China lawyerIn my first post, I discussed China’s efforts to build stronger economic ties with Mexico – and why Mexico should be clear-eyed about China’s motives. In my second post, I examined the current economic relationship between Mexico and China. In my third post, I explained why the economic relationship between China and Mexico has made so little progress. In this, my fourth and final post, I will look to the future and discuss how to improve the China-Mexico business relationship.

The entire post is in Spanish below.

My first piece of advice is for Mexican companies to be realistic about what China wants and what China is truly prepared to do. Just because China offers itself as an alternative to Trump’s America doesn’t mean it is the right alternative, or even a good alternative. Every country has its own agenda and it would be foolish to think otherwise.

Beyond that, every Mexican company should ask itself if it is truly ready to do business with China, and every Chinese company should ask itself if it is truly ready to business with Mexico. It makes no sense to talk about strategic partnership without companies the right companies that are willing and able to profit from a reinvigorated relationship between the two countries. And in my company’s experience, there is a lot of work to be done on both sides, including the following:

  • Companies must adopt corporate governance principles and incorporate due diligence into their everyday processes to ensure compliance with the other country’s laws and regulations.
  • Mexican companies must make IP protection their top priority and register their copyrights, trademarks, and patents in China as soon as practicable. This advice applies whether they are directly operating in China or are merely operating in the US, Europe, or any other jurisdiction that would put them on the radar of a Chinese squatter.
  • Executives must understand not just the relevant laws in the other country, but also the cultural mores and unwritten business rules – and the implications for their company. Mexican executives need to realize that they are both in charge of the Chinese operation and accountable for it. Similarly, Mexican companies should balance the obvious need to hire Chinese nationals with the need to retain personnel (probably expats) who “get” China but also understand Mexico’s business culture and are truly on the side of the Mexican company. This sort of cultural fluency is in many ways more important than language fluency.
  • Mexican companies must move beyond the idea that they are direct competitors with their Chinese counterparts. Instead they should either engage in further specialization, or move up the value chain. Patents and trademarks and geographic indicators/appellations of origin can play a key role in differentiation. But being different only goes so far – if you don’t have a product Chinese consumers want, being different is irrelevant.
  • Companies on both sides need the support of their respective government, as well as the counsel of qualified international lawyers. Many of the deals I see today have neither, but as the monetary value of the deals goes up, the rest will/must follow.

Almost all of the above address what private companies can do. But the Mexican government has a role, too. It needs to implement an effective economic agenda, and maintain progress toward North American integration.

An effective economic agenda involves more investment in trade intelligence and entering into trade and investment policy negotiations with China that are derived, as much as possible, from the political and ideological considerations that have characterized China’s relationship with many commodity-producing countries in our region. At the same time, Mexico needs to rise up the global value chain, and that requires investing in infrastructure, facilitating trade, and improving the quality of accreditation.

It may seem odd to talk about further North American integration against the backdrop of Trump’s rhetoric against NAFTA and against globalization. But China has long been the de facto 4th member of NAFTA and it’s silly to pretend otherwise. And given the enormously important economic ties among the NAFTA countries, a purely bilateral agreement (i.e., solely between China and Mexico or China and the US) seems increasingly unrealistic.

My company’s bottom line is that we cannot wait to see what Trump does or doesn’t do. Or for that matter, what China does or doesn’t do. China is not going to replace the US as Mexico’s largest and most important trading partner. Each Mexican company’s China strategy should be stand on its own terms. Mexican companies should expand into China because it makes sense to do so and because they think they can succeed there – not because they think China is going to replace the US as Mexico’s most important trading partner.

 

The above post is by Adrián Cisneros Aguilar. Adrian is the founder/CEO of Chevaya (驰亚), an Asia-Pacific internationalisation services company. Adrián has a Doctor of Laws from Shanghai Jiao Tong University and an LL.M. in International and Chinese Law from Wuhan University.

 

 

En mi primer post, analicé los esfuerzos de China para estrechar los lazos económicos con México – y las razones por las que México debe estar plenamente consciente de los motivos de China. En mi segundo post, examiné el estado actual de la relación económica bilateral. En mi tercer post, expliqué las razones por las cuales dicha relación ha progresado tan poco. En éste, mi cuarto y último post, echaré una mirada al futuro y hablaré acerca de cómo mejorar la relación de negocios entre México y China.

El primer consejo que daría sería que las empresas mexicanas sean realistas acerca de lo que China quiere y está realmente preparada para dar. El que China se ofrezca como una alternativa a los Estados Unidos de Trump no es, en sí mismo, razón suficiente para considerar a China como “la” alternativa, o siquiera como una buena alternativa. Cada país tiene su propia agenda, sus propias prioridades y sería una necedad ignorar esto.

Más allá de lo anterior, toda empresa mexicana debería preguntarse si está verdaderamente lista para hacer negocios con China, mientras que sus símiles chinas deberían hacerse la misma pregunta, con respecto a México. No tiene sentido alguno hablar de una asociación estratégica integral sin las empresas correctas, empresas que estén dispuestas y sean capaces de sacar partido de una relación bilateral revitalizada. Y, en la experiencia de mi empresa, hay mucho trabajo que hacer con las empresas de ambos países, incluyendo lo siguiente:

  • Las empresas deben adoptar principios de gobernanza corporativa e incorporar el due diligence en sus procesos cotidianos, a fin de garantizar el cumplimiento de las leyes y reglamentos en el país de destino.
  • Las empresas mexicanas deben hacer de la protección de su propiedad intelectual e industrial su principal prioridad, y registrar sus derechos de autor, marcas y patentes en China en cuanto les sea posible. Este consejo es relevante, tanto para las empresas que operan en China directamente, como para aquéllas que operan en los EEUU, Europa o cualquier otra jurisdicción que las pueda poner en el radar de un usurpador chino.
  • Los ejecutivos de las empresas mexicanas y chinas deben entender no sólo la legislación aplicable en el país de destino, sino los usos y costumbres y las reglas no escritas de los negocios – y las implicaciones que éstas tienen para la empresa. En el caso de los ejecutivos mexicanos, deben darse cuenta cabal de que están a cargo de las operaciones en China, representan a la empresa y son responsables de ella. Asimismo, las empresas mexicanas deben equilibrar la obvia necesidad de contratar empleados chinos con la necesidad de contratar personal (quizás expatriados) que “capte” a China, pero también entienda la cultura de negocios mexicana y esté realmente del lado de la empresa mexicana. Esta clase de fluidez cultural es, en muchas maneras, más importante que la fluidez lingüística.
  • Las empresas mexicanas deben dejar ya la idea de que son competidores directos de sus contrapartes chinas y enfocarse, ya sea en una mayor especialización, o bien, en ascender en la cadena de valor al fabricar productos más sofisticados y de mayor valor agregado. Marcas, patentes e indicadores geográficos/denominaciones de origen pueden desempeñar un papel clave en la diferenciación de productos. Ahora, ser diferente no es garantía: si uno no tiene un producto que los consumidores chinos quieran comprar, la diferenciación se vuelve irrelevante.
  • Las empresas chinas y las mexicanas necesitan, tanto del apoyo de sus respectivos gobiernos, como de la asesoría de abogados internacionalistas calificados. Muchas de las transacciones que veo hoy en día carecen de ambas. Sin embargo, a medida que el valor monetario de dichas transacciones se incremente, es de esperarse que lo haga también la atención a las mismas, por parte de gobiernos y despachos.

Casi todo lo anterior está referido a lo que la iniciativa privada puede hacer. Sin embargo, el gobierno mexicano también juega un papel en todo esto. Necesita implementar una agenda económica efectiva, y mantener el rumbo hacia una integración norteamericana.

Una agenda económica efectiva involucra una mayor inversión en inteligencia comercial y la celebración de negociaciones en materia de comercio e inversión con China que estén libres de las consideraciones ideológicas que han caracterizado la relación de este país asiático con muchos países productores de materias primas en nuestra región. Al mismo tiempo, México como tal necesita, como se ha dicho, ascender en la cadena global de valor, y eso requiere invertir en infraestructura, facilitación del comercio y mejoramiento en la calidad de la acreditación.

Quizá suene extraño el que hable de una mayor integración de América del Norte, de cara a la retórica de Trump contra el TLCAN y contra la globalización en general. Pero, consideremos esto: China ha sido desde hace tiempo el cuarto miembro de facto del TLCAN y no podemos cerrar los ojos a ello. Si a esto añadimos la enorme importancia de los lazos económicos que unen a los tres Estados-parte del TLCAN, la perspectiva de tratados o acuerdos bilaterales (es decir, sólo entre China y México o entre China y los EEUU), se torna menos y menos realista.

Para mi empresa, el punto más importante a considerar es que no podemos sentarnos a esperar a ver qué hace o no hace Trump. O, para el caso, qué hace o no hace China. El Reino Medio no va a reemplazar a Estados Unidos como el principal y más grande socio comercial de México. La estrategia para China de cada empresa mexicana debe responder a sus propias circunstancias y necesidades. Esto es, las empresas mexicanas deben expandirse hacia China porque, para ellas, tiene sentido hacerlo y porque piensan que pueden tener éxito allí, no porque piensan que China va a reemplazar a Estados Unidos como el socio comercial más importante de nuestro país.

Este post fue escrito por Adrián Cisneros Aguilar. Adrián es el fundador y Director General de Chevaya (驰亚), una empresa de servicios de internacionalización para Asia-Pacífico. Adrián es Doctor en Derecho por la Universidad Jiao Tong de Shanghái y Maestro en Derecho Internacional y Chino por la Universidad de Wuhan.

 

International Trade LawThe U.S. International Trade Commission (ITC) yesterday determined by a 3-2 vote that the domestic U.S. tire industry was not injured or threatened with injury by imports of truck and bus tires from China. Although the U.S Department of Commerce last month in its concurrent investigations had determined that Chinese truck and bus tires were dumped and subsidized, the ITC’s negative determination means no more antidumping or countervailing duties (AD/CVD) will be collected on imported Chinese truck and bus tires.

The ITC’s negative determination is a good indication that for all the protectionist rhetoric and trade saber rattling from the Trump administration, the ITC is not just going to rubber stamp every case filed by a petitioning domestic industry. The ITC will still decide its AD/CVD cases based on the extensive amount of industry data collected from its investigations and will not rely just on the alternative facts offered by petitioners.

This tires case was weak from the outset. First, it was brought only by the United Steel Workers (which represents the workers at the big U.S. tire factories) and not by the tire companies themselves. Unlike virtually all other AD/CVD cases, the domestic producers in this case did not want to sign their name to the petition. Some have speculated that the Steel Workers filed this and other tire AD/CVD cases to obtain negotiating leverage to try to extract production and wage concessions from the U.S. tire industry management.

Although the U.S. market for truck and bus tires in 2015 was about $6 billion dollars, U.S. producers supplied only 60 percent of that demand. U.S. truck and bus tire producers already are operating at full capacity, so even with new U.S. tire factories opening, imports are still clearly needed to meet U.S. demand. China was the leading import source of truck and bus tires with about $1.2 billion imported in 2015.

All the U.S. produced tires were of premium brands, whereas most of the Chinese tires were sold under lesser known or private label brands. Because consumers generally associate producers’ brand names such as Goodyear or Bridgestone or Michelin with quality and performance, Chinese tires not surprisingly were priced lower when sold under a private label. This price difference associated with the different brands reflects the distinct market segments; the higher priced premium U.S. brands did not really compete with the no-name generics or private label Chinese tires. Moreover, though tire prices declined between 2013 to 2015, this was due primarily to declines in raw material costs, primarily natural rubber.  Prices of U.S. tires sold to OEM customers fell at the same rate as prices for U.S. aftermarket sales, even though very few Chinese tires were sold to OEM customers. Chinese tires thus cannot be blamed for the price declines that were occurring.

The domestic tire industry also was performing quite well and thus had a hard time demonstrating it had been injured. The domestic industry was healthy as production, capacity utilization, shipments were all higher in 2015 compared with 2013. Employment, wages and productivity indicators also showed improvement. The domestic producers had high and rising profits (operating income = 20.7%; net income = 18.3%), even though prices had fallen. So, even as Chinese imports were increasing, U.S. tire producers were thriving.

Despite all of these facts, this case could have resulted in an affirmative injury or threat of injury determination based on the increasing volumes of low-priced Chinese import tires that reducing the domestic producers’ market share. An argument can also be made that the significant volume of Chinese tires caused the domestic industry to lose revenue and be less profitable than it would have been without the Chinese imports.

In its preliminary investigation, the ITC made an affirmative determination by a 4-2 vote that the domestic industry was injured or threatened with injury, but two of the six Commissioners changed their positions in the final investigation. Vice Chairman David S. Johanson had found a threat of injury in the preliminary investigation, but switched to a negative injury/ threat determination in the final. Commissioner Dean A. Pinkert voted affirmative in the preliminary determination but then abstained and did not participate in the final investigation. If either of these two votes had stayed affirmative, a 3-3 tie vote would have resulted in AD/CVD duty orders being issued. Given the closeness of the vote, I expect the United Steel Workers will appeal the ITC’s negative determination to the U.S. Court of International Trade

Ultimately, this ITC negative determination was not only a huge victory for the Chinese tire industry and for U.S. importers of those tires, but also for anyone who wants U.S. trade cases to be determined on the facts and the law  and legal arguments presented and not just on a protectionist trade policy. The vast majority of petitions filed have resulted in AD/CVD orders being issued, and it likely will continue this way for the foreseeable future.  Given the current political climate, however, it’s nice to see a negative ITC determination just to be reassured that the ITC still recognizes its obligation under U.S. trade laws to conduct investigations fairly and that not all AD/CVD petitions are deserving of trade remedy relief.

China employment lawyerHiring employees in China (the right way) is almost as difficult as terminating them. If you do not do your due diligence on your new employees, you find yourself losing lawsuits.

Consider the following scenario, based on an actual case:

New Employer wanted to hire Employee. Employee was still working for Old Employer, but he assured New Employer that all he had to do to leave Old Employer was to give Old Employer 30 days written notice. Employee then informed New Employer that Old Employer was angry with him for having left his Old Employer and was demanding he pay Old Employer damages for the early contract termination, but because it had been 30 days since he had given Old Employer his notice, “there should be no problems.” Employee also proposed a “perfect solution” to New Employer: he would sign a letter of guarantee to New Employer stating that he (Employee) would be solely responsible for any damages payable to Old Employer and expressly providing that New Employer would not be liable for any such damages.

New Employer was in a rush to hire an employee with the Employee’s particular skill-set so New Employer went ahead and hired Employee right after Employee executed the guarantee letter. About a month after Employee started working for New Employer, Old Employer sued both Employee and New Employer. Employee and Old Employer had an education reimbursement agreement that required Old Employer pay a substantial amount of money for Employee’s extensive training in Europe, and Employee had agreed to a 5-year service period in return for this European training. Employee was nowhere near to completing his contracted-for five years of service when he left Old Employer to be hired by New Employer.

At trial, Old Employer was able to prove everything, including producing actual receipts for the training provided to Employee. The court deemed the education reimbursement agreement valid and found New Employer liable for the damages incurred by Employee’s breach of contract. In other words, New Employer had to pay for having failed to conduct due diligence on Employee before hiring him. Even if New Employer could pursue Employee for all the money it paid Old Employer, it still is itself on the hook for the liability and it still had to pay its own lawyers to defend against the lawsuit. It also took a public hit to its reputation.

This case (and various other cases) make clear the importance of ensuring that your China hires are not joining you with similar legal baggage. Non-compete agreements are the most common “baggage” of which you should be aware. There are plenty of other employee agreements that can be important as well, such as the education reimbursement agreement in the case above. We do not recommend our clients use private investigators to investigate their potential new hires as that is generally illegal in China. We instead advise they request their potential employees provide such agreements before making any hiring decisions and that they also check with the potential hire’s previous employer, after first securing the potential employee’s consent to do so. It is, of course, entirely at the discretion of the previous employer to provide or not provide information on the previous employee, but in our experience, they usually will. It also is a good idea always to check the proof of termination of employment relationship. If the potential employee does not have this proof or is taking too long to get it, there is probably a problem. The failure to get this proof quickly likely means the potential employee did something wrong or is subject to some sort of contractual restriction. And when there are red flags, you should consider not hiring that person.

It also makes sense to insert a provision in your employment contracts with new hires that makes clear that a condition of employment is that your new employee has no restrictions of any kind from its previous employment. Note though that for this sort of provision to be effective you must set a probation period, and not a super short one. Then if the employee fails to meet the conditions of employment, he or she can be terminated before the end of probation period. Just be sure you have a well-drafted employment contract, well-drafted Employer Rules and Regulations, and that you document everything. 

Slack off in making a new hire at your own peril.

China lawyerIn my first post, I discussed China’s efforts to build stronger economic ties with Mexico – and why Mexico should be clear-eyed about China’s motives. In my second post, I examined the current economic relationship between Mexico and China. In this post, I will discuss why the economic relationship between China and Mexico has made so little progress.

This entire post is in Spanish below.

At first blush, it is difficult to understand the disjunction between what has been said and what has actually been done. The two countries have signed an Integral Strategic Partnership, and China has explicitly offered its assistance should the Trump administration turn its back on Mexico. The Chinese ambassador to Mexico has claimed the two countries’ relationship is “better than ever,” but trade and investment levels are pitifully low, and for a variety of reasons those numbers are unlikely to change.

One huge reason Mexico’s relationship with China is unlikely to change is the existence – and proximity – of the United States. The United States has a huge (and growing) Hispanic population eager to consume a vast array of Mexican exports, whereas Chinese consumers are only interested in a few select Mexican products. Just look at the numbers. Mexico’s annual exports are worth $400 billion, and $291 billion of that goes to the United States. Only $8 billion goes to China. The American government has not exactly welcomed China’s attempts to establish closer ties with Mexico, and there are strong rumors Washington played a big role behind the scenes in the cancellation of the Mexico City-Queretaro rail and the Dragon Mart Cancun projects. Even if the Mexican and U.S. governments are not currently best of friends, our two countries will always be neighbors.

It is also true that Mexico and China have little economic synergy. China is Mexico’s direct competitor in the United States and for many of the same products. According to a study produced by UNAM, the University of California, Berkeley and the University of Miami, from 2000-2011 both the U.S. and Mexico suffered substantial losses in their respective export markets in the NAFTA region. The study identified 52 sectors in Mexico in which the U.S. was losing market share and China was gaining, creating the inference that Mexico was making efficiency gains and had become more competitive in U.S. markets. However, the study found that Mexico was also losing market share in the U.S. in those same 52 sectors. In other words, China was outcompeting both countries — in part because of its advantage in manpower and its government subsidies.

The disconnects are on both sides. Mexico has failed to attract meaningful investment from China and instead focuses on Chinese tourism. Chinese companies have made little effort to do anything in Mexico beyond selling products to Mexican consumers. Mexico has failed to take advantage of China as an export market and has fallen back on sending China non-value added items such as tequila, pork, and fruit. The Chinese government does not make it easy for Mexican companies to enter the Chinese market. And China’s economic model depends on being able to run huge trade surpluses. Combine with this the devaluation of the peso and the rise in gas prices, and the result has been inflation that makes Mexican exports less attractive overseas. According to the Inter-American Development Bank, Mexico’s exports fell 4% in 2016.

Part of the problem has nothing to do with China and everything to do with Mexico. 99.8% of all businesses in Mexico are small and medium-sized enterprises (SMEs) and the vast majority of them are unsophisticated companies, with little interest in or knowledge of how to operate on an international scale. When these companies do seek to engage with China, some (or all) of the following problems arise:

  • lack of due diligence about the Chinese market and possible business partners
  • poorly implemented corporate governance structures
  • failure to appreciate the paramount importance of IP protection, evidenced most often by discovering too late that a third party in China has registered “their” trademark
  • lack of cultural and language proficiency on the part of Mexican staff, leading to an inability to deal with Chinese authorities
  • inappropriate delegation of all responsibility for Chinese operations to poorly supervised Chinese staff
  • lack of transactional oversight due to (relatively) low dollar values

And though more and more Mexican nationals are going to China for education and training, few Mexican companies know what to do with them upon their return to Mexico.

Perhaps the biggest problem Mexican companies face in China – and frankly, the same problem bedevils Chinese companies going abroad – is that they think they can operate overseas the same way they do at home. I still remember the first matter I handled with my company: a Mexican enterprise was operating in China, but had no idea about their legal status in China or whether they were operating legally. Everything from company formation to payroll had been delegated to their Chinese accountant, and as a result they had hired staff without any written contracts, they were not contributing to social insurance or housing funds, and they were paying everyone in cash. It was just a matter of time before they were found out and had the book thrown at them.

Finally, a nontrivial number of Mexicans (and some Chinese) consultants want Sino-Mexican relations to remain in this relatively primitive state, because this will allow these consultants to continue as “indispensable” founts of wisdom and knowledge in an uncertain world.

The one bright spot is the .02% of Mexican enterprises which are not SMEs. These enterprises are the huge multinational corporations known as multilatinas, and they are already operating in China as part of their global strategy. Some of them are already selling more goods in China than in the U.S., and to a one they plan to focus even more on the Middle Kingdom in the years to come. They would not be doing this if they weren’t already doing well in China. As global companies they consider themselves able to compete on the global stage, and you know what? They’re right.

In my concluding post, I’ll look to the future and specifically on how to improve the China-Mexico business relationship.

The above post is by Adrián Cisneros Aguilar. Adrian is the founder/CEO of Chevaya (驰亚), an Asia-Pacific internationalisation services company. Adrián has a Doctor of Laws from Shanghai Jiao Tong University and an LL.M. in International and Chinese Law from Wuhan University.

 

En mi primer post, analicé los esfuerzos de China para estrechar los lazos económicos con México – y las razones por las que México debe estar plenamente consciente de los motivos de China. En mi segundo post, examiné el estado actual de la relación económica bilateral. En este post, hablaré acerca de por qué dicha relación económica ha progresado tan poco.

A primera vista, es difícil comprender la desunión entre lo que se ha dicho y lo que realmente se ha hecho. Ambos países han firmado una Asociación Estratégica Integral, y China ha ofrecido expresamente su ayuda en caso de que la administración Trump le dé la espalda a México. El Embajador chino ante este país ha declarado que la relación entre los dos países está “en su mejor momento histórico.” No obstante, los niveles de comercio e inversión están lastimosamente bajos, y por varias razones resulta improbable que las cifras cambien.

Una poderosa razón por la cual es improbable que cambie el estado de la relación bilateral es la existencia –y cercanía- de los Estados Unidos. Este país tiene una enorme (y en aumento) población hispana deseosa de consumir una amplia gama de exportaciones mexicanas, mientras que el consumidor chino se interesa sólo en unos pocos productos mexicanos seleccionados. Basta echar un vistazo a las cifras: las exportaciones anuales de México alcanzan los $400 billones de dólares, de los cuales $291 billones van a la Unión Americana. Sólo $8 billones van a China. Además, el gobierno estadounidense no ha precisamente celebrado los intentos chinos para estrechar relaciones con México, y hay fuertes rumores de que Washington jugó un importante papel, tras bambalinas, en la cancelación de los proyectos del tren de alta velocidad CDMX-Querétaro y el Dragon Mart Cancún. Incluso si, actualmente, los gobiernos mexicano y estadounidense no son exactamente los mejores amigos, los dos países serán siempre vecinos.

Cierto es también que México y China presentan muy poca sinergia económica. China es competidor directo de México en EEUU y, en muchos casos, en los mismos productos. De acuerdo con un estudio publicado por la UNAM, la Universidad de California, Berkeley y la Universidad de Miami, de 2000 a 2011, tanto EEUU como México sufrieron pérdidas substanciales en sus respectivos mercados de exportación, dentro de la región TLCAN. El estudio identificó 52 sectores en México, en los cuales los EEUU estaban perdiendo participación de mercado, mientras que China estaba ganando. Esto llevó a suponer que México estaba generando aumentos a la eficiencia económica y se había vuelto más competitivo en el mercado estadounidense. Sin embargo, el estudio también halló que México estaba perdiendo participación en el mercado estadounidense en esos mismos 52 sectores. Dicho de otro modo, China estaba desplazando a ambos países – en parte debido a sus ventajas comparativas en mano de obra y subsidios gubernamentales.

Pero los desfasamientos con la realidad provienen de ambos lados. México no ha logrado atraer inversiones significativas de China y en cambio se concentra en el turismo chino. Las empresas chinas poco esfuerzo han hecho para hacer algo en México más allá de vender productos a los consumidores mexicanos. México no ha podido aprovechar a China como un mercado de exportación, contentándose con el envío de artículos sin valor agregado tales como el tequila, la carne de cerdo y las frutas. El gobierno chino no facilita que las empresas mexicanas penetren el mercado chino. Y el modelo económico de China depende de lograr grandes superávits comerciales. Combinemos esto con la devaluación del peso y el alza de los precios de la gasolina, y tenemos una inflación que ha hecho que las exportaciones mexicanas sean menos atractivas en el extranjero. Según el Banco Interamericano de Desarrollo, dichas exportaciones cayeron un 4% en 2016.

Parte del problema no tiene nada que ver con China y sí mucho que ver con México. 99.8% de todos los negocios en México son pequeñas y medianas empresas (PyMEs) y la gran mayoría de ellas son poco sofisticadas, con poco interés o conocimiento acerca de cómo operar a escala internacional. Y cuando resulta que estas empresas buscan entrar en contacto con China, aparecen algunos de los siguientes problemas (o todos):

· Una falta de due diligence con respecto al mercado chino y los posibles socios en el país.

· Estructuras de gobierno corporativo inexistentes o mal implementadas.

· Una inhabilidad para apreciar la importancia fundamental de la protección de la propiedad intelectual, frecuentemente evidenciada en el descubrimiento tardío de que un tercero en China ha registrado ya “su” marca.

· Falta de competencias culturales y lingüísticas por parte del personal mexicano, lo que lleva a una inhabilidad para tratar con las autoridades chinas.

· Una delegación inapropiada de toda la responsabilidad de las operaciones en China a personal local mal o no supervisado.

· Desatención en la implementación de estrategias por parte del gobierno y despachos especializados, debido al bajo monto de las transacciones, en comparación con aquéllas de otros países.

Y aunque más y más mexicanos están yendo a China en busca de educación y capacitación, pocas empresas mexicanas saben qué hacer con ellos a su regreso al país.

Ahora, quizá el mayor problema que enfrentan las empresas mexicanas en China -que, francamente, es el mismo problema que aqueja a las empresas chinas que salen- es que piensan que pueden operar en el extranjero de la misma manera que lo hacen en casa. Aún recuerdo el primer asunto que manejé con mi empresa: una empresa mexicana operaba en China, pero no tenía ni idea de su situación jurídica en China o de si operaban legalmente. Todo, desde la constitución de la empresa hasta la nómina, había sido delegado a su contadora china y, como resultado, habían contratado personal sin contratos por escrito, no contribuían al seguro social o de vivienda chinos, y pagaban a todos en efectivo. Era sólo cuestión de tiempo antes de que fueran descubiertos y sancionados severamente.

Finalmente, no pocos consultores mexicanos (y algunos chinos) están muy interesados en que la relación bilateral permanezca en este estado relativamente primitivo, porque esto permitirá que dichos consultores continúen como fuentes “imprescindibles” de sabiduría y conocimiento en un mundo incierto.

El lado positivo de todo esto es el .02% de las empresas mexicanas que no son PyMEs. Estas empresas son las grandes multinacionales conocidas como multilatinas, y ya están operando en China como parte de su estrategia global. Algunas de ellas ya venden más en China que en los Estados Unidos, y hasta planean enfocarse aún más en el Reino Medio (China) en los próximos años. No estarían haciendo esto si no estuvieran ya teniendo éxito en dicho país. Como las grandes multinacionales que son, se consideran capaces de competir en el escenario global. Y, ¿saben qué? Tienen razón.

En mi último post, echaré una mirada al futuro. Específicamente, a cómo mejorar la relación económica y de negocios de México y China.

Este post fue escrito por Adrián Cisneros Aguilar. Adrián es el fundador y Director General de Chevaya (驰亚), una empresa de servicios de internacionalización para Asia-Pacífico. Adrián es Doctor en Derecho por la Universidad Jiao Tong de Shanghái y Maestro en Derecho Internacional y Chino por la Universidad de Wuhan.

WeChat and China WFOEAnyone who pays attention to China knows WeChat is the biggest name in Chinese social media. But the extent of WeChat’s dominance, and the way it has integrated itself into nearly every aspect of daily life in China, has significant implications for foreign companies doing business in China.

More than 95% of Internet users in China access the Internet via mobile devices at least part of the time. And of those mobile users, about 80% use WeChat. That is a stunning number, especially when you consider that WeChat is not just for sending messages and sharing news, pictures, and video; it also offers online shopping, mobile payments for everything from groceries to Lunar New Year “red envelopes” (gifts of cash), and Uber-like vehicle for hire services. More than 300,000 retail stores have already integrated WeChat Payment into their point-of-sale systems.

Given the ubiquity of WeChat, numerous companies have opened up official WeChat accounts and regularly use them to share information about products and promotions. Companies do exactly the same thing on Facebook in other countries, but because Chinese consumers can do so much more on WeChat, dispensing information via an official WeChat account is just the bare minimum. Chinese consumers have come to expect more.

A recent story about Starbucks becoming the first foreign company to become integrated into WeChat’s Wallet feature highlights the extent to which companies can benefit from WeChat. WeChat’s Wallet feature allows people to purchase Starbucks items and give them to their friends, all within WeChat. Given the love of social gifting in China – it’s how streaming celebrities earn money – I would expect this feature will increase Starbucks sales and it’s a great example of a foreign company adjusting its business strategy to take advantage of the idiosyncratic Chinese economy.

An official WeChat account can be opened by any company. But if you want Chinese consumers to be able to access that account – which is really the main reason to open an official WeChat account – the account must be formed by a legally formed Chinese entity.

That brings us to an old China Law Blog chestnut: do you really need to form a WFOE in China to sell your products? Of course not. There are a number of perfectly good reasons why companies might want to enter the Chinese market without forming a WFOE. But the more WeChat matters, and the more you want to control your company’s message to Chinese consumers, the more important it will be to have a China WFOE (or even a Joint Venture) to take advantage of all WeChat has to offer.

 

China Lawyers

Commercial real estate company Jones Lang Lasalle (JLL) has come out with a ranking of cities worldwide by “momentum.” JLL researchers use 42 factors to evaluate world cities on the move and their rankings do at least somewhat jibe with the sense I have regarding the cities I know. Their ranking of the top 30 cities is as follows:

1 Bangalore
2 Ho Chi Minh City
3 Silicon Valley
4 Shanghai
5 Hyderabad
6 London
7 Austin
8 Hanoi
9 Boston
10 Nairobi
11 Dubai
12 Melbourne
13 Pune
14 New York
15 Beijing
16 Sydney
17 Paris
18 Chennai
19 Manila
20 Seattle
21 San Francisco
22 Shenzhen
23 Delhi
24 Raleigh-Durham
25 Mumbai
26 Hangzhou
27 Los Angeles
28 Dublin
29 Nanjing
30 Stockholm

So as you can see, Shanghai comes out on top among China cities at #4, Beijing clocks in at #15, Shenzhen at #22 and Nanjing at 29. I was a bit surprised not to see Shenzhen at the top of the China list, because without a doubt, our China lawyers have been seeing a greater increase of work from there than from any other city in China. See Shenzhen, China, 24/7, and the Internet of Things. But who are we to quibble.

What most struck me (but did not surprise me one bit) is how well Vietnam’s two largest cities did in this ranking, with both Ho Chi Minh and Hanoi in the top ten. Beyond China and Vietnam, India and the United States do best in the rankings overall, with India contributing two cities in the top ten (Bangalore at #1 and Hyderabad at #5) and four more cities ranked between 10 and 30. The United States has three cities in the top ten and an additional eight cities ranked between 10 and 30.

What are your thoughts regarding the above ranking?

China trademark lawyersOur China lawyers do a lot of work for clients seeking to remove listings of counterfeit goods from Chinese e-commerce sites. Most of these listings are for obviously, sometimes extravagantly counterfeit merchandise, offered in vast quantities at far-below retail prices, with pictures either lifted from the real manufacturer’s website or showing products of dubious quality, and often featuring product variations beyond those offered by the real manufacturer. The sellers are usually unsophisticated trading companies trying to make a quick buck, and we have no trouble removing these listings.

But for some listings, it’s not so clear the merchandise is counterfeit. The quantities are sometimes limited. The prices are not unreasonably low. And the goods appear to be genuine. Many clients still want these listings removed because the sellers are unauthorized resellers, but an Aliprotect takedown request may not be the appropriate strategy.

These goods are by and large “parallel imports” or grey market goods – authentic products legally purchased in a foreign country, imported into China, and then offered for sale. China does not have a clearly articulated position on the legality of parallel imports for trademarked goods, but courts have generally held that selling such goods in China does not constitute trademark infringement.

China follows the “international exhaustion of trademark rights” standard, which means that once trademarked goods have been sold overseas, a brand owner’s exclusive rights to those goods in China have been exhausted, and a reseller’s use of that trademark in China does not constitute trademark infringement. The contrasting standard would be “national exhaustion of trademark rights,” which would only allow resellers to use the owner’s trademark if the first sale of the goods was in China.

But just because China has a de facto policy of allowing parallel imports does not mean that trademark owners are powerless to stop sellers of parallel imports on JD.com or Tmall. Sure, it may not be possible to stop the occasional seller of small lots brought over from America. But it’s the sellers who claim to be authorized dealers or exclusive resellers who are the real problem. And though a trademark infringement claim probably will not work against those companies, it may be possible to succeed with other claims. In the cases where the plaintiff has been able to stop parallel imports, the courts have ruled based on grounds such as unfair competition and consumer protection.

In a 2009 case before the Changsha Intermediate People’s Court, French tiremaker Michelin was able to stop the sale of parallel imports by showing that the defendant that was selling its tires had not properly obtained China health and safety certifications. And in a more recent case, French cosmetic company Pierre Fabre was able to stop the sale of parallel imports by showing that the defendant was improperly holding itself out as the “Chinese official website” and “China shop” for Pierre Fabre, and had used Pierre Fabre’s trademarks and copyrighted material on its own website in a manner suggesting a formal business relationship.

On the other hand, in the past four years courts in Shanghai, Tianjin, and Beijing, respectively, have ruled against Victoria’s Secret, the French wine group Les Grands Chais de France, and the German beermaker Köstritzer Schwarzbierbrauerei in their efforts to stop the sale of parallel imports, because in each case the seller had purchased genuine products, distributed them through standard channels, and sold the products as is without suggesting any relationship between the seller and the plaintiff.

In other words, the appropriate response to e-commerce sales of parallel imports is fact-specific and usually requires additional investigation. Needless to say, before trademark owners even consider taking action, they better make sure they have properly registered their own trademarks.

China lawyerIn my last post, I discussed China’s efforts to build stronger economic ties with Mexico – and why Mexico should be clear-eyed about China’s motives. In this post, I will take a closer look at the current economic relationship between Mexico and China.

This entire post is in Spanish below.

If you look at the numerous agreements between Mexico and China and all the announcements of impending business deals, you would think that China and Mexico have become major trading partners. In 2009, the two countries signed a bilateral investment treaty. In 2013, the two countries signed an Integral Strategic Partnership, and have since signed several ancillary agreements covering matters from consular protection and judicial assistance to securing access to the Chinese market for Mexican food products like avocado, pork, corn, and tequila. Meanwhile, China has been quite upfront about its broader regional strategy in Latin America to be a true economic partner for all countries.

But the numbers tell a different story. As of 2015, Mexico was running a trade deficit with China of more than $65 billion. From 1980 through 2016, the sum total of all Chinese investment in Mexico was $421.6 million – less than 0.1% of all FDI. Here’s a telling example: in 2014, the state-owned Mexican oil company PEMEX and three Chinese state-owned enterprise made a big splash by announcing a $5 billion Sino-Mex Energy Fund. To date, the fund has not announced an investment in a single project.

Two projects announced last year suggest the tide may be turning: the China Offshore Oil Corporation (a division of CNOOC) won two high-profile bids to extract oil from the Gulf of Mexico, and Beijing Automotive Industry Corporation, which already had a truck assembly plant in Veracruz, announced plans to increase sales in Mexico and perhaps build another plant. But are these projects signs of a new era of investment, or exceptions that prove the rule?

The Integral Strategic Partnership establishes a framework to strengthen cooperation between China and Mexico, and to resolve differences when conflicts arise. Of late, there’s been far more of the latter, with two particularly high-profile economic debacles. First, the Mexican government cancelled public bidding on the construction of the Mexico City-Queretaro high-speed railway, after initially awarding the bid to a Chinese group. Then the Mexican government imposed a $1.5 million fine and cancelled a huge Chinese mall development, the Dragon Mart Cancun, after finding the development was causing significant environmental damage. In the wake of these cancellations, more than a few Chinese colleagues and professors asked me whether Mexico and its president were truly friends of their country.

Meanwhile, Chinese money is pouring into other Latin American countries. According to the Latin America and Caribbean Economic Commission, China’s loans “have become the most important source of foreign financing for many Latin American countries, including Argentina, Brazil, Ecuador and Venezuela, surpassing international financial institutions already present in the region.”

The mismatch between rhetoric and reality in Mexico is particularly apparent when you consider that Chinese financing typically goes toward resource extraction, transportation infrastructure, and energy projects, which are all closely aligned with the Mexican government’s stated development plans. Something is going on, but it’s not a true economic partnership.

In my next post, I will discuss why the economic relationship between China and Mexico has made so little progress.

 

The above post is by Adrián Cisneros Aguilar. Adrian is the founder/CEO of Chevaya (驰亚), an Asia-Pacific internationalisation services company. Adrián has a Doctor of Laws from Shanghai Jiao Tong University and an LL.M. in International and Chinese Law from Wuhan University.

 

En el post anterior, hablé sobre los esfuerzos de China para construir lazos económicos más fuertes con México -y por qué México debería pensar claramente acerca de los motivos que China tiene para ello. En este post, echaré un vistazo más a detalle al estado actual de la relación económica Sino-mexicana.

Si uno analiza los numerosos acuerdos en vigor entre México y China y todos los anuncios de business deals inminentes, uno pensaría que los dos países se han vuelto importantes socios comerciales. En 2009, ambos países firmaron un Acuerdo de Promoción y Protección Recíproca de Inversiones. En 2013, firmaron un documento elevando la relación a Asociación Estratégica Integral, celebrando desde entonces numerosos acuerdos accesorios que cubren desde la protección consular y la asistencia jurídica mutua al acceso de productos agroalimentarios mexicanos al mercado chino, tales como aguacate, carne de cerdo, maíz y tequila. Mientras tanto, China ha sido bastante abierta acerca de su estrategia regional más amplia para América Latina, y que consiste en ser un verdadero socio económico para todos los países.

Las cifras, sin embargo, cuentan una historia diferente. A 2015, México tenía ya un déficit comercial con China de más de 65 billones de dólares. De 1990 al 2016, el total acumulado de la inversión directa china en México era de 421.6 mdd – menos del 0.1% de toda la Inversión Extranjera Directa (IED) recibida por nuestro país en el mismo periodo. He aquí un ejemplo revelador de lo que digo: en 2014, la petrolera estatal mexicana PEMEX y tres empresas estatales chinas anunciaron con bombo y platillo la creación de un Fondo de Energía Sino-mexicano de 5 billones de dólares. Hasta la fecha, el fondo no ha anunciado una inversión en un solo proyecto.

Dos proyectos anunciados el año pasado sugieren que la tendencia pueda estar cambiando: la China Offshore Oil Corporation (una parte relacionada de la China National Offshore Corp.) ganó dos publicitadas licitaciones para extraer petróleo del Golfo de México, mientras que la Beijing Automotive Industry Corporation, que ya contaba con una planta de ensamble en Veracruz, anunció planes para incrementar sus ventas en el país y quizá hasta construir una nueva planta. Hace sólo una semana, se anunciaba la construcción de una planta de JAC Motors, en el Estado de Hidalgo, financiada en parte por el magnate Carlos Slim.

La Asociación Estratégica Integral establece un marco para el fortalecimiento de la cooperación bilateral, así como para resolver diferencias en caso de conflicto. En fechas recientes, ha habido bastante más de estas últimas, con dos muy sonadas debacles económicas. La primera fue la cancelación, por parte del gobierno mexicano, de la licitación para la construcción del tren de alta velocidad CDMX-Querétaro, tras haber sido dicha licitación adjudicada a un conglomerado chino. Luego, el gobierno mexicano canceló un enorme desarrollo comercial, el Dragon Mart Cancún, de ribete imponiendo una multa de 1.5 mdd, tras encontrar que el proyecto estaba causando un daño medioambiental significativo. A raíz de estas cancelaciones, varios colegas y profesores chinos me preguntaron si México y su presidente eran verdaderamente amigos de su país.

Mientras tanto, el dinero de China está llegando a raudales a otros países latinoamericanos. De acuerdo con la Comisión Económica para América Latina y el Caribe (Cepal), los préstamos chinos se han convertido en la fuente más importante de financiamiento externo para muchos países de América Latina, incluyendo Argentina, Brasil, Ecuador y Venezuela, y sobrepasando a instituciones financieras internacionales bien consolidadas en la región.

La enorme discrepancia entre retórica y realidad en México es particularmente evidente cuando se considera que el financiamiento chino generalmente se destina a proyectos de extracción de recursos, infraestructura de transporte y energía, todos ellos alineados con el Plan Nacional de Desarrollo del gobierno mexicano. Sí, es claro que está ocurriendo algo, mas no se trata de una verdadera asociación económica.

En mi próximo post, hablaré acerca de los motivos por los cuales China y México han avanzado tan poco en su relación económica bilateral.

 

Adrián es fundador/Director Gral. de Chevaya (驰亚), empresa de servicios de internacionalización en Asia-Pacífico. Con experiencia práctica y teórica en China, Adrián es Doctor en Derecho por la Universidad Jiaotong de Shanghái y Maestro en Derecho Internacional y Chino por la Universidad de Wuhan, siendo el primer mexicano en obtener estos grados en China

China lawyer China attorney

Got an email this morning from a good friend and a very experienced China consultant in China. The email included this article on Why Foreign Companies are Shutting up Shop in China. My quick response was that China retail has always been difficult for foreigners to do directly, but that our China lawyers just keep writing distribution agreements that work. And we are doing it for the widest range of products you can possibly imagine.

Our China distribution contracts typically provide for the following, among other things:

  • An exclusivity provision, or not
  • Whether the distributor can subcontract out distribution, or not
  • The geographic and market territory given to the distributor
  • The term of the distribution agreement and what must be done to renew or terminate it
  • The specific products covered by the distribution agreement
  • The methods the distributor can use to sell the products
  • The pricing the distributor can use for the products
  • Payment terms
  • The distributor’s performance and sale requirements
  • Ordering and shipping procedures
  • Who is in charge of what when it comes to such things as defective products, advertising, warranties, technical support, obtaining permits, marketing materials, etc.
  • Rights regarding new or modified products
  • Whether the distributor can or cannot sell the products of others
  • All sorts of things relating to intellectual property (trade secrets, trademarks, patents, copyrights, etc.)
  • Non-competition during or after the term of the distribution agreement
  • FCPA compliance. Anti-corruption compliance
  • Damages for breaches
  • Dispute resolution (venue, choice of law, etc.)

And as noted in our recent post, China Trademarks and Your Chinese Distributor, our China attorneys also intensively focus on protecting our clients’ intellectual property even before the agreement is signed.

And the above is only part of what sometimes goes into such agreements), but for lawyers who do these agreements all the time, they do become at least somewhat standard.

For more on what it takes to distribute your product in China, check out the following:

 

US-China trade warPresident Trump has already acted on some of his trade-related campaign promises. One of his first official actions was to withdraw the United States from the Trans-Pacific Partnership (TPP). Trump also floated the idea of imposing a 20% tax on all imported Mexican goods to pay for the US-Mexico border wall, but he appears to have backed off that idea, at least somewhat. Below I discuss how the Trump Administrations early trade actions may benefit China the most, instead of benefitting America “first.” I also discuss how China is not standing idly by, but rather is positioning itself to defend or retaliate against U.S. trade actions that target China.

  • Trump’s TPP Withdrawal. In signing the executive order withdrawing the United States from the TPP, President Trump merely signed the death certificate for a trade deal that was practically comatose well before he took office. Trump described the TPP (along with basically every other trade agreement) as a “bad deal” that would result in a “death blow for American workers.”  Many commentators, however, have noted that China will be the biggest winner from Trump’s abandonment of the TPP.  The TPP aimed to reduce trade barriers and tariffs across 12 countries, but specifically and tellingly did not include China. The TPP was part of a strategic U.S. pivot towards Asia that attempted to strengthen American economic ties in the region to counter-balance China’s increasing power there. With the demise of the TPP,  other Asian countries such as Australia, South Korea, and the Philippines, likely will be pulled even tighter into China’s expanding economic sphere of influence in the region. China also has been handed an opportunity to fill the political leadership void in the region created by Trump’s withdrawal from TPP.  China now could take the place of the United States in the TPP, but appears more likely to push for completing of its own proposed Regional Comprehensive Economic Partnership (RCEP), which includes many of the same Asian countries that were part of TPP, but not the United States. If RCEP is successfully negotiated, U.S industries stand to lose significant market share throughout the Asian countries that will have preferential rates with its RCEP partners, but not the United States.
  • Trump Floats, Then Walks Back, A Proposed 20% Tax on Mexican Imports. The Twitterverse exploded with people angry that avocados and tequila could cost more because of Trump’s proposal to impose a 20% tax on all Mexican imports.  White House spokesperson Sean Spicer rushed to explain that the idea of the 20% tax was not really a policy proposal, but just one example of the options for how to pay for the U.S.-Mexico border wall. Trump’s having paused after proposing a 20% tax on imported Mexican goods got a bad reaction (“Guacapocalypse!!”) and that may bode well for China exports to the United States, at least temporarily. During the campaign, Trump had proposed a 45% tax on all Chinese imports. But if U.S. consumers hated the idea of a 20% tax on Mexican goods, it seems likely that a 45% tax on Chinese imports would trigger even greater outrage because of the broader spectrum of goods from China that would be affected. Instead of a straight tariff on imports, however, Trump may now try to impose a border adjustment tax (BAT) similar to what House Republicans have recently started pushing. But calling it a tariff or a more complicated BAT won’t change the bottom line, which is that either option would make imports more expensive and US consumers would bear the brunt of those increased costs.

China thus far has publicly taken the high road and stated no one wins  in a U.S.-China Trade war. However, China also has taken the following steps to better position itself to defend, or to more aggressively retaliate, against the United States if Trump insists on escalating the trade war.

  • China’s WTO Challenge v. U.S. Continuing NME Status for China – China insists that when it negotiated the terms that allowed China to accede to the WTO in 2001, the United States agreed to treat China as a non-market economy (“NME”) in antidumping cases, but only for another fifteen years, after which it would be treated like all other market economy countries. Unfortunately for China, the Chinese negotiators for the 2001 US-China WTO Accession agreement were primarily politicos, and not lawyers. Because this agreement was not drafted precisely as the Chinese intended, the United States has been able to parse the language to come up with a plausible legal argument that the U.S.-China WTO Accession did not call for an absolute hard deadline for terminating China’s NME status, but rather provided only a conditional promise to terminate China’s NME status. The revocation of China’s NME status is a high priority objective among China’s leadership and immediately after the December 11, 2016 fifteenth anniversary of China’s WTO accession, China filed a WTO challenge against the United States’ continued application of NME status in antidumping cases against China.
  • China’s Increasing Opposition to U.S. AD/CVD Proceedings – China’s complaint against the United States’ refusal to grant market economy status will take many years to work its way through the WTO dispute settlement process. In the meantime, China will not just wait to see if the WTO will rule in its favor. China just within the past month has become more outspoken against U.S. Department of Commerce (DOC) determinations in AD/CVD proceedings against China.  China’s Ministry of Commerce (MOFCOM) recently issued press releases objecting to specific methodologies used by DOC and ITC to obtain inflated AD/CVD rates in a wide variety of cases involving off-road tires, biaxial geogrids,  hardwood plywood and amorphous silica fabric, carbon and alloy steel, and ammonium sulfate.  Previously, MOFCOM typically would only monitor the outcomes of DOC and ITC cases without commenting on any specific issues arising from U.S. AD/CVD proceedings. This recent increased activity from MOFCOM objecting to very specific and often technical AD/CVD legal issues in US investigations signals a more aggressive policy stance by the Chinese government to support Chinese companies subject to US AD/CVD proceedings.
  • China’s AD/CVD Actions against U.S. Exports to China – Not only is China playing more aggressive defense in U.S. AD/CVD proceedings, China is also starting to take the offensive and initiate its own AD/CVD cases against certain U.S. exports to China. On January 12, 2017, MOFCOM announced the final results in the AD/CVD investigations against dried distiller grains (DDGs)  from the United States and issued AD and CVD margins of 42.2%-53.7% and 11.2-12.0% that were higher than expected. DDGs is an ethanol by-product used as animal feed, and in 2015 China imported 6.8 million tons of DDGS from the United States worth $2 billion and was the single largest export market for U.S. DDGs producers. MOFCOM’s DDGs determination indicates that China is looking to use its own AD/CVD actions not only to score political points, but also to have an economic impact. It is rumored China already has received an AD/CVD petition against soybeans from the United States and is just waiting for an appropriate time to officially initiate these investigations, probably in reaction to a U.S. action against China.