International Law

Is cruelty-free makeup legal in China? Nope!

Many years ago, an American credit reporting company called seeking help with forming a subsidiary in China. This company told me of their extensive and expensive market research demonstrating that China had a tremendous pent-up demand for their credit reporting services. As I listened, I kept thinking that unless the law had changed recently, foreign companies were prohibited from engaging in such business without a Chinese joint venture partner.

So I asked politely if anyone had determined whether their planned business would be legal in China. They paused and said they had not, and I suggested that we do so straightaway. After ten minutes of research, I reported back that credit reporting was barred to foreign entities seeking to go it alone. This company never went into China.

Flash forward to the present. Organic, cruelty-free cosmetics have become big business, including in China, where many who can afford such things would not be caught dead putting made-in-China products on their skin. American cruelty-free cosmetic companies are being contacted in droves by Chinese companies seeking importation and distribution deals…

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Rule number one for succeeding at doing business in China is to have a good partner. The odds of having problems with a Chinese company are much lower when you deal with a “legitimate” Chinese company. That means rule number two is making sure that you are dealing with a legitimate Chinese company.

But how do you do that? How do you distinguish between a Chinese company that is legitimate and one that is not?

The following are the basics for making that determination…

double red triangle arrows Continue reading “China Due Diligence: Just Ask”

The traditional arguments against going to law school are: (1) there are too many lawyers and not enough jobs; (2) tuition and student loan debts are too damn high; (3) the high-paying or high-powered jobs are available only to the top students of the top schools; and (4) most “JD Advantage” jobs could have been obtained without a law degree.

The typical response to the above is something along the lines of, “That won’t apply to be because I’m going to put in the work and be one of the top students.” Now those of us who lived through law school might find this amusing and even ridiculous. But we can’t really blame them for their determination. We were their age once. Back then, the world was a playground and full of opportunities. If 0Ls today know all of the risks and can obtain a decent scholarship at least for the 1L year, then they should take a shot and see where they fall on the bell curve.

Today, I am going to talk about a few issues regarding law school and law practice that have not been discussed (at least extensively) amongst the law school critics. The issues apply to most students (even the top students) of almost every law school….

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I recently spoke with a reporter who asked me why our clients that had chosen to locate in Vietnam had chosen Vietnam over China. I mentioned lower costs, less competition, and how some had told me that it was because they just flat out preferred spending time in Vietnam to China. He then said, “But it must be strictly the low costs in the end, right?” I said that could not be the case because if companies were choosing their locations on low costs alone, countries like Yemen and Niger would be on the top of their lists, rather than nowhere on them.

We are always getting asked why our law firm has its lead China lawyer and an office in Qingdao — we also have an office in Beijing, but nobody ever asks us why there. The answer is actually quite simple, particularly when compared to the high-level analysis many companies employ in making their location decisions. Steve is in Qingdao because we have had an excellent relationship with Qingdao’s biggest (and I think best) law firm for nearly a decade, and that firm was instrumental in helping us establish ourselves in China. But probably the driving factor in our choosing to locate in Qingdao is that Steve loves the place and loves that he can easily afford to live in a luxury apartment with twelve-foot-high windows overlooking the East China Sea at about half the price (and the pollution) of Shanghai or Beijing. The fact that at least 80 percent of our China work is 2-3 hours from Qingdao by plane only adds to its attraction. Steve is completely fluent in Chinese (as is our other attorney stationed there), and so Qingdao’s small expat community and dearth of people who speak English is no deterrent…

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For every 100 Wholly Foreign Owned Entities (WFOEs) and Joint Ventures (combined) my firm helps set up in China, it only sets up one Representative Office. Why so few, when Rep Offices are the easiest entity for foreigners to form in China? Because their inherent limitations mean they seldom make sense.

Representative Offices are aptly named — they are the China representative of the foreign company. A Rep Office is not considered a separate legal entity in China, and it is limited by law to performing “liaison” activities. It cannot sign contracts or bill customers. It cannot supply parts or perform after-sales services for a fee. It cannot earn any money in China or take any payments from a Chinese person or business for any reason.

Rep Offices are pretty much limited to engaging in the following…

double red triangle arrows Continue reading “How To Form A China Representative Office… But Why Would You?”

American companies make a lot of mistakes in China. And even when they don’t make mistakes, they get frustrated.

I view both of these results as healthy, because mistakes and frustration are par for the course in China, and the sooner companies realize that the better. That said, they could avoid at least some of their heartbreak by following these five principles…

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When it comes to negotiating, Chinese companies view American companies as easy marks: impatient, unfocused and too willing to compromise to avoid losing out. Accordingly, Chinese companies often employ the following three negotiating techniques:

1. Wear down the American side down with endless issues. This tactic actually has two variants. In the first variant, the Chinese side raises a series of issues. Once these initial issues are resolved, the Chinese side then raises a series of unrelated new issues. This process never stops, because the list of issues is endless. The second variant is for the Chinese side to make several unreasonable demands and then refuse to address the American company’s concerns at all. Both variants are designed to induce the American side to concede on all major points out of a desire to keep the deal moving forward….

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The United Nations

Ed. note: Please welcome our friends from OZY. We’ll be sharing some of their great law-related content in our pages.

International law enforcement is an enticing idea.

There are real villains and real victims. But sometimes an international legal solution is worse than no solution. This is true of a number of popular proposals on the table today for supposedly bolstering our international legal order. Here’s what proponents of those ideas get wrong about international law:

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At least once a month, one of the China lawyers at my firm will get a call from someone asking us to form a “China company” for them before they start doing business in China “next month.” The problem with this is that forming a China company typically takes at least four months and after you finish this post you will understand why.

American lawyers often take on domestic company formations as a loss leader because the work tends to be fast and easy and they expect that the firm will get additional legal work once the company is formed. With China company formation, I often joke that the process is so onerous that our client never wants to speak with us again after we finish…

double red triangle arrows Continue reading “The Agony And The Ecstasy Of Forming A China Subsidiary Company (WFOE)”

I estimate that 90 percent of U.S. companies doing business in or with China have intellectual property requiring protection from China. Therefore, it is always a surprise to me how many of these companies seem to treat their intellectual property in China as an optional or secondary matter when it really should be one of the first issues they consider when approaching the China market.

Let’s first get clear what I am talking about when I use the term “intellectual property.” IP is not patents, trademarks, copyrights, etc. These are simply tools for protecting intangible assets.

So what is intellectual property?

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