A Legal Checklist For China Business

Law students love checklists.  Law students are trained to make checklists for exams and (this is law schools' dirty little secret) graded as much on their ability to spot and analyze legal issues than to resolve them.  This is all training for the "issue spotting" that becomes so critical once they become lawyers.

Me, I love clients, not only because they are the lifeblood of my livelihood, but because they so often are the ones who stimulate the ideas for this blog.  I just spoke with a client who asked me to outline the legal issues he needs to consider in taking his business to China.  Amazingly enough, this is the first time I had been asked so explicitly for such a checklist. 

This post "issue spots" the most common legal issues companies face when going to China.  Though far from exhaustive (and not intended to be so), this list highlights the key legal issues businesses must consider when doing business in China. 

• Are You Legal?  China has all sorts of requirements for doing business in China.  If you are going to be doing business there anything more than occasionally, you will need to form a legal entity to do so.  This entity can be a WFOE, a JV, or a representative office.  Some businesses that are perfectly legal in the United States or in Europe are illegal in China.
• Contract.  In almost every instance, it is wise to have a written contract and it is usually best to have this contract in Chinese.  Chinese contract law is far less willing to imply things than western law.
• Intellectual Property/Trade Secret Protection. Your intellectual property (IP) rights in your own country do not generally extend to China.  To secure protection of your trademarks and patents in China you must register your rights there.  Do it or do not complain when they are "stolen." 
• U.S. Foreign Corrupt Practices Act.  The United States vigorously enforces the FCPA, which penalizes improper payments to foreign officials by U.S. companies.  In certain situations, U.S. companies can be liable under the FCPA for payments made by their Chinese partners.  The most common situation is when the U.S. company uses the Chinese company as a distributor of the U.S. company's products.  Know these laws and know how to avoid running afoul of them.  I understand Canada and most European countries have somewhat similar corrupt practices acts.
• Compliance with Export Control Laws.  Late last year a company called me about our drafting sales contracts for their technology product.  My first question to them was whether the U.S. would even allow them to export their product to China.  This question had never even occurred to them, but it turned out that exporting their product to China would be illegal under U.S. law.  Years ago, I was approached by a client ready to ship product to North Korea that would have violated U.S. prohibitions on doing business with that country.  The client was simply unaware of the law.  Some products (certain types of software are a good example of this) can be sent to China only with a validated license.
• Product Liability Laws.  Not sure this would have made it to this list a month ago, but in light of the recent issues surrounding toxic pet food, it deserves to now. 
• Antitrust/Labor/Tax/Termination Issues.  If you are going to be doing business with China or, even more so, within China, these issues are often relevant, particularly since Chinese laws on these can be so different from those to which you are accustomed.

I think this covers the basics.