On May 31, 2019, China’s Ministry of Commerce (“MOFCOM”) announced at a press conference that the country will soon establish a new “unreliable entities list” regime.1 MOFCOM further explained that, pursuant to relevant Chinese laws and regulations, foreign enterprises, organizations and individuals who fail to obey market principles, depart from the spirit of contact, or block or cease to supply Chinese enterprises for non-commercial reasons and who seriously harm Chinese enterprises’ rights and interests will be added to the “unreliable entities list.” Specific measures against the entities so designated will be announced later. The new “unreliable entities list” will be based on, among other authorities, China’s Foreign Trade Law, Anti-Monopoly Law and State Security Law.
No official statement has yet been made regarding when the initial list will be announced and what specific restrictions would apply to the listed entities under Chinese law. However, we expect that MOFCOM’s Bureau of Industry, Security, Import and Export Control will soon publish detailed guidance regarding the new regime.
In addition, even though the announcement made no direct reference to the United States recently adding Chinese telecommunication giant Huawei Technologies Co., Ltd. (“Huawei”) to its Entity List,2 China’s measure is widely seen as related to that US action as well as the broader trade dispute between China and the United States. Notably, MOFCOM’s announcement specifically mentioned concerns about “unilateralism”; “trade protectionism”; and “blocking, ceasing to supply or taking other discriminatory measures against Chinese enterprises.” To the extent that China’s action targets companies that comply with recent US export control, procurement and other trade restrictions involving Huawei and other Entity List entities, it raises potentially challenging conflict of law issues that should be considered carefully by companies with dealings in both jurisdictions.