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Safeguarding legitimate interests and international trade order: experts taking questions on the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures

Upon the approval of the State Council, Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures were published by MOFCOM on January 9th and became effective thereafter. What is the background for drafting the Rules? What are the considerations for the institutional design? What will be the impact on businesses? The journalist has interviewed Professor Han Liyu of the Law School of Renmin University of China, an expert on blocking legislation.

The Rules came out of necessity

The unjustified extra-territorial application of foreign legislation and other measures, happening from time to time, has hit the rules-based multilateral trading system and impeded world economic recovery.

Against this backdrop, the Chinese government has developed the Rules in accordance with the National Security Law of the People’s Republic of China, in an effort to safeguard national interests, minimize the negative impact on Chinese businesses, and defend normal international trade order. The scope of application is clearly defined in Article 2: “These Rules apply to situations where the extra-territorial application of foreign legislation and other measures, in violation of international law and the basic principles of international relations, unjustifiably prohibits or restricts the citizens, legal persons or other organizations of China from engaging in normal economic, trade and related activities with a third State (or region) or its citizens, legal persons or other organizations.” This is what we call “secondary sanction”, says prof. Han.

The Rules reiterates that the Chinese government adheres to its independent foreign policy, sticks to the basic norms of international relations such as mutual respect for sovereignty, non-interference in each other’s internal affairs, equality and mutual benefit, abides by the international treaties and agreements to which it is a party, and fulfills its due international obligations.

Han Liyu said that the promulgation of the Rules shows the Chinese government’s solemn position against the unjustified extraterritorial application of foreign legislation and measures, provides a channel of remedies to protect the legitimate rights and interests of enterprises, and demonstrates that China defends the international economic and trade order with a keen sense of responsibility.

Global trade and investment have shrunk significantly due to the impact of COVID-19. According to a report released by the World Trade Organization, global trade in goods is projected to decline by 9.2% in 2020. UNCTAD predicts that global foreign direct investment flows would fall by nearly 40% year-on-year in 2020, and a majority of multinational companies have revised down their 2020 earnings expectations by 30%.

President Xi Jinping stressed that we should embrace the concept of openness and inclusiveness, unswervingly build an open world economy, safeguard the multilateral trading system with the World Trade Organization as its cornerstone, oppose unilateralism and protectionism, and ensure a stable and smooth flow of the global industrial and supply chains.

“At a time when the world is suffering from the impact of the pandemic, and a sluggish recovery of the world economy, countries should work together more than ever to promote global economic and trade cooperation and development.” Han Liyu said.

International community largely opposes unjustified extraterritorial application of relevant foreign legislation and measures

Is the introduction of rules blocking the unjustified extraterritorial application of foreign legislation and measures unique to China? Is it a common practice in the international community?

Han Liyu said that since the 1990s, the United Nations has adopted a series of resolutions calling for the repeal of various unilateral laws and measures with extraterritorial effects on enterprises and individuals in other countries, and calling on countries not to recognize and implement such legislation and measures.

“Blocking the unjustified extraterritorial application of relevant foreign laws and measures is not unique to China.” Han Liyu said the European Union, Canada, Mexico, Argentina and other countries and regions have enacted similar legislation. For example, the European Union enacted the Council Regulation (EC) protecting against the effects of the extraterritorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom in 1996, which was updated and revised in 2018.

Han Liyu said that the Chinese government always believes that international law and basic norms of international relations should be observed in state-to-state interactions. China, like the vast majority of other countries or regions in the world, opposes the unjustified extraterritorial application of relevant legislation and measures to the detriment of the legitimate rights and interests of other countries. The relevant institutional design of the Rules is consistent with the practices of other countries or regions.

The institutional design borrows from internationally accepted practices, without prejudice to China's international commitments

What are the institutional arrangements in the Rules?

Professor Han noted that in general, the Rules, which aims to counteract unjustified extra-territorial application banning or restricting normal commercial activities between Chinese and third-country businesses, provides legal basis for refusing to accept, execute, or observe relevant foreign legislation and other measures. When it comes to the substance, Han said, the Rules borrows from legislation practices and institutional designs of the EU and other countries and regions in such areas as information reporting, the publishing of prohibition orders, and judicial remedy, while accommodating to China’s national conditions and realities when responding to unjustified extra-territorial application of foreign legislation and other measures.

Does the Rules affect China’s international commitments?

The Rules, as it indicates, shall not apply to such extra-territorial application of foreign legislation and other measures as provided for in treaties or international agreements to which China is a party.

“The Chinese government honors its obligations under treaties and is serious about relevant treaty provisions. The Rules shall not apply to treaties or international agreements which involve extra-territorial application of foreign laws and other measures, to which China is a party,” Han said.

Remedies for enterprises to defend their legitimate and lawful rights and interests

How does the Rules safeguard enterprises' lawful rights and interests?

According to Han, the Rules offers a reporting system for Chinese citizens, legal persons, or other Chinese organizations when they are prohibited or restricted by foreign legislation and other measures from engaging in normal economic, trade and related activities with a third State (or region) or its citizens, legal persons, or other organizations, as well as various remedial measures to protect the lawful rights and interests of enterprises.

Han pointed out that with regards to unjustified extra-territorial application, the Chinese government will provide guidance and service for enterprises. Any Chinese enterprise that suffers losses due to unjustified extra-territorial application may seek judicial remedy from people’s courts. As for enterprises that don’t suffer a major loss from not observing foreign laws and other measures, relevant Chinese government departments may provide necessary support based on specific circumstances.

“The prohibition orders will be published based on stringent assessment and prudent confirmation of relevant measures and the actual conditions of the enterprises affected,” Han said, adding that relevant departments should take into account a comprehensive set of factors when publishing, suspending or withdrawing prohibition orders.

Han further pointed out that as the lawful rights and interests of enterprises are protected, the enterprises involved should also assume due obligations, including reporting relevant situations in a timely manner and complying with the prohibition order; otherwise, they will be punished accordingly. Meanwhile, where a citizen, legal person or other Chinese organization may face special difficulties or other special circumstances, the Rules provides for an exemption mechanism to protect the legitimate and lawful rights and interests of businesses.


(All information published on this website is authentic in Chinese. English is provided for reference only.)


(All information published on this website is authentic in Chinese. English is provided for reference only.)