Marketing Fear
June 12, 2010 by Frank
I have never liked to use fear as a means of marketing my services. Other lawyers, insurance companies, consultants – they do. I came across this article in the South China Morning Post today and it irks me when I read this or hear about lawyers frightening their clients into retaining them or paying them. While this new law coming out of England is similar to the U.S. Foreign Corrupt Practices Act and should be taken seriously, there is no need to lose sleep or be afraid that you and your company are doing the wrong things in China. Best to consult your legal advisor who will tell you when the final regs and guidance are published and then take a careful and measured approach.
| Britain’s strict bribery law may hit local firms | |||||||
| Irene Jay Liu Jun 13, 2010 |
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Britain is cracking down on corruption among British companies worldwide, and its efforts could have a far-reaching impact on Hong Kong and mainland firms. After years of legislative inaction against corporate corruption, Parliament in April passed the 2010 Bribery Act – the world’s strictest on bribery. The legislation affects not only British firms but any company that conducts any part of its business in the country, as well as those that provide services to British companies. This law is similar to the Foreign Corrupt Practices Act in the United States which not only applies to U.S. Companies but also to companies with ties in the U.S as is mentioned below. “It is a very wide net – particularly when you look at Hong Kong, with the historic British connection,” said Richard Tollan, a partner at law firm Mayer Brown JSM and a former detective inspector in Hong Kong’s commercial crime bureau. It could be a wide net as countries like England, who are broke and are at the same time trying to level the playing field for domestic firms, use laws like this to get a piece of the action without the specter of raising taxes. It also is conveniently referred to “as a very wide net” by lawyers like Mr. Tollan who often use fear to generate additional billings. “It’s a hot topic among professionals and the more astute corporates in Hong Kong,” Tollan said of the new law. “It is not unheralded – it comes in the wake of three or four years of Hong Kong attuning itself to increased answerability to long-arm overseas jurisdictions for domestic bribery.” This is even more reason to move corporate entities and headquarters to Hong Kong where they are out of the “long-arm” reach of nearly bankrupt countries like the U.K. and the U.S. Until the British law was passed, the United States had the strongest anti-corruption legislation in the world in the shape of the Foreign Corrupt Practices Act, or FCPA. It may appear to govern only US companies, but in recent years it has affected a number of non-US firms. German carmaker Daimler-Chrysler, Berlin-based Siemens and Britain’s BAE Systems have all agreed to settlements after being investigated for bribery by authorities in the US and other countries. Look for the US to increase FCPA enforcement and proceedings as another tool to collect revenue and supposedly level the playing field for domestic manufacturers. Britain’s Bribery Act has upped the ante, no longer limiting the definition of bribery to foreign officials. More significantly, the legislation creates a separate offence for a company that fails to prevent a bribe being paid for or on its behalf. “As compliance officers, and counsel, there is a positive obligation on corporates to put in place adequate procedures designed to prevent people from committing bribery,” Tollan said. I’d guess that their firm puts these procedures in place. Firms can defend themselves against bribery charges if they can show that they have “adequate procedures” in place to prevent bribery. “Suddenly, these corporates are taking a look at themselves and their policies. That’s what is causing the interest among the savvier corporates,” Tollan said. “There is [now] a positive obligation on corporates to put in place adequate procedures specifically designed to prevent people being involved in corrupt practices.” Hong Kong and mainland firms should look at their procedures, as they may find themselves subject to the British legislation, Tommy Helsby, chairman of Eurasia at global risk consulting firm Kroll, said. I think they used “procedures’, ‘in place’ and ‘adequate procedures’ more times than was necessary. A large Chinese manufacturer with a European marketing office in Britain could fall under the law’s jurisdiction, he said. Hong Kong firms that act as agents for foreign corporations wanting to source manufacturing in China should also be aware of the new law, Helsby said. I don’t believe that Chinese companies that are domiciled in the mainland are subject to foreign judgments in the U.K. “I think they should be expecting to find a lot more concern on the part of their foreign clients about how they do business. And it will become a competitive advantage to show that you have a robust compliance system on bribery. Because if I’m Marks & Spencer or Primark, a big UK purchaser of Chinese manufactured goods, I want to make sure that I’m not caught out by the actions of my agent. In my humble opinion it will be difficult to extend the obligation to the acts of independent agents, especially when there are contractual agreements between the company and agent which outline responsibility and indemnify the company against their illegal acts. “If I’m looking at two intermediaries, and one is talking about the UK anti-bribery, and another one is busy winking about `getting the job done’, I know which one I’m going to choose,” he said. Winking about getting the job done is not acceptable anymore in China and if your employees or agents tell you otherwise than you should replace them. So far, it’s unclear how much outreach has been done to spread the word among local companies in Hong Kong. The British government is expected to publish guidelines for “adequate” anti-bribery procedures. Many companies are waiting for those guidelines before moving ahead, Tollan said. But for many Hong Kong companies, anti-corruption procedures could be an entirely new concept. A survey released in April of top firms in Hong Kong, Singapore and South Korea found nearly half “failed to display any evidence of taking significant steps to counter bribery”. Experts in Responsible Investment Solutions studied anti-bribery policies of nearly 2,000 FTSE All-World Developed Index firms for the survey. A spokesman for the Hong Kong Trade Development Council, the statutory body tasked with connecting companies with opportunities in Hong Kong and on the mainland, said it had not yet issued any guidelines to local companies. “Our London office is monitoring the situation concerning the introduction of the anti-bribery bill in the UK and whether there is any possible impact on Hong Kong companies doing business with the UK,” the spokesman said. The danger of running afoul of this legislation could hurt business not only in Britain, but also in the European Union. The EU has a directive banning companies convicted of bribery from doing business with its governing body. “The potential liability of the senior executive to be sent to jail, it’s like a rifle shot,” Helsby said. “If you’re hit, you’re dead, but you have some chance of dodging the bullet. The EU procurement issue is a like an artillery barrage. The damage is much broader. The breadth of that ban could be catastrophic.” Senior executives going to jail for unknown acts of their agents or employees, not likely and it is irresponsible to use fear as a means for generating revenue, especially when prudent financial decisions and good management are what have always led foreign corporations to success in this part of the world. Is it a good idea to discuss this with your lawyer or advisor when the final regulations and guidance are published – yes, but, I wouldn’t lose any sleep worrying about going to jail. |
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Going to the Factory
May 25, 2010 by Frank
Do you remember your first visit to the factory or to the supplier or joint venture “partner”? I saw this article in the Wall Street Journal this morning and the picture of Hillary Clinton smiling like a school girl made me laugh and remember my first time. Everyone was smiling. In fact, the Chinese are professional smilers (having learned this tactic from the Taiwanese – who are really Chinese). They smiled when they met you, they smiled at that long drawn out lunch with the food that was unrecognizable and not very edible. They smiled in the hot or freezing cold conference room after the long drawn out lunch and during the factory tour. They smiled and shook our hands vigorously on the way out of the factory as they were saying: “China will continue to steadily push forward reform of the renminbi exchange rate formation mechanism in a self-initiated, controllable and gradual manner.”
Oops, I must have remembered incorrectly, because that is a direct quote from the below article. But, it sounds just like the wonderful things that factory owners, suppliers, and “partners” often say to my clients, many of whom need a few more years of disappointment in China before they take off the rose colored glasses and get down to brass tacks.
I have an opinion on the yuan revaluation issue and it isn’t favorable to the U.S., but that is for a different post in a different lifetime. The picture below of Hillary and Geithner smiling with their Chinese hosts just reminded me of how clever and resilient the Chinese are in getting their way in business. Hopefully as you read the below article you might see the same rhetoric and realize it is very similar to what they use in their business practices and it will ultimately prevent you from having to call me. My comments are included.
China’s Hu Pledges Exchange-Rate Reform
U.S. Welcomes President’s Reference to Currency Regime as Beijing and Washington Seek Common Ground in Discussions
By ANDREW BATSON – Wall Street Journal 5-25-2010
BEIJING—Chinese President Hu Jintao opened two days of talks between U.S. and Chinese officials in Beijing by repeating a pledge to continue reform of his country’s exchange-rate regime, an assurance that was welcomed by the U.S. as the two sides sought to display common ground on contentious issues from trade and investment to nuclear proliferation.
U.S.-China Talks
Both countries have in recent months worked hard to repair a deterioration in ties, and Mr. Hu said he hoped the U.S.-China Strategic and Economic Dialogue would help “build a foundation of mutual trust” between nations often at odds despite being linked by trade and large global responsibilities.
He appeared to go out of his way to address U.S. concerns about China’s tightly controlled currency, saying toward the end of his speech that “China will continue to steadily push forward reform of the renminbi exchange-rate formation mechanism in a self-initiated, controllable and gradual manner.”
Mr. Hu’s comment repeated word for word China’s standard language on the issue, but his mention of the exchange rate—which many U.S. lawmakers think China keeps unfairly low to support its exports—stood out in a speech that was otherwise long on generalities and short on specifics. Watch out for generalities and non specificity. That’s why we have contracts. For instance, Mr. Hu didn’t mention international tensions with Iran or North Korea, which Secretary of State Hillary Clinton had singled out earlier as areas where the U.S. and China need to cooperate diplomatically.
This is the one I’m talking about.
The U.S. responded positively to Mr. Hu’s comments, continuing its recent efforts to keep the dispute over the currency from poisoning the broader relationship between the two countries. “We welcome the fact that China’s leaders have recognized that reform of the exchange rate is an important part of their broader reform agenda,” Treasury Secretary Timothy Geithner said in a speech after Mr. Hu’s remarks. But what did it get you?
I think you can see in this picture that he knows he didn’t get anything and has to go back on the same plane with Hillary and then explain to the President how he once again was stonewalled by the Chinese, while Hillary is still happy because her and Bill have become incredibly rich since leaving the White House.
Both sides notably refrained from lecturing or sharp demands during their public comments Monday, and were careful to put their disputes in the context of an economic relationship they said has become a crucial anchor of the global economy. “Our two economies have become inseparable,” said Chinese Vice Premier Wang Qishan.
Trade is a main focus of the U.S.-China talks, with each side seeking assurances that the other’s market will remain open. Mr. Wang said China wants to see steps by the U.S. to improve treatment of Chinese companies investing in the U.S., and to treat China as a “market economy” in trade law, which would raise the burden of proof in antidumping cases and other trade remedies sought by U.S. companies.
U.S. companies are also increasingly concerned about the business environment in China. In fact, they are concerned that a revaluation of the yuan will drive prices higher and lower their profit margins because they can’t raise prices in a deflationary economy. In an interview on Monday, Thomas J. Donohue, the president and chief executive of the U.S. Chamber of Commerce, said that the members of his Washington-based organization haven’t been so concerned about China “backtracking” on opening its economy since China joined the World Trade Organization in 2001—a shift that he said had made them less willing to push back against Congressional moves to restrict trade with China.
Many observers think the debt crisis in Europe and the ensuing swings in financial markets have made it less likely that China will move off its de facto peg anytime soon. U.S. officials have said they didn’t plan to publicly push China on the currency at this week’s talks, in part because they feel such pressure would be ineffective. Pressure is effective when you have the upper hand in negotiations. For most of you, that is a purchase order and having other factories or suppliers on hand that can supply the same product. In a research report Monday, analysts at Standard Chartered said they now think China won’t move away from the peg until the third quarter of this year.
Mr. Wang, the vice premier, said the European debt crisis had “brought many uncertainties to the slowly recovering world economy.” Central-bank Gov. Zhou Xiaochuan briefed reporters Monday about financial issues raised in the dialogue, but didn’t directly answer a question about whether the events in Europe would affect China’s plans on its currency the yuan. “Some issues were not discussed in detail,” Mr. Zhou said.
—James T. Areddy, Aaron Back and Ian Talley contributed to this article.
Hornblowers
April 19, 2010 by Chinatex
China must have the loudest horns in the world. Now, I don’t know much about noise levels and decibals and other technical things like that, but, I do know what i hear – when I can hear. I’ve been thinking about a topic for my next blawg post for quite awhile and while I have had a couple of great ideas, I just couldn’t figure it out. You know that Old Chinatex likes to write about the law in China and other interesting stuff like that, but, if you read my blawg you also know that I like to write about China and the customs and habits which can help us all understand or tolerate the way things work over here. If you want to go to a blog site everyday and read about changes to the law in China and other intellectual stuff, I recommend you check out the award winning China Law Blog at http://www.chinalawblog.com/ which is written by Dan Harris and his associates. If you want to read interesting stories and anecdotes that should be useful and might be funny, check out my blawg at http://chntxlaw.com/blog/
So, I was thinking about horns in China and for those of you who have been here, you know that horns are not used in the same way as they are in the West. In fact, if someone beeped their horn in the same angry, prolonged, and aggressive way as they do here in China, in Los Angles, they would most certainly be shot. They don’t just give you a friendly toot to remind you that the light is now green, they lay on the mother like their life depended upon it which then starts a chain reaction of angry beepers all laying on the loudest horns on the planet.
I’m sure that when they design and build cars in China for sale on the Domestic market, whether it’s Ford, or Mercedes, or BMW, or Geely, they have a meeting to discuss horns and there is a typical Chinese automotive engineer type with the short sleeve white shirt, black pants with white socks and overly shiny black shoes that says: ”we gotta make these horns extra loud so that they Chinese will hear them.” The response inevitably is “how much louder” and the engineer says “what about 100% louder, because we are China and the Middle Kingdom and the biggest and best country in the world and we should have the loudest horns.” The decision makers obviously not wanting to lose their jobs by allowing wimpy horns or lose face to the rest of the automotive industry all agree and the horn blowing torture on Old Chinatex begins.
So I was thinking, as they create their own traffic jams by all trying to jump ahead of each other on the roads, why the Chinese don’t just wait for the light to change, or the person rudely stopped in the middle of the road talking on their cell phone to move on, or the taxi letting off it’s passengers to complete their transaction (which usually only takes about 10 seconds), or any of the million other reasons why they beep their horns, “why do they really lay on the horn”. It doesn’t seem that it works or the person whom is the brunt of the horn blowing cares, it only annoys the hell out of me. I am sitting in my office on the 12th floor of a premier office building in the Shenzhen CBD and I hear a cacophony of the loudest horns ever invented and the same goes for my apartment on the 32nd floor. Mosquitoes don’t even make it up to the 32nd floor, how the hell can the horns sound so loud and reach my ears while I am trying to sleep. I guess the simple answer is they just don’t give a hoot about anything else other than what is impacting their little world at that time and I wholeheartedly believe that this mentality is prevalent in everything they do. Now I am not talking about everyone, of course there are considerate and inconsiderate people all over the world, it just seems like with one and a half billion people that there are plenty here that just don’t give a hoot.
So just remember, when you are dealing with a factory owner or looking to invest in or acquire an existing business or conducting any other transaction and you believe that the person(s) you are dealing with “likes you” and “I can trust them” (Old Chinatex has heard it all) the way they lay on that horn.
As always, Yeeha!! Chinatex
Customs to the rescue
April 19, 2010 by Chinatex
Fake products in China are nothing new and I have been advising clients on protecting Intellectual Property matters for many years here. As I wrote in my previous blawg “Misconceptions about China” http://chntxlaw.com/2010/03/misconceptions-about-china/ “as more Chinese companies file for IP protection in China and in the West, and they have an expectation of enforcement and a rule of law, those same principles will extend to foreign companies and individuals who apply for IP protection in China.” I thought this below article was interesting and while you can never be quite sure if the numbers are accurate, I can assure you from personal experience that Chinese Customs will enforce the IP rights of those who have IP – this means Patents and Trademarks that have been filed in China. So, the best thing you can do is file often and file early as the first to file has the IP in China and then file your IP rights with Customs and establish a good relationship with Customs (you would be surprised how far a nice sincere lunch will go). So, I hope you learn something from the below article and as always, Yeeha! Chinatex.
Fake goods in mail up 7-fold
By WANG YAN (China Daily) Updated: 2010-04-20 08:24
http://www.chinadaily.com.cn/china/2010-04/20/content_9750480.htm
Drastic increase due to rapid development of e-business: Customs
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BEIJING — The country’s customs officials seized as many as 37,000 pieces of mails and express mails containing counterfeit items from June to December of last year, seven times the figure in the same period of 2008, the General Administration of Customs (GAC) said on Monday. |
On July 20, 2009, Beijing Customs stopped a batch of outbound express mail for random inspection.
Each of the 75 boxes, with “digital accessories and parts, digital cassettes and electronic accessories” written on them, weighed 30 kg. The parcels were headed to 10 countries.
On opening the boxes, officers found more than 50,000 mobile phones, SD cards, flash drives and memory banks involving 12 brand names.
The smuggling bid opened the customs department’s eyes to the seriousness of the infringement of intellectual property rights in the country.
The case is now been transferred to the public security department for further investigation.
The drastic increase in the practice is due to the development of e-business, said Meng Yang, director of the policy and regulations department of GAC, at a press conference in Beijing.
“Intellectual property protection in export trade faces new threats as e-business develops. With online trading gaining popularity, we’re seeing more and more cases where tort goods are shipped through mail, express mail, or carried by individual passengers across the border,” Meng said.
But she said the department would not regard it as an infringement of property rights if tort goods carried by passengers were within “range of reasonable self-use”.
Zhao Fudi, spokesperson for the GAC, said mails and express mails had become a major channel in the cross-border circulation of tort goods. Zhao said the GAC launched a special campaign from July to December last year, where inspection was focused on mail and express mail.
“The number of batches of goods seized through mails and express mail in 2009 has jumped by 738 percent compared with 2008. “The number of items has increased by 28 percent, and the total value by 402 percent,” he said. China’s e-business transactions reached 530 million yuan ($77.6 million) in 2009, an annual increase of 248.7 percent, iResearch said in its report on Thursday.
It said China’s e-business market is stepping into an explosively increasing stage. “In the next two to three years, the country’s e-business customers will maintain an annual growth rate of 70 percent. Scales of real goods will reach an annual increase of up to 400 percent,” the report said.
According to the GAC data, a total of 280 million items were seized last year because of intellectual property infringement, where 99.9 percent were exporting goods and 99 percent were trademark infringement. Tobacco products, light industrial products, cosmetic and care products, hardware and mechanical products, and clothes topped the list of goods categories in terms of the number of items seized in 2009. Among the five, only tobacco products saw a decrease in number compared with last year, from 560 million in 2008 to 180 million in 2009.
Misconceptions about China
March 12, 2010 by Chinatex
My mother thinks that people in China still ride around on bicycles wearing those green army suits and green hats with the red star in the middle. While there are still a lot of bicycles, especially in Beijing and Shanghai – where they are proud to wear their silk pajamas while riding their bicycles and smoking at the same time – there are not many people wearing those green outfits. In fact, to most people in the U.S., China would be unrecognizable from what they remember in the news clips from the last few decades. There are many misconceptions about China and Old Chinatex is here to clear up a big one.
I have had several clients recently tell me that their lawyer from _______ (insert the country here cause they are all the same) told them that there “wasn’t any need to file a trademark or patent application in China because China doesn’t recognize intellectual property rights anyway and people still ride around on bicycles wearing those green army suits and hats” (I added that part). This is a big misconception that could potentially cost someone a lot of money.
First of all, China has something called the State Intellectual Property Office of the Peoples Republic of China “SIPO”. They even have a website if you want to pay them a visit: http://www.sipo.gov.cn and if you can read Chinese you would understand what they are saying. If you can’t read Chinese, they have an English version at: http://www.sipo.gov.cn/sipo_English/ From the website you can see they are legitimate, SIPO is similar to the US Patent and Trademark Office (USPTO), and takes Intellectual Property filing and enforcement very seriously.
Secondly, as more Chinese companies file for IP protection in China and in the West, and they have an expectation of enforcement and a rule of law, those same principles will extend to foreign companies and individuals who apply for IP protection in China. I have personally watched IP filing and protection improve dramatically in the past 7 years and most of the problems in enforcing intellectual property rights arise when foreign companies have not filed in China.
Thirdly, China does not recognize US and other patents in the same way as other countries. China recognizes Chinese patents filed with the SIPO and China is a first to file jurisdiction. This means the first person to file usually gets the IP rights. I say usually because there are circumstances where internationally recognized brands have spent a lot of money to enforce their trademark rights from people who have filed first in China or similarly they have spent a lot of money to buy the rights from those same clever individuals who filed first.
Finally, filing Trademark and Patent applications in China is relatively straight forward and not prohibitively expensive. In fact, the costs compare with those in the U.S. and are lower than in the E.U. When filed and approved by the SIPO you then have Intellectual Property rights and an asset in the IP that you didn’t have in China previous to filing. The certificate then allows you to use expanding legal channels to enforce your IP.
So, why wouldn’t you file!!!! Because your lawyer, who has never been to China, told you it wouldn’t make a difference. While Old Chinatex doesn’t make a bunch of money on helping clients file Trademarks and Patents in China, it is a service we offer because we simply wouldn’t be doing everything we can to help our clients navigate the business jungle in China – if we didn’t.
For more information on Intellectual Property protection in China please contact Chinatex or his staff at info@chntxlaw.com
As always, yeeha! Chinatex
