Five Keys to a Good China ContractI hate when someone claims China does not enforce contracts — that just happened. I hate this because it is mostly just not true. Yes, if you are seeking to protect your cutting-edge semiconductors based on a a contract enforceable in China, your odds are not good. But if, on the other hand, you are seeking to enforce a run of the mill manufacturing contract or service contract or whatever, if your contract was drafted with China in mind, you ought to be just fine. Believe it or not, but the World Bank ranks China as better for getting a contract enforced than the United States.

What are the keys to a China contract that works? The following:

  1. You generally want your contract with Chinese companies to provide for disputes to be resolved in China, either in a Chinese court or before a China-based arbitral body. Your choice of venue will depend on the nature of your contract. China does not enforce most foreign court judgments. See e.g. China Enforces United States Judgment: This Changes Pretty Much Nothing. China’s courts do (technically anyway) enforce most foreign country arbitrations, but it does not always do this and getting a Chinese court to do this is rarely quick or easy.
  2. You generally want your contract with Chinese companies to use Chinese as its official language. See Dual Language China Contracts: Don’t Get Fooled! Of course, if you are going to do this, you need to be darn sure that your lawyer both fully understands the Chinese in your contract and is fully capable of translating that contract into English for you.
  3. You generally want your contract with Chinese companies to call for application of Chinese law. If you are going to have your contract in Chinese and your disputes before a Chinese trier of fact, this only makes sense.
  4. You usually should have a provision calling for contract damages. This provision can act as a heavy hammer against your Chineses counterpart. See On the Importance of Contract Damages in China Contracts.
  5. Make certain the name (in Chinese) of your Chinese counterpart is 100% accurate and completely corresponds with its official company name. And while you are at it, it is good to have your Chinese counterpart stamp/seal the contract as well. See China Company Chops: The Basics.

That’s it. Go forth and prosper.

China employment lawyersAmending a major term (position/pay) of your China employee’s employment contract involves considerable risk and therefore requires substantial care.

Let’s consider a fairly recent case in Jiangsu province. The employee was hired as a senior engineer for product design and development. The employee made roughly RMB 7,000 per month before leaving his job. Several years into his employment, the employer essentially suspended the employee from his original position as the company was going through structural changes. Right after providing the employee with his suspension notice, the employer stopped giving the employee his original product design and development work tasks and instead instructed the employee to “stand by” at an empty desk at the HR department. The employee also had his salary reduced. About three months after receiving the suspension notice, the employee resigned, suing for severance pay based on his employer having failed to provide him with normal labor conditions by refusing to allow him to engage in his normal work.

The case went through labor arbitration and courts at two levels. The appellate court first recognized that the employee had the right to terminate the employment contract and ordered the employer pay the employee damages for having failed to provide him the labor protections and conditions set forth in the employment contract. The court ruled that because the employment contract provided for the employee to have the position of senior engineer, having the employee stand by at an empty desk at the HR department, reducing the employee’s salary, and not giving the employee any work constituted an abuse of its right of personnel management and entitled the employee to damages for weakening the employee’s professional skills and demeaning him.

The court rejected the employer’s argument that the employee had implicitly agreed to amend his employment contract by not making any objections within one month following notice of his suspension. The court ruled that the employer was entitled to manage its own personnel according to its business needs but it had abused that right by acting unreasonably. The court ordered the employer to pay the employee severance for the termination. Because the employee had worked for the employer for 16 years before his resignation, the court awarded the 16 months’ salary as severance.

What lessons are to be learned here? The safest way to amend an employment contract is via a mutual agreement. Employees nearly always consider unilateral changes to their job duties, position or remuneration to be a big deal and China’s labor authorities and courts typically feel likewise. Not only will mutual amendments lead to far fewer lawsuits and greatly decreased liability risks, a well-crafted employment contract amendment also ensures both sides are on the same page with what is being amended (and what is not). There are few things more frustrating for our China employment lawyers than being called after an employment contract amendment rather than before. As for our clients, I can tell you that amending an employment contract typically takes our China employment lawyers a few hours, while defending against an angry employee whose contract has been unilaterally amended typically takes us tens of hours.

From a physiological standpoint, working with an employee to amend their employment contract also gives the employee a voice in the process and makes them feel more empowered. Mutual amendments are considerably more likely to achieve an outcome acceptable to both parties and less likely to result in confrontations and disputes and high costs. If the employer and the employee are unable to reach agreement on amending the contract, the employer should consider whether it might make sense to reach a mutual termination agreement with the employee so the parties can part ways amicably.

The case I wrote about above involved a Chinese company and its Chinese employee, but it highlights how this economic downturn is heightening protections for Chinese employees across the board. In Terminating Your China Employees Just Got Tougher, I wrote about how the Chinese government and its courts are taking a tough line regarding how foreign employees treat their Chinese employees. As a foreign employer, you should always just assume China’s tribunals will be even tougher against you for whatever you do involving your Chinese employees. These are tough times for foreign employers in China and the costs of getting even the smallest things wrong have gone up.

Just saying….

International contract lawyer

The Western world — particularly the Anglo-Saxon/common law world — is used to ultra-long contracts for everything. A contract to buy $6,000 worth of rubber duckies will include all sorts of boilerplate provisions, making clear that by one party buying the rubber duckies from the other the two parties are not forming a partnership or a joint venture. The below is fairly typical for this sort of provision:

No Partnership. No Joint Venture. No Agency. Nothing contained in this contract nor anything involving the relationship between the two parties shall constitute a partnership between or joint venture by the parties or make any party the agent of the other. No party shall hold itself out contrary to the terms of this provision and no party shall become liable by any representation, act or omission of the other that is contrary to this provision. This Agreement is not for the benefit of any third party and shall not be deemed to give any right or remedy to any such party whether referred to in this contract or not.

The below are just some of the boilerplate provisions you typically will see in Western contracts, no matter how little may be at stake:

Representations and Warranties. Each of the Parties to this Agreement represents, warrants, and agrees as follows:

Each Party has been given the opportunity to seek legal advice from an attorney regarding the rights, obligations, and advisability of entering into this Agreement and regarding the rights, obligations, and advisability of executing the same. Each Party declares that it fully reviewed and understood this Agreement prior to signing it, knew and understood the contents of the same, and executed the same voluntarily.

Each Party to this Agreement has made such investigation of the facts pertaining to this Agreement and of all the matters pertaining thereto as it deems necessary.

Each Party acknowledges that no other person, and no attorney of any other person, has made any promise, representation or warranty whatsoever, expressed or implied, not contained herein, concerning the subject matter hereof, to induce the Parties to execute or authorize the execution of this Agreement, and acknowledges that it has not executed or authorized the execution of this Agreement in reliance upon any such promise, representation or warranty not contained herein. No Party relies on any statement of any other Party in executing this Agreement, except as expressly stated herein.

If either Party is a corporation, trust, partnership, or other entity, each individual executing this Agreement on behalf of such Party hereby represents and warrants that such Party has full right and authority to execute and deliver this Agreement and that each person signing on behalf of such Party is authorized to do so.

Then there is the provision to make sure the agreement applies to pretty much everyone possible:

This Agreement is binding on the Parties hereto and on their respective agents, attorneys, insurers, heirs, executors, administrators, affiliates, employees, members, shareholders, principals, officers, directors, predecessors, successors, and assigns.

And then there is the true boilerplate — that which goes into just about every contract:

Effective Date. This Agreement, once fully executed by all Parties, will be deemed effective as of the Effective Date, December 31, 2018.

Counterparts. This Agreement may be executed in counterparts. When each Party has signed and delivered at least one such counterpart, each counterpart shall be deemed an original, and when taken together with other signed counterparts, shall constitute one Agreement, which shall be binding upon and effective as to all Parties. Non-original signatures will have the same force and effect as an original.

Complete Agreement. This Agreement is the complete and entire agreement by and among the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous oral and written agreement(s), representation(s), negotiation(s), and/or discussion(s).

No Oral Modifications. This Agreement shall not be modified by any Party by any oral representation(s) made before or after the effective date of this Agreement. This Agreement may be amended or modified only by an agreement in writing signed by the affected Parties. Any amendment(s) or modification(s) must be in writing and signed by the Party or a duly authorized representative of the Party against whom such amendment(s) or modification(s) is/are sought to be enforced.

Good Faith Cooperation. The Parties agree, for their respective selves, agents, attorneys, members, shareholders, principals, officers, directors, insurers, heirs, relatives, representatives, affiliates, employees, attorneys, successors and assigns, that they will abide by the terms of this Agreement, which terms are meant to be contractual, and further agree that they will do such acts and prepare, execute, file, and/or deliver such documents as may be required to carry out the purposes and intent of this Agreement. Each Party hereto agrees to cooperate in good faith and to do all things necessary to effectuate this Agreement.

Headings and Titles. The headings or titles of the Sections contained herein are for guidance purposes only and have no force or effect, and they do not in any way alter the terms or meaning of this Agreement.

No Third Party Beneficiaries. This agreement does not create and shall not be construed as creating any rights enforceable by any person who is not a Party to this Agreement.

Severability. Should any provision in this Agreement be declared or determined to be illegal or invalid, the validity of the remaining parts, terms, or provisions shall not be affected thereby, and the illegal or invalid part, term, or provision shall be deemed not to be part of this Agreement, and all remaining provisions shall remain valid and enforceable.

Some or all of the above are not generally used outside common law countries like the United States (on a state level excluding Louisiana), Ireland, Northern Ireland, Australia, New Zealand, Bangladesh, India (excluding Goa), Pakistan, South Africa, Canada (excluding Quebec), and Hong Kong.

And yet, our international lawyers are often pushed by our clients from common law countries (even more often by their in-house lawyers) to include these provisions even in countries where they make no sense. These people/lawyers are simply uncomfortable with contracts that do not include such terms. When we tell them that such provisions are not needed, their response is often, “well, it can’t hurt.”  But it can hurt.

Including terms in a contract that are strange and unfamiliar and unnecessary in a particular country can hurt in many ways. First off, it can increase the legal costs in drafting the contract. If we were to include all of the above terms in a contract we draft for, let’s say Vietnam, we would likely increase our billable hours on that contract by 1-10 hours. How?

Well, first off, we would need to figure out exactly what to say in each provision in English. Sure it is boilerplate but even boilerplate often needs to be adjusted for the particular situation. Also, some boilerplate makes sense in some contracts and not others. I pulled the above boilerplate from a U.S. settlement agreement my law firm drafted as between a Spanish company and an American company. That agreement contained boilerplate involving a foreign company and two ultra-long boilerplate provisions regarding the settlement of claims, neither of which would make sense in most contracts that did not involve a settlement and release.

Second, once we draft the boilerplate in English we would need to translate it into Vietnamese. That would add more time and fees for the client.

Third, and usually most importantly, if this contract gets sent to a Vietnamese company it may very well come back with all sorts of changes to the boilerplate provisions and all sorts of questions about it. Our lawyers would then need to draft responses to the Vietnamese company’s concerns, while at the same time, explaining to our client why the proposed changes from the other side do or do not make sense or should or should not be accepted.

Finally, once the new boilerplate terms have been agreed upon, we would need to re-draft them in both English and in Vietnamese, generating more time and more fees.

No suppose there is a contract dispute three years down the road and litigation ensues in Vietnam. The lawyers on that case will probably need to spend substantial time figuring out the meaning of the boilerplate provisions and then explaining them to the tribunal. I can remember well a case in Korea where I was called in to help Korean counsel understand a whole host of U.S. style contract provisions. I believe I billed about 20 hours on that alone.

But boilerplate provisions can hurt you — and deeply — in other ways too. Our international manufacturing lawyers are often given really long English language contracts by small companies that include a provision providing that the small company will conduct quarterly inspections of its overseas manufacturer and another provision calling for penalties to be paid for things like the overseas manufacturer failing to provide quarterly reports on x, y or z.

When our client then admits to never having once conducted a factory inspection or ever having received a quarterly report on x, y, or z and never once raising this failure as an issue with its foreign manufacturer, we recommend removing these provisions from their future contracts. Our client will often then say something to the effect of how these provisions come from the supply agreements used by the massive company at which they used to work and then they will mention their desire to keep these provisions in their contract because doing so “can’t hurt.” But it can.

If your contract requires your foreign counter-party to do six things and you completely let two of those things slide by without being done by your . foreign counter-party you are sending a message that you do not really care about what is in your contract. You are sending a message that you don’t really care about the other four things, even though you do. Or as one of our international lawyers often tells clients: “When an agreement contains this kind of provision that is not actually enforced, this weakens the entire agreement. The other side will believe that if you are not serious about this, you will not be serious about that either.” Not to mention all of the added legal fees and potential for confusion mentioned above.

Bottom Line: Deciding what should not go into your international contract can be as important as deciding what should go into your international contract. See Will You Translate My Crappy English/Spanish Language Contract Into Chinese to Make it Legal in China?

No vale la pena. It is not worth the pain.

Chinese investment FDI law firm
Who eats their pizza with a fork anyway?

We started this blog way back in 2006, and — needless to say — much has changed since then, including the attitudes our international lawyers have about China and things China. I have taken to quickly skimming old blog posts to see issues that have died, things that have changed, and issues we that need updating. I am starting with 2006 and it is in January, 2006, that I found what turned out to be a prescient post regarding incoming Chinese foreign direct investment (FDI). The post is entitled The Chinese are Coming — China FDI and it took the then almost revolutionary position that we should expect a massive increase in Chinese investment into the United States:

With the exception of the Wall Street Journal, the English language press is not giving enough coverage to China’s increasing liberalization of outbound foreign investment. Massive Chinese overseas investment is coming and those ready for it will profit.

For the last year or so, the Chinese government has been increasingly talking about ramping up outbound foreign investment. The government recognizes that few Chinese companies have the skills required to be true global players and that acquiring foreign assets and operating overseas will hasten the learning curve, just as it did for Japanese companies in the 80’s and Korean companies in the 90’s. It also makes for good world politics.

One of our Chinese clients heads the industry council of a mid-sized Chinese city.  Around four months ago (just around the time the Chinese government increased the overseas investment limit) the government informed the council that its member companies should be investing overseas and that the government would match their investments. This past week, the Chinese government announced that sometime in 2006 it will end limits on foreign currency purchases by Chinese companies and do even more to encourage investment overseas. This will accelerate the buying binge among cash-rich Chinese companies looking to expand abroad.  Many already are familiar with CNOOC’s failed bid earlier this year for Unocal and Lenovo’s purchase of IBM’s PC division, but there are smaller asset purchases and buy-out attempts going on all the time.  Just this past week, Onyx Software Corporation, a publicly traded customer management software company in the Seattle suburb of Bellevue, Washington, turned down a buy-out offer from CDC, one of China’s leading enterprise software companies. The Yuan’s value will eventually increase, making foreign assets cheaper for Chinese companies and further accelerating their foreign investments.

Our sources in China tell us to be on the particular lookout for Chinese individuals looking for foreign real estate and Chinese companies looking to expand overseas in electronics, auto parts, software, and heating and air conditioning. Our law firm’s foreign investment lawyers are already seeing and getting some of this work.

In 2005, China foreign direct investment (this is Chinese companies investing outside China) totaled around $19 billion. In 2006, it more than doubled to nearly $42 billion. And in 2017, it was nearly $280 billion. But here is why this 2006 post/prediction seems so quaint now: Chinese foreign direct investment plunged to $180 billion in 2018 and it would not surprise me one bit if it falls below $100 billion in 2019.

I am also pretty certain that the numbers for North America and the EU are falling even faster and harder than for Africa and the Middle East and Latin America. All I know is what we see and what we are seeing in both the United States and in Spain (these are the countries outside China in which our law firm has offices) is that the number of potential incoming China deals is down and — perhaps most importantly — the number of deals that actually close are down even more. Far too often Chinese companies that want to do foreign deals are being blocked by the Chinese government from doing so. See China’s Economic Downturn AND the US-China Trade War AND their Impact on YOUR Company, where we talk about the increasing difficulty in getting money out of China.

What are you seeing out there?

China lawyersOur China lawyers are constantly getting asked how China’s slowing economy and all that is going on between China and the United States will impact foreign business with China. We get asked this by clients, by reporters, and even by friends and those who ask us usually expect a simple answer, like “not well.” It is though more complicated than that. We have been seeing the following (some of which we predicted, some of which we did not):

  1. The Chinese government — for the most part — seems to be bending over backwards to get foreign companies to set up WFOEs and Joint Ventures in China or to stay in China, at least for now. See The China-US Trade War. It’s All Good Inside China! China seems to recognize that its declining economy very much needs foreign capital.
  2. The Chinese government has done nothing to stop foreign companies from registering their IP (trademarks, copyrights, patents, and licensing agreements) in China.
  3. The Chinese government seems to be doing whatever it can to stop money from leaving China for investments in the United States, but this started even before the trade war. See Getting Money Out of China: NOT This Way.
  4. Foreign companies with Chinese employees are facing increasing pressure not to lay off or terminate employees and doing so has gotten considerably more difficult. See Terminating Your China Employees Just Got Tougher.
  5. Foreign companies that do any sort of deal with Chinese companies are facing more IP theft than ever. See below.
  6. Foreign companies that are operating in China illegally are getting in trouble. Big trouble. See below.
  7. Foreign companies that sell their products in China are getting worried, many of them just assuming they will face a steep downturn, but will they? See below.

Increased IP Theft. The big thing our China lawyers are seeing these days is an increase in Chinese companies sacrificing their relationships with foreign companies by stealing foreign company IP. We wrote about this previously in Your China Factory as your Toughest Competitor, but it is not just factories. Our China IP lawyers are seeing this in all industry sectors, especially technology. Why are China companies so willing to risk losing out on future business? When times are bad, greater risk becomes necessary to pay employee wages and to stay alive.  We’ve become fond of pointing out that “since you will essentially be educating your Chinese counter-party in how to compete with you, you need contracts that will at least limit what they can do when they do so.”

Many China businesses have been hard hit by China’s slowing economy and by international businesses mover to lower wage and tariff-free countries in Southeast Asia. Many Chinese companies rightly believe they need to start competing with their foreign customers and partners just to survive.

Our law firm is getting roughly triple the usual number of emails/calls from foreign companies seeking help in trying to remedy/stop their Chinese suppliers and customers and partners from using their IP. We have have gotten more inquiries in the last three months from companies whose China factories are now directly competing with them than in probably the three years before that combined.  Without a good contract and/or good international IP registrations, there is little we can do. See China Contracts: Make Them Enforceable Or Don’t Bother and 8 Reasons to Register Your Trademarks in China. The best way (essentially the only way) to protect against this is to do so early, when you still have leverage and before your Chinese counter-party has run off with your product, your software, your design, and/or your customers. For what you can do to protect yourself from this sort of competition see China NNN Agreements and China: Do Just ONE Thing: Register Your Trademarks AND Your Design Patents, Part 1.

Increased Legal Enforcement in China. In every China downturn for the last twenty years, the Chinese government has gone after foreign companies operating illegally there and this one has been no different. Why should the Chinese government allow illegal businesses to compete with their businesses without paying taxes, especially in a downturn? It shouldn’t and it doesn’t and going after illegally operating foreign businesses is a popular thing to do and it is exactly what the Chinese government has ultra-aggressively been doing for months now. In particular, China goes after foreign companies that are paying individuals in China without paying the required employer and employee taxes. This time around, however, this downturn’s round-up of illegally operating foreign businesses has stepped up a notch and the Chinese government has become quicker to arrest and imprison people on criminal charges. See Doing Business in China Without a WFOE: Will the Defendant Please Rise. If you have “independent contractors” in China, please, please, please do not go there until you change how you are doing business in China. See Doing Business in China with Deportation or Worse Hanging Over Your Head and Hiring A Chinese Employee Without A Chinese Entity. Good Luck With That. 

What is always saddest about these crackdowns is that some businesses that thought they were operating legally are not, either because they misunderstood the laws or because someone lied to them about having done the required registrations and paid the required taxes. Now is the time for to make sure you are doing everything legally in China. Do you really have a WFOE or Joint Venture? See How’s Your China WFOE? Please Check. Does the scope of your China entity (your WFOE or Joint Venture) really include exactly what you are doing? See Forming a China WFOE: Scope is Key. Are you really paying all your taxes? China has gotten quite good at finding and punishing foreign companies that do not pay what they owe in taxes.

You would likely be shocked at how often foreign companies are deceived by their own people into believing that what they are doing in China is legal when it is not or that they have paid for something required when they have not. And then there are still those who operate illegally “because everyone does it.” See China Compliance: A Basic Checklist for the basics you should be checking in an effort to avoid China legal problems.

China’s new e-commerce law, which took effect January 1, 2019, threatens to upend the entire daigou business model. As we’ve written previouslydaigou are individual shoppers who purchase goods overseas and then bring them back in their luggage for resale in China. Estimates of the value of goods brought into China this way each year ranges from about $6 billion to upwards of $100 billion.

The new e-commerce law requires anyone who sells products online to (1) register in China and in the country where they purchase goods and (2) pay all required taxes. If the law is strictly implemented and enforced, this would be the end of daigou, because the vast majority of daigou sales are online, and with few exceptions the daigou business model requires tax evasion.

Most of the articles about daigou refer to their wares as grey market goods. This is, at best, misleading. The term “grey market” suggests the existence of a legal loophole or ambiguity. But China’s rules on import tariffs, sales tax, and consumption taxes are quite clear: if you import goods into China, they are subject to tariffs. If you resell goods in China, they are subject to tax. If daigou paid the proper duties and taxes, they would have no business because they could not compete on price with legitimate importers. The major exception would be for goods that were difficult or impossible to buy directly in China.

It’s true that from a trademark standpoint, China has no per se prohibition on parallel imports. See China Trademarks: Counterfeit Goods and Parallel Imports. But this is irrelevant to the question of tax fraud.

As we have noted previously:

China has attempted to crack down on illegal grey market importation through a number of means, including (1) higher taxes on goods brought in by travelers as part of their luggage, (2) lower taxes on goods imported through legitimate channels; and (3) increased penalties for those caught falsifying customs declarations.

Will this new attempt be more successful? Early indications are that it has teeth. Customs officials began cracking down on the import side last fall with enhanced inspections of luggage at airports. Rumors began flying on social media, and then, after LVMH informed investors of such inspections in a conference call last October, luxury goods companies’ stock prices slumped across the board, falling somewhere between 3 and 10 percent later that day.

How and when the e-commerce sites will implement the new law is yet to be seen. Many daigou are already migrating away from “classic” e-commerce and into social media or instant messaging, where they describe their products using code words. You would think this, plus the increased scrutiny at the border, would marginalize daigou as a viable sales option – if you make something difficult enough, only the true believers will remain. But I have learned not to be surprised by the ability of Chinese entrepreneurs (and consumers) to turn on a dime in response to changing market/regulatory conditions – to say nothing of their willingness to ignore tax laws.

It may be more difficult for luxury brands to adapt. I had previously posited that although manufacturers might not be concerned about relying on daigou sales, they should be.

It boggles the mind why any company – let alone a major luxury brand – would have a market entry plan dependent on third parties successfully committing tax evasion. See Grey Market Goods and China, Part Two. But that’s exactly what some brands did, and now they’re scrambling to put together a “real” China strategy. Just for the record, my firm’s China lawyers have always advised against relying on this strategy.

Meanwhile, the trade war lurks as subtext. Right now products brought in by daigou are unofficial in every sense. If they are reported and taxed, then China would reduce its trade imbalance by a significant amount AND increase tax revenues. Easier said than done, even in China. But the trend is clear.

China lawyersChina craves stability. High unemployment can cause instability.

Today’s South China Morning Post, in an article entitled, China’s small businesses forced to cut back on staff just to survive as economic mood sours amid trade war, talks about how China’s slowing economy is leading to government concerns about joblessness:

With the Chinese economy slowing, concern has increased among Chinese policymakers about the outlook for employment, since ensuring a sufficient number of new jobs is seen as a necessary ingredient in maintaining social stability in the country. Employment was the top priority the Politburo set last July when it shifted its economic policy focus to stabilizing growth, leading the government to enact a series of policies to counter rising joblessness. This series will explore the employment challenges faced by different segments of the Chinese economy. The first installment examines the issues confronting small to medium-sized enterprises.

Chinese President Xi Jinping warned on January 21 that the Communist Party needed to pay particular attention to the risks to social stability from rising economic problems, as evidence increasingly suggests that the nation’s employment situation is deteriorating rapidly, particularly among small and medium-sized businesses.

The article goes on to talk about Chinese companies laying off workers but it does not talk about foreign companies doing the same, though of course they are as well, but perhaps more quietly. Our China lawyers are hearing from our clients with WFOEs in China that local government officials are stopping by essentially to make sure no layoffs are coming and if they are, that they are informed in advance.

Our China lawyers have been representing foreign companies in China for more than twenty years and that means we have gone through all sorts of economic and business cycles, including many downturns, though probably none as scary as this one. One of the things we have learned from past downturns is that China really really really does not want foreign companies to layoff or terminate employees during economic downturns and that alone should impact your layoff and termination decisions.

China is going through tough times right now and foreign companies that reduce employment will not be viewed kindly. Before you terminate any employee you should weigh the economic benefits of the termination against the possible detriment in your company’s local standing. If you must terminate any employee, by far the best (safest) way in these troubling times is via a mutual termination that includes a settlement. A private settlement is way less likely to be noticed by your local government and way less likely to cause major concern. For more on employee settlements, check out Terminating a China Employee: Why Mutual Termination is so Often the Key and China Employee Mutual Terminations: The Dos and the Don’ts.

China visas

Are you aware that nearly all of China’s major commercial centers allow you (or at least most of you) to visit visa-free for up to six days? Be honest, did you really know this? I ask because it seems like the China lawyers at my firm often have to explain this to our clients, including to those who go to China often and even to those with a China WFOE, Joint Venture, or Representative office. This 6-day visa free travel is relatively new (for most cities and provinces) and it has not gotten much publicity.

But since the start of this year you can enter into and stay in the following Chinese cities for 144 hours:

  • Beijing
  • Chengdu
  • Kunming
  • Qingdao
  • Shanghai
  • Tianjin
  • Wuhan
  • Xiamen
  • Hebei Province
  • Jiangsu Province
  • Zehjiang Province

To do this you will need a valid passport from any of the 24 Schengen treaty EU countries or one of the following countries along with transport tickets showing you will be leaving China (the PRC) within six days to a country (or is it just a city?) different from the country from which you are entering China:

  • Albania
  • Argentina
  • Australia
  • Bosnia and Herzegovina
  • Brazil
  • Brunei
  • Bulgaria
  • Canada
  • Chile
  • Cyprus
  • Croatia
  • Ireland
  • Japan
  • Korea (South)
  • Macedonia
  • Mexico
  • Montenegro
  • New Zealand
  • Qatar
  • Romania
  • Russia
  • Serbia
  • Singapore
  • UAE
  • Ukraine
  • United Kingdom,
  • United States

China lawyers

Because of this blog, our international lawyers get a fairly steady stream of legal 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 what we usually do is 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. On Fridays, like today.

We are always preaching how if you are going to have your products manufactured overseas you should have the following:

1. An NNN Agreement.

2. A Manufacturing Agreement.

3. A registered trademark in the country in which you are manufacturing and in the countries in which you will be selling your product.

4. Oftentimes, a Product Development Agreement as well.

But we are often asked by companies whether they need all of the above (or at least the first three) if they will only be buying X amount of product at a time or even over time. There are no hard and fast rules on this. We usually like a 10-15 minute phone calls to ask questions and then give answers. Will you be putting your brand name or your company name or your logo on your product? What about on its packaging? How much will you be paying for your initial order? Will you definitely be making future orders? For how much? What, if anything is unique about your product? In what countries will you be selling your product? Do you have any patents, trademarks or copyrights anywhere in the world?  Where? What kind of patents? How terrible would it be for you if your product is sold by someone else before you can sell it? How terrible would it be if your product is sold by someone else but without your brand name or your logo? How easy would it be for someone who is not your manufacturer to duplicate your product? The answers to these questions allow us to give our advice.

Any general guidelines? Maybe the following:

If you are only going to be doing a one-time $10,000 or less purchase you probably do not need any of the four.

If you will be making a $10,000 purchase with plans to buy more if you do well selling your initial order, you can usually get away with just a trademark and maybe an NNN Agreement at the beginning, but maybe not.

We have seen too many start-up companies get shut down early for not protecting themselves early for us to tell anyone that not doing something will not put their future at risk.

 

 

 

On February 4, 2019, The American Institute of Steel Construction, LLC (Petitioner) filed antidumping (AD) and countervailing duty (CVD) petitions against Fabricated Structural Steel (“FSS”) from Canada, China and Mexico. You can see that petition here.

Under U.S. trade laws, a domestic industry can petition the U.S. Department of Commerce (“DOC”) and U.S. International Trade Commission (“ITC”) to investigate whether the named subject imports are being sold to the United States at less than fair value (“dumping”) or benefit from unfair government subsidies.  For AD/CVD duties to be imposed, the U.S. government must determine not only that dumping or subsidization is occurring, but also that the subject imports are causing “material injury” or “threat of material injury” to the domestic industry.

Scope

The proposed scope definition in the petition identifies the merchandise to be covered by this AD/CVD investigation as the following:

The merchandise covered by this investigation includes carbon and alloy (including stainless) steel products such as angles, columns, beams, girders, plates, flange shapes (including manufactured structural shapes utilizing welded plates as a substitute for rolled wide flange sections), channels, hollow structural section (HSS) shapes, base plates, plate-work components, and other steel products that have been fabricated for assembly or installation into a structure (fabricated structural steel). Fabrication includes, but is not limited to, cutting, drilling, welding, joining, bolting, bending, punching, pressure fitting, molding, adhesion, and other processes.

Fabricated structural steel products included in the scope of this investigation are products in which: (1) iron predominates, by weight, over each of the other contained elements; and (2) the carbon content is two percent or less by weight.

Fabricated structural steel is covered by the scope of the investigation regardless of whether it is painted, varnished, or coated with plastics or other metallic or non-metallic substances. Fabricated structural steel may be either assembled; disassembled, but containing characteristics or items, such as holes, fasteners, nuts, bolts, rivets, screws, tongue and grooves, hinges, or joints, so that the product(s) may be joined, attached, or assembled to one or more additional product(s); or partially assembled, such as into modules, modularized construction units, or sub-assemblies of fabricated structural steel.

Products under investigation include carbon and alloy steel products that have been fabricated for erection or assembly into structures, including but not limited to, buildings (commercial, office, institutional, and multi-family residential); industrial and utility projects; parking decks; arenas and convention centers; medical facilities; and ports, transportation and infrastructure facilities.

Subject merchandise includes fabricated structural steel that has been assembled or further processed in the subject country or a third country, including but not limited to painting, varnishing, trimming, cutting, drilling, welding, joining, bolting, punching, bending, beveling, riveting, galvanizing, coating, and/or slitting or any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the country of manufacture of the fabricated structural steel.

Fabricated structural steel may be attached, joined, or assembled with non-steel components at the time of importation. The inclusion, attachment, joining, or assembly of non-steel components with fabricated structural steel does not remove the fabricated structural steel from the scope.

All products that meet the written physical description are within the scope of this investigation unless specifically excluded. Specifically excluded from the scope of this investigation is certain fabricated steel concrete reinforcing bar (“rebar”). Fabricated rebar is excluded from the scope only if (i) it is a unitary piece of fabricated rebar, not joined, welded, or otherwise connected with any other steel product or part; or (ii) it is joined, welded, or otherwise connected only to other rebar.

Also excluded from this scope is fabricated structural steel used for bridges and bridge sections. For the purpose of this scope, fabricated structural steel used for bridges and bridge sections is defined as fabricated structural steel that is used in bridges and bridge sections and that conforms to American Association of State and Highway and Transportation Officials (“AASHTO”) bridge construction requirements or any state or local derivatives of the AASHTO bridge construction requirements.

Also excluded from this scope are pre-engineered metal building systems. For the purposes of this scope, pre-engineered metal building systems are defined as complete metal buildings that integrate steel framing, roofing and walls to form one, pre-engineered building system and are designed and manufactured to Metal Building Manufacturers Association guide specifications. Pre-engineered metal building systems are typically limited in height to no more than 60 feet or two stories.

Also excluded from this scope are steel roof and floor decking systems designed and manufactured to Steel Deck Institute standards.

Also excluded from the scope are open web steel bar joists and joist girders that are designed and manufactured to Steel Joist Institute specifications.

The products subject to the investigation are currently classified in the Harmonized Tariff Schedule of the United States (HTSUS) under subheadings: 7308.90.9590, 7308.90.3000, and 7308.90.6000.

The products subject to the investigation may also enter under the following HTSUS subheadings:  7216.91.0010, 7216.91.0090, 7216.99.0010, 7216.99.0090, 7228.70.6000, 7301.10.0000, 7301.20.1000,            7301.20.5000, 7308.40.0000, 7308.90.9530, and 9406.90.0030.

The HTSUS subheadings above are provided for convenience and customs purposes only. The written description of the scope of the investigation is dispositive.

 

Alleged AD Margins

Petitioner estimated dumping margins of up to 31.46% for Canada, 218.85% for China, and 41.39% for Mexico.

Although Petitioner alleged numerous government subsidy programs that benefitted the Canadian, Chinese, and Mexican FSS industries, Petitioner did not allege specific subsidy rates.

 

Named Exporters/ Producers

Petitioner included a list of companies it believes are producers/exporters of the subject merchandise. You can see that list here.

 

Named U.S. Importers

Petitioner included a list of U.S. importers it believes to have imported the subject merchandise.

 

Estimated Schedule of Investigations

February 4, 2019 – Petitions filed

February 25, 2019 – DOC initiates investigation

February 26, 2019 – ITC Staff Conference

March 21, 2019 – ITC preliminary determination

July 5, 2019 – DOC CVD preliminary determination (assuming extended deadline)

September 3, 2019 – DOC AD preliminary determination (assuming extended deadline)

January 16, 2020 – DOC final determination (extended and AD/CVD aligned)

March 1, 2020 – ITC final determination (extended)

March 8, 2020 – DOC AD/CVD orders issued (extended)

 

If you are on one of these lists or you fear you should start preparing to respond.