International Trade Glossary terms

Every community has its lingo, and the international trade community is no exception.  Lawyers who work on international matters have a good chance of running across some of that lingo, even if they are not working on a trade matter as such. In fact, in my experience, it’s rare for international contract work not to at least touch upon trade aspects.

With that in mind, we’d like to share a great resource we stumbled upon: a shipping glossary provided by container shipping and logistics service OOCL. This glossary is both extensive and user friendly.

The following are some of the terms in the glossary that have recently come up in the course of our work involving non-trade specialists:

  • Also Notify Party
  • Bonded Warehouse
  • C-TPAT/CTPAT
  • Certificate of Origin
  • Controlled Atmosphere (CA)

The glossary is also a handy guide for the most common Incoterms.

In a pinch, it might even serve as the basis of an informative trivia game for your next virtual happy hour.

A lot is happening these days in and with China and around the world. Obviously.

Earlier this year, much of our legal work centered around helping our clients deal with the US-China trade war. That truly feels like ages ago, as today, — working remotely — our international lawyers have been consumed with helping companies (and NGOs and even countries) figure out how best to source PPE and coronavirus testing products. In addition to this PPE sourcing, a huge part of our practice is now focused on helping companies deal with the myriad of legal issues that have arisen from the coronavirus. For more on this, please check out our coronavirus law page.

The coronavirus is making people sick and killing people. It also is disrupting company plans and actions. Our social media pages reflect all this, oftentimes with a much stronger and more controversial viewpoint than on here where we are at constant risk of the great firewall. On social media you will see a lot more controversy and a lot more individualism as between our various lawyer-writers. There we can let loose and fully express ourselves, and we do.

It is also on social media where we get the most heat. It is there that we are constantly accused of hating China AND being China apologists. Truth is that we both love and hate China — not so different how we feel about the rest of the world as well. We all have spent huge chunks of our lives in China and working to smooth relations between China and the rest of the world. It is from this where we have come to love China.

But we are above all else lawyers trained to analyze things objectively and to advocate for our clients. And we have also been trained to give our clients the truth as best we can and then work with them in using that truth to plan and enact their next moves. This requires we not be emotional or loyal to any one side of anything before we have completed our research. This requires we sometimes defend China and at other times we be harshly critical of it.

Things are tough with China right now as huge swaths of the world are either mad at China for having suppressed news about the coronavirus, rather than suppressing the virus itself. Way back in October, 2018, in Would the Last Company Manufacturing in China Please Turn Off the Lights, we started emphatically telling people how China had become riskier and why they should be looking at other countries to make their products. This angered many. We had been beating that drum on social media before that and we have been beating it ever since. See e.g., our June, 2019 piece, Has Sourcing Product From China Become TOO Risky?

Without a doubt, the two biggest issues most companies that do business in or with China are facing these days is whether to stay or go and/or whether to continue having their products manufactured in China or diversify production elsewhere.

Increasing exclusions and harassment of foreigners is influencing these decisions and every day we get emails from foreigners who tell us they are leaving China for this reason. See “They see my blue eyes then jump back”– China sees a new wave of xenophobia. Many of our clients are “splitting the difference” by setting up and/or growing their businesses in China, but doing it more than ever with trusted locals instead of expats. China has literally banned the entrance of all foreigners so for the immediate future, foreign companies have no choice in this. In the last year the number of WFOE formations our lawyers have done is down at least 50%. But the number of deals where our client licenses its technology or brand name to China have more than doubled.

On the manufacturing front, the big issue is diversification. China’s factories going dark during the peak of the coronavirus have convinced foreign companies that manufacture exclusively in China that they must diversify.

But the coronavirus will eventually dissipate and that will create new opportunities for companies looking to do business in China or grow their business in China. And on that, we remain optimistic. Once the world truly gets past the coronavirus — and that day will someday arrive, the CCP will very likely make efforts to tamp down on racism, just as it did so successfully earlier in this decade with respect to the Japanese, French, Norwegians, and South Koreans.

In an effort to remain visible to our many readers in China, we are careful about what we write here on the blog. There are words we avoid using and topics we avoid discussing on this blog because we want our reach to include China and if China does not like something, its government has this “magical” ability to make it go away. And there is a lot China does not like these days. Facebook and Linkedin and Twitter give us a much greater ability to speak freely. The below is a quick update and listing of what we are doing these days outside this blog.

Linkedin. We have a thriving China Law Blog Group on Linkedin that serves as spam-free forum for China information, networking, and discussion. This group is always growing and now totals nearly 13,000 members.

The members of our Linkedin group are fairly evenly split between those who live and work and do business in China and those who do business with China from the United States, Australia, Canada, Europe, Africa, the Middle East and other countries in Asia. Some are international lawyers and some are China lawyers, but most are businesspeople and some are academics (students or professors). We have senior level personnel (attorneys and executives) from large, medium, and small companies and tons of mid-level and junior personnel as well.

What truly separates us from most (all?) of the other Linkedin China groups is that we remove anything that smacks of spam or is not relevant for those doing business with or in China. Our hewing to such a tight line on what we permit means we do not get a large volume of postings, but this also means we do not waste people’s time on drivel or business pitches. If you want to learn more about doing business in China or with China, if you want to discuss China law or business, or if you want to network with others doing China law or business, I urge you to and join our China Law Blog Group on Linkedin. Please do join us there.

Individually, many of us post often on Linkedin about China matters and we are also always accessible there. You can find our China lawyers and China trade specialists on Linkedin as follows, some of whom post there more than others:

My personal Linkedin page has more than 10,000 followers and that has led me to post more often there on all things China. I welcome new followers and new connections, though I warn you that I tend to be slow in responding to connection requests. I promise not to overwhelm you with posts: I post roughly 3-5 times a week.

Facebook. Our China Law Blog Facebook page, is thriving as well with just under 25,000 followers (this is its number of “likes”). We use Facebook to post interesting, important and entertaining articles about China. Posts there get a lot of comments and discussion, often heated. We tend to be very open and opinionated and free-wheeling there. With so much going on with China and Hong Kong these days, our Facebook page has become a key source. I urge you to go there and “like” us so you can benefit from what we are doing there.

I am also now posting a fair amount on Twitter at @danharris. I left Twitter for many years but I am now happy to be back as I enjoy the sheer immediacy of it. I most definitely do not hold back there but I also post on non-China things from time to time. I also urge you to check out and follow Fred Rocafort from my firm as well, (@RocafortFred). Until recently, Fred was living in Hong Kong/the PRC and his tweets (oftentimes in both English and Spanish) do a great job of bridging the various gaps between HK, the PRC and the West. In addition to posting on China and Hong Kong, Fred also often posts about Latin America. Jonathan Bench (@jonathan_bench), who spent around five years living in China and now splits his time between Seattle and Salt Lake City, is also a frequent poster on Twitter about all things China and all things international business and I urge you to follow him too. We also have a China Law Blog feed, @chinalawblog and it would be great if you were to follow that too.

We also JUST YESTERDAY started a new Twitter account in Spanish (@HarrisBrickenES, a/k/a Harris Bricken en Español). That account will be mostly run by Fred Rocafort and Adrián Cisneros Aguilar and Arlo Kipfer.  Fred is based in the United States, Adrián is based in Mexico, and Arlo is based in Colombia and all three of them are fluent in Chinese, Spanish, and English and all three work with our clients moving production or investment from China to Latin America or to Spain, both for Chinese and for American/European/Asian companies.

Fred, along with Jonathan Bench also just wrapped up Episode 24 of their weekly Global Law and Business Podcast focused on doing business all around the world and the laws that impact that. They’ve already had guests from India, Mexico, Israel, Nigeria, China, Australia, Chile, Xinjiang, Hong Kong, Uruguay, Belgium, Malaysia, Brazil, and Puerto Rico discussing their homelands and worldwide experts discussing Cyberwarfare, Global HR, Cannabis in Asia, Infrastructure Finance, International School Law, Iran, Public-Private Partnerships, Artificial Intelligence, and East Africa. I urge you to check out some or all of these podcasts and be sure to stay tuned to future podcasts as well.

In the meantime, we look forward to continuing to discuss China and the world with you online!

China lawyers

If you want to set a probation period to test out a new China employee hire, you need to clearly say so in the new hire’s employment contract. Both the employer and the employee can use the probation period to their advantage: for example, a probationary employee can resign with only 3 days’ notice—a much shorter notice requirement than that for an employee not on probation. However like pretty much everything else involving China’s employment laws, employers need to tread with care.

Our general recommendation is that if you want to use a probation period, you should go with the maximum probation period permitted under the law. For example, Chinese law provides that for fixed-term employment contracts of three years or more, the probation period cannot exceed six months, so if your new hire’s initial employment contract is for a 3-year term, you should consider using a 6-month probation period.

Because the general rule is that you only get one shot at the probation period, it makes sense to use the legal maximum period to determine if the employee is a good fit. For example, if your employment contract provides for an initial term of 3 years with a 1-month probation period, and near the end of that 1-month probation period, you are not convinced you and the employee are compatible, but are thinking about giving the employee a “second” chance. Can you extend the initial probation period by another 5 months? There is no simple answer here. You need to consider a number of things, including:

  • Does your locale allow this practice?
  • If it is considered legal in your locale, is your employee amenable to extending the initial probation period?
  • If the employee agrees with this change, can you document this before the end of the initial probation period?
  • What happens if the employee still does not meet or exceed your expectations at the end of the extended probation period?

The safest approach is to check and confirm the legality of your plan beforehand and then document your action in writing. In other words, it is not safe to just rely on the employee’s written consent without making sure your plan/document does not run afoul of Chinese law. Even if the employee signs an amendment, it does not mean he or she will not turn around and bring an employment claim against you if the employee believes your action violates the applicable law on employee probation.

This is kind of a long way of saying that setting the legal maximum probation period in the first place saves you all this trouble.

In our experience, foreign employers doing business in China do not usually get into trouble because they are trying to abuse the probation period (for example, paying the employee a reduced “probationary salary” to save money). Rather, they get into trouble because they incorrectly believe the probation period is an at-will period during which they can terminate the employee for pretty much any reason so long as the termination occurs before the probation period ends.

How the employer can go about terminating an employee on probation depends on the facts. The basic rule is that terminating a probationary employee requires a legally permissible ground under the law and terminating an employee on probation is nearly as difficult as terminating an employee not on probation. And do not assume a terminated probationary employee will simply walk away without a fight. Just realizing this (a probationary employee is not an at-will employee) can help you prevent many employment problems.

If you are considering a probation period for your new employees, make sure you set it and use it wisely.

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 #24, we are joined by Professor Eric Talbot Jensen, of Brigham Young University Law School. We discuss:

  • How public international law resembles and differs from national bodies of law.
  • The law of warfare as it applies to cyberwarfare, and how sovereign powers diverge in their views on the subject.
  • Cyberwarfare’s likely impact on future conflicts.
  • Where are the world’s best hackers?
  • What rampant IP theft by China reveals about its geopolitical self-perception.
  • The dangers of cyber-enabled election intervention by foreign powers in the 2020 U.S. elections compared to the 2016 elections.
  • 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!

International supply chains

 

The below post is by David Chitayat, Group CEO of Genimex, a turnkey contract manufacturer with 50 years experience working with suppliers in China, Southeast Asia, and India. Genimex manages 250+ global brands in an array of consumer product categories from its headquarters in Shanghai and its offices in NYC, Taipei, Ho Chi Minh City. It consists of industrial designers, engineers, account management and quality control teams that support product development lifecycle for its clients. I asked David to write this post because of his extensive supply chain experience. 

 

 

Most countries have voluntarily shut down large parts of their economies to prevent the spread of a deadly disease. Global supply chains are in tatters and businesses are scrambling to put the pieces back together. Though COVID-19 is in many respects unprecedented, pandemics are not, and future pandemics are inevitable. As we come out of COVID-19 lockdowns, business owners across the globe must learn from this experience and come up with survival plans for the next big disruption.

It is also important to realize that a pandemic is not the only external force that can exert pressure on your chain, causing it to snap. A natural disaster, a war, political sanctions, or civil unrest can cripple a region, cutting you off from vital supplies. The essential question is how can you make your supply chain more resilient? A chain — we have always been told is only as strong as its weakest link. Here are a few areas where your chain might be vulnerable:

  • Raw materials — Are the essential ingredients of your product widely available, or does one region have a virtual monopoly? If you were suddenly cut off from your regular supplier, would you know where to get lithium for your batteries, tantalum for your microprocessors, or any other scarce resource?
  • Energy — Industry requires coal and oil for production. How secure is your manufacturer’s access to energy?
  • Labor — If your products require skilled laborers, how easily could you hire and train a new force?
  • Infrastructure – How susceptible is the local area to an infrastructure or transportation disruption?

The first obstacle to supply chain resilience is visibility. If you are working with a contract manufacturer, you may not see past your Tier 1 supplier. Visibility into your supply chain is essential for optimizing your supply chain efficiency during routine operations and even more important during a crisis.

This brings us to the second obstacle: transparency. In working with many suppliers, it can be difficult to achieve full transparency, which should include the following:

  • Building redundancies — You can arrange to have more than one trustworthy supplier to deliver the materials or perform the tasks you need done. Your secondary supplier can be located nearby or in another country altogether. Circumstances dictate which option will provide greater benefits.
  • Safety stock — Keeping materials or component parts in reserve is like having a rainy-day fund. Unfortunately, too many companies view this as a misallocation of resources. That is, until the clouds gather, and the deluge begins.
  • Regular risk assessments — When you see the length and breadth of your supply chain, you can periodically evaluate performance and project how stressors might impact operations in the weeks and months ahead. Key areas to consider include raw material availability, production capacity and quality, and the political situation.

This level of oversight and contingency planning is a tall order for companies that outsource their manufacturing several thousands of miles away. However, it is feasible to outsource your oversight.

 

International trademark registration lawyer

If you are doing business in or with China you should give serious thought to registering your trademarks in China. In particular, you should consider a China trademark registration for your trade-name, your logo and your service marks. Brand identity is critical for success in China (as it is just about everywhere) and if you are going to protect your trademarks in China, you must register them. This is especially true in China where if you do not register your trademarks, someone is almost certain to try to appropriate them.  If you have not taken the necessary steps to protect your brand, this theft will succeed.

This post explains why trademarks are so important for creating your brand in China. Your trademark is what conveys who you are.

No matter what the drink, if it has Coca Cola’s name on it, you know the odds are overwhelming that it will have been well made and be safe. Westin on a building tells you before you go in that it is a nice hotel. Think how damaging it would be to Coca Cola or to Westin if everybody could use those two names on their products, be they drinks or hotels. None of this is any different in China.

Unlike the United States, however, China employs a “first to file” system for trademark registration. This means China does not recognize unregistered trade mark rights. So you must register your trademark to have any trademark protection. Without trademark protection, someone else can register “your” trademark and then prevent you from using it. This is true even if you are not conducting any sales in China. Even if all you are doing is manufacturing product in China, someone else can (and probably will) register “your” trademark and then stop you from exporting anything from China with that trademark on it unless you pay a licensing fee. This happens all the time and it mostly happens to companies from common law “first to use” trademark registration systems. It happens less often to European companies because they usually know better because they come from a first to file system.

All of this means you should register your trademark or service mark before someone else beats you to it. In other words, you should register your trademark or your logo before you first start using it in China. If you know you will be using your trademark or logo in China, there is no benefit (other than cost delay) in waiting.

The first to file an application in China for a particular trademark gets priority to that trademark, but it can take as long as a year (sometimes even longer) for the Chinese trademark office to actually issue your trademark. In the meantime, nobody can stop you from using the trademark for which you applied, but you cannot stop anyone else from using it either. So if you are planning to sell a trademarked product or service in China at some point in the future, there are real benefits to going ahead and registering for the trademark right away. That way you will either have it when you start selling or very soon thereafter.

Even if you are just manufacturing a product in China and are not selling it there, you must register your trademarks on that product before anyone else. This is because if someone beats you to “your” trademark, they will be able to stop you from using it in China at all and block your product (with the offending trademark) from leaving China’s ports.

But what exactly should you trademark and how?

You should trademark anything that identifies your company or your brand or your product or your service that you can. If your company is Premier and your product is Alpha and your logo is a giant A and you sell a special sort of cloth headband, you should at least consider registering the following trademarks:

  • The word “Premier” in Roman script
  • The word “First” in Chinese characters
  • The Mandarin word that sounds closest to “Premier”
  • The logo

If you do not choose a name in Chinese and register it, the Chinese consumer will almost certainly choose a Chinese name for you and you may find you do not like that Chinese name one bit or that the trademark on it has already been taken.

There are essentially three methods for picking your Chinese name. You can translate your English or other foreign name directly into Chinese. Registering the word “first” in Chinese characters is an example of that. The disadvantage of a literal translation is that you will essentially have two different names for your same product or company and this can cause confusion in the market. The second option is to use a Chinese character name that sounds like your foreign name. If you go with a phonetic version of your foreign name, you must make sure that you know what the Chinese characters you are using actually mean in Mandarin and Cantonese. Otherwise, you might find yourself with a Chinese name that means something you really do not want to be saying. Oftentimes, the best solution is to choose a phonetic version of your name that also conveys something you wish to convey.  Coca Cola is the classic example of this. Its name sounds like  “Ke Kou Ke Le,” which means “delicious” and “happy.”

You will also need to consider in what category(s) to register whatever trademarks you deem necessary from the above. Returning to the example of the headband, there are at least two categories that make sense: hair accessories and clothing. If you register your trademarks in just one, you leave a massive opening for a competitor to step in and register the your same trademarks on the same product in the category you did not choose. If that happens, both of you will be able to sell the headband using the same trademarks. Not choosing all of the right categories for your trademarks can be as bad as not registering your trademarks at all.

China Cybersecurity Image

Watch the webinar HERE!

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 sign up today to 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?

Watch the webinar HERE!

The above always holds true, but sometimes litigating or arbitrating is the best option.
But sometimes litigating/arbitrating IS the best option.

Our law firm’s  international lawyers often work with many really experienced and really good product sourcing consultants. These consultants are usually really good for the following reasons:

  • They know the ins and outs on doing business in/with a particular foreign country.
  • They know the ins and on finding good foreign companies for whatever transaction it is their clients are seeking to do.
  • They know the ins and outs on negotiating with companies in the particular foreign country.
  • They know when to bring in a lawyer to assist.

Of course I had to add that last on  and — no surprise — it is on this last one of which I am writing.

Product sourcing consultants too often fall short in the legal aspects of their own businesses. They have been “doing international product sourcing” for so long they too often fail to realize that when push comes to shove (or as we lawyers like to say, when a deep and easy pocket needs to be found) they are the American/British/Canadian/Australian/EU company that may need to answer for what happened.

If you are a Western consultant hired by a Western company to assist in international product sourcing, you need to understand that if something goes wrong for your client you could be your client’s choice for legal redress. Not only is there a good chance you have the deeper pocket, you will almost certainly be easier to sue than the product manufacturer itself for the simple reason that you are probably in the same country as the Western company, not on the other side of the earth.

What can go wrong for international product sourcing consultants that can lead to their incurring liability? And what can you as a international product sourcing consultant do to prevent or ameliorate such a problem? Our first advice whenever any company comes to us with concerns about protecting against future liabilities is usually to engage in corporate structuring to protect company and personal assets. This is typically an absolutely necessary first step. Looking at securing insurance protections is oftentimes a good second step. Beyond that, you can do a lot to protect your client and thereby protect yourself.

A typical international product sourcing project might go down as follows:

  1. Western company retains a product sourcing consultant to find the best widget (PPE?) manufacturer, based on cost, quality, and dependability.
  2. International product sourcing consultant requests and secures a sample widget (PPE) from a number of foreign manufacturers, many of which it did business previously.
  3. Consultant meets with countless manufacturers in search of the “best” one.
  4. Consultant recommends manufacturing Company Z in to manufacture 200 million widgets (face-masks, medical gloves, etc.).
  5. Consultant is to be paid a percentage of the manufacturing costs, oftentimes with that percentage set to decline over time.
  6. Company Z starts manufacturing the widgets.

Now let’s deconstruct this hypothetical project above and note where the consultant has potentially harmed the client and needlessly taken on huge liabilities.

The consultant agreed to find “the best widget manufacturer.” Is that the best widget manufacturer in China or in Mexico or in Thailand or in Vietnam or some other country, or is that the best widget manufacturer in the world? Is that the best widget manufacturer, regardless of price? What if one widget manufacturer charges one hundred dollars per widget, but your client’s competitor finds another widget manufacturer who will do it for ninety dollars? Is the consultant liable for the ten dollar difference? Even worse, what if a competitor of the consultant’s client gets the same widget manufacturer to manufacture its widgets for ten dollars less? Will a court believe the consultant was doing its best on pricing when its fee ended up being larger because the  manufacturer was able to charge more? Is the consultant responsible for the manufacturer’s late deliveries? Is the consultant responsible for the manufacturer’s bad product? Whose fault is it if 100 people are badly injured due to the widgets being defective? Is it clear exactly on what the consultant’s percentage is based? Is there anything to prevent the consultant’s client from entering into a new deal with the manufacturer (Company Z) the consultant found and negotiated the manufacturing arrangement?

If you as the consultant take a product sample to Thailand or Mexico or China or wherever and start showing it to potential manufacturers without having FIRST put various intellectual property safeguards in place, you are courting disaster. Your sample could be used for counterfeiting and the trademark on the sample (or your client’s name) could also be stolen. Or more likely, the sample could simply be legally copied and sold around the world.

Many years ago, I wrote an article for Forbes Magazine, Why Your NDA Does Not Work For China, explaining why Western-style non disclosure agreements are usually worthless in China. That article alone got me a slew calls from product sourcing consultants (who had been using NDAs to try to protect their clients) in a panic asking whether they could be held liable if their client’s lose their IP to China. My answer was that would likely depend on the contract they have with their clients and the role they play for their clients.

And this right here is the big trap into which international sourcing consultants often fall. In trying to secure clients they encourage their clients to believe they are experts on everything at all related to product sourcing and this is what can so easily come back to bite them.

My law firm’s lawyers often have to remind our product sourcing clients to stay away from giving legal advice to their clients and the below email is a fairly typical one we send them:

This is a very complicated international intellectual property issue and your solution for how your client handle this could open them up to losing their IP forever. My advice to you would be to stay completely away from all legal issues and let your client deal with these issues itself. Your client should not expect you to be giving legal advice and you doing so will greatly increase the odds of you being blamed when things go wrong.

And that is the point. As a consultant it rarely behooves you to get in the middle of your client’s complicated international legal issues and they should not expect that of you. Even if you as their international product sourcing consultant caused your client’s complicated international legal issues, you trying to solve them will more often than not simply compound them.

So what is the solution for international consultants? A written contract between your consulting company and your client before you start work that makes clear exactly what your consulting company will be doing and that makes clear these enumerated items will be your only responsibilities.

The problem we consistently see is that product sourcing consultants usually oversee their clients’ International Manufacturing Agreements and by doing so, they subject themselves to major liability issues if that contract is not up to snuff — and it virtually never is.

If your company is selling itself as international product sourcing experts and your clients are counting on you to guide them through the international manufacturing minefields, then your company will be expected to know anything and everything about what it takes to do that. And if something goes wrong anywhere along the supply chain or with its own clients, a Western court deem you to be the one who should have known better. For example, if your client loses its IP in Vietnam because it believed its US or Canada or Australian or EU patents and trademarks extended to Vietnam (they don’t), you as their international product sourcing consultant may find yourself on the hook for not having warned them otherwise.

Bottom Line: At minimum, international product sourcing consultants should put in writing that they do not provide legal advice and their clients should retain their own lawyers for that. And then stick by that and refuse to provide any such advice.

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China has all sorts of rules that apply to foreign conversions and remittances. In this post I look at some basic due diligence that can identify or avoid defaults or delays in money transfers out of China.

If you don’t get paid, ask yourself these questions before you rush to blame the Chinese company:

1. Do you have any idea what taxes should have been paid by the Chinese company and what taxes should be deducted from the remittance itself?

2. Was your contract exempt from the kind of prior registrations required by the tax authorities?

3. Do you even have an enforceable contract against the Chinese company in China?

4. Has an independent person gone down to the Chinese company’s bank branch to confirm what their particular requirements and concerns are?

5. Did you withhold any deliverables until you received all or substantially all of the money out of China?

6. Did you ask the Chinese company to provide examples of previous successful foreign remittances?

7. Does the business license of the Chinese company allow for foreign trade and thereby indicate that foreign remittances would not be unusual in the ordinary course of business?

8. If you’re dealing with a State Owned Entity (SOE), or a very large company of any kind, did you understand all of the internal approvals that company would require before a payment could be authorized and did you appreciate how long this might take?

If the answer to any one of these questions is “no”, don’t blame the Chinese company.

China employment law

China is not an employment-at-will jurisdiction and terminating China employees is nearly always difficult. To make things even more challenging, many foreign companies doing business in China manage their China affairs from afar. To prevent employment (and especially termination)-related problems, you need to use enforceable employment contracts and employer rules and regulations and you also should have a basic understanding of your China employees.

Let’s take a look at two China employment scenarios.

Scenario 1. The foreign parent company decides to significantly reduce its headcount in China due to lack of profits. It sends a notice to the affected China employees about the imminent layoff, saying it will pay statutory severance to the employees. Several employees bring a labor arbitration claim against the company right away.

In this scenario, what the employer is attempting to do is a mass layoff. Before a China employer can initiate such a process, it must conduct an analysis to confirm whether its situation qualifies for a mass layoff under Chinese law. This requires it review each employee’s situation to confirm whether it can terminate all employees as part of a mass layoff. For example, Chinese law prohibits an employer from laying off a pregnant employee. Employee mass layoffs are a huge deal in China and they invariably involve a complex process, and any employer looking to start a mass layoff should have a solid plan in place before proceeding with its layoff decision.

Scenario 2. The employer asks a long-term employee to resign so it can save the costs of retaining her as a full-time employee. The plan is to then hire her as an independent contractor right after her resignation.

This plan has major flaws. First, asking a long-term employee to resign is a no-go because China employees know that if they resign, they will not be legally entitled to any statutory severance. As a result, virtually no China employees will resign unless they have found another opportunity or they plan to bring a claim against the employer for statutory severance, plus damages. Second, China dislikes independent contractors and misclassifying an employee will get the employer into trouble. Chinese authorities, arbitrators and judges consider terminating someone and then rehiring them as an independent contractor as a circumvention of Chinese employment laws and they will rule against the employer in the relevant proceeding. It does not matter whether the employee is happy with this new arrangement. Although it is understandable the employer wants to cut HR costs, certain costs cannot be cut (such as mandatory social benefits contributions) and the costs of violating the mandatory law is much higher than any costs saved.

Acting in accordance with what is considered customary or acceptable in the jurisdiction of the parent company is not enough to keep you out of trouble in terms of China’s employment laws. Nor is just paying employees a good salary. To do well with your China employees you must be sure to always comply with all national and local employment laws and treat your China employees per Chinese national and local employee culture.