China copyrights

Sports broadcasts aren’t recognized as copyright subject matter under Chinese statute law although they have been accepted as such in some of the Chinese case law. This makes it necessary for sports brands, such as leagues or their licensees, to tackle piracy using Chinese anti-unfair competition laws. These laws are considered less desirable because the claims are harder to prove and often require the disclosure of market-sensitive information of a kind not typically required in copyright proceedings.

The value of a sports broadcast diminishes rapidly as the game, race or event unfolds. Unlike scripted film or TV content, there is little value in re-runs or re-makes, and every instance of piracy involves mass infringement.  Sports brands need to take action against pirates in advance of an event or in its early stages. This requires urgent injunctive relief in every case. The introduction of copyright protection would make an entitlement to this relief clearer. No stakeholders or interest groups, whether foreign or Chinese, oppose this.

Why, then, aren’t sports broadcasts clearly recognized? The reason is that Chinese copyright law insists that the thing being broadcast be a copyright work. Unsurprisingly, Chinese law does not regard a game, race or similar event as a copyright work because, among other things, it is not scripted. That leaves only one candidate for protection: a “work of cinematography”. A work of cinematography enjoys protection as a copyright work, with streaming and other rights, because it is regarded as original. By contrast, the lesser category of “video recording” is not regarded as original and has only limited protection under neighboring rights. So, protection requires that thing being broadcast be a cinematographic work.

The trouble is that, even if you accept (as US copyright law does) that the making of a broadcast necessarily involves the simultaneous affixing of a recording, even that recording is regarded under Chinese law as being insufficiently original to be a copyright work. Maybe it’s a video recording, but in that case there’s no copyright protection at all. The absence of a script is more or less dispositive — unscripted likely means no copyright. On this view of things, no recognition can be given to the roles played by directors, editors, designers and technicians whose job it is to simultaneously assimilate live feeds from dozens of cameras. You’re then left with a bare broadcast, and that doesn’t help much either — the rights of Chinese broadcasters, under copyright law, extend no further than preventing re-broadcasts or the making of recordings, and they do not yet enjoy a streaming right.

The same issue arises in the Chinese music business, where it has been critical in cases brought by music labels against karaoke bars in connection with music video copyright. A public performance license is required by the bar only if the music video is a work of cinematography. No license is required if the music video is merely a video recording. Again, the rule of thumb applied by the courts is whether the music video is scripted or not. To use an example given by Jiarui Liu of Stanford Law School, this would mean the music video for Michael Jackson’s Thriller would enjoy copyright protection in China but the video for Moonwalker Live at Madison Square Garden would miss out.

I’ve spoken at and attended a number of conferences and seminars dealing with sports broadcasts in Beijing over the years.  The topic always comes back to an all-or-nothing approach to originality. At some point there is a debate about copyright versus neighboring rights, and someone usually stands up and says something like, “Ah yes, but Chinese copyright law is based on German law and this is how it’s done in German law”. People shrug and nod and mental notes are made to invite German lawyers next time, but otherwise the inquiry tends to stop there. So, I was happy when Jiarui Liu addressed the point during a recent Berkeley Law webinar moderated by Mark Cohen. In Liu’s view, under German law copyright and neighboring rights are in fact cumulative (in the sense that one work can have both) but in China they somehow became “alternative” or mutually exclusive. So, as he put it, perhaps something has been lost in translation.

Whatever the origins of the issue may be, the proposed introduction of a new audiovisual work is unlikely to help much unless the 2020 draft amendment to the copyright law changes or the implementing regulations provide some guidance. Although audiovisual works are set to replace cinematographic works under the current draft, no definition of audiovisual works is provided and the lesser category of video recordings is to remain. Implementing regulations from prior drafts indicate that originality, as presently conceived, will continue as the decisive criterion. The stranglehold of originality continues.

Hong Kong for international business

Say what you will about the Chinese Communist Party (CCP) but, when it comes to repressing Hong Kong’s democratic aspirations, it means business. Having concluded local authorities were not up to the task of ruling Hong Kong by its iron-fisted standards, Beijing made short work of the “one country, two systems” framework and imposed a national security law (NSL) that formalized its direct intervention in Hong Kong’s policing. See Requiem for Hong Kong for the NSL’s dystopian details.

Not that things were hunky-dory before the NSL. The new law is simply speeding up a process of overall deterioration in Hong Kong, which is hitting its business sector very hard. Exactly one year ago, in Hong Kong for International Business: Stick a Fork in It, we wrote that “Hong Kong as an international business and financial center is no more” and predicted much of what we are seeing today (and, yes, COVID-19 has exacerbated some of the problems):

  1. Companies reducing their hiring in Hong Kong.
  2. Companies moving personnel from their Hong Kong office to other Asia offices.
  3. Fewer contracts being drafted with Hong Kong as the venue for arbitration.
  4. Companies moving their Hong Kong bank accounts elsewhere.
  5. Travelers choosing somewhere other than Hong Kong as their Asia stopover.
  6. Many Hongkongers going elsewhere.

The new state of affairs under the NSL will kick these trends into overdrive. Far from “symbolically asserting its authority over the city,” the CCP is acting out its deepest authoritarian fantasies. Within hours of the NSL’s enactment, the Hong Kong public security bureau police were out arresting people for carrying flags with pro-independence (gasp!) slogans. Since then:

A sense of fear and uncertainty has taken hold in Hong Kong, where anything seen to provoke hatred against the Chinese government is now punishable with up to life in prison. Some people have redacted their social media posts and erased messaging app histories. Journalists have scrubbed their names from digital archives. Books are being purged from libraries. Shops have dismantled walls of Post-it Notes bearing pro-democracy messages, while activists have resorted to codes to express protest chants suddenly outlawed.

Despite this immediate chilling effect, Beijing is just getting started. On August 10, Hong Kong’s finest arrested media mogul Jimmy Lai, “one of the most outspoken critics of Beijing,” for “colluding with foreign forces.” Two of Lai’s sons, not involved in his media business, were also arrested. Later in the day, pro-democracy activist Agnes Chow Ting was arrested on charges of “inciting secession.” Also picked up were freelance journalist Wilson Li and activist Andy Li.

These are all terrible developments. Journalists and activists arrested. Their family members arrested. Snide assurances of compliance with legal niceties by the police. Regime toadies and mouthpieces voicing support. Textbook authoritarianism.

Yet Hong Kong’s descent into an authoritarian nightmare, dramatic as it is in the city’s context, is simply bringing it in line with Mainland China. As we noted when we first decried the travesty of the NSL, “the reality is that from Beijing to Xinjiang to Tibet to Hong Kong there is now one system of repression.”

What’s happening in Hong Kong is just one manifestation of a much larger China problem, at the root of which is the CCP desire to reshape the world, not quite in its image and likeness, but into a place that goes along with its designs—or else. If Uyghurs and other ethnic groups get in the way of the CCP’s identity-based appeals for legitimacy, well, they’ll need to get with the program, even if that means herding them into camps and forcefully cutting down birth rates. If certain natural resources are desirable, then it’s okay to draw an absurd line deep into international waters and bully weaker neighbors. The Taiwanese overwhelmingly don’t want to be ruled by a Communist regime? Too damn bad. If a Chinese national finds herself in a foreign court, and the CCP isn’t happy about it, then retaliatory hostage-taking is fine. IP theft? No problem.

Recently, in The World Needs to Grow a Pair to Stop China, an anonymous guest writer posited the following on this blog:

It is a fundamentally mistaken policy to impose measures designed to mitigate the theft and forced labor organized and committed by the Chinese government itself. For cyber-insecurity, it is wrong even to explore using techno-geek measures to fend off Chinese government hackers. For forced labor/concentration camps, it is wrong to explore using measures to try to ensure that a particular supply chain is free of forced labor, moving three/four layers down the chain in a desperate attempt to prove there is no infection. One even has to ask whether the companies doing this believe in their task or are doing it merely to be able to claim to consumers that “we are not directly aiding and abetting a genocide.” But is not the better question whether the funding provided by these companies aids and abets a genocide and is not the answer to that a resounding yes? Is there no line which we will not cross for an extra dollar or two?

For some people, the answer is clear: “There is no line we will not cross. We will gladly acquiesce with the CCP’s vision for the world in the name of profit.” Fair enough.

But for those who consider this to be an unacceptable answer, hard choices lie ahead. Yes, in an ideal world, companies would be able to set up firewalls to keep their supply chains free of contamination by forced labor. But what if it becomes clear it is not possible to avoid getting entangled in the forced labor web? Worse, what if the system is designed to force everyone’s hands to get dirty, like in cop movies? At some point, governments will need to decide if they can square laws that prohibit the importation of forced labor goods with unchecked sourcing from a marketplace irretrievably tainted by such labor.

Similarly, what is the point of placing our national faith on “agreements” with a counter-party with no respect for legal commitments? Look at the way China cast aside the Joint Declaration made with the United Kingdom, which among other things promised Hong Kong a “high degree of autonomy.” Look at the mockery it has made of the Basic Law, decreed by China, which promises “Hong Kong residents … freedom of speech, of the press and of publication; freedom of association, of assembly, of procession and of demonstration; and the right and freedom to form and join trade unions, and to strike” in Article 27. Consider China’s “poor” record of compliance with its WTO commitments. As for the much vaunted Phase One trade deal, “it’s on life support.”

There’s little to be done about the CCP’s actions in Hong Kong, beyond extending a welcome to fleeing Hongkongers. The free world’s focus should now be on avoiding an extension of China’s repressive apparatus outside its borders. Standing with Taiwan is an obvious start, as is rejecting ongoing attempts to present a fait accompli in the South China Sea. Much harder lines should be taken against CCP infiltration of universities and other institutions overseas. Its ability to intimidate the Chinese diaspora must be curbed. And a much steeper “China price” must be exacted from businesses that benefit from CCP policies that violate fundamental human rights.

International supply chain moving out of China

By: David Alexander*

When I landed in Ho Chi Minh City on March 1, 2016 it was 3AM and I was grateful the pre-arranged driver was there to collect me.  I hadn’t planned on it taking four hours to fly from Shanghai. Like many, I assumed anything in SE Asia was just a short commute from China.  After only a quick sleep we had to hit the ground running. My long time colleague, Paul Stepanek and I had to make our first factory visit of the day by 9AM. Seeing the morning rush of tens of thousands of motor scooters — a third of which had children in tow — was mesmerizing as lanes merged in and out of patterns like schools of fish shifting direction.

It was only eight months until the US presidential election and the Trump rhetoric machine was in full throttle.  We had been discussing with clients for the better part of two years how we would need to begin strategizing on alternatives to sourcing in China.  Just in case.  We knew first hand just how long each product/project took to perfect and refine with even a mature and well developed manufacturing base.  Vietnam would take longer and time was of the essence.

I am seeing the following three schools of thought for those currently manufacturing in China.

Status Quo-ish: These are the companies just thinking about leaving China. It’s business as normal for today with no real strategy or game plan.  These clients have a long runway before getting anything tangible accomplished. Their leaving China may take 2-3 years, depending on the breadth and complexity of their product mix.

In Flight: These are the companies that have been engaged since the beginning of 2020 in seeking to move away from having all their manufacturing eggs in the China basket. Most of these have another 9-18 months until they are diversified or out of China entirely.

Landed: These are the companies that began pursuing an alternative supply base by mid-2019 and they have either moved part or all of their manufacturing to a country (or countries) other than China or re-shored their manufacturing to their home countries. These clients control their own destinies and are actively working on new product development.

 

Even China suppliers are making moves.

President Trump’s first round of tariffs on $50 Billion of goods in mid 2018 prompted a response by many China suppliers to pick up and move their manufacturing out of China. Many broke ground on their own dedicated factories outside China, spending millions of dollars to avoid tariffs. The bike industry is a good example. Provisional anti-dumping tariffs of 20-80% applied not only to exports to the United States, but to European as well because of their aluminum components. Mass quantities of bike production were quickly moved out of China by the end of 2018.

In my experience, companies that focus more on their product branding than on product manufacturing often do not fully understand the time and expense incurred by their Chinese suppliers to move their manufacturing out of China. These moves almost invariably take months of materials planning, price negotiation and lead times. Moving existing tooling and equipment to a foreign country only adds to the time required.

Going it alone.

Let’s say you decide to move a sizable portion of your manufacturing from your existing China manufacturer. Does your company have a full accounting of its capital purchases (tooling, molds, equipment) made in China over the years? Do you have any financial obligations to current suppliers for amortization schedules on specific volumes? How will you convince your existing supplier to seamlessly assist with transferring these assets? Do you have an employee(s) on the ground who can manage and monitor such a project? Do you have a contract that makes clear those assets actually belong to you? Have you budgeted for all new investments in these categories?

 

Timing

Any time you manufacture a product for the first-time, proper planning and timing should be given to the following:

Factory identification, verification, qualification In person factory audits, Drawings—conversion to local language, review for design gaps, Q&A on materials Pricing negotiation Sampling and first article of inspection Pilot runs Production

For the foreseeable future, non Chinese nationals cannot even travel to Asia and even they face quarantine, depending on the country they are visiting.  What’s hard to digest at this crucial and historical juncture is the compounding of the coronavirus with all-time lows in US-China relations and major tensions between the EU and China as well.  Zoom meetings and the internet are not enough. There is a long runway ahead.

 

Next up

Your company’s IP: Do you own it all?

 

* This post is the first in what will be a series of posts by David Alexander. I asked David to write these posts because our law firm and David’s company have worked together on various international projects and I felt David would provide a good and practical perspective on what is happening with international supply chains today. David and his company, Baysource Global  have been leading contract manufacturing and supply chain projects in Asia since 2005, working with leading brands on strategic sourcing, vendor management, QA/QC, and overall Asia supply chain strategies.

 

California import lawsBuying products overseas and importing them to the U.S. is no easy task. Companies have to worry about compliance with foreign laws and regulations (often with a language barrier and in a very different legal system) and strict and complex U.S. import rules. It is easy for companies to lose sight of the many U.S. domestic laws that can and usually do add multiple layers of complexity to foreign purchases and imports. Companies importing products cannot forget their obligations to comply with U.S. state laws wherever the products are shipped, stored, transported, marketed, or sold.

Our attorneys regularly get calls from clients and potential clients at risk of being sued or subject to enforcement actions after they have brought products to the United States that fail to comply with a state law that the company usually had no idea even existed. Most of the time, these issues could have been resolved with a short call to an attorney and a few hours of legal research or analysis before the products purchases were made. For companies that choose not to invest in a compliant program, their options after getting hit with a legal notice are usually limited to fighting or settling.

I am going to focus on California in this post because California loves putting requirements on out-of-state and foreign businesses and its Attorney General is quick to threaten and institute enforcement actions in the name of consumer protection. It is critical for businesses bringing products into California to remember to comply with its myriad laws and regulations.

Since many products are imported from China (for the time being, at least), it’s important to consider California’s Transparency in Supply Chains Act, the goal of which is to prevent human trafficking and slavery. The law applies to retail sellers and manufacturers that (1) conduct business in California, (2) file tax returns in California, and (3) have annual worldwide gross receipts exceeding $100,000,000. Such businesses must include conspicuous links on their websites to information about their companies’ efforts to address human trafficking and slavery, including the following:

  • Whether and to what extent the company verifies its supply chains for human trafficking and slavery risks and if such verifications are conducted by third parties.
  • Whether and how the company audits its suppliers’ compliance with the company’s standards on human trafficking and slavery and whether such audits were independent and/or unannounced.
  • Whether and the extent to which the company requires direct suppliers to certify that input materials comply with applicable laws concerning slavery and human trafficking;
  • How the company holds its employees or contractors accountable if they fail to meet the company’s standards on slavery and human trafficking; and
  • Whether the company provides training on human trafficking and slavery to management and employees with supply chain responsibilities.

The  Safe Drinking Water and Toxic Enforcement Act of 1986 (or “Prop. 65”) is another critical California law. Prop. 65 requires, among other things, that products containing certain quantities of listed chemicals (there are about 1,000) that California believes may cause cancer or reproductive harms include clear and reasonable product warnings. The warnings are very specific and technical and have certain color, size, and language requirements, and companies (of all sizes) that fail to strictly comply with these warning requirements can be subject to very expensive consumer lawsuits.

The important thing to know about Prop. 65 is that the warnings are product specific and depend on what the products contain. This means that, in addition to just buying products, companies need their foreign manufacturers to provide them with a comprehensive list of all chemicals and ingredients in the products they are buying so they can, in turn, provide accurate warnings. This raises a host of issues, especially if buying products from a foreign country manufacturer:

  1. What if a company is not buying products from a manufacturer directly and the seller does not have an ingredient list?
  2. What if the manufacturer provides false information?
  3. What is a company’s recourse if it only considers Prop. 65 warnings once it has the products in-hand in the U.S. and can no longer reach its foreign manufacturer or the foreign manufacturer is unwilling to provide information the company needs?

Yet another California law, which I wrote about here, regulates the Internet of Things (IoT). This law, SB-327, took effect on January 1, 2020, and it requires connected (i.e., IoT) devices be equipped with “reasonable” security measures. Companies bringing products in from foreign countries with less-than rigorous privacy laws and/or strong government surveillance programs (like China) are having a tough time complying with this law.

The laws get even more complex for non-U.S. based businesses bringing products into California (which is why we will be translating this post into Spanish. French, and German). The most significant law, by far, for foreign companies is the California Consumer Privacy Act (CCPA), which I wrote about in detail here and here. In a nutshell, CCPA (1) applies to a business anywhere in the world that “does business in California” (this term is not well defined) and meets a few other criteria; (2) is almost as broad as the EU’s extremely broad GDPR privacy regulation; and (3) requires all companies subject to it to commit to certain privacy practices (which will be very tough, if not impossible for some foreign businesses to meet). Foreign companies doing any kind of business in California need to consider the impact of CCPA because failing to do so can lead enforcement actions and massive lawsuits.

California’s laws are only a few examples of the many different types of national, state,  county, and municipal laws faced by businesses bringing in products from a foreign country. Companies with operations throughout different geographic regions face significant challenges in inventorying and evaluating different areas’ regulatory risks. Strategic companies will seek to identify and prioritize their regulatory requirements and compliance risks so as to address the country and state-specific laws to ensure their operations are not disrupted.

International Product Liability lawyer
Photo by William Murphy

In the last few years, my law firm’s international dispute resolution team (of which I am a part) has seen a tremendous increase in cases involving individuals and companies and lawyers wanting to sue Chinese companies for a Chinese manufactured product that injured someone. The cases coming to our law firm typically involve one of the following scenarios:

  • A U.S. retailer or importer is being sued by someone injured by a product sold or distributed by the American company. The injured party has sued the U.S. retailer/importer/distributor because suing and collecting from the Chinese manufacturer will be difficult or impossible. The U.S. retailer/importer/distributor (or its subrogated insurance company) seeks our assistance in figuring out who to sue in China and how to go about doing so.
  • A U.S. lawyer representing an injured consumer wants our assistance in figuring out who to sue in China and how to do so in a way that will actually lead to the injured consumer receiving real money.
  • A U.S. company or U.S. lawyer just secured a U.S. court judgment against a Chinese manufacturer and wants our assistance in figuring out how to collect on that judgment.
  • A U.S. consumer writes us to ask about our one of our international dispute resolution attorneys representing them in a product liability lawsuit against the Chinese product manufacturer either in the United States and/or in China.

Suing Chinese companies on a product liability claim in either the United States or China is difficult.

If you sue the Chinese company in the United States, it will likely claim the United States lacks personal jurisdiction over it. This can be effective for the Chinese company that does business only in China and that has been smart enough to set up an intermediary company in Hong Kong (usually) that ships the product to the United States. Here’s a common scenario: China company manufactures widgets and sells its widgets to a Hong Kong company. The Hong Kong company then sells the widgets to an American company and the Chinese company then claims it never did any business with the United States and thus cannot be subject to personal jurisdiction there. This claim can be defeated by showing the Hong Kong company is essentially the China company. This is not necessarily going to be easy, especially because it is also quite common for the Chinese company to add another intermediary company into the mix by setting up a one person U.S. company to act as the importer and to in turn sell the products to various different American companies. A thorough, diligent investigation is required by attorneys who understand how Chinese companies seek to do this and how to collect evidence that these other companies are in fact shells for the Chinese manufacturer.

Assuming you can convince a US court to assert jurisdiction over the Chinese company, the Chinese company may not even bother fighting a U.S. lawsuit because it knows Chinese courts do not enforce U.S. judgments. If all of the Chinese company’s assets are in China and your U.S. judgment will not be enforced in China, the judgment has little value. And if you are thinking you may be able to seize the Chinese company’s future shipments of widgets to the United States, that too will be tough for various reasons. First off, the Chinese company will know about the U.S. judgment against it so it likely will create a new company in Hong Kong to buy its products and ship the products to the United States. And it probably will set up a new company in the United States as well to import those products. This will make it extremely difficult even to find the products. And what if that new U.S. company really is unaffiliated with the Chinese company that made the offending product? What right do you have to seize its already bought and paid for products?

You can usually sue the Chinese manufacturer in China, but this approach has its own set of difficulties, ranging from the difficulty in securing evidence to enforcing any judgment. Equally importantly, your damages in a Chinese court will be a sliver of what they would have been in the United States.

There are though options beyond suing in the U.S. or China. Many countries enforce U.S. judgments and so it is important to “think globally” in deciding what actions to pursue against Chinese manufacturers and where. The United Kingdom, Taiwan, South Korea, Singapore, Canada, and even Hong Kong all have a pretty good record of enforcing U.S. judgments.

The first thing our international dispute resolution lawyers do when we are brought on to assist in seeking compensation from Chinese manufacturers is to seek to locate where the Chinese company has assets. We then research whether the country (or countries) where the Chinese company has assets will enforce a US judgment.

For example, assume the Chinese company has assets in Korea, Canada or England. If you can get a money judgment against the Chinese company in the United States, you likely will be able to “convert” that US judgment to a Korean or a Canadian or an English judgment and then use that judgment to collect on the Chinese company’s assets in the particular country.

Much of the time though, the way to collect in these cases is to take a holistic approach and seek to make life so difficult for the Chinese manufacturer in so many places that it will eventually decide it is easier and or cheaper for it to settle with you. We have succeeded with this sort of approach multiple times but usually after a lot of work and a lot of time and so this sort of approach only makes sense when considerable money is at stake.

For more on what it takes to sue a Chinese company in the United States, check out the following:

 

Register HERE today!

During the last decade, the Chinese government has rolled out an extensive cybersecurity system. This new system is not what a foreign investor would expect. This new system is cybersecurity with Chinese characteristics. The system is not intended to protect businesses and individuals. Its goal is the opposite; it is intended to protect the CCP and to ensure its hold on power.

The goal of the Chinese cybersecurity regime is to create a system where all network data and communications are completely transparent to the state. Every networked communication in China is open to inspection and retrieval by the Chinese government. From the standpoint of foreign companies operating in China, this means there is no place to hide. If company information crosses the Chinese border, that information is open to the Chinese government. To be more accurate, we can call the Chinese system a “cyber-insecurity” regime.

In a world where the Chinese government has become the primary hacker this is a critical issue. Moreover, Chinese government hacking has moved beyond traditional espionage to organized theft of technology and trade secrets. Any foreign entity operating in China or providing information to China is subject to this hacking program. Since this hacking program is organized and implemented by the Chinese government itself, there is no legal protection against hacking by the Chinese government.

Please join Steve Dickinson on Thursday, September 24th from 12pm- 1:15pm PDT  as he helps you better understand China’s cybersecurity law landscape. The webinar itself will be approximately 45 minutes, followed by 30 minutes of questions. Among other things, Steve’s talk will answer the following:

  • How does cybersecurity fit into Chairman Xi’s concept of Comprehensive National Security: digital authoritarianism, iDictatorship, and the social credit system?
  • Why is this a business issue and not a traditional national security issue?
  • What is the statutory and regulatory basis for the cybersecurity regime?
  • What are the key statutes and regulations?
  • What techniques does the Chinese government use to gain access to all networked communications and data?
  • What are the international implications of China’s cybersecurity regime?
  • How is China extending its cybersecurity via its Digital Silk Road Initiative?
  • What can your company do against this?

Register HERE!

Oil Rig Ocean

Listen HERE or stream on SpotifyApple PodcastsGoogle PlayStitcher, or Soundcloud!

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.

In Episode #17, we sit down with Ebele Onyeabo, a Nigerian attorney who specializes in oil and gas law. We cover:

  • How the Resource Curse has impacted and continues to impact Nigeria’s economy and people.
  • A rundown of the international oil and gas industry and what aspiring attorneys in this field should expect in order to excel.
  • The gender imbalance in the oil and gas industry, as well as the greater energy industry, along with ideas to further promote women’s participation.
  • Nigeria’s prospects for international business and future growth.
  • Recent developments in Africa and West Africa of which international businesses should be aware.
  • 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 week for another discussion on the global business environment as we discuss the practice of criminal law in Mexico and other topics with our guest Patricia Almada.

Register HERE today!

During the last decade, the Chinese government has rolled out an extensive cybersecurity system. This new system is not what a foreign investor would expect. This new system is cybersecurity with Chinese characteristics. The system is not intended to protect businesses and individuals. Its goal is the opposite; it is intended to protect the CCP and to ensure its hold on power.

The goal of the Chinese cybersecurity regime is to create a system where all network data and communications are completely transparent to the state. Every networked communication in China is open to inspection and retrieval by the Chinese government. From the standpoint of foreign companies operating in China, this means there is no place to hide. If company information crosses the Chinese border, that information is open to the Chinese government. To be more accurate, we can call the Chinese system a “cyber-insecurity” regime.

In a world where the Chinese government has become the primary hacker this is a critical issue. Moreover, Chinese government hacking has moved beyond traditional espionage to organized theft of technology and trade secrets. Any foreign entity operating in China or providing information to China is subject to this hacking program. Since this hacking program is organized and implemented by the Chinese government itself, there is no legal protection against hacking by the Chinese government.

Please join Steve Dickinson on Thursday, September 24th from 12pm- 1:15pm PDT  as he helps you better understand China’s cybersecurity law landscape. The webinar itself will be approximately 45 minutes, followed by 30 minutes of questions. Among other things, Steve’s talk will answer the following:

  • How does cybersecurity fit into Chairman Xi’s concept of Comprehensive National Security: digital authoritarianism, iDictatorship, and the social credit system?
  • Why is this a business issue and not a traditional national security issue?
  • What is the statutory and regulatory basis for the cybersecurity regime?
  • What are the key statutes and regulations?
  • What techniques does the Chinese government use to gain access to all networked communications and data?
  • What are the international implications of China’s cybersecurity regime?
  • How is China extending its cybersecurity via its Digital Silk Road Initiative?
  • What can your company do against this?

Register HERE!

You’ve heard the message. As tensions continue rising between China and the West, now is the time to get your China house in order.

Why? Because doing so will result in one less huge weakness for the Chinese government to exploit against you. You can count on it because when the Chinese economy or society is in a state of stress — which it is right now — the fall guys will be the foreigners and their China enterprises, especially those from countries that are at odds with China.

Get Legal. Now.

Recent history illustrates how this works: For those of us with a long history of working in China, we remember a time when almost no one paid certain types of taxes. The tax laws were on the books, but they were rarely enforced by the various tax bureaus. For a long time, local governments received a large portion of their income from selling land rights, re-zoning agricultural land to land that could be used for commercial, residential or industrial land. The central government gradually put the brakes on this out of an understandable concern to preserve essential farm land and limit excessive development. With this revenue stream drying up, the local government turned to enforcing its existing tax laws to try and replace this lost income. And guess who they came after first (and who did not have a relative working at the local tax bureau)? Foreign businesses and organizations, who, under the advice of their local staff, were not running compliant operations. We have clients that had to pay large fines and some who were detained in Chinese hotels or even jails until they did so.

When you first established your operations in China, you probably had many challenges you needed to solve to operate in China, some of which were not completely legal.

These are the areas that should concern you during these tough times and now is the time to be asking the following questions about your China operations:

  1. Are you compliant with China’s employment laws? Is it legal to layoff local staff? Foreign staff? Because of COVID-19, layoffs are really tough right now, but you may actually have more than the usual flexibility for certain employee time reductions. How about demotions, or reducing full-time staff to part-time status? What are severance pay considerations when terminating staff? Do all of your employees have employment contracts in Chinese? Are your employer Rules and Regulations also in Chinese and, equally importantly, are they up to date and fully localized so as to comply with each of your company locations in China?
  2. Do you have good enforceable contracts? During tough times, some contracts will inevitably need to be renegotiated and some will be breached. In these contract disputes, a poorly drafted contract gives away any bargaining position or rights you could have had. Does your contract make the best choice for language, law and jurisdiction? Does it include the appropriate amount of contract damages?
  3. Are you financially compliant? As mentioned above, you want to make sure your company (and you as well if you personally should be paying personal income taxes in China)are  paying all required taxes and doing nothing that could be construed as money laundering or otherwise circumventing foreign exchange controls. Should local and expatriate staff’s tax and social insurance treatment be different or the same? This requirement varies by the locale. Are you still paying some of your foreign (or even Chinese) staff part of their salary off-shore? Are you having your customer payments routed to your Hong Kong or Singapore bank accounts? Are you paying your Chinese vendors to their Hong Kong or Singapore bank accounts without proof that they have Chinese government authorization to have such accounts? In rare instances, foreign legal representatives have been prevented from leaving China for these sorts of things or, even worse, jailed

If you have any concerns about the above or anything else regarding China compliance, consider having an unbiased third party conduct a substantive review of all legal and tax aspects of your business and provide you with clear instructions and/or assistance on how you can get into compliance fast. At minimum, you should consider an employer audit.

The best practice (by far) for this is to use people fluent in Chinese and knowledgeable about Chinese regulations for any audit or company compliance review. Using your local staff is invariably a bad idea because they usually lack sufficient knowledge about either foreign company requirements or the standards to which the Chinese government holds foreign companies. Most importantly, if they actually had the necessary understanding of compliance, they would have already fixed the situation and in nearly all of the problem cases that have come our law firm’s way, the staff deliberately set things up to skirt Chinese law and they often did so to pad their own pockets.

And then, make sure you follow through on the recommendations you receive. We have had clients who paid us good money for advice and then ignored it. Don’t be that person.

When times get tough, the tough get their legal house in order.

China employee probation

There is certain truth to an old expression about China employees, “once hired, never fired.” Terminating a Chinese employee is rarely going to be easy, and this includes probationary employees as well. Our recent experience in this regard is that while we can usually help our employer clients achieve their goals with respect to their employee termination matters, these matters almost always turn out far more complex (and therefore more expensive) than people realize. And even probationary employees who are terminated or otherwise believe they have been mistreated often follow up with labor arbitration.

China allows probationary periods for China employees, but only if done right. The maximum term of the probationary period depends on the term of the employment contract. If the employment contract is for between three months and one year, the probationary period can be for up to one month. If the employment contract is for between one year and three years, the probationary period can be for up to two months. For fixed-term employment contracts of three years or more, and for open-term employment contracts, the probationary period can be for up to six months.

If the employment contract terminates upon completion of an agreed assignment or if the employment contract is for less than three months or if the employment contract is for a part-time employee, there can be no probationary period.

An employee may be subject to only one probationary period with the same employer and this holds true even if the employee leaves that employer and then rejoins it.

Any probationary period must be set forth in the employment contract. If an employer enters into a “probationary period” agreement with its employee rather than a formal employment contract, such probationary agreement will likely be deemed unenforceable. This sort of arrangement is usually done to circumvent Chinese employment laws and the Chinese employment authorities are aware of this and they do not like this.

If an employer becomes unhappy with an employee after the hiring, the employer cannot put that employee on probation. In other words, if an employer is dissatisfied with an employee, its legal options are usually limited to the following:

Sometimes companies create a working environment in which the employee would want to resign, but the employer must do it in a lawful manner. And even if the employer’s intended actions technically do not violate any Chinese law, it needs to tread carefully. Remember the decisions you make now will define how your company is viewed in the market long-term.

The key thing to keep in mind is that while a probationary period is permissible under Chinese laws, if you want to set up a probationary period for your new China employees, you need to get it right.