Geopolitical tensions continue to escalate and rising tensions involving China have become a focal point for international relations. Sanctions appear to have become a default tool that governments apply with the intention to condemn or attempt to change the behaviour of a certain state. It is therefore not surprising that sanctions against China and Chinese businesses are a regular topic of international media and analysts.
In particular, there is now a growing risk that further large-scale restrictions will be placed on China. These measures may well take different forms including additional tariffs on Chinese companies that operate in foreign markets, restrictions on abilities of businesses to invest in China, as well as an onslaught of economic sanctions targeting individuals directly.
At Linkilaw, we have seen and advised upon the same types of issues stemming from the Russia-Ukraine conflict, and recent experience shows that many of them can be navigated with the appropriate risk assessments and mitigation strategies.
To mitigate the risk of future sanctions, Chinese businesses that consider deploying a sanction strategy can focus on several key areas from a legal perspective.
The checklist below is an example of the areas that we handle on a case-by-case basis, due to their unique nature.
1. Understand and Comply with International and National Law regarding Sanctions
- Legal Awareness: Stay informed about international trade laws, sanctions regulations, and compliance requirements from major jurisdictions such as the US, EU, and UN.
- Compliance Programs: Establish comprehensive compliance programs that include regular training for employees on sanctions laws and corporate policies
2. Contractual Safeguards
- Force Majeure Clauses: Include force majeure clauses in contracts to address scenarios where sanctions might impede business operations.
- Termination and Penalty Clauses: Ensure contracts have clear terms on termination and penalties in case of sanctions, allowing for renegotiation or exit without excessive penalties.
- Arbitration clauses: include arbitration clauses in contracts to provide a neutral forum and effective dispute resolution mechanism for resolving disputes that might arise due to sanctions.
3. Corporate Structuring and Jurisdictional Strategies
- Diversified Corporate Structure: Consider setting up subsidiaries or holding companies in countries with favourable legal frameworks to spread risk.
- Jurisdictional Selection: Choose business locations in jurisdictions with a lower risk of sanctions or more favourable trade relations.
4. Legal Audits and Due Diligence
- Regular Legal Audits: Conduct regular legal audits to identify and rectify any vulnerabilities related to sanctions.
- Due Diligence: Perform thorough due diligence on partners, clients, and suppliers to ensure they are not subject to sanctions or involved in activities that might trigger sanctions.
5. Engage Legal Experts
- Specialised Legal Counsel: Retain legal counsel specialising in international trade and sanctions law to provide ongoing advice and support.
- Advisory Boards: Consider establishing advisory boards with experts in international law and geopolitics to guide strategic decisions.
6. Adaptation and Contingency Planning
- Contingency Plans: Develop detailed contingency plans to respond quickly and effectively to sanctions.
- Adaptation Strategies: Continuously adapt business models and strategies to changing legal landscapes and geopolitical climates.
By implementing these legal strategies, Chinese businesses can significantly reduce their risk of facing sanctions and be better prepared to navigate the complex international regulatory environment.
