On July 1, 2023, the Law on Foreign Relations of the People’s Republic of China (Foreign Relations Law), adopted at the Third Meeting of the Standing Committee of the 14th National People’s Congress on June 28, 2023, came into effect.

In terms of the status and function of this law in the Chinese legal system, an official of the Legislative Affairs Commission of the National People’s Congress (NPC) Standing Committee explained in an interview that “the Foreign Relations Law of China is a basic and comprehensive law in the field of foreign affairs, and it plays an overarching and fundamental role." [1]In an article published in People’s Daily, Wang Yi, the director of the Office of the Foreign Affairs Commission of the CPC Central Committee, wrote that “China’s first foreign relations law expounds on China’s major principles, policy positions, and institutional frameworks for foreign affairs. It is considered a significant milestone in China’s efforts towards building a rule of law system in relation to foreign affairs." [2]Foreign Ministry Spokesperson Mao Ning stated that “the Law on Foreign Relations of the People’s Republic of China is the first basic law that fully outlines China’s major policies, principles and positions, and systems and structures concerning China’s interaction with the world, and provides the overall rules and regulations on China’s foreign relations. This piece of legislation has a foundational and guiding role in China’s legal system on foreign affairs. It mainly lays out the guiding principles for China’s diplomacy in general and sets out the fundamental principles for the work in various fields on foreign relations." [3]

The significance of the Foreign Relations Law is self-evident. This article aims to introduce the international background and key highlights of this law and put forward compliance suggestions for relevant companies.

I. International Background

1. Limitations of traditional international law and its diminished role

Amid the world’s ever-changing socioeconomic climate, transnational activities are becoming increasingly complex, the subjects involved more diverse, and the iteration of science and technology frequent and rapid. International law, traditionally formed through legal sources such as international treaty law and customary international law, often lags behind in dealing with emerging and complex issues as they have limitations when it comes to timeliness and comprehensiveness.

As a staunch defender of the international order based on international law, China has justified needs to reasonably expand extraterritorial jurisdiction and take other measures to protect its sovereignty, security, and development interests.

2. Application of extraterritorial jurisdiction of domestic laws

The extraterritorial jurisdiction application of domestic law refers to the extraterritorial expansion of a country’s sovereignty and jurisdiction. Domestic laws and regulations of export control, economic sanctions, anti-money laundering, anti-corruption of certain countries are examples of the extraterritorial jurisdiction outreach. In particular, the extraterritorial jurisdiction application in the form of export control and economic sanctions by certain countries has put foreign companies under mounting pressure to step up their compliance efforts.

For example, the U.S. legal system of export control, which consists of the U.S. Export Administration Act (EAA), the Export Control Reform Act (ECRA), the Export Administration Regulations (EAR), etc., track items that have nexus to U.S. items to end users and end uses. Under this regime, no company is allowed to export controlled items without permission to countries embargoed by the United States, prohibited end users, or for prohibited end uses; otherwise, penalties will be imposed.

Another example is the U.S. legal system of economic sanctions, consisting of the U.S. International Emergency Economic Powers Act (IEEPA), Patriot Act, Trading with the Enemy Act, sanction programs targeting specific countries, relevant executive orders, etc., which achieves extraterritorial jurisdiction through primary and secondary sanctions provisions. Specifically, primary sanctions prohibit U.S. persons from conducting transactions with sanctioned entities and prohibit non-U.S. persons from conducting transactions with sanctioned entities if such transactions have a U.S. nexus. Transactions with a U.S. nexus include settlement using U.S. dollars or the U.S. financial system, transactions involving U.S.-origin items or U.S. persons, etc. The expansion of extraterritorial jurisdiction is more prominent in secondary sanctions, where, to better achieve the intended effect of the primary sanctions, even if a transaction does not involve any U.S. persons, U.S. dollars, or U.S. items, provided that any counterparty thereto is subject to primary sanctions, companies or citizens of a third-party country are still prohibited or restricted from conducting the aforementioned transaction.

II. Key Highlights

1. China’s Foreign Relations Law is the first comprehensive statutory law on foreign policy

In a broad sense, foreign relations law generally refers to all legal norms of a country to adjust its relations with other countries. A country’s foreign relations laws are often scattered within different laws and allow flexibility in their application. Regarding foreign relations, China has enacted specific laws such as the Law of the PRC on the Procedure of the Conclusion of Treaties, and its constitution also contains relevant norms. The foreign relations laws of Western countries primarily consist of the constitutions, federal laws and other laws. Prior to the introduction of the Foreign Relations Law, there had been no  precedent worldwide for formulating a comprehensive statutory law on foreign relations (in a narrow sense). Such a practice is rare. National interests determine the core of foreign policies, and Western countries’ national interests are often prone to change due to their institutional mechanisms. Hence, for these countries, formulating a foreign relations law would generally restrict their foreign policies. However, it is not the case for China, as China chooses to codify foreign policies. In addition to helping govern and guide the country’s foreign-related work, this law also reflects that China’s firm attitude towards and confidence in foreign policies, which aim at, among others, promoting world peace and development and building a community with a shared future for mankind.

2. The Foreign Relations Law establishes a legal regime of China’s extraterritorial jurisdiction for the first time, providing legal authorization for extraterritorial law enforcement to protect China’s national interests

Article 29: The State advances the rule of law in both domestic and foreign affairs and strengthens foreign-related legislative work and the system of rule of law in foreign affairs.

Article 32: The State shall strengthen the implementation and application of its laws and regulations in foreign-related fields in conformity with the fundamental principles of international law and fundamental norms governing international relations. The State shall take law enforcement, judicial or other measures in accordance with the law to safeguard its sovereignty, national security and development interests and protect the lawful rights and interests of Chinese citizens and organizations.

This is the first legal regime of extraterritorial jurisdiction that China has established. Given the current international situation, it is necessary and reasonable to strengthen the implementation and application of laws and regulations in foreign-related fields.

Notably, there is an essential difference between China’s active promotion of the extraterritorial jurisdiction regime and the abuse of extraterritorial jurisdiction by some countries. According to the generally recognized principles of international law, the bases for a state to exercise jurisdiction include the principles of territoriality, personality, protective jurisdiction and universal jurisdiction. The extraterritorial jurisdiction of domestic law is a supplement to personal and territorial jurisdiction under international law, and it is the embodiment of protective jurisdiction and universal jurisdiction. It is emphasized in the Foreign Relations Law, by the adoption of which China has established the regime of extraterritorial jurisdiction, that “the PRC upholds the international system with the United Nations at its core, the international order underpinned by international law, and the fundamental norms governing international relations based on the purposes and principles of the Charter of the United Nations" (Article 19). In addition, China holds fast to the tenet that, the foundation of strengthening the implementation and application of laws and regulations in foreign-related fields is to comply with the fundamental principles of international law and fundamental norms governing international relations. Both demonstrate that China intends its extraterritorial jurisdiction regime and application thereof to be legitimate and orderly, in compliance with and supported by international law.

3. The Foreign Relations Law upgrades the country’s legal toolkit and provides a legal basis for China to effectively exercise legitimate rights and counter sanctions and interference

China has preliminarily created a legal toolbox for countermeasures and restrictive measures. To exert control over export, China has an export control mechanism under the Export Control Law, and a technology import and export administration mechanism provided by the Foreign Trade Law. In “economic sanctions", China’s tools include the Anti-Foreign Sanctions Law, the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, and the Provisions on the Unreliable Entity List. On top of the foregoing, Article 33 of the newly promulgated Foreign Relations Law reads “The PRC has the right to take, as called for, measures to counter or take restrictive measures against acts that endanger its sovereignty, national security and development interests in violation of international law or fundamental norms governing international relations. The State Council and its departments adopt administrative regulations and departmental rules as necessary, establish related working institutions and mechanisms, and strengthen inter-departmental coordination and cooperation to adopt and enforce measures mentioned in the preceding paragraph. Decisions made pursuant to the first and second paragraphs of this Article are final." This means that, by providing for countermeasures and restrictive measures in a superordinate law, namely, the Foreign Relations Law, China has laid down an overarching scheme for China’s foreign-related legal system that reaches a broader scope, enriching and upgrading the legal toolbox and ensuring the effectiveness of these measures.

III. Compliance suggestions for companies

1. Give priority to complying with China’s laws, including the Foreign Relations Law, when any conflict of laws occurs

After the Foreign Relations Law went into force, companies operating in China face more potential risks of conflicts arising from applying laws in different jurisdictions when conducting activities with transnational elements. In such circumstances, these companies are suggested to give priority to complying with China’s foreign-related legal systems, including the Foreign Relations Law. Companies should ensure to comply with China’s laws before attempting to balance such compliance with the need to respond to foreign government investigations and enforcement requirements.

2. Establish a sound and comprehensive compliance management system

Companies should have a sound overseas compliance system in place and keep it updated to ensure the safe development of international business and manage risks of potential investigations and penalties from other countries. More importantly, building an all-round and multi-dimensional compliance system is essential, so as to fulfill the requirements of foreign-related laws exemplified by the Foreign Relations Law and other domestic rules.

3. Keep tracking any ensuing cases and amendments related to the Foreign Relations Law

Since the Foreign Relations Law is essentially a framework and consists mostly of principles rather than specific rules, we suggest it is better to keep a keen eye on how this law is enforced down the road and the progress of other supporting regulations and measures. In the absence of any enforcement case, this law is likely to be viewed as declarative, but such scenario does not rule out that China could take real actions to safeguard sovereignty, security and development interests in accordance with the law. Accordingly, companies should remain prudent.

[Note] 

[1] http://www.npc.gov.cn/npc/c30834/202306/dfb5d69d9ba34a3ca36bbc76d6b567d5.shtml

[2] https://baijiahao.baidu.com/s?id=1770088703891141083&wfr=spider&for=pc

[3] https://www.mfa.gov.cn/web/wjdt_674879/zcjd/202306/t20230629_11105673.shtml