On 10 January 2021, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) promulgated the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (the “Blocking Rules”), which came into effect the same day.
The Blocking Rules were formulated in accordance with the PRC National Security Law, and aim to (amongst others) counteract the impact on Chinese companies and citizens caused by unjustified extra-territorial application of foreign legislation and other relevant measures (“Foreign Measures”). They apply where such extra-territorial application unjustifiably prohibits or restricts PRC citizens, legal persons or other organizations (“Chinese Persons”) from engaging in normal economic, trade and related activities with a third country or region, or its citizens, legal persons or relevant organizations (“Third-Country Persons”).
- Working Mechanism. A working mechanism composed of relevant central departments (the “Working Mechanism”) will be established. It will be led by MOFCOM, and the National Development and Reform Commission and other relevant departments of the State Council will also be involved.
- Reporting Obligation. Where a Chinese Person is prohibited or restricted by Foreign Measures from engaging in normal economic activities with a Third-Country Person, the Chinese Person is obliged to report such matters to the Competent Department within 30 days. Should the reporting party so request, then relevant departments should maintain confidentiality of the matter.
- Unjustified Extra-Territorial Application. The Working Mechanism will assess the following factors when seeking to determine whether there was unjustified extra-territorial application of a Foreign Measure: (1) whether international law or the basic principles of international relations were violated; (2) the potential impact on China’s national sovereignty, security and development interests; (3) the potential impact on the legitimate rights and interests of Chinese Persons; and (4) other relevant factors.
- Prohibition Order. Where the Working Mechanism confirms that unjustified extra-territorial application of Foreign Measures exists, it may decide for the issuance of an order by MOFCOM to the effect that the Foreign Measure should not be accepted, executed or complied with (“Prohibition Order”). The Prohibition Order may be suspended or withdrawn based on actual circumstances.
- Exemption. Chinese Persons can apply to MOFCOM for exemption from compliance with a Prohibition Order. Such applications must state the reasons and scope for the exemption. Decisions on whether to approve such applications should be made within 30 days upon acceptance of the application.
- Compensation Claims. Should the party involved comply with a Foreign Measure within the scope of a Prohibition Order, resulting in infringement of the legitimate rights and interests of a Chinese Person, the Chinese Person may institute legal proceedings and claim for compensation in a Chinese court, unless the party involved has been granted an exemption under the Blocking Rules.
- Governmental Support. Where a Chinese Person adheres to a Prohibition Order and suffers significant losses for non-compliance with the Foreign Measure, relevant Chinese government agency may provide support.
- Penalties. Where a Chinese Person fails to report as required or fails to comply with a Prohibition Order, MOFCOM may impose a warning, a rectification order or a fine.
The issuance of the Blocking Rules signals that Chinese government is making efforts to tackle various sanctions, export controls and possibly other restrictions targeting at Chinese Persons. The reporting mechanism would help Chinese government to gain more visibility as to how Chinese Persons would be affected by those restrictive measures and explore the possibilities of a well-coordinated approach to explore overall solutions while leaving flexibility to adopt different measures to protect Chinese Persons. However, due to the lack of clarity on a few key points (e.g., application scope, triggers and procedures of reporting obligations, enforcement of compensation claims), it remains to be seen how the Blocking Rules would be enforced in practice.