China Issues its 'Blocking Statute'
China Administrative Law Alert
On June 10, 2021, China’s National People’s Congress Standing Committee passed the Anti-Foreign Sanction Law which comes into effective immediately. Similar to the EU’s “Blocking Statute”, the Law created a legal framework that will block the impact of the foreign sanctions on Chinese persons, prohibited relevant persons from following specific foreign sanctions, authorized the Chinese government authorities to launch retaliations and allowed relevant Chinese persons subject to the foreign sanctions to claim damages. Below we comment on the key aspects of the Law.
1. Foreign Sanctions
The Law stated that it will protect the Chinese citizens and organizations from “discriminative measures of foreign countries”. Although the scope of “discriminative measures” or “discriminative and restrictive measures” is not clearly defined in the Law, it may eventually cover a wide range of foreign laws and sanctions affecting Chinese persons and entities.
2. Countermeasure List
The Law gives the State Council (China’s highest and central administrative body) and its departments the power to include any person and organization who directly or indirectly involves in the creating, decision making and implementing of discriminative and restrictive measures into a countermeasure list and impose countermeasures to those persons and organizations.
Apart from those persons or organizations on the list, countermeasures may also be imposed on their spouses, direct relatives, senior executives and ultimate beneficial controllers, the organizations in which the listed persons serve as senior executives and the organizations controlled, established or operated by the listed persons or organizations.
3. Countermeasures
The Law empowered the Chinese government authorities to impose the following countermeasures on the relevant persons and organizations:
- Denial of visa application, entry rejection, visa cancellation or deportation;
- Detention, seizure and frozen of movable properties, real estates and other assets in China;
- Prohibition or restriction on the organizations and persons in China from making transactions, collaborations and other activities with the relevant persons and organizations; and
- Any other necessary measures.
It should be noted that, Chinese government authorities have been granted with unlimited powers to launch countermeasures. Furthermore, the government’s decisions regarding to the Countermeasures List and the relevant Countermeasures are final, which implies that such decisions may not be subject to administrative review or court review. Therefore, the affected persons and organizations may not be able to seek any remedy within the Chinese legal regime.
4. Cooperation Obligations
The Law stated that the organizations and persons in China shall have the obligations to implement the countermeasures adopted by the Chinese authorities. Any persons or organizations failed to implement the countermeasures may be subject to restrictions of its relevant activities and may also be imposed with legal liabilities. The Law has not provided specific punishment for the uncooperative persons and organizations. We assume that this would be further detailed by the State Council in its administrative regulations.
It is noted that, on January 9, 2021, the Ministry of Commerce of China (MOFCOM) issued the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures, under which a Chinese person or entity will be able to apply for an exemption from compliance with the prohibition of implementing foreign sanctions by submitting a written application to MOFCOM. However, such exemption process does not exist in the Law, therefore, it is not clear whether the Chinese persons or entities will still be able to apply for exemption from complying with the countermeasures.
5. Private Actions
The Law allows Chinese citizens and organizations to bring legal actions in court against any organizations and persons who implemented or assisted the implementation of discriminative and restrictive measures of foreign countries to cease the infringement and recover damages.
The Law gives the Chinese authorities the power to nullify the extra-territorial application of foreign laws and sanctions and to make retaliations in case of necessary. In current stage, it is not clear how the Law and similar pre-existing regulations such as the MOFCOM’s measures will interact with each other.
Taking into account the growing tension between China and United States, multinational companies who have business presence in China will find it more and more difficult to remain flexible in order to mitigate the regulatory risks and could eventually be caught between inconsistent compliance obligations. Therefore, on one hand, companies should carefully evaluate the implications of the Chinese anti-foreign sanction legal regime before making any decisions related to an implementation of foreign laws and sanctions targeting the Chinese State, persons or organizations, and on the other hand, they should integrate the relevant compliance obligations under such Law into their compliance systems, e.g. to perform due diligence review on their current and future business partners to make sure that the persons or organizations they will make transactions are not on the Countermeasure List.
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