I. Legislative Context

From international perspectives, there is a tendency that national law has been used by a few powers to solve diplomatic problems. The US, wielding its national power and financial hegemony, frequently enforces its extraterritorial jurisdiction based on its domestic law. According to the Ministry of Foreign Affairs of the PRC[1], by way of abusing unilateral sanctions, especially secondary sanctions, the US holds foreign entities and individuals accountable for failing to comply with US sanctions laws. The abuse of national law in foreign relations undermines the sovereignty principle and erodes the international legal order with UN as the core. It also disrupts the supply chain of international trade, damages business transactions and raises business operating costs.

In the most recent years, China faces more foreign export control, sanctions and other challenges in foreign relations where international law fails to offer an effective and sufficient remedy. Accordingly, an urgent domestic need arises as to defend its national security and interests possibly with its growing resources. A legal framework is therefore desirable to regulate its foreign relations so that its national security and interests can be possibly safeguarded.

Internally, China is building its own “rule-of-law system”.[2] In its foreign relations, China attaches more importance to addressing foreign policy issues through legal means and intends to lay a solid domestic law foundation for application of international treaties and implementation of UN sanctions in China.

II. The Draft and Foreign Trade

Chapter 4 of the Draft covers application of treaties and conventions, implementation of sanctions and countermeasures, and extraterritorial effect of relevant measures.

1. Priority and Application of Treaties and Conventions

China’s Constitution, the Law of the PRC on the Procedure of Concluding Treaties and other regulations have laid out the process of concluding treaties and conventions, and yet the relation of international treaties and conventions with domestic laws are not clearly and legally defined.

Article 30 of the Draft sets out that treaties and conventions concluded or acceded to by the State shall not contravene the Constitution, which means that as a defensive approach, the Constitution prevails over treaties and conventions, though it is still unclear as to the prevalence of treaties and conventions over other domestic laws. The PRC Civil Procedure Law states that if an international treaty that China has concluded or acceded to contains provisions that are inconsistent with the PRC Civil Procedure Law, the provisions of the international treaty shall prevail, except for those provisions to which China has declared its reservations. In the judicial practice on civil and commercial matters, Chinese courts tend to interpret laws and regulations consistently with treaties and conventions.

Under Article 31 of the Draft, China takes measures as appropriate to implement and apply treaties and conventions, with the reservation that such implementation and application shall not undermine the national sovereignty, security and public interests of China. This Article aims at laying out the legal basis for current practices of treaty and convention application in China by way of (1) adjusting an existing national legislation or enacting a new law for such implementation; or (2) issuing circulars, guidance or judicial interpretations by governmental authorities such as the Supreme Court for interpretation and application, without prejudice to the national sovereignty, security, and public interests of China.

2. Counter or Restrictive Measures

These two terms appear under Article 33 of the Draft, with countermeasures as taken to counter foreign sanctions in violation of international law or the basic norms of international relations against China, and restrictive measures as proactively imposed on those foreign parties who endanger China’s national sovereignty, security or development interests.

In this connection, China has enacted the following laws and regulations: the PRC Export Control Law, the PRC Anti-Foreign Sanctions Law, the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislationand Other Measures, and the Provisions on the List of Unreliable Entities. Provisions on countermeasures and restrictive measures are also scattered in foreign-related laws such as the Foreign Investment Law.

Under the existing laws and regulations, China has already taken countermeasures and restrictions against foreign parties. For instance, in December 2022, in response to the US sanctioning two Chinese citizens over alleged human right issues related to Tibet, China imposed so-called “reciprocal sanctions” against two individuals Maochun Yu and Todd Stein under the PRC Anti-Foreign Sanctions Law, including freezing their assets in China, prohibiting all parties within China from transacting with them, and banning the two individuals and their immediate family members from getting Chinese visa or entering into China. On February 16, 2023, in accordance with the Provisions on the List of Unreliable Entities, the Ministry of Commerce announced for the first time the designation of two foreign companies onto China’s List of Unreliable Entities, namely Lockheed Martin Corporation and Raytheon Missiles & Defense, due to their part in military sales to China’s Taiwan Region. The consequences have also been specified for the designation, including prohibiting their participation in import/export activities in relation to China, new investments in China, and entry of their senior management into China; disapproving and revoking the working, staying and residing permits of their senior management in China; and imposing a fine of twice the total contract value of their related military sales to Taiwan Region.

This Draft seems to provide the overall and overarching legal basis for the countermeasures and restrictive measures, which poses a legislative signal that China would intensify its counter and restrictive measures against abuse of export control and sanctions measures by foreign countries based on their domestic law.

3. Implementation of UN Sanctions

It is generally recognized that the decisions adopted by the UN Security Council are of a mandatory nature, and UN Member States are obliged to carry out or implement these decisions. Such binding effect is derived from Article 25 of the UN Charter and further crowned by Articles 48 & 49 of the UN Charter. China supports the adoption by the UN Security Council of certain sanctions based on the international law.

Currently, China does not have laws or regulations on implementing sanctions imposed by the Security Council. The Foreign Trade Law of the PRC authorizes the powers to regulate international trade relations. Normally, the Ministry of Foreign Affairs, the General Customs, or the Ministry of Transport issues notices to administrative authorities to implement UN sanctions, but such notices lack a clear legal force and sometimes are not sophisticated enough to ensure effective implementation.

According to Article 35 of the Draft, China takes measures to implement the binding sanctions and decisions adopted by the UN Security Council under Chapter VII of the UN Charter. The Ministry of Foreign Affairs shall announce the sanctions and decisions, and the relevant governmental authorities shall take measures to implement them within their respective authorities. Individuals and organizations shall comply with such announcements and the relevant measures of the governmental authorities and may not engage in acts that violate such sanctions and decisions.

Authorized by the Draft, the announcements made by the Ministry of Foreign Affairs are afforded with a legal force, and the measures taken by relevant authorities are legally enforceable which may create specific obligations on the part of the business communities.

However, the Draft fails to address the risks of flaws in UN Security Council sanctions and implementing measures nor the remedies to such parties, whether as the sanctions targets or otherwise involved, to challenge the reasonableness of implementing measures, who may suffer a loss or damage caused by relevant sanctions, implementing measures or compliance measures.

4. Extraterritoriality

Notably some flavor of extraterritoriality does exist in some provisions of the Draft.

Article 37 stipulates that China takes necessary measures in accordance with the law to protect the safety and legitimate rights and interests of Chinese citizens and organizations abroad and to protect China’s overseas interests from threats and infringements. Article 9 provides that any organization or individual who violates this law and relevant laws and engages in activities detrimental to the interests of China in foreign interaction and cooperation shall be held liable in accordance with the law.

It can be inferred from these provisions that China may take measures against foreign entities or individuals outside China’s territory and hold them legally liable if they hamper the safety and interests of Chinese entities or individuals or China’s overseas interests. Nonetheless, the Draft does not specify such measures and legal liability, which are matters left to be addressed under separate laws and regulations such as the Export Control Law.

Furthermore, the Draft explicitly unveils China’s determination to enhance the law enforcement in foreign relations. As indicated in Article 32 of the Draft, China will strengthen the implementation and application of laws and regulations in foreign-related areas, and take law enforcement, judicial and administrative measures to safeguard national sovereignty, security and development interests and protect the legitimate rights and interests of Chinese citizens and organizations.

Given the extraterritorial effects of these provisions under the Draft, foreign companies must understand the extent of China sanctions and liability risks associated with their activities involving Chinese parties. The business community may also encounter a dilemma as to choosing from obeying foreign sanction measures and Chinese laws.

III. Conclusion

Culturally with moderation as one of the core values of Chinese people, understandably the Draft does not go too far as to provide for tackling and deterring unilateralism and safeguard national security and interests, which is the foundation of the extraterritoriality of the Draft. However, if the players in international society all indeed abide by international law and basic norms of international relations, China’s multilateral position and self-protection of its security and interests can hardly pose any threat than the unilateralism which selfishness asserts its boundless power.

Although the Draft has some ambiguities and may be further revised, foreign companies and their subsidiaries are advised to keep abreast with the legislative developments of the Draft and adjust their business patterns and internal compliance controls if China’s countermeasures and restrictive measures are not yet taken into consideration in their supply chains.

[1] The U.S. Willful Practice of Long-arm Jurisdiction and its Perils, https://www.fmprc.gov.cn/eng/wjbxw/202302/t20230203_11019281.html, last visited on February 13, 2023.

[2] CCP Central Committee Decision concerning Some Major Questions in Comprehensively Moving Governing the Country According to the law Forward, https://chinacopyrightandmedia.wordpress.com/2014/10/28/ccp-central-committee-decision-concerning-some-major-questions-in-comprehensively-moving-governing-the-country-according-to-the-law-forward/, last visited on February 14, 2023.