A legal update from Mannheimer Swartling's China/APAC Desk Webversion
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China passes new anti-foreign sanction law
In the wake of a series of regulations recently published by China aimed at countering foreign sanctions and restrictions against Chinese entities and individuals, including: (i) the Regulations on the Unreliable Entity List, (ii) the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (the “Chinese Blocking Rules”), and (iii) the Measures for the Security Review of Foreign Investment, the Standing Committee of China’s National People’s Congress further passed on 10 June 2021 the Anti-Foreign Sanctions Law (the “Law”) which codifies certain retaliatory measures against individuals and organisations who are listed in a Counter List (as defined below).
Highlights of the Law

Scope of application

The Law, like many other Chinese pieces of legislation, appears to have a broad application, targeting foreign measures, legislation, sanctions and other areas with the following implications (the “Captured Sanctions”):
  • cracking down on or supressing China;
  • discriminatory measures against Chinese individuals and organisations; and
  • interference with internal affairs of China.
With this broad concept, the Law may potentially apply to any foreign legislation and decisions that the Chinese authorities may determine and identify from time to time.

Counter List and Restricted Persons

The Chinese State Council may create an anti-foreign sanctions counter list (the “Counter List”) to include individuals and organisations who are directly or indirectly involved in formulating, deciding or implementing the Captured Sanctions and related persons (together, the “Restricted Persons”) such as:
  • spouses and immediate relatives of individuals on the Counter List;
  • senior managers or ultimate controllers of the organisations on the Counter List;
  • organisations in which the individuals on the Counter List serve as senior managers; or
  • organisations that individuals or organisations on the Counter List actually control or participate in the establishment and operation thereof.
A “counter foreign sanctions working coordination mechanism” (the “Coordination Mechanism”) will be established to decide on the inclusion of the Restricted Persons and adoption and implementation of the Counter Measures (as defined below), including any suspension, change or cancellation thereof. Notably, the Ministry of Commerce is the primary responsible authority under the Chinese Blocking Rules, which is expected to continue its leading role in the Coordination Mechanism also in terms of the Law.

The decisions in relation to the Counter List and Counter Measures are final, and shall be announced by the Ministry of Foreign Affairs or other relevant department(s) of the Chinese State Council. Unlike the Chinese Blocking Rules, there is no appealing procedure available under the Law.
Counter measures

Potential counter measures (the “Counter Measures”) that may be adopted by the Coordination Mechanism include:
  • denial of visas/entry, cancellation of visas or deportation;
  • sealing up, seizing, freezing movable and immovable property and other types of property within China;
  • prohibiting or restricting organisations and individuals within China from conducting transactions, cooperation or other activities with the Restricted Persons; and
  • any other necessary measures
It should be pointed out that even before the introduction of the Law, the above measures and other various measures (such as environmental or tax investigations) have been used by the Chinese authorities in practice for a long time, directly or indirectly and very often in the name of other reasons such as “non-compliance”, to squeeze those foreign-invested companies in China that for some reason may have been considered unwelcome or problematic.

Remedies and Punishment

Both domestic and overseas individuals and organisations are required to comply with the Counter Measures and should refuse to implement or assist in the implementation of discriminatory restrictive measures against Chinese individuals or organisations, and in case of any non-compliance they may be restricted or prohibited from engaging in the “relevant activities” or pursued “legal liabilities” without providing further details under the Law.

Similar to the Chinese Blocking Rules, Chinese individuals or organisations are granted the right to bring a lawsuit in front of a Chinese court for compensation of loss against any individual or organisation that fails to comply with the above. However, as previously pointed out, Chinese courts may face both theoretical and practical challenges when dealing with these types of claims due to lack of regulatory clarity in both claims and enforcement. It needs to be further observed how the judicial practice evolves.
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What to expect

Compared to the Chinese Blocking Rules, the Law is at a higher legislative hierarchy and consequently has superior legislative power. It is apparently of a more offensive nature as it is granting the Chinese authorities to also take proactive Counter Measures. In contrast, the Chinese Blocking Rules are more at a defensive level, authorising the authorities to issue blocking orders to prohibit the execution of foreign legislation or decisions.

Similar to the Chinese Blocking Rules, the Law is very generally and briefly drafted. It is composed of only 16 clauses, leaves many significant aspects unanswered and grants considerable and discretionary decision-making power to the Chinese authorities.

In that sense, both the Chinese Blocking Rules and the Law serve more as a political slogan and deterrent at this stage, indicating that China may strive to take retaliatory and counter measures to resist foreign pressure over its politics, trade, technology and companies, as well as areas like Xinjiang, Taiwan and Hong Kong. Depending on how the situations may evolve, like other legislations, China may further release detailed implementational rules under the two frameworks pinpointing specific countries, organisations or individuals step by step at its choice. In that sense, it cannot be ruled out that both legislations were intentionally drafted in such an abstract way initially in order for China to decide what cards to play based on future circumstances .

Going forward, US/European multinationals with business in China may find themselves in the dilemma of being subject to both the Law and other foreign pieces of legislation and decisions. Even if a Chinese subsidiary of a foreign company does not directly engage in any activities breaking Chinese law, there is a risk that the Chinese subsidiary may still be caught and punished pursuant to the Law if its foreign direct or indirect owner does so. It is therefore becoming increasingly crucial to monitor the relevant rules, regulations and political decisions coming out from both US/Europe and China, and weigh and compare the potential risks resulting from both regimes. It is also important to properly draft and include sanction and/or trade control related clauses concerning China in documentation (particularly in procurement and supply agreements).
This newsletter is not construed to interpret the Anti-Foreign Sanctions Law under the Chinese domestic legal system. Instead, the newsletter examines the applicability of that Law to multinational companies based on a literal reading of certain provisions thereof and interpreting those provisions based on principles of public international law. It is distributed solely for informational purposes and should not be regarded as legal advice. The article may be quoted as long as the source is specified. Mannheimer Swartling’s advice in relation to China and APAC is provided on the basis of our experience of representing clients in the concerned geographic and business areas and on information obtained from PRC officials and publicly available sources. It does not constitute a formal legal opinion. By combining the highest legal competence with industry and cultural know-how, Mannheimer Swartling offers our clients professional legal advice with added value.

Lucas Leger Jonsson, Partner, lucas.jonsson@msa.se
Carolina Dackö, Partner, carolina.dacko@msa.se
Simon Shi, Specialist Counsel, simon.shi@msa.se
Daria Yan, Senior Associate, daria.yan@msa.se
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