China's First Anti-Foreign Sanctions Court Ruling Raises New Supply-Chain Compliance Risk

Highlights

• Shanghai Maritime Court ruled a foreign carrier could not use U.S. sanctions as justification for refusing contractual performance, ordering ~US$700,000 in damages.
• The Supreme People's Court named the ruling a 2025 model maritime case, establishing the Anti-Foreign Sanctions Law as mandatory and directly applicable in Chinese courts.
• Companies in rare earth and critical mineral supply chains now face legal exposure in China for complying with Western sanctions, creating a two-directional compliance risk.
• The precedent does not criminalize all Western sanctions compliance, but establishes that foreign restrictions deemed discriminatory by China may not excuse contractual nonperformance.

China has crossed an important legal threshold. In a case selected by the Supreme People’s Court as a model maritime judgment, the Shanghai Maritime Court ruled that a foreign carrier could not rely on U.S. sanctions against a Hong Kong shipper to justify refusing contractual performance. The carrier was ordered to pay approximately RMB4.99 million—about US$700,000—plus interest. For global supply chains, sanctions risk increasingly runs in two directions.

REEx Insight | Caught Between Two Rulebooks

The implications extend well beyond shipping. Companies operating through China-linked rare-earth and critical-mineral supply chains must increasingly reconcile Western sanctions and export controls with China’s expanding counter-sanctions regime. The ruling does not mean every act of Western sanctions compliance violates Chinese law. But it establishes a significant precedent: where China considers a foreign restriction a discriminatory measure covered by its Anti-Foreign Sanctions Law, compliance with that restriction may not excuse contractual nonperformance in a Chinese court.

China Draws a Judicial Line

The Singapore carrier accepted approximately RMB4.99 million of electronics in Shanghai for shipment to Panama. After determining that the Hong Kong shipper was on a U.S. sanctions list, it refused to issue the bill of lading and ultimately returned the goods to Shanghai.

The Shanghai Maritime Court found the carrier had fundamentally breached its obligations. It held that mandatory provisions of China’s Anti-Foreign Sanctions Law applied directly and that concern about exposure to foreign sanctions could not eliminate or reduce the carrier’s liability.

The Supreme People’s Court subsequently named the judgment among its 2025 model maritime cases, describing it as the first Chinese judicial judgment expressly establishing the mandatory application of the AFSL.

For multinational supply chains, that changes the compliance equation: obeying one jurisdiction’s sanctions can create legal exposure in another.

Source note: This article is based on REEx’s translation and analysis of official Chinese judicial materials. Characterizations of U.S. sanctions as “discriminatory,” “illegal” or exercises of “long-arm jurisdiction” reflect the Chinese government and judiciary’s legal and political position and should not be read as REEx’s independent determination of their legality.