Commentary
The expression “Catch-22″ caught on as shorthand to describe an impossible situation with the publication of a book by the same name authored by Joseph Heller in 1961. The phrase became a common way to describe a no-win scenario created by inconsistent or contradictory bureaucratic red tape.
Any Canadian business trying to generate sales beyond our borders can find itself in such a Catch-22 given today’s scrambled geopolitical reality.
Here is an example.
Imagine that you are running a business that sources a small electrical component from China for your mostly “made in Canada” product. You celebrate when your business lands sales to the U.S. government and to a large U.S. corporation. The contracts both require you to comply with U.S. export laws or sanctions. The next week, you manage to make a sale to a company in France. That contract similarly requires you to adhere to certain EU and French legal requirements.
It’s been a great couple of weeks. And the month gets even better! Three days later you get an offer to buy your goods from a business in China. Business is booming!
You decide that the time has arrived to consult an international business lawyer for some advice to make sure that you will not get into legal hot water and you want to run your business in an ethical manner. But you have run a few inquiries past ChatGPT and Claude, and you cannot make sense of some of the information you have been getting.
Your lawyer advises you that the Chinese electrical component you have been buying for years is sourced from a company that is strongly suspected of forcing members of the oppressed Uyghur population, as well as children, to work for them. That is “forced labour,” often referred to as “modern slavery,” and runs afoul of Canadian, U.S., and EU laws.
You had no idea. You are shocked.
Then you learn that you cannot complete the sale to your new Chinese customer because the company is 75 percent controlled by a shareholder who is subject to economic sanctions by the United States and the EU, and the law forbids you from completing the sale to them.
Clearly, you cannot finalize the sale, nor can you use the Chinese supplier who likely employs forced labour. You do what you believe is the right thing by finding a new supplier, even though this will cost you more, and you cancel the sale to the Chinese company.
You have complied with the law and abided by your ethics, even though these decisions have increased your costs and reduced your sales.
Catch-22.
In April of this year, the People’s Republic of China adopted Orders 834 and 835, which added bite to a previous Chinese law adopted in 2021, and which make it illegal to adhere to foreign laws that threaten damage to Chinese firms.
Just the act of conducting due diligence on Chinese firms—collecting information about their ownership structure to assess whether sales to the firm are prohibited or to estimate the risk that the Chinese firm uses forced labour—is itself non-compliant with the Chinese law. Deciding not to deal with the Chinese firm is also non-compliant.
Under this law, the Chinese firm threatened with harm can sue you and your business in a Chinese court, your business may be subject to countermeasures, and you can be barred from entry into China. There are a host of other remedies the Chinese government and the threatened Chinese firm may pursue.
Chinese authorities have historically not enforced the 2021 law over the past five years, but the 2026 amendments have not only better defined the scope of these laws but have also decentralized the enforcement mechanisms, increasing the risk of exposure. Forced labour laws in Canada, the EU, the USA, and elsewhere have also become impactful, with businesses more frequently diverting their supply chains from China to elsewhere. This has now created an economic incentive in China to more forcefully enforce its anti-foreign sanctions legal regime. The risk profile is worsening.
Fortunately, your imaginary business is too young to have acquired any assets in China, so a paper judgment against you there is not likely to affect you. However, even though this is not a criminal offence in China, you may want to consider postponing that trip to the Great Wall you were planning next summer, even if you can get a visa. For if permitted into the country, will you be permitted to leave?
Catch-22.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
