China introduces a new blocking law to combat US extraterritoriality

china export control law

The Chinese government has enacted new “blocking” rules to counteract the extraterritorial application of certain foreign laws that it considers unjustifiable.

Edward J. Krauland and Bo Yue of Steptoe International Law Advisory[1] stated: “On January 9, 2021, China’s Ministry of Commerce (MOFCOM) issued its No. 1 order of 2021— the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (the Blocking Rules). They were effective immediately.”

In the opinion of David Mortlock at The Atlantic Council[2]: “China’s move may foretell a new point of contention in the relationship between the two world powers, following a recent expansion of US sanctions against Chinese companies and corresponding efforts by China to push back.”

It goes on to say that: “China is not the first foreign government to toy with sanctions-evasion tools…Indeed, the Chinese blocking statute appears to emulate a European Union (EU) blocking statute that has been in place since 1996 in response to what the EU sees as “extraterritorial” US sanctions on Iran and Cuba.”

The Steptoe article explains the scope of the rules, how they may be applied, and who will have to comply with them.  They suggest three steps that potentially-affected parties may consider as part of their compliance strategies:

  • Evaluate whether they have over-complied or unnecessarily “de-risked” in light of the precise terms and reach of such US laws.
  • Evaluate if there are actions they can take to reduce the risk of being caught in a conflict of laws.
  • Re-examine their contractual conditions and compliance polices that have been adopted in connection with US sanctions, export controls, or other laws that may have an extraterritorial element to them.