The Law on Foreign Relations of the People’s Republic of China became effective on 1 July 2023

The Law on Foreign Relations of the PRC (中华人民共和国对外关系法) (the "Foreign Relations Law") became effective on 1 July 2023. In summary, the Foreign Relations Law provides, for the first time, a comprehensive framework for China's foreign relations. The stated aim of the law is to "safeguard China's national sovereignty, national security and development interests and uphold international fairness and justice". This client alert discusses the key provisions and takeaways in relation to the Foreign Relations Law, particularly on the counter and restrictive measures, as well as extraterritorial application of the Foreign Relations Law, and what it may mean for United States ("US")-domiciled and other multinational companies with a Chinese nexus.

Scope of the Foreign Relations Law

Before the enactment of the Foreign Relations Law, and in recent years, China has already implemented a host of statutes that target export control and sanctions that are implemented against Chinese interest and companies. These statutes include: the Provisions on the List of Unreliable Entities¹, the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation², and the Law of the People's Republic of China on Countering Foreign Sanctions³ (the "Anti-Foreign Sanctions Law"). The Foreign Relations Law can be seen as a further step taken by China to strengthen its position against extraterritorial application of foreign laws – such as foreign sanctions and export controls – it disagrees with.

In particular, Article 8 of the Foreign Relations Law provides that "any organization or individual who commits acts that are detrimental to China's national interests in violation of this Law and other applicable laws in the course of engaging in international exchanges shall be held accountable by law." The broad language used in this provision – and in the Foreign Relations Law in general – shows China's comprehensive approach to protect the country's interests. It recognizes that actions detrimental to China's national interests can come in various forms, not solely limited to sanctions-related activities. This allows the law to address a wide range of potential threats and challenges that may arise in the context of international exchanges. The term "detrimental to China's national interests" is not clearly defined and does not provide specific examples or criteria for determining what actions would be considered detrimental. As a result, the interpretation and application of this provision may vary, depending on the circumstances and the authorities involved.

Extraterritorial Application and Enforcement

Article 32 of the Foreign Relations Law stipulates that China shall, in compliance with the fundamental principles of international law and fundamental norms governing international relations, strengthen the implementation and application of its laws and regulations in foreign related fields, as well as take law enforcement and judicial measures in accordance with the law.

The use of the term "foreign related fields" suggests potentially wider extraterritorial application of Chinese laws and law enforcement. Extraterritorial application refers to the enforcement of a country's laws beyond its own borders. It allows a country to assert jurisdiction and apply its laws to individuals, entities, or actions that occur outside its territory. This can include situations where the actions of foreign individuals or organizations have an impact on the country's interests. For example, the Data Security Law of China, which came into effect on 1 September 2022, applies extraterritorially because its scope includes activities of data processing outside the territory of China that harm the national security, public interests, or the lawful rights and interests of Chinese citizens or organizations.⁴ The mention of "foreign related fields" in Article 32 of the Foreign Relations Law suggests that China may take further steps to implement and apply its laws to foreign persons and/or conduct.

While this provision suggests the potential for extraterritorial application, it is important to note that it does not automatically mean that all Chinese laws have such application. The provision is careful to note that any application in foreign-related fields must be in compliance with fundamental principles of international law and norms governing international relations. As such, the extraterritorial application of Chinese law would need to be determined on a case-by-case basis, considering the specific circumstances, statutory language, and legal principles involved.

Counter Measures or Restrictive Measures

Article 33 of the Foreign Relations Law provides that China has the authority to take necessary measures to counter or restrict actions that threaten its sovereignty, national, and development interests, if they violate international law or fundamental norms of international relations.

The State Council and its departments (which will likely include the Ministry of Foreign Affairs and Ministry of Commerce in China, given their roles in implementing restrictive measures that have been imposed by Chinese government)⁵ have the power to create administrative regulations and departmental rules, establish institutions and mechanisms, and enhance coordination and cooperation among departments to implement these measures. This provision, therefore, empowers the State Council and its departments to determine and implement relevant counter measures and restrictive measures, which is intended to allow China to provide – at the legislative and enforcement levels – timely responses to foreign sanctions.

The Foreign Relations Law does not explicitly outline counter or restrictive measures or penalties, but this does not diminish its significance or effectiveness. Instead, it serves as a broad framework that empowers relevant administrative departments to establish specific measures and penalties. The exact nature and extent of the necessary measures would be determined by the Chinese government based on the specific circumstances and the perceived threat to China's sovereignty, national security, and development interests.

In addition, the decisions made by the State Council and its related departments pursuant to Article 33 are considered final. This means that once a decision is made in response to acts that endanger China's sovereignty, national security, and development interests, there is limited chance, if any, for appeal or review either before administrative agencies or in the court proceedings in China.⁶ This provision emphasizes the authority and power of the Chinese government to take decisive action in such cases, with the decisions being regarded as definitive and not subject to further reconsideration. Similar language could also be seen in the Anti-Foreign Sanctions Law, which also provides that restrictive measures to be imposed (including deportation, cancellation of visas, seizure and freezing of assets) are final.⁷

Key takeaways

1. Companies should closely monitor developments. In view of the recent developments discussed above, companies should closely monitor developments in China's foreign relations and related laws. This is particularly for companies that transact with Chinese companies or have operations in China – specifically, these companies and their operations may be affected by potential counter/restrictive measures that are implemented under the Foreign Relations Laws.
2. Companies may be caught between conflicting laws. Particularly for companies that operate in sensitive sectors such as the military and surveillance technology sectors for which the US Office of Foreign Assets Control have paid close attention to in recent years, such companies, especially if they transact with Chinese entities or Chinese state-owned enterprises, may find themselves in a situation between conflicting sanctions and export controls imposed by the US and Chinese government. In such a scenario, the company may have to carefully weigh its options and look at ways to wind-down or restructure certain transactions in order to remain compliant with applicable laws.
3. Companies may wish to take a risk-based approach to its activities. Companies may therefore want to consider adopting a risk-based approach towards its activities, such as including a sanctions or export controls analysis before embarking on a new transaction or major acquisition. As sanctions laws (both Chinese sanctions-related laws and US sanctions targeting Chinese companies or persons) may be worded broadly, companies that have significant Chinese operations or transactions may want to err on the side of the caution and take steps to mitigate sanctions risk, such as:

(a) Conducting regular screening on counterparties;

(b) Doing risk-based due diligence and assessment before confirming an engagement or transaction;

(c) Including appropriate sanctions and compliance covenants in transaction documentation; and

(d) Conducting regular training for employees.

_{1 不可靠实体清单规定 Promulgated by the Ministry of Commerce, Effective as of 19 September 2020.
2 阻断外国法律与措施不当域外适用办法 Promulgated by the Ministry of Commerce, Effective on 9 January 2021.
3 中华人民共和国反外国制裁法 Promulgated by the Standing Committee of the National People's Congress, Effective as of 10 June 2021.
4 The Data Security Law of the People's Republic of China, Article 2.
5 For example, on 16 February 2023, China's Ministry of Commerce designated two US companies, Lockheed Martin Corporation and Raytheon Missiles & Defense on the Unreliable Entity List over their involvement in arms sales to Taiwan and imposed restrictive measures.
6 The Report of the Constitution and Law Committee of the National People's Congress on the Opinions on the Revision of the Foreign Relations Law of the People 's Republic of China (Second Deliberation Draft of the Draft), Opinion 1; Administrative Procedure Law, Article 13.
7 The Anti-Foreign Sanctions Law, Article 6.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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