Understanding blocking rules: China’s legal response to foreign sanctions

On January 9, 2021, with approval from the State Council, China’s Ministry of Commerce (MOFCOM) issued the Rules for Blocking the Improper Extraterritorial Application of Foreign Laws and Measuresi—commonly referred to as the Blocking Rules. This is another legal mechanism in China’s growing toolkit to counteract foreign laws that extend beyond their borders and affect Chinese commercial interests

For Canadian companies, understanding the Blocking Rules is essential to managing compliance risks. It is especially important for companies with complex global supply chains or operations involving U.S. and Chinese partners

The Blocking Rules are designed to shield Chinese entities from foreign laws that:

• have extraterritorial effect
• violate international law or international norms
• unjustifiably restrict normal economic and trade relations between Chinese parties and third countries

Essentially, the rules aim to push back against foreign regulations that interfere with China’s trade and commercial sovereignty.

The Blocking Rules apply to foreign laws and measures that limit or prohibit Chinese entities from engaging in normal economic activities with third countries or regions. This may include restrictions on:

• supplying or sourcing goods and services
• participating in:
  • contracts
  • investments
  • joint ventures
• engaging in lawful trade with third-country businesses affected by another nation’s sanctions or regulations

Chinese entities affected by such foreign laws must report to MOFCOM within 30 days of becoming aware that their trade or economic activity with a third party is being restricted. They must also use MOFCOM’s designated channels for submitting relevant information. Failure to report may result in regulatory penalties, including fines and administrative sanctions.

MOFCOM may issue blocking orders that prohibit Chinese parties from complying with designated foreign laws or measures. Key provisions include:

• Blocking Orders: Mandate that Chinese parties do not comply with specific foreign measures
• Exemptions: Chinese parties may apply for an exemption from the blocking order under certain conditions
• Confidentiality Protections: Information submitted during the process is protected by law
• Penalties: Non-compliance with a blocking order may result in legal or administrative consequences

Suppose a Chinese entity suffers losses due to a foreign party’s compliance with an extraterritorial law. The Blocking Rules permit the Chinese entity to file a lawsuit in a Chinese court and seek compensation for damages incurred. This opens the possibility of civil litigation in China against third parties (including foreign businesses) if their actions are based on laws deemed improper by Chinese authorities.