On June 10, 2021, the 29th session of the Standing Committee of the 13th National People’s Congress (“NPC”) passed the Counter-Foreign Sanctions Law (the “Counter-Sanctions Law”). Effective immediately, the Counter-Sanctions Law provides a legal basis not only for the Chinese government to take action in response to foreign sanctions, but also for Chinese citizens and organizations to bring civil actions for injunctive relief or damages.

Background

This law was prompted by China’s decision to respond to recent U.S. economic sanctions and export controls targeting key Chinese companies (see our earlier client alert here). In March 2021, China’s top legislature in its work report emphasized the need to upgrade the legal tool kit to fight foreign sanctions, interference, and long-arm jurisdiction.

The Counter-Sanctions Law is a product of this accelerated legislative effort. It was drafted and passed through an expedited process without public consultation after two readings before the NPC, as opposed to the more typical three readings.

The Counter-Sanctions Law

The Counter-Sanctions Law’s Reach

Despite containing only 16 articles, the Counter-Sanctions Law has an expansive scope of application. Article 3 authorizes the government to take corresponding countermeasures in any of the following situations:

  • a foreign country violates international law and basic norms of international relations to contain or suppress China;
  • a foreign country violates international law and basic norms of international relations to take discriminatory restrictive measures against Chinese citizens and organizations; or
  • a foreign country violates international law and basic norms of international relations to interfere in China’s internal affairs.1

The Counter-Sanctions Law empowers relevant departments of the State Council to put foreign individuals or organizations on a counter-sanction list2 if they are found to have directly or indirectly participated in the formulation, determination, or implementation of discriminatory restrictive measures against Chinese citizens or organizations. The word “implementation” potentially catches individuals and organizations that comply with sanctions laws imposed by their home jurisdiction.

Those departments may also extend the Counter-Sanctions Law’s reach to:

  • listed individuals’ spouse and direct family members;
  • listed organization’s senior management or control person;
  • organizations where the listed individual(s) serve as a senior management; and
  • organizations where the listed individual(s) or organization have de facto control or participated in their establishment and operation.3

In addition, Article 15 of the Counter-Sanctions Law provides legal support to impose countermeasures, when necessary, against foreign countries, organizations, or individuals that implement, assist, or support acts that endanger China’s sovereignty, security, and development interests.4 This extends beyond the scope of Article 3 and captures assistance and supporting activities. Read most broadly, it could have significant impacts on a broad array of business activity. For instance, a news media or a movie studio could be subject to counter-sanction measures for publishing articles or producing movies that are deemed infringing China’s sovereignty.

Counter-Sanction Measures

The Counter-Sanctions Law reserves three types of counter-sanction measures for those listed. These specified measures are:

  • refusing to issue visas, banning entry into China, invalidating visas, and deportation;
  • sealing up, seizing and freezing movable, immovable and other types of property in China; and
  • prohibiting the conduct of related transactions with domestic organizations or individuals.5

The Counter-Sanctions Law also leaves room for “other necessary measures” for government departments to apply their discretion. Such measures theoretically could include denying an exit-visa to foreign nationals who are currently in China.

The decision to list an entity or individual and adopted counter-sanction measures are non-appealable.6 Government departments, however, may suspend, modify, or cancel application of the measures as circumstances evolve.7

The Ministry of Foreign Affairs or other relevant departments of the State Council shall announce the confirmation, suspension, modification, or cancellation of the counter-sanction list and the corresponding measures.8 The law calls for establishing a coordination mechanism to promote cooperation and information-sharing among relevant departments of the State Council.9

Organizations and individuals in China that fail to implement or conform with counter-sanction measures will be subject to unspecified legal consequences.10 Unlike the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (“Counteracting Rules”) (see our earlier client alert here), there is no mechanism for applying for an exemption.

Chinese citizens and organizations whose interests are harmed by foreign discriminatory restrictive measures may seek injunctive relief and compensation against organizations or individuals that implement or facilitate the implementation of such measures.11

Potential Implications

The Counter-Sanctions Law has important practical and long-term significance once fully implemented. Foreign companies may face an irreconcilable compliance dilemma: complying with laws imposed by the United States or other Western countries which may be contrary to China’s interests, versus facing sanctions and damage claims in China. Similar to the Counteracting Rules, this Counter-Sanctions Law does not explicitly target a specific country. But given the ongoing trade tensions between China and the United States and the possibility of increasing U.S. economic sanctions targeting Chinese firms, the Counter-Sanctions Law may raise particular concerns for U.S. companies.

The Counter-Sanctions Law also raises practical questions. For example, how does the law interact with China’s bilateral investment treaties (“BIT”)? To the extent that assets are frozen or seized, would this measure give rise to a right of action under the BIT? What is the measure for loss asserted by Chinese citizens and organizations? Could a damage claim extend to future profits?

It remains to be seen how soon Chinese government and companies, such as the 59 Chinese companies recently sanctioned by the Biden Administration, are going to use the Counter-Sanctions Law. Companies whose home countries have imposed sanctions against China should monitor the development in the Counter-Sanctions Law’s implementation. These companies should also consider strengthening risk assessments for China-related projects and reviewing existing contracts or templates for resolution of a conflict of law between their home countries and China.