Harry Liu, Jason Gan Dispute Resolution, King & Wood Mallesons 

On January 9, the PRC Ministry of Commerce issued the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures (the “Rules”). The Rules set out roughly the rights and obligations of the parties which may be adversely impacted by such unjustified extra-territorial application of foreign legislation or other measures and also the actions that may be taken by the government.

  • Application of the Rules:

According to Art. 2, the 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.

However, under Art. 15, the Rules 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.

  • Definition of an unjustified extra-territorial application of foreign legislation and other measures

According to Art. 6 of the Rules, the following factors shall be considered when deciding whether an extra-territorial application of foreign legislation or other measures is unjustified.

  1. Whether international law or the basic principles of international relations are violated;
  2. Potential impact on China’s national sovereignty, security and development interests;
  • Potential impact on the legitimate rights and interests of the citizens, legal persons or other organizations of China;
  1. Other factors that shall be taken into account;

  • Prohibition orders against unjustified extra-territorial application of foreign legislation or other measures

Under Art. 7 of the Rules, Where the working mechanism, upon assessment, confirms that there exists unjustified extra-territorial application of foreign legislation and other measures, it may decide that the competent department of commerce of the State Council shall issue a prohibition order to the effect that, the relevant foreign legislation and other measures are not accepted, executed, or observed (hereinafter referred to as a “Prohibition Order”). Such Prohibition Orders are subject to the suspension or withdrawal by the Working Mechanism (Art. 7) or exemption issued by the Ministry of Commerce, when applied by Chinese citizens, legal persons or other entities (Art. 8). Such application for exemption shall be made in a written application and a decision shall be made within 30 days (immediately in emergency cases) by the Ministry of Commerce.

  • Obligation to report

Under Art. 4 of the Rules, the State shall establish a working mechanism composed of relevant central departments (hereinafter referred to as “the Working Mechanism”), to take charge of counteracting unjustified extra-territorial application of foreign legislation and other measures. The working mechanism is led by the competent department of commerce of the State Council, and the specific matters thereof are handled by the competent department of commerce and the department of development and reform in conjunction with other relevant departments of the State Council. And according to Art. 5, where a citizen, legal person or other organization of China is 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, he/it shall truthfully report such matters to the competent department of commerce of the State Council within 30 days. The matters reported shall be kept confidential by the competent department of commerce of the State Council and its staff members if so requested. Any breach of such confidentiality by the personnel of the Ministry of Commerce is subject to punishment in accordance with law or even criminal liabilities (Art. 14).

Where a citizen, legal person or other organization of China fails to truthfully report as required or fails to comply with the prohibition order, the competent department of commerce of the State Council may give a warning, order he/it to rectify within a specified period of time, and may concurrently impose a fine according to the severity of the circumstances. (Art. 13).

  • Right to sue for compensation

Under Art. 9 of the Rules, where a person complies with the foreign legislation and other measures within the scope of a prohibition order, and thus infringes upon the legitimate rights and interests of a citizen, legal person or other organization of China, the latter may, in accordance with law, institute legal proceedings in a people’s court, and claim for compensation by the person; except where the former person is granted exemption in accordance with Article 8 of these Rules.

Additionally, where a judgment or ruling made in accordance with the foreign legislation within the scope of the prohibition order causes losses to a citizen, legal person or other organization of China, the latter may, in accordance with law, institute legal proceedings in a people’s court, and claim for compensation by the person who benefits from the said judgment or ruling.

  • Supports from the government

Under Art. 11, where, in adherence to the prohibition order, a citizen, legal person or other organization of China suffers significant losses resulting from non-compliance with the relevant foreign legislation and other measures, relevant government departments may provide necessary support based on specific circumstances. However, the Rules have not specified what type of support that the government may provide.

  • Counter-measures by the Chinese government:

According to Art. 12 of the Rules, in response to unjustified extra-territorial application of foreign legislation and other measures, the Chinese Government may take necessary counter-measures based on actual circumstances and needs.