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中国司法观察

An Introduction to China's “Blocking Statute”

Sat, 16 Jan 2021
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On 9 Jan. 2021, China’s Ministry of Commerce promulgated the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures (阻断外国法律与措施不当域外适用办法) (“the Counteracting Rules”). The Counteracting Rules consists of 16 articles and shall be effective as of the date of the promulgation. The Counteracting Rules sets a basic legal framework in China in response to the unjustified extra-territorial application of foreign legislation and other measures in terms of legislative purpose, the scope of application, and systematic arrangements.

1. The Background of the Counteracting Rules

Currently, unjustified extraterritorial application of foreign laws and measures has occurred from time to time, constantly impacting the rule-based multilateral trading system. The U.S. sanctions not only control the economic relationship between the U.S. and the target country (“primary sanctions”), but also control the economic relationship between the third country and the target country (“secondary sanctions”). China has repeatedly become the target of U.S. secondary sanctions. In December 2020, the U.S. government even blacklisted 60 Chinese companies, including SMIC and DJI, and prohibited non-U.S. entities from engaging in transactions with these companies. The Counteracting Rules is China’s first specific blocking statute, aiming to counteract the impact on China caused by the unjustified extra-territorial application of foreign legislation and other measures, to safeguard national sovereignty, security and development interests, and to protect the legitimate rights and interests of citizens, legal persons and other organizations of China.

The term ‘blocking legislation’ is often used to describe the legislative mechanisms that countries have utilized to counter the extra-territorial jurisdiction which is considered to have violated international law. Blocking legislation mainly includes the following four categories: legislation that prohibits the giving of evidence and the production of documents in foreign proceedings; legislation that aims to block or prevent the enforcement of foreign judgments; laws prohibiting compliance with orders of foreign authorities; and the ‘claw-back’ legislation.[1] Countries (or regions) such as Canada, EU, Japan, Mexico have already enacted blocking legislations.

Before the promulgation of the Counteracting Rules, China has already carried out some legislative work to deal with extra-territorial jurisdiction. However, these provisions mainly concentrate on judicial assistance, not enough to deal with various situations in which foreign laws were applied outside the territory. For example, the Civil Procedure Law and the 2012 Interpretation of Criminal Procedure Law both stipulate that where a request by a foreign court for assistance is prejudicial to the sovereignty, security or public interest of China, the people’s court shall refuse to enforce.[2] Promulgated in October 2018, China’s International Criminal Judicial Assistance Law also has similar regulation.[3]

Under this circumstance, China’s Ministry of Commerce promulgated the Counteracting Rules, in accordance with the National Security Law of the People’s Republic of China and other relevant laws, which provides a set of blocking systems and thus enriches the legal measures of China to deal with the inappropriate extra-territorial application of foreign law and comprehensively adopts the above-mentioned blocking methods. These laws and rules equip China with various legal means to deal with the unjustified extra-territorial application of foreign law and measures.

2. The Application Scope of the Counteracting Rules

The Counteracting Rules adopts two methods to define its application scope: positive provisions and reverse exclusions.

Article 2 of the Counteracting Rules stipulates that the Rules applies to situations where the extra-territorial application of foreign legislation and other measures, in violation of international law and the basic principles of international relations, unjustifiably prohibits or restricts the citizens, legal persons or other organizations of China from engaging in normal economic, trade and related activities with a third State (or region) or its citizens, legal persons or other organizations. Besides, Article 15 provides that the Counteracting Rules shall not apply to such extra-territorial application of foreign legislation and other measures as provided for in treaties or international agreements to which China is a party.

Several inferences may be drawn therefrom. First, China does not intend to oppose all situations in which foreign laws are applied outside the territory, but only aims to “block” the improper application of foreign laws and measures outside the territory.

Second, the Counteracting Rules only applies to the trade between Chinese citizens, legal persons or other organization and a third State (or region) or its citizens, legal persons or other organizations. This provision indicates the Counteracting Rules aims to deal with secondary sanctions, instead of primary sanctions. An example may help to illustrate this situation. Supposing that the U.S. government prohibited high-technology companies from selling chips to Huawei, if non-U.S. companies such as Sony suspended trading with Huawei due to the U.S. sanctions, Huawei should report the situation to China’s Ministry of Commerce by the Counteracting Rules; but the U.S. companies such as Qualcomm would not be punished by Counteracting Rules due to performing the U.S. sanction orders.

Third, the Counteracting Rules will not affect China’s performance of its international obligations. As stated by the head of the Department of Treaty and Law of the Ministry of Commerce, China will continue to implement relevant international treaties seriously as always.[4]

3. The Systematic Arrangement Set by the Counteracting Rules

In order to counteract the unjustified extra-territorial application of foreign legislation and other measures, the Counteracting Rules set the following systematic arrangements.

(1) Information Report. Where a citizen, legal person or other organization of China encounters an unjustified extra-territorial application of foreign legislation and other measures, namely, being prohibited or restricted by foreign legislation and other measures from engaging in normal economic, trade and related activities with a third State (or region) or its citizens, the citizen, legal person or other organization of China shall report to the competent department of commerce of the State Council within 30 days.

(2) Assessing and Determining. Chinese Government will establish a working mechanism led by the competent department of commerce of the State Council (i.e. the Ministry of Commerce) and composed of relevant central departments, to take charge of counteracting unjustified extra-territorial application of foreign legislation and other measures. The working mechanism is in charge of assessing and determining whether there exists unjustified extra-territorial application of foreign legislation and other measures.

(3) Issuance of Prohibition Order. Upon assessment, the Ministry of Commerce may issue a prohibition order to prohibit compliance by the relevant parties with the foreign legislation and other measures.

(4) Judicial Remedies. Where a citizen, legal person or other organization of China suffers infringement of legitimate rights and interests because of the unjustified extra-territorial application of foreign legislation and other measures, the citizen, legal person or other organization of China may institute legal proceedings in a people’s court, and claim for compensation from the relevant parties (including those who comply with foreign legislation and other measures within the scope of a prohibition order, and those who benefit from a judgment or ruling made in accordance with the foreign legislation within the scope of a prohibition order).

(5) Punishment. The relevant party may be punished if it violates the reporting obligation or acts against the prohibition order rendered by the Ministry of Commerce.

(6) Immunity. In practice, an enterprise may be trapped in a dilemma: it may be sanctioned if it fails to comply with the foreign law, but it may still face domestic punishment if it obeys the foreign law and thus violating the domestic blocking statute. To solve this problem, Article 8 of the Counteracting Rules allows a citizen, legal person or other organization of China to apply to the competent department of commerce of the State Council for exemption from compliance with a prohibition order. Upon receiving the exemption, the citizen, legal person or other organization of China may obey the foreign law or measures.

The Counteracting Rules embodies the following features:

First, the blocking measures in the Counteracting Rules, such as information reports, issuance of prohibition orders and judicial remedies, are designed with reference to the legislative experience of other countries or international organizations on blocking laws. For instance, the EU’s Regulation Protecting Against the Effects of the Extra-Territorial Application of Legislation Adopted by a Third Country, and Actions Based Thereon or Resulting Therefrom (amended in 2018)[5] also stipulates specific blocking systems such as the prohibition of recognition or enforcement, prohibition of compliance, exemption, and recovery. However, China’s Counteracting Rules appear to be more moderate. For example, the EU blocking legislation is very strict with respect to compliance with the prohibition order, stipulating that the relevant party shall not comply, “whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission, with any requirement or prohibition, including requests of foreign courts, based on or resulting, directly or indirectly, from the laws specified in the Annex or from actions based thereon or resulting therefrom.”[6] But the Chinese Counteracting Rules does not include such severe articles.

Second, the Counteracting Rules does not target specific states or specific transactions in a certain area, but follows closely to relevant situations of the unjustified extra-territorial application of foreign legislation and other measures. This design is highly flexible and thus avoids frequent revisions to the Counteracting Rules due to the ever-changing international situation.

4. Our Comments

The Counteracting Rules has equipped China with a more comprehensive set of rules to combat the unjustified extra-territorial application of foreign legislation and measures. At present, the Counteracting Rules are formulated and promulgated by the Ministry of Commerce, and thus belong to departmental rules (部门规章), which is at a relatively low level of force in China’s legal system. Responding to the unjustified extra-territorial application of foreign laws and measures is a complex task. The Chinese government may subsequently explore higher-level legislation based on the Counteracting Rules, and promulgate relevant implementation rules and guidelines in the future.

 

 

References:

[1] Senz, Deborah, and Hilary Charlesworth, Building blocks: Australia’s response to foreign extraterritorial legislation, Melbourne Journal of International Law, vol. 2, no. 1(2001).

[2] Civil Procedure Law of People’s Republic of China, Article 276. Interpretation of the Supreme People’s Court on the Application of the Criminal Procedure Law of the People’s Republic of China, Article 408.

[3] International Criminal Judicial Assistance Law of the People’s Republic of China, Article 4.

[4] 商务部条约法律司负责人就《阻断外国法律与措施不当域外适用办法》答记者问  http://www.mofcom.gov.cn/article/news/202101/20210103029779.shtml

[5] Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom; Commission Delegated Regulation (EU) 2018/1100 of 6 June 2018 amending the Annex to Council Regulation (EC) No 2271/96 protecting against the effects of extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom.

[6] Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, Article 5.

Contributors: Meng Yu 余萌 , Yanru Chen 陈彦茹

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