China’s defense against secondary sanctions: lessons from the EU blocking statute

• DOI: https://doi.org/10.1108/JITLP-09-2021-0048
• Published date: 08 April 2022
• Date: 08 April 2022
• Pages: 217-239
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade
• Author: Alexandr Svetlicinii

China’s defense against secondary

sanctions: lessons from the EU

blocking statute

Alexandr Svetlicinii

Faculty of Law, University of Macau, Macao SAR, China

Abstract

Purpose –With the rise of geopolitical tensions among the leadingstate actors, the Chinese citizens and

companies are increasingly targetedby the unilateral restrictive measures. These frequently include the so-

called secondary sanctions, i.e. penalties imposed on third parties for failing to comply with the sanctions

regime, the US practice being a prominent example. The purpose of this paper is to analyze China’s legal

instrumentsrelated to imposition of and protection from unilateralrestrictive measures of third countries.

Design/methodology/approach –The present paperdiscusses China’s legal defenses counteractingthe

extraterritorial sanctionsby comparison with the legislative and enforcement practices of the EU, which has

accumulated substantial experience trying to shield its businesses from the US secondary sanctions. The

paper identifies the differences between the two anti-sanctions regimes andhighlights the key factors that

will affect the future enforcementof blocking rules in China.

Findings –When designing its anti-foreign sanctionslegislation, China has considered similar legislation

adopted by other jurisdictions, most notably–the EU blocking statute. The comparative assessment of the

two blocking regimes revealssubstantial similarities in legislative and proceduralstandards with important

differencesin enforcement capabilities and institutionalframeworks.

Originality/value –The paper represents one of the first attempts to anticipate the directions in

enforcementof China’s blocking legislation taking into account the EU experiencesin this domain.

Keywords China, European Union, Sanctions, Blocking statute, Extraterritoriality

Paper type Research paper

1. Introduction

As China is currently perceived as “an economic competitor in the pursuit of technological

leadership, and a systemic rival promoting alternative models of governance”[1]bythe

European Union (EU) and a “strategic, near-peer, global competitor”[2] by the United States

(US), it has increasingly become the object of unilateral restrictive measures targeting its

citizens and companies, both directly and indirectly. As of 25 January 2022, 345 individuals and

entities from China appeared on the list of the Specially Designated Nationals (SDN) and

Blocked Persons subjected to restrictions administered by the Office of Foreign Assets Control

(OFAC) of the US Department of the Treasury [3]. On 22 March 2021, the EU blacklisted one

public body and four Chinese officials occupying various administrative and political positions

in Xinjiang Uygur Autonomous Region [4] under the Regulation 2020/1998 targeting entities

and individuals involved in serious human rights violations and abuses [5]. The restrictive

measures included entry bans and freeze of assets owned by the persons concerned [6].

The author acknowledges the support from the Specialized Subsidy Scheme for Macao Higher

Education Institutions in the Area of Research in Humanities and Social Sciences of Higher

Education Fund for the research project HSS-UMAC-2020-17.

China’s defense

against

secondary

sanctions

217

Received2 September 2021

Revised2 February 2022

22February 2022

Accepted23 February 2022

Journalof International Trade

Lawand Policy

Vol.21 No. 3, 2022

pp. 217-239

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-09-2021-0048

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1477-0024.htm

Apart from being targeted by the aforementioned restrictions directly, Chinese citizens

and companies are increasingly affected by the “secondary sanctions”i.e. “the threat of

sanctions directed at third-country actorsfor engaging in certain activities with the targets

of existing sanctions, regardless of a direct link to the administering country”(Sultoon and

Walker, 2019, p. 3), the US sanctions being a prominent example (Lowe, 1997;Farrell and

Newman, 2019;Rathbone et al., 2013;Terry, 2020). The US enforcement of secondary

sanctions has increased dramatically in 2018 following the Trump administration’s

withdrawal from the Joint Comprehensive Plan of Action, commonly known as the Iran

nuclear deal, and the resumption of unilateral sanctions against the Islamic Republic.

According to the OFAC data, Chinese persons and entities have been the most frequent

targets of the US secondary sanctions (Bartlett and Ophel, 2021). Furthermore, Chinese

companies doing business with the blacklisted entities from Iran [7], North Korea [8] and

Russia [9] have been routinely sanctioned by the US authorities. For instance, international

trading firms from the jurisdictions sanctioned by the USdo not have many choices when it

comes to processing of their international payments and frequently resort to Chinese of

Russian banks (Sun, 2021, p. 331). As a result, the Chinese banks have been increasingly

exposed to the US secondary sanctions. Finally, the US legislature passed the 2020 Hong

Kong Autonomy Act [10], which included secondary sanctions for the financial institutions

dealing with the blacklisted Chinese persons and entities [11]. This piece of legislation was

the first instance when the US has introduced secondary sanctions against third country

financial institutionsdealing with the Chinese persons and entities.

The present paper discusses China’semerging legal instruments adopted for the purpose

of counteracting the extraterritorial sanctions taking into account the legislative and

enforcement practices of the EU, which has encountered a number of challenges when

shielding its businesses from the US secondary sanctions. The discussion is structured as

follows. Section 2 traces the evolution of China’s approach towards unilateral sanctions,

which has gradually led to the diversificationof its own sanctions toolbox. Section 3 reviews

the major features of the Chinese legislative and institutional frameworks designed to

counteract foreign extraterritorial sanctions in general and secondary sanctions in

particular. Resembling the EU blocking statute, the actual enforcement of the Chinese anti-

sanctions legislationis currently forthcoming. The analysis of the enforcementexperience of

the EU blocking rules in Section 4 allows anticipating potential challenges for the effective

enforcement of the blocking legislationin China. Finally, Section 5 highlights the differences

between the two anti-sanctions regimes and outlines the key factors that will affect the

future enforcement of blockingrules in China and their potential in counteracting secondary

sanctions.

2. When geopolitics meets law: China joins the “game of sanctions”

Traditionally, China has been firmly opposed to imposition of the unilateral sanctions

outside the United Nations (UN) system (Cai, 2021, pp. 76-79), where it holds a permanent

seat in the UN Security Council. As a result, it openly condemned the US practice of

imposing secondary sanctionson third country persons and individuals (Huo and Yip, 2021,

p. 8). When responding to the external threats or unfriendly actions of foreign countries by

applying various restrictions in the respective bilateral economic relations, China

consistently avoided calling these measures “sanctions”(Hufbauer and Jung, 2020;Poh,

2020;Blockmans, 2021a):imposing tariffs on agricultural products from Australia (Sullivan,

2020), banning bananas from thePhilippines (Venzon, 2019), salmon imports from Norway

(Lewis, 2011), etc. As a result,its core legislation on defense of national security andnational

economic interests, such as the 2015 NationalSecurity Law, did not provide for any specific

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