China’s new rules on ‘unjustified’ foreign laws bolster ability to strike back at US long-arm jurisdiction

HONG KONG, Jan 13, 2021, SCMP. New rules strengthening China’s ability to strike back at “unjustified” foreign laws applied to citizens and businesses have been hailed as a necessary step to defend national interests, following a rash of sanctions from Washington on Chinese tech firms and politicians, South China Morning Post reported.

However, analysts do not expect any cases in the immediate future as the order lacks details and is seen largely as a defensive mechanism.

The rules on “counteracting unjustified extraterritorial application of foreign legislation”, which were introduced at the weekend, are widely seen as a response to escalating US sanctions and laws that have targeted Chinese businesses and individuals over the past year.

The new order allows aggrieved parties to report damages to the commerce department and sue for compensation in Chinese courts, though analysts say enforcement will depend largely on the evolving relations between the two powers.

“It is just a countermeasure. The enforcement – how often and how far – will depend on whether US long-arm jurisdiction hurts the interests of Chinese enterprises,” said He Weiwen, a former commerce ministry official who is now a senior researcher with the Centre for China and Globalisation.

The new rules will not prevent action from foreign countries, but it will help mitigate the negative impacts, he added.

Chinese telecommunications giant Huawei has been subject to restrictions aimed at cutting it off from key technology components made with US technology.

Outgoing President Donald Trump has also issued executive orders to force ByteDance to sell the US arm of the popular video app TikTok and to ban US citizens from investing in 35 Chinese companies with links to the Chinese military.

The latter ban has forced the New York Stock Exchange to begin the delisting of China’s three largest telecommunications firms, and prompted large stock and bond index providers to remove many of the listed Chinese companies from their products.

The latest regulation, together with the unreliable entity list released in September 2020, could result in sanctions against foreign multinational companies doing business in China, though no precedents have been set.

Under the new rules, a Chinese citizen or business prevented “from engaging in normal economic, trade and related activities” by foreign legislation can report their grievance to the commerce department within 30 days.

Authorities will assess the complaint on a case-by-case basis under three main criteria: whether the legislation contravenes international law or principles of international relations; potential impact on sovereignty and security; and impact on the rights of citizens and organisations.

“From a technical perspective, such factors need to be elaborated in detail,” said a research report from Hong Kong law firm King & Wood Mallesons. It was also unclear how compensation would be calculated and whether overseas entities could make claims of loss, it added.

The new law lacks details on enforcement, with action to be decided by a “working mechanism” of government departments, Yang Jiayin, an assistant researcher with the China Academy of Information and Communications Technology, wrote recently on the academy’s WeChat account.

Relevant departments will be given the right to “provide necessary support based on specific circumstances” and the government will be able to take “necessary countermeasures” in response to unjustified actions, the rules state.

Wang Jun, chief economist of Zhongyuan Bank, said the rules gave policymakers a large degree of flexibility, but added they were more of a symbolic move.

“There won’t be any case to be seen shortly,” he said. “But the regulation must be put in place first.”

In China, there have long been calls for the government to develop the ability to respond to US long-arm jurisdiction, which requires an overhaul of domestic laws, including those on export controls, cybersecurity, commercial banking and data security, as well as international judicial cooperation.

China’s revised annual lawmaking schedule, released in June last year, said the country’s top legislature will “strengthen research on the overseas applications of Chinese laws, as well as blocking and countering long-arm jurisdiction”.

China “must do something” given the US was imposing one sanction after the other, and under current laws Beijing could not respond, said Chen Fengying, a senior researcher with the China Institutes of Contemporary International Relations.

“The room for bilateral cooperation will depend on whether the new US government becomes reasonable,” she said. “China first needs to do its own things well and try not to make mistakes.”