China’s Anti-Sanctions Law in potential collision with domestic SCR regulations

As already highlighted in several blog entries, from 01.01.2023 on, German companies are obliged by national German regulations under the Supply Chain Act to check to what extent their suppliers violate human rights, environmental, labor protection standards. And rules on corporate due diligence have been or are being introduced in other countries as well, such as the

Modern Slavery Act (United Kingdom, 2015).
Corporate Due Diligence Act (France, 2017).
Commonwealth Modern Slavery Act (Australia, 2018)
Act on the introduction of due diligence for the purpose of preventing the importation of goods and services obtained using child labor (Netherlands, 2019).

Some of the laws listed have quite different human rights and environmental objectives. In addition to human rights protection, the specific laws may also intend to protect tropical forests or endangered animal species, for example. Overall though, they share the idea of state-controlled social-ecological corporate due diligence.

However, as those are laws with an extraterritorial connection, they have the characteristic of potentially conflicting with local laws in the producing countries.

Specifically, one example could be China’s Anti-Sanctions Law. Based on previous ministerial measures to combat foreign sanctions, the Standing Committee of the 13th National People’s Congress of the People’s Republic of China promulgated the Anti-Foreign Sanctions Law on June 10, 2021, which took effect immediately without public consultation.

The Anti-Sanctions Law contains only 16 articles, but now create a broad legal framework and legal basis aimed at retaliation against sanctions imposed by foreign governments. The law provides a legal basis in Article 3 for China to take appropriate countermeasures if a foreign state (1) limits or oppresses China under various pretexts or in accordance with its own laws, (2) takes discriminatory and restrictive measures against Chinese citizens and organizations, or (3) interferes in China’s internal affairs. Moreover, with Art. 15 of the law, it is clarified that not only the actions of foreign states are covered, but also on specific actions of foreign organizations or individuals. Finally, the Anti-Sanctions Act also imposes far-reaching compliance obligations on organizations and individuals.

With regard to the provsions, a company that, for example – as it wants to comply with national due diligence requirements – imposes measures against a cotton company operating in China, could now be equally affected by Chinese anti-sanctions law. Namely if the Chinese administration sees this as a so-called discriminatory action.

So far though the practical relevance of this topic is not completely clear, partly because of the law’s wide scope for interpretation and partly because there are too few empirical reports to date. However, there is no doubt, that Chinese law now provides a possible provision that – potentially – runs counter to “Western” corporate due diligence. In future, companies could therefore deliberately choose one market or the other.

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