January 21, 2021

China issues new rules to address the unjustified application of foreign laws against Chinese entities and individuals

On January 9, 2021 China’s Ministry of Commerce published Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and other Measures (the “Rules”).  The Rules, which go into effect immediately, consist of 16 articles designed to address situations in which “unjustified” laws imposed by non-Chinese governments place restrictions on the ability of Chinese entities and individuals to engage in “normal economic, trade and related activities” with non-Chinese entities and individuals.  

Under the Rules, if a Chinese entity or individual considers that—due to an “unjustified” application of non-Chinese law—it has been unfairly restricted or prohibited from engaging in normal economic activities with a non-Chinese “[s]tate (or region) or its citizens, legal person or other organizations,” the Chinese entity or individual can confidentially report the matter to the Chinese government.  The Chinese government will then review the report to determine if an unjustified application of non-Chinese law did occur, considering as part of that determination whether and to what extent application of the non-Chinese law:  (i) violates international law or “basic principles of international relations”; (ii) impacts China’s national sovereignty, security and development interests; (iii) impacts the legitimate rights and interests of Chinese entities and individuals; or (iv) implicates any other factors that should be taken into account.  Of note, the Rules do not apply to any treaties or international agreements to which China is a party.

If the Chinese government concludes that an unjustified application of non-Chinese law did occur, the Chinese Ministry of Commerce may issue a “prohibition order” declaring that the relevant non-Chinese law will not be observed, as well as take other, unspecified “necessary counter-measures.”  The Chinese government may also provide “support” to a Chinese entity or individual who suffered “significant losses” by adhering to the prohibition order.  

The Rules also create a private right of action under which any Chinese entity or individual whose rights or interests are infringed upon as a result of any person’s compliance with a non-Chinese law that is the subject of a prohibition order may sue the person violating the prohibition order.  Finally, Chinese entities and individuals can apply for exemption from the prohibition order, so as to avoid violating it by complying with the foreign law.

Rules on Counteracting Unjustified Extra-territorial Application of  Foreign Legislation and Other Measures