A while ago I was interviewed by Laurel Delany for her article, Legal Tips for American Small Business Owners Doing Business in China Laurel wrote the book, Exporting: The Definitive Guide to Selling Abroad Profitably, a truly excellent book on importing and exporting.

My interview (modified slightly) is below.  

LD: What are the top five legal pitfalls for small business owners doing business in China?

DH:

  1. It’s a very different legal system. Little to nothing is implied.
  2. You generally must register your intellectual property in China to protect it there.
  3. You absolutely must have written contracts in Chinese with your employees.
  4. For contracts in general, specificity is critical.
  5. Foreign companies are under a microscope; you will be treated differently than domestic companies. Know your risks.

LD: What are the three essential elements to crafting an effective supplier contract with a Chinese company?

DH:

  1. Jurisdiction of disputes should generally be in China. If you win a lawsuit in most countries outside of China (like the United States), you cannot enforce your judgment in China.
  2. Be sure to protect intellectual property. You should make clear in your contract what belongs to you and what your supplier must do to protect your physical and intellectual property. Use an NNN Agreement or an NNN provision for this.
  3. Be incredibly specific about all requirements. If it isn’t in your contract, the courts generally will not put it there by implication. Also, if it’s not in your contract, your supplier likely won’t do it.

LD: Is there a definitive statement that should be declared in a sourcing contract to ensure the buyer has a good chance of prevailing should there ever be an issue with the seller?

DH: Contract damages provisions are usually the best way both to ensure compliance and to increase the chances of prevailing in litigation. If there is ever litigation, is it better to take place in China or the United States? Almost always it makes sense to have your contract in Chinese with disputes to be resolved in a Chinese court. Winning against a Chinese company in a US court has virtually no value unless that Chinese company has assets outside China, and it usually doesn’t. Know how to sue a Chinese company before you write your contract.

LD: Based on your experience, what’s the single biggest mistake small businesses make when doing business in China? How do you overcome it?

DH: The biggest mistake is believing that China has no laws. American companies that believe China has no laws fail to take the legal steps necessary to protect themselves in China. Those companies end up without protections and they then end up with big problems.

LD: With all its challenges, why should small businesses do business in China at all?

DH: Because year in and year out, something like 90% of Western businesses doing business in China operate profitably in China and because China has 1.3 billion people, most of whom are getting richer every year.

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.