Reed Smith In-depth

On 10 June 2021, the National People’s Congress Standing Committee (NPCSC) passed the Anti-Foreign Sanctions Law of the People’s Republic of China (Anti-Foreign Sanctions Law), which came into force on the same day.

The Anti-Foreign Sanctions Law may be described as a timely addition to China’s legal toolbox for addressing “the risks from foreign sanctions and interference”1.  Although the Anti-Foreign Sanctions Law only contains 16 articles, it presents a wide-ranging legal framework aimed at retaliating against sanctions imposed by foreign governments and at preventing PRC individuals and organisations from suffering any damages resulting therefrom.

Historical background in the PRC

The United States and other western governments have ramped up the use of economic and political sanctions against China in recent years. In response, the PRC government has established a set of operational procedures while expanding its own sanctions regime and establishing an export control framework. Measures taken include:

  1. In September 2020, the Ministry of Commerce (MOFCOM) enacted the Provisions on the Unreliable Entity List, to create a formal mechanism for sanctioning foreign individuals and organisations that are designated as “unreliable”.
  2. One month later, the NPCSC voted to pass the Export Control Law, which represents the first comprehensive export control framework in China.
  3. In January 2021, MOFCOM passed the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures in order to block the extraterritorial application of unjustifiable foreign laws and measures against PRC individuals and organisations. The Rules are similar to the EU Blocking Statute.

In addition, the Ministry of Foreign Affairs (MOFA) announced a series of counter-sanctions against various U.S., UK, EU and Canadian targets, including both governmental and private organisations, as well as individuals. The sanctions imposed by MOFA range from denying entry to the territory of China and asset freezes, to restrictions on doing business with PRC individuals and organisations. However, public announcements of counter-sanctions have so far not specified the legal basis for such actions by the state, nor have they provided details of the specific counter-sanction measures that will be taken. The announcements are also silent on the actual legal consequences for breaching such sanctions.

However, it would seem that these issues have now been addressed. On 10 June 2021, the NPCSC (i.e., the highest legislative body in the PRC) passed the Anti-Foreign Sanctions Law, which took effect on the same day. As reported elsewhere, the Anti-Foreign Sanctions Law was enacted under an expedited process that skipped public consultation and involved the NPCSC reviewing the bill twice instead of the usual three times. As the first law to codify a number of retaliatory measures in response to foreign sanctions, the Anti-Foreign Sanctions Law is expected to establish a mechanism for counteracting foreign sanctions and mitigating their impact on PRC individuals and organisations.

1. Overview of the Anti-Foreign Sanctions Law

There are a total of 16 articles in the Anti-Foreign Sanctions Law, and their key provisions are summarised below. Before going into the details of the Anti-Foreign Sanctions Law, it is worthwhile to make reference to the EU Blocking Statute, which similarly adopts a united front against the unlawful effects of the extraterritorial legislation of third countries.

EU Blocking Statute

The aim of the EU Blocking Statute is to counteract the unlawful effects of extraterritorial sanctions of third countries on ‘EU persons’, which term is generally understood to include EU nationals, EU-incorporated companies (including EU subsidiaries of U.S. companies but not branches of U.S. companies as these have no distinct legal personality) and non-EU nationals residing or doing business in the EU.

The list of extraterritorial legislation to which the EU Blocking Statute applies is given in the Annex and currently consists of U.S. measures concerning Cuba and Iran. Article 2 of the EU Blocking Statute requires EU persons to notify the European Commission of any effect on their economic and/or financial interests caused by a measure that is listed as blocked in the Annex. Article 4 of the EU Blocking Statute prevents any judgment or administrative decision outside the EU which gives effect, directly or indirectly, to a blocked measure from being recognised or enforced in the EU in any manner.

Article 5 of the EU Blocking Statute prohibits EU persons (either directly or through a subsidiary or other intermediary) from complying with any requirement or prohibition based on or resulting, directly or indirectly, from a blocked measure. However, pursuant to articles 7 and 8 of the EU Blocking Statute, EU persons may apply for authorisation from the European Commission to comply with such requirement or prohibition if non-compliance would seriously damage their interests or the wider interests of the EU.

If an EU person has suffered any damages caused by the application of a blocked measure or by actions based thereon or resulting therefrom, article 6 of the EU Blocking Statute allows such EU person to recover the damages, including legal costs.

A basic understanding of the EU Blocking Statute sheds some light on the Anti-Foreign Sanctions Law, since both laws are aimed at counteracting the impact of the extraterritorial jurisdiction of foreign sanctions on persons within their territory.