What U.S. Businesses Should Know About China’s Anti-Foreign Sanctions Law

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China has imposed counter-sanctions against seven US individuals and entities, including former US Secretary of Commerce Wilbur Ross, under the country’s new anti-foreign sanctions law. It is a response to the US government sanctioning seven Chinese officials earlier this month and warning US companies based in Hong Kong of “growing risks” posed by Beijing.

“The United States has concocted the so-called ‘Hong Kong Business Advisory’ to baselessly smear Hong Kong’s business environment,” a Foreign Ministry spokesperson said last Friday, adding that these measures ” seriously interfered with China’s internal affairs.

China has sanctioned individuals such as Ross, US-China Economic and Security Review Commission chairman Carolyn Bartholomew, and the Washington-based think tank Hong Kong Democratic Council, but did not specify which specific sanctions will be used.

Countermeasure retained

“The United States recently imposed sanctions on seven Chinese government officials on Hong Kong, so this time China has also sanctioned 7 targets on the American side,” said international trade lawyer Yang Jie of the law firm. Huiye in Shanghai. “China’s countermeasure is restrained.”

This decision was interpreted as “restrained” because no senior official in the current Biden administration and no US company were targeted.

Penalties

The new law can be taken not only against individuals and businesses, but also against staff, their spouses and relatives.

“That would include things like visa restrictions, seizure or freezing of assets, blocking of transactions and then, of course, that big measure, which is ‘other necessary measures’,” according to Joe Mazur, an analyst. principal based in Beijing with the consultancy group Trivium China.

These restrictions apply to those who apply foreign sanctions, as well as those who develop them. This reflects previous actions by the Chinese Foreign Ministry, which sanctioned former Secretary of State Mike Pompeo, Senators Ted Cruz and Marco Rubio, as well as other officials from the United States, the European Union, UK and Canada. The new law gives China more legal clout to implement these countermeasures.

Discriminatory restrictive measure

When Chinese companies were blacklisted by the United States, such as some earlier this month for alleged human rights violations and high-tech surveillance in the Xinjiang region, the process was straightforward for companies. American.

“US companies in China were content to abide by US sanctions and sever trade relations with Chinese blacklisted companies,” Yang said.

Under the new Chinese law, American companies can be prevented from severing their relationships with Chinese companies that are blacklisted by the United States.

“Chinese companies could report to the Chinese Ministry of Commerce and say that a US company is engaging in what is legally called a ‘discriminatory restrictive measure’, an unfair action,” Yang said.

The term “discriminatory restrictive measure” is not defined in the new law, but he said it could be determined by some government agencies.

“A joint task force of the ministries of trade, finance and foreign affairs will work together to confirm whether a foreign sanction is a discriminatory restrictive measure,” Yang said. “For example, if the [allegation of] forced labor in Xinjiang considered discriminatory label [by Chinese government agencies], then the resulting sanctions are discriminatory restrictive measures.

Lawsuits

Under the new law, Chinese companies can sue other companies for causing damage to them by complying with foreign sanctions.

“In theory, we could see companies brought before a [Chinese] court because a counterparty believes it deserves compensation, ”said Nick Turner, an economic sanctions lawyer at Steptoe & Johnson in Hong Kong.

Radical measures

China’s anti-foreign sanctions law seems to cast a wide net.

“From an administrative standpoint, this kind of language is necessary to give government agencies enough flexibility,” Turner said. “In practice… what agencies take and do with this language is probably going to be very focused and narrow. “

China could react more to US or foreign sanctions related to sovereignty issues or what it sees as internal issues, such as those relating to Xinjiang or Hong Kong.

Some sectors will be more vulnerable, including all companies that use materials from Xinjiang and export to US technology companies, especially those that sell semiconductors. However, said Turner, most foreign companies in the Chinese market need not worry about retaliation because many US sanctions do not apply to companies in China.

“If you have a locally incorporated company, even if it is owned by a US parent company, it may not be subject to certain US sanctions,” he said.

To prepare

Despite this, he recommends that foreign companies prepare by auditing their supply chains and reviewing contracts with suppliers to ensure they comply with the new Chinese law.

“What a lot of companies do is they review their contracts… and where the language is maybe a little too loud, I think they’re willing to consider some waivers,” Turner said.

Multinational companies should also proactively audit their risk exposure from hot issues such as Xinjiang, Hong Kong and Taiwan, according to analyst Mazur.

“[Multinationals] should also develop a clear strategy for messaging around sensitive issues just to make sure messaging is consistent both inside and outside of China, ”he said.

Do not panic

Mazur describes the new Chinese law as a “defensive weapon” and a tool of “last resort”.

No American company has yet been targeted.

Another anti-sanctions tool called the “untrusted entity” list was also not used. This is a counterweight to the US Department of Commerce’s economic blacklist, and similar wording can be found in the new anti-foreign sanctions law.

“China is very reluctant to actively punish foreign companies, especially US companies, in part because the narrative that China seeks to promote is that China is becoming more open to foreign affairs,” Mazure said. “This is largely true.”

The Chinese market still welcomes US companies to invest, according to lawyer Yang.

“China does not want to separate from the United States – at least economically,” he said.

US businesses in China are advised not to panic just yet.

Further research by Charles Zhang.


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