by Dan Harris
I wrote the below post for Above the Law, the leading (by far) news and information and gossip site for lawyers. Since it showed up on that site this morning, I have received a number of communications from people in China saying that they have been unable to read it there. I therefore am running it here as well for everyone in China, and also for anyone who has not seen it on Above the Law yet.
The China lawyers at my firm are often asked what foreign companies should know and do to stay out of legal trouble in China. The following eight questions make for my answer:
1. Are You Operating Legally? If you are doing business in China for more than a month or two, you should be looking at whether you need to form a legal entity there (a Wholly Foreign Owned Entity (WFOE), a joint venture, or a representative office). Note though that some businesses that are perfectly legal in the United States or in Europe are proscribed to foreigners in China.
2. Do You Have a Good Contract? Written contracts are highly advisable and they generally should be in Chinese. If you entertain thoughts of enforcing the contract against your Chinese counterparty, disputes should usually be resolved in China.
3. Are You Protecting Your Intellectual Property? To protect your trademarks, patents, and copyrights in China, you should register them in China, notwithstanding ostensibly relevant international conventions.
4. Are You Bribing Anyone? Are You Sure? The United States vigorously enforces its Foreign Corrupt Practices Act (FCPA), dealing with improper payments to foreign officials. China now too has its own anti-bribery laws, and those laws are in many ways even broader. At minimum, your company also needs to be sure it is not dealing with any individuals or companies on applicable sanctions lists.
5. Are You Complying With Import-Export Laws? A company recently called me to draft a sales contract for selling their technology product to China. My first question was whether the United States would even allow their product to go to China. This question had never occurred to this company, but it turned out that exporting their product to China would indeed have been illegal under U.S. export control laws. Additionally, many products require special approvals to be imported into China and some cannot be imported into China at all.
6. Are You Complying with China’s Employment Laws? China’s employment laws are national, provincial, and local. Very local. If you are not complying with all levels of China’s employment laws and regulations, you are setting yourself up for problems.
7. Are You Paying All of Your Taxes? Like governments everywhere, China loves collecting taxes, especially from foreigners. And if it can collect interest and penalties for your initial failure to pay taxes due, it is even happier. Know what taxes you need to pay and pay them.
8. Are You Violating Any Antitrust/Pricing/Environmental Laws? I realize that grouping these together is a bit of a fudge, but analyzing them separately would take many more articles. The key point is that doing business in or even with China requires you at least consider these issues and realize that China’s laws may be very different from comparable laws in your country.
If your company cannot give good answers to the above eight questions, you should start making changes, and fast.