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Source: US Global Legal Monitor

(Oct. 9, 2020) On September 19, 2020, upon approval of the State Council, China’s Ministry of Commerce (MOFCOM) released the Provisions on the Unreliable Entity List (English translation prepared by MOFCOM). The Provisions establish the framework of an “unreliable entity list” (UEL) regime, under which punitive measures may be imposed on designated foreign entities, including companies, other organizations, or individuals, for conduct that is contrary to China’s national interests.

MOFCOM first announced on May 31, 2019, that China would introduce the UEL regime. In the 2019 announcement, MOFCOM referred to the Foreign Trade Law, National Security Law, and Anti-trust Law as the basis of the regime. The final Provisions provide that the Provisions were formulated in accordance with the Foreign Trade Law, National Security Law, and “other relevant laws,” without mentioning the Anti-trust Law. (Art. 1.)

Targeted Conduct

According to the Provisions, foreign entities may be designated in the UEL for their conduct in international economic, trade, and other related activities that are:

  1. endangering China’s national sovereignty, security, or development interests; or
  2. suspending normal transactions with, or applying discriminatory measures against, an enterprise, other organization, or individual of China, which violates normal market transaction principles and causes serious damage to the legitimate rights and interests of the Chinese party. (Art. 2.)

Working Mechanism

The Provisions establish an inter-ministerial working mechanism consisting of relevant central governmental authorities. An office to support the work of the working mechanism will be located within MOFCOM. The working mechanism has the power to conduct investigations and make decisions on designating foreign entities in the UEL. During its investigations, the working mechanism will collect evidence through various channels and may allow foreign entities to present a defense. (Arts. 4–7.)

The working mechanism will announce its decision to add any foreign entity to the UEL through a public announcement. (Art. 8.) Such a public announcement may also include an alert about the risks of conducting transactions with the designated foreign entity and a time limit for the foreign entity to correct  its conduct and thereby avoid being subject to punitive measures. (Arts. 9 & 11.)

A designated foreign entity may apply for removal from the UEL and the working mechanism will decide whether to remove it “based on actual circumstances.” If a designated foreign entity corrects its conduct within the time limit and takes measures to “eliminate the consequences of its actions,” the working mechanism will make a decision to remove it from the UEL, according to the Provisions. (Art. 13.)

Punitive Measures

For a foreign entity designated in the UEL, the working mechanism may decide to impose one or several of the following measures and make an announcement of such:

  1. restricting or prohibiting the foreign entity from engaging in China-related import or export activities;
  2. restricting or prohibiting the foreign entity from investing in China;
  3. restricting or prohibiting the foreign entity’s relevant personnel or means of transportation from entering into China;
  4. restricting or revoking the relevant personnel’s work permit, status of stay or residence in China;
  5. imposing a fine of the corresponding amount according to the severity of the circumstances;
  6. other necessary measures. (Art. 10.)

According to lawyers practicing in Asia, the UEL is China’s first general list-based sanctions framework, which equips the government with new sanctions tools to deter and penalize conduct by foreign entities that is harmful to Chinese government interests and policies. Previously, in August 2020, China updated its Catalogue of Technologies Prohibited or Restricted from Export to add a wide range of restricted technologies, including those related to encryption, cyber defense, metal 3D printing, aero remote sensors, and unmanned aerial vehicles. A new Export Control Law has completed its second reading before the National People’s Congress Standing Committee.

The government has not yet designated any specific foreign companies or individuals in the UEL.

MIL OSI USA News