On 24 April 2026, the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury, citing participation in Iranian petroleum transactions, decided to impose sanctions on several Chinese enterprises by placing them on the Specially Designated Nationals and Blocked Persons List (“SDN List”) and implementing measures including asset freezes and transaction prohibitions. On 2 May 2026, in response to these sanctions, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”), for the first time pursuant to the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (“Blocking Rules”), issued a blocking order, requiring all Chinese subjects to “not recognize, not execute, and not comply with” the relevant U.S. sanctions.
This marks the first activation of the Blocking Rules in the more than five years since it took effect on 9 January 2021. Prior to this, the United States had on multiple occasions sanctioned Chinese entities on grounds of participation in Iranian petroleum transactions, and the Chinese government had responded exclusively through diplomatic protests and solemn representations by the Ministry of Foreign Affairs, never once invoking the Blocking Rules to take formal legal action. The issuance of this blocking order signifies the crucial transition of China’s Blocking Rules from “institutional proclamation” to “case-specific application”, elevating the legal conflict between unilateral U.S. sanctions and China’s blocking measures from the diplomatic plane to the legal enforcement plane. While imposing a mandatory “three-nots” obligation—to not recognize, not execute, and not comply with—on financial institutions, trade counterparties, and other parties within Chinese jurisdiction, the blocking order simultaneously vests the five sanctioned enterprises with the right to initiate civil claims for compensation before Chinese courts, thereby placing multinational enterprises in a dilemma: continued service may trigger U.S. secondary sanctions, while termination of service may violate the Chinese blocking order and expose them to claims. This presents a new and concrete challenge for international trade compliance practice.
The Blocking Order
The full text of the blocking order reads: “...shall not recognize, not execute, and not comply with the measures taken by the United States pursuant to Executive Order 13902, Executive Order 13846, and other relevant provisions, on grounds of participation in Iranian petroleum transactions, against Hengli Petrochemical (Dalian) Refining Co., Ltd., Shandong Shouguang Luqing Petrochemical Co., Ltd., Shandong Jin Cheng Petrochemical Group Co., Ltd., Hebei Xin Hai Chemical Group Co., Ltd., and Shandong Shengxing Chemical Co., Ltd., including their placement on the Specially Designated Nationals and Blocked Persons List and the imposition of sanctions such as asset freezes and transaction prohibitions.” This formulation erects a legal “firewall” within the Chinese jurisdiction, producing the following direct effects:
1. Mandatory “Three-Nots” Obligation: The order directly negates the effect of the U.S. sanctions within Chinese territory. Financial institutions shall not, based on such sanctions, freeze the assets of the five sanctioned enterprises or refuse to provide settlement services; trade counterparties shall not unilaterally terminate contracts on grounds of “complying with U.S. sanctions”; no subject shall mark the five sanctioned enterprises as “sanctions targets” in internal compliance systems and treat them differently as a result.
2. Empowerment of Sanctioned Enterprises with Rights Vindication Tools: The five sanctioned enterprises may rely on the MOFCOM announcement to demand continued contractual performance from their counterparties. Pursuant to Article 9 of the Blocking Rules, if their lawful rights and interests are infringed upon due to another party’s compliance with U.S. sanctions, they may directly file a lawsuit before a Chinese court seeking compensation. This transforms them from passive recipients of sanctions into parties capable of initiating proactive legal recourse.
3. Compliance Predicament for Third Parties: Multinational banks, traders, and shipping companies having business dealings with the five sanctioned enterprises directly confront the conflict between Chinese and U.S. laws—continuing services is a statutory obligation under Chinese law, while doing so may trigger U.S. secondary sanctions. This “conflict of legal obligations” is already a real risk, and the subsequent evolution thereof is highly dependent on the accumulation of jurisprudence and enforcement practice.
Examining the Blocking Rules Through the Blocking Order
The issuance of the blocking order has brought the operational mechanism of the Blocking Rules, heretofore confined to paper, to the forefront for the first time. This mechanism, framed along the lines of “assessment—prohibition—exemption—remedy”, exhibits both manifest advantages and pending challenges.
1. Scope of Application and Triggering Basis: Article 2 of the Blocking Rules explicitly provides that they apply to “situations where the extraterritorial application of foreign legislation and other measures, in violation of international law and the basic principles of international relations, unjustifiably prohibits or restricts Chinese citizens, legal persons, or other organizations from engaging in normal economic, trade, and related activities with a third State (or region) and its citizens, legal persons, or other organizations.” Article 5 establishes a proactive reporting obligation to MOFCOM within 30 days. Reporting constitutes one of the prerequisites for triggering the mechanism’s assessment; however, the blocking order did not disclose whether it was triggered by an enterprise report, and detailed rules regarding the specific commencement of the 30-day period and its operation remain absent.
2. Multi-Departmental Coordinated Assessment: Pursuant to Article 4, a working mechanism comprising relevant central state organs, led by MOFCOM, is responsible for comprehensive assessment. The four core assessment factors enumerated in Article 6—principles of international law, impact on national interests, impact on lawful rights and interests, and other factors—provided the jurisprudential framework for determining that the U.S. sanctions constitute an “unjustified extraterritorial application.” The legal basis for this blocking order explicitly includes the “decision of the working mechanism”, indicating that this multi-departmental coordinated assessment design has already been operationalized behind the scenes.
3. Openness and Limitations of the Exemption Mechanism: Article 8 of the Blocking Rules provides a statutory outlet for compliance relief for enterprises in dire straits. Notably, its scope of application is limited to “Chinese citizens, legal persons, or other organizations”, which should encompass foreign-invested subsidiaries established within China but excludes purely offshore foreign-registered enterprises. Applicants must submit a written application detailing the reasons and scope of exemption, with MOFCOM to render a decision within 30 days. A successful applicant is shielded from civil claims under Article 9. However, the approval criteria remain unspecified to date, inevitably increasing the unpredictability for enterprises weighing whether to apply.
4. Dual Safeguards of Remedy and Support: Article 11 provides that those suffering significant loss due to compliance with the blocking order may receive necessary support from relevant government departments. Article 9 authorizes parties whose rights and interests have been harmed to initiate litigation. This civil claim mechanism serves the dual function of providing relief to victims and exercising reverse deterrence against violators, furnishing an important enforcement instrument for the order.
Comparison with the U.S. Sanctions Legal System
China’s sanctions law system primarily comprises the Blocking Rules and the Anti-Foreign Sanctions Law of the People’s Republic of China. The Blocking Rules are departmental rules with a lower hierarchical effect, primarily targeting foreign secondary sanctions measures. The Anti-Foreign Sanctions Law, deliberated and adopted by the Standing Committee of the National People’s Congress on 10 June 2021, is a law with a higher hierarchical effect than the Blocking Rules; it primarily targets primary sanctions imposed directly by foreign states against China and constitutes a countermeasure formulated against internationally wrongful acts interfering in China’s internal affairs.
The core authorizing statute of the U.S. sanctions legal system is the International Emergency Economic Powers Act (“IEEPA”). Under IEEPA, the President may, upon declaration of a national emergency, investigate, block, or prohibit any foreign exchange transaction, credit transfer, or importation or exportation of currency or securities subject to U.S. jurisdiction. U.S. sanctions operate through a three-tier legal architecture of congressional authorizing legislation (primary statutes), presidential executive orders (sanctions basis), and administrative regulatory rules (specific implementation). Congress, through IEEPA and other statutes, grants the President broad sanctions powers (primary statutes); the President, relying on such authority, declares a “national emergency” and issues executive orders designating the target countries, sectors, and specific prohibited conduct (sanctions basis); the OFAC of the Department of the Treasury formulates and promulgates corresponding regulatory rules, operationalizing the presidential executive orders and managing day-to-day enforcement (specific implementation).
A comparison of the Chinese and U.S. sanctions legal systems reveals that they belong to the two functional orientations of “defense/countermeasure” and “proactive offence” respectively, exhibiting the following differences in objectives, instruments, and legal logic:
1. Divergent Core Institutional Objectives: The Chinese sanctions legal system aims to “safeguard national sovereignty, uphold development interests, and protect the lawful rights and interests of Chinese citizens and legal persons,” serving as passive defense and countermeasure. The U.S. sanctions legal system (centered on IEEPA and presidential executive orders) functions as an instrument for proactively advancing its foreign policy and national security objectives.
2. Differentiation in Principal Legal Instruments: The U.S. relies predominantly on vertical penetration instruments such as the SDN List, primary sanctions, and secondary sanctions, achieving global reach through control over the U.S. dollar clearing system and its immense market attractiveness. China juxtaposes three systems—a countermeasure list, blocking orders, and civil claims—whose impact is primarily confined to the Chinese market and foreign entities holding assets within China, with limited extraterritorial effect.
3. The Core of the Legal Conflict: The original design intent of China’s Blocking Rules was to provide a legal shield for Chinese enterprises against external sanctions pressure. However, when the deterrent force of foreign secondary sanctions (such as disconnection from U.S. dollar clearing or denial of access to the U.S. market) outweighs the enforcement power of the Chinese blocking order, enterprises are compelled into the “dilemma” where “the same conduct is mandated by Chinese law yet prohibited by foreign law.” This constitutes both a genuine challenge for multinational corporations and the ultimate test of the efficacy of China’s Blocking Rules.
Comparison with the EU Blocking Regulation
The EU’s Blocking Regulation (Council Regulation (EC) No 2271/96), enacted in 1996, serves as a precedent for global blocking legislation and shares a high degree of common origin with China’s Blocking Rules, both being designed to counter U.S. extraterritorial secondary sanctions. However, they diverge in specific institutional design approaches and particulars as follows:
1. Differentiated Mechanisms for Identifying Targets of Blocking: The EU Blocking Regulation adopts a “pre-defined designation” legislative model, listing the specific foreign laws and regulations to be blocked in an annex (currently primarily encompassing specific U.S. sanctions legislation targeting Cuba and Iran); once enacted, the laws listed in the annex are automatically blocked, without the need for a separate case-specific assessment procedure. Adjusting the scope of blocking requires initiating a legislative amendment process to add or remove entries from the annex. By contrast, China’s Blocking Rules employ a “case-specific assessment plus prohibition order” enforcement model—without pre-designating specific countries or specific statutes, it falls to the working mechanism to conduct a comprehensive assessment on a case-by-case basis before deciding whether to issue a blocking order.
2. Differing Degrees of Institutionalization of the Exemption Mechanism: Article 5(2) of the EU Blocking Regulation empowers the European Commission to authorize EU operators to comply fully or partially with blocked foreign laws where “non-authorization would seriously damage the interests of the EU operators or the EU.” Article 8 of China’s Blocking Rules similarly provides for an exemption system, permitting Chinese citizens, legal persons, or other organizations to apply to MOFCOM for exemption from complying with a blocking order, with MOFCOM to decide within 30 days of accepting the application. Textually, the Chinese exemption mechanism aligns directionally with the EU’s, both offering a compliance buffer for enterprises caught in conflicts between domestic and foreign law. It is noteworthy that the EU’s exemption mechanism has, over decades of judicial scrutiny, developed relatively established practice and case law, whereas the standards and procedures of China’s exemption mechanism remain to be refined, its practical operability remaining subject to observation.
Both the Chinese and EU blocking legislation face the same ultimate test: when the deterrent force of foreign secondary sanctions (such as being cut off from U.S. dollar transactions) far outweighs the enforcement power of domestic blocking orders, enterprises are forced into the dilemma where “lawful compliance equates to violation of law.” To navigate this predicament, the exemption mechanism becomes the crucial valve determining whether blocking legislation can achieve a “soft landing.” The true efficacy of this Chinese blocking order will likewise depend on whether MOFCOM, in subsequent enforcement, can appropriately balance the tension between upholding national legal dignity and accommodating the existential realities of enterprises.
Conclusion
The blocking order represents an ‘ice-breaking” exercise of China’s Blocking Rules, formally proclaiming that China now possesses institutional legal response instruments against unjustified unilateral sanctions by other states. While providing a legal shield for sanctioned Chinese enterprises, it simultaneously delineates clear compliance red lines within the Chinese jurisdiction. However, whether the edge of this still nascent legal weapon can genuinely safeguard national interests and the rights and interests of entities in practice will ultimately depend on the sustained progression of subsequent enforcement and judicial practice, and the continuous refinement of institutional details.
This marks the first activation of the Blocking Rules in the more than five years since it took effect on 9 January 2021. Prior to this, the United States had on multiple occasions sanctioned Chinese entities on grounds of participation in Iranian petroleum transactions, and the Chinese government had responded exclusively through diplomatic protests and solemn representations by the Ministry of Foreign Affairs, never once invoking the Blocking Rules to take formal legal action. The issuance of this blocking order signifies the crucial transition of China’s Blocking Rules from “institutional proclamation” to “case-specific application”, elevating the legal conflict between unilateral U.S. sanctions and China’s blocking measures from the diplomatic plane to the legal enforcement plane. While imposing a mandatory “three-nots” obligation—to not recognize, not execute, and not comply with—on financial institutions, trade counterparties, and other parties within Chinese jurisdiction, the blocking order simultaneously vests the five sanctioned enterprises with the right to initiate civil claims for compensation before Chinese courts, thereby placing multinational enterprises in a dilemma: continued service may trigger U.S. secondary sanctions, while termination of service may violate the Chinese blocking order and expose them to claims. This presents a new and concrete challenge for international trade compliance practice.
The Blocking Order
The full text of the blocking order reads: “...shall not recognize, not execute, and not comply with the measures taken by the United States pursuant to Executive Order 13902, Executive Order 13846, and other relevant provisions, on grounds of participation in Iranian petroleum transactions, against Hengli Petrochemical (Dalian) Refining Co., Ltd., Shandong Shouguang Luqing Petrochemical Co., Ltd., Shandong Jin Cheng Petrochemical Group Co., Ltd., Hebei Xin Hai Chemical Group Co., Ltd., and Shandong Shengxing Chemical Co., Ltd., including their placement on the Specially Designated Nationals and Blocked Persons List and the imposition of sanctions such as asset freezes and transaction prohibitions.” This formulation erects a legal “firewall” within the Chinese jurisdiction, producing the following direct effects:
1. Mandatory “Three-Nots” Obligation: The order directly negates the effect of the U.S. sanctions within Chinese territory. Financial institutions shall not, based on such sanctions, freeze the assets of the five sanctioned enterprises or refuse to provide settlement services; trade counterparties shall not unilaterally terminate contracts on grounds of “complying with U.S. sanctions”; no subject shall mark the five sanctioned enterprises as “sanctions targets” in internal compliance systems and treat them differently as a result.
2. Empowerment of Sanctioned Enterprises with Rights Vindication Tools: The five sanctioned enterprises may rely on the MOFCOM announcement to demand continued contractual performance from their counterparties. Pursuant to Article 9 of the Blocking Rules, if their lawful rights and interests are infringed upon due to another party’s compliance with U.S. sanctions, they may directly file a lawsuit before a Chinese court seeking compensation. This transforms them from passive recipients of sanctions into parties capable of initiating proactive legal recourse.
3. Compliance Predicament for Third Parties: Multinational banks, traders, and shipping companies having business dealings with the five sanctioned enterprises directly confront the conflict between Chinese and U.S. laws—continuing services is a statutory obligation under Chinese law, while doing so may trigger U.S. secondary sanctions. This “conflict of legal obligations” is already a real risk, and the subsequent evolution thereof is highly dependent on the accumulation of jurisprudence and enforcement practice.
Examining the Blocking Rules Through the Blocking Order
The issuance of the blocking order has brought the operational mechanism of the Blocking Rules, heretofore confined to paper, to the forefront for the first time. This mechanism, framed along the lines of “assessment—prohibition—exemption—remedy”, exhibits both manifest advantages and pending challenges.
1. Scope of Application and Triggering Basis: Article 2 of the Blocking Rules explicitly provides that they apply to “situations where the extraterritorial application of foreign legislation and other measures, in violation of international law and the basic principles of international relations, unjustifiably prohibits or restricts Chinese citizens, legal persons, or other organizations from engaging in normal economic, trade, and related activities with a third State (or region) and its citizens, legal persons, or other organizations.” Article 5 establishes a proactive reporting obligation to MOFCOM within 30 days. Reporting constitutes one of the prerequisites for triggering the mechanism’s assessment; however, the blocking order did not disclose whether it was triggered by an enterprise report, and detailed rules regarding the specific commencement of the 30-day period and its operation remain absent.
2. Multi-Departmental Coordinated Assessment: Pursuant to Article 4, a working mechanism comprising relevant central state organs, led by MOFCOM, is responsible for comprehensive assessment. The four core assessment factors enumerated in Article 6—principles of international law, impact on national interests, impact on lawful rights and interests, and other factors—provided the jurisprudential framework for determining that the U.S. sanctions constitute an “unjustified extraterritorial application.” The legal basis for this blocking order explicitly includes the “decision of the working mechanism”, indicating that this multi-departmental coordinated assessment design has already been operationalized behind the scenes.
3. Openness and Limitations of the Exemption Mechanism: Article 8 of the Blocking Rules provides a statutory outlet for compliance relief for enterprises in dire straits. Notably, its scope of application is limited to “Chinese citizens, legal persons, or other organizations”, which should encompass foreign-invested subsidiaries established within China but excludes purely offshore foreign-registered enterprises. Applicants must submit a written application detailing the reasons and scope of exemption, with MOFCOM to render a decision within 30 days. A successful applicant is shielded from civil claims under Article 9. However, the approval criteria remain unspecified to date, inevitably increasing the unpredictability for enterprises weighing whether to apply.
4. Dual Safeguards of Remedy and Support: Article 11 provides that those suffering significant loss due to compliance with the blocking order may receive necessary support from relevant government departments. Article 9 authorizes parties whose rights and interests have been harmed to initiate litigation. This civil claim mechanism serves the dual function of providing relief to victims and exercising reverse deterrence against violators, furnishing an important enforcement instrument for the order.
Comparison with the U.S. Sanctions Legal System
China’s sanctions law system primarily comprises the Blocking Rules and the Anti-Foreign Sanctions Law of the People’s Republic of China. The Blocking Rules are departmental rules with a lower hierarchical effect, primarily targeting foreign secondary sanctions measures. The Anti-Foreign Sanctions Law, deliberated and adopted by the Standing Committee of the National People’s Congress on 10 June 2021, is a law with a higher hierarchical effect than the Blocking Rules; it primarily targets primary sanctions imposed directly by foreign states against China and constitutes a countermeasure formulated against internationally wrongful acts interfering in China’s internal affairs.
The core authorizing statute of the U.S. sanctions legal system is the International Emergency Economic Powers Act (“IEEPA”). Under IEEPA, the President may, upon declaration of a national emergency, investigate, block, or prohibit any foreign exchange transaction, credit transfer, or importation or exportation of currency or securities subject to U.S. jurisdiction. U.S. sanctions operate through a three-tier legal architecture of congressional authorizing legislation (primary statutes), presidential executive orders (sanctions basis), and administrative regulatory rules (specific implementation). Congress, through IEEPA and other statutes, grants the President broad sanctions powers (primary statutes); the President, relying on such authority, declares a “national emergency” and issues executive orders designating the target countries, sectors, and specific prohibited conduct (sanctions basis); the OFAC of the Department of the Treasury formulates and promulgates corresponding regulatory rules, operationalizing the presidential executive orders and managing day-to-day enforcement (specific implementation).
A comparison of the Chinese and U.S. sanctions legal systems reveals that they belong to the two functional orientations of “defense/countermeasure” and “proactive offence” respectively, exhibiting the following differences in objectives, instruments, and legal logic:
1. Divergent Core Institutional Objectives: The Chinese sanctions legal system aims to “safeguard national sovereignty, uphold development interests, and protect the lawful rights and interests of Chinese citizens and legal persons,” serving as passive defense and countermeasure. The U.S. sanctions legal system (centered on IEEPA and presidential executive orders) functions as an instrument for proactively advancing its foreign policy and national security objectives.
2. Differentiation in Principal Legal Instruments: The U.S. relies predominantly on vertical penetration instruments such as the SDN List, primary sanctions, and secondary sanctions, achieving global reach through control over the U.S. dollar clearing system and its immense market attractiveness. China juxtaposes three systems—a countermeasure list, blocking orders, and civil claims—whose impact is primarily confined to the Chinese market and foreign entities holding assets within China, with limited extraterritorial effect.
3. The Core of the Legal Conflict: The original design intent of China’s Blocking Rules was to provide a legal shield for Chinese enterprises against external sanctions pressure. However, when the deterrent force of foreign secondary sanctions (such as disconnection from U.S. dollar clearing or denial of access to the U.S. market) outweighs the enforcement power of the Chinese blocking order, enterprises are compelled into the “dilemma” where “the same conduct is mandated by Chinese law yet prohibited by foreign law.” This constitutes both a genuine challenge for multinational corporations and the ultimate test of the efficacy of China’s Blocking Rules.
Comparison with the EU Blocking Regulation
The EU’s Blocking Regulation (Council Regulation (EC) No 2271/96), enacted in 1996, serves as a precedent for global blocking legislation and shares a high degree of common origin with China’s Blocking Rules, both being designed to counter U.S. extraterritorial secondary sanctions. However, they diverge in specific institutional design approaches and particulars as follows:
1. Differentiated Mechanisms for Identifying Targets of Blocking: The EU Blocking Regulation adopts a “pre-defined designation” legislative model, listing the specific foreign laws and regulations to be blocked in an annex (currently primarily encompassing specific U.S. sanctions legislation targeting Cuba and Iran); once enacted, the laws listed in the annex are automatically blocked, without the need for a separate case-specific assessment procedure. Adjusting the scope of blocking requires initiating a legislative amendment process to add or remove entries from the annex. By contrast, China’s Blocking Rules employ a “case-specific assessment plus prohibition order” enforcement model—without pre-designating specific countries or specific statutes, it falls to the working mechanism to conduct a comprehensive assessment on a case-by-case basis before deciding whether to issue a blocking order.
2. Differing Degrees of Institutionalization of the Exemption Mechanism: Article 5(2) of the EU Blocking Regulation empowers the European Commission to authorize EU operators to comply fully or partially with blocked foreign laws where “non-authorization would seriously damage the interests of the EU operators or the EU.” Article 8 of China’s Blocking Rules similarly provides for an exemption system, permitting Chinese citizens, legal persons, or other organizations to apply to MOFCOM for exemption from complying with a blocking order, with MOFCOM to decide within 30 days of accepting the application. Textually, the Chinese exemption mechanism aligns directionally with the EU’s, both offering a compliance buffer for enterprises caught in conflicts between domestic and foreign law. It is noteworthy that the EU’s exemption mechanism has, over decades of judicial scrutiny, developed relatively established practice and case law, whereas the standards and procedures of China’s exemption mechanism remain to be refined, its practical operability remaining subject to observation.
Both the Chinese and EU blocking legislation face the same ultimate test: when the deterrent force of foreign secondary sanctions (such as being cut off from U.S. dollar transactions) far outweighs the enforcement power of domestic blocking orders, enterprises are forced into the dilemma where “lawful compliance equates to violation of law.” To navigate this predicament, the exemption mechanism becomes the crucial valve determining whether blocking legislation can achieve a “soft landing.” The true efficacy of this Chinese blocking order will likewise depend on whether MOFCOM, in subsequent enforcement, can appropriately balance the tension between upholding national legal dignity and accommodating the existential realities of enterprises.
Conclusion
The blocking order represents an ‘ice-breaking” exercise of China’s Blocking Rules, formally proclaiming that China now possesses institutional legal response instruments against unjustified unilateral sanctions by other states. While providing a legal shield for sanctioned Chinese enterprises, it simultaneously delineates clear compliance red lines within the Chinese jurisdiction. However, whether the edge of this still nascent legal weapon can genuinely safeguard national interests and the rights and interests of entities in practice will ultimately depend on the sustained progression of subsequent enforcement and judicial practice, and the continuous refinement of institutional details.