Anti-Foreign Sanctions Law

This Brief should be read together with the brief titled Compliance, compliance, compliance: A primer for Canadian companies.

With the adoption of the Anti-Foreign Sanctions Law, China added to its evolving toolkit of measures designed to counter the effect of foreign measures restricting activities of Chinese persons. With the Blocking Rules adopted in January 2021 covering the so-called secondary sanctions, the Anti-Foreign Sanctions Law plugs the gap by addressing the primary sanctions; and provides an underlying legislative basis for the disparate measures currently in effect (Unreliable Entities List, the Blocking Rules and the Export Controls Law) and ones that are yet to come.

The Anti-Foreign Sanctions Law does not fundamentally change capacity of the Chinese government to sanction foreign entities. In fact, China has already done so before in relation to three U.S. military suppliers (in an unspecified way), as well as against EU and US individuals and organisations. The new law does bring a common legislative denominator under China’s various sanctions tools. It also leaves a considerable discretion – largely through lack of clarity in the provisions and the absence of implementing regulations – in how these tools will be deployed.

With the increased geopolitical tensions, many foreign businesses operating in China may find themselves in the compliance vise of Chinese and home-country sanctions. This is likely to contribute to a continued bifurcation between supply chains and business operations in China and the rest of the world for many international firms. This bifurcation, however, is not to be confused with decoupling in the sense that the former Trump Administration used the term, since successive business sentiment surveys indicate that foreign companies have no intention to leave China – on the contrary, many increase their investments and efforts to onshore the Chinese supply chains.

Background on the Anti-Foreign Sanctions Law

On 10 June 2021, the Standing Committee of the Chinese National People's Congress (NPC) passed the Chinese Anti-Foreign Sanctions Law (ASL - CH), (unofficial English translation is from the China Law Translate website). This law, which had gone through two rounds of readings by the NPC before, did not have a public comment period and was declared to be in force on adoption by the NPC.

Formulation of the ASL follows the guiding opinions of The Work Report of the Standing Committee of the NPC passed during the Fourth Session of the 13th NPC held in March 2021. The Work Report indicated that China has to strengthen legislation in foreign-related areas, such as anti-sanctions, anti-interference, and counteracting long-arm jurisdiction.

The ASL adds to China’s evolving toolkit of measures, such as the Export Control Law (ECL - CH) (EN), the Unreliable Entities List (UEL), and the Blocking Rules, adopted by China in response to foreign sanctions or restrictions on the Chinese companies and individuals.

The application and effect of ASL

The triggers for enacting the anti-sanctions measures are specified in Article 3 as when “...foreign countries using various excuses or in accordance with its laws [...], adopt discriminatory and restrictive measures against Chinese citizens and organizations, and interfere with China’s internal affairs…”. There are no definitions of what constitutes “discriminatory restrictive measures” or “interfere(ance) with China’s internal affairs”. Additionally, Article 13 allows the measures under the ASL to be triggered by other laws and regulations, such as the aforementioned ECL, UEL and the Blocking Rules.

The scope of targets for the anti-sanctions measures is very broad and is described in Articles 4 and 5 as:

• individuals or organizations directly or indirectly involved in the formulation, decision, or implementation of the above-mentioned discriminatory restrictive measures;
• the spouses and immediate family members of the listed individuals;
• the senior executives or beneficial controller of the listed organizations;
• organizations in which the individuals on the anti-sanctions list are senior executives;
• and organizations established or operated by or with the participation of listed individuals and organizations

There are no further clarifications on the scope of the indirect involvement, nor on degree of participation (or separation) of listed individuals in (or from) related organisations. Article 6 provides an illustrative list of anti-sanctions measures (denial of entry/deportation, seizure/freezing of assets, prohibition of “relevant transactions, cooperation and other activities”, and other) without further elaboration.

Right of action for private entities

Similar to the Blocking Rules, ASL (Article 12) provides affected Chinese persons with a right of action in Chinese courts against any person deemed to have harmed the interests of Chinese citizens and organisations by complying with or implementing the foreign sanctions. Much like the Blocking Rules, the ASL does not specify neither the burden of proof, nor the nature of damages subject to such actions. The concluding sentence of the article appears to call for injunctive relief or compensation in such cases.

Appeals and waver/exemption process

Article 7 of the law does not appear to leave room for appeal by the listed persons or entities. While there is no explicit waver/exemption process, Article 8 provides the State Council with the authority to suspend, modify or cancel the countermeasures. It is unclear from the text of the law whether or how affected persons may be able to petition authorities to exercise this power. In contrast, the Blocking Rules (in Article 8) contain an explicit reference to an exemption process.