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An Offensive Defense: China's Anti-Foreign Sanctions Law
By Wang Jiangyu  ·  2021-06-18  ·   Source: NO.25 JUNE 25, 2021
The U.S. Capitol building on the night of January 2 (XINHUA)
The Anti-Foreign Sanctions Law (AFSL) adopted by the Standing Committee of the National People's Congress (NPC) is a landmark development in China's lawfare with Western countries; especially the United States. The AFSL now provides the Chinese Government and citizens with a powerful legal weapon to counteract sanctions imposed by foreign countries against Chinese citizens and corporate entities. For this reason, it has been characterized as China's "blocking statute."

A blocking statute is adopted by a country to hinder the extraterritorial application of foreign legislation. It shields companies in its jurisdiction against foreign sanctions by prohibiting them from complying with the sanctions, and not recognizing foreign court rulings enforcing them.

The blocking statute is no novelty in the international economic system. It has been a response to the expansive application of U.S. sanctions by the international community, in most cases, by the U.S.' closest allies.

The United Kingdom, at the forefront of efforts to restrict the extraterritorial reach of American export controls, economic sanctions and trade embargo on Cuba, enacted the Protection of Trading Interests Act 1980 to protect UK sovereignty and trade interests. The European Union's blocking statute, initially promulgated in 1996, protects EU residents and entities by prohibiting EU companies and courts from complying with foreign sanctions laws and stipulates that no foreign court judgments based on these laws have any effect in the EU. The EU updated the blocking statute in August 2018 in an attempt to nullify the extraterritorial sanctions the U.S. had re-imposed on Iran.

China's AFSL seems to be slightly different, however. It is more about striking back at those who take part in imposing sanctions against China to "preserve Chinese sovereignty, national security and development interests, and to protect the lawful rights and interests of Chinese citizens and organizations," as stated in the law.

That is to say the main objective of the law is to punish foreign individuals and entities who directly or indirectly participate in the drafting, decision-making or implementation of foreign discriminatory restrictions on Chinese citizens and entities. The foreigners may be denied entry to China, have their assets in China seized, and be prohibited from doing business with entities and individuals in China.

Notably, at the discretion of the Chinese Government, the subjects of China's anti-sanctions measures may be extended to the spouses and immediate family members and organizations controlled or established by such individuals. At the operational level, the AFSL grants the Chinese Government, corporations and individuals three courses of action.

First, the Chinese Government can, on its own initiative, retaliate against foreign entities and individuals who participate in imposing sanctions on China. This could happen when the government believes Chinese sovereignty, national security, or development interest is violated. Second, Chinese entities or individuals can lobby the Chinese Government to impose countermeasures against the aforesaid individuals; or third—like the EU's blocking statute—the AFSL also gives Chinese citizens and organizations the right to bring legal action before a Chinese court against those who implement or assist in implementing economic sanctions or to seek an injunction or compensation if they believe their lawful interests are harmed by foreign sanctions.

However, unlike the EU blocking statute, the AFSL does not emphasize prohibiting Chinese operators to comply with foreign sanctions. This is probably because the government does not want China's many home-grown multinational enterprises to face the dilemma of having to choose between the Chinese and Western—mainly American—market.

An overwhelming majority of the world's largest companies now have a commercial presence in China, and they have contributed tremendously to China's economic miracle by bringing in capital, technology, management knowhow, as well as an international outlook.

In turn, many Chinese companies, including banks, hi-tech firms, and energy and natural resource enterprises, invest heavily in and trade in large volumes with Western markets.

If forced to choose between the Chinese or American market, the outcome could be catastrophic. In that sense, despite the strong rhetoric from Chinese media, the AFSL is a rather mild and reserved law, cautiously enacted not to hurt China's amicable relationship with the international business community.

For the Chinese Government, the AFSL is a strong demonstration of China's political will not to back down in the trade or tech war with the United States. The Chinese Government does not want to put global business in a difficult position, but it also does not want to be perceived as caving to U.S. pressure. In essence, the AFSL is retaliatory in nature, with the view to reminding foreign individuals and institutions, and foreign politicians and governments, to think twice before they take part in putting together sanction measures against China.

In short, the AFSL serves three purposes. First, it authorizes the Chinese Government to punish, in the form of retaliatory measures, foreign institutions and individuals responsible for sanctions against Chinese entities and individuals. Second, by setting out the possible countermeasures China may employ, the AFSL can serve as deterrence. China's strong political will plus the sheer size of its market will make foreigners think carefully when they enact discriminatory restrictions against China. Third, it protects Chinese individuals and entities who can now either petition their government to counteract foreign sanctions, or seek remedy in a Chinese court.

Although the AFSL makes legal tools available for the Chinese Government and operators to cope with American economic sanctions, it is by no means a cure-all to the disputes between China and the U.S. In the end, cooperation is the answer to the many problems in Sino-U.S. relations.

Hopefully, the pressures generated by sanction and anti-sanction measures can be communicated to politicians who may eventually come to terms with the notion that in international economic relations, cooperation is always better than confrontation.  

The author is director of the Centre for Chinese and Comparative Law of City University of Hong Kong 

Copyedited by Ryan Perkins 

Comments to liuyunyun@bjreview.com 

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