Part-time employeesChina employment law have their own special issues in China and for that reason their employment contracts require special care. The following provisions are usually required in part-time employment contracts:

  • The working hours
  • The term/duration of the employment agreement
  • A description of the work the part-time employee will be performing
  • The part-time employee’s wages
  • Applicable labor protections and labor conditions

But as is true of so much regarding China employment law, the laws and the requirements for part-time employees tend to be very local. Nonetheless, there are a number of issues that regularly need resolution when drafting a part-time employee contract, including the below:

Working hours: You should specify your part-time employee’s working hours in the employment contract and make sure the specified hours do not exceed the legal maximum. In most places in China, this means your part-time employee’s working time cannot exceed either 5 hours a day or 24 hours a week. Since it is possible for a part-time employee to incur overtime your company should have a written policy on how your employees (both part-time and full-time) should record and report their working hours. If you have nothing in writing on this, you are setting yourself up for disputes regarding overtime payment.

No probation period is allowed for part-time employees. We constantly see China employment contracts with illegal probation periods and/or a lack of clarity regarding the term of employment. These sorts of ambiguities increase both the likelihood of an employee-employer dispute and the likelihood of the employer losing such a dispute.

Wages: Many places in China (e.g., Beijing, Shenzhen) mandate a 15 day payment cycle for part-time employees, which differs from the rules for full-time employees who are usually paid monthly. These required payment cycles cannot be contracted away and employer’s are legally obligated to pay their employees in full and on time and late payments can subject employers to administrative fines and other regulatory and litigation risks. In addition, as with full-time employees, the salary you pay to your part-time employees must meet all national, provincial and local minimum wage requirements.

Social insurance contributions: Though most places in China do not require employers to make the full range of social insurance contributions for their part-time employees, we are unaware of a municipality that does not mandate at least one type of social insurance for part-time employees. This means you need to formally enroll your part-time employee in government required social insurance program, and paying them with cash to cover their own social insurance (no matter how generous you are) will not cut it and do not believe anyone who tells you otherwise on that, and plenty of people will.

Annual paid leave: It’s generally okay to not provide annual paid leave for part-time employees, but be careful because this is not true of all locales. You need though to make sure that your documents on this are consistent. For example, if your rules and regulations state that employees are entitled to annual paid leave and there is no clear language on what document will control, you will probably need to give such a paid leave even if your employment contracts provide otherwise. It would certainly not hurt you to go search out and then root out any inconsistencies in your employment documents.

Termination: Just as is true with full time employees, ignoring required formalities and procedures in handling employee terminations will be done at your peril.

Oh and one last thing, you want all of your employment contracts to be in both Chinese (the official language) and in English so all your personnel will be able to refer to them in making employee decisions.

China manufacturing contractA houghtful and helpful blog post over at the Dragon Innovation Blog, entitled, Recalls, Returns and Failures: Let History Be Your Guide. This post is geared to companies that have their hardware made in China, but its words of wisdom apply to the manufacturing of pretty much any product in China.

The post starts out by emphasizing the need to focus on how your product may not work as promised and how product defects can harm your company, perhaps even bankrupt it:

When it comes to quality planning, hardware startups tend to spend most of their time working on ensuring that a product will work as promised however many teams do not spend significant time addressing the subject of how the product will not work as promised. Returns, return logistics, and possible recalls can be financially devastating especially in the early life of a product. What may appear as a small change in warranty rates can have significant impact on a company’s bottomline and financial viability.  For example, if a company assumes a $250.00 total cost, $50.00 margin and sales of 100,000 units per year, a change from a 5% to a 7.5% warranty rate can decrease profits by 17% and increase working capital by $50,000. A recall or major quality failure can easily bankrupt a company.

It goes on to advise that you figure out the what if scenarios for your product and then include those factors in your design process as early as possible. It then lists out various tools and techniques you can employ to tease out potential product problems. It even lists out the “major root causes” of recalls, including the following:

  • Loosening of joints/connection
  • Small parts or magnets swallowed by children
  • Not following or adhering to federal safety standards.
  • Pinch, cut or severing risks for fingers
  • Breaking/cracking or other failure
  • Overheating
  • Battery failures
  • Excess material or insufficient material
  • Small pieces or magnets falling off
  • Poisoning

If you are looking to have your product(s) made in China, I urge you to read this post. And to further protect against product defects — especially those that are the fault of your Chinese manufacturer — I urge you read the below posts on China manufacturing contracts as well:

 

 

China employment lawyerAt the beginning of every year, our lawyers receive hundreds of emails from both employees and employers (clients and non-clients) doing business in China. The questions often involve employees who want to change jobs or employers who are having a hard time understanding China’s employment laws.

Unfortunately, we can rarely provide instantaneous answers to their questions. In addition to the complexity of Chinese law at the national level, there are seemingly endless legal twists and turns at the local level as well.

For example, one of our regular blog readers asked about issues related to volunteering for a company that was not his employer. He worked for a U.S. Wholly Foreign-Owned Enterprise (WFOE) and had a residence permit. His questions included:

  • Do I need a certificate or other documentation to allow me to volunteer at the company one day a week?
  • Do I have to ask my current employer for permission to volunteer at another company?
  • If the company decides to start paying me for my work, would that interfere with my relationship with my existing employer?

Another asked whether her employer was justified in terminating her while she was three months pregnant and gave her two months severance. She wanted to know whether her employer was within its rights and whether she should sue it.

Though these sorts of emails may seem to pose straightforward questions, here’s just a sampling of the information our China employment lawyers would need before being able to provide any meaningful guidance:

  • We’d need to know the name and location of his employer and run a conflict check on that company.
  • Since employment laws in China often vary greatly from city to city, simply understanding the laws in an unfamiliar city can require extensive research.
  • A key aspect of understanding local laws and regulations is actually discussing them with the appropriate governmental authorities.
  • The specific contract with the employer would also have to be reviewed in detail.

As you can see, there’s almost no such thing as an easy question when it comes to labor laws in China.

Our firm’s Dan Harris wrote an article for Forbes Magazine last year on China’s Hourly Work Week: Think Locally, explaining how something as seemingly simple as the 40-hour workweek trips up employers that don’t take the time to learn the ins and outs of local employment laws. Do your research before making employment moves and don’t make the mistake of believing it will be easy.

 

US-China trade warTo say that my law firm’s international trade law team has been busy lately would be like saying the Great Wall of China is long. They have been crazy busy because the United States has gone wild with trade case against Chinese companies and their U.S. importers — and against other countries and their importers as well.

If you import products from China, listen up.

US Importers of Record are liable for antidumping and countervailing duties tied to the product they import. The Importer of Record is the company listed in Block 26 of the U.S. Customs 7501 form.

Under US Antidumping, Countervailing Duty and Customs laws, the Importer of Record must exercise reasonable care in importing products and in filling out Customs forms. The Importer of Record must correctly state a product’s country of origin and also whether Antidumping and Countervailing duties apply to the imported product. A knowingly false statement on a Customs form constitutes criminal fraud.

If AD or CVD rates go up in a subsequent review investigation, the Importer of Record is retroactively liable for the difference, plus interest. Retroactive liability for AD and CVD cases is a particular problem involving goods imported from China because the United States treats China as a non-market economy country. Since China is a non-market economy country, the U.S. Commerce Department refuses to use actual China prices and costs to determine whether a Chinese company is dumping. All this makes it nearly impossible for U.S. importers to know whether it is bringing in dumped goods. See Don’t Get Crushed When You Import.

In the last week or so, the Trump trade war has escalated big time with new U.S. antidumping and countervailing duty cases being filed against Mechanical Tubing, Tool Chests and a new Section 232 National Security case against all Steel imports. These trade cases move and at warp speed and that means that if your company shows up as the producer or the importer on any of these cases, you have no time to waste. A brief summary of each of these three cases follows.

 1. Cold-drawn mechanical tubing from China, Germany, India, Italy, Korea and Switzerland. On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

  1. China: 88.2% – 188.88%
  2. India: 25.48%
  3. Italy: 37.23% – 69.13%
  4. Germany: 70.53% – 148.32%
  5. Republic of Korea: 12.14% – 48.61%
  6. Switzerland: 40.53% – 115.21%

The cold-drawn mechanical tubing covered by the complaint is used to produce numerous different products in the United States, including auto parts and machinery.

The United States International Trade Commission (ITC) will conduct its preliminary injury hearing on May 10, 2017 and US importers’ liability for countervailing duties on imports from China and India will start on September 16, 2017, and Antidumping Duties will start on November 15, 2017. Antidumping and countervailing duty orders can last for 5 to 30 years. These sorts of duty orders can and often do mean the end of U.S. imports and sales for many of the named companies, especially those that do not fight the cases against them from the very beginning.

2. Tool chests from China and Vietnam. On April 11, 2017, Waterloo Industries Inc. filed Antidumping and Countervailing Duty cases against hundreds of millions of dollars of imports of certain tool chests and cabinets from China and Vietnam. The ITC will conduct its preliminary injury hearing on May 2, 2017 and US importers’ liability for countervailing duties on imports from China and Vietnam will start on September 8, 2017 and for Antidumping Duties on November 7, 2017.  

3. National Security Section 232 case against steel imports from many countries, including China. On April 20, 2017, President Trump announced a new trade investigation of steel imports under section 232 to determine if tariffs should be imposed because increased steel imports pose a threat to national security. If the United States Department of Commerce determines that steel imports are a threat to national security, President Trump will be empowered to levy high tariffs and quotas on imports of steel products from various countries. Under Section 232, the Commerce Department will investigate the potential national security threat posed foreign steel entering the U.S. market and then issue its findings and recommendations  to the White House. Once Commerce completes its review President Trump will have 90 days to decide whether to accept or reject its recommendations and to impose trade restraints, including tariffs or quotas on steel imports.

If your company has been named in any of these three cases and you want to avoid having to pay massive duties and/or just walk away from the U.S. market for five to thirty years, you need to start organizing your defense NOW.

China LawyersWe created a China Law Blog Group on LinkedIn to provide a spam-free forum for China networking, information and discussion. We are nearing 11,500 members and the number and — most importantly — the quality of our discussions continues to increase as well.

We have had some great discussions, as evidenced by their numbers (discussions occasionally get more than one hundred comments) and their substance. Our discussions range from the practical (“how do I open a China bank account” or ”what do I need to do to comply with China’s new work visa policies for foreigners” or “what are you hearing about China’s crackdown on xyz?”) to the ethereal (“when will China surpass the West in innovation?”)

The group’s diversity is its greatest strength. We have a large contingent of members who live and work in China and many who operate businesses there. Our LinkedIn Group also has many members who do business with China from the United States, Australia, Canada, Europe, Africa, the Middle East and from other countries within Asia. Many of our group members are China lawyers (both inside and outside China and both in-house and with private law firms) but the overwhelming majority are not. We have senior personnel from large and small companies and a whole host of junior personnel as well, again, both within China and outside China. We have professors and we have students of all levels. This mix helps inform, elevate and enlighten the discussions.

Perhaps of most importance is how we block anything and everything that resembles spam. We have become so proficient at this that virtually nobody even tries any more to inject spam into any of our discussions. Many of our members have commented on how much they appreciate our vigorous no-spam policy. I assure you that will never change or even moderate.

If you want to learn more about doing business in China or with China, if you want to discuss China law or business, or if you want to network with others doing China law or business, I urge you to check out our China Law Blog Group on LinkedIn and join up. The more people who do join our China Law Blog LinkedIn group, the better our discussions. Don’t be shy; click here and join us!

And if you are a Facebook person, we can accommodate you there as well and I urge you to check out our rapidly growing China Law Blog Facebook page. Our focus there is on anything and everything that is China relevant. Our goals with our Facebook page are to entertain and to educate and to highlight issues that for various reasons we cannot discuss elsewhere; our Facebook page most certainly does not shy away from controversy. It also most emphatically covers more than just China law and China business. We post on China politics and diplomacy, China culture and history, China travel and tourism, China food and fashion. We post on pretty much anything we find interesting that day. And we give a lot of rope to the comments and that means we sometimes (like just this morning) get complaints about them from our readers. But we are of the view that you are big kids and recognize that it is not our role to protect you from what others might say. We are rapidly approaching 17,000 “likes” of that page (and growing at approximately 1,000 a month) so so we must be doing something right. Anyway, please check out our Facebook page too, by clicking here.

And last and least, after a three year hiatus, I went back on Twitter and I even every so often post on there as well. Click here for that.

China employment lawyerTo understand China’s labor and employment laws, one fundamental premise to understand is that an employer and an employee are not considered equal parties under the law. The law provides the employee with more protections because it’s presumed that the employer is the more powerful party. A lot of employers (Chinese or foreign) do not understand this. Among other things, two important rules that stem from this premise should be noted:

  1. Many China employment laws cannot simply be contracted away.
  2. Employers (NOT employees) bear the burden of many things under China employment laws.

I talked about #1 before, so I will discuss #2 today. To give you an example, let’s consider a hypothetical based on a question our China employment lawyers regularly get asked. A China employer hired an employee about 13 months ago. The employer kept asking the employee to sign a written employment contract and the employee refused to cooperate. The employer thinks it is the employee’s fault for her not having a written contract. Can the employer now terminate the employee?

To be clear, when we receive this type of question from prospective clients, we need to first make sure there is no conflict of interest. And we really can’t even start to answer this question without gathering up more facts. However, for purposes of the discussion here, I am going to assume a lot of things, and just to name a few here:

  • the parties are in a pro-employee jurisdiction;
  • the employee is not the head of the employer’s Human Resources department nor is she otherwise in charge of making sure all employee agreements are duly executed;
  • the employer did not document its efforts in asking the employee to sign a written contract;
  • there is truly no written document between the parties that can be deemed an employment contract for purposes of China’s labor laws;
  • there is no legal ground to terminate the employee.

Before I give my analysis, here is a super quick review of the law: China employers must have written employment contracts with all of their full-time employees. If an employer goes more than one month without having a written employment contract with an employee, the employer will be required to pay the employee double the employee’s monthly wage and immediately execute a written employment contract with the employee. If the employer goes more than one year without having a written employment contract, it will be deemed to have entered into an open-term employment arrangement with that employee and is required to sign a written contract with her to the same effect.

So, what has the employer done wrong? The below is an non-exhaustive list:

First, it did not deliver a notice of its intent to execute a written employment contract within 1 month after the employee’s commencement date. The burden is on the EMPLOYER to remind the employee that the parties need to enter into an employment contract before it is too late. The employee does not have this burden. If all the employer did was to ask her orally, it does not meet the legal requirements. The fact that the employee acted in bad faith by refusing to cooperate (assuming the employer can meet its burden of proof on this) is generally not going to be relevant.

Second, it did not terminate the employment relationship by the end of the first month, but instead retained the employee without a written contract. The employer may argue that it tried and that it had no way to force its employee to sign a legal document. Though true, the employer should have terminated the employee before the one-month period elapsed. And by termination, I mean it should have issued a formal written notice stating the reason why it had to terminate the employee in accordance with Chinese law.

Third, the employer still has no written contract in place for its employee. The employee has been converted to an open-term employee by law because she has been employed for so long without a proper written contract. Once her status has changed to becoming an open-term employee she has essentially become a lifetime employee and the employer must immediately execute an employment contract reflecting the new open-term employment arrangement. Failure to do so will subject the employer to legal and regulatory risks.

Finally, because there has never been an employment contract, the employer has failed to fulfill its obligation to maintain the employee’s employment contract on file for two years after employee departure. This means that even if the employer can find a legally permissible ground to terminate the employee (unilateral termination is probably not a good idea here), the employee’s termination will likely cause problems for the employer. An audit by the labor authorities will turn up this issue and the employer will likely face penalties for this noncompliance.

Bottom line: Oftentimes employers think they have done everything they are supposed to do with their employees but they haven’t. At least not according to China employment laws. And blaming employees for employer shortcomings is virtually never a solution because the Chinese authorities and courts will not side with you. Still think you are in compliance with China’s employment laws? Maybe you need to think again.

 

 

 

 

China WFOE complianceWhen I was in high school, a friend got a job at a liquor store, and was often asked to work there by himself. Soon enough, word got around and (human) nature took its course, as the store became extremely popular with a certain segment of the school. My friend hadn’t sought or even anticipated this sort of attention; he was 16 years old and just wanted some extra cash. But when the store got cited for multiple infractions, it came as no surprise to anyone. As my friend observes to this day, “What sort of business owner lets a teenager run a liquor store by himself?”

I was reminded of this story when I read the news that Disney had terminated Meng Dekai, International Special Project Director in China, upon discovering that he had signed numerous unauthorized deals for new Disney projects in provincial cities that few people outside China have ever heard of, including Zhengzhou, Hefei, and Baotou.

Meng had been at this since at least 2009, and in addition to signing deals on behalf of Disney, it came out that Meng had also formed a number of companies with names similar to Disney’s Chinese name and registered a number of trademarks that were similar to those registered by Disney.

It’s unclear what Meng’s master plan was. Yes, Disney knockoffs are rampant in China, notwithstanding the Chinese government’s one-year campaign (tied to the opening of Shanghai Disneyland last year) specifically designed to combat counterfeit Disney products. But it’s one thing to sell knockoff Mickey Mouse backpacks at a mall in Nanchang, where you could clear out in a day if you had to. It’s quite another to build and operate a theme park. Even if Meng received massive kickbacks from the local governments, it’s hard to imagine how he expected to get away with this. It’s also hard to understand why government officials of these lesser-known cities bought the snake oil Meng was selling.

When the China practice group at my firm saw this story, we just shook our heads ruefully, because this is the same problem, writ large, that we see all the time when companies go to China. Once companies have established a presence in China (e.g., a WFOE), a foundational question is: how are they actually going to do business in China, and who will have the authority to act on their behalf?

We regularly conduct audits of firms’ China operations, and the disconnect between the parent company and the WFOE can be shocking. We regularly turn up everything from FCPA violations to employees who cannot be terminated because they were engaged without written contracts to company seals that have been missing for years. And pretty much once a month, we hear from an American or a European company that has just learned (usually via an anonymous email) that one of its employees (usually a trusted senior employee) is secretly operating a competing business on the side. Sometimes though there’s no bad intent on behalf of the Chinese employees; it’s just that there’s no clear oversight and they are operating the “Chinese way.” This is a recipe for disaster, even under the best circumstances. And if you’ve got someone untrustworthy holding the reins in China, things can go from bad to worse in a hurry. See also China Compliance: Don’t Rely on Your China Staff and China Compliance: Don’t Rely on your China Staff, Part II.

Many foreign companies are in a quandary because of personnel or geography or both: they want to have one of “their” people managing operations on the ground, but none of “their” people are willing and/or knowledgeable enough to move to China. And so they end up delegating authority to a Chinese employee who is unprepared and/or unwilling to manage the operations in accordance with the parent company’s wishes.

It’s an awkward situation, and made worse by the quirks of Chinese corporate law, which require every WFOE to decide three things:

  1. the identity of the legal representative, a person with the ability and obligation to act on behalf of the WFOE;
  1. the identity of the general manager, a person who is in charge of the WFOE’s day-to-day operations; and
  1. the location of the company seal, a physical artifact that makes a document legally binding on the WFOE.

The most efficient solution is to appoint a single person as the legal representative and general manager, and have that person be resident in China and in possession of the seal. But this solution places a tremendous amount of authority with a single person, and many foreign companies are understandably reluctant to do so unless they have someone in China that they trust implicitly. As a result, the typical solution is that the legal representative is an employee of the parent company who lives outside China but is tasked with overseeing Chinese operations, the general manager is a Chinese national who lives in China, and the seal is held by a trusted third party in China like an accountant. Yes, it’s as inefficient as it sounds, but it’s usually better than the alternatives. Many of these problems have their genesis when the WFOE is formed without any legal advice on how to handle (and mitigate) these three decisions.

I don’t know what sort of contracts Mr. Meng signed on behalf of Disney, but they better hope he didn’t have access to the company seal and wasn’t the legal representative of the Disney entity he was representing. Right now, this story is just bad publicity, but it may end up costing them millions. And (because every good China Law Blog post ends with a moral) it’s also an instructive story for every company operating in China. How much do you really know about what’s going on in your Chinese office?

China lawyer China attorneyAmerican and occasionally European law students and recent law school graduates are always contacting our China lawyers to ask what they must do to become international lawyers focused on China law. My advice to them is usually a somewhat rambling dissertation on the need to build a solid legal foundation while constantly working on improving your Chinese language skills. I then talk about how almost every lawyer I know just fell into/morphed into their practice area after many years as a lawyer. I always get the sense this is exactly what these law students/young lawyers do not want to hear.

They want specifics and I am giving lectures on following one’s heart, foundations, basics, training, morphing, and luck. They want to become a China attorney tomorrow and I tell them how if they follow an unclear and difficult and convoluted path they might become one some day.

Here then are some specifics, some of which are my own ramblings and some of which were purloined and appropriated from others.

Career Paths 

Many international firms in mainland China seek attorneys with American or British law degrees and high level Chinese language skills, but for various reasons, it is difficult to enter the China legal market without previous experience in the United States or the UK.

It is important to note that Westerners generally cannot become licensed China lawyers; they can only become Foreign Representative Attorneys.  and there is a law requiring Foreign Representative Attorneys have at least two years’ experience in another jurisdiction before they can work in China. Many lawyers get around this by splitting their time between another jurisdiction (including Hong Kong) and China. If you spend 6 months + 1 day in the other jurisdiction and the rest of the year in China, that will count as a year in another jurisdiction. If you do that for two years, you are eligible to work in China as a Foreign Representative Attorney. You still cannot “practice” law in China, but you can work there.

Generally, the best way to do this is to spend your first few years practicing law at a major US London law firm and then go to China to practice for a couple more years. This way you bring an American or British legal education and the requisite high level law firm experience. Even if your Chinese is excellent, your added value to a law firm in China is your American/British legal background. If you go to China immediately after graduation you cut into what you can offer. It is important to note thought that the real key to increasing your value as a foreign lawyer doing China law is to be able to read and write in Chinese. Being able to order a beer or discuss the weather in Chinese is great as a tourist, but nearly meaningless as a new lawyer whose chief job is usually to research and analyze written laws and contracts.

On the other hand, there is something to be said for going to China right after law school. Ten years ago if you went immediately to China you would arguably be ending your legal career before it began. I know a ton of fine lawyers who went to Japan or to Korea or to China and spent decades in those countries and by doing so became virtually unemployable as lawyers in the United States. Globalization is changing this rapidly, but it is still a little risky and I frankly do not know the current situation well enough to advise anyone. I have heard though that if you don’t want to be a partner at a major law firm, going to China first is probably fine. However, if you are looking for an American legal career, It is probably still best to stay in the States for at least a couple of years after graduating law school.

Law Schools

Speaking of law school, one of the more common emails our China lawyers get comes from law students and potential law students, asking us what they should start doing now to prepare themselves for a career practicing China law. My advice on that is also probably a bit too Zen-like for their tastes, but here goes. Get into the best law school you can, not in China. Take as many corporate and intellectual property and private international law courses as you can. Get the best grades as you can. Travel as much as you can. Hone your Chinese language skills as much as you can. Hone whatever other foreign language skills you have as much as you can.

Lately, I have been getting many emails from people who are already working in China in non-lawyer jobs, asking about getting a law degree from an English language law school program tied in with a Chinese law school. My response to them is to ask what that degree will allow them to do once they complete it, because it is my understanding that it will NOT allow you to practice law in either China or the United States. If anyone believes I have this wrong or if anyone is aware of a country that does permit a graduate with one of these degrees to practice law, please let me know via a comment below. See also China “International” Law Schools???!!!!

           Requisite Traits

Practicing law tends to require certain traits. Practicing law in China or even with China also requires certain traits. Far too many people get into law when it is not suited for them and they end up unhappy. You should passionately want to become a lawyer or not bother. You should passionately want to become a China lawyer or not bother.

The book, China CEO: Voices of Experience from 20 International Business Leaders, lists the traits CEOs seek in their expat managers for China and these traits are pretty much the same traits needed to be a good international lawyer or a good China lawyer.  Here is the list, with my comments in italics:

  1. Technical and Corporate Expertise: Select people with a rock-solid professional background and an excellent knowledge of the company.In the legal arena, this means smart people who understand complex legal issues, no matter what the country.  
  2. International Expertise: A posting in China becomes vastly more manageable after an assignment either in an Asian location or another developing market, or both. The key here is that the person who has spent time in another country tends to be better equipped to deal with other countries, including those countries to which he or she has never been. I have seen this time and again with both lawyers and clients. We have many clients who when their business dried up in one country moved nearly effortlessly to another country. We also see domestic companies that simply cannot make the leap to go international at all, even when they should. What you learn in one country (but obviously not everything) will help you in another country.
  3. Multicultural Mindset:When selecting an executive for an overseas posting, look for someone with an adventurous spirit, a sense of humor, and an open mind. This also applies to lawyers.  n an article I wrote a long long time ago on doing business in emerging market countries, I wrote on how doing business in an emerging market means taking nothing for granted:

I have a mantra for my own legal work in these countries that translates well to the business world: ‘Assume nothing, but assume that you are assuming things without even realizing you are doing so.’”

Things will be different. Very different. Things you take for granted in your home country might not exist in the emerging market country. Things you take for granted in your home country might be the exact opposite in the emerging market country. Things you think will be totally different in the emerging market country may be exactly the same. Things you thought you knew about emerging market countries based on what you know from another emerging market country may be completely different in a neighboring country, or even in another region within the same country.

The principle, one more time: Keep an open mind, and assume nothing.

  1. Commitment to Learn: Learn from those around you. Listen to your employees, JV partners, clients, and customers. This is equally true for international lawyers. 
  2. Humility: Be humble and avoid using an authoritarian style. Influencing and coaching is the way to get the best out of your Chinese employees. Of course. This is also the way to get the best out of the lawyers in other countries with whom you will be working.
  3. Strength: Be unyielding in defending core corporate values and culture. In the legal context, this means doing things by the law, even if you see others around you not doing so. This also means always telling your clients the truth.
  4. Patience: Be patient; use a step-by-step approach in China, not a Big Bang approach. I will borrow again from my emerging markets article:

Exercise Extreme Patience.  This principle stems from the maxim that everything takes twice as long as you think it will. If it takes twice as long in the West, triple that in emerging market countries. You’ll go in both as a businessperson and a teacher — and in both roles, the learning curve of your partner will almost certainly take way more time to deal with than you think.

For example, many emerging market countries have a history where “bad business” meant “thinking long-term.” A year or two after the fall of Soviet communism, I was involved in a matter where an investor put $250,000 into a Russian joint venture. The business very quickly was making good money and all indicators pointed towards steadily increasing profitability. But, quite quickly, the Russian company stole the $250,000. Was it so irrational for him to think so short term in a country where the government and tax systems had such a history of unpredictability?

  1. Guanxi-BuildingBuild your guanxi not only internally (with subordinates, peers and superiors) but also externally with clients, suppliers and government officials). A strong guanxi network is a fundamental element of your success in China. As a lawyer, both you and your practice will benefit by your doing more than just staying in your office poring over law books. Get to know your clients, your fellow lawyers, good people in the industries in which you are working, and treat them with respect. This is basic good business for anyone. An international lawyer friend of mine (with a great international law blog) recently sent me a very popular and highly regarded book, The Go-Giver, Expanded Edition: A Little Story About a Powerful Business Idea, that expands on this in all (not just China) contexts. I highly recommend this book to anyone contemplating a career in law or in business. Lawyers who succeed widely generally work well with others. 
  2. Speed: Be flexible and quick. Stay well informed; the business environment in China is in a constant and rapid flux, probably much more so than in other markets. This is true of international law as well, and if one is going to practice in this area, one must enjoy and thrive on constant change and even constant uncertainty. You need to be prepared to work tirelessly just to keep up.

 

Are you Sure?

A few years ago, a law student emailed me a link to a Quora question and answer session on what it takes for someone to succeed in working for a company in China as a foreigner. The law student specifically referred to answers given by David Wolf and asked whether those things apply to China lawyers as well. They most certainly do.

The specific question on Quora was “What are the key skills needed to succeed working for a company in China as a foreigner?” David Wolf’s excellent answer shows as number one because the highest number (including a number of prominent China bloggers) voted it number one. Wolf’s answer was that “as someone who has hired on behalf of large and small companies here in China, I can tell you the kind of young foreigner who gets hired has most or all of the following: (my comments are in italics)

  1. Chinese language skills: Language is the key to culture, and if you don’t understand the culture here, you aren’t going to add much value, and you’ll be gone within 2-3 years. Sure, a lot of people speak English, and it is easy to operate in an English bubble in larger companies. But the better your Chinese and the better your appreciation for the culture, the better you’ll fit in. For lawyers, being able to read and write a language are more important than being able to speak it and law students need to realize this. Being able to order a beer in Chinese is great, but being able to read and analyze Section 308 of such and such code and being able to read a ten-page contract in Chinese in the same amount of time it would take you to read it in English is what law firms need.
  2. Communications skills: industry specific knowledge and skills can be learned. You need to come in with the clear ability to express yourself in both written and spoken form. Absolutely. Want to piss off a client?  Send them a long email giving them six options without making any recommendation. Want to make a client happy?  Send them an email clearly explaining and ranking their best three options.
  3. An ability to roll with the punches: operating in a cross-cultural environment is trying at the best of times, and at the worst of times would test the patience of a saint. If you are high-strung or expect things to work the way they’re supposed to all the time, don’t even get on the plane to come here. This is particularly true at smaller law firms and companies and this is a crucial element in my law firm’s hiring at all levels. One of our lawyers began with us as a legal assistant and we hired her for that position because she had great marks as a cocktail waitress at a Vegas casino. We figured if she could keep her cool while dealing with a bunch of drunk losers, she could keep her cool in a fast-paced office. We once hired a receptionist who had been the interface between a private school and the students’ parents because we figured if she could deal with parents who are wildly concerned with their kids, she could deal with clients who are wildly concerned about their legal matter. I love asking potential hires about their travels and I do so because I want to know if they like going to the same ski resort every year or prefer going to remote villages in Guatemala (which was true of another of our legal assistants). The person who treks to Guatemala in his or her spare time has learned to roll with the punches.
  4. A very clear idea of what you offer that is hard to find or is unobtainable from among your Chinese peers, and the ability to express that well. If you can’t tell me in 50 words or less what you have that I need but I can’t get from a fresh Tsinghua University graduate, you are wasting your time and mine. If a potential hire cannot pitch me on his or her skill-set, it is unlikely they will be able to instill confidence in our clients.
  5. Passion for the business that is so real that others can feel it walking into the room. If you interview with me and I think you have not spent hours poring over our website or that you are talking to me just because you want a job (as opposed to this job), you have no chance. I stretch this even further by wanting to see passion in other things as well. I want someone who shows passion for something and I do not care what it is. Passion translates. The last kind of person I want to hire (for a million reasons) is the person who just doesn’t seem to care about anything.
  6. Integrity: Like few other places on the planet, China will test your character and your ethics. If you do not know when or how to stick to your principles when the chips are down, you’re part of the problem. This is in many respects everything. The lawyer-client relationship is based on trust and it cannot work without it. 
  7. Excellent project management skills: This is something in fairly short supply among people coming out of school in China, and it is expected from expats. This is very important, but in law there is generally a high correlation between high grades and the ability to develop these skills.
  8. Creativity: I don’t mean Pixar-style creativity, but the ability to come up with new ideas, to not only think outside of the box but burn the box altogether. Far more important for the law than most law students realize, and more important in an international context than a domestic one.
  9. Last and by no means least, a demonstrated commitment to China: Most hiring decisions for China and Asia positions — even for multinational companies — are made on the ground here in the region. If anything, this is more the case now than it was a decade ago, as most firms have so expanded their operations in the region that the Asia HR function is managed separately. See number 5 above.

Go forth and prosper.

China law and business eventOn Tuesday, April 18, I will be speaking on China IP at the Global Sources Summit in Hong Kong. This summit is designed to teach entrepreneurs and small businesses how to create and build an Amazon FBA (Fulfillment by Amazon) business. In 12 Business Conferences In China You Should Attend, Bay McLaughlin McLaughlin in Forbes Magazine describes it as follows:

This popular summit shows entrepreneurs and small businesses how to create and build an Amazon FBA (Fulfillment by Amazon) business. You’ll learn actionable strategies to grow your Amazon seller business and get insider tips on successful China importing. With over 3,000 booths this conference in huge! It will be held April 17-19, 2017, in Hong Kong.

I will be speaking Tuesday, April 18 on “How to Protect Your IP From China, Especially From Your Own Manufacturer,” focusing on the following:

  • How to choose the right China manufacturer
  • How to identify the IP assets you need to protect
  • How to structure your China manufacturing deal
  • How to draft your China manufacturing contracts to protect your IP
  • What you should know about trademarks, patents, copyrights, and licensing agreements
  • What to do when you’ve been copied

You can register for the Global Sources event here.

I will then cross the bay to speak in the middle of the afternoon on April 21 at Global From Asia’s Cross Border Summit, whose theme is “Grow Your Business in Asia.” This event too made Forbes Magazine’s top 12 for China list and Forbes justifies this choice as follows:

Held in Shenzhen, China, on 21-22 April, 2017, this event encourages international participation among industry leaders in cross border commerce between China and the rest of the world with content related to marketing, management, manufacturing, and technology. There are numerous roundtable discussions and networking sessions to encourage collaboration and idea generation. This event is hosted by Global From Asia, which also has a fantastic podcast about doing business in China.

My talk will be on “Global IP, In and Out of China: Protecting your brand via trademarks, inside China and globally.” You can register for the Cross Border Summit here.

Both events have a plethora of great speakers and I hope to see you at one or both of them.

international Trade lawyersEmboldened by President Trump’s promise of tougher enforcement of U.S. trade laws, a fresh wave of new antidumping and countervailing duty (AD/CVD) petitions were filed in March by domestic U.S. industries seeking relief from imports. The petitions cover five products (silicon metal,  aluminum foil, biodiesel fuel, wire rod, and carton closing staples) from all over the world from Argentina and Australia, to the UAE and UK. And of course, China. These petitions will trigger 25 separate AD/CVD investigations at the Department of Commerce.

However, one of President Trump’s first executive orders was to freeze hiring of any new or replacement federal government employees.  If this hiring freeze continues, the Department of Commerce (DOC) may not have enough manpower to administer all these new AD/CVD cases. The DOC already has about the same number of on-going investigations that must be completed, along with an even bigger number of administrative reviews of all the existing AD/CVD orders that are still in effect. For each case, a DOC case analyst and attorney must draft and issue multiple rounds of questionnaires, review the responses and comments submitted, analyze all the issues raised, calculate AD/CVD margins, and draft decision memoranda.  All these necessary tasks require a certain minimum amount of time to be completed. Without reinforcements, the expanding new case load threatens to stretch the DOC trade remedy team well past a reasonable or manageable work load.

Nine U.S. Senators have already asked President Trump to lift the hiring freeze for trade enforcement personnel at a variety of agencies such as DOC, Customs and Border Protection, USTR, and Department of Justice. They specifically noted that these agencies have been tasked with more extensive trade enforcement responsibilities, but the hiring freeze would have the effect of reducing the resources available for such enforcement.

Since the hiring freeze does not apply to military personnel or those deemed essential to security, maybe President Trump will find trade enforcement is essential to national security or carve out some other exception to allow new hires for the DOC and other trade related agencies.  But if the DOC cannot hire enough personnel to administer cases properly, then perhaps it will develop leaner and meaner ways to handle these new AD/CVD cases. That is the fear of the international trade lawyers at my law firm and elsewhere, and it should be the fear of any company, Chinese or otherwise, that finds itself caught in the crosshairs of an AD/CVD petition.

For example, DOC may now try to decide more cases based on applying total adverse facts available (AFA), after finding the respondent exporter or producer to be non-cooperative because their questionnaire responses are deemed untimely or inadequate. Making this sort of finding will allow the DOC to avoid crunching all the submitted sales and cost data to get AD/CVD margins that often are not that high (particularly for non-Chinese market economy cases). This will give the DOC the highest AD/CVD margins possible with the least amount of work if the exporter/ producer gives up or is given a death blow.

Even if a respondent survives the questionnaire process and avoids a total AFA determination, the DOC now can generate higher AD/CVD margins by applying a new trade law provision which allows it to find a “particular market situation” justifying an upward margin calculation adjustment. This is what Peter Navarro, head of the newly formed National Trade Counsel, recently urged Secretary of Commerce Wilbur Ross to do in an on-going administrative review of Korean OCTG oil drilling pipe. In that case, Navarro and the domestic pipe producers wanted the DOC to make a “particular market situation” finding the Korean pipe producers benefited from subsidies embedded in their purchases of Chinese steel. Navarro relied on a “logical” presumption that the Chinese steel subsidies of 60% found in a prior unrelated case would be passed through to benefit the Korean pipe producers to generate a margin of at least 36%. Navarro’s back of the napkin calculation lacked even a napkin to support the calculation. Respondents in that case complained that Navarro’s email was an unprecedented intervention and an overt suggestion that DOC calculate a politically acceptable but factually unsupportable AD/CVD margin.

U.S. AD/CVD cases have long had a reputation for being more objective and fact/data intensive than those conducted by most other countries. But if political pressure and personnel limitations push DOC to make more arbitrary AFA determinations or politically motivated findings of a “particular market situation” U.S. trade remedy cases will soon lose any advantage of perceived objectivity or credibility. The Department of Commerce already has significant discretion to weigh the record evidence and make judgment calls favoring the domestic industry. But at least those judgment calls have been based on an analysis of specific record evidence. The new “particular market situation” provision appears to give DOC even more discretion to make adjustments based only the thinnest of factual basis. This shift towards a more politically-driven AD/CVD process may result in the Department of Commerce issuing higher margins in the short term, but over the long term, the AD/CVD process risks losing significant credibility. Trade remedy cases, by definition, are intended to be remedial, not punitive. DOC’s AD/CVD process is supposed to determine the “fair” normal value for subject imports. If DOC’s definition of a “fair” export price is not factually or legally based, but is instead arbitrarily determined by politically influenced adjustments, an exporter or US importer has no way to determine whether or how their pricing should be adjusted in order to be deemed “fair” by DOC.

What this means in real life for Chinese companies sending products to the United States, and to those who import products made in China, is that they need to be even more careful not to run afoul of U.S. AD/CVD laws and pricing. And when tagged for any AD/CVD violation, it is more critical than ever that they respond quickly and with as many facts as they can muster, thus making it harder for the DOC to make quick and random and financially deadly decisions.