On January 9, 2021, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) promulgated the “Measures for Blocking Improper Extraterritorial Application of Foreign Laws and Measures” (the ” Rules”), which took effect immediately on the date of promulgation. Article 1 of the Rules states that the measures were developed “in order to block the impact of improper extraterritorial application of foreign laws and measures on China,” and to “safeguard its national sovereignty, security, and development interest, and protect the legitimate rights and interest of Chinese citizens, legal persons or other organizations.”
As China and Chinese companies are increasing the subject of export control regulations, sanctions and other trade or investment restrictions in the U.S. and elsewhere, many view the Rules as China’s countermeasure against what it sees as “anti-China” actions. The Rules is intended to apply to situations where the extraterritorial application of foreign laws (i.e., not including Chinese laws and rules and measures under international treaties and agreements to which China is a party) are determined to “violate the international law and the basic norms of international relations, and improperly prohibits or restricts Chinese citizens, legal persons or other organizations from conducting normal economic and trade and related activities with third countries (regions) and their citizens, legal persons or other organizations.” Under the Rules, whether an extraterritorial application of a non-Chinese measure is “unjustifiable” will be determined through a working mechanism led by MOFCOM with the participation of the National Development and Reform Commission (“NDRC”) and other central-level authorities (“Working Mechanism”). The Working Mechanism will have the discretion in making its determination by considering:
- whether such an application is in violation of international law and basic principles of international relations;
- the potential impact on China’s national sovereignty, security, and development interests;
- the potential impact on the legitimate rights and interests of Chinese citizens, entities, or other organizations of China; and
- other factors that shall be taken into account. The Rules explicitly carve out the extraterritorial application of non-Chinese measures as provided for in treaties or international agreements to which China is a party
As the above enumerated factors are relatively vague and broad, the implication of the new Rules on U.S. and other multinational companies doing business in China will depend on the determination by the Working Mechanism, as well as how the Rules are enforced in practice.
The Rules also allow the affected “Chinese citizens, legal persons or other organizations” to seek civil recourse in the courts of China from the party acting against a MOFCOM order declaring a foreign law or measures (or the enforcement thereof) as violating the Rules. The Rules further require Chinese parties, including foreign invested enterprises in China (which may be Chinese subsidiaries of multinational companies) to report to MOFCOM any application of foreign laws that violates the Rules. Failure to report may subject such party to administrative penalties.