf format)  respectively. These forms are free of charge and available at the Customer Service Center of Strategic Trade Controls Branch at Room 516B on 5/F, Trade and Industry Department Tower, 700 Nathan Road, Kowloon. They can also be downloaded from the SC Website at http://www.stc.tid.gov.hk. Applicants are required to attach a copy of the technical specifications/data sheets for each application to enable the Classification Section of TID to confirm whether 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. A numbered receipt will be issued for each licence application. 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 C (pdf foramt) and D (pdf format) respectively.

(B) 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 :
   
   a. the name and full address of end-user;
   
   b. the specific end-use of the goods concerned;
   
   c. 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 and a copy of the export/re-export authorization issued by the supplier (originating) country/ place of the goods giving explicit approval to the export/re-export concerned. If the licence/authorization 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 consulate offices in Hong Kong will be essential to the processing of the case;
   
   d. if government end-users are not covered by the export/re-export authorization issued by the supplier (originating) country/place: a declaration "Goods will not be used by or transferred to any government end-user" undertaken by the applicant in the application; and
   
   e. the technical specifications and/or the completed Cryptography Questionnaire (Annex E) (fillable pdf format). This questionnaire is for ascertaining whether the products can meet the criteria listed in paragraph 5(ii) and giving the general technical features of the products. Such documents should be provided for every product unless pre-classification has been made (please refer to paragraph 15 below);
   
   f. Depending on the circumstances of individual cases, the following documents may also be required for certain applications:
   
   
   i. the original End-user Statement duly completed by the end-user (Annex F (fillable pdf format) for import licence application or Annex G (fillable pdf format) for export licence application); and/or
   
   ii. original of the Importer/End-user Statement for supporting import licence applications covering the goods (for imports from the UK only) (Annex H) (fillable pdf format); and/or
   
   iii. documents in support of the business nature and production situation of the end-user (e.g. HKF5 Form at Annex I) (fillable pdf format); and/or
   
   iv. a copy of the valid business registration certificate of the applicant or local end-user; and/or
   
   v. an International Import Certificate or import permit/authorization issued by the relevant authorities of the importing/destination countries/places (for supporting export licence applications).

The Director-General of Trade and Industry at all times reserves the right to request additional information and further documentary proof to substantiate the licence applications. Applications that are not properly completed or not accompanied by all the necessary documentation will be deferred/rejected. Blank forms for Annexes A, B, E to I can be downloaded from the SC website at http://www.stc.tid.gov.hk/english/download/by_formno.html.

Licensing Procedures for General Electronic Applications

8. Companies can also apply licences electronically ("E-Applications"). The E-Applications for import and export licences can be made through companies' E-Accounts in the SC Website at http://www.stc.tid.gov.hk > Login Your E-Account > E-Applications > Import /Export Licence Applications. E-Applicants should provide requisite supporting documents as set out in paragraph 7 above. The forms mentioned in paragraph 7(e) and (f) can be downloaded for completion if necessary. Afterwards, E-applicants should scan, upload and lodge the duly completed forms together with the related E-Import/Export Licence Application. In cases where government end-users are not covered by the export/re-export authorization issued by the supplier (originating) country/place, the applicant should include the standard declaration "Goods will not be used by or transferred to any government end-user" by activating relevant checkbox under the section "Additional Declarations (only applicable in specific types of applications)". Upon successfully lodging the application, E-Applicant should follow the instructions to print out by themselves the receipts for future collection of the approved licences. For applications which are subject to the requirement of End-user Statements, Importer/End-user Statements and/or HKF5 Forms as set out in paragraph 7 (f) above, the provision of scanned copy will only serve to facilitate TID in processing their applications more expeditiously. Applicants should, after making the E-Applications, make sure to deliver the original signed End-user Statements, Importer/End-user Statements and/or HKF5 Forms to TID as soon as possible. TID will withhold the issuance of licences unless and until the original End-user Statement(s)/ Importer/End-user Statement(s) /HKF5 Form(s) are received.
   
9. To make E-Applications, companies are required to complete a special registration with TID in advance. Details of the special registration and other requirements for the use of E-Applications can be found in the specific sections in the SC Website: http://www.stc.tid.gov.hk/english/circular_pub/files/open_e-account.htm .

10. Companies which frequently import encryption product from the same supplier or frequently export encryption product to the same consignee may apply to join the Approval-in-Principle Arrangement (AIP). For further information on AIP for encryption products, please refer to Strategic Trade Controls Circular No. 3/2007.

Issuance of Licence

11. For paper and general electronic licence applications, paper licences will be issued upon licence approval. 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 receipt 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 lodge their applications well in advance of shipments. Approved import and export licences are valid for six months and three months respectively.

12. On top of the standard licence conditions, the Director-General of Trade and Industry may, depending on the circumstances of individual cases, impose special and additional conditions on approved licences. At the time of receiving the licences, companies are advised to read the designated part, "Licence Conditions", for the imposition of both the standard and special conditions.

13. For encryption products, one very common special licence condition is that "No further re-exports, resale, transfer, or disposal of the goods without prior notice to and approval from the Director-General of Trade and Industry". Licensees imposed with this condition should be very careful in handling any subsequent resale/transfer/disposal of the goods covered by the licence. They should lodge with the Strategic Trade Controls Branch written applications made in the designated form SC047 (Annex J) (fillable pdf format). To facilitate TID's consideration of the applications, licensees should enclose in their applications supporting documents like copy of business registration certificate of the proposed recipient and end-user and valid export permit/authorization issued by the product's originating/exporting country (place) giving approval to the proposed resale/transfer. Depending on the circumstances of individual cases, further supporting documents like original end-user statement duly completed by the proposed end-user may also be required. TID will give due consideration for the application and notify the licensee in writing whether the request can be approved. Only after TID's written approval has been obtained should the licensee proceed with the resale/transfer/disposal of the goods. Otherwise, the licensee would have, among others, breached the licence conditions.

14. Companies can also apply electronically for resale/transfer/disposal of strategic commodities provided that the relevant import licences are obtained through E-Applications. E-Applications for resale/transfer/disposal can be made through companies' E-Accounts in the SC Website under the program of " Resale/Transfer/Disposal of Products Under Approved Import Licence" provided at the E-Application menu (At http://www.stc.tid.gov.hk > Login Your E-Account > E-Applications > Resale/Transfer/Disposal of Products Under Approved Import Licence). E-Applicants could efficiently know the results of their applications by checking the application status through their E-Accounts. Once the application is approved, the applicants can simply print out by themselves the approval status of the application as an evidence of TID's approval for the resale/transfer/disposal request. (At http://www.stc.tid.gov.hk > Login Your E-Account > E-Applications > Resale/Transfer/Disposal of Products Under Approved Import Licence > Check Previously Submitted Applications for Resale/Transfer/Disposal of Products Under Approved Import Licence).
    

Pre-classification Service

15. 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. Traders may download the pre-classification application form SC013 (Rev 2004) (fillable pdf format) from the SC website, and make applications attached with corresponding technical specifications and where applicable, questionnaire(s) mentioned in paragraph 7(e) above. After pre-classification, the Department will assign a Pre-Classification Reference Number to the product concerned. By quoting this reference number on future licence applications covering the same goods, the requirement to provide the technical specification/data sheets is waived. For details of the pre-classification procedures, please refer to the relevant information in the SC website at http://www.stc.tid.gov.hk/english/circular_pub/stc5_04.html .

Export Control of Originating/Supplier/Foreign Exporting Country (Place) on Encryption Products

16. Traders should note that the originating/supplier/exporting country (place) of encryption products, especially if it is a member of the Wassenaar Arrangement ^Note, may impose export control over the products by ways of individual licence, general licences, licence exceptions or other mechanisms. Since it is the policy of Hong Kong to maintain a licensing system complementary to the export control arrangement of our trading partners, TID will only approve licences to cover shipments that are in full compliance with the export control regulations of the originating/supplier/exporting country (place). To ascertain such compliance, licence applicants are required to provide additional supporting documents that may include, but shall not necessarily be confined to: the relevant government authorities' determination/ classification result indicating that the goods have been reviewed and classified to be eligible for export to the proposed destination(s)/end-user(s), individual export licence, the review request/notification submitted by the product's manufacturer to the relevant government authorities, manufacturer's certification letter etc.
    
    
17. For US-origin encryption products, traders should be aware that the US Department of Commerce (DoC) revises their control over encryption products from time to time. In addition to individual licences, US Licence Exception ENC might be applicable to certain products subject to prior authorization from the DoC. Exports of certain type of encryption goods to specific type of end-users or countries (places) might not require prior review. For details of the US' 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. For an overview on Hong Kong's controls of US-origin strategic commodities, traders may refer to our circular No.3/2009.
    

Articles in Transit

18. For applications covering transit of encryption products through Hong Kong, in addition to the requirements set out in paragraph 7 above, applicants should :
    
    
    1. lodge import and export licence applications together to the Department; and
       
       
    2. declare on the licence applications that the goods are in transit, state the transport mode and name of the vessel or flight number, and expected arrival and departure dates. For E-Applicants, tailor-made declaration for this purpose is available for selection at Part I "Preparation of Declaration Lists" of the E-Import Licence Application menu.
       
       
    Exporters may also be required to provide a landing certificate or delivery verification certificate issued by the country (place) of destination to the Director-General of Trade and Industry within 12 weeks after the date of shipment.

End-use Controls

19. 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 K) (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 L (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

20. 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

21. If you have any enquiry concerning licensing requirements for encryption products, please contact our Licensing Section at 2398 5575. For specific technical questions or matters concerning classification of the goods and the pre-classification service, please contact our Classification Section at 2398 5587. Enquiry could also be sent by fax to 2396 3070 (Liscensing Section) or 3525 1526 (Classification Section) or by email to stc@tid.gov.hk.
    

Strategic Trade Controls Branch
Trade and Industry Department