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China contract lawyers
Image credits: AtticDweller

I just got the following email from a loyal reader:

Wow, this is incredible.
“Part of the problem seems to be that there is no Chinese-language text of the agreement that the Chinese delegation supposedly was agreeing to. My own concern is that I don’t think China will give up its sovereignty, the right to retaliate if we put tariffs on them again.” He said that not having a Chinese translation was another source of “possible misunderstandings”, with translation of the 120-page draft agreement into Chinese needed for top leaders in Beijing to agree to it.
And relates to your frequent note to blog readers that it’s the Chinese-language version of the contract that matters in China.
My response: “yup.”
First, more about the “this” that the reader found so incredible. Then I will explain how our China contract lawyers pretty much every day deal with what is causing such consternation in the U.S. China trade talks. The “this” is a South China Morning Post (SCMP) article, titled, How verbal mishaps and lack of Chinese-language document threaten US-China trade. This article has the following two two nicely descriptive subtitles:
  • Misunderstandings and China’s concerns about being bullied have created distance, says Michael Pillsbury, an outside adviser to Donald Trump
  • Having no Chinese-language text of the 120-page draft agreement Beijing was potentially agreeing to could present an obstacle

Let’s unpack both of these.

Pillsbury’s concern about China being bullied stems from Larry Kudlow’s having said that Robert Lighthizer had read “China the Riot Act”:

He [Pillsbury] added that “I did not agree with” comments White House economic adviser Larry Kudlow made on February 28 in a Fox News interview about the last round of talks in Washington a few days earlier. Kudlow said in an interview after those talks that Lighthizer had harshly reprimanded the Chinese side to get back to the negotiation table after a tough first day of talks followed by a breakdown in the discussion on the second.

“Lighthizer read them the Riot Act. And Vice-Premier Liu He responded. And all of a sudden everything picked up,” Kudlow had said, sending an upbeat message of what he described as “heading towards a remarkable historic deal”, though “we have to hear from President Xi Jinping” to sign it off. Pillsbury said Kudlow’s remarks implied to Chinese hawks that the US delegation had “bullied” Chinese trade negotiators and brought indignity to Liu.

“Their concerns, which may be paramount concerns, are that China has been bullied and made inappropriate concessions. And we can see this argument is now in the Chinese press,” Pillsbury said. “I believe China will be tough and not accept some of the American demands” because of fears of having their “nose rubbed in it” after Kudlow’s comments, he said. “Unnecessary misunderstandings seem to have occurred.”

Pillsbury is 100% right and I’m guessing hardly anyone who knows China (heck, human nature) didn’t wince when they first saw Kudlow’s comments. I (and the other China lawyers at my law firm) are always talk about how no country likes being told what to do by another country, and that is especially true of China because of its history. See this Washington Post story, U.S. Was Winning the War Against China’s IP Theft, which quotes me as saying the following:

“No country likes to be told what to do,” said Dan Harris, a lawyer who writes the China Law Blog and specializes in Chinese legal issues. “And they especially don’t like to be told what to do in public. That goes double for China. If you push them loudly, they will feel they have no choice but to push back loudly.

Kudlow has put China in a difficult position and by doing so, he has only made it harder for China to settle. And what Kudlow did with China, foreign companies constantly do with China companies, to the detriment of resolution. We will tomorrow do a post on how to negotiate with Chinese companies.

The SCMP article also discusses how Pillsbury also blames trade negotiation problems on language misunderstandings:

“Part of the problem seems to be that there is no Chinese-language text of the agreement that the Chinese delegation supposedly was agreeing to. My own concern is that I don’t think China will give up its sovereignty, the right to retaliate if we put tariffs on them again.”

He said that not having a Chinese translation was another source of “possible misunderstandings”, with translation of the 120-page draft agreement into Chinese needed for top leaders in Beijing to agree to it. “In Chinese translation there are a lot of nuances and choices in how you phrase things,” he said.

Just yesterday, I got an email from one of my law firm’s international litigators saying that we should “cabin” a particular issue. This lawyer grew up in North Dakota and went to college there. He then went to law school at the University of Minnesota and for many years practiced at a leading Minneapolis litigation law firm. I had never heard the word cabin used as a verb and I had to look it up. Google defines this as “to confine within narrow bounds,” but most dictionaries do not have any definition for cabin as a verb at all. I have decided this is a Minnesota term since Minnesota is famous for just about everyone having a cabin on one of its 15,000+ lakes.

I mention this internal email to highlight how even among native-born Americans there can be language confusion. Multiply that by 100 and you have what can and does happen in English-Chinese transactions, even among people who are supposedly fluent in both languages. Take our law firm as an example. We have eight lawyers who are truly fluent in Chinese and yet only four of them are fluent enough to be able to craft legal documents in both English and Chinese. There is a difference between being able to watch a Chinese language movie or read a Chinese language newspaper and understand all or nearly all of those, and yet still not be able to have sufficient language skills to draft an agreement that can determine whether millions of dollars are gained or lost.

In China contracts that work, we wrote about why it is so important to have your contracts with Chinese companies be in Chinese:

The first reason is to achieve clarity. Having a well-written contract in Chinese will assure you that the Chinese company with which you are doing business truly understands what you want of it. Put simply, it will put the two of you on the same page. For example, if you ask your Chinese supplier if it can get you your product in thirty days, it will answer with a “yes” pretty much every time. But if your Chinese supplier signs a contract mandating that its failure to ship your product within thirty days will require it pay you 1% of the value of the order for each day late, you will know that the Chinese company is serious about the thirty day shipment terms.

The US-China trade talk snafus highlight the need for clarity in the negotiating phase as well. The issue regarding the need for “China’s top leaders” to first understand the writings is prevalent when foreign companies negotiate with Chinese companies as well. We have countless times seen deals where the foreign company thinks it has a deal or is on the verge of a deal with its Chinese counterparty, only to have the company owner step in and change everything because he or she did not really understand the terms previously discussed solely in English. Is that what happened in the US-China trade talks?

All the time, an American or European company will come to our law firm wrongly believing it has a “deal” with a Chinese company and believing our job is merely “to document it.” We look at the deal and immediately note the following:

  • There is no way the Chinese company would agree to one or more provisions and either it did not (and the foreign company is mistaken) or it did, but does not understand to what it has agreed.
  • There are one or more things about the deal that are bad for both sides and both sides would benefit by changing those.
  • There are one or more things that are completely illegal in one or both countries.
  • There are one or more things that are completely unworkable or nonsensical in one or both countries.

Sometimes these companies will have been negotiating for months (even years) and made many trips back and forth to China and everything they have done is unworkable or illegal under any terms. Other times, they essentially need to start all over at square one.

What should these companies have done? What should the US and China trade negotiators have done? They should have spent the extra time and money upfront by using truly bilingual negotiators from day one and every single step of the way and — to the extent possible — the true decision-makers should have been intimately involved in negotiations from day one and every single step of the way as well. This usually costs more in time and money in the short term, but it nearly always ends up saving way more time and money in the long term.

What are your thoughts?

3-31 Updates: Two very interesting comments, to which I want to respond.

1. Comment: I had to look up “snafu”. I spent about 10 seconds trying to figure out the typo. Reminds me of “gasfa”. Now if anyone knows what that means I will give you a free tangram!

My Response: This so funny because it completely illustrates what I hoped to convey with this post. People assume they are speaking or writing in a way that is being understood. I just assumed that snafu was a common word because I often heard it while growing up in Michigan. I was apparently wrong. It reminds me of a few years ago when I assembled 6-7 of my law firm staff to get critiques on a PowerPoint I had just completed. One of the slides said “NDAs are DOA.” Very few of the attendees (all under 30 years old knew what DOA meant — it is a police term for dead on arrival. Seems that is an old term that is seldom used today. This sort of thing happens all the time among Americans. So like I said, multiply that by 100 when dealing with someone who did not grow up speaking English in the United States.

2. Comment: Dan, what interests me most in this story is how and why trade discussions could possibly have progressed to this point without Chinese-language documents. It’s easy for me to believe that Trump’s arrogant and ignorant team didn’t think Chinese-language versions were needed, because heck, everybody speaks ‘Murrikan, don’t they? But what does it say about Chinese intentions that the Chinese negotiators did not request/require Chinese-language documents? Were/are they just “showing up”? Or did/do they have hopes of getting some sort of resolution? Are they trying to run out the clock for another 18 months? From what I know of the current situation, they’re not in a strong position to hang on to the status quo for that long. I find it very strange.

My Response: My immediate response to this article was not that it was strange, but that it was so typical. Not kidding. When I was in high school I spent a year living in Istanbul, Turkey. One of my most salient memories from that year is Mrs. Richards, who lived below us in our apartment building. She too was in Istanbul for a year (there because of her husband’s job). But unlike those in my family (my mother and father and one of my two brothers), she made absolutely ZERO effort to learn Turkish, and I mean zero. She literally could not count to two in Turkish and Turkish is an easy language to learn because it has no gender, articles or irregular verbs, and its spelling is almost completely phonetic thanks to Turkey having switched to the Latin alphabet in 1928. Anyway, I used to dread seeing Mrs. Richards at any of the local stores yelling loudly in English as though the louder she would talk the more she would be understand. I vividly remember seeing her in the local bakery one day and trying not to be seen by her. She was screaming out in English how much she wanted of each item she was buying and it was so bad that I stepped in and translated for her. She then told me — and I swear this to be true! — “I find that the louder I talk the better they understand me.”

As appalling as Mrs. Richards probably sounds to you, we ALL have a bit of that in us. Let he (or she) who has not repeated something more slowly and more clearly in English when in a foreign country throw the first stone here. I plead guilty of multiple counts to this “crime” and I feel very little if any guilt for it. I think it is almost instinctive to believe that what works for us 99 percent of the time will work for us the other 1 percent of the time, even if our brains know better. Of course I know that speaking more slowly and more clearly in English to someone who speaks no English is not going to help at all, but in the heat of the moment we can forget such things.

So now that we have gone from Mrs. Richards to speaking more clearly and more slowly, let’s make the final step to try to explain what happened with the US-China trade talks and what so often happens with business negotiations between US and China companies. The China side has someone who speaks English really well and the US side has someone who speaks Mandarin really well (or maybe the US side does not). Conversations about the weather, the food, the room all flow freely, leading everyone there to easily revert to their natural tendency to believe there is no communication barrier. But of course there is. Let me explain.

I mentioned above that my firm has eight attorneys truly fluent in Chinese, yet only four of them are fluent enough to craft documents in both English and Chinese. Two of these attorneys were born in China and attended college/law school in China and then attended law school in the United States, coming over to the United States already fluent in English. Two of these attorneys grew up in the United States and studied Chinese throughout college and then spent many years living in China and continuing to study Chinese there. You need this near life-long immersion and constant usage of both languages to become and remain fluent. And in the end, our China-born lawyers will always be just a bit better in Chinese than our American-born lawyers, and vice-versa. Interestingly though, because they all constantly write legal documents in both languages they are close to being equal in both languages for that. But our China-born lawyers will likely never be quite as good in colloquial English as our American-born lawyers and vice-versa.

Our law firm used to handle a number of international litigation matters involving Russian companies and for deposition translating the parties always preferred using a native American to translate and interpret from Russian to English and using a native Russian to translate and interpret from English to Russian. The same is true today on our China related litigation matters. The parties virtually uniformly want a native American to translate and interpret from Chinese to English and a native Chinese to translate and interpret from Chinese to English. These are all great translators, but dividing up the labors per the above achieves just that much better results.

But when it comes to negotiating, for reasons of convenience or national loyalties, this sort of fine-tuning virtually never happens.

I could go on and on. If I hadn’t become a lawyer, I would have become a linguist (or architect), I love it that much. Not kidding.