On June 10, 2021, China passed the Anti-Foreign Sanctions Law (反外国制裁法) ( “the AFSL”), as its tensions over trade, technology, Hong Kong and Xinjiang with both the United States and the European Union continue to heat up and lead to more sanctions. The new law is China's latest legislation to respond to foreign sanctions and provides a statutory basis for retaliatory measures. This post will explain how the AFSL relates to a series of recent Chinese laws and regulations; what exactly the new law authorizes the Chinese government to do; and its legislative history.

One of a series of legal tools

China has issued several laws and regulations in recent years as part of an effort to develop legal tools to counter foreign sanctions and other measures, which have seen increased use. These recent laws and regulations include the Export Control Law, the Provisions on List of Unreliable Entities, and the Rules on Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (Blocking Rules). As each law/regulation has its own specific focus, the recent passage of the AFSL seems to fill a gap by allowing government agencies other than MOFCOM to adopt retaliation. In this regard, the AFSL noted that other legislation and measures can also authorize “necessary countermeasures” against activities that “endanger China's sovereignty, security, or development interests.” (Article 13) “Other necessary countermeasures” here may include export restrictions under the Export Control Law, punitive measures under the Provisions on List of Unreliable Entities, the Prohibition Order under the Blocking Rules, and any other measures authorized by future legislation.

Together, these legal tools authorize the Chinese government to respond to the growing number of foreign actions targeted at Chinese companies/individuals. However, the tools are different in various respects.  The table below offers a comparison of the four:


Provisions on List of Unreliable Entities

Export Control Law

Blocking Rules

Anti-Foreign Sanction Law

Effective date

September 19, 2020

December 12, 2020

January 9, 2021

June 10, 2021

Issuing agency

MOFCOM

Standing Committee of NPC

MOFCOM

Standing Committee of NPC

Level of authority

Department rules

Law

Department rules

Law

Scope of Application

Entities and individuals that threaten national sovereignty, security and development, violate market principles and disrupt regular business activities, or take discriminatory measures against Chinese enterprises, entities or individuals

Export control measures of any country or region that endanger China’s national security and interests

Laws or measures that are contrary to international law, influence China's national sovereignty, security, and development interests, or lawful rights and interests of Chinese citizens and entities

Foreign discriminatory measures, or other actions that endanger China’s national sovereignty, security and development interests 

Applicable measures

One or multiple measures related to trade, investment, entry at the border, residency and work permits, fines, or others

Reciprocal measures (could be export restrictions)

Prohibition order

One or multiple measures as related to entry at the border, visa and work permit, blocking or freezing assets, transactions or cooperation, or others

Subjects of applicable measures

Unreliable entity list



Anti-sanction list and possible affiliated parties


The differences between the measures can be illustrated with several examples. First, both the Export Control Law and the AFSL allow the Chinese government to take countermeasures against specific foreign actions, but their authorities are slightly different. The Export Control Law authorizes the government to take reciprocal measures, which would apply to specific countries or regions, in response to “export control measures that endanger China’s national security and interests” (Article 48). In comparison, the AFSL authorizes government countermeasures against individuals or entities if they are involved in making or implementing foreign discriminatory measures, which could be sanctions or export restrictions. Such countermeasures could include asset seizure, restrictions on trade and investment, or restrictions on border entry. (Article 4 and 6)

Another example is that, even though both the AFSL and the Blocking Rules each creates a mechanism to respond to sanctions, the Blocking Rules may only target secondary sanctions, which requires a third-party to stop transactions with a sanctioned country. In comparison, the AFSL would mainly target primary sanctions, although possibly secondary sanctions as well. (More explanations on the primary sanctions and secondary sanctions can be found here.)

What does the AFSL say?

The AFSL codifies the sanctions that MOFCOM and the Department of Foreign Affairs had imposed on foreign countries recently, and creates a legal framework for future actions. It has 16 provisions, which can be grouped into the following categories: actions targeted by the law, the criteria for the anti-sanction list, applicable countermeasures, and implementation.

Foreign actions targeted by the law

The AFSL provides for the adoption of countermeasures when “foreign nations, in violation of international law and basic norms of international relations, contain and suppress [China] under any kind of pretext or based on its own laws, or employ discriminatory restrictive measures against our nation's citizens and organizations, or interfere with [China]’s internal affairs.” (Article 3) The AFSL does not elaborate on what would be considered “discriminatory” and a more detailed explanation will have to come from future application and interpretation. The text seems to suggest that sanctions and export restrictions could be covered by the AFSL.

While the main goal of the AFSL is to counter the discriminatory actions of foreign governments, there is a catch-all provision stipulating that countermeasures can be taken when necessary if any foreign countries, organizations, or individuals “implement, assist, or support” acts that endanger China’s sovereignty, security, and development interests. This means that, potentially, countermeasures may be taken even when there are no foreign sanctions.

The subjects of the countermeasures

As a response to these foreign discriminatory actions, relevant agencies of the State Council may create an anti-sanctions list that would be subject to countermeasures, and may add any individuals or entity that are involved, directly or indirectly, in the “formulation, decision-making, or implementation of the discriminatory restrictive measures pursuant to Article 3” to the list. (Article 4) This provision indicates that foreign politicians, and perhaps others as well, who help pass sanctions against China, would be potential targets of the law.

Countermeasures may also be imposed on some affiliated persons even when they are not on the anti-sanction list. The AFSL states that the relevant agencies may impose countermeasures on the spouse and immediate family members of a listed individual, senior executive, or those who actually control a listed entity, or an entity on which a listed individual serves as a senior executive, or an entity which is controlled, established or operated by a listed individual or entity. (Article 5)

Applicable countermeasures

As a result of the listing, agencies may impose one or more of the following countermeasures:

  1. Refusal to issue visas, denial of entry, visa cancellation, and/or deportation;
  2. Sealing, seizing, or freezing of personal property, real property, and all other types of property within the territory of China;
  3. Prohibition or restriction on organizations and individuals within China’s territory to carry out relevant transactions, cooperation, and other activities with the listed party;
  4. Other necessary measures. (Article 6)

The decisions to impose countermeasures by State Council agencies will be final and cannot be challenged or appealed. (Article 7) This provision, as some attorneys from DLA Piper have explained, "may have been informed by US laws limiting judicial challenges to certain executive actions involving foreign policy and national security issues.” But these decisions may be subject to changes. Relevant agencies may revise, suspend, or revoke the countermeasures if circumstances have changed. (Article 8) Hence, even though the AFSL does not stipulate any exemptions or grace periods for countermeasures, it gives the government agencies broad discretion.

Implementation

Once a countermeasure has been adopted, the AFSL requires individuals or entities within China to comply with the countermeasure; otherwise, they may be restricted or barred from conducting certain activities pursuant to related laws. (Article 11) The language here is vague and unclear about what activities they may be prevented from engaging in or what the procedure will be.

In addition, any individuals or entities may be held legally responsible if they do not follow the Chinese law or if they cooperate in implementing the countermeasures. (Article 14) This provision potentially has an extraterritorial effect, as it may apply to both domestic and foreign companies operating outside of China, but the extent of the application of this provision extraterritorially remains an open question.

It also stipulates that any individuals or entities shall not implement or assist in implementing foreign nations' "discriminatory” measures against Chinese citizens or entities. (Article 12) If the lawful rights and interests of Chinese citizens or entities are hurt by an individual or entity’s compliance with, or assistance of implementation with, foreign measures, Chinese individuals or entities may bring civil actions against the other party. (Article 12) This provision potentially has an extra-territorial effect as it may apply to both domestic and foreign individuals and companies operating outside of China. Again, it is unclear how it will be implemented in practice, as it would be difficult for a Chinese court to enforce jurisdiction outside of China.

The AFSL also requires the government (国家) to set up a Work Coordination Mechanism on anti-foreign sanctions to coordinate decision-making and implementation of any countermeasures. (Article 10)

The legislative background

The legislative history starts back in March of 2021, when the 4th Session of the 13th National People of Congress (NPC) approved the Working Report on the Standing Committee of the NPC. This report includes an agenda to strengthen the legal toolbox in order to meet the challenges of foreign sanctions, interference in domestic affairs, and long-arm jurisdiction (which, in general terms, is when a court asserts jurisdiction over a defendant from another jurisdiction). Soon after, the Legislative Affairs Committee of the Standing Committee put together the first draft and submitted it for the first reading along with an explanation in April 2021, and the second reading in June 2021. After two reviews, the Standing Committee passed the AFSL.

Compared to a standard “three-readings” procedure, the AFSL was passed with expedited speed. The quick passage may be related to a series of sanctions imposed by the U.S., EU, Canada and UK in March over the treatment of the Muslim Uyghur minority in Xinjiang, China’s retaliatory sanctions (here and here), and some questions about their legitimacy. As explained by an official of the Legislative Affairs Committee:

The Standing Committee of the National People’s Congress has adapted to the need to accelerate the legislation, and has drafted, reviewed and passed the Anti-Foreign Sanctions Law in a relatively short period of time. It is urgently needed to counter the hegemonism and power politics of certain Western countries, to safeguard the national sovereignty, security, and development interests, and to promote the rule of law… The promulgation and implementation of the AFSL will help counteract some foreign countries and organizations’ containment and suppression of China, effectively combat the acts of foreign anti-China forces, effectively enhance China's ability to deal with external risks and challenges with the rule of law, and speed up the process of forming a sound legal system for foreign-related laws.

Even though multiple countries have imposed sanctions against China, the AFSL seems primarily targeted at the United States. As Wei Jianguo, a former commerce vice-minister, stated: “The law signals that when you have no standing or power to boss people around, then your law in the U.S. will get you nowhere in China.” As of June of 2021, the United States has placed 252 Chinese individuals and entities on the Specially Designated Nationals Lists, more than 300 Chinese entities on the Entity List, and has 44 Withhold Release Orders targeting China.

The AFSL, unlike the unreliable entity list, does not seem to directly target companies. Nonetheless, its broad language creates uncertainty and may have a chilling effect on  the foreign business community. Addressing that concern, the spokesperson of the Ministry of Foreign Affairs, Wang Wenbin, argued during a press conference that the law creates more stability:

As to the impact of the law on foreign investment, I don't see any causal effect here. If anything, the legislation will help create a predictable legal environment and stable and foreseeable business environment for foreign companies' development in China. The 29th session of the 13th NPC Standing Committee also reviewed and adopted the Hainan Free Trade Port Law and a draft decision to authorize the Shanghai Municipal People's Congress and its standing committee to formulate regulations concerning the Pudong New Area. These are new measures China has taken to deepen reform and opening-up. I want to stress that China always welcomes and supports foreign companies doing business and pursuing cooperation in China and protects their rights and interests in accordance with law. China will only open its door wider to the world and remain committed to fostering better business environment for foreign companies and sharing development opportunities with the rest of the world.