Mois : janvier 2025

Under the international trade law framework of the WTO, members can use anti-dumping, countervailing and safeguard measures to provide relief measures to domestic industries in cases where dumping, subsidies or excessive growth of imported products cause damage to domestic industries. Anti-dumping and countervailing measures target the unfair trade practices of dumping and subsidizing and correct the price discrimination of enterprises and the unfair competitive advantage gained by their export products due to subsidies by the government or public institutions; safeguard measures are emergency import restriction measures taken in response to import surges, and are “safety valves” for members to fulfill their obligations.

The Foreign Trade Law of the People’s Republic of China of 1994, for the first time, introduced the internationally recognized anti-dumping, countervailing and safeguard measures into China and made principal provisions. In 2001, the State Council reissued the Regulations of the People’s Republic of China on Anti-Dumping, the Regulations of the People’s Republic of China on Countervailing and the Regulations of the People’s Republic of China on Safeguard Measures. Under the framework of these three administrative regulations, MOFCOM has refined the enforcement process of trade remedy measures with more than twenty departmental regulations. One of the more recent amendments is the further refinement and revision of the Rules for Review of Dumping and Dumping Margins, the Rules for Anti-Dumping and Countervailing Hearings, and the Rules for Questionnaires in Anti-Dumping Investigations, which were made in 2018.

According to the WTO statistical methodology, since China’s accession to the WTO in 2001, until the end of 2023, China has launched a total of 285 anti-dumping investigations on imports from nearly 30 countries and regions; 17 countervailing investigations on imports; and 2 safeguard case investigations on imports.^[1]

In general, trade remedies are not a common legal tool used by the Chinese government in dealing with international trade disputes. However, between 2023 and 2024, the EU’s countervailing investigations and eventual decision to impose duties on several major Chinese EV companies led to countermeasures by the Chinese government, including anti-dumping and countervailing investigations on products originating from the EU, such as brandy, pork and pig by-products, and dairy products. For EU companies, this unexpected geopolitical risk may become a normalized risk under the China-EU trade friction to a certain extent in the future. Therefore, understanding such legal tools and preparing to deal with them is also a risk prevention work that EU enterprises should pay attention to in their economic and trade exchanges with China.

1.       Anti-dumping investigation

The Regulations of the People’s Republic of China on Anti-Dumping (amended in 2004, hereinafter the “Anti-dumping Regulations”) are the core document of China’s anti-dumping legal system. Further, the Anti-Dumping Questionnaire Investigation Rules (2018), Anti-Dumping and Countervailing Investigation Hearing Rules (2018), Anti-Dumping Industrial Damage Investigation Provisions (2003), Anti-Dumping Investigation Sampling Interim Rules (2002), Anti-Dumping Investigation Filing Interim Rules (2002), Anti-Dumping Investigation Field Verification Interim Rules, Interim Rules on Disclosure of Information in Anti-Dumping Investigations (2002) together constitute the rules for the conduct of anti-dumping investigations.

Substantive elements of anti-dumping investigations

Dumping: refers to the imports into the Chinese market at prices below their normal value (Article 2 Anti-dumping Regulations). Whether or not dumping exists depends on a comparison of “normal value” and export prices. Methods of determining normal value include the domestic market price in the exporting country, the price of exports to third countries, and the cost of production plus reasonable expenses and profits (Article 4 Anti-dumping Regulations). In the case of the EU as one market, the “domestic market price” of a product is the price within the EU market, i.e. the weighted average normal value within the EU as a whole. The export price of an imported product may be the price actually paid or payable, or the price at which the product is first resold to an independent purchaser (Article 5 Anti-dumping Regulations). The margin by which the export price of an imported product is lower than its normal value is the dumping margin (Article 6 Anti-dumping Regulations).

Injury: is where dumping causes substantial injury or threat of substantial injury to an established domestic industry or creates a substantial impediment to the establishment of a domestic industry (Article 7 Anti-dumping Regulations).

Procedures for anti-dumping investigations

Initiation: Anti-dumping investigations can be initiated either on an application basis or ex officio by the MOFCOM. In the case of an application, a written application for an anti-dumping investigation is usually submitted to the MOFCOM by the Chinese domestic industry or by a natural person, legal person or relevant organization on behalf of the domestic industry, and the investigation is formally initiated if the MOFCOM examines and decides to open a case (Articles 13 Anti-dumping Regulations). Before deciding to open an investigation, MOFCOM will notify the government of the exporting country concerned (Article 16 Anti-dumping Regulations).

Ways and means of investigation: The most conventional means of investigation used by the MOFCOM is the questionnaire survey. Although on-site verification is also one of the investigation methods stipulated in the law, the actual scenarios of its use are limited due to the difficulty of its operation. In cases where there are a large number of exporters under investigation, MOFCOM generally further reduces the investigation to a sample size. At the same time, MOFCOM is required to provide relevant stakeholders with the opportunity to present their views and arguments throughout the investigation process, and to hold hearings at specified investigation stages (Article 20 Anti-dumping Regulations).

Duration of the investigation: In terms of time, the investigation should be concluded within 12 months from the date of the announcement of the decision to open an investigation; it may be extended in exceptional circumstances, but the extension period should not exceed six months (Article 26 Anti-dumping Regulations). Under certain statutory circumstances, the investigation should be terminated. For example, (1) the applicant withdraws the application; (2) there is insufficient evidence to prove the existence of dumping, injury or a causal relationship between the two; (3) the dumping margin is less than 2%; (4) the actual or potential imports of the dumped imports or the injury is negligible; and (5) the MOFCOM deems that it is not appropriate to continue with the anti-dumping investigation (Article 27 Anti-dumping Regulations).

Handling of investigation results: Based on the results of the investigation, the MOFCOM shall make a preliminary ruling on whether dumping, damage and the causal relationship between the two are established and make a public announcement (Article 24 Anti-dumping Regulations). If the preliminary ruling determines that dumping, damage and the causal relationship between the two are established, the MOFCOM shall continue to investigate the dumping and dumping margin, damage and the extent of damage, and make a final ruling based on the investigation results, which shall be announced (Article 25 Anti-dumping Regulations).

Anti-dumping measures

After the preliminary ruling that dumping has been established and that injury has been caused to the domestic industry as a result, the anti-dumping measures can be taken, which include provisional anti-dumping measures, price undertakings and the imposition of anti-dumping duties.

Provisional anti-dumping measures: These include (1) the imposition of provisional anti-dumping duties; and (2) the requirement to provide a bond, guarantee or other form of security (Article 28 Anti-dumping Regulations). Provisional anti-dumping measures shall be imposed for a period not exceeding four months from the date of the announcement of the decision on provisional anti-dumping measures; in exceptional circumstances, this period may be extended to nine months (Article 30 Anti-dumping Regulations).

Price commitments: During the anti-dumping investigation and after the preliminary ruling is made, the exporting operator may make price commitments to the MOFCOM to change prices or stop exporting at dumped prices (Article 31 Anti-dumping Regulations). MOFCOM may propose price undertakings to the exporting operator but may not force the exporting operator to make price undertakings. If the MOFCOM considers that the price commitment made by the exporting operator is acceptable and in the public interest, it may decide to suspend or terminate the anti-dumping investigation, and not to take provisional anti-dumping measures or impose anti-dumping duties (Article 33 Anti-dumping Regulations).

Anti-dumping duties (“AD”): Anti-dumping duties may be imposed in cases where the final decision determines that dumping has been established and that this has caused injury to the domestic industry. The taxpayers of anti-dumping duties are the importing operators of dumped imports. Anti-dumping duties should be determined separately for different exporting operators based on their dumping margins (Articles 37, 40, 41 Anti-dumping Regulations).

The period for the imposition of anti-dumping duties and the period for the fulfillment of price undertakings shall not exceed five years; however, if it is determined upon review that termination of the imposition of anti-dumping duties is likely to result in the continuation or recurrence of dumping and injury, the period for the imposition of anti-dumping duties may be appropriately extended (Article 48 Anti-dumping Regulations).

MOFCOM review of investigation decisions and judicial review

Review means that after the entry into force of anti-dumping duties or after the entry into force of price undertakings, the MOFCOM may, depending on different situations, review the different aspects of the case, including the necessity of continuing to impose anti-dumping duties, at the request of an interested party or ex officio. There are several types of review, i.e. new exporter review (Article 47 Anti-dumping Regulations), interim review (Article 49 Anti-dumping Regulations) as well as sunset review (Article 48 Anti-dumping Regulations). Different reviews are carried out according to different procedures.

To be noted is that as administrative decisions made by the administration MOFCOM’s decisions are subject to judicial review in accordance with the administrative reconsideration procedure and the administrative litigation procedure. Those judicially reviewable decisions include the decision on whether to impose anti-dumping duties and the decision on retroactive collection, refund or collection from new exporters, decisions concerning the retention, modification or cancellation of anti-dumping duties and price undertakings etc. (Article 53 Anti-dumping Regulations).

2.       Countervailing investigation

The Countervailing Regulations of the People’s Republic of China (revised in 2004, hereinafter the “Countervailing Regulations”) are the core document of China’s countervailing legal system. Further, the Interim Rules for Countervailing Questionnaire Investigation (2003), Rules for Hearings on Antidumping and Countervailing Investigations (2018), the Provisions on Countervailing Industrial Damage Investigation (2003), the Interim Rules for Filing Countervailing Investigations (2002), and the Interim Rules for Field Verification of Countervailing Investigations (2002) together build the countervailing investigation system. The legal regime for the conduct of countervailing investigations and measures is very similar to that of anti-dumping. The main difference lies in the targeting of irregular trade practices, i.e. transitional subsidies in the exporting country.

Substantive elements of countervailing investigations

The competent authority may investigate and take countervailing measures if the imported product is subsidized and causes substantial injury or threat of substantial injury to an established domestic industry or creates a substantial impediment to the establishment of a domestic industry (Article 2 Countervailing Regulations).

Subsidies are financial assistance and any form of income or price support provided by the government of the exporting country (region) or any of its public agencies that provides a benefit to the recipient. Financial support may include: (i) direct funding by the exporting government in the form of grants, loans, capital injections, etc., or potential direct transfer of funds or debt in the form of loan guarantees, etc.; (ii) waiver or non-collection of revenues receivable by the exporting government; (iii) provision by the exporting government of goods or services other than general infrastructure, or purchase of goods by the exporting country (region) government; (iv) the government of the exporting country performing the above functions through payments to financing institutions, or by entrusting or directing private institutions (Article 3 Countervailing Regulations). At the same time the subsidies must be of a specific nature, i.e., subsidies received by certain enterprises or industries that are clearly defined by the government of the exporting country or by local law (Article 4 Countervailing Regulations).

For example, in the countervailing investigation initiated by the MOFCOM on August 21, 2024 against imports of relevant dairy products originating in the European Union (EU), the MOFCOM decided to investigate 20 subsidy programs, which include subsidy programs under the EU’s Common Agricultural Policy, such as voluntary linked subsidies and income-linked subsidies, the Basic Payment Scheme and the Sustainable Basic Income Subsidy; and subsidy programs of individual EU member states, such as Ireland’s Dairy Equipment Subsidy Program, Austria’s Mobility Subsidy Program, and Italy’s Dairy Logistics Subsidy etc..[2]

Injury means that the subsidy causes or threatens to cause substantial damage to an established domestic industry or creates a substantial obstacle to the establishment of a domestic industry. This includes the impact that the subsidy may have on trade; whether the absolute quantity of subsidized imports or the quantity of subsidized imports relative to the quantity of domestic production or consumption of similar products has increased substantially; the price of subsidized imports has had a substantial depressing effect on the price of domestic products of the same kind; and the impact of subsidized imports on the relevant economic factors and indicators of the domestic industry, and so on (Articles 7, 8 Countervailing Regulations).

Procedures for countervailing investigations

Initiation: Countervailing investigations may be initiated upon application or ex officio by the MOFCOM. In the case of an application, a written application for a countervailing investigation is usually submitted to the MOFCOM by the Chinese domestic industry or by a natural person, legal person or relevant organization on behalf of the domestic industry, and the investigation is formally initiated if the MOFCOM examines and decides to file a case. Before deciding to initiate an investigation, MOFCOM will notify the government of the exporting country concerned (Articles 13, 16 Countervailing Regulations).

Ways and means of investigation: Similar to anti-dumping investigations, the most conventional means of investigation used by MOFCOM in countervailing cases is the questionnaire survey. At the same time, MOFCOM is required to provide relevant stakeholders with the opportunity to present their views and arguments throughout the investigation process, and to hold hearings at specified investigation stages. Since the subsidies themselves are governmental acts, consultations between the two governments throughout the investigation process are key to determining the direction of the case (Articles 20, 24 Countervailing Regulations).

Duration of the investigation: In terms of time, the investigation should be concluded within 12 months from the date of the announcement of the decision to open an investigation; it may be extended in exceptional circumstances, but the extension period should not exceed six months (Article 27 Countervailing Regulations). In certain statutory circumstances, the investigation should be terminated, for instance, where agreement is reached through consultations with the government of the country (region) concerned that there is no need to continue the countervailing investigation (Article 28 Countervailing Regulations).

Handling of investigation results: Based on the results of the investigation, the MOFCOM shall make a preliminary ruling on whether subsidies, damages and the causal relationship between the two are established and make a public announcement. If the preliminary ruling determines that the subsidy, damage and causal relationship between the two are established, the MOFCOM shall continue to investigate the subsidy and the amount of the subsidy, and the damage and the extent of the damage, and make a final ruling based on the results of the investigation, which shall be announced (Articles 25, 26 Countervailing Regulations).

Countervailing measures

After the preliminary ruling, measures can be taken are: provisional countervailing measures, undertakings and the imposition of countervailing duties.

Provisional countervailing measures: Take the form of the imposition of provisional countervailing duties secured by a bond or guarantee. The period of implementation of provisional countervailing measures shall not exceed four months from the date of implementation specified in the announcement of the decision on provisional countervailing measures (Article 29 Countervailing Regulations).

Commitment: During the countervailing investigation and after the preliminary ruling is made, the MOFCOM may accept the commitment of the government of the exporting country (region) to abolish or restrict subsidies or other relevant measures, or the commitment of the exporting operator to modify prices and decide to suspend or terminate the investigation (Article 32 Countervailing Regulations).

Countervailing duties (“CVD”): Countervailing duties may be levied where the final decision determines that a subsidy has been established and that this has caused damage to the domestic industry. The taxpayer of countervailing duty is the importing operator of the subsidized imported product. Countervailing duties should be determined separately according to the amount of subsidy for different export operators (Articles 38, 41, 42 Countervailing Regulations).

The period for the collection of countervailing duties and the period for the fulfillment of commitments shall not exceed five years; however, the period for the collection of countervailing duties may be appropriately extended if it is determined on review that the termination of the countervailing duties is likely to result in the continuation or reoccurrence of the subsidy and the injury (Article 47 Countervailing Regulations).

MOFCOM review of investigation decisions and judicial review

The MOFCOM review and judicial review of the investigation decisions is similar to that of the anti-dumping cases.

3.       Safeguard

The Regulations of the People’s Republic of China on Safeguard Measures (as amended in 2004) define the conditions, procedures and content of measures for the application of safeguard measures. China seldom uses safeguard measures as a politicized legal tool, because it restricts the quantity of imported products without distinguishing among countries.

Safeguard measures can be applied if the quantity of imported products increases and causes serious damage or the threat of serious damage to the domestic industry producing the same type of products. Safeguard measures take the form of tariff increases, quantitative restrictions and so on. Where the adoption of quantitative restriction measures requires the allocation of quantities among the exporting countries concerned, the MOFCOM may hold consultations with the exporting countries concerned on the allocation of quantities.

One of the latest safeguard cases is the announcement by the MOFCOM of a safeguard investigation on imported beef from December 27, 2024.[3] The reason for this is that China’s beef imports have increased by 65% between 2019 and 2023, with imports in the first half of 2024 reaching more than double the amount in the first half of 2019. Under the impact of imported products, the domestic industry suffered serious damage. The MOFCOM opened an investigation into it in line with Chinese legal provisions and WTO rules.

Legal risks of trade remedies for EU companies

According to the EU’s data statistics, during the more than two decades from 2003-2024, the EU initiated about 157 anti-dumping, countervailing and safeguard investigations against China, accounting for nearly half of all relevant EU investigations in the same period. In 2023, of the 12 new investigations initiated by the EU (10 anti-dumping and 2 countervailing), 9 were against Chinese companies, accounting for 75% of the total[4] . It is conceivable that Chinese companies have already had some experience in dealing with EU investigations. On the other hand, the number of investigations initiated by China against EU companies is relatively low, and the annual number of new cases is in the small single digits. Therefore, it can be said that EU companies are not familiar with China’s trade remedy measures and thus are not able to respond effectively to the related risks. However, increased trade friction requires companies to be prepared and able to respond to such risks at all times.

Our observation from our experience of representing clients in responding to relevant investigations shows that the first thing EU enterprises need to do is to formulate a response strategy; the first question to be answered is whether the enterprise should respond to the investigation. In general, there are two types of enterprises. One is the enterprises with large export volume to China or other investments, such as subsidiaries set up in China; one is the enterprises with small export volume. For the former, responding positively to the investigation to obtain a favorable AD/CVD rate is an unquestionable choice. For the latter, the decision to respond is a matter of weighing the trade-offs between the final rate of duty likely to be applied, the cost of responding, and the profitability of future sales.

Further, no matter which type of enterprises, responding to the lawsuit or not, they need to be clear about the basic principle of tax rate application. On this core issue, the provisions of Chinese law are basically similar to those of other countries. Generally speaking, there may be three kinds of tax rates. First, for enterprises that choose to respond to the investigation and cooperate with the authority, especially those sampled enterprises, each responding enterprise may obtain a separate tax rate. The second type of rate is for enterprises that participate in the response but are not chosen as sample of the investigation. These enterprises generally receive a weighted average of the tax rates received by the sampled enterprises. The third rate applies to all enterprises that have not responded. In this case, the authorities apply the best information available rule (BIA rule) to determine a rate that is usually the highest.

For example, in the most highly publicized anti-dumping investigation of 2024, the investigation of imports of relevant brandy originating in the European Union, under the currently established provisional measures (the duration of the investigation in this case has been extended to April 5, 2025, according to the announcement issued by the MOFCOM on December 25, 2024), with respect to the margin (which is also directly related to the anti-dumping duty rate that may be applied in the future) the three sampled companies will receive their respective rate, i.e. Martell & Co – 30.6%; Jas Hennessy & Co – 39.0%, E. REMY MARTIN & C° – 38.1%. For other companies that cooperated with the investigation, the rate was 34.8% and for other EU companies, 39.0%.[5]

For enterprises, after understanding this basic principle of operation, the more recommended way of dealing with the matter is to respond actively to and participate in the investigation in the first place in any case. Enterprises are advised to cooperate at the initial stage of the investigation in answering the questionnaire of the competent authority, the content of which is usually not complicated. It usually covers the structure of the enterprise, management information, basic sales information and production cost information. If, after this round of responses, the enterprise is not selected for sampling, there is basically not much work to be done, and the enterprise can, as a “free-rider”, wait for a weighted average tax rate. If the enterprise is selected as a sampled enterprise, then the work to cooperate with the investigation will be greatly increased. The enterprise will need to provide very detailed information on various aspects of procurement, production and sales. The advantage is that the sampled enterprises will obtain a separate tax rate, which, generally speaking, is more in line with the actual situation of the enterprises. Also, the sampled enterprises are in constant communication with the authorities and have a better chance to clarify issues and take the initiative.

In conclusion, European enterprises with trade with China, especially those in industries that may receive government subsidies in their operations, should pay active attention to the trade friction between China and the EU, and anticipate the possibility of China’s countermeasures against some of the EU’s trade measures. Once such a possibility arises, they should closely follow the relevant developments through their industry associations and be prepared to respond.

Concluding remarks

With the re-election of Donald Trump as President of the United States, the process of globalization will face new challenges in 2025 and in the foreseeable future. The conservative strategy of “America first” will lead to an increase in international trade barriers and a decrease in the stability and efficiency of global supply chains. In addition, such a policy orientation could trigger trade retaliation by other countries, thereby triggering an escalation of global trade tensions and further impeding the synergistic development of the global economy. In such an international environment, European companies operating in and with China need to be aware of the legal risks associated with geopolitical risks. Sanctions, export controls, and trade remedy measures described in this paper are all new types of risks that enterprises need to pay close attention to in their operations in and with China.

At the end of 2024, we saw China’s State Administration for Market Regulation (SAMR) announce an antitrust investigation of NVIDIA Corporation.[6] The investigation was prompted by NVIDIA’s alleged violations of the Anti-Monopoly Law of the People’s Republic of China and the additional restrictive undertakings it made in its 2020 acquisition of Mylos Technology Co. Specifically, when NVIDIA acquired Mylos in 2020, it had promised to continue to supply the relevant products fairly in the Chinese market in order to obtain antitrust approval. However, since 2022, NVIDIA has repeatedly cut off the supply of GPU products to the Chinese market, which is considered a serious breach of its commitment. Under the Anti-Monopoly Law, NVIDIA could face fines of up to 10% of its previous year’s sales.

On December 5, 2024, the Chinese Ministry of Finance (MOF) released the Domestic Product Standards and Implementation Policy for public comment.[7] The draft is intended to establish a definition of “domestic products” for government procurement. Domestic products are given up to 20% preference in government procurement. In addition, newly introduced government procurement policy measures for technology products, including computers, operating systems, and semiconductors,[8] cite “security and reliability” as a reason for reducing purchases from U.S. and other foreign companies, even if the products are produced by their subsidiaries established in China.

All of the above shows that the Chinese government is still adapting and refining its legal tools. European companies operating in China must dynamically monitor their risks and develop countermeasures to better position themselves and avoid being caught in the crossfire of today’s geopolitical frictions.

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[1] https://i-tip.wto.org/goods/Forms/MemberView.aspx?mode=modify&action=search

[2] https://trb.mofcom.gov.cn/myjjdc/art/2024/art_77edd59bb5a94b76b349a4c0ad46f4c8.html

[3] https://www.mofcom.gov.cn/zwgk/zcfb/art/2024/art_8387c10eb4ac462cbddc02e5bb259767.html

[4] Forty-second Annual Report on EU Anti-Dumping, Countervailing and Safeguard Measures Activities and the Use of Trade Protection Instruments by Third Countries against the EU, 2023.

[5] https://www.mofcom.gov.cn/zwgk/zcfb/art/2024/art_e0985682da084c70884d7e6a2848f4f9.html

[6] https://www.samr.gov.cn/xw/zj/art/2024/art_ed4d3090401741a0894e475d35db652b.html

[7] https://www.ccgp.gov.cn/zcfg/mof/202412/t20241205_23798042.htm

[8] Desktop Computer Government Procurement Standards (2023 ed.), Portable Computer Government Procurement Standards (2023 ed.), and General Server Government Procurement Standards (2023 ed.).

Read more in the same newsletter :

1. https://adaltys.com/enterprises-operating-in-with-china-sanction/
2. https://adaltys.com/enterprises-operating-in-with-china-export-control/

China’s export control legal regime is centered on the Export Control Law (adopted on October 17, 2020, effective December 1, 2020), supplemented by the Foreign Trade Law, the Customs Law, and other laws and regulations. Its subordinate laws and regulations include the Regulations on the Control of Exports of Dual-Use Items and the accompanying List of the People’s Republic of China on the Control of Exports of Dual-Use Items.

1. Export Control Law

Regulated objects

The Export Control Law provides for State export control of dual-use items, military goods, nuclear and other goods, technologies, services and other items (hereinafter referred to collectively as controlled items) that are relevant to the safeguarding of national security and interests, and the fulfilment of international obligations such as non-proliferation (Article 2). The concept of “export control” includes the transfer of controlled items from Chinese territory to foreign countries, as well as the provision of controlled items (including services) by Chinese citizens, legal persons and unincorporated organizations to foreign organizations and individuals. Therefore, the provision of technical information and technical services by Chinese citizens to foreign organizations outside China may also fall within the scope of export control under this Law.

Type of control

In terms of control methods, the State manages mainly through the establishment of control lists and catalogs and the granting of export licenses. In other words, controlled items are defined through the (temporary) export control lists, and the corresponding export control measures are established through an assessment and risk management system that determines the level of risk in terms of the countries and regions to which the controlled items are exported, the end-users and the end-uses. In addition, export activities requiring additional stringent controls are identified through control lists, or blacklists, of importers and end-users. For the items, destination countries and regions, end-users and end-uses listed in the control list, export operators are required to apply for the corresponding licenses and provide the corresponding supporting documents and information during the export process.

Extraterritoriality

It is worth noting that the Export Control Law provides for its own extraterritorial effects. Article 44 provides that organizations and individuals outside the territory of the People’s Republic of China that violate the relevant provisions of the Export Control Law can be held legally responsible. In addition, Article 48 emphasizes the principle of reciprocity, i.e., if any country or region abuses export control measures to jeopardize the national security and interests of China, China may, in the light of the actual situation, take reciprocal measures against that country or region.

2. Regulations of the People’s Republic of China on Export Control of Dual-Use Items

The Regulations of the People’s Republic of China on Export Control of Dual-Use Items (the “Control Regulations”) were adopted on September 18, 2024, and came into force on December 1, 2024.

Export license

The Control Regulations focus on the detailed control measures, i.e., the types of export licenses, the circumstances in which they are applicable, the manner in which they are applied, and so on. According to Article 15, the export of dual-use items on the control lists is subject to a single license, a general license, or an export certificate. Specifically:

• A single license allows an export operator to conduct a single export of specific dual-use items to a single end-user within the scope, conditions and period of validity set out in the export license. A single license is valid for a period not exceeding one year, and if the export is completed within the validity period, the export license shall automatically expire.
• A general license allows an export operator to make multiple exports of specific dual-use items to a single or multiple end-users within the scope, conditions and validity period specified in the export license. The general license is valid for a period not exceeding three years.
• Where export certificates apply, the export operator shall register with the competent authority before each export of specific dual-use items, and obtain export certificates by provisions of relevant information, and then export according to the export certificates.

End-user and end-use management

Relevant competent authorities establish a risk management system for end-users and end-uses of dual-use items, assess and verify the risks involved. Specific ways include:

• When applying for an export license for dual-use items, the export operator shall submit end-user and end-use certification documents issued by the end-user. The end-user of dual-use items shall make an undertaking in accordance with the requirements of the competent authorities that the end-use of the dual-use items shall not be changed or transferred to any third party without permission (Article 24);
• The competent authorities may carry out end-user and end-use verification in accordance with the law (Article 26); 

• Two-tier blacklisting system: if importers and end-users do not cooperate with verification and provide relevant supporting materials, resulting in the inability to verify the end-user and end-use of dual-use items, the competent authorities may place the importers and end-users concerned on the list of concern. Operators exporting dual-use items to importers and end-users listed on the list of concern may not apply for a general license or obtain an export certificate by registering the information, but may only apply for a single license (Article 26). In more serious cases, such as end-users violating end-use management requirements, the importers and end-users concerned will be put on the control list. Importers and end-users on the control list will be banned or restricted from trading in dual-use items, ordered to suspend the export of dual-use items, and other necessary measures will be taken (Article 29).

Foreign and extraterritorial situations

The Control Regulations provide for the following foreign and extraterritorial situations:

• Chinese entities (including individuals) that receive requests from foreign Governments for visits, on-site verifications, etc., related to export control shall immediately report them to the competent authorities. Without the consent of the competent authorities, they shall not accept or undertake to accept relevant visits, on-site verification, etc., from foreign governments (Article 38). If this provision is violated, the relevant party shall be fined (up to RMB three million); if the circumstances are particularly serious, it shall be ordered to suspend and reorganize its business (Article 43).

• Article 49 provides that where overseas organizations and individuals transfer and provide the following goods, technologies and services outside China to specific countries and regions for specific purposes and to specific organizations and individuals, the Chinese authority may require the relevant operators to abide by the Chinese regulations: (1) dual-use items manufactured outside China containing, integrating or mixing specific dual-use items originating in China; (2) dual-use items manufactured outside China using specific Chinese dual-use technologies; (3) specific dual-use items originating in China.

The provisions of Article 49 are similar to the special rules under the U.S. EAR (“Export Administration Regulations”) system, such as De Minimis Rule and Foreign-Direct Product Rule, which extraterritorialize China’s control legal system to counteract the U.S. system.

3. Export Control List of Dual-Use Items of the People’s Republic of China

The newly formulated Export Control List of the People’s Republic of China on Dual-Use Items, effective from December 1, 2024, is an important reform initiative to implement the export control legal regime. The List integrates the items under the original regulations on nuclear, missile, biological, chemicals, etc., and integrates dual-use items into 10 major categories of industry sectors, each of which is further subdivided into 5 types of items, which are organized by the coding method of “Arabic numerals+ English letters”, consisting of “1 Arabic numeral + 1 uppercase English letter + 3 Arabic numerals”, similar to the coding of the list of dual-use items in the U.S. and the EU. However, the List does not set out the corresponding customs commodity codes for each category of dual-use items as in the updated Catalogue of Licenses for Import and Export of Dual-use Items and Technologies (hereinafter referred to as “the Catalogue”) in 2023, nor does it repeal the Catalogue. It remains to be seen how the two documents will be used in the future and whether the Catalog will be updated or repealed.

Legal risks for European enterprises under the export control legal system

On December 03, 2024, MOFCOM announced in the form of Circular No. 46 of 2024 that: “i. Exports of dual-use items to U.S. military users or for military use are prohibited. ii. In principle, the export of gallium, germanium, antimony, and superhard materials-related dual-use items to the United States shall not be licensed; and a more stringent end-user and end-use review shall be implemented for the export of graphite dual-use items to the United States. Organizations and individuals from any country or region that transfer or provide relevant dual-use items originating in China to the U.S. in violation of the above provisions will be investigated for legal responsibility in accordance with the law.”[1] The three short sentences reflect China’s attitude and means of using export control as a legal tool to counteract relevant U.S. legislation and enforcement. In particular, the extraterritorial effect of the last sentence will have a direct impact on enterprises abroad. The MOFCOM’s Circular No. 1, dated January 2, 2025, is again about export controls, and it adds General Dynamics and 28 other U.S. entities to the Export Control List for the export of dual-use items. The export of dual-use items to these 28 United States entities is prohibited; ongoing related export activities should cease immediately.[2]

It goes without saying that for EU enterprises, their subsidiaries established in China need to comply with China’s export control laws. Even for EU enterprises as foreign enterprises themselves, because of the extraterritorial effect of the relevant newly enacted Chinese laws, if an EU enterprise resells relevant dual-use items originating in China in Europe or elsewhere in violation of the Chinese laws, theoretically, it will also be subject to liability under the Chinese laws. At this stage, it is not clear what legal measures the relevant Chinese authorities can take to enforce liability. Even so, it is advisable for European companies to pay attention to China’s export control-related announcements in their risk scanning of their export control compliance systems and to take effective precautions against the risk of violating Chinese law. After all, in today’s context of globalization of investment activities and trade supply chains, it is not common to see economic activities that are completely divorced from China, and the possibility of enforcement by Chinese authorities can easily arise.

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[1] https://aqygzj.mofcom.gov.cn/flzc/gzjgfxwj/art/2025/art_efbe2d2540e845a59a70f2d0768f671f.html

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[2] https://aqygzj.mofcom.gov.cn/flzc/gzjgfxwj/art/2024/art_daaa02c05d8946179dcf5d1ba499ac46.html

Read more in the same newsletter :

1. https://adaltys.com/enterprises-operating-in-with-china-sanction/
2. https://adaltys.com/enterprises-operating-in-with-china-trade-remedy-measures/

1.       Law of the People’s Republic of China on Anti-Foreign Sanctions

The Law of the People’s Republic of China on Anti-Foreign Sanctions (“Anti-Foreign Sanctions Law”) was adopted by the 29^th meeting of the Standing Committee of the 13^th National People’s Congress on June 10, 2021, and came into force on the date of its promulgation. According to Article 3 of the Anti-Foreign Sanctions Law, if a foreign state violates international law and the basic norms of international relations, uses various pretexts or its own laws to contain or suppress China, takes discriminatory restrictive measures against its citizens or organizations, and interferes in the internal affairs of China, China has the right to take corresponding countermeasures. As can be seen from the conditions of application, the law is more of a political and principled approach, setting out a framework and providing guidelines.

Specific elements of countermeasures

In accordance with Articles 4 and 5 of the Anti-Foreign Sanctions Law, countermeasures are applied to individuals and organizations (included in the countermeasures list) that are directly or indirectly involved in formulating, deciding on, or implementing discriminatory restrictive measures, as well as to their spouses, immediate family members, senior managers, or de facto controllers etc.. Countermeasures include, but are not limited to:

• Denial of visa, denial of entry, cancellation of visa or expulsion from the country;
• Seizure, attachment and freezing of movable and immovable property and other types of property within the territory of China;
• Prohibiting or restricting organizations and individuals in China from engaging in relevant transactions, cooperation and other activities with them;
• Other necessary measures.

Implementation and accountability

It goes without saying that under the system of the Anti-Foreign Sanctions Law, entities and individuals included in the countermeasures list are subject to the aforementioned sanctions. It is important to note that, under the Anti-Foreign Sanctions Law, organizations and individuals in China shall implement the countermeasures taken by the competent Chinese authority (Article 11), and no organization or individual may implement or assist in the implementation of discriminatory restrictive measures taken by foreign States against Chinese citizens or organizations (Article 12). Organizations and individuals that violate the regulations will face the following legal liabilities: (1) administrative liability, i.e., they will be restricted or prohibited from engaging in the relevant activities by the competent authorities (Article 11); (2) civil tort liability, if the implementation of, or assistance in the implementation of, discriminatory restrictive measures taken by a foreign country against a Chinese citizen or organization causes an infringement on the latter, the infringed party may, in accordance with the law, file a lawsuit in the People’s Court to demand that the infringement be stopped and to claim compensation for damages (Article 12).

Examples of foreign enterprises penalized under China’s Anti-Foreign Sanctions Law

In connection with issues such as military assistance to China’s Taiwan region, the Ministry of Foreign Affairs of China has placed a number of United States enterprises on the countermeasures list under the Anti-Foreign Sanctions Law. For example, according to the Decision of the Ministry of Foreign Affairs of December 27, 2024 on Countermeasures against U.S. Military Industrial Companies and Senior Executives, Insitu, Inc., Hudson Technologies Co., Saronic Technologies, Inc., Raytheon Canada, Raytheon Australia, Aerkomm Inc., Oceaneering International, Inc. etc. were placed on the countermeasures list.[1]

Comments and recommendations

Given its political and framework nature, the Anti-Foreign Sanctions Law itself leaves much room for uncertainty and interpretation. For example, in terms of the conditions for its application, it is not clear what “discriminatory restrictive measures” can be characterized as “foreign countries interfering in the internal affairs of China by using various pretexts or their own laws to suppress and oppress China, and by taking discriminatory restrictive measures against its citizens and organizations in violation of international law and the basic norms of international relations”. Whether “discriminatory restrictive measures” include the series of U.S. sanctions and restrictive measures against China, such as the Uyghur Forced Labor Prevention Act, the Hong Kong related sanctions, the China Military-Industrial Complex (CMIC) sanctions, and whether they cover the lists or specific penalties in the area of U.S. export control, etc., are all questions that remain to be seen.

In the case of European enterprises operating in or with China, if they are legal persons under Chinese law registered in China, they are obliged to implement the countermeasures imposed by the competent Chinese authorities and may not implement or assist in the implementation of discriminatory restrictive measures taken by foreign States against Chinese citizens and organizations. For example, they may not unilaterally terminate the trading relationship with a subject in China to the detriment of its legitimate rights and interests for the sole purpose of fulfilling the U.S. sanction programs. Otherwise, they may face tort and breach of contract liabilities. Specifically, sanction compliance and unilateral termination clauses, which have become more common in recent years in the general terms and conditions commonly used by European enterprises at the group level, may face legal risks of invalidity and liquidated damages if they are directly applied to the context of Chinese subsidiaries.

Even if for European enterprises that are purely foreign enterprises registered outside of China, it should be noted that the extraterritorial effect of the Anti-Foreign Sanctions Law requires foreign enterprises to avoid implementing or assisting in the implementation of “discriminatory restrictive measures”. Failure to comply with this provision may, in theory, result in the risk of being sued for damages. Of course, such liability is premised on the injured party filing a claim with the competent adjudicating authority, and the possibility of actual enforcement depends mainly on whether the foreign enterprise has enforceable assets in China.

2.       Measures for Blocking the Improper Extraterritorial Application of Foreign Laws and Measures

The Measures for Blocking Improper Extraterritorial Application of Foreign Laws and Measures (the “Blocking Measures”) were published by Decree No. 1 of the Ministry of Commerce (“MOFCOM”) on January 9, 2021, and came into force on the same day. It is an administrative regulation. The main contents include the following aspects:

Scope of application

The Blocking Measures apply to the circumstances of extraterritorial application of foreign laws and measures, which violates international law and the basic norms of international relations by unreasonably prohibiting or restricting Chinese citizens, legal entities or other organizations from engaging in normal economic, trade and related activities with third countries (regions) and their citizens, legal entities or other organizations (Article 2).

Working mechanisms

The State establishes a working mechanism, with the participation of relevant departments of the central State, responsible for responding to the improper extraterritorial application of foreign laws and measures. The working mechanism will assess and confirm whether there is improper extraterritorial application of foreign laws and measures, taking into account various factors (Article 6).

Reporting obligations

If a Chinese citizen, legal person or other organization encounters foreign laws and measures prohibiting or restricting its normal economic, trade and related activities with a third country (region) and its citizens, legal persons or other organizations, it shall, within 30 days, report the situation to the MOFCOM. If the person making the report requests confidentiality, the authority and its staff shall maintain confidentiality for him or her (Article 5).

Insurance of injunctions

If the assessment confirms that the foreign laws and measures in question have been improperly applied extraterritorially, the working mechanism may decide that the MOFCOM shall issue an injunction (Article 7). Chinese citizens, legal persons or other organizations may apply to the authority for exemption from the injunction.

Judicial remedy

There are two main situations in which judicial remedies and civil compensation may occur under the Blocking Measures. First, if a party’s compliance with foreign laws and measures within the scope of the injunction infringes on the lawful rights and interests of a Chinese entity (including citizen, legal person or other organization), the Chinese entity may, in accordance with the law, file a lawsuit in the People’s Court to demand that party to pay compensation for the loss; second, if a judgment or ruling made under a foreign law within the scope of the injunction results in a loss to a Chinese entity, the Chinese entity may, in accordance with the law, file a lawsuit in the People’s Court to demand that the party that has benefited from the judgment or ruling compensate the loss (Article 9).

As of today, there are no public reports indicating that MOFCOM has issued a specific injunction under the Blocking Measures.

3.       Unreliable Entity List Provisions

The Provisions on the List of Unreliable Entities were promulgated by Decree No. 4 of the MOFCOM on September 19, 2020, and came into effect on the same day. It is an administrative regulation. The main contents include the following aspects:

Applicable objects and acts

The State establishes a system of lists of unreliable entities, and takes corresponding measures against foreign entities (including foreign enterprises, other organizations or individuals) for the following actions in international economic and trade and related activities: actions that endanger China’s sovereignty, security or development interests; actions that violate normal market trading principles, disrupt normal trading with Chinese enterprises, other organizations or individuals, or take discriminatory measures against them, seriously damaging their legitimate rights and interests (Article 2).

Investigations and announcements

A multisectoral working mechanism established under the State Council decides ex officio, or on the basis of suggestions or reports from the parties concerned, whether or not to conduct an investigation into the acts of the foreign entity in question. The investigation may take the form of questioning the parties concerned, inspecting or copying relevant documents and information, and other necessary means. During the investigation, the foreign entity concerned may make statements and plead its case (Article 6). If, after investigation, the working mechanism decides to include the investigated entity in the list of unreliable entities, it shall make a public announcement (Article 8).

Consequences of listing

Restrictive measures that may be imposed on foreign entities included in the list of unreliable entities include: restricting or prohibiting them from engaging in China-related import and export activities; restricting or prohibiting them from investing in China; restricting or prohibiting the entry of their relevant personnel and means of transportation into the country; restricting or revoking the qualifications of their relevant personnel for work permits, stays or residences in China; and imposing fines of an appropriate amount in accordance with the gravity of the circumstances etc. (Article 10).

Cases

1. Boeing Defense, Space & Security (USA), General Atomics Aeronautical Systems (USA), General Dynamics Land Systems: on May 20, 2024, was added to the MOFCOM’s list of unreliable entities for its involvement in arms sales to Taiwan.[2]
2. The Working Mechanism issued a public announcement on September 24, 2024, deciding to commence the investigation against the U.S. PVH Group for the possible existence of discriminatory measures against the products involved in Xinjiang Area.[3]

Summary of legal risks for European companies under the PRC’s anti-foreign sanctions regime

The Anti-Foreign Sanctions Law was enacted after the Provisions on the List of Unreliable Entities and the Blocking Measures and is a higher-order law, in terms of hierarchy of effect. However, due to the nature of the higher-order law, it requires a lower-order administrative regulation to implement its contents. Therefore, the parallelism of the three pieces of legislation is likely to continue. On a practical level, after the introduction of the Anti-Foreign Sanctions Law, the MOFCOM still carries out investigations and publishes lists in accordance with the Provisions on the List of Unreliable Entities, which also validates the aforementioned analysis. Comparing the three pieces of legislation in detail, we can see the different risks that European companies’ subsidiaries in China or European companies themselves may face as follows:

	Anti-Foreign Sanctions Law	Blocking Measures	Provisions on the List of Unreliable Entities
Applicable conditions	A foreign State: violates international law and the basic norms of international relationssuppress China by using various pretexts or in accordance with its own national lawstakes discriminatory and restrictive measures against Chinese citizens and organizationsinterferes in the internal affairs of China	The extraterritorial application of foreign laws and measures: violates international law and the basic norms of international relationsunduly prohibits or restricts Chinese citizens, legal persons or other organizations from engaging in normal economic, trade and related activities with third countries (regions) and their citizens, legal persons or other organizations	Foreign entities (including organizations and individuals): jeopardize China’s national sovereignty, security and development interestsviolate the principle of normal market transactions, interrupt normal transactions with Chinese entitiestake discriminatory measures against Chinese entitiesthereby seriously harming the legitimate rights and interests of Chinese entities
Objects of punishment	Individuals and organizations directly or indirectly involved in the formulation, decision or implementation of discriminatory restrictive measures.		The aforementioned foreign entities
Form of official Chinese documents	List of countermeasures	Injunctions	List of unreliable entities
Specific measures	For organizations, individuals and their executives, etc., on the countermeasures list: Prohibition of entering ChinaSeizure of assetsProhibition of trading	Non-recognition, non-enforcement and non-compliance with relevant foreign laws and measures	For entities on the list of unreliable entities: Restrict or ban trade with ChinaRestrictions or prohibitions on investment in ChinaProhibition of entering and working in China etcFineOther necessary measures
Obligations and responsibilities of European companies’ subsidiaries in China	Implementation of countermeasures imposed by the competent Chinese authoritiesShall not enforce or assist in the enforcement of discriminatory restrictive measures taken by foreign States against Chinese citizens and organizations.	Non-recognition, non-enforcement and non-compliance with relevant foreign laws and measures specified in the injunction
Corresponding legal responsibilities	Administrative responsibility: order to restrict or prohibit the exercise of the relevant activitiesCivil liability: tortious liability to third parties and liability for breach of contract	Administrative responsibility: warning, order to correct, fineCivil liability: Compliance with foreign laws and measures within the scope of the injunction results in liability for compensation to Chinese entities that have suffered damage; if a judgment or decision made under a foreign law within the scope of the injunction benefits an European entity, the injured Chinese entity may request compensation from it.
Obligations of the European enterprise (registered in the EU country)	Avoidance of enforcement, assistance in “discriminatory restrictive measures”
Corresponding legal responsibilities	(Theoretically) civil liability: tortious liability to third parties and liability for breach of contract
Circumstances to be clarified	What is the scope of “discriminatory restrictive measures”?	Are foreign legal entities required to comply with the regulation, and does it create liability?
Recommendations	Not advisable to unilaterally terminate trading relations with subjects in China for the sole purpose of fulfilling US sanction lawsThe applicability of the Group’s general trading terms and conditions to its subsidiaries in China should be studies carefully. Compliance clauses designed to fulfill the U.S. sanction or export control obligations could lead to compensation claims under Chinese law. Therefore, such clauses need to be carefully designed.

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[1] https://www.mfa.gov.cn/web/wjb_673085/zfxxgk_674865/gknrlb/fzcqdcs/202412/t20241227_11520050.shtml

[2] http://m.mofcom.gov.cn/article/zcfb/zczxzc/202405/20240503510684.shtml

[3] http://www.mofcom.gov.cn:8080/zcfb/zc/art/2024/art_5148fedb0a9545e2b61c07d5b94678e3.html

Read more in the same newsletter :

1. https://adaltys.com/enterprises-operating-in-with-china-export-control/
2. https://adaltys.com/enterprises-operating-in-with-china-trade-remedy-measures/