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China’s Unreliable Entity List, a Tit-for-Tat Counterstrike?
China’s Unreliable Entity List, a Tit-for-Tat Counterstrike?
On May 31, China’s Ministry of Commerce (MOFCOM) announced that China will release its unreliable entity list (“UEL"), a list that would include any foreign companies, individuals and organizations that “do not follow market principles, violate the spirit of contracts, blockade and stop supplying along with taking other discriminatory measures against Chinese companies out of non-commercial reasons, and have severely damaged the legitimate rights and interests of Chinese companies as well as posing a threat or potential threat to China’s national security and interests." In addition, the ministry said that specific measures to implement UEL would be released very shortly.
Although no specific foreign country is suggested, apparently, the ministry’s looming UEL regulatory regime appears to be a legal tactic aimed at counterstriking the Trump administration’s recent sanctions imposed against and placement of a series of Chinese companies and individuals into the US export control “entity list" issued by the US Department of Commerce Bureau of Industry and Security.
In mid-May, in a clear strike against Huawei, the giant Chinese technology company making telecommunication gears, the US Commerce Department announced that it had placed the company and its dozens of affiliates around the globe on an entity list of companies deemed a risk to the national security of the US, essentially preventing it from buying American-provided microchips, software, and other parts and technologies without seeking special licenses from the US government.
Shortly thereafter, some large US technology companies and organizations have said they will stop supplying Huawei or cut off their business cooperation with the company. Moreover, it is said the Trump Administration is also deliberating whether to add more Chinese technology companies to the entity list that bars them from purchasing US components or software. According to media report, China has decided to launch its investigation into FedEx Corp over its “wrongful delivery of the packages" of Huawei, giving an ominous hint of the kind of foreign companies it may classify as “unreliable."
The spokesman of MOFCOM said that the legal basis for establishing the UEL mechanism are the PRC Foreign Trade Law, Anti-Monopoly Law and National Security Law along with other laws and regulations.
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Laws |
Articles |
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Foreign Trade Law |
Article 7 – “any country or region that takes discriminatory bans, restrictions or other actions against the PRC in international trade, the PRC shall be entitled to adopt corresponding counter measures against them." |
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Anti-Monopoly Law |
Article 2 – “for the monopolistic conducts (of foreign enterprises and entities) outside the territory of the PRC with the effect of eliminating or restricting competition to the PRC’s domestic market, this Law shall apply." |
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National Security Law |
Article 19 – “the state shall maintain its basic economic system and the order of the socialist market economy, improve the rules and mechanisms to prevent and resolve economic security risks, and ensure the security of important industries and crucial fields related to the lifeline of the national economy, key sectors, major infrastructure, major construction projects, and other major economic interests." |
What kind of foreign companies, individuals or organizations could be placed into UEL?
Pursuant to MOFCOM’s introduction, a foreign entity would be placed into the list whenever its activities “not only damage the legitimate rights and interests of Chinese enterprises, endanger China’s national security and interests, but also threaten the global industrial chain and supply chain security." In particular, it is said the ministry will consider below four aspects when determining whether a foreign company, individual or organization should be added into the list:
(1) whether the entity has taken actions, such as blocking or cutting off the supply chain, or other discriminatory measures against Chinese enterprise;
(2) whether the actions of such entity are against the market rules and violate the spirit of contract for non-commercial purpose;
(3) whether the actions of such entity have inflicted substantial and material damage to Chinese entities or related economic industries;
(4) whether the actions of such entity pose an imminent or potential threat to China’s national security.
The aforesaid four-prong test to determine whether to place a foreign entity into the UEL contains a few crucial and decisive terms like those highlighted in bold above that are still subject to further definition and clarification in the specific measures to be issued by MOFCOM.
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What will happen to the foreign entities placed into UEL?
MOFCOM said that “necessary measures" will be taken against those foreign entities that are placed into UEL. Details of such “necessary measures" are expected to be addressed in MOFCOM’s specific measures.
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Potential Remedies for Entities on UEL
Pursuant to MOFCOM’s Director of the Office of Treaty and Law, an investigation procedure will be conducted before an entity is placed into the UEL; after the investigation procedure, once a foreign entity is placed into the list, the entity will be granted a right to defend itself.
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