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China's new Anti-Foreign Sanctions Law

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published on 26 July 2021 | reading time approx. 3 minutes

  

​Building on previous ministerial measures aimed at countering sanctions by foreign states, the Standing Committee of the 13th National People's Congress of the People's Republic of China promulgated the Anti-Foreign Sanctions Law on 10 June 2021, which took effect immediately without public consultation.

  

  

 
Although it contains only 16 articles, the Anti-Foreign Sanctions Law establishes, for the first time, a wide-ranging legal infrastructure and legislative base aimed at retaliating against sanctions imposed by foreign governments. However, even before the enactment of the Anti-Foreign Sanctions Law as legal basis, the Ministry of Commerce (hereinafter “MOFCOM”) inter alia issued two measures as tools against possible effects by foreign laws and sanctions, namely the MOFCOM Decree No. 4 [2020] on Provisions on the List of Unreliable Entities and the MOFCOM Decree No. 1 [2021] on Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (hereinafter “Blocking Statute”). Thus, the Anti-Foreign Sanctions Law confirms the legislative authority for existing measures and creates room for expanded measures in the future.

What you should know

Based on Art. 1 of the Anti-Foreign Sanctions Law, its purpose is to safeguard China's sovereignty, security and development interests and to protect the lawful rights and interests of Chinese citizens and organizations. Therefore, in its Art. 3 the Anti-Foreign Sanctions Law provides the legal basis for China to take corresponding countermeasures, where any foreign country (1) uses various excuses or in accordance with its own laws contains or suppresses China, (2) adopts discriminatory and restrictive measures against Chinese citizens and organizations or (3) interferes in China`s internal affairs. 

In addition, Art. 15 of the Anti-Foreign Sanctions Law, which not only targets specific acts of foreign countries but also may target specific acts of foreign organizations or individuals, gives room for further countermeasures in case the sovereignty, security and development interests of China are threatened. 

Articles 4 and 5 of the Anti-Foreign Sanctions Law describe against whom such countermeasures might be taken. The Anti-Foreign Sanctions Law provides for a new sanctions list named the Countermeasure List. Art. 4 states that individuals as well as organizations that have directly or indirectly participated in the formulation, decision on or implementation of discriminatory restrictive measures may be included into the Countermeasure List. In addition, Art. 5 defines further targets subject to countermeasures, namely
  • Spouses and immediate family members of individuals included in the Countermeasure List;
  • Senior executives or actual controllers of organizations included in the Countermeasure List;
  • Organizations where individuals included in the Countermeasure List serve as senior executives; and
  • Organizations which are actually controlled, established, or operated by listed individuals or organizations.

This obviously broadens the scope of possible extended targets. One or more of the following measures can be taken against individuals and organizations in light of the actual situation: 
  • Denial of visa issuance, denial of entry, deregistration of visa or deportation;
  • Seizure, distraining or freezing of movable or immovable property and other types of property within the territory of China;
  • Prohibiting or restricting the organizations or individuals within the territory of China to carry out relevant transactions, cooperation or other activities with them; and
  • Other necessary measures.

Especially the catchall provision “other necessary measures” gives the relevant departments of the State Council a wide discretion on possible countermeasures and empowers them to devise any sanctions or restrictive measures they deem appropriate. 

The Anti-Foreign Sanctions Law also imposes broad compliance obligations. Organizations and individuals within the territory of China shall carry out the countermeasures taken by the relevant departments of the State Council. Otherwise they will be subject to legal liability in accordance with the law, and such individual or organization will be restricted from engaging in the relevant activities. 

Art. 12 of the Anti-Foreign Sanctions Law also sets a broad prohibition for individuals and organizations on “implementing or assisting in implementing the discriminatory restrictive measures taken by any foreign state”, without specifying these terms. 

It is noteworthy that the decisions made by the relevant departments shall be final, meaning that the relevant party cannot apply for administrative reconsideration or bring an administrative lawsuit.  

Furthermore, Art. 12 gives Chinese citizens and organizations the right to bring a lawsuit to the people`s court and seek cessation of the infringement and compensation for losses. 
In general also foreign individuals and organizations without presence in China may be subject to civil litigation claims in China, as the Anti-Foreign Sanctions Law leaves the door open for an extraterritorial effect. However, considering the legal obstacles associated with enforcing a Chinese judgment abroad, the actual threat can be considered as rather low where a foreign company does not have a presence or assets in the PRC. 


It is noteworthy that the decisions made by the relevant departments shall be final, meaning that the relevant party cannot apply for administrative reconsideration or bring an administrative lawsuit.   


Recommendations

  • Evaluate your own business and supply chains and assess the potential exposure to conflicting sanctions of other legislations relevant to you
  • Keep track of new developments in anti-sanctions legislations which are relevant for your business
  • Review and improve your compliance system, for instance by refraining from doing business with individuals and organisations mentioned in the Countermeasure List
  • Consider including sanctions clauses into existing and future contracts and templates
  • Develop a contingency plan in order to minimize legal risks and potential losses

In a nutshell

The Anti-Foreign Sanctions Law has been enacted by the highest legislative body in the PRC as a legal basis for countermeasures against foreign sanctions. 

Although certain aspects within the Anti-Foreign Sanctions Law have not been defined yet and are still unclear, both Chinese and foreign-invested companies as well as individuals should carefully assess their own risk, particularly those who may be subject to conflicting legal obligations, for instance when operating in China and the US. 

It remains to be seen how the Anti-Foreign Sanctions Law will be enforced and implemented in practice, and how certain aspects of the Law will be further clarified. 
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