International lawyer

As a business lawyer who specializes in international transactions, I spend about half of my time working on legal strategy with my clients. I describe legal strategy as figuring out what the right way is to get from A to B, and those are often separated by international borders, vast oceans, and language and cultural barriers, on top of the regular uncertainties and struggles of doing business. When looking to do any sort of overseas business, trusting the company with which you will be doing that business is paramount. It is paramount because if something should go wrong between your company and that company, securing a legal remedy will almost always be more difficult than it would be for an entirely domestic dispute. I always encourage my clients to be fair and even generous in their business relationships but plan that at some point the relationship will deteriorate to the point where they need to start rereading their contracts, focusing on rights, remedies, and enforcement terms.

Every solid relationship requires trust, even if you don’t particularly like the people on the other side.  (I happen to like doing business with people I like, but that is not how everyone does business.) When looking at establishing your international business relationships on trust, what should you trust about the foreign company? The “trust” that you must discern usually involves the following:

  • Can you trust their intentions?
  • Can you trust their ability?
  • Can you trust their judgment?

Intentions. Will the foreign company plan to fulfill the terms of your contract or not? Do they think they can make more money with you than without you? Are they honest and reliable? This is the most basic type of due diligence you should undertake on the foreign company. Find out if it pays its taxes, whether it gets fined by the government for how it conducts business (including how it treats its employees) and, most importantly, whether it always or almost never is involved in litigation with others. You should ask them for references from past satisfied customers or partners and check them carefully.  Be sure you are discussing the same individuals, not just the same company. You will need to make value judgments about the people giving you the references, so don’t cut corners here.

I am a big fan of using an already vetted contract to gauge the bona fides or good faith of a foreign company. For instance, my law firm has been using roughly the same NNN Agreement (these are agreements that will protect your registered and unregistered IP against the foreign company with which you are doing business) for so long that we can usually assess the intentions of a foreign company by how it reacts to it. Silence? Hesitation? Excuses? All bad. If they then provide you a version of their own NNN Agreement, that’s usually a very good sign, but you still need to read it carefully.

Ability. There are plenty of companies and consultants that are completely honest, completely likable, and completely incompetent. Good intentions do not mean a thing if the person with whom you are negotiating lacks the ability to do the job for which you plan to use them.

It is not uncommon for companies in emerging market countries to underestimate the complexity of the task they are agreeing to do or to misunderstand the standards you expect them to meet. You should get very specific very fast about what exactly it is they have done in the past and what you require. Make sure you are clear about their experience. Did they actually do the work you are discussing, or were they a small part of a team that did it? Beware of generalists when you need a specialist. Talk very specifically about deadlines and schedules and prices and be on guard for unrealistic estimates. Find out what they will not or cannot do. Good experienced companies know their limits and will not take on something they cannot handle. The follow-on to this is finding out who will be on the team that is completing the work or producing the products you require. Is the foreign company outsourcing? Are they above board with you about that outsourcing?

At the same time, it is important you know what abilities are even possible with the product or in the country with which you are dealing. If every widget manufacturer in Mexico or South Africa requires at least 45 days turnaround time, your insisting on 20 days will not reveal anything except your unrealistic expectations, which will not further your business relationship.

Judgment.  Standards on everything vary widely by country and even within the same country, and your conception of high standards may be very different from that of your potential partner. You need to establish a “meeting of the minds” on this with your potential overseas partner, and this means you need drill down to the details. Starting with a term sheet or a letter of intent (LOI) is a good idea, and it should be as detailed as possible. Once you get to the stage where you think the lawyers will be impressed with the amount of detail you have considered, then it’s time to have your law firm turn the term sheet or LOI into a binding agreement.

In many emerging market countries you will find yourself spending massive amounts of time getting to know those with whom you are contemplating doing business, but time does not necessarily correlate with answers to the questions that really matter to you — I would contend there is actually an inverse correlation. Being wined and dined can be fun, but that honeymoon stage of the business relationship needs to give way to solid relationship fundamentals undergirded by concrete, verifiable details.

Keep digging for specifics, especially if anything you are being told does not sound completely right. One of my international colleagues loves to say that what seems clear and easy at the beginning of a business relationship can quickly become difficult and confusing after the deal is done. Details, details, and more details will help you keep your head and your negotiating position clear for the duration of the business relationship.

China manufacturing contractsWith China manufacturing becoming increasingly risky, many companies looking to have their products manufactured overseas are retaining product sourcing companies to help them find new suppliers in other countries for their manufacturing. This in turn is forcing product sourcing companies to themselves diversify into other countries and many (most?) of them do not seem to realize the risks or the legal implications of their doing this. Our job as their international lawyers is to explain those risks and seek to eliminate or reduce them. This post is on that.

The first thing we tell these consultants/sourcing companies is the following:

If something/anything goes wrong for your client YOU will be your client’s first choice for legal redress.

What can go wrong? And what can you as a product sourcing consultant do to prevent or ameliorate it? Corporate planning to protect your personal assets is an absolutely necessary first step. Beyond that, however, and more specific to product sourcing, there is a lot you can and should be doing to better protect your client and thereby better protect yourself.

A typical international product sourcing project, might go like this:

  1. Western company retains an international product sourcing consultant to find “the best widget manufacturer” in terms of cost/quality/dependability.
  2. The sourcing consultant requests and secures a sample widget from a number of manufacturers in various countries.
  3. The sourcing consultant meets with a number of manufacturers in search of the “best” one.
  4. The sourcing consultant recommends company X in country Y to manufacture 100 million widgets.
  5. The sourcing consultant is to be paid a percentage of the manufacturing costs.
  6. Company X in country Y starts manufacturing the widgets.

By this point, I am guessing the sourcing consultants reading this are saying, “yes,” while the international attorneys out there are already apoplectic. Let’s deconstruct this hypothetical project and note where the consultant has potentially harmed the client and needlessly taken on huge liabilities for itself.

  • The sourcing consultant agreed to find “the best” widget manufacturer. Is that best in a particular country or best in the world? What if the widget manufacturer charges one hundred dollars a widget for 100 million widgets, but your client’s competitor is able to find another widget manufacturer who will do it for ninety dollar? Are you liable for the ten dollar difference your client has to pay? Even worse, what if your client’s competitor gets the same widget manufacturer to do 100 million widgets for ten dollars less? Do you really think a US jury, for instance, is going to believe you were doing your best when your fee was a percentage of the final costs? Are you responsible for the manufacturer’s late deliveries? Are you responsible for the  manufacturer’s bad product?  Is it clear exactly on what your percentage is going to be based and have you set things up so that your client cannot just go around you? The Solution: Use a well-crafted written contract with your client to make clear exactly what you will and will not do and put in a non-circumvention provision to make sure you get paid.
  • If you show a product sample or a CAD drawing from your client to various potential manufacturers overseas without FIRST putting in place various safeguards, you are courting disaster. We had a consultant call one of our international lawyers in a panic after returning from Asia and learning that one of the manufacturers to which he had shown a sample had already started manufacturing the exact same product for someone else using the consultant client’s brand name which it had gleaned from the Internet. The Solution: Never show a sample or product plan or reveal your trade name(s) without first making the potential manufacturer sign a country-specific NNN Agreement (these are essentially hopped up NDAs that protect against competition, circumvention and disclosure). Legitimate international manufacturers tend to be quite familiar with NNN agreements and if you give them a simple and reasonable one, in their native language, they will almost always sign it.
  • If you as the product sourcing consultant will just be figuring out and negotiating the basics, such as the price and delivery dates and then essentially walking away, you should at make clear in writing that these are your only tasks. Product sourcing consultants often oversee the manufacturing contract with the manufacturer and by doing so, they face major liability issues if that contract is not up to snuff. You are your client’s “international person/company” and your client is counting on you to guide it through all of the business minefields it might face in having its products manufactured in a strange country and as their international consultant, many will just take it as a given that you know everything about what it takes to do business internationally. Equally importantly, with the manufacturing of its product, your client is probably turning over to the manufacturer all sorts of critical intellectual property. Your client probably thinks its existing patents, trademarks and copyrights will protect it overseas, but a court will expect you as the expert to know better. The Solution: Put in writing with your client that you will not be providing legal advice and that your client should retain its own lawyer to draft its manufacturing agreements to protect itself. Put in writing that it is your client’s responsibility to protect its intellectual property and that to do so, it should consult with its own lawyers about registering its IP overseas.

Just remember that your client sees you as the expert at doing business internationally and it is looking to you for help in all areas and if you fall short in any way, you are at risk for a lawsuit. And then make sure that your contract addresses these issues and protects you from them.

Protect thyself.

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The large-scale shift to telework brought on by the COVID-19 pandemic is prompting businesses around the world to explore new avenues to engage with clients and friends. Harris Bricken is no exception, and we are proud to announce our new podcast series: Global Law and Business, hosted by international attorneys Fred Rocafort and Jonathan Bench.

Every Thursday, Fred and Jonathan take a bite-sized look at legal and economic developments in locales around the world in an effort to decipher global trends in law and business with the help of their international guests. No topic is too big, too small, too simple, or too complicated. They will be covering continents, countries, regimes, governance, finances, legal developments, and whatever is trending on Twitter.

In Episode #8, we are joined by David Baxter, an international public–private partnerships (PPP) consultant. We cover:

  • Why PPPs are an important way of doing projects that benefit both developing and developed nations.
  • The increased frequency of PPPs around the world.
  • Past PPP success and failures, as well as promising PPP projects in the future.
  • What is being planned with regard to public health-focused PPP projects in light of Covid-19.
  • Further reading, listening, and watching recommendations from:

If you have comments on this episode or if you’d like to suggest topics for future episodes, please email globallawbiz@harrisbricken.com.

And please follow Fred and Jonathan on social media to stay informed on upcoming guests and topics:

We’ll see you next Thursday for another discussion on the global business environment, this time with guest attorney Erik Mitbrodt as we discuss Hong Kong.

China employment lawyer for employee terminations

In these uncertain times during the pandemic, many employers in China are turning to layoffs, furloughs, and pay cuts to reduce their labor costs. Others are using severance payments to induce employees to agree to mutually part ways. If you as a China employer are seeking to terminate an employee via a mutual termination, you should be sure to use an enforceable mutual termination agreement.

It is important to bear in mind that mutual terminations usually occur when the employer does not have a good legal basis to unilaterally terminate an employee so will pay the employee severance in return for the employee agreeing to leave.

Consider this hypothetical. The employer and the employee reach a mutual termination agreement where they agree the employer will pay the employee severance for this amount: “/”. The agreement also includes a full employee release. Suppose the mutual termination agreement is fully executed by both parties and there is no evidence suggesting coercion or deception on the part of the employer. The employee later brings a labor arbitration claim against the employer for statutory severance. The employer argues that the symbol “/” means the severance amount is zero. Will the employee prevail? The short answer is that the arbitration tribunal/court will likely deem the agreement too one-sided and unfair to be valid.

One might argue that the employee should have known the implications of signing a mutual termination agreement, and having signed the agreement, the employee now must accept its consequences (i.e., no severance payment). However in a recent case based on facts similar to those above, a Beijing court ruled that the clause regarding severance is unclear and the agreement itself is obviously unfair and so it disregarded the agreement and ordered the employer to pay severance to the employee. In that case, the employer argued that the employee resigned for personal reasons and the parties agreed no severance was owed to the employee. The court was not persuaded.

What are the key takeaways from this case?

First, when an employee resigns, you as their China employer should not use a mutual termination agreement, no matter what the employee says.

Second, whatever mutual termination agreement you use needs to be vetted by a China employment lawyer before you use it. An unenforceable agreement will not protect you and it will hurt you. Because our China employment lawyers have seen far too many DIY mutual termination agreements it is worth noting that this is a serious legal document that needs to protect you and there is no excuse for using one that does not.

Third, the mutual termination agreement must be fair and reasonable. If you are proceeding with a mutual termination, you should be prepared to make a severance payment in an amount at least equal to the statutory severance amount. Otherwise, you run a real risk of your employee not cooperating to reach a settlement or, as the case above demonstrates, eventually suing you to get the severance payment the employee believes he/she deserves.

What if the mutual termination agreement specifies that the severance amount is zero? Well, first of all, good luck getting an employee to sign an agreement in exchange for no severance at all. Next, even if your employee signs such a termination agreement, the chances of a court (especially a court in Beijing) upholding such an agreement are slim to none. As a general matter, the employer must pay the employee something for a mutual termination. Put simply, if it is not a mutual termination (e.g., employee resignation), then a mutual termination agreement should not be used to avoid confusing the employee and the arbitration tribunal or the court.

A related question is what if the agreement specifies an extremely small amount for severance: say, 10 dollars. Such a small amount will likely be considered unreasonable by all arbitration tribunals/courts in China. Choose the right amount of severance (no less than the statutory severance amount) so both you and your employee can move forward on separate paths. Otherwise you are just setting your company up to be sued in an expensive and time-consuming lawsuit down the road.

If you want to know more about how to handle employment law matters in China, I urge you to attend my free webinar on June 23. For more about this webinar and on how to sign up, please go to FREE WEBINAR – China Employment Law: What Your Company Needs to Know.

 

Hong Kong Independence
Photographer: Anthony Kwan/Bloomberg via Getty Images

One of the Chinese Communist Party’s (CCP) most persistent bugbears are separatist threats—real or imagined—on the fringes of its empire. The most recent manifestation of this concern has been the CCP’s response to the ongoing unrest in Hong Kong. On May 20, 2020, the National People’s Congress adopted a decision regarding “national security” in Hong Kong. According to the decision’s preamble, “illegal activities such as ‘Hong Kong independence,’ splitting the country, and violent terrorist activities have seriously endangered the sovereignty, unity, and territorial integrity of the country.” Such is the extent of the CCP’s agitation that it must combat independence even on the linguistic front, putting the characters in quotes to stress the unthinkable nature of the concept.

Elsewhere, the CCP has justified its reeducation camps in Xinjiang by “claiming they are for ‘education transformation’ and ‘vocational training’ in the fight against the ‘three evils’ of ‘separatism, terrorism and extremism.’” There are also “separatist elements” at work in Tibet. Even the CCP’s militaristic designs on Taiwan are framed in delusional “anti-secession” terms.

The existence of secessionist movements within China is not in question. Xinjiang and Tibet have had independence movements for a long time. And though Hong Kong independence was until recently a fringe idea, by December 2019 it was supported by 19% of Hongkongers—and it is reasonable to assume that support has only grown in the following months. Critics of CCP policies in places like Hong Kong point out that they should be free to have this stance. This would be consistent with international law. Article 1 of the International Covenant on Civil and Political Rights, of which China is a signatory, declares,

All peoples have the right of self-determination. By virtue of that right they freely determine their political status and freely pursue their economic, social and cultural development.

Defenders of the CCP often seek to deflect criticism over the repression of separatist views by drawing comparisons to the West’s own secessionist movements, denouncing what they perceive as some Western countries’ hypocrisy. “Do you think the United States would allow Hawaii and California to declare independence?”, they ask. (This particular comment was taken verbatim from Twitter). As the debate over Hong Kong becomes more contentious, more comments like this are popping up on social media, but this line of argument is not new.

There are two glaring problems with this particular tack. First, whatever practical obstacles may stand in the way of, say, Texas or California independence, Texans and Californians are free to express secessionist views. The president of the Texas Nationalist Movement can and does tell Atlantic that Texans “deserve their own land” without fear of persecution. Meanwhile, in neighboring Canada, the secessionist Bloc Québécois holds more than a third of Quebec’s seats in the House of Commons. In Spain, parties that support the independence of Catalonia and the Basque Country, such as Esquerra Republicana de Catalunya, are represented in the Spanish Parliament. The Scottish Nationalist Party not only holds 47 of Scotland’s 59 seats in the House of Commons, but also governs Scotland. Despite calling for Scottish independence, First Minister Nicola Sturgeon can sit down with the British prime minister without being told she will stink for 10,000 years.

Scotland also evinces the second big flaw with the secession whataboutism, which is that there are actual instances of Western countries telling one of their regions they are free to go. In 2014, Scotland held a referendum on independence, with the support of the British government. As then-Prime Minister David Cameron stated,

I always wanted to show respect to the people of Scotland. They voted for a party that wanted to have a referendum. I’ve made that referendum possible and made sure it’s decisive, it’s legal and it’s fair, and I think that’s right for the people of Scotland.

In 1995, Quebec also held a referendum on independence. Though the referendum was not the result of negotiations between Quebec and the federal government, the referendum was allowed to take place, and then-Prime Minister Jean Chrétien made the electoral case against independence. Questions remain about what would have happened had Quebec voted for independence. We know now that Chrétien “had a speech ready to be delivered in the event of a [pro-independence] vote, outlining that the referendum question had been too ambiguous to be binding, and that he would interpret the vote as indicating a dissatisfaction with the status quo, requiring negotiation but not separation.” However, Chrétien was concerned that Quebec’s pro-independence government would proceed with a secessionist plan, “seeking recognition from foreign governments and dismantling links with the federal government.”

At that point, Chrétien would not argue with mere words. He would need a game-changer. His plan was to move quickly, within a month or so, to ask Québecers another question in another referendum: Do you want Québec to separate from Canada? If those voting yes had a clear majority — not just 50 per cent plus one but some unspecified threshold — he planned to hold a national referendum on what position the federal government should take.

Chrétien was not prepared to see the country break up on a trick question and a narrow margin of support. But he was prepared to ask Québecers a direct question and live with the result.

Chrétien was prepared to question the legitimacy of the referendum and to subordinate Quebecers’ wishes to those of Canadians as a whole. However, he appears to have understood that a compelling demand for independence could not have gone unanswered.

Turning to the United States, the Civil War, arguably the most important event in the country’s history, was in essence a war over the secession of the Southern states (with the secession attempts motivated, of course, by a desire to maintain slavery). In fact, the war is sometimes called the War of Secession, particularly in other countries. It must be pointed out, of course, that the world is a very different place now than it was in 1861, and the Civil War offers little practical guidance on how the U.S. federal government would deal with a similar challenge today—especially if the fundamental issue of slavery was not at the heart of a secession drive.

Perhaps a more useful example of contemporary U.S. approaches is that of Puerto Rico, a U.S. territory that has held multiple votes on its political status, the most recent in 2017. In all of these, independence was among the voters’ options. Moreover, when he visited Puerto Rico in 2011, President Obama proclaimed, “when the people of Puerto Rico make a clear decision, my administration will stand by you.” In fact, the Obama administration wanted Puerto Rico to hold a referendum “on whether the territory should be independent or part of the U.S.” In addition, the Puerto Rican Independence Party is represented in the island’s legislature, and fields candidates to represent Puerto Rico in Congress.

A legitimate objection to this example is that Puerto Rico is not an integral part of the United States, as are the 50 states and the District of Columbia. A line of U.S. Supreme Court decisions known as the Insular Cases have long established that Puerto Rico is not a part of the United States for all purposes. For instance, in Downes v. Bidwell (1901), the Court held that Puerto Rico is “a territory appurtenant and belonging to the United States, but not a part of the United States within the revenue clauses of the Constitution.” In Balzac v. Porto Rico (1922), it was held that Sixth Amendment protections regarding jury trials did not extend to Puerto Rico.

The Insular Cases can be understood as a recognition that Puerto Rico was different than the 50 states, at least in some ways—a reality that continues to this day. Due to its special status, the federal government’s views regarding Puerto Rican independence should be viewed with particularity. The question remains though: what would happen if a state of the Union, like Texas or California, held a referendum on independence?

The U.S. Constitution does not establish a process for secession but it does not explicitly prohibit it either. We must therefore look to the Supreme Court for guidance. In Texas v. White, an 1868 case that dealt with fallout from the Civil War, the Supreme Court held that Texas’ “ordinance of secession, adopted by the convention and ratified by a majority of the citizens of Texas, and all the acts of her legislature intended to give effect to that ordinance, were absolutely null.”

They were utterly without operation in law. The obligations of the State, as a member of the Union, and of every citizen of the State, as a citizen of the United States, remained perfect and unimpaired. It certainly follows that the State did not cease to be a State, nor her citizens to be citizens of the Union.

Nine years later, in Williams v. Bruffy, considering the validity of legislation enacted by the Confederacy, the Court held:

The United States, during the whole contest, never for one moment renounced their claim to supreme jurisdiction over the whole country and to the allegiance of every citizen of the republic. They never acknowledged in any form or through any of their departments the lawfulness of the rebellious organization or the validity of any of its acts except so far as such acknowledgment may have arisen from conceding to its armed forces in the conduct of the war the standing and rights of those engaged in lawful warfare. They never recognized its asserted power of rightful legislation.

These decisions clearly establish the Supreme Court’s view that the unilateral secession of the Southern states was unconstitutional. However, the White court did not categorically reject the possibility of lawful secession. Considering the indissoluble links between Texas and the rest of the states, it held that “there was no place for reconsideration, or revocation, except through revolution, or through consent of the States.” The Court could have closed the door on secession altogether, but instead it chose to explicitly distinguish a negotiated departure from the unilateral, violent actions of the Confederate states. This is a remarkable concession, just three years after the end of the Civil War.

Whatever the intricacies related to U.S. jurisprudence on secession, what is clear is that the CCP’s approaches are unsupported by practices in the U.S. and Western countries that have dealt with the same issues or by international law. Even when the emotions of the Civil War were still raw, the U.S. Supreme Court recognized that, through negotiation, a state could leave the Union. The CCP, on the other hand, does not even recognize the right of individuals in its territories to express support for their independence. It does not even allow the word “independence” to be used in the context of Hong Kong without quotation marks.

Furthermore, the CCP and its apologists should not limit their analysis to the United States (and even then, to speculation about what would happen if a state wanted to secede in the present). If Scotland, which has been a part of the United Kingdom since 1707, can hold a referendum on independence with the support of the British government, why can’t Tibet—an independent nation until 1959—do likewise? Since China supports Palestinian independence why does it clamp down on East Turkestan independence? Why can’t supporters of Hong Kong independence hold seats in the Hong Kong’s Legislative Council, as Quebec, Catalan, Basque, Welsh, and Scottish secessionists do in their respective national parliaments?

To answer these questions, look not to the CCP’s views on China’s territorial integrity, but rather to its complete disregard for the will of its citizens. After all, China’s citizens cannot vote for their leaders so why should we expect they would be allowed to vote for anything else?

China criminal law

In the United States and Europe, it is uncommon for a dispute between two business people to become subject to criminal law enforcement. This is not true in China. In doing business in China, you need to be aware of two things: the scope of economic crime there is far broader than you probably expect and the Chinese party with whom you are conducting business is far more likely to pursue a criminal complaint than you would expect.

China has developed an elaborate set of laws concerning ‘economic crimes’ that parallels its civil law system. The area of economic crime is quite extensive. My Chinese textbook on economic crime is over 1500 pages long and it describes 105 separate crimes, divided into eight categories. Dealing with economic crimes has become an increasingly large portion of the workload of the average Chinese court. Many of these crimes are garden variety crimes, such as smuggling or passing bad checks, that would be considered a crime in most countries. However, a whole host of crimes applies to areas most Western business people would think would be dealt with by private litigation. For example, one general area of crime is “Disturbing the Market Order.” Another is called “Damaging the Management Order of a Company or Enterprise.” Crimes in these categories can be very broadly described and are often applied in areas that are surprising to a Western business person. For example, criminal fraud is very hard to prove in the United States. That is not the case in China.

Here are some examples of ways Western businesspeople can and do find themselves caught up in China’s criminal law system:

1. There is a sale of product. The Chinese party complains that the product is defective. The foreign seller insists the product meets standards and it is the buyer’s own processing that caused the problem. This normal business dispute may be transformed into the crime of sale of defective products.

2. A Chinese company pays a substantial deposit to a foreign service provider to develop a sophisticated market access program for the United States. There is a dispute over the quality of the service provided by the foreign provider. The foreign provider does not collect the remainder of its fee, but it refuses to refund the Chinese company’s deposit. This normal business dispute may be transformed into the crime of contract fraud.

3. A Chinese company insists on a guarantee of payment from a foreign seller through the deposit of promissory notes issued by a foreign party. When the Chinese party attempts to collect on the notes, it cannot do so because of a banking regulation or some other technical matter. The foreign seller does not make alternative arrangements for payment. This normal business dispute may be transformed into the crime of financial fraud.

An offended Chinese business person is also much more likely to pursue a criminal complaint than its Western counterpart. There are a number of reasons for this. First, there is the longstanding tradition in China that law is basically a criminal matter. Many Chinese judges are still more comfortable handing out criminal sanctions than deciding on the merits of private commercial dispute.  Second, many Chinese businesspeople are more comfortable beseeching the police, the prosecutors, and/or the courts for justice than pursuing justice on their own. Third, there is an economic incentive. If the State pursues the claim, the offended person or company saves on the expense of having to hire and pay for its own lawyer. Fourth, as part of the criminal action, the State will seek to force the foreign defendant to pay redress to the offended party and it has a lot of power (like prison or not letting the person leave China) to accomplish this. In China, the State is more likely than a private party to be able to obtain assets from a defendant, especially a foreign one.

Bottom Line: If you are involved in a business dispute in China, you should immediately consider the risk it will be transformed into a criminal matter. If the other side in your business dispute threatens criminal sanctions against you, you should take this very seriously. You need to be completely sure that what you consider to be an entirely innocent commercial dispute is not in fact a potential crime under the wide application of economic crime applied in China. Above all else, if you think you might be subject to criminal claims in China, do not go there and, if already there, leave as soon as you can.

Moving your manufacturing Out Of China

In addition to my regular legal practice advising companies on relocating their manufacturing or business operations around the world, I have over the last few months given a number of presentations in-person (pre-Covid-19) and online (during-Covid-19) about the opportunities and challenges of relocating internationally. Some of these presentations you can now view online: Effects of COVID-19 on Doing Business with China, How to Rebuild Your Asia Supply Chain, Understanding CFIUS, and Southeast Asia as an Alternative to China.

My colleague Fred Rocafort and I have also been providing additional international context to companies considering international relocation by hosting guest speakers located from around the world in our new Global Law and Business Podcast, which is available on SpotifyApple PodcastsGoogle Play and Stitcher. So far we have covered regions as far-flung as Brazil, East Africa, Southeast Asia, and the European Union (EU), as well as internationally relevant topics like Artificial Intelligence (AI), Brexit, International Cannabis, and Public Private Partnerships (PPPs) (episode drops this week).

We will continue to canvass the world and cover different countries and topics, and we would like to know what you want to learn about. In some areas, like China, we can talk for days on various aspects of doing business with China. In other areas (like Africa), we are deepening our international law and business expertise by familiarizing ourselves with the relevant business laws, opportunities, and challenges presented. Each country has its own set of laws, which are often a patchwork of civil law, common law, and, in some instances, also Sharia law mixed together. Currently many countries are seeking to capture some of the manufacturing leaving China as a result of the trade wars and coronavirus and/or looking to foster homegrown businesses that can fill domestic demand and grow internationally.

Whether you are looking to move your manufacturing or target international markets, relocation is rarely something that can be done cheaply, easily, or simply. It is complex and mentally tasking to consider how to relocate from a country like China that has, for the past two decades, been essentially a “plug and play” destination housing almost 1/3 of the world’s manufacturing capacity, to a country with a different legal structure, climate, geography, industries, government priorities, history, negotiating style, and global aspirations. But all of this does not mean that there are not opportunities for companies looking to relocate manufacturing or to access new consumer bases.

Take Indonesia as an example. Indonesia is working hard to modernize its laws and regulations to make the country more attractive to international businesses, including its recent rollout of its updated Online Single Submission (OSS) platform for all business licensing. After China and India, Indonesia is the next most populous Southeast Asian country, with a population of 260 million and a labor force of approximately 135 million (double Vietnam’s).

The Indonesian legislative branch is called the People’s Consultative Assembly (MPR), which is its bicameral parliament (made up of two houses) comprised of the People’s Representative Council (DPR) (550 representatives) and the Regional Representative Council (DPD) (128 representatives). Indonesia’s MPR is currently considering four omnibus bills that, if implemented, will radically alter the business landscape in Indonesia:

  • Job Creation Omnibus Bill (aims to provide more certainty and flexibility to businesses regarding employee matters)
  • Tax Omnibus Bill (would lower the corporate tax rate from 25% to 20% to bring it more in line with regional competitors, with a bonus 3% reduction for publicly listed companies)
  • Micro, Small and Medium Enterprises (MSMEs) Omnibus Bill (aimed to foster the growth of small and medium sized companies)
  • Capital City Relocation Omnibus Bill (from Jakarta to East Kalimantan on Borneo)

But like any international jurisdiction, Indonesia has and will continue to perpetuate certain ways of doing business, some of which are codified in its laws, while some are not. For instance, Indonesian LLCs (called PT PMAs) must have an Indonesian human resources (HR) director, among other director positions reserved solely for Indonesian nationals, and the company cannot exceed the debt to equity ratio of 4:1. Rather than see these requirements as quaint quirks of Indonesian law that will be repealed when Indonesians become more enlightened, it is important to see these as foundational to the way Indonesia has and will continue to do business due to historical and cultural factors.

Dealing with these types of complexities is the cost of doing business internationally, but it is in your best interest to get up to speed as quickly as you can about existing and up-and-coming alternatives to China. We will continue to keep you abreast of significant legal and business developments around the world both on here, as part of our podcasts (on SpotifyApple PodcastsGoogle Play and Stitcher), and via webinars.

 

 

China Lawyers

We started this blog more than thirteen years ago with a manifesto that has remained unchanged.

I find myself looking at this manifesto often, including this morning. I look at it to make sure that what we are writing comes within our promise to you, our readers. The heart and soul of our manifesto (at least in my view) is the following:

We know lawyers are not popular, and though we are ourselves really quite likable, we recognize the need to avoid those things that incite lawyer hatred. In other words, we will strive to avoid legal jargon and namby-pamby language that attempts to camouflage our views or to avoid controversy.

We want this blog to be a place for conversation and even controversy. We expect many of you will disagree with us much of the time and we do not care. We will always strive to avoid boring you or being unwilling to take a stand. We are not going to be afraid of being wrong — in fact, we want you to tell us when and how we are wrong. If you want “lawyer language” or long strings of caveats, you are going to have to pay exorbitant legal fees to get that elsewhere.

And it is this portion that I most often find myself reading, especially in the last couple years as China’s relations with the West have deteriorated and as China’s actions grow increasingly ugly. It would be easier for us to ignore these things and focus strictly on the business side, but that would be naive and dishonest. We made a promise and we intend to keep it and if that leads to controversy, so be it.

Our job was, is, and will always be to tell the truth as best we can. Our job is not to make it seem like all is good with China so as to reinforce anyone’s views or even career or business.

It was a lot more fun in the early days when we were giddy with optimism about China’s growth and changes and interactions with the world. Those days are over and though it is no fun to constantly have to hammer that home, it would be even less fun to lie about it.

Also, and maybe this is just me, but I do take a tiny bit (and it is truly just a tiny bit) of pleasure in being right. And by being right, we called the following — and took massive heat every time — for the following:

  1. Asserting that the US-China Trade War was a lot more than just a trade war and would last a long time. See China, the United States and the New Normal
  2. The US-China Cold War. See The US-China Cold War Starts Now: What You Must do to Prepare. May 8, 2019.
  3. Hong Kong’s Demise. See Hong Kong for International Business: Stick a Fork in It. August 13, 2019.
  4. China’s Declining Importance as an international Manufacturing Center. See Would the Last Company Manufacturing in China Please Turn Off the Lights.

The below is that manifesto, which we posted on here in January, 2013, as “INTRODUCTION TO OUR BLOG“,  The below is what we promised you oh so many years ago and we have tried to keep our promise ever since. Please let us know how you think we’ve done.

 

Why are we doing this?

What exactly will we be doing?

There are more than 4 million blogs. Many of these are about China, including some very good ones. Some of our favorites include Talk Talk China and Simon World for general China information, The China Stock Blog for Chinese stock market information, China Tech Stories for information regarding China’s technology sector, and Journey Around China for travel information.  [3-6-2012 Update: None of these blogs still exist so we removed the links]

There is even a superb Chinese law blog, The Chinese Law Prof Blog, but it has a distinctly academic bent and we will not.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you about what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy. We want to start a conversation with, for and about the person who wants to know “what is what” in China and the practical aspects of starting and growing a business in or involved with China.

We are not writing for those who want to know more about Section (A)viii of a particular piece of Chinese legislation or the history of that act or the policy reasons behind it. Our site is not focused on the legal scholar or the China lawyer.

We want to initiate a discussion regarding the changing laws in China. We will constantly be challenging the various misconceptions the West has about law in China, including that the law in China does not really matter or that guanxi can supplant it.

We will provide information to those who conduct business with or in China as to how they can use the law as both a shield and as a sword. We will give you our insights to achieve practical solutions, while doing our best to entertain.

We know lawyers are not popular, and though we are ourselves really quite likable, we recognize the need to avoid those things that incite lawyer hatred. In other words, we will strive to avoid legal jargon and namby-pamby language that attempts to camouflage our views or to avoid controversy.

We want this blog to be a place for conversation and even controversy. We expect many of you will disagree with us much of the time and we do not care. We will always strive to avoid boring you or being unwilling to take a stand. We are not going to be afraid of being wrong — in fact, we want you to tell us when and how we are wrong. If you want “lawyer language” or long strings of caveats, you are going to have to pay exorbitant legal fees to get that elsewhere.

Though our focus will be on the interaction of law and business in China, we most certainly will be personalizing this page with our own experiences. We will tell you more than just that the law is this and this is what needs to be done to comply. We will discuss how the laws as written may say one thing, but our experience dictates something else. We will tell you when you need to do more than just follow the law to succeed and we will set out exactly what that something else is. We will estimate the chances for success if one does one thing as opposed to another. You will hear what we have done to succeed for ourselves and for our clients in China and you will hear about where we failed. We will regale you with stories about the Chinese lawyers with whom we work, the foreign and Chinese businesspeople with whom we deal, and even the places we go. There will be times where our lawyer ethical rules will make us unable to name names, but we will always work to tell the full story.

In addition to our discussions regarding what we are seeing on the ground in China, we will post articles and postings from elsewhere, to which we will, when appropriate, add our own comments. We will also post events, like seminars, conferences and trade shows, that we believe will advance our readers’ grasp of China law and business.

It has become a blog cliché to implore readers for their input, but it is so important we must join the crowd on this. We do not purport to know everything about Chinese law. That is impossible.  China is anything but monolithic and the differences in the legal situations between the various regions are no less pronounced than the cultural differences.

The strengths of our China attorneys who will be writing for this blog are in forming companies in China (WFOEs and Joint Ventures and Representative Offices, mostly), in drafting international contracts with Chinese companies (in English and in Chinese), in intellectual property protection, in technology licensing agreements, in media and entertainment, and in litigation. We welcome your comments, suggestions, and ideas on any area of law relating to doing business in China.

In plain language, we ask that you write us early and often. We will review your comments before we post them, but that does NOT mean you should not criticize us or disagree with us. Our review will be to filter out “comment spam” and comments that are without substance and/or are personally abusive. We want to encourage a high level of discussion but we will not ban or delete your comments just because you come after us — at least not the first few times.

So why are we doing this? The short answer to this initial question is that we are doing this to — in our own small way — advance the dialogue regarding Chinese law and business.

China Employment Webinar

REGISTER HERE for this FREE webinar!

China’s employment laws have always been complicated and highly local. But with the coronavirus, they have become even more local and more complicated.

Foreign companies with employees in China face China employment issues and questions every day – often without even realizing it. What works in the United States, Canada, Europe or Australia has little in common with what works in China.

China Employment compliance has become one of the most important issues for foreign companies in China and few foreign companies get it right. China employee disputes are common and government enforcement just keeps getting more stringent. The time, hassle and costs for foreign companies just keeps rising. Foreign companies can and do benefit from knowing the employment laws relevant to their location and their industry. This free webinar will help you and your company attain that status.

Please join Grace Yang on Tuesday, June 23rd from 12pm- 1:30pm PDT  as she helps you better understand China’s employment law landscape. The webinar itself will be approximately 75 minutes, followed by 15 minutes of questions. Grace will focus on helping you recognize key China employment issues and on what you can do to address real-life China employment law issues and problems. Among other things, Grace will cover the following:

  • The impact of Coronavirus
  • The basics of China’s employment law
  • How to draft an employment agreement that works for China
  • How to draft China-centric employer rules and regulations (aka employee handbooks)
  • The other “must-have” employment agreements
  • Frequently contested issues, such as working hours, overtime, vacation days and special leaves
  • Employee renewals, resignations, and terminations
  • Employer HR audits
  • AND MUCH MORE!

REGISTER HERE today!

Listen above or stream on SpotifyApple PodcastsGoogle Play or Stitcher!

The large-scale shift to telework brought on by the COVID-19 pandemic is prompting businesses around the world to explore new avenues to engage with clients and friends. Harris Bricken is no exception, and we are proud to announce our new podcast series: Global Law and Business, hosted by international attorneys Fred Rocafort and Jonathan Bench.

Every Thursday, Fred and Jonathan take a bite-sized look at legal and economic developments in locales around the world in an effort to decipher global trends in law and business with the help of their international guests. No topic is too big, too small, too simple, or too complicated. They will be covering continents, countries, regimes, governance, finances, legal developments, and whatever is trending on Twitter.

In Episode #7, we are joined from Montevideo by attorney Dr. Rodolfo Perdomo, of Perdomo Abogados, to discuss Uruguay’s cannabis industry. We cover:

  • Former President José “Pepe” Mujica’s critical role in making Uruguay the first country in the world to legalize recreational cannabis.
  • The current legal framework for cannabis in Uruguay—and why there is no going back for the country when it comes to cannabis.
  • Uruguay’s aspirations to become a world hub for cannabis research and production, and its new related legislation.
  • Why Uruguay is a welcoming and attractive destination for foreign investors, and not just those in the cannabis sector.
  • At least one important thing you should know about Uruguay, aside from cannabis! (Hint: 1930 and 1950).
  • Reading recommendations from:

If you have comments on this episode or if you’d like to suggest topics for future episodes, please email globallawbiz@harrisbricken.com.

And please follow Fred and Jonathan on social media to stay informed on upcoming guests and topics:

We’ll see you next Thursday for another discussion on the global business environment, this time with guest David Baxter as we discuss public–private partnerships (PPP) worldwide.