A Detailed Review of China’s Unreliable Entity List & Its Impact on Businesses

China’s Ministry of Commerce released long-awaited provisions on its so-called “unreliable entity list”. According to the Chinese Government, the Regulations were promulgated in the name of safeguarding China’s interests in “sovereignty, security, and development. Companies that end up on the list could be banned from importing or exporting from China and may be barred from investing in the country.

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On September 19, 2020, China’s Ministry of Commerce finally issued the Regulations on Unreliable Entity List (the “Regulations”). Newly issued Unreliable Entity List (“UEL”) regulations establish a framework for list-based economic sanctions to be administered by China.

According to the Chinese Government, the Regulations were promulgated in the name of safeguarding China’s interests in “sovereignty, security, and development,” maintaining a “fair and free international economic and trade order,” and protecting the “lawful rights and interests of Chinese companies, other organizations or individuals.

Principles for Determining an Unreliable Entity

The Regulations stipulate that foreign enterprises, other organizations or individuals may be included on the UEL if they:

Cause damage to China’s national sovereignty, security and interest of development

Violate normal market business principles, discontinue normal transactions with or take discriminatory measures against Chinese companies, other organizations, or individuals, and seriously harm the legitimate rights and interests of Chinese companies, other organizations, or individuals.

After President Donald Trump’s administration imposed additional tariffs on Chinese goods and curbs on Huawei Technologies Co last year, China vowed to draw up a list aimed at punishing foreign firms deemed harmful to Chinese interests. In addition to the UEL Provisions, China has recently updated its Catalogue of Technologies Prohibited and Restricted from Export and is expected to pass the Export Control Law within this year.

 

“Beijing will likely name at least one US company to the (unreliable entity list) between now and year-end – possibly even in coming days – but will use this tool in a targeted fashion, particularly in its early stages,” Michael Hirson, practice head, China and Northeast Asia, said in a note

 

Who is at risk?

Any enterprise, organization, or foreign citizen may be listed if they are found to have done something that endangers the national sovereignty, security, or development interests of China. Firms, groups and individuals placed on the blacklist will be restricted or banned from trade with China, as well as investment and entry of people and vehicles into the country. Other measures include imposing fines, entry restrictions on employees into China and revoking their work or residence permits.

 

The working mechanism of Unreliable Entity List

The “List Regulations” require central government agencies to establish an inter-departmental task force (“working mechanism”) to implement the entity inventory system. Chinese authorities have not established a mechanism similar to the US authorities’ overseas summoning powers for obtaining overseas records of foreign entities.

Chinese experts stressed that China’s Unreliable Entity List mechanism was a strictly defensive move that seeks to protect Chinese interests and China’s long-standing opening-up policy.

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