Beware the long arms of American and Chinese law

A small town in Germany gets a letter from US senators, threatening it with “crushing, legal and economic sanctions”. Professors at Oxford and Princeton tell students to submit essays anonymously — to protect themselves from potential arrest for violating Chinese law.

Welcome to the world of extraterritoriality. The US and China are increasingly seeking to extend the reach of their domestic law overseas — compelling foreign companies and people to do the bidding of Washington or Beijing. The rise of extraterritoriality is the latest sign of the sad decline of our old friend, the rules-based international order, under which big powers at least pretended to play by the same rules as everybody else.

In the extraterritorial world, there is one set of rules for superpowers and another for everybody else. This looks less like the 21st century, as imagined by international lawyers and more like the 19th century, in which imperial powers imposed their will on others.

It is the US that has gone furthest in the use of extraterritorial law. Its most important weapon is one available to no other nation — the dollar’s status as the global reserve currency. That means foreigners often use the American financial system and so become vulnerable to prosecution under US law. It also means that America can threaten foreigners with financial sanctions that have global reach.

Even during the Obama years, the US was using its extraterritorial power with increasing enthusiasm. Just think of the many world football executives arrested in Switzerland in 2015 and extradited to stand trial in the US. Their mistake was to process allegedly corrupt transactions through US banks.

The Trump administration has taken up the sanctions cudgel with even more enthusiasm. Following the crackdown on the pro-democracy movement in Hong Kong, the US has targeted Carrie Lam, Hong Kong’s chief executive and some of her colleagues. Ms Lam recently admitted that she is having difficulty using credit cards.

Russia is also a target for US sanctions, which is where the German port of Sassnitz came into the picture. Russian ships completing the controversial Nord Stream 2 gas pipeline to Germany have been docking there. This has attracted the attention of senators Tom Cotton, Ted Cruz and Ron Johnson, who last month sent a letter to the town and a German company involved in the project, threatening them with sanctions. Mike Pompeo, US secretary of state, has warned companies involved in Nord Stream: “Get out now, or risk the consequences.”

German politicians are outraged by this pressure — but they are also worried. American law is sufficiently vague to make any German bank or law firm involved in Nord Stream, potentially vulnerable to US prosecution.

Perhaps the most spectacular extraterritorial application of US sanctions law by the Trump administration was the arrest of Meng Wanzhou, chief financial officer of China’s Huawei Technologies, who was detained in Canada, for alleged offences related to US sanctions on Iran. Huawei has also been targeted by US laws that prevent the sale of American computer chips to the Chinese tech giant. That will make it much more difficult for Huawei to roll out its 5G technology around the world.

The very notion of extraterritoriality is highly sensitive in China, because of its echoes of the 19th century, when many foreigners lived under their own laws in Chinese cities such as Shanghai.

But these days China is no longer merely on the receiving end of extraterritorial laws. The language of its new national security law, announced in June, is so vague and sweeping that it potentially makes even foreigners speaking overseas vulnerable to prosecution for “subversion” in China.

Western universities are taking the threat seriously. Patricia Thornton, who teaches Chinese politics at Oxford university, recently tweeted: “My students will be submitting and presenting work anonymously”, as protection against the law. Professors at US universities have announced similar moves.

The main fear is that Chinese students could be reported on and pursued for straying from Beijing’s official line — perhaps over Taiwan, Hong Kong or Xinjiang. This risk has only increased as seminars move online, where they can be recorded. Some western academics and think-tankers are also concerned about their own safety, and are refusing to travel to China.

Beijing’s ventures into extraterritoriality have begun with free speech, but are unlikely to end there. Emulating the US, China is now working on its own “unreliable entities” list that targets foreign companies accused of endangering Chinese national security.

The US, and perhaps China, have the power to enforce their laws around the world. For midsize powers that is not an option. Instead, smaller countries need to prop up international rules-making bodies, such as the World Trade Organization — which has ruled against both China and the US on occasion.

Without common international rules, third countries may increasingly find themselves torn between the competing extraterritorial demands of Washington and Beijing. In that situation, our world will look increasingly look like the one described by the Greek historian, Thucydides, in which — “The strong do what they will and the weak suffer what they must.”

gideon.rachman@ft.com

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