China introduces new ‘blocking’ law to combat US extraterritoriality in possible ‘point of contention’ between the world powers

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 – a move that may prove to be a “new point of contention” in US-China relations, according to experts.

China and the US have in recent years strengthened control regulations to restrict the trade of potentially sensitive items between the two countries.

‘Effective immediately’

Edward J. Krauland and Bo Yue of Steptoe International Law Advisory have written that the new rules will be “effective immediately”.

“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 wrote. “They were effective immediately.”

‘Point of contention’

In an opinion piece for the Atlantic Council, David Mortlock, chair of the Global Trade & Investment group at law firm Willkie Farr & Gallagher LLP, wrote that the new rules could heighten tensions between the US and China.

“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,” he wrote.

“China is not the first foreign government to toy with sanctions-evasion tools,” he added. “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.”

Compliance strategies

Krauland and Yue suggest three steps that potentially affected businesses 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 equivalent 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

China’s export regulations were described and discussed by IOE&IT Export Control Profession board member Arne Mielken in a webinar in January, available here.