Lawyers love checklists, and we international business lawyers are no exception.
Me, I love clients, not only because they are the lifeblood of my law firm and thus my livelihood, but also because they so often stimulate the ideas for this blog. And people are interesting the world over, from Rio to Mumbai, from China to Qatar. I’m a people person, full stop. I just spoke with a client who asked me to outline in writing the legal issues he needs to consider as his company looks at doing business in China.
Amazingly enough, clients rarely explicitly request such a checklist. Instead, we usually tell them over the phone the main ways we see our law firm as able to help them.
This post “issue spots” the most common legal issues companies face when contemplating doing business in a foreign country, be that country extremely welcoming to foreign investment (e.g. India) or one where the minefield is significant and growing by the day (e.g. China). Though far from exhaustive (and not intended to be so), this list highlights the key legal issues foreign companies must consider when doing business in China, Vietnam, India, Thailand, Mexico, Indonesia, or really pretty much wherever.
- Are You Legal? China has all sorts of requirements for doing business there. If you are going to be doing business in China more than occasionally, you probably will need to form a legal entity to do so. This entity can be a WFOE, an entity or contractual JV, or a Representative Office. Some business lines or industries that are perfectly legal in the United States or in Europe are illegal for foreign companies in China. This potential illegality for foreign companies is true for pretty much every company in the world. Most people do not realize this, but there are plenty of industries in the United States in which foreign companies are treated very differently than domestic companies. You need to know what the laws are for foreign companies both in your particular industry and for exactly what it is you plan to do. Generally, we refer to these as “Negative Lists.” Every country has one, and they are not consistent across countries.
- Contract. In almost every instance, it is wise to have a written contract early in the relationship, and it is almost always best to have this contract be in Chinese. Chinese contract law is far less willing to imply things than western law. For countries other than China, the same general framework holds. You need a contract, and that contract needs to be suitable and enforceable for the particular country. And don’t think that because you have a good relationship or you’re an exceptionally savvy negotiator who has never had a deal go wrong that you can or should skip this requirement.
- Intellectual Property/Trade Secret Protection. Your intellectual property (IP) rights in your own country do not generally extend to China or to any other country, in large part because the way IP is perceived, established, and protected varies from country to country. To secure protection of your trademarks and patents (and to a lesser extent copyrights) in China you must apply to have them registered. Do this or do not complain when they are “stolen.” You should be using your contracts (and not just your NNN Agreements) to protect your IP in China.
- U.S. Foreign Corrupt Practices Act. The United States vigorously enforces the FCPA, which penalizes improper payments to foreign officials by U.S. companies. In certain situations, U.S. companies can be liable under the FCPA for payments made by their Chinese partners. The most common situation is when the U.S. company uses the Chinese company as a distributor of the U.S. company’s products. Know these laws and know how to avoid running afoul of them. And make sure that your employees are trained in these laws. Canada and Europe have similar corrupt practices acts. You do not want to be in the crosshairs of both a foreign government and the U.S. government.
- Compliance with Export Control Laws. Not long ago, a company asked one of our international IP attorneys to draft a technology licensing agreement for licensing its technology to a Chinese company. Our first question to them was whether the U.S. government would even allow them to license that technology to China and whether they had done any due diligence on their potential licensee. They had not looked into either of these issues, and it turned out their licensing deal would would be illegal under U.S. law. Many years ago, I was approached by a client ready to ship food products to North Korea that would have violated U.S. prohibitions on doing business with that country. The client was simply unaware of the law. Some products (certain types of software are a good example of this) can be sent to China only with a validated license.
- Product Safety, Liability and Labeling Laws. Can you really just take your US or EU compliant product and ship it into China without any changes? Does it meet Chinese safety standards? Does it comply with China labeling regulations? I know it may sound strange to think that your home country’s laws would not be “good enough” for China and that you can just run your English text through Google translate and voila(!), you’ll be compliant. If you’ve ever read some quality Chinglish, you need to know that the reverse is also true and will not be good enough.
- Antitrust/Employment/Tax Issues. As a general rule, don’t dabble in any of these areas. If you are going to be doing business with China or, even more so, within China, these issues are often relevant, particularly since Chinese laws on these can be so different from those to which you are accustomed.
Anything you would add to this list?