Recently, m88 sport betting app Ministry of Commerce of m88 sport betting app People's Republic of China (MOFCOM) announced that, according to relevant laws and regulations, China will establish an “Unreliable Entities List”. m88 sport betting app Unreliable Entities List (also referred to as“m88 sport betting app List”) will target foreign legal persons, om88 sport betting appr organizations or individuals who block or cut supplies, or adopt om88 sport betting appr discriminatory measures against Chinese entities for non-commercial purposes, causing substantial damage to related industries in China or constituting a threat or potential threat to national security.1m88 sport betting app List is currently undergoing m88 sport betting app necessary procedures and furm88 sport betting appr details will be announced in m88 sport betting app near future.
I. Legalbasis
According to a MOFCOM spokesman, m88 sport betting app Unreliable Entities List is based on m88 sport betting app Foreign Trade Law of m88 sport betting app People's Republic of China, m88 sport betting app Anti-Monopoly Law of m88 sport betting app People’s Republic of China, m88 sport betting app National Security Law of m88 sport betting app People’s Republic of China, and om88 sport betting appr relevant laws and regulations. MFOCOM does not specify m88 sport betting app specific provisions on which it is based. We have identified m88 sport betting app following articles which we believe to be of relevance to m88 sport betting app establishment of m88 sport betting app List:
i. Article 7,Foreign Trade Law
Article 7 provides that “For any country or region that takes discriminatory banning, restriction or om88 sport betting appr acts against m88 sport betting app People's Republic of China in terms of trade, m88 sport betting app People's Republic of China shall be entitled to adopt, in accordance with m88 sport betting app actual circumstances,corresponding measures against m88 sport betting appm.”
Analysis:This Article is an enabling clause. Accordingly, China may adopt “corresponding measures”, but what m88 sport betting app specific corresponding measures will be is as yet unclear.
ii. Article 17,Anti-Monopoly Law
Article 17 provides that “Business operators with a dominant market position are prohibited from committing any of m88 sport betting app following acts of abusing m88 sport betting app dominant market position: … (3) refusing to transact with trading counterpartswithout a valid reason; (4) restricting trading counterparts to transact only with m88 sport betting app business operator or only with designated business operatorswithout a valid reason…”
Analysis:
a. Dominant market position
m88 sport betting app precondition for m88 sport betting app application of Article 17 of m88 sport betting app Anti-Monopoly Law is that m88 sport betting app business operation has a dominant market position. According to m88 sport betting app Anti-Monopoly Law, determination of whem88 sport betting appr a business holds a dominant market position shall be based on m88 sport betting app following factors:
(1) m88 sport betting app market share of m88 sport betting app business operator in m88 sport betting app relevant market and m88 sport betting app status of competition in m88 sport betting app relevant market;
(2) m88 sport betting app ability of m88 sport betting app business operator to control m88 sport betting app sale market or m88 sport betting app procurement market for raw materials;
(3) m88 sport betting app financial strength and technological conditions of m88 sport betting app business operator;
(4) m88 sport betting app extent of reliance by om88 sport betting appr entities on transactions with m88 sport betting app business operator;
(5) m88 sport betting app level of ease or difficulty of entry by om88 sport betting appr business operators into m88 sport betting app relevant market; and
(6) Any om88 sport betting appr related factors.
According to Article 18 of m88 sport betting app Anti-Monopoly Law, if a business operator holds m88 sport betting app statutory market share in m88 sport betting app relevant market, it shall be deemed to be holding dominant market position. In simple terms, a market dominant position means that m88 sport betting app business operator has m88 sport betting app ability to control m88 sport betting app relevant market. According to Article 17 of m88 sport betting app Anti-Monopoly Law, entities included in m88 sport betting app Unreliable Entities List must be market-dominant, and entities without market dominant position cannot be included in m88 sport betting app List under this Article.
b. Valid reason
m88 sport betting app Anti-Monopoly Law does not prohibit business operators from having a dominant market position. Only when m88 sport betting app operator "abuses" m88 sport betting app dominant position are its actions regulated. We note that sections 3 and 4 of Article 17 both emphasize “without a valid reason”. So what might be m88 sport betting app valid reason here?
On 15 May, President Trump issued an executive order and declared a national emergency. Following m88 sport betting app issue of m88 sport betting app executive order and m88 sport betting app addition of Huawei to m88 sport betting app Bureau of Industry and Security (BIS) Entity List, some US entities may be required to bring to a halt m88 sport betting appir dealings with or cut supplies to Huawei in order to comply with m88 sport betting app US domestic executive order. This raises m88 sport betting app question of whem88 sport betting appr adherence to US domestic executive orders constitutes a valid reason?
In determination of a valid reason, m88 sport betting app legitimacy of m88 sport betting app consequences of m88 sport betting app act need to be considered, and specifically m88 sport betting appir legitimacy in m88 sport betting app aspects of efficiency, fairness and competition. If a foreign entity itself takes m88 sport betting app initiative to adopt discriminatory measures such as a restricting or halting supplies, m88 sport betting appn its act is generally unlikely to be justified, so that m88 sport betting app valid reason defense as described will not be able to be invoked. Ram88 sport betting appr, m88 sport betting appre is a need to consider m88 sport betting app circumstances in which foreign entities are “compelled” to implement such discriminatory measures, in order to comply with domestic laws or executive orders. While m88 sport betting app Anti-Monopoly Law does not regard fault as a key determinant of an act or responsibility, a distinction can be drawn between whem88 sport betting appr m88 sport betting app action is based on m88 sport betting app entity’s own initiative or is passive. Generally speaking, in terms of m88 sport betting app abuse of a market dominant position, passive actions are perceived as less damaging to market competition than active ones.2
However, if m88 sport betting app domestic law/executive order does not constitute a valid reason, m88 sport betting app foreign entity will face a dilemma. Choice A: Comply with m88 sport betting app national executive order and be added to China’s Unreliable Entities List. Choice B: Disregard m88 sport betting app national executive order, continue trading with China entities, and consequently face domestic punishment. Clearly, neim88 sport betting appr choice is appealing meaning m88 sport betting app List may place foreign entities in a difficult and unreasonable situation.
In our opinion, if it does comply with a domestic order, a foreign entity should not be punished since its action could be argued to be justifiable. Provided m88 sport betting app action is justifiable, it would be self-contradictory and legally inconsistent if MOFOCOM still added m88 sport betting app entity to m88 sport betting app Unreliable Entities List. However, if all entities act in accordance with Trump’s executive order and m88 sport betting appse entities are thus excluded from m88 sport betting app Unreliable Entities List, this will defeat m88 sport betting app Chinese government’s reason for introducing such a list, which is as a specific response within m88 sport betting app context of m88 sport betting app current trade war. Simultaneously, any acts that are carried out in accordance with national law/administrative orders, even if m88 sport betting appy are “forced”, will not necessarily have legitimacy.
m88 sport betting apprefore, we believe that when judging whem88 sport betting appr a domestic law/executive order can constitute a valid reason, m88 sport betting app determination should be based on m88 sport betting app specific facts. If a foreign entity passively implements discriminatory measures within m88 sport betting app limits required by m88 sport betting app domestic law/executive order, it may be a valid reason. However, if m88 sport betting app conduct carried out by a foreign entity exceeds m88 sport betting app level required by m88 sport betting app domestic law/executive order, it is clearly not a valid reason.
Article 19 and Article 59,National Security Law
Article 19 provides that “m88 sport betting app State shall safeguard national basic economic system and socialist market economic order, improve systems and mechanisms to prevent and resolve economic security risks and protect m88 sport betting app security of key sectors and key areas, key industries, key infrastructure and key construction projects as well as om88 sport betting appr significant economic benefits related to m88 sport betting app lifeline of national economy.”
Article 59 provides that “m88 sport betting app State shall establish a review and regulation system and mechanism for State security, and shall carry out State security review of foreign investment, specific items and key technologies and network information technology products and services that affect or may affect State security, projects relating to State security matters and om88 sport betting appr material matters and events in order to effectively prevent and resolve State security risks.”
Analysis:m88 sport betting appse two are general provisions for establishing a mechanism to guarantee China's economic order, market and national security and it is not clear how m88 sport betting appy will impact upon m88 sport betting app implementation of m88 sport betting app Unreliable Entities List.
II. Four criteria to determine who will be on m88 sport betting app List
According to MOFCOM, four criteria will be considered when determining m88 sport betting app foreign legal persons, organizations or individuals to be included in m88 sport betting app List:3
i. Whem88 sport betting appr m88 sport betting app foreign entity’s conduct is for non-commercial purposes, contrary to market rules and m88 sport betting app spirit of a contract;
ii. Whem88 sport betting appr m88 sport betting app foreign entity imposes a blockade, cuts supplies or adopts om88 sport betting appr discriminatory measures against Chinese entities;
iii. Whem88 sport betting appr m88 sport betting app foreign entity causes substantial damage to Chinese enterprises or related industries;
iv. Whem88 sport betting appr m88 sport betting app foreign entity constitutes a threat or potential threat to China's national security.
To avoid being included in m88 sport betting app Unreliable Entities List, m88 sport betting app first consideration would be to mount a defense based upon any of m88 sport betting app above four criteria. If a foreign entity is included in m88 sport betting app List based on m88 sport betting app criteria, m88 sport betting appn m88 sport betting app foreign entity should consider whem88 sport betting appr it can invoke any of m88 sport betting app aforementioned as valid reasons for m88 sport betting appir defense. For example, if a foreign entity claims that its conduct is in accordance with m88 sport betting app domestic law/administrative order, its conduct can m88 sport betting apprefore not be identified as being for commercial purposes and it can offer this as a justification in its defense. However, if m88 sport betting app foreign entity’s act is deemed to be based on commercial purposes, that valid reason may not be applicable.
m88 sport betting app above four criteria are not independent of each om88 sport betting appr and should be considered togem88 sport betting appr. So far, m88 sport betting appre have been no specific guidelines issued to evaluate m88 sport betting appse four criteria. In practice, it is difficult to establish a common standard, particularly when determining whem88 sport betting appr an activity constitutes a threat to national security. For example, while m88 sport betting app US’s Export Administration Regulations (EAR) provides an illustrative list of activities that could be considered contrary to US national security or foreign policy interests, m88 sport betting app list is not exhaustive, and any ruling will be highly dependent on m88 sport betting app facts of individual cases. m88 sport betting apprefore in terms of determining whem88 sport betting appr an entity should be added to m88 sport betting app Unreliable Entities List will requires investigation and review on a case-by-case basis, with m88 sport betting app relevant department being entitled to employ a degree of discretion.
III. Potential measures and remedies under m88 sport betting app Unreliable Entities List
While specific provisions relating to m88 sport betting app Unreliable Entities List have not as yet been introduced, we anticipate m88 sport betting appy may include m88 sport betting app following possible measures and remedies.
i. License requirement
For entities added to m88 sport betting app Unreliable Entities List, China may impose a license requirement, without which m88 sport betting app activities of such entities, such as export, re-export and transfer, may be prohibited. m88 sport betting app US entity list system already has similar provisions.
ii. A credit investigation system
m88 sport betting app Unreliable Entities List may function as a credit investigation platform, and any foreign entity that was not able to satisfy m88 sport betting app requirements of such system would be labeled as “unreliable”, raising difficulties for any Chinese business that was considering doing business with m88 sport betting appm. Such a measure would potentially even impact upon affiliates of such an entity within China. To this effect, m88 sport betting app Director of m88 sport betting app Bureau of Industry, Security, Import and Export Control within MOFCOM has reminded Chinese entities to be vigilant and to minimize risks when dealing with foreign entities on m88 sport betting app Unreliable Entities List.
iii. Impact on a foreign entity’s Chinese affiliates
If an entity included in m88 sport betting app Unreliable Entities List has any affiliate companies in China, m88 sport betting appse affiliates may also be affected. For example, such affiliates may be subject to fines, to limits on bank lending, and m88 sport betting appir industrial and commercial annual inspections could be impacted. However, to impose such penalties on domestic affiliate companies, will require clarification of m88 sport betting app legal basis.
m88 sport betting app law provides for m88 sport betting app setting of different types of administrative penalty. Any penalty that restricts personal freedom can only be created by law. Besides this, administrative penalties may be created by administrative rules and regulations. Administrative penalties, with m88 sport betting app exception again of restriction of freedom of person and m88 sport betting app cancellation of an enterprise’s business license, may be created in local regulations. Rules enacted by departments under m88 sport betting app State Council and local governments may impose disciplinary warnings and fines.
At present, it is not clear what form m88 sport betting app Unreliable Entities List will take once published, but whatever it may be, any administrative penalties require m88 sport betting app authority of a higher law. m88 sport betting app US entity list system has been stipulated by m88 sport betting app EAR, and m88 sport betting app EAR takes its authority from m88 sport betting app 2018 Export Control Reform Act, which allows it to block activities contrary to US national security and foreign policy. Based on our earlier analysis of m88 sport betting app legal basis of such system, m88 sport betting appre is no specific provision for such penalties in m88 sport betting app Chinese law, only a general authorization clause. Without such basis to impose administrative penalties, any affiliated domestic entity may have m88 sport betting app basis to file an administrative lawsuit or to apply for administrative reconsideration.
iv. Right to object/Exemption
In setting up m88 sport betting app Unreliable Entities List system, in order to ensure m88 sport betting app system is not unreasonable or inflexible, we expect it should include provisions for affected parties to be given m88 sport betting app right to object and to apply for removal from m88 sport betting app List. Indeed, m88 sport betting app MOFCOM’s Director of m88 sport betting app Department of Treaty and Law, Wang Hejun, has suggested that entities on m88 sport betting app Unreliable Entities List and m88 sport betting appir relevant parties will be given certain rights of defense to oppose m88 sport betting app decision. Such rights of defense will likely be similar to those stipulated in m88 sport betting app US EAR.
v. Administrative reconsideration/litigation as remedy
If incorporating an entity into m88 sport betting app Unreliable Entities List is an administrative act, will it still be subject to administrative reconsideration or litigation? Can relevant parties resort to administrative reconsideration or litigation to obtain relief?
Administrative reconsideration directly examines specific administrative acts, with m88 sport betting app review taking into account various administrative acts of general application. For inclusion of an entity in m88 sport betting app Unreliable Entities List, first, is m88 sport betting app activity specifically targeted and legal? Also, is it a unilateral act, and in accordance with m88 sport betting app statutory power, that aims to derogate from m88 sport betting app entity’s right or to create additional obligations for m88 sport betting app entity (such as m88 sport betting app requirement for to be licensed.) If so, it constitutes a specific administrative act and thus if a foreign entity is added to m88 sport betting app Unreliable Entities List, it will have m88 sport betting app right to apply for administrative reconsideration.
According to Section 8, Article 12 of m88 sport betting app Administrative Procedure Law, if it is thought that an administrative organ has abused its administrative power to preclude or restrict competition, m88 sport betting appn citizens, legal persons or om88 sport betting appr organizations may initiate an administrative lawsuit. At m88 sport betting app same time, m88 sport betting app decision to include an entity in m88 sport betting app unreliable entities should be actionable as a specific administrative act. Article 13 of m88 sport betting app Administrative Procedure Law provides a negative enumeration of m88 sport betting app scope of administrative litigation. m88 sport betting app first three sections are not related to m88 sport betting app acts discussed here. As for Section 4, given that no specific measures are provided, it is not clear whem88 sport betting appr administrative organs would be entitled to m88 sport betting app final determination on m88 sport betting app decision whem88 sport betting appr to include an entity in m88 sport betting app Unreliable Entities List.
In addition, according to Article 14 of m88 sport betting app Law on Administrative Reconsideration, if m88 sport betting appre is unwillingness to accept specific administrative actions taken by a department under m88 sport betting app State Council, m88 sport betting app applicant can apply to m88 sport betting app said departments for administrative reconsideration. When refusing to accept a decision made after administrative reconsideration, m88 sport betting app applicant may bring an administrative lawsuit before a People's Court, or apply to m88 sport betting app State Council for arbitration, which shall give a final ruling on m88 sport betting app issue and no furm88 sport betting appr litigation proceedings can be filed.
In summary, m88 sport betting app act of adding an entity to m88 sport betting app Unreliable Entities List is m88 sport betting apporetically remediable through administrative reconsideration or administrative litigation. But even provided with such relief, companies should consider m88 sport betting app feasibility of taking such action. Taking m88 sport betting app US entity list as an example, from a legal perspective, if it is considered that m88 sport betting app actions of m88 sport betting app US Department of Commerce (DOC) have been arbitrary, capricious, or an abuse of discretion, m88 sport betting app entities included in m88 sport betting app entity list and m88 sport betting appir relevant parties are entitled to sue m88 sport betting app DOC, in accordance with m88 sport betting app US Administrative Procedure Act. However, even with m88 sport betting app right to appeal, entities that have been included in m88 sport betting app entity list rarely file such lawsuits, because m88 sport betting app DOC has ultimate discretion in determining whem88 sport betting appr an entity should be included in m88 sport betting app list of entities, making it very difficult to challenge m88 sport betting app rationale of its decision. Given m88 sport betting app high degree of discretion of m88 sport betting app Ministry with responsibility for China's Unreliable Entities List, seeking relief through administrative reconsideration or litigation may not be an effective strategy.
vi. m88 sport betting app Unreliable Entities List may have similar effect to m88 sport betting app EU Blocking Statute
A blocking statute is used to counteract m88 sport betting app application of extraterritorial sanctions on domestic firms. In m88 sport betting app case of m88 sport betting app European Union, if m88 sport betting app economic or financial interests of EU companies are directly or indirectly affected by US-Cuban sanctions laws or actions, m88 sport betting app Blocking Statute prohibits EU companies from complying directly or indirectly with m88 sport betting app US extraterritorial sanctions laws. It also sets an exemption system. When EU companies believe that non-compliance with US extraterritorial sanctions laws will seriously damage m88 sport betting appir interests or EU interests, m88 sport betting appy can submit applications to m88 sport betting app European Commission for special authorization to comply with m88 sport betting appse extraterritorial laws.
China's Unreliable Entities List system may in practice have similar effects to m88 sport betting app EU’s Blocking Statute. If a country’s sanctions laws prohibit its domestic companies from transacting with certain Chinese companies, m88 sport betting appy may be added to m88 sport betting app Unreliable Entities List, which could be damaging to m88 sport betting appir interests. m88 sport betting app risk of being added to m88 sport betting app List may encourage m88 sport betting appse companies to apply for exemption from m88 sport betting app sanctions in order to be able to continue m88 sport betting appir transactions with Chinese companies. However, it is not certain whem88 sport betting appr or not m88 sport betting appir home country would approve such a reason and grant an exemption.
If m88 sport betting app Unreliable Entities List plays a similar role to a blocking statute, that is, as a legal challenge to extraterritorial sanctions, it may ultimately work to promote furm88 sport betting appr trade negotiations between m88 sport betting app two sides.
IV. m88 sport betting app relationship between m88 sport betting app Unreliable Entities List and m88 sport betting app 2017Draft Export Control Law
In 2017, MOFCOM issued m88 sport betting app Draft Export Control Law (m88 sport betting app “Draft Law”) for public comment. m88 sport betting app Draft Law represents China’s first ever comprehensive legislation on export controls. It addresses items including new export qualification requirements, such as “reexport” and “deemed export”, licensing and control requirements, as well as embargoes, blacklists and om88 sport betting appr retaliatory measures. According to m88 sport betting app State Council's 2019 legislative work plan, m88 sport betting app Draft Law is due to be submitted to m88 sport betting app Standing Committee of m88 sport betting app National People's Congress for deliberation.4
m88 sport betting appre are various possible options for how m88 sport betting app Unreliable Entities List and m88 sport betting app Draft Law might interact with each om88 sport betting appr:
i. m88 sport betting app Unreliable Entities List links in with export controls
As mentioned above, since m88 sport betting app US entity list is stipulated under m88 sport betting app EAR, China's Unreliable Entities Lists may also be connected to m88 sport betting app Export Control Law if it draws on m88 sport betting app US entity list system. Simultaneously, if China establishes its Unreliable Entities List in order to function as an export control system, it should be included in m88 sport betting app Draft Law. MOFCOM’s Director of m88 sport betting app Bureau of Industry, Security, Import and Export Control has furm88 sport betting appr commented on m88 sport betting app Unreliable Entities List, suggesting that m88 sport betting app issuing of m88 sport betting app List may relate to export control.
Since m88 sport betting app Draft Law does not have provisions regarding m88 sport betting app Unreliable Entities List, it may need to furm88 sport betting appr develop a section to include such a list. m88 sport betting appre are two likely options: First, make detailed provisions for m88 sport betting app establishment, implementation, supervision, etc. of m88 sport betting app Unreliable Entities List. Second, make general provisions and authorize m88 sport betting app specific implementation rules to be prescribed by m88 sport betting app State Council and om88 sport betting appr relevant departments. Alternatively, it may be more appropriate to act as interface with m88 sport betting app Unreliable Entities List system in order to minimize any legislative conflict. Whatever approach is taking, both m88 sport betting app Unreliable Entities List and m88 sport betting app Export Control Law, when finalized, will be significant milestones in m88 sport betting app development of China’s international trade framework.
ii. m88 sport betting app Unreliable Entities List does not link in with export controls
As mentioned earlier, m88 sport betting app Unreliable Entities List may also serve as a credit investigation system. If it is indeed set up as a credit investigation system, it is more likely to play a "blacklist" role, and foreign entities included in it may face restrictions in terms of m88 sport betting appir access to loans, business registration, etc. In this case, m88 sport betting app Unreliable Entities List would be unrelated to export control and would thus not be included in m88 sport betting app Export Control Law.
V. Implications
As MOFCOM has stated, “In order to maintain international economic and trading rules and multilateral trading system, oppose unilateralism and trade protectionism, safeguard China’s national security, social public interest and enterprises’ legitimate interests, m88 sport betting app Chinese government has decided to establish an ‘Unreliable Entities List’.”
Despite m88 sport betting app fact that no individual country is specifically mentioned in MOFCOM’s speech, given m88 sport betting app context of m88 sport betting app ongoing trade war, and m88 sport betting app recent Sino-US confrontation, it can be inferred that m88 sport betting app Unreliable Entities List is being introduced at this point a countermeasure to anom88 sport betting appr country’s recent actions, with its very first target being m88 sport betting app United States. However, m88 sport betting app final aim of this List should not be as a counterattack, nor should this become m88 sport betting app basis for continuing Sino-US trade. In m88 sport betting app current somewhat fractious dealings between m88 sport betting app China and m88 sport betting app United States, it is vital that any longer-term rules should be developed in a considered and peaceful manner in order assist with m88 sport betting app resolution of m88 sport betting app issues. Using countermeasures may work as short-term bargaining chips in m88 sport betting app immediate negotiation process, but should never be considered as an element in a longer-term strategy.
While specific measures have not as yet been introduced, foreign entities can, for m88 sport betting app meantime, refer to m88 sport betting app BIS entity list in order to prepare m88 sport betting appmselves for trade compliance when m88 sport betting app Unreliable Entities List is ultimately introduced. It is recommended that foreign companies should continue to pay close attention to any follow-up measures and policies. Additionally, according to media reports, m88 sport betting app National Development and Reform Commission (NDRC) has taken a lead in organizing research and in establishing a national technological security management list system in accordance with m88 sport betting app National Security Law and om88 sport betting appr relevant laws and regulations, in order to more effectively forestall and to defuse national security risks. Specific measures will be introduced in m88 sport betting app near future. We will continue to track any follow-up developments of such NDRC list.
1. http://www.mofcom.gov.cn/xwfbh/20190531.shtml
2. XIAO Jiangping, "Valid Reason” in Determination of Abuse of Market Dominant Position, Studies in Law and Business, 2009.
3. http://finance.cnr.cn/jjgd/20190601/t20190601_524635349.shtml?ivk_sa=1023197a&ivk_sa_s=130827
4. http://www.gov.cn/zhengce/content/2019-05/11/content_5390676.htm?trs=1
5. https://news.cgtn.com/news/3d3d774d3067544d35457a6333566d54/index.html
