Sanctions 2024 Comparisons

In the past 12 months, the sanctions sector has undergone significant changes and growth, with a notable increase in US sanctions imposed on Chinese companies. This surge reflects the escalating geopolitical tensions between the US and China. The US has broadened its scope of sanctions to include more Chinese entities, citing reasons such as national security threats and human rights concerns.

The COVID-19 pandemic has further intensified the global geopolitical competition and strengthened the sanctions policy. This heightened competition has led to an even stronger reliance on sanctions as a policy tool. Governments have used sanctions to exert pressure on adversaries. However, the pandemic has also disrupted supply chains and affected international trade. These disruptions have the potential to impact the implementation and effectiveness of sanctions measures in turn.

The US has persistently ramped up its efforts to impose sanctions on Chinese technology companies, particularly focusing on those operating in sectors that are considered critical to national security. In response to these increasing pressures, China has been actively working to bolster its export control system. This involves the development and enforcement of stringent regulations that govern the transfer of sensitive technologies and dual-use items. China has also been proactively devising and implementing anti-sanctions measures to counteract the impact of such restrictions. These measures are designed to protect Chinese companies from the adverse effects of sanctions and to maintain the stability of the domestic market.

The semiconductor and chip manufacturing industries have been severely affected by sanctions. The US has imposed stringent restrictions on exporting advanced AI chips and semiconductor manufacturing equipment to China. This move has had far-reaching implications, particularly for Chinese technology giants that are heavily dependent on these high-tech components to manufacture cutting-edge products.

In the telecommunications sector, the ripple effects of US sanctions have been equally pronounced. Chinese telecommunications equipment manufacturers, who are at the forefront of developing and deploying 5G technology, have found their growth prospects significantly constrained. The sanctions have imposed limitations on their ability to access vital components and technology that are essential for the advancement of 5G infrastructure and services.

The Ministry of Commerce and the Ministry of Foreign Affairs are the primary regulators for Sanctions in China. The Ministry of Commerce is responsible for import and export controls and trade-related sanctions. The Ministry of Foreign Affairs is responsible for the country’s foreign policy, including sanctions against foreign entities and individuals. Depending on the nature of the sanctions, other state departments, such as the public security department, may also be involved in the implementation of sanctions.

There is no explicit reporting obligations of sanctions violations currently under sanctions law in China. However, citizens and organisations shall report activities endangering China’s national sovereignty, security, and development interests stipulated in the Provisions on the List of Unreliable Entities since they have the obligation to report clues in a timely manner that endanger national security activities to the state security organisation according to the National Security Law of the People’s Republic of China.

According to the Provisions on the List of Unreliable Entities, the working mechanism shall decide whether or not to investigate the acts of relevant foreign entities according to its functions and powers or the suggestions or reports from relevant parties.

The Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures issued by the Ministry of Commerce of China requires Chinese entities to truthfully report to the competent commerce department of the State Council within 30 days when encountering situations where foreign laws and measures prohibit or restrict their normal economic and trade activities with third countries (regions) and their citizens, legal persons, or other organisations.

On 10 June 2021, the Law of the People’s Republic of China on Countering Foreign Sanctions officially came into effect, specifying the situations in which China has the right to take countermeasures, including:

• foreign countries violating international law and basic norms of international relations, using various excuses or, based on their own laws to contain and suppress China, adopting discriminatory restrictive measures against Chinese citizens and organisations, and interfering in China’s internal affairs; or
• foreign countries, organisations, or individuals committing, assisting, or supporting actions that endanger China’s sovereignty, security, and development interests.

On 1 July 2023, the Foreign Relations Law of the People’s Republic of China began to be implemented officially. According to Article 33, China has the right to take corresponding countermeasures and restrictive measures against actions that violate international law and basic norms of international relations and endanger China’s sovereignty, security, and development interests.

On 1 January 2024, the new Civil Procedure Law of the People’s Republic of China came into effect. Article 300 stipulates that if a court determines that an effective judgment made by a foreign court violates the basic principles of the laws of the People’s Republic of China or national sovereignty, security, or social public interests, it shall rule not to recognise and enforce it.

The US has been known to implement economic sanctions that can affect trade with China. There is a trend where sanctions are increasingly targeting technology and innovation sectors. The US has been expanding its controls on exports to China, particularly in high-tech sectors, and has been adding Chinese entities to its Entity List, which restricts their access to US technology and components without a licence. Companies in these sectors should be particularly vigilant and may need to invest in domestic R&D to reduce reliance on imported technology.

There is another trend in the US sanctions regime, particularly focusing on the activities of foreign financial institutions and the expansion of the US government’s authority to impose sanctions on Chinese financial institutions through provisions like Executive Order No 14114 which amends previous orders to target a broader range of transactions and entities, or the Iran–China Energy Sanctions Act of 2023 explicitly defining what constitutes a “significant financial transaction”. This reflects a trend towards a more assertive and comprehensive approach to economic sanctions, with a focus on deterring activities that support Russia and Iran.

China has been active in refining its export control laws and implementing anti-sanctions measures to protect its national interests and the legitimate rights and interests of its companies. The introduction of the Unreliable Entity List is a strategic move to counteract measures that harm Chinese companies. China will continue to formulate necessary administrative regulations and departmental rules, establish corresponding work systems and mechanisms, strengthen departmental co-ordination, and determine and implement relevant countermeasures and restrictive measures against actions that endanger China’s sovereignty, security, and development interests.

Clients looking to do business in China should closely monitor these trends and work with legal and trade compliance experts to navigate the complex landscape of international sanctions and trade controls. It is also important to engage in proactive risk management and to be prepared for the potential impacts of sanctions on business operations.

According to the Provisions on the List of Unreliable Entities, a correction deadline can be set for foreign entities included in the list of unreliable entities, during which no sanction measures will be taken. Foreign entities could be removed from the list of unreliable entities if they correct their behaviours and take measures to eliminate the consequences within the correction period. During the investigation conducted by the working mechanism, foreign entities may make statements and defend themselves.

If a foreign entity is restricted or prohibited from engaging in import and export activities related to China, and Chinese enterprises, other organisations or individuals need to conduct transactions with the foreign entity under special circumstances, they can apply to the Office of the Working Mechanism, and with consent, they can conduct corresponding transactions with the foreign entities.

The working mechanism under the Provisions on the List of Unreliable Entities can decide to suspend or terminate the investigation based on the actual situation; if there is a significant change in the facts on which the decision to suspend the investigation is based, the investigation may be resumed.

The working mechanism may decide to remove the relevant foreign entities from the list of unreliable entities based on the actual situation. If a foreign entity corrects its behaviour and takes measures to eliminate the consequences of its behaviour within the specified correction period in the announcement, the working mechanism shall make a decision to remove it from the list of unreliable entities. Foreign entities can apply to be removed from the list of unreliable entities, and the working mechanism will decide whether to remove them based on the actual situation.

The Provisions on the List of Unreliable Entities do not specify a time limit to obtain de-listing. However, the decision to remove foreign entities from the list of unreliable entities should be announced. From the date of announcement, the sanctions measures taken in accordance with the Provisions on the List of Unreliable Entities shall cease to be implemented.

China’s export or import control regimes are currently not country-specific. The Ministry of Commerce release the Catalogue of Technologies Prohibited or Restricted from Exporting in China and the Catalogue of Technologies Prohibited or Restricted from Importing in China, regularly.

China implements sanctions mandated by the UN Security Council towards the Islamic State and Al-Qaeda, Yemen, Iraq, the Democratic Republic of Congo, South Sudan, Libya, Mali, Haitian gangs, Central Africa, and Al-Shabaab in Somalia.

China’s export and import control regimes are currently not country-specific. The Ministry of Commerce, the General Administration of Customs, and the Ministry of Ecology and Environment, in accordance with relevant laws and regulations, release the Catalogue of Prohibited Import Goods and the Catalogue of Prohibited Export Goods, regularly.

China implements sanctions mandated by the UN Security Council towards the Islamic State and Al-Qaeda, Yemen, Iraq, the Democratic Republic of Congo, South Sudan, Libya, Mali, Haitian gangs, Central Africa, and Al-Shabaab in Somalia.

1. In a case of a Sales Contract Dispute, the seller, Company A, signed a procurement contract with the buyer, Company B, and Company A promised in Annex 3 that the goods did not come from Iran. Afterwards, Company B refused to make payment since Company A was unable to provide proof, while Company A filed a lawsuit claiming that Annex 3 violated the Law of the People’s Republic of China on Countering Foreign Sanctions and the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, violated mandatory provisions of laws and administrative regulations, and should be deemed invalid.

The court found that the statement was a unilateral commitment issued by Company A to Company B which should be considered as a true expression of Company A’s intention. Secondly, the main content of this document is that Company A promised that the goods did not come from Iran, not falling within the scope of the Law of the People’s Republic of China on Countering Foreign Sanctions and the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures. Therefore, Company A’s inability to provide relevant supporting documents to prove to Company B as to the source of the goods involved in the case constitutes a breach of contract.

2. In a case of applying for recognition and enforcement of foreign arbitral awards, Company C applied to the court for recognition and enforcement of an arbitration award made by the Singapore International Arbitration Centre Arbitration Tribunal. The respondent, Company D, requested the court not to recognise and enforce the arbitration award because the law firm to which the chief arbitrator belongs has been sanctioned by the Chinese government, resulting in the arbitration award being unfair.

Regarding the issue of whether the sanctions imposed by the Chinese government on the law firm to which the arbitrator belongs will affect the hearing of this case, the court believes that the sanctions are aimed at the law firm to which the chief arbitrator belongs and not at its arbitrator’s identity. This sanction is not within the scope of non-recognition as stipulated in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, is not related to the trial of this case, and there was no improper procedure. The issue of whether the recognition and enforcement of arbitration awards comply with the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures is also not related to this case, and the choice of arbitration is the result of the autonomy of the parties in this case.

The court ultimately held that the award made by the Singapore International Arbitration Centre in question did not fall under the circumstances of non-recognition and enforcement under Article 5 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and shall be recognised and enforced.

3. In conclusion, PRC courts tend to respect the autonomy of the contracting parties regarding the agreement of sanctions or export control terms on the condition that sanctions or export control terms do not fall within the jurisdiction of the PRC sanctions laws, including but not limited to the Law of the People’s Republic of China on Countering Foreign Sanctions, the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, and the Export Control Law of the People’s Republic of China.

In judicial practice, PRC courts tend to evaluate whether sanctions constitute force majeure. That is to say courts tend to evaluate whether the obstacles cannot be reasonably foreseen at the time of contract formation and the consequences of obstacles cannot be reasonably avoided or overcome by the affected parties. If they do not constitute force majeure, the judgment should be executed accordingly. If the judgment or ruling is not voluntarily complied with, the court may take measures to enforce its decision.

If the property of the person subject to enforcement within China has been pre-sealed, seized, or frozen by relevant Chinese departments in accordance with sanctions laws, and no property available for enforcement has been found through property investigation, the enforcement procedure may be terminated after the applicant for enforcement signs confirmation or the enforcement court forms a collegial panel to review and verify, and is approved by the President. After the termination of enforcement, if the applicant for enforcement discovers that the enforcee has property available for enforcement, they may apply for enforcement again.

According to the Provisions on the List of Unreliable Entities, China has established a working mechanism with the participation of relevant departments of central state organs, responsible for organising and implementing the unreliable entity list system. The Office of Work Mechanism is located in the competent commerce department of the State Council.

According to the Law of the People’s Republic of China on Countering Foreign Sanctions, the relevant departments of the State Council may decide to include individuals or organisations who directly or indirectly participate in the formulation, decision-making, and implementation of discriminatory restrictive measures as stipulated in this Law in the list of countermeasures. The determination, suspension, modification or cancellation of the list of countermeasures, and countermeasures shall be announced by an order issued by the Ministry of Foreign Affairs or other relevant departments of the State Council.

There are similar provisions in China specifying the indirect designation of persons as a result of them being “owned or controlled” by a directly designated person. According to the Law of the People’s Republic of China on Countering Foreign Sanctions, the relevant departments of the State Council may decide to take countermeasures against the following individuals and organisations.

• Spouses and immediate family members of individuals included in the list of countermeasures.
• Senior management personnel or actual controllers of organisations included in the list of countermeasures.
• Organisations where individuals listed on the countermeasures list serve as senior management personnel.
• Organisations that are actually controlled, or involved in the establishment and operation, by individuals and organisations included in the countermeasures list.