Legislative Practice of Trade Sanctions in China
China’s trade sanctions system has counter and defensive characteristics and is established and continuously improved to address discriminatory and restrictive measures taken by foreign countries against Chinese citizens, enterprises, or other organizations, which deviate from international law and basic norms of international relations, as well as measures that harm the legitimate rights and interests of China, other organizations, or individuals.
1. Provisions on Blocking the Improper Extraterritorial Application of Foreign Laws, Measures, and Judgments
On January 9, 2021, the Ministry of Commerce of China issued the “Measures for Blocking the Inappropriate Extraterritorial Application of Foreign Laws and Measures” (hereinafter referred to as the “Blocking Measures”), in order to block the extraterritorial application of foreign laws and measures that violate international law and basic norms of international relations, and improperly prohibit or restrict Chinese citizens, legal persons, or other organizations from engaging in normal economic, trade, and related activities with third countries (regions) and their citizens, legal persons, or other organizations.
The “Blocking Measures” requires Chinese citizens, legal persons, or other organizations to truthfully report the relevant situation to the competent commerce department of the State Council within 30 days when encountering situations where foreign laws and measures prohibit or restrict their normal economic and trade activities with third countries (regions) and their citizens, legal persons, or other organizations.[1] For foreign laws and measures which have been assessed and confirmed to have improper extraterritorial application, the competent commerce department of the State Council may decide to issue an injunction prohibiting recognition, enforcement, and compliance with relevant foreign laws and measures.[2] If a party complies with foreign laws and measures within the scope of the prohibition, which infringes on the legitimate rights and interests of Chinese citizens, legal persons, or other organizations and causes losses, Chinese citizens, legal persons, or other organizations may bring a lawsuit to the court in accordance with the law, requiring the party to compensate for the losses. If the aforementioned parties refuse to fulfill the effective judgment or ruling of the court, Chinese citizens, legal persons, or other organizations may apply to the court for compulsory execution in accordance with the law.[3]
On June 10, 2021, the Anti Foreign Sanctions Law of the People’s Republic of China (hereinafter referred to as the “Anti Foreign Sanctions Law”) officially came into effect. Article 12, Paragraph 1 of the Anti Foreign Sanctions Law requires that no organization or individual shall enforce or assist in enforcing discriminatory restrictive measures taken by foreign countries against Chinese citizens and organizations.[4]
In addition, for the recognition and enforcement of effective judgments made by foreign courts, Article 300 of the new Civil Procedure Law of the People’s Republic of China, which comes into effect on January 1, 2024, stipulates that if a court determines that an effective judgment made by a foreign court violates the basic principles of the laws of the People’s Republic of China or national sovereignty, security, or social public interests, it shall rule not to recognize and enforce it.[5]
2. Principle Provisions on Sanctions and Countermeasures
The Cybersecurity Law of the People’s Republic of China (hereinafter referred to as the “Cybersecurity Law”), which came into effect on June 1, 2017, is a law formulated by China to ensure cybersecurity, safeguard cyberspace sovereignty, and national security. Article 75 of the Cybersecurity Law provides for sanctions against overseas institutions, organizations, and individuals who attack critical information infrastructure. It stipulates that if overseas institutions, organizations, or individuals engage in activities that endanger the critical information infrastructure of the People’s Republic of China, such as attacks, intrusion, interference, or destruction, and cause serious consequences, China has the right to hold them legally responsible in accordance with the law. The public security department and relevant departments of the State Council may also decide to take measures to freeze property or other necessary sanctions against the institution, organization, or individual.[6] This is an earlier legal provision that explicitly regards the adoption of sanctions against overseas illegal entities as legal responsibility.
On December 1, 2020, the Export Control Law of the People’s Republic of China (hereinafter referred to as the “Export Control Law”) was officially implemented. Article 48 of the Export Control Law stipulates that if any country or region abuses export control measures to endanger the national security and interests of the People’s Republic of China, China may take corresponding measures against that country or region based on the actual situation.[7]
Article 12 of the “Blocking Measures” issued by the Chinese Ministry of Commerce in January 2021 clearly stipulates that the Chinese government can also take necessary countermeasures against the inappropriate extraterritorial application of foreign laws and measures based on actual circumstances and needs.[8]
On July 1, 2023, the Foreign Relations Law of the People’s Republic of China (hereinafter referred to as the “Foreign Relations Law”) began to be implemented officially. The Foreign Relations Law clarifies the powers of state organs in foreign relations affairs, the goals of developing foreign relations, the system of foreign relations, and the guarantees for developing foreign relations. According to Article 33, China has the right to take corresponding countermeasures and restrictive measures against actions that violate international law and basic norms of international relations and endanger China’s sovereignty, security, and development interests. The Foreign Relations Law further stipulates that decisions made by relevant state organs in accordance with the aforementioned provisions shall be final.[9]
In addition, the Foreign Relations Law also provides a legal basis for the implementation and compliance of United Nations Security Council sanctions and related measures within China. Article 35 clearly stipulates that the state shall take measures to implement binding sanctions resolutions and related measures made by the United Nations Security Council under Chapter VII of the United Nations Charter. The Ministry of Foreign Affairs is responsible for issuing notices and announcing the implementation of the aforementioned sanctions resolutions and measures. Relevant national departments and regional governments shall take measures to implement them within their respective powers. Organizations and individuals within China shall comply with the contents of the Ministry of Foreign Affairs announcement and relevant measures of various departments and regions, and shall not engage in any behaviour that violates the aforementioned sanctions resolutions and measures.[10]
3. Provisions on Specific Measures for Sanctions and Countermeasures
On September 19, 2020, the Ministry of Commerce of China issued the “Regulations on the List of Unreliable Entities”, establishing a working mechanism for the list of unreliable entities. It clearly states that foreign entities (foreign enterprises, other organizations or individuals) (1) which endanger China’s national sovereignty, security, and development interests, or (2) which violate normal market trading principles, interrupt normal transactions with Chinese enterprises, other organizations, or individuals, or take discriminatory measures against Chinese enterprises, other organizations, or individuals, seriously damaging legitimate rights and interests of Chinese enterprises, other organizations or individuals in international economic and trade activities, will be included in the list of unreliable entities.[11]
The working mechanism of the list of unreliable entities can determine to take one or several of the following measures against the relevant foreign entities:
(1) restrict or prohibit engagement in import and export activities related to China;
(2) restrict or prohibit investment within China;
(3) restrict or prohibit the entry of its related personnel, transportation vehicles, etc.;
(4) restrict or cancel the work permit, stay or residence qualification of its related personnel within China;
(5) impose a corresponding amount of fine based on the severity of the situation;
(6) other necessary measures.[12]
On the other hand. The working mechanism also has a certain degree of flexibility.
(1) a correction deadline can be set for foreign entities, and no measures will be taken within the deadline.[13]
(2) if a foreign entity corrects its behavior and takes measures to eliminate the consequences of the behaviour within the correction period, the working mechanism shall remove it from the list of unreliable entities.[14]
(3) if a foreign entity is restricted or prohibited from engaging in import and export activities related to China, and Chinese enterprises, other organizations or individuals need to engage in transactions with the foreign entity under special circumstances, they should apply to the Office of the Working Mechanism, and with consent, they can engage in corresponding transactions with the foreign entity.[15]
In addition to the working mechanism for the list of unreliable entities, the Anti Foreign Sanctions Law, which officially came into effect on June 10, 2021, specifies the situations in which China has the right to take countermeasures, including:
(1) foreign countries violate international law and basic norms of international relations, use various excuses or based on their own laws to contain and suppress China, adopt discriminatory restrictive measures against Chinese citizens and organizations, and interfere in China’s internal affairs;[16] or
(2) foreign countries, organizations, or individuals commit, assist, or support actions that endanger China’s sovereignty, security, and development interests.[17]
The objects of taking countermeasures include:
(1) individuals and organizations who directly or indirectly participate in the formulation, decision, and implementation of discriminatory restrictive measures;[18]
(2) spouses and immediate family members of individuals included in the counter list;
(3) senior management personnel or actual controllers of organizations included in the counter list;
(4) organizations where individuals listed on the counter list serve as senior management personnel;
(5) organizations that are actually controlled or involved in the establishment and operation by individuals and organizations included in the counter list.[19]
The relevant departments of the State Council may decide to take one or several of the following countermeasures based on the actual situation:
(1) not issue visas, not allow entry, cancel visas, or expel;
(2) seizure and freezing of movable, immovable, and other types of property within the territory of China;
(3) prohibit or restrict organizations or individuals within China from engaging in related transactions, cooperation, and other activities with them;
(4) other necessary measures.[20]
In addition, if any organization or individual implements or assists in implementing discriminatory restrictive measures taken by foreign countries against Chinese citizens or organizations, which infringes on the legitimate rights and interests of Chinese citizens or organizations, Chinese citizens or organizations may bring a lawsuit to the court in accordance with the law.[21]
Judicial Practice of Trade Sanctions in China
1. Case of Sales Contract Dispute between Company A and Company B [22]
In this case, the seller Company A signed a methanol procurement contract with the buyer Company B, and Company A promised in Annex 3 of the procurement contract “Declaration and Guarantee on Trade Sanctions” that the goods it provided did not come from Iran. Otherwise, Company B has the right to terminate the contract and refuse payment. Afterwards, Company B suspected that the methanol provided by Company A may originate from Iran and requested Company A to provide a certificate of origin, but Company A was unable to provide such proof. Company B refused to make payment, while Company A filed a lawsuit claiming that Annex 3 of the contract in question violated the Anti Foreign Sanctions Law and the Blocking Measures, violated mandatory provisions of laws and administrative regulations, and should be deemed invalid. At the same time, Company A requested the court to judge Company B for breach of contract and pay liquidated damages and compensation for losses.
After trial, the court found that the statement was a unilateral commitment issued by Company A to Company B when signing the procurement contract with Company B. The document bears the seal of Company A and should be considered as a true expression of Company A’s intention. Secondly, the main content of this document is that Company A promises that the goods it provides do not come from countries such as Iran, not falling within the scope of the Foreign Sanctions Act and the Blocking Measures. Therefore, Company A’s claim that this commitment should be invalid lacks basis, and will not be adopted. Company A’s inability to provide relevant supporting documents to prove to Company B that the source of the goods involved in the case constitutes a breach of contract.
2. Case of C Company and D Company Applying for Recognition and Enforcement of Foreign Arbitral Awards [23]
In this case, Company C applied to the court for recognition and enforcement of an arbitration award made by the Singapore International Arbitration Centre Arbitration Tribunal. The respondent Company D requests the court not to recognize and enforce the arbitration award, for the following reasons:
(1) the law firm to which the chief arbitrator belongs has been sanctioned by the Chinese government, resulting in the arbitration award being unfair;
(2) According to the “Blocking Measures”, Company D is a Chinese enterprise engaged in liquefied gas pipeline business that affects social and livelihood projects. It complies with this regulation and hopes that the court will consider the central “six stability and six guarantees” policy and the spirit of protecting the development of private enterprises in the trial.
Regarding the issue of whether the sanctions imposed by the Chinese government on the law firm to which the arbitrator belongs will affect the hearing of this case, the court believes that the sanctions are aimed at the law firm to which the chief arbitrator belongs and not at its arbitrator’s identity. At the time of the sanctions being imposed, the arbitration award involved in this case had been completed. This sanction is not within the scope of non recognition as stipulated in Article 5 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and is not related to the trial of this case; During the process of selecting arbitrators, both the Singapore International Arbitration Center and the applicant fulfilled their obligation of disclosure to the respondent, and there was no improper procedure.
Regarding the issue of whether the recognition and enforcement of arbitration awards comply with the “Blocking Measures”, the improper extraterritorial application of foreign laws stipulated in the “Blocking Measures” is not related to this case, and the choice of arbitration is the result of the autonomy of the parties in this case. The special protection of a certain type of private enterprise during special periods is a policy consideration and should not affect the recognition of the arbitration results in this case. The rule of law is the best business environment. If the results of legal implementation cannot be guaranteed, it may be beneficial to protect individual enterprises, but in the long run, it will harm more enterprises. Therefore, the court shall handle the disputes involved in this case fairly and impartially in accordance with the law.
The court ultimately held that the award made by the Singapore International Arbitration Centre in question did not fall under the circumstances of non-recognition and enforcement under Article 5 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and shall be recognized and enforced.
Summary
At present, China’s regulations on trade sanctions are relatively general and principled, and relevant details still depend on further provisions of supporting regulations and rules. Thus, Article 33 of the Foreign Relations Law requires the State Council and its departments shall formulate necessary administrative regulations and departmental rules, establish corresponding work systems and mechanisms, strengthen departmental coordination, and determine and implement relevant countermeasures and restrictive measures.
Article 13 of the Anti Foreign Sanctions Law also stipulates that relevant laws, administrative regulations, and departmental rules can further regulate countermeasures against actions that endanger China’s sovereignty, security, and development interests. On the other hand, there are currently few precedents that cite laws and regulations related to sanctions. In the aforementioned precedents citing the Anti Foreign Sanctions Law or the Blocking Measures, the court held that the relevant cases did not fall within the scope of application of the Anti Foreign Sanctions Law or the Blocking Measures and did not further discuss them. Against the backdrop of foreign countries continuing to impose sanctions on China, it is expected that China will continue to take countermeasures. In the future, with the enactment of relevant supporting documents, the responsibilities and obligations of all parties involved will be further clarified, and the application of trade sanctions laws and regulations by courts will also be more frequent.
Note:
[1] Article 5 of the Measures for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures.
[2] Article 7 of the Measures for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures.
[3] Article 9 of the Measures for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures.
[4] Article 12 of the Anti Foreign Sanctions Law of the People’s Republic of China.
[5] Article 300 of the New Civil Procedure Law of the People’s Republic of China.
[6] Article 75 of the Cybersecurity Law of the People’s Republic of China.
[7] Article 48 of the Export Control Law of the People’s Republic of China.
[8] Article 12 of the Measures for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures.
[9] Article 33 of the Foreign Relations Law of the People’s Republic of China.
[10] Article 35 of the Foreign Relations Law of the People’s Republic of China.
[11] Article 2 of the Regulations on the List of Unreliable Entities.
[12] Article 10 of the Regulations on the List of Unreliable Entities.
[13] Article 11 of the Regulations on the List of Unreliable Entities.
[14] Article 13 of the Regulations on the List of Unreliable Entities.
[15] Article 12 of the Regulations on the List of Unreliable Entities.
[16] Article 3 of the Anti Foreign Sanctions Law of the People’s Republic of China.
[17] Article 15 of the Anti Foreign Sanctions Law of the People’s Republic of China.
[18] Article 4 of the Anti Foreign Sanctions Law of the People’s Republic of China.
[19] Article 5 of the Anti Foreign Sanctions Law of the People’s Republic of China.
[20] Article 6 of the Anti Foreign Sanctions Law of the People’s Republic of China.
[21] Article 12 of the Anti Foreign Sanctions Law of the People’s Republic of China.
[22] See Award (2021) Yue 01 Min Chu No. 1365.
[23] See Rule (2021) Hu 74 Xiewairen 1.
