I. OVERVIEW

In the past year, notable advancements have been observed in both the legislation and practices of China’s trade law. On the legislation side, the promotion of free and liberated trade has continued to be a pivot of the national trade law system. However there has also been a discernible shift towards developing a safeguarding toolkit to counteract and mitigate the adverse impacts of foreign laws and measures. On the enforcement side, conventional trade measures, such as trade remedies and WTO dispute settlement are seemingly in decline. A new policy keynote appears to emerge in the background of increasingly mounting trade compliance obligations worldwide.

II. MAJOR UPDATES OF LAWS, REGULATIONS, AND OTHER NORMATIVE DOCUMENTS

A. Continued Strengthening of National Security-Related Legislation in Trade Law

1. Comprehensive and superior authorization of Foreign Relations Law

Over the past two years, several legal instruments have been introduced to relieve sanctions and national security-related issues in trade law. For example, the Counter Foreign Sanction Law grants the Chinese government direct authority to counteract illegal, unfair, and discriminatory foreign sanctions; and the Blocking Rules[1] were created to shield domestic entities from the adverse effects of certain foreign sanctions.

On July 1st of 2023, China's Foreign Relations Law (hereinafter referred to as the “FRL") entered into force, comprising 45 articles divided into six chapters: Chapter 1 "General Provisions", Chapter 2 "Powers of Foreign Relations", Chapter 3 "Objectives and Tasks of Developing Foreign Relations", Chapter 4 "Systems of Foreign Relations", Chapter 5 "Guarantees of Developing Foreign Relations", and Chapter 6 "Supplementary Provisions".

The FRL systematically addresses foreign relations powers, foreign relations templates, and foreign relations guarantees, fortifying China's current foreign policy on a more solid legal ground. The law articulates its goal as " to develop foreign relations, safeguard national sovereignty, security, development interests, protect and develop the interests of the people."

Notably, the FRL holistically articulates China's foreign policy and principles, and provides a comprehensive statutory authority for government actions on sanctions as well as counter-sanctions against foreign sanctions and long-arm jurisdiction. Article 33 specifies that the People's Republic of China has the right to take corresponding countermeasures and restrictive measures against actions that violate international law and fundamental norms of international relations, or endanger the sovereignty, security, and development interests of the country. This positions the FRL as the top-level design for China's foreign-related national security and sanction law framework, enriching and improving the legal "toolbox" of trade and investment-related rules. With this authority, measures under the Export Control Law, technology import and export regulating regime based on the Foreign Trade Law, along with the abovementioned sanction-related laws and rules, may collectively form the foundation of China’s national security rules in the realm of trade law.

Regarding the extraterritorial effects, Articles 29 and 32 of the FRL, for the first time, clearly stipulate that measures safeguarding national sovereignty, security, and development interests, as well as the legitimate rights and interests of Chinese citizens and organizations, may have extraterritorial jurisdictional outreach effects.

2. Foreign Sovereign Immunity Law aligns state immunity and protections

In September 2023, the Foreign Sovereign Immunity Law (hereinafter referred to as the “FSIL") was enacted and came into effect on January 1st, 2024. Composed of 23 articles, the FSIL delineates the general principles of China’s state immunity policy, outlining limited immunity accorded to certain business or commercial disputes and addressing related procedural issues. The Law signifies a shift in Chinese mainland and Hong Kong SAR's sovereign immunity policy from absolute immunity to relative immunity. This transition aligns China’s approach with the positions of other jurisdictions, including the United States, the United Kingdom, Canada, Singapore, Australia, New Zealand, and most EU member states.

The implications of the FSIL for trade laws are twofold. On the one hand, it explicitly grants sovereign immunity to foreign states, even in cases where certain sanctions were imposed as a result of their administrative activities. This immunity persists unless reciprocal principles are invoked, such as when foreign states deprive immunity to the Chinese government. On the other hand, it may pave the way for Hong Kong SAR or Chinese mainland as venues for dispute settlement in cross-border transactions involving foreign states.

B. Continuously Promoting Free Trade Agreements to Free Trade

1. Plurilateral negotiations on WTO rules on digital trade

On December 12, 2023, the negotiations on global digital trade rules of WTO achieved substantial progress, announced by a tripartite ministerial statement by delegates from Singapore, Japan, and Australia. The negotiations of trade-related e-commerce global rules, joined by 90 WTO members including China, the United States, and the European Union, were launched in 2019 and are expected to be concluded in 2024.

The draft rules are poised to establish a regulatory framework for e-commerce across the participating 90 members, collectively accounting for more than 90% of annual world trade. As indicated, members have reached agreements on rules on 13 topics, including electronic signatures and authentication, online consumer protection, paperless trade, electronic transaction frameworks, and electronic contracts. Efforts are underway to foster consensus on additional topics such as electronic payments, telecommunication services, information and communication technology (ICT) products using cryptography, and their developments. Members aim to reach high-level commitments on tariff-free electronic transmissions to increase the commercial significance of the agreement. Future discussions will focus on data flow, the localization of computing facilities, source code, and other related horizontal issues.

China’s Commerce Minister underscores the global consensus on promoting the digital and green development of trade, noting digital trade as the new engine for global trade growth in the 21st century. China supports the WTO Joint Statement on E-Commerce Negotiations initiative as the core platform for crafting global digital trade rule-making. China hopes for the enactment of high-standard, balanced and inclusive digital trade rules to help developing members seize and benefit from relevant development opportunities.

2. Fruitful development of China’s FTAs

Over the year 2023, China has reached agreements with Ecuador, Serbia, Nicaragua, and Singapore in free trade negotiations, which marks significant progress in implementing China’s Free Trade Strategy. These agreements also reflect China’s commitment and determination to promote trade liberalization and facilitation, sending a positive signal to the international community to support multilateral free trade mechanisms and promote global economic stability and recovery.

The China-Ecuador Free Trade Agreement. This is the 20th free trade agreement signed by China with foreign countries, and Ecuador becomes China's 27th free trade partner. The Agreement includes a preface and 17 chapters, with a focus on trade in goods covering six chapters, addressing national treatment and market access of goods, rules of origin, customs procedures and trade facilitation, trade remedies, sanitary and phytosanitary measures, and technical trade barriers. The Agreement also provides rules on investment cooperation, e-commerce, competition, and economic cooperation.

The China-Nicaragua Free Trade Agreement. It is the 21st free trade agreement signed by China, making Nicaragua China's 28th free trade partner. The Agreement covers areas including trade in goods, trade in services, and investment in 22 chapters, as well as 15 attachments that address tariff forms, import and export restrictions, tariff quotas, rules of origin, certificates of origin, negative lists for cross-border trade in services and investment, negative lists for financial services, cross-border trade in financial services, and arbitration procedure rules.

The China-Serbia Free Trade Agreement. This is the first free trade agreement signed between China and Central and Eastern European countries, and it is the 22nd free trade agreement signed by China. Serbia becomes China's 29th free trade partner. The Agreement, comprising a preface and 10 chapters, covers trade in goods, rules of origin and implementation procedures, customs procedures, trade facilitation, SPS measures, technical trade barriers, and trade remedies. The Agreement also covers favorable treatment on investment and services, intellectual property protection, and competition issues.

The Further Upgraded China-Singapore Free Trade Protocol. This Protocol upgrades the original free trade agreement and related protocols, intensifying the level of rules for the liberalization of service investment, and it adopts a negative list to make commitments to open up service trade and investment. The Protocol consists of a preamble and six parts, as well as a negative list of cross-border trade in services and investment. In terms of trade in services, the Protocol refined provisions of national treatment, market access, and domestic regulations. In terms of investment liberalization, the Protocol updates clauses of national treatment and the Most Favoured Nation (MFN) treatment. In terms of investment facilitation, dispute prevention clauses have been included. The Protocol also promotes high-level terms in telecommunications services.

C. Improving Regulations on Export Control

1. The Catalogue of Technologies Prohibited or Restricted from Exporting in China

In December, China’s Ministry of Commerce issued an updated Catalogue of Technologies Prohibited or Restricted from Exporting. This catalogue is an updated version of the regulatory instrument set forth in 2008, which outlines restricting or prohibiting certain technologies from export. Significant adjustments have previously been made in 2020 to impose restrictions on technological transfer in the information industry.

The newly released 2023 Catalogue supersedes the previous versions, including that of the 2020 version, and streamlines the list from 164 to 134 items. The reduction reflects the deletion of 34 technical items, the inclusion of 4 new items, and the modification of 37 items. Notably, the new version deletes 6 prohibited items, including green plant production regulator manufacturing technology; as well as 28 restricted export technology items, including medical diagnostic devices and equipment manufacturing technology, target feature extraction and recognition technology.

Nevertheless, the updated Catalogue introduces one new prohibited technology item related to human cell cloning and gene editing technology. It also adds three new restricted technology items, including crop hybrid advantage utilization technology, bulk material loading and unloading transportation technology, and LiDAR system.

In addition, adjustments have been made to the control points and technical parameters of 37 technical items. This includes modifications to 6 prohibited export technical items, such as traditional Chinese medicine resources and production, as well as 31 restricted export technical items, including economic crop cultivation and breeding technology, non-ferrous metal metallurgy technology, and large-scale high-speed wind tunnel design and construction technology.

2. The Regulation on the Administration of Commercial Cryptography has become increasingly standardized

After 20 years of implementation, the Regulation on the Administration of Commercial Cryptography underwent substantial amendments. The updated Regulation governs the import and export controls on commercial cryptography. Specifically, Article 31 imposes license requirements for business operators involved in the import or export of crypto-related technology, products, and services.

3. Control measures for several items

Following the conventional release of catalogues of dual-use items under export control by the end of 2022, the Ministry of Commerce, as the administrative authority, has extended license requirements to include several important items in addition to those already listed in the conventional catalogue.

In July 2023, the Ministry announced restrictions on the export of specific semiconductor raw materials, as well as drones and drone-related equipment. On July 3rd, it was announced that China would restrict the exports of products and materials containing gallium and germanium, which are widely used in the manufacture of semiconductors and electronics. On July 31st, two announcements were released, imposing restrictions on the export of drones and drone-related technology. Notably, for certain drone-related equipment and technology, direct export controls were instituted, covering certain engines, infrared imaging equipment, SAR, and laser devices. In addition, temporary export controls were promulgated for the export of some specific drones. Strict prohibitions on exporting controlled drones if proliferation, terrorism, and military end-uses were found.

In October 2023, the Ministry revised its export controls on graphite. In comparison to the 2022 conventional control list currently in force, the revision added some items not previously on the list, including natural flake graphite (HS 2504101000) and spherical graphite (HS 2504109100). In addition, the order terminates temporary controls on certain graphite products. 

III. Enforcement of China’s Trade Law

A. WTO Dispute Settlement  

China concluded the dispute with Japan regarding anti-dumping measures on stainless steel products (DS 601) and has reached an agreement to resolve the two disputes with Australia regarding anti-dumping and countervailing duty measures on barley and wine, respectively. Meanwhile, a dispute concerning export controls on semiconductor-related items with the United States is still in process.

On July 28th, 2023, the Dispute Settlement Body of WTO released its panel report on the disputed claims raised by Japan concerning antidumping investigations and measures on stainless steel products from Japan. In the report, the panel rejected the claims on cumulative analysis and confidentiality, and ruled in favor of claims related to the definition of domestic industry, price effect analysis, and non-attribution analysis. The panel found the definition of domestic industry was inconsistent with Article 4.1 of the Anti-dumping Agreement (ADA), while rejecting claims that the domestic industry was unrepresentative of the Chinese stainless steel industry. On the price effect issue, the panel ruled that the investigating authority failed to properly consider the comparability of prices between imported and domestic like products. Due to the flawed price effect analysis, consequential findings such as causation were also found to be inconsistent with relevant articles of ADA. Subsequently, on November 9th, the Ministry of Commerce initiated a re-investigation proceeding to address the inconsistencies found by the panel.

As the two disputes with Australia, the two member states announced reaching agreements for solutions. Accordingly, the Ministry initiated interim review investigations to assess the necessity of the respective trade remedy measures at issue. The reviews are expected to be concluded in 2024.

B. Trade Barrier Investigation Re-emergers

China's history with trade barrier investigations, while established, had not been adopted for many years until a resurgence in 2023. The previous instance of such an investigation by the Chinese authority dates back over a decade.

In March, prompted by a petition from several industrial and commerce associations, the Ministry of Commerce initiated an investigation into the laws and measures implemented by the authority of the Separate Customs Region of Taiwan Region. In the petition, there were over 2400 kinds of merchandise that were restricted or prohibited from Chinese mainland to the Taiwan Region. In mid-December, the Ministry released its final findings of the trade barrier investigation. The laws, regulations or measures implemented by the authority in Taiwan Region were found to be in violation of WTO Agreements as well as the ECFA, a free trade agreement between China mainland and the Taiwan Region. As a result, the authority of Chinese mainland suspended the enforcement of ECFA for 12 HS codes, primarily concerning petrochemical products, and reverted the customs duties on imports from the Taiwan Region to the Most Favoured Nation (MFN) rates.

This recent practice sets a precedent for China’s trade law enforcement. On one hand, it underscores the Chinese investigating authorities’ readiness to employ such unconventional measures when deemed necessary. On the other hand, it reflects a dynamic and flexible approach to achieving China’s trade agenda and policy goals.

C. Decline in Trade Remedy Investigations and Reviews

The Ministry of Commerce initiated only one trade remedy investigation and conducted several sunset reviews in 2023. An antidumping investigation into propionic acid (PA) originating from the United States was initiated in July. Another antidumping investigation concerning imported PC products from the Taiwan Region is still underway. In general, there is a sharp declining trend in the case numbers of trade remedy investigations by China over the past few years.

In the ongoing PC investigation, a crucial point of contention revolves around the scope of the product under investigation. Public case records and preliminary findings suggest initial ambiguity in the definition of the product's scope, particularly regarding whether modified PC products were included. In the preliminary findings, the investigating authority narrowed the scope to only include highly pure products (>99%), thereby excluding other products from the investigation. Regarding the state of the domestic industry, exporters contended that the industry was not suffered because some economic indices exhibited positive trends. Additionally, on the issue of price effects, exporters challenged the claims that imported products had a detrimental impact on the prices of similar domestic products. However, neither of these arguments found favor with the authorities.

D. Designation of Unreliable Entity

The Unreliable Entity List has been seen as a form of sanction on trade and investment imposed by China’s Ministry of Commerce. In February 2023, the Ministry announced the first-of-its-kind sanctions on two U.S. defense companies, Lockheed Martin Corporation and Raytheon Missiles and Defense, for their arms sales to the Taiwan region. This marked the first instance of China designating entities to the Unreliable Entity List since the establishment of the list in 2019. It was also the first time utilization of the governing rules of the Unreliable Entity List, introduced in 2020.

As a result of the designation, both companies will be prohibited from engaging in import and export activities related to Chinese mainland and from making any new investments within Chinese mainland. Senior management personnel of the two companies face entry bans into China. In addition, a fine will be imposed on the two companies, in the amount of twice the value of the arms sales to the Taiwan Region since September 2020. Subsequently, the Ministry further clarified that six senior managers of the two companies were designated to be prohibited from entering China. Chinese companies have also been required to adhere to supply chain due diligence compliance obligations, as such preventing any circumvention of these new regulations.

IV. OBSERVATIONS ON TRENDING ISSUES 

A. Export Control and Economic Sanctions Become Increasingly Prominent

In 2023, the significance of export controls and economic sanctions has reached unprecedented levels in international trade law, accentuating the paramount importance of trade compliance in legal practices.

The continuous upgrades of orders and measures related to export control, with a specific focus on certain countries or regions such as Russia and targeted industries like semiconductor and energy, places escalating compliance pressures on businesses. Moreover, since the outbreak of the Russia-Ukraine conflict, economic sanctions have become more over-reaching in global trade, reshaping traditional trade patterns significantly. In addition, Russia, in response, has taken countermeasures to offset the impact of sanctions. This interplay of sanctions and countermeasures has far-reaching impacts on international trade in goods and services, international investment, and economic cooperation.

On one hand, the Chinese government strives to continuously improve its export control governance, aiming to safeguard national and international security. On the other hand, it opposes discriminatory practices by other countries and sets an example for collaborative efforts among countries to address global challenges. China’s approach is evident in various ways. First, in terms of improving export control management mechanisms and measures, China is formulating export control regulations to further refine and implement the statutory requirements of the Export Control Law, elevating the legal management level of domestic export control by means of temporary export control measures. Second, China is leveraging the countermeasures outlined in the Anti-Foreign Sanctions Law to protect its national security and prevent interference in its internal affairs. Third, China is actively utilizing export controls as a means to de-escalate regional conflicts. These efforts aim to uphold the authority and stability of multilateral trade rules and systems.

From the perspective of trade operators, adapting to China’s trade compliance obligations has become imperative. Establishing a sound trade compliance management system in accordance with China’s Export Control Law and related guidance is essential for effectively identifying, preventing, and managing trade compliance risks.

B. Increasing Prominence of National Security in Trade Law

The concept of national security is not new within the framework of WTO rules, recent application has introduced novel dynamics to the global trade landscape. The United States, in particular, has frequently leveraged the national security argument as a means of exempting itself from WTO jurisdictional oversight within multilateral forums. This stance has prompted a ripple effect internationally, with a number of countries fortifying their domestic legislation to counter and mitigate the extraterritorial impact of such policies. In the midst of a complex network of Free Trade Agreements (FTAs), the inclusion of national security trade provisions may further complicate the landscape of global trade laws.

C. Interplay of Conventional and Unconventional Trade Law Instruments

Over the past several years, there has been a notable shift in the tools employed for conventional trade law enforcement, such as trade remedy investigations and WTO litigations, which have witnessed a decline. This shift may be attributed to the challenges faced by the WTO dispute settlement mechanism, and the pandemic traumatized both international trade and the global economy. However, there has been a discernible surge in the use of unconventional policy tools by authorities in the past year. For example, the Ministry of Commerce of China designated “unreliable entities" for the first time after the legislation entered into force three years ago. Moreover, after a decade, the Ministry resurrected the trade barrier investigation tool. In addition, export controls on key or strategic items have become more frequent and agile, signaling a willingness to develop such policy tools in the coming years. With the authority of the Foreign Relationship Law, Foreign Trade Law, as well as relevant regulations, the toolkit in the field of trade law has been enriched.

V. PROSPECTS

In the realm of international economic and trade rules, as well as the resolution of international trade disputes, the hotspots and most pressing concerns will continue to revolve around the trend and progress of international trade rules in light of the new global geography of international trade.

First, multilateral trade rules are evolving and innovating. The cornerstone of international trade rules, WTO rules, has seen progress through the collective efforts of its member states. The prospect of negotiations on global digital trade fuels optimism for the development of the next generation of global trade. The dilemma of the WTO dispute settlement mechanism seems to be nearing resolution, with the reform of the WTO Dispute Settlement Body garnering increased support. The foundational role of WTO Agreements is anticipated to further fortify global trade on a broader and higher scale.

Secondly, regional FTAs will play more important roles in promoting global trade. Countries remain enthusiastic about forging closer and more binding trade ties with their partners. FTAs, from plurilateral CPTPP to bilateral agreements, are popular among countries as instruments for establishing stable trade and investment relationships. The Chinese government’s ongoing efforts to advance its FTA strategy affirm the anticipated steady development of its FTA coverage.

Third, the risks associated with economic sanctions and export controls are on the ascent. Unfortunately, economic sanctions and export controls may remain unavoidable in the foreseeable future. Industries such as China's semiconductor and new energy sectors may continue to confront unfair restrictions imposed by export controls. As a result, both the compliance risk and the accompanying compliance obligations have considerably grown in international trade.

In the field of international trade rules, new disciplines and rules are influencing and reshaping the existing system. China, as one of the most important participants in global trade, will continue to consolidate its legislation and practices to safeguard national and business interests. At the same time, China is committed to sustaining and promoting a multilateral trade system for the collective benefit of all.

[Note] 

[1] Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, 商务部令2021年第1号 阻断外国法律与措施不当域外适用办法 (mofcom.gov.cn).