China Employment Law Webinar

Our law firm’s lead China employment lawyer, Grace Yang, will be leading a 90 minute webinar on what HR departments need to know about China employment law. China is getting a lot tougher on how foreign companies (especially American companies) in China treat their employees and staying in compliance has never been more important. See China’s New Company Tracking System: Comply, Comply, Comply.

More than a decade ago, we wrote on what was then China’s new employment law regulations: China’s Brand New Labor Law Regulations. It’s All Here. A client got angry with me for even writing about this because he was certain these new regulations would never be enforced and he thought our post would “scare” foreign companies into complying with the new laws and in doing so, further damage their ability to compete against their China company peers. Nobody still believes China does not enforce its employment laws against foreign companies.

In the early days of China’s employment laws, we divided the work among our team of China lawyers, with nobody a true China employment law specialist. But as China began stepping up its employment law enforcement and as so many of China’s employment rules became so localized, it became clear we would need a lawyer to focus on China employment law. Grace Yang is that lawyer for us. Grace has law degrees from leading law schools in China and the United States and last year she has written a well-received book on China employment law: The China Employment Law Guide: What You Need to Know to Protect Your Company. If you are doing HR in China and you want English language help, you really should buy the book! 

Our China employment law team mostly works on the following these days:

  1. Helping foreign companies in China avoid employment law problems. We do this mostly by performing employer audits and then remedying the mistakes we find. See China Employer Audits: The FAQs.
  2. Helping foreign companies with a specific and urgent employee problems. These problems range from fending off a lawsuit or a government regulator to figuring out what to do with employees that will be brought on via a merger deal or will be terminated due to an office or company shut-down. See China Employment Law Trends
  3. Helping expats negotiate enforceable contracts with their China employer. See China Expat Employment Contracts: The 101

Now about this upcoming China employment law webinar. It’s called China Employment Law: What HR Needs to Know and it’s going to be on Tuesday, October 22 at 1 p.m. Eastern Time and it has been approved for 1.5 general recertification credit hours toward PHR, SPHR, and GPHR recertification through the HR Certification Institute. It also will get you 1.5 PDCs for the SHRM-CP or SHRM-SCP.

It will be geared towards “HR, in-house counsel, financial officers, and company presidents.” It is being put on by HR Webinar Company and they describe it as follows:

China’s employment laws are complicated and highly local. Foreign companies doing business in China face complex China labor and employment issues and questions every day – often without even realizing it. What works in the United States has very little in common with what works in China. Employment compliance has become one of the most important issues foreign companies face in China and it is the rare foreign company that gets it right. Employee disputes are becoming considerably more common and government enforcement is getting significantly more stringent. It virtually always costs less for your company to deal proactively with China employment law issues than to wait to address them only after they devolve into a dispute. It is therefore imperative that you understand the framework of China employment law and steps you can take to mitigate risk.

Please join Grace Yang as she helps you better understand the China employment law landscape. She will focus on helping you recognize key China employment issues and on giving you guidance on how to solve real-life China employment law issues and problems.

WHAT YOU’LL LEARN

This webinar will cover the following:

YOUR CONFERENCE LEADER

Your conference leader for “China Employment Law: What HR Needs to Know” is Grace Yang. Grace heads Harris Bricken’s China employment law practice and contributes a weekly column about China employment law issues for the multi-award winning China Law Blog. Grace received her B.A. degree in law from Peking University and her J.D. degree from the University of Washington School of Law. She represents both China employers and employees in their China employment law matters. Grace published a book entitled The China Employment Law Guide.

If you have China employees, you really do not want to miss this webinar!

International Manufacturing Lawyers to protect your manufacturing molds

In Part 1 of this series, we discussed how the increasing complexity of products made overseas via product outsourcing has led to a corresponding increase in the complexity of the molds for those products and required our international manufacturing attorneys to draft contracts that protect our clients’ IP within those molds, both against third party mold fabrication shops and the product outsource factories themselves. In Part 2 of this series, we discussed mold IP issues that arise with third party mold fabrication shops. In this, Part 3, we will discuss the sorts of issues our manufacturing lawyers see with foreign (primarily Asian, Eastern European and Latin American) manufacturers on mold issues.

The foreign outsource manufacturer has produced a series of molds for a product for its foreign buyer. Now that the product has become commercially successful, we often see the following three basic problems arise:

  • The foreign product manufacturer announces a substantial increase in the price of the product. This is often a surprise to the foreign buyer, who had expected the per unit price of the product to go down as production increased.
  • The foreign outsource product manufacturer is not able to keep up with increased production requirements. This is often a surprise to the foreign buyer, who had been assured by the foreign manufacturer that it had ample capacity for any scale of orders.
  • The stress of increased production demand causes the quality level from the foreign manufacturer to progressively decline, reaching unacceptable levels. This is often a surprise to the product buyer, who had expected quality to improve over time.

In response to these issues, the foreign buyer gives notice to its foreign outsource product manufacturer that it intends to move production to a different manufacturer, often a direct competitor of the current manufacturer. In the past, the issues that arose at this stage mostly focused on ownership of the physical molds. This issue can be resolved by a relatively simple mold ownership agreement. See Product Molds And Tooling : Three Things You Must Do to Hang on to Yours.

However, with all the recent turmoil and movement in international outsourced manufacturing, we have seen factories make arguments (like those below) that render the situation far more complex:

  • The outsource product factory says: “It is true you paid us to make the molds, but that fee covered only our material costs and the time involved. We also spent a lot of time and money on the CAD drawings and the related specifications required to fabricate the molds and we also spent additional engineering time integrating the molds into our production process so before you can take the molds, you must compensate us for these costs.” Then the factory provides an unreasonably high invoice for those costs and if you do not pay the invoice, the factory will continue to hold your molds hostage. This has become a fairly standard practice in outsource manufacturing, particularly in southern China. It is therefore essential for product designers/buyers to make clear with an enforceable written contract that its payments for molds include both design and fabrication costs and — most importantly — that no additional payments will be required when the foreign buyer seeks to take possession of the molds.
  • The outsource product factory says: “You do own the molds and you can take them whenever you want. However, because we did the mold design work we own the design embodied by the molds. We will give you a limited license to use the molds for production in another factory, but you may not copy the molds and we retain the right to copy and use the mold design for our own production and to provide copies of the molds to third party factories for their own production. The only thing you own is the physical object. You do not own anything else.
  • The outsource product factory says: “We did all the mold design work so we own the mold design and we registered a design patent in the molds. It does not matter that you paid us for the molds because we invented them and our design patent protects us. You can have the physical molds, but if you want to use those molds for production at a different factory, you must pay us a royalty fee.” This royalty is then quoted at a price so hight that you cannot economically have your product produced at a third party facility. Many country’s laws (especially in Asia) legally support this

The more honest factories make the situation clear. The foreign buyer pays for fabricating the mold, but that payment does not give it any ownership interest in the molds. The factory does the mold design work and it owns the molds, but will agree to use the molds only for producing the product for the foreign buyer. However, the foreign buyer has no right to move the molds to any other factory. Some factories will say that you are free to make new molds at your new factory, but some will assert ownership to the mold design and not allow you to have copies made at the new factory.  In other words, the factory is essentially telling you upfront that it intends to hold you hostage by guaranteeing that you cannot go to any other factory as an alternative manufacturer for your product. By holding the product buyer hostage, the factory is free to raise its price or deliver your products late or produce defective products. You are pretty much trapped with no real leverage for dealing with the issues.

Why would a company sign a contract that essentially turns over its product to its manufacturer? Because they do not realize what they are signing, oftentimes because what they are signing is in a foreign language they don’t understand and do not get translated. Other times they simply do not understand what they are signing no matter the language. Sometimes they tell us they thought this sort of thing was “standard.” This mistake is shockingly common and just about every week we get contacted by a company that has fallen prey to this. These contacts usually happen at one or two critical points in the process and in part 4 of this series we will discuss these two points in the process and how we typically seek to remedy the mistake at each point.

Product designers and buyers need to learn how to protect their molds and their mold designs. The simplest way is via enforceable written contracts that provide protection. At the most basic level, however, the key is to be able to recognize when a factory is intending to hold your molds “hostage”  and to then and there do a cost-benefit analysis of whether it makes sense to proceed or walk away.

International IP manufacturing lawyers

In part 1 of this series, we discussed how the increasing complexity of products being made overseas has led to a corresponding increase in the complexity of product molds and how our international manufacturing attorneys increasingly must draft country-specific contracts to protect our client’s IP within those molds.

The first part of this series concluded by noting how most mold IP issues arise in two settings: dealing with third party mold fabrication shops and dealing with the product outsource factories themselves. In this part 2 we address mold IP issues when dealing with third party mold fabricators, sometimes called mold fabrication shops. .

The issues that typically arise with mold fabrication shops arise because of a change in procedure no one has really noticed. It is standard procedure to provide that the factory making your product is responsible for fabricating the molds for the product. In the old days, the same factory almost always made the molds and the product. However, it is now at least as common for the product factory to outsource mold fabrication to a third party. In many cases, even the design of the molds is outsourced to that third party.

What this means is that a mold agreement with your factory to control ownership of the molds and the IP in your product is compromised or eliminated when all of the specifications and the responsibility for mold fabrication is with a third party mold manufacturer. Given the economics of mold fabrication, it is not likely the mold fabricator will use the mold design for its own purposes. Rather, the fundamental risk is that the mold manufacturer will sell copies of your molds to other factories interested in cloning your product.

This type of cloning is a thriving business in China and around the world. With manufacturing leaving China for places like Vietnam, Cambodia, Malaysia, Thailand, India, etc., we are “seeing” many instances where a mold made in one country ends up in China being used for product cloning. We have also dealt with many instances where the product mold is made in China for a product made somewhere like Vietnam and the foreign company failed to protect its IP in both countries, as is virtually always necessary.

Foreign product designers often wonder how a terrific copy of their product got to market even before they have gone into full scale product production. This is how it happens: the mold manufacturers conduct a thriving trade in selling the “latest” molds. Though it is common to blame the product factories for this leakage, this blame is often misplaced. Your product factory often has an incentive to keep your mold for its own use since once your mold gets out into the world it is then used by your factory’s competitors. When this happens, your factory is damaged in much the same way as you because its production of your product will likely decrease or end.

Though losing one’s molds via a third party mold fabrication shop is an enormous risk, few foreign product designers and virtually no factories in Asia make much effort to control the mold fabricator. In other words, clearly drafted written contracts dealing with this issue are rarely entered into between the Asia factory and the mold fabricator. The foreign product designer not only does not usually enter into any sort of contract with the mold fabricator, the foreign product designer normally does not even know the identity of its mold fabricator; much of the time it just assumes its product factory is also its mold factory.

Because many products designs are protected primarily as trade secrets , the release of the design to a third party mold fabrication shop with no written agreement breaks the secrecy in the product itself and this eliminates any trade secrecy protection. Third party mold production leaves a gigantic hole in IP protection that can and should be closed through a simple set of contracts.

Consider also the issue of patent protection. In acquiring a patent anywhere in the world, one of the first questions that has to be answered is who invented the item. In a case where the design of the mold has been outsourced to a third party mold fabrication shop, the question of who actually designed the product becomes far less clear. Is it the foreign designer who developed the basic idea? Is it the product factory that did some preliminary drawings? Or is it the third party mold fabricator that did the detailed drawings and produced the final working model? Or is it all three, each entitled to an uncertain percentage of the patent? These are not theoretical questions; these are questions being asked in patent cases all around the world.

For the product, the question is who owns the design for the product. For the molds, the question is who owns the design in the molds. Where the molds ARE the product, this becomes a core issue that cannot be ignored.

And yet, this sort of tripartite structure, the usual answer is that no one owns any IP in the molds: no patents, no trade secrets. Often this means nobody owns any IP in the product itself. This can be a disaster for the foreign product company.

In our next installment in this series, we will discuss how to approach the above issues when dealing with the overseas factory to which you are outsourcing your product manufacturing.

International manufacturing lawyers for molds and toolingThis is the first part of what will eventually be a four part series on protecting your molds and/or your tooling from your overseas manufacturer. With so many companies moving their manufacturing from China, this has become a very important topic, for two reasons. First, we are seeing many companies losing their molds and/or their tooling in their exodus from China. These are the companies that failed to protect their molds/tooling when they first went into China. On the flip side, with so many companies establishing new manufacturing relationships outside China, it becomes critical they understand the need and the methods for protecting their molds/tooling going forward.

In seeking to protect our clients’ molds/tooling, both in and outside China, one of the primary goals of our international manufacturing lawyers is to draft a contract between our client and the overseas manufacturer that makes clear our client (the foreign buyer) owns the physical molds/tooling. To accomplish this, we focus on two issues when drafting mold/tooling provisions that are part of a larger contract (such as a manufacturing agreement or a product development agreement) or that essentially stand alone as part of a mold/tooling ownership contract.

First, we want to make clear that the overseas factory can use our client’s molds/tooling only for producing our client’s product and not for producing for any other party. Second, we want to make clear that when our client chooses to move its production to a different factory anywhere in the world it has the contractual and legal right to take possession of the molds/tolling and transport them to the new manufacturing location. Negotiation of these terms is sometimes quite difficult, since overseas manufacturers have an incentive to hold molds/tooling “hostage” to prevent their foreign buyers from moving manufacturing to another factory.  For why it is so important to be clear regarding molds/tooling ownership and some additional specifics on what you should do to prevent your overseas factory from walking away with your molds, check out Product Molds And Tooling: Three Things You Must Do to Hang on to Yours.

As outsourced manufacturing  has become more complex, molds/tooling for products have become correspondingly more complex as well.

In many cases, our clients’ molds and/or tooling embodies most or all of their product’s intellectual property. In some products, the interior mechanism is based entirely on open source hardware. The external enclosure surrounding the mechanism is therefore the primary protectable IP for the product. Their IP resides entirely in the molds used to manufacture the product case. The”look and feel” of the enclosure becomes the identity of the product, and if that “look and feel” is not protected (via the molds/tooling), their overseas factories can freely copy the product.

With some of our clients, the form embodied in the mold essentially constitutes the entire value of their product. Take for example a complex part used to manufacture a turbine or jet engine. After all the engineering and testing all that remains is a single part produced by casting into a mold that embodies the entire intellectual property in that part. In this sort of situation, whoever controls the intellectual property in the molds controls the product. If — as our international IP lawyers so often see — no party owns any IP in the molds, the molds are effectively open source.

This means that in figuring out what to put into contractual mold/tooling provisions, you need to focus on two things: (1) ownership of the physical molds/tooling and (2) ownership of the intellectual property in the molds as well.

Mold IP issues frequently arise in when dealing with third party mold fabrication shops and when dealing with the outsource factories themselves. Further complicating things is that these two facilities are these days just as likely to be in two different countries, necessitating two oftentimes quite different mold ownership/mold IP protection agreements.

In the next part of this series, we will address mold IP issues when dealing with third party mold fabricators.

As has been well reported, on October 9, the United States’ Bureau of Industry and Security (BIS) added 28 Chinese entities to its Export Administration Regulations banned entity list. For the official federal register notice of this banning go here.

The reason given for placing these Chinese entities on the banned list relates to their alleged connections with human rights abuses by the Chinese government against its own citizens within the borders of the PRC. The  Federal Register notice states: “these entities have been implicated in human rights violations and abuses in the implementation of China’s campaign of repression, mass arbitrary detention, and high-technology surveillance against Uighurs, Kazakhs, and other members of Muslim minority groups in the XUAR.”

This is the first time the entity list has been used for this type of human rights issue.

Twenty of the entities on the list are public security bureaus operating in Xinjiang Autonomous Region: The Xinjiang Uighur Autonomous Region (XUAR) People’s Government Public Security Bureau, eighteen of its subordinate municipal and county public security bureaus, and one other subordinate institute. The other eight entities are manufacturers and service provides in the surveillance sector, with an emphasis on entities that provide AI based facial recognition technologies used in”high-technology surveillance.”  The list of these companies includes all the major players in China in this sector: Dahua Technology; Hikvision; IFLYTEK; Megvii Technology; Sense Time, Xiamen Meiya, Pico Information Co. Ltd.; Yitu Technologies; and Yixin Science and Technology Co. Ltd.

The Chinese government of course sees this as improper interference in its domestic affairs and has demanded the U.S. reverse these entity bans: “China demands US reverse decision to blacklist tech giants over ‘brutal suppression’ of Xinjiang Muslims as Hikvision and others bear brunt of action.”  For this reason, nobody believes the Chinese government will enforce this rule within China. Moreover, any contract, license or other agreement that seeks to enforce the ban will be treated by Chinese government agencies (MPS national and local) and by the Chinese courts as void and unenforceable.

This then leads to a conflict between U.S. (and often EU) law and Chinese law, analogous to what I discussed in my recent post, China’s New Cybersecurity System: There is NO Place to Hide. Here is the problem: under U.S. Export Administration rules, it is not enough for an American company (this most emphatically includes U.S. companies owned by foreign companies and investors) to terminate sales of controlled items to the entities set out on the list. The U.S. exporter must also prevent an evasion of the rules that would occur if a sale is made to a Chinese entity that then transfers the controlled items within China. The entity ban notice is clear on this: “For all twenty-eight entities, the license requirements apply to any transaction in which items are to be exported, reexported, or transferred (in country) to any of the entities or in which such entities act as purchaser, intermediate consignee, ultimate consignee, or end user.”

The usual way to prevent a subsequent illegal transfer or sale is through a contract or other agreement that requires the Chinese buyer NOT to transfer the controlled items to any of the entities on the banned entity list. Violation of this contract would subject this buyer to various penalties if such a violating transfer is discovered. This then sets out the legal conflict. As I explain above, this exact type of restriction will be treated by the Chinese government and its courts as void and unenforceable, which essentially makes it meaningless. Enforcement within China is required because the PRC will not enforce foreign judgements from the U.S. See China Enforces United States Judgment: This Changes Pretty Much Nothing. Even in cases where the PRC might enforce a foreign arbitration award, Chinese courts will not enforce any foreign award that would be void and unenforceable in China.

This situation sets out the conflict. It is not possible for any U.S. exporter to comply with the banned entity list rules when exporting to any entity in China of any item covered by the entity list. This is because it is impossible by contract for any U.S. exporter to prevent a subsequent transfer of the controlled item within China to a banned entity. Moreover, the risk of such transfer is high. Consider three likely scenarios:

1. The Chinese government will assign an entity not on the banned entity list to import the controlled item or technology. That entity will then be able to transfer what it imports to other entities in China without restriction.

2. Most of the entities on the new list are provincial and lower-level security agencies under the ultimate control of China’s Ministry of Public Security (MPS). The MPS has the power to simply order an unlisted public security agency to purchase the controlled item/technology. That agency will then transfer the controlled item to onc of the banned Xinjiang public security agencies. Since this is an internal agency transfer, it is unlikely the transfer will be noted. Any attempt by a foreign seller to control the dispostion of the items would simply be ignored by the Chinese courts.

3. Many of the commercial entities on the list have extensive connections to other large companies operating in China. For example, Megvii is backed by AliBaba. So within China, AliBaba or one of its many Chinese controlled VIE entities that would have the power to purchase the controlled items on behalf of Megvii. So long as the transfer takes place in China in a transaction between Chinese entities, no contract with the U.S. exporter seeking to block such a transfer would be enforceable in China. For this reason, as a legal matter, the transfer is not restricted.

Export control laws in the past have been concerned with dual use technologies for which there is a general international consensus that controls on proliferation are appropriate. This recent entity list classification is concerned with an entirely different type of concern: human rights within China. It is therefore clear that the provisions will not be enforced in China.

This then means that any U.S. entity that exports any controlled item or technology to China faces the significant risk that its exports will violate U.S. export control laws. Any attempt to reduce this risk by contract or other agreement directly conflicts with Chinese law and will therefore not be enforced. So the two legal systems are in direct conflict. There is no way to mitigate this conflict.

But wait, there’s more.

Not only is there no way to avoid the conflict, there is no way for a U.S. exporter to confidently determine what product or technology is subject to the entity list ban. Even low-tech commercial items can come under the ban in ways that are impossible to predict. As explained by the U.S Bureau of Industry and Security:

Many commercial goods are not on the [controlled list] and do not have an ECCN [controlled list identifier]. These goods are designated as EAR99. EAR99 items generally consist of low-level technology, consumer goods, etc. and do not require a license in most situations. However, if your proposed export of an EAR99 item is to an embargoed country, to an end user of concern, or in support of a prohibited end use, you may be required to obtain an export license.  See Page 5 of this.

This means every exporter to China must assume it will need an export license for every product or technology exported to China. This sounds extreme, but as explained above, this is the result. But will obtaining a license be sufficient for protection? Under the U.S. export license system, an exporter is required to provide that its buyer will comply with the restrictions of any such license. But because enforcement of such licenses within China will not be possible because the Chinese courts will not enforce them and because China’s Ministry of Public Security and the Chinese military are simply not subject to the jurisdiction of the courts in any case, companies remain in this quandary without guidance.

This is the conflict, and it is a conflict that cannot be resolved under the current legal system. No Chinese entity will suffer from violating the rules or its contract. In fact, the Chinese violators will be rewarded in China. So who will suffer for the violation? It will be the U.S. exporter. The sanctions are severe and the risk is high. Can Your Business Afford/Stomach the China Risks?

international law

This is the twenty-first episode in our ongoing Saturday series on eight+ things to read about China and a lot more. We constantly get emails from readers asking what to read on China and all sorts of things related and even barely related to China and this series is intended to constantly and consistently answer these questions.

As we said in our initial post on this, our plan is to list out eight (or so) articles we benefitted from reading and think you our readers would also benefit from reading, along with a very brief explanation as to why the particular article was included. More specifically:

The articles will likely include many on China and on Asia and a few on international trade, international politics, Spain and Latin America, economics and really just anything else we believe might benefit our readers or even that we just want people to read. We do not plan to choose articles that push our or any other political agenda or any other agenda for that matter, but having said that, we are not objective and our views may creep through. Our goal though is to focus on articles that are important or helpful or — most importantly — that make you think. Our posting of an article will NOT mean we agree with all of it or even any of it. Most of the articles will be from the week preceding the post but we will also sometimes throw in older articles (classics if you will) as well.

Please do not hesitate to comment at the end of this or any other post. We cannot tell you how much we appreciate your comments, good, bad and indifferent.

Here we go, in absolutely no particular order.

1.Work Life Balance. OECD Better Life Index. Because the OECD compiled a bunch of statistics to rank its member countries on work-life balance. Because all of the top ten were European countries, which must say something: (1) Netherlands, (2) Italy, (3) Denmark, (4) Spain, (5) France, (6) Lithuania, (7) Norway, (8) Belgium, (9) Germany, (10) Sweden. Because I fault it for not having included cuisine quality and heavily weighted that, which would have led to Italy, Spain, and France being ranked one, two, and three. I mean, how can you not include food quality when ranking quality of life? Just saying.

2.  China Trademark Theft. It’s Baaaaaack in a Big Way. Because with so many foreign companies moving (or trying to move) their manufacturing out fo China, Chinese manufacturing companies no longer trust their American or European product buyers. They now (correctly) believe that these buyers are looking to leave China and this makes them much more willing/likely  to risk torpedoing their relationship with these buyers by stealing IP or by duplicating and selling their buyer’s products, or by sending them crap. That Chinese factories are hurting right now only adds to  the risk. So the need for you to register for a Chinese product before you start talking with anyone has gone way up, as has the need for an NNN Agreement that works.

3. China: Foreign Nationals Must Register Their Residence with Local Police within 24 Hours.  Law and Border. Because if you are a foreigner China views you as a threat and it would just as soon you not be there. Because we have gotten ten times the number of people writing us with China visa problems this year than last year and our China lawyers don’t even handle China visa issues for anyone but existing clients. Because along the same lines, we are still getting a steady stream of people writing us about the Chinese police “raiding” their apartment building or office to conduct hair tests for cannabis. See  How to do Business in China without Going to Prison. And don’t even get me started on how badly China treats its English teachers.

4. The Untold Story of How George W. Bush Lost China. Foreign Policy. Because my first thought upon seeing the title of this article was, “nope,” but after reading it my thought was “yup.” Because just about all of us (myself included) bought into the now disproved narrative that engaging China would lead it on a path to “true free enterprise.” Because few at the time understood that China was lying when it agreed to “play by international trade rules and . . . bring its often opaque and cumbersome government apparatus into harmony with a world order that demands clarity and fairness.” Because I get a bizarre sort of kick in putting “China’ in the same sentence with “clarity” and “fairness.” Because fool me once….

5. Why Factories Leaving China Aren’t Going to India. Economic Times. Because this relatively short article does an absolutely fantastic job describing what companies look for in deciding where to site a factory and what countries must do to get on the short list for manufacturing companies fleeing China. Because the winners in this race have so far been SE Asia and Africa [and Mexico] and not South Asia.

6. How The Women-Only Facebook Group Minbar-Shat Helped Overthrow The Sudanese Government. Elle. Because the “women of Minbar-Shat just wanted to snoop on their boyfriends. They helped topple a dictator instead.” Because what is happening in Africa does not get nearly enough play and because what is happening in Sudan impacts and influences not just for Sudan or just for Africa. Because one never knows when a spark will become a flame. See Tunisia’s Jasmine Revolution.

7. Nobel Peace Prize Awarded to Abiy Ahmed, Ethiopian Prime Minister. New York Times. Because this is a great choice for so many reasons. Because See #5 above, where Ethiopia was singled out for taking manufacturing market share from China. Because See #6 above for why what happens in Africa can matter so much. Because it is the Nobel Peace Prize for Pete’s sake

8. European Firms in China Shift Supply Chains to Combat Trade War. Bloomberg. Because just about any time we talk about China’s decoupling from the West, someone writes to say that it not the West, it is just the United States. See also China Hit by EU Tariffs as High as 66%. See also #10 below. Because this article shows that European companies are hightailing it out of China at a rapid pace as well. Because smart companies (U.S., European or otherwise) see the writing on the wall and are at least looking at what it will take for them to reduce their China footprint. See also Can Your Business Afford/Stomach the China Risks? Because this article also indicates many European companies are engaging in illegal transshipping and they need to know that skirting U.S. tariffs is a really bad idea. See How To Get Rich From Your Competitor’s Illegal Transshipping.

9. NBA row heightens foreign companies’ fears they could cross China’s ever-shifting red lines as fallout from Rockets GM’s Hong Kong protest tweet continues. South China Morning Post. Because this was the big China news of the week. Because it was the slap in the face many needed to see China for how it really is. Because, to quote our own Steve Dickinson’s quote in this article, foreign companies are asking : “Why should I put a bunch of effort into building a business in China when it could be wiped out instantly for some reason we have no control over?”

10. China slimming down Belt and Road Initiative as new project value plunges in last 18 months. South China Morning Post. Because this indicates China is running low on hard currency and doing what it can to reduce its spending/wasting of it. Because this comes as absolutely no surprise to anyone (like the China lawyers at our firm) who has worked with a country on anything related to the Belt and Road. Because you can fool some of the people some of the time but you can’t fool all of the people all of the time. See also It Doesn’t Matter if Ecuador Can Afford This Damn. China Still Gets Paid. For an ultra-recent example of China botching a soft power issue, check out Beijing Takes Aim at Prague After ‘One-China’ Dispute Deepens.

Please share any of your thoughts on the above as a comment below.

China lawyers

Since the very beginning of US-China trade negotiations we have been unequivocally negative on the likelihood of a deal and we have just kept saying that foreign companies (especially those that sell their products to the United States) need to work on reducing their China footprint. Today’s micro-deal between the United States and China has not changed our position one iota.

 

1. Don’t Say We Didn’t Warn You. 

In October, 2018, we sounded our first warning call on this blog (though we had been warning our own clients about for months). Our warning call post, China, the United States and the New Normal, was our retort to those who had been sending our China lawyers hate mail because we had in a September 2018 post predicted manufacturing orders from China were declining and would continue to decline. See On the Impact of China Tariffs: Is This a Dead Cat Bounce? 

In April of this year, the Wall Street Journal quoted me in a cover story, Trade Deal Alone Won’t Fix Strained U.S.-China Business Relations, saying the following:

“There is no way any deal between China and the U.S. will cause everyone on both sides to say, ‘We were just kidding,’” said Dan Harris, managing partner at Harris Bricken, a law firm that specializes in investment with China. “The tariffs and the arrests and the threats and the heightened risk have impacted companies and that will not go away.”

Then on May 4, 2019, (one day before President Trump’s May 5 tariff tweet that changed everything) I wrote The US-China Trade War: Winter is Coming on how no matter what happens in the US-China trade war, things would NOT revert back to the way they had been.

Since May, US-China relations have swung from bad to worse, with the United States blacklisting multiple Chinese companies and China tightening the screws on foreign companies. See China’s New Cybersecurity System: There is NO Place to Hide and China’s New Company Tracking System: Comply, Comply, Comply. Most importantly, see Can Your Business Afford/Stomach the China Risks?

 

2. Reducing Your China Footprint is Good Business

Why are we being so negative? Because we have seen the impact the trade/cold/technology war has had on our own clients, which can be summarized as follows: those of our clients that immediately worked on reducing their China footprint have, almost without exception, benefited from having done so. On the other hand, most of our clients that chose to wait for a deal are suffering. Most, but not all, as we do have some clients involved with China for whom the trade war has had little to no impact. One client of ours pays ten cents per widget that it then sells wholesale for eight dollars. Even a 30% tariff for this company is almost meaningless. But other of our clients in a whole host of industries are most definitely hurting for having remained in China, some really badly. The ones hurting the most are the ones that stayed in China while their competitors left.

The two clients I describe below are “poster-children” for the benefits of getting out of China. In describing them, I need to be vague so as not to reveal their identities.

The first company is a big U.S. company that makes electronics and I cannot get more specific than that. The head of this company “loves” geopolitics and from day one he was convinced there would not be a quick deal between the United States and China and, most importantly, no trade deal would solve the issues between China and the U.S. and problems between the two countries would be ongoing for decades. This person declared that his company would within six months reduce its purchases from China by 50% and he wanted my law firm’s help to achieve this. What he wanted from us was the following:

  1. Help in deciding the countries to target for its purchases.
  2. Help in figuring out how to pressure its existing China-based suppliers to move outside China.
  3. Help in figuring out whether to manufacture on its own in countries outside China.
  4. Help in protecting its IP outside China.
  5. Drafting its manufacturing contracts with the companies outside China.
  6. Help in making sure that its products that would be made outside China would truly and legally qualify as having been made outside China.

Our lawyers were thrilled to work on a project(s) with such a wide scope, but I have to confess now (I have confessed this to the client previously so no worries there) that I did not believe this company’s 50% goal was achievable, in large part because of the nature of this company’s products: electronics. If it had been shoes or clothes or furniture or even doors or toasters I would have thought it could move 100%. But electronics, no way.

But this client has now moved about 80% of its production outside China and it has made clear to its few remaining China suppliers that if they cannot supply our client with their products from factories outside China (and soon), our client will cease to buy from them. In other words, this company — in the electronics industry — will soon be buying all of its products from outside China. And what has this move out of China done for this company? It has improved its positioning when making sales because it can and does tell potential buyers that its products do not come from China and therefore its pricing is not dependent on which way the US-China trade war winds are blowing.

The second company is a start-up that makes children’s products. This company initially came to us for a China NNN Agreement. I asked whether his products would be subject to any of what I call the Trump tariffs and he said yes. I then asked why then he was having them made in China, rather than Thailand (I picked Thailand both because it seemed like a really logical product to be made in Thailand and because a number of our lawyers have a lot of experience doing manufacturing deals with Thailand — we even have a lawyer and a Thai Business Specialist who speak Thai. His response to my Thailand suggestion was very positive, but he said that he didn’t even know where to start with Thailand. I said that we could help pretty much every step of the way and we did and the new products will soon be coming to market, with costs LESS than they would have been in China and 100% tariff free. I am guessing this client too will use its made-in-Thailand-ness as a selling point, because let’s face it, American and European consumers tend to have a much better “feeling” about Thailand than they do about China.

 

3. The China-US Relationship Will Not Improve. Act Accordingly. 

No matter what sort of final deal the US and China eventually reach — if any — companies need to face the reality of China’s diminished international future. I can “hear” some of you saying this is just a US issue, but that is not true now and that will be even less true later. See e.g., China Hit by EU Tariffs as High as 66%.

We have been saying that we do not see an end to the trade wars against China because those are mere symptoms of the changing relationship between the West and China, not the disease. The disease is China’s unwillingness to open its market or to cease stealing cutting-end technologies.

The United States is aggressively and unabashedly doing what it can to isolate China and to remove it from the world of international trade. The new free trade agreement between the United States and Canada is further proof of this as it essentially blocks Canada and Mexico from engaging in free trade with China. See What Trump’s new trade pact signals about China. Word is that shutting out China is going to become a regular thing in all new U.S. trade agreements. See US Commerce’s Ross eyes anti-China ‘poison pill’ for new trade deals. Will the EU and Japan and Latin America play ball on this? I predict that most if not all of them will.

 

4. Today’s Micro-Deal is But a Blip. Don’t Be Fooled. 

But what about today’s deal? Is it not a good thing? It sort of is, but it appears to be little more than financially induced stop-gap.  I say “appears” because neither side has come out and explained the deal and supposedly nothing will be memorialized in writing for another 3-4 weeks — which I have to say is not something I would ever recommend to anyone negotiating a deal with a Chinese company! In any event, it seems the heart of the deal is a financial swap, whereby China buys more farm products from the United States (which it desperately needed) and agrees to limit its weakening of the RMB. In return for this, the United States has agreed not to increase tariffs next week, as originally planned.

Without any deal on existing tariffs or on China’s unfair treatment of foreign companies in China or its technology theft, this deal (if outlined properly above) should be viewed as a “nice” deal overall, but not a core change that should lead anyone to believe that much at all will change. Sure, President Trump will tout the deal as a major coup on his part and he will no doubt keep repeating that in an effort to try to bolster the market and his own popularity, but if this is in fact all we have we do not have much. In the short term, America’s farmers will benefit from this deal and many will benefit from the agreement by the U.S. not to increase tariffs further and the agreement by China not to manipulate its currency further. But beyond the increased farm sales, all we really have is an agreement not to make things worse by escalating. That is no small thing but it should not influence your company’s business decisions regarding China. I also suggest waiting to see what is actually inscribed in writing because it will be that — not political puffery — that will give us a real idea of what has and has not been accomplished.

In the meantime, we will continue to write about what North American and Latin American and European and Australian businesses should be doing to deal with the new normal regarding China.

7:00 p.m. PST Update. After I wrote the above I started seeing a number of articles mentioning that there was no currency deal at all, and I now believe that is the case. More importantly, I started seeing a number of China analysts casting doubt as to whether there was in fact any deal at all. Some of these analysts questioned why if there was a deal there was nothing in writing (see above), while others expressed their doubts about an oral deal — even if made — holding. Some have wondered whether the US and China will be able to resist sanctioning each other long enough for a deal to get signed and some questioned whether this “sign in five weeks” thing is just code for we haven’t really agreed on anything yet. All this just reinforces the advice I gave above, which is to wait until you see something in writing before you start making new plans. See also this Tweet by China expert extraordinaire, Bill Bishop, where he notes that China has yet to announce any deal at all, in either Chinese or in English. Because of all this, I’ve added the word “alleged” too the title of this post.

China lawyers
Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments or phone calls as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So we usually provide a quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well, which we generally do on Fridays, like today.

In the last three months or so, one of the most common questions our China lawyers have been getting is some variant on “what is going to happen with Hong Kong?”  Not sure how all of my fellow attorneys answer this, but my answer is usually to say that few people ever really believed China would uphold its one-country two-systems commitment and that what we are seeing is simply a manifestation of that.

My reason for writing on Hong Kong today stems from just having read a terrific Linkedin post by Roberto DeVido, entitled What’s Next for Hong Kong?  Roberto lived in Hong Kong for 13 years and just spent a few days there and his post is a report on what he saw while there and a reflection on how much Hong Kong’s role vis à vis China and the rest of the world has changed and, most importantly, on what will happen next.

I’ve excerpted much of Roberto’s post below, but I strongly urge you to read the whole thing on Linkedin.

I spent a few days in Hong Kong last week and it was saddening. Certainly Hong Kong is no longer the attractive regional hub for international business it once was. Its rule of law has been badly damaged, and its world-class infrastructure has been shown to be at the mercy of local politics (the frustrations of residents and the inability of government to mitigate those frustrations).

I spent 13 years living and working in Hong Kong up to and through the 1997 handover, and my interest in politics and economics means I have kept a close eye on recent developments there.

In the run-up to 1997, many of us suspected the medium-term outcome for Hong Kong would be that it would become “just another Chinese city”. That has proven true, I think, not due to any decline in Hong Kong’s attractiveness, but instead because the growth of China’s main business centres (including what we used to call second- and third-tier cities) has been so astonishing (and lightning-fast).

Twenty to thirty years ago foreign executives and their families could rightly protest that China’s residential, educational, social and transportation infrastructures were inadequate. And while Chinese cities are certainly not leading in most of these areas, they are much, much more livable for foreigners – and importantly, for their families – than they used to be. But if you are doing China business, there is no longer a good reason to base your senior executives in Hong Kong.

The events of the past four months have shown the world that Hong Kong is just another piece on the Chinese Communist Party’s chessboard. On a much more accelerated schedule than expected, Hong Kong has become “just another Chinese city”. The CCP’s sole objective is to remain in power, and the continued pre-eminence of Hong Kong as a regional hub for international business is a very distant secondary goal.

Just before I arrived in Hong Kong last week the police used lethal force for the first time in this conflict, shooting an 18-year-old boy. Two days later, a policeman shot a 14-year-old boy. The angriest segment of the (nearly all peaceful) protest movement was enraged, and attacked the city’s infrastructure, focusing on the MTR rail network. The government responded by invoking emergency powers and banning face masks (used by many to filter tear gas, but also to hide their identities from the facial recognition systems that are undoubtedly identifying thousands). The people (all of them, not just the anarchists) became angrier.

 *     *     *     *

So what happens now?

I don’t have a crystal ball, but it’s impossible to see Chief Executive Carrie Lam as anything other than a dead woman walking. Beijing will replace her, because she has proven incapable of managing the situation, and not least because she was caught saying she would resign if she could. I imagine they are looking hard for the right candidate, someone completely loyal to Beijing, of course, but not horribly offensive to Hongkongers, who will be willing to accept the poisoned chalice of Hong Kong leadership in exchange for future considerations. As for the timing, I would be astonished if Carrie Lam is still in her job at the start of the new year.

Roberto then sets out his prescription for moving forward while noting the following constraints facing any efforts by President Xi’s to fix things:

Although President Xi Jinping does not much care if Hong Kong continues as China’s pre-eminent “international” business city, he does want the situation resolved. And domestically, at least, he wants to be seen as having “won”, to have restored peace, not ceded anything of substance to the protestors, and certainly not to have provided any hope to mainland malcontents that Hong Kong-style demonstrations provide a roadmap to political change.

You tell us. Whither Hong Kong?

China IP lawyer

I was recently quoted in a CNBC article by Spencer Kimball, on counterfeiting in China. If you read my recent post in which I outline my five rules for protecting your IP in China, most of what I had to say to Spencer will seem familiar. But because that article so nicely puts into real world context what I earlier said, I am writing on it as well.

1. Register your IP in China and elsewhere.

The first and most important rule is registering your IP your IP. Though this might seem like an obvious step, companies often fail to do so for a variety of reasons. Spencer’s article describes what happened to Ruth Brons, inventor of a violin study accessory:

She decided against patenting her invention in China when she was starting her business. At the time, she didn’t see the point. China seemed far away and she had heard the courts didn’t really enforce U.S. intellectual property anyway. Brons expressed regret about her decision, but she said getting a patent in China was just too expensive for her at the time.

“I could not have afforded it,” she said. “I’m just a violin teacher.”

Ruth’s concerns are not atypical. SMEs must make tough choices regarding budget allocations. And often there is a sense of resignation when it comes to China counterfeiting. I once advised a client from Puerto Rico who told me during our introductory meeting that he assumed his product would be faked; he just cared about keeping fakes out of the Puerto Rican market.

But as Spencer points out: The costs associated with not registering your intellectual property are also steep. Brons said she’s spent at least $100,000 fighting counterfeiters in China, a substantial some of money for her small, family-owned business. Ms. Brons ended up with counterfeits that cost her sales and she ended up spending roughly twenty times what it would have cost her to register her brand name as a trademark and her design as a patent.

2. Work with international and local law enforcement.

As I explained to Spencer, “To have success fighting counterfeiters, you have to be willing to cooperate with the Chinese authorities… This requires doing a lot of the investigative legwork yourself”. The article highlights how those efforts can be successful, as in Larry Griffith’s case. It also underscores the importance of abiding by the first rule, i.e. registering your IP in China and elsewhere:

With his trademark in hand, he hired the help of a law firm in Beijing that had a team of investigators. They identified four factories that were making counterfeit goods. Police conducted successful raids on three factories located in Ningbo. They were able to seize tens of thousands of dollars of counterfeit products in terms of the goods’ estimated value in the U.S., Griffith said. None of this would have been possible without Chinese trademark protection, he added.

Notice how it was Griffith’s investigators who identified the four factories. To use a sporting analogy, cooperating with law enforcement in China on IP matters is like scoring an alley-oop. You, the IPR owner, must throw the ball with precision so your teammate (the authorities) can jump, grab the ball and slam it down. Don’t expect them to drive to the basket.

3. IP Change is in China’s air.

Spencer’s article has an interesting quote from Griffith: “The Chinese government upheld our rights… It was not a matter of nationalism; it was a matter of law. And I think the Chinese are like a lot of countries — they’re very legally minded; they want to be fair.”

This made me think of a conversation I had with a Chinese IP lawyer just last week. He said that not only are Chinese courts handing down judgments in favor of foreign owners of registered intellectual property — as I mentioned in my five rules for protecting your IP in China post (see Rule #3: Sue the Infringer/Counterfeiter), defendants are being more diligent when it comes to paying damages. This Chinese IP lawyer attributed this to the fact that defaulting on a judgment in China can affect your social credit score, which in trun can impact everything from your company’s ability to conduct business in China and your own ability to buy airplane and gaotie tickets to enrolling your kids in school. See China’s New Company Tracking System: Comply, Comply, Comply.

Whatever you think of China’s social credit/company credit system, it is having a rapid and resounding impact on the effectiveness of judicial awards, including in IP cases. Put simply the odds of you collecting on a Chinese court’s damage award have gone way up. This means that, more than ever, civil litigation in Chinese courts can and should be an essential component of a foreign company’s IP protection strategy.

China Risks

Two months ago, Steve Dickinson wrote a post listing his top 14 “PRC/U.S. trade war wild cards,….at least for today.” It is interesting to look again at those risks to see which have already come true, in just this short time.

The below were Steve’s China wild cards, followed by my updated assessment (in italics) of each:

1. The Dow and other U.S. stock markets continue to respond negatively to the various reports of increased tariffs and other U.S. – China trade issues. If the markets suffer a serious decline in the next several months, it will be hard for the Trump administration to continue to take a hard line on China trade. The same issue applies for the economic damage that has been inflicted on the U.S. farm sector. This sector is a major supporter of President Trump. Negative impact on the farm states could also soften the U.S. position against China. The U.S. stock market has not declined since Steve’s post but farmers have gotten a bit angrier. I though do not see trade resolution no matter what.

2. The situation in Hong Kong has continued for over two months, with no resolution in sight. The PRC government has already blamed the U.S. and Taiwan for the unrest and it has warned the HK protestors against starting a color revolution (the CCP’s biggest fear). The PRC has massed 12,000 riot police on the border and the PLA is on alert. If the PRC takes military action in HK, the impact on trade will be immediate and severe. Sanctions against China will likely come from the U.S., Japan, Australia, and Europe, disrupting trade for many years. The troubles in Hong Kong are escalating and, more importantly, the widening positions between those in the West who are calling for freedom and democracy and those in China is bringing big trouble to foreign businesses like the NBA. This is going to be a huge issue. I see boycotts and I see valuable millennial employees leaving companies that do business with China. 

3. The South China Sea and the Taiwan straight are getting “hot.”  Armed vessels and warplanes from a number of countries are moving in this region in direct defiance of PRC claims that such movement is prohibited. In this chaotic situation, armed conflict could easily break out by mistake due to the actions of “hot headed” local military officers. Keep in mind the Gulf of Tonkin incident and the Corfu Channel Case. One led to a hot war and one led to a cold war. Either could happen here. Still at about the same level of risk. 

4. China has started importing oil from Iran in direct defiance of U.S. sanctions. Violation of Iran sanctions is the reason for the U.S. banning sales to Huawei and detaining Meng Wanzhou in Canada. The U.S. might impose sanctions on the companies importing Iranian oil. More significantly, the U.S. might impose sanctions on the China banks financing these oil trades. Some in the U.S. have even proposed a “nuclear” option where the entities and banks involved would be cut out of the CHIPS and SWIFT systems. Still at about the same level of risk. 

5. The FBI says it is currently investigating more than 1000 IP/trade secrecy thefts involving China. Reports are that most of these cases also allege Chinese government participation. If formal proceedings are commenced, normal trade in many sectors will be disrupted and cooperative R&D with Chinese companies, research centers and universities will be curtailed or even eliminated. Finally, U.S. hiring of PRC nationals in the tech sector will be impacted or even eliminated. Still at about the same level of risk. 

6. Huawei is still on the Entity List and sales of technology of all kinds is still banned. The tentative commitment to ease the sanctions President Trump made at the G20 meeting has not resulted in any change. In fact, U.S. actions against PRC companies in the tech sector have expanded with the recent announcement that the U.S. government cannot make purchases from five PRC companies, including Huawei, ZTE and Hikvision. It is not unlikely that this purchase ban will extend beyond government contracts to a more general ban on all U.S. purchases from Huawei and other PRC tech companies. There has also been talk of late of the United States banning China tech companies that facilitate surveillance of Chinese citizensThe U.S. just added eight tech companies to its banned list, along with 20 Chinese government agencies. China is extremely unhappy about this and is promising to retaliate. I see a 50-50 chance of this spiraling so out of control as to reduce US-China trade by 25% or more.

The six above are the most critical wild cards, but there are plenty more, including the following:

7. The Taiwan election is in full gear. At one point, some politicians in Taiwan were pro-PRC, seeking to expand and improve relations with the Mainland. But with the recent events in Hong Kong, the ban on travel from the PRC to Taiwan and the open military threats against Taiwan, no Taiwan politician who wants a future can take any form of pro-PRC position. This all could lead to escalating conflicts in the Taiwan Strait. The continued support of Taiwan by the U.S. will strain relations with the PRC on the military level. Still at about the same level of risk. 

8. The U.S. Congress continues to propose anti-PRC legislation. In the past, such legislation has been symbolic and has not been adopted. If the Trump administration shows weakening in its trade war position, some or all of this legislation may be adopted. This would then take the anti-PRC policy out of the hands of the president, leaving no room for negotiation. The risk of this is sky-high right now and I see this happening and soon. I see this angering both the Chinese government and the Chinese people and I see this greatly impacting trade.

9. The SEC seems intent to cut PRC companies out of the U.S. securities markets. If the SEC will not take action, Congress has threatened to step in. PRC companies see the writing on the wall and most are shifting their big IPO plans to the Hong Kong markets. This trend then further decouples the PRC from the U.S. with impacts both on the U.S. and the PRC. See China and the U.S. Stock Market: Nowhere to GoTrump floated this idea and then withdrew it. I think the odds of this happening higher now than two months ago and I predict it will happen within the next 2-4 months. 

10. There may be a tipping point when consumers in the US and the EU and elsewhere become so troubled with how China treats its Uyghur and Tibetan populations (see this and this) or how it is acting against Hong Kong or Taiwan or with its efforts to exert control outside China. These sorts of things are leaking out more of late as the bloom is off the rose and we are hearing more and more from our own clients (American and otherwise) saying that they are having employees refuse to go to China or consumers complaining about their goods being made in China. Take a company like Patagonia which has a stellar reputation for caring about the environment and people and even goes so far as to call itself The Activist Company; how much longer can it maintain its moral high ground while still having some of its products made in China? This is happening. See the NBA. See the Houston Rockets. See Blizzard. See what our own clients are telling us. I have been predicting for the longest time that this would occur but even in my own firm nobody saw this with the same urgency as me. The floodgates have opened so everybody better step aside. Go to social media if you don’t believe me and then wait until you (and China) see more than half the attendees at opening night at Staples Center wearing these free t-shirts. The anger and counter-anger will escalate to the point that trade will be greatly impacted. Bet on it. 

11. The U.S. has identified the PRC as a currency manipulator for the first time since 1994. The PRC has responded by continuing to weaken the RMB. If this trend continues, the U.S. could respond by raising tariffs rates even higher than the current 25% rate. The back and forth on this currency issue would then further disrupt purchase of PRC manufactured product.Still at about the same level of risk. 

12. Countervailing duty and anti-dumping cases against PRC industry sectors continue to increase. Higher and higher duties against Chinese industry are being ordered. These actions are independent of the administration. Continued action in this area threatens major sectors of trade with the PRC. No change in administration will have any impact. See Yet Another International Trade (AD/CVD) Petition Against China: This Time it’s Metal File CabinetsThis has continued apace. As one of our international trade lawyers is always saying, the tariffs may not kill you but the duties will. 

13. To avoid the impact of tariffs, many companies are leaving China. But it is not unlikely that the U.S. government will expand the current tariffs to other countries, particularly countries in S.E. Asia that are seeing the first wave of moves. Moreover, as more product is made outside of the PRC, it is likely that countervailing duty/antidumping actions will be expanded to cover those other countries as well. This may mean there will be limited options to avoid U.S. tariffs and other duties. We are constantly hearing of the FBI investigating illegally transshipped product. If you are aware of a competitor that is illegally transshipping, please call or email us because there is a good chance our international trade lawyers would be interested in your case. See How To Get Rich From Your Competitor’s Illegal Transshipping: Moiety and the False Claims Act.

14. There are a host of internal factors in the PRC that could have a major impact. Factors I look at are: a) the inability of the PRC leadership to take any stand other than defiance, leading to no chance of any resolution of issues by diplomacy and mutual agreement, b) African swine fever cuts Chinese pork supply in half, c) African army worm substantially reduces Chinese grain crop, d) consumer price inflation coupled with factory price deflation. The first two are happening but not necessarily at levels greater than two weeks ago, so overall little change here, as of now anyway. 

Overall, the risk of doing business with China has gone up substantially in just the last two months — heck, it’s gone up substantially in just the last two days. See also China’s New Company Tracking System: Comply, Comply, Comply and China’s New Cybersecurity System: There is NO Place to Hide.

Many are no longer asking whether China is too risky; they’ve already decided that it is.

What are you seeing out there?