New statute shields entities from unfair enforcement of foreign laws

The Ministry of Commerce introduced a de facto blocking statute on Saturday, empowering the State to prevent Chinese entities from being preyed upon by the enforcement of rules or laws in a foreign country if it deems it improper. The rule came into effect from the date of its publication.

This is the first time the Chinese authorities have implemented a rule that has been a conventional practice in many developed economies, including the European Union, for decades.

If properly implemented, the rule can protect entities against being unfairly targeted by foreign countries through sanctions or long-arm jurisdiction.

Armed with such a law, a country can stop the targeted entities from following foreign law enforcement measures that are likely to harm its sovereignty, security and vital national interests. The law also prohibits jurisdiction departments in the country from recognizing or executing any verdicts given by foreign courts.

The law has a clawback clause, allowing entities and individuals to claim compensation from their foreign chargers through courts in their own country.

The blocking statute issued by the Commerce Ministry not only has the aforementioned functions but also stipulates that any foreign laws and rules that contradict international laws or basic norms of international relations — which include independent foreign policies, mutual respect for sovereignty, noninterference in internal affairs, etc — or the laws and rules that are applied to disturb normal trade activities of Chinese entities and individuals, will be deemed invalid in their enforcement.

The rule recognizes Chinese entities’ rights to not acknowledge, to not execute and to not follow foreign laws and rules that are improperly applied. It also endows Chinese entities with the right to seek judicial remedy and protection from the State.

The rule urges relevant Chinese entities to report to the Commerce Ministry within 30 days of receiving unfair treatment from foreign legal and judicial departments.

More detailed implementation regulations and guidelines on the blocking statute are expected to be issued soon, and the rule looks set to assume its role in providing the State legal means to protect its core national interests, as also Chinese enterprises.