Unreliable Entity List China: FAQ and how to ensure compliance

• May 31, 2019: The Ministry of Commerce of China (MOFCOM) first announced the introduction of the Unreliable Entity List. It followed the designation of Huawei (and its worldwide subsidiaries) on the US Entity List by the US authority BIS on May 16, 2020. 
• September 19, 2020: The Provisions on the Unreliable Entity List of China were published by MOFCOM and took effect on the day.
• February 17, 2023: The first designations on the Unreliable Entity List were made.
  

The new Provisions on the UEL detail the following goals:

• Safeguard China’s national sovereignty, security, and development interests
  
• Maintain a fair and free international economic and trade-related order
  
• Protect the legitimate rights and interests of enterprises, other organizations, and individuals of China
  

Trade compliance experts and various media publications summarize the UEL Provisions' goal as "protecting China's business and government interests". 

The new Provisions on the Unreliable Entity List do not mention one authority in particular. Instead, they describe a "Working Mechanism" that refers to relevant central governmental authorities in China. The Office of the Working Mechanism is located at the competent department of commerce of the State Council. This Working Mechanism is in charge of organization and implementation of the UEL system. In this context, it is authorized to decide to announce investigations on the actions taken by relevant foreign entities based on:  

1. its administrative duties and functions or
2. suggestions or reports by relevant parties.

• Foreign enterprises
• Other foreign organizations
• Individuals of foreign countries
• Means of transportation, such as ships or airplanes
  

• Activities that endanger the national sovereignty, security, or development interests of China
• Behaviours that interrupt normal transactions with a Chinese enterprise, other organization, or individual of China
• Behaviours that apply discriminatory measures against enterprises, other organizations, or individuals of China, which violates regular market transaction principles and causes serious damage to the legitimate rights and interests of these enterprises, organizations, or individuals

If the facts about the relevant activities by foreign entities are clear, the Working Mechanism may take decisions to designate such entities. If the facts are not clear, the investigation results of the Working Mechanism will determine whether or not relevant foreign entities will be listed on the UEL. In either case, the following factors will be considered (at the discretion of the Working Mechanism) for the final decision :

• The degree of danger to national sovereignty, security, or development interests of China
• The degree of damage to the legitimate rights and interests of enterprises, other organizations, or individuals of China
• Compliance with internationally accepted economic and trade rules
• Other relevant factors

One or more measures will be imposed on the relevant foreign entity following its designation on the UEL. These will be decided and announced by the Working Mechanism. This announcement may include an alert about the risks of conducting transactions with the designated foreign entity. It may also determine a time period for the relevant foreign entity to rectify its actions during which the measures will not be implemented. But should the entity fail to rectify its actions during the given time, the relevant measures will be imposed. Measures that can be imposed following UEL designation include:

• Restricting or prohibiting the foreign entity from engaging in China-related import or export activities
• Restricting or prohibiting the foreign entity from investing in China
• Restricting or prohibiting the foreign entity’s relevant staff or transport vehicles from entering China
• Restricting or revoking the relevant staff’s work permits and status of stay or residence in China
• Imposing fines in accordance with the severity of the circumstances
• Other necessary restrictive measures

Decisions and possible restrictions of the "Working Mechanism" vary from case to case. A case-by-case examination of possible list matches and the restrictions imposed is therefore essential.

The UEL Provisions are in accordance with the Foreign Trade Law of the People’s Republic of China, the National Security Law of the People’s Republic of China, and other relevant laws in this context. Please also refer to our article on China's Export Control Law (ECL) in this context