Posts of the Week: 9/22 - 9/28

Trademark Oppositions in China at China Law practice Blog

Why Not Just Sue the Bastards?" at China Hearsay

Recent Chinese Negotiation Tactics: Translated! at Silk Road International Blog

China Joint Ventures. Can Things Get Any Worse? at China Law Blog

New rules for Chinese stock market investors at China financial markets

Miscellaneous China Litigation at China Hearsay

New Domain Name

Took the $10/year plunge for a new domain name. Experience Not Logic can continue to be accessed at the Blogger address, but you can now access ENL at:

http://www.experiencenotlogic.com

Enjoy!

The Debate on Foreign Policy

A summary of the candidates direct discussion on China:

. . .

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Quick note: CSR stuff is going slower than I expected due to academic obligations. But, it should be done b y the end of the week.

A US-China Comparison of Legal Authorization for Corporate Social Responsibility Pt. 1: Intro

The law is the witness and external deposit of our moral life. Its history is the history of the moral development of the race. The practice of it, in spite of popular jests, tends to make good citizens and good men. - Oliver Wendell Holmes, Jr., The Path of the Law

Over the next few days I'm going to write four posts on the legal authorization for corporate social responsibility in a US-China comparative context. This will include examining the case law, federal corporate statutes, state corporate constituency statutes, and tax statutes of the US, and cases (hopefully), corporate statutes, and tax statutes of China. But first, what is this "corporate social responsibility" (CSR) thing? I think the American Chamber of Commerce PRC does a fine job defining the CSR concept:

Examples of CSR include, but are not limited to:

• monetary and in-kind donations
• employee voluntarism
• partnerships with government and civil society
• community engagement
• good corporate governance
• social/environmental impact assessments
• environmental standards
• labor standards
• ethical supply chain management.

Key CSR issues in China include:

• core business challenges such as transparency, environmental impact and supply chain labor conditions, and
• external initiatives such as community investments and partnerships with government and civil society.

These all sound like great things! So, why is there even a debate about CSR? This is jumping the gun a little bit into the discussion about legal authorization for CSR in the US, but there are strong arguments that the only responsibility a corporation has is to secure the best legally possible return for its shareholders. Thus the only points listed above that a US corporation should be bound to are good corporate governance, environmental standards, labor standards, and ethical supply chain management (for fear of tort, or FCPA troubles).

But there are times, and we'll look at some, when the Directors or Officers think that their corporation should be doing more than just getting a nice return for their shareholders. They think that their corporation should be giving back to their community. Should this be legal? Is this legal? To what extent is this legal? Should corporations be forced to give back to their communities (especially in the wake of so many of them acting so naughty)? Should corporations be forced to not just not be evil, but be forced to be good?

And, the big question that I want to sort out for myself is whether the socialist nature of the PRC means that Chinese corporations should be bound tighter to CSR standards and should have greater expectations or even requirements upon them for giving back to their communities than their American counterparts. Caveat: Yeah, I realize China isn't strictly socialist, but we're gonna be looking at some articles in some PRC statutes that would make lawyers in a more litigious country drool and make corporations in the same sort of place quiver in their boots.

Comments are especially welcome, though no more nor less welcome than usual.

Other Posts:
Part 2

Blogroll Additions

My rss reader has been updated way more than my blogroll. Here are the blogs I'm adding:

SourceJuice
An in depth look at sourcing from China. Plus, their team is made up of helpful, considerate people.

China Comment
Lots of long posts on a variety of topics. I particularly enjoy its "nuanced research."

Crossroads
Rich Brubaker is prolific. And, he has been producing some intriguing videos on CSR in China.

WSJ.com: The China Journal
It's the Wall Street Journal.

bizCult
Podcasts, lengthy blog posts. Focuses mostly on sourcing.

Posts of the Week: 9/15 - 9/21

Wacky insider trading case at Chinese Law Prof

Economists React: After China Rate Cut, Eyes Now On Loan Quotas at WSJ: China Journal

The Impact of China's Labor Contract Law at China Law Blog

Sinopec Sustainability Report. Different, but Good at Crossroads

Wall Street's Meltdown and What it Means for China at Managing the Dragon

"Rule by Law" Reform at China Comment

China Joint Ventures And Really Bad Milk. What Can You Do? at China Law Blog

More Tough Talk at China Environmental Law

AIG and China: Could A "Special Relationship" Translate into Cash? at TIME: The China Blog

Terminating Employees in China: Some Practical Considerations at China Law Practice Blog

Markets surge, but little has improved at China financial markets

On the Legal Authority of Federal Bailout of AIG
Federal Bailout of AIG: Is It Legal? at Legal Blog Watch

The Financial Crisis and US Foreign Policy Goals

While listening to President George W. Bush give his speech at 7:45 this morning my email box started blowing up with some unusual emails from the State Department. Typically, my feed gets 3-5 emails a day. The typical subjects are new country notes, the daily press conference, and some new initiative or program. From 7:37 to 7:51 a series of emails with a scope of topics that normally don't come in during the course of a week hit my box. Here's the list:

• U.S. Commitment to the Millennium Development Goals
• Promoting Food Security Worldwide: A U.S. Commitment
• United Nations Management Reform
• The Universal Declaration of Human Rights
• The United States' Response to the Darfur Crisis
• The United States' Commitment to Human Rights
• Financing for Development

My interpretation isn't some huge leap, but basically the Executive is saying that despite plans to use 100s of billions of dollars to setup "Uncle Sam's Domestic Wealth Fund" we're not giving up on our monetary commitment to our foreign policy goals around the world. Several of those above are targeting China. The Humans Rights stuff, and the Darfur stuff are telling China that we still care about that stuff. Financing for development and millenium development goals is saying that we're still in the soft power game. Management reform is saying many of our bankers may be crooks, but that doesn't mean we're gonna let others get away with it. Food security is related to the Doha round of trade talks which were all but scuttled due to fallout between India, China, EU and the US over agricultural subsidies. Some other foreign policy initiatives will probably have to be scaled back, especially extremely costly ones.

China and the Markets (Basically, Some Links)

Friend and loyal reader Chuck Billinger suggested I post something about the Shanghai Stock Exchange's decline over the past year, particularly in relation to this week's continued slide and the financial trouble on Wall Street. Chuck, I'm sorry, but I feel woefully inadequate in jumping into this inquiry. Sure, this hasn't stopped me before, but this is one of those areas where it's best for me to just lean forward and listen to what others have to say on the subject. As such, I'll write a bit of vague doom and gloom, and then point you to some reading.

Folks have been comparing this latest financial disaster to the Great One that kicked off in the US in 1929. If I remember correctly, that Depression spread across the world resulting in rampant inflation which fueled nationalism and got some (I've gotta go with objectively) bad people into power in some powerful countries. International trade slowed to a trickle as protective tariffs were established. The US started something called the New Deal, which was largely ineffective. And it took years of war during which unprecedented atrocities were committed for the global economy to get back on track. The winners of the war ended as competitors, and the world entered one of its most peaceful and certainly the most dangerous period in human history. To sum up: I really hope global inflation is kept in check because instability can lead to a really crappy outcome, especially in an era when more than one country has WMDs (and today's WMDs make the first ones look like child's play).

That said, I am mostly optimistic, despite Russia's stock market. I don't know if there's a rational reason for my optimism, but I'd rather prepare for the worst while assuming the best because I don't know if I could fall asleep at night otherwise.

And, here are the promised links in order of most general coverage to coverage of specific things. Unfortunately, most of the news cycle on China is still focused on tainted milk:
Wall Street’s Meltdown and What it Means for China at Managing the Dragon
Is China Safe? at China Financial Markets
U.S. Meltdown Reflects Regulators' Failures, Wu Says at Bloomberg
China to Cut Stamp Duty, Buy Bank Shares, Xinhua Says at Bloomberg
Panic dumping leads to third successive fall in index at Shanghai Daily
Seize this crisis to internationalize China's currency at Shanghai Daily Opinion Section
AIG and China: Could A "Special Relationship" Translate into Cash? at TIME: China Blog
Morgan Stanley/CIC at Brad Setser: Follow the Money

Why the %$#@ is Melamine Added to Food?!?

Many know why, but I'm concerned that there are plenty more who don't keep reading below the fold (or the headline).

I subscribe to the good 'ole theory that humans are fundamentally concerned about their own self-preservation, but that evolution has shaped our society such that self-preservation is best achieved through cooperation and building strong relationships with others. This results in the paradox that our innate selfishness drives the vast majority of us to be good, decent folk. Thus the possibility that adding melamine to baby formula was driven by some nefarious purpose is quite remote. I guess that means we have to turn to some science.

Wikipedia's usually pretty spot on with the science stuff, and the melamine article is no exception.

First, in what products should we find melamine? Countertops, dry erase boards, fabrics, glues, housewares, flame retardants, inks, plastics, and fertilizers. These are all things we should not make a habit out of eating.

Why is melamine bad for us? Available evidence from animal studies shows that melamine alone has no significant toxic effects. The problem is when melamine is combined with cyanuric acid forming melamine cyanurate, the salt which has been found in Chinese gluten in the past. Melamine cyanurate has been linked to kidney failure in cats, and I'm not a doctor but those children in China are being hit with kidney stones.

And, why the #%&@ is melamine cropping up in Chinese food supplies? When food is tested for protein content one of the things tested for is nitrogen levels. Melamine tricks the testers by raising the nitrogen levels of the food. When the testers think there is a higher level of protein than there actually is, then the food manufacturers can place a cheaper filler in the food. In the case of powdered milk, melamine was added to dilute the amount of milk necessary for high protein readings meaning that less of the more expensive animal product was needed to fool the testers into thinking that the protein content of the contaminated milk matched that of regular milk.

Why aren't US and EU food producers doing this? If China's analogue is the US in the late 19th/early 20th century, check out The Jungle. Basically, we've got stricter regulations, better testing equipment, and, in the US, a tort system that will make you pay dearly for these failures. These are just things that come with time and the maturity of the legal system. And, if you look at US jurisprudence from the good 'ole days you'll find that industry, especially railroads, got a lot of breaks in the days before judges determined that industry was robust enough to pay for its mistakes. China, of course, has a heavy-handed criminal judiciary, but I'm hoping somebody's filing some torts on behalf of the, at least, 1,253 families in China that have suffered.

Black Sunday: Remembering Why

I forget where I found these videos, and they're about a year old, but the Long Johns do the most fun job I've seen of explaining the origin of the current shit storm we find ourselves in. I prefer Part II; Part I has some funny parts, but it is more focused on the impact of the subprime mortgage crisis in England.

Part II:



Part I:


China, I'm not taunting, but the end of the holidays are gonna suck.

Posts of the Week: 9/8 - 9/14

Ultimate China Sourcing Guide - Part II at bizCult

China's Free Trade [Agreements] at China Comment

AML Rollout Proceeding According to Plan at China Hearsay

Changes to Chinese patent law in the offing at IPKat

New Draft Third Patent Law Amend: Slight Improvements at IP Dragon

U.S.-China's Rocky Road Ahead at Pomfret's China

China's national IP Stratefy 2008: Feasible Commitments or Road to Nowhere Paved With Good Intentions at IP Dragon

Is Your Headquarters Idiotic? at This is China! BLOG

Skin in the game at Free Exchange

Research guide to Hong Kong law at Chinese Law Prof

Entertainment
China incentive of the day at Marginal Revolution

From Yours Truly
Sales To and From China. What Does Your Choice of Law Clause Look Like?
Plus, commentary at China Hearsay and at CLB.

"Operation Shell Games," or How Not to Get Business Visas to the US

Business immigration to the US is a creative field. Typically a lawyer's advice will keep the creativity on the right side of the law. Sometimes the advice will put the lawyer and the client's in a legal gray zone, witness Fragomen's recent troubles. And there is always room for an entrepreneur to take the immigration into the fraud and conspiracy zone.

A couple of days ago an indictment was filed against a Macao businessman after the conclusion of an investigation by the US Attorney's office and the Diplomatic Security Service called "Operation Shell Games." It is alleged that this entrepreneurial fellow setup three shell companies in Northern California's Bay Area. Invitation letters were sold from these companies to Chinese citizens for up to $16,000 a piece. Visas were then applied for at American Embassies in China using the invitation letters and claims of doing business with the shell companies.

Here's the list of charges:

one count of Conspiracy, in violation of 18 U.S.C. § 371, eight counts of Visa Fraud, in violation of 18 U.S.C. § 1546, six counts of Harboring Aliens for Financial Gain, in violation of 18 U.S.C. § 1324, and one count of Money Laundering, in violation of 18 U.S.C. § 1956. The maximum statutory penalty for these violations is five years imprisonment per count.

Whoops!

Sales To and From China. What Does Your Choice of Law Clause Look Like?

With a US slant, of course...

If the US party is drafting the sales contract then it probably says something like, "The sales law of the State of California shall govern this contract," with the intention that California's version of UCC Article 2 will govern the contract. If the goods are destined to China for a client with sufficient bargaining power then the contract probably reads something like, "This contract is governed by the laws of China," with the intention that the Contract of Law of China (CCL) govern the contract. Neither might get you want you actually want, and a professor of mine liked to tell us that when attorneys make that assumption they're committing an act which is "tantamount to malpractice." Why? Because as worded, the contract is actually governed by the CISG in the US, and by some hybrid of the CISG and the CCL in China.

If the sales contract is between parties in California and China, and the contract is supposed to be governed by California law then the 'why' is more easily analyzed. The Supremacy Clause of the US Constitution says that after a self-executing treaty, such as the CISG, has been approved by Congress and made the President, the treaty then becomes the law of the States. Article 1 of the CISG is quite clear that when a contract for the sale of goods is entered into by two Contracting States, which China and the US both are, the CISG governs the contract. This means that for an international sale of goods from the US to China, the sales law of the State of California is not UCC Article 2, but the CISG.

Did that throw you off? You're not alone. Michael Wallace Gordon did an experiment with the Florida Bar and Florida Judges over 10 years back in which he sent surveys to 100 randomly selected members of the Florida Bar and 100 Judges who sit for civil matters on the Florida Circuit Court. One of the questions was:

“Would you consider a clause in an international contract which states that ‘The Law of Florida shall apply’ to mean - (1) you have opted out of the CISG in favor of the UCC, or (2) since the CISG is the law of Florida the CISG would apply?” [I can't find a free version of the article on the web, but here's a cite: 46 Am. J. Comp. L. 361.]

50% of the practitioners, but not a single judge properly identified that the UCC would not apply and the CISG would apply. Troubling... But, the judges would at least be overruled on appeal.

How does it work in China? Differently... Chinese scholars are divided over whether there is actually such thing as a self-executing treaty in China. The side that says there is no such thing as a self-executing treaty argue that treaties only become laws after implementation through statute. The other side argues that once China ratifies a treaty it becomes a part of internal law. The history of the Foreign Economic Contract Law (FECL), CISG, and CCL shows that in the case of international sales law, China has sort of followed both paths.

The FECL was drafted before China ratified the CISG in 1988, but the CISG was finished well before the FECL was begun. A Chinese scholar, Ding Ding, says that China's legislative history shows that the FECL was written with adherence to the CISG in mind. This resulted in judges and arbiters applying two main types of law: either wholly domestic sales law, or application of the FECL with gap filling by the CISG. CIETAC followed the second approach and led the way in spreading the influence of the CISG in China. This was the common method until the adoption of the CCL in 1999.

The NPC itself wrote that the CCL was based on the CISG and the UNIDROIT Principles. An author analyzing CIETAC cases published at Pace University's CISG website found that post CCL, CIETAC has adhered to the CISG more strongly over the application of Chinese domestic law.

What's the lesson? Draft your contract with a solid choice of law clause. A flimsy clause is gonna cause some headaches. The greater opacity of the Chinese legal and arbitral systems means that if your sales contract refers to the "sales of law China," you'd better be prepare arguments under the CCL, the CISG, and a hybrid of the two becaues it is uncertain which will be applied. This is unlike the US where you can be certain that the "sales law of California" means that the CISG is the applicable law governing the contract.

Sources for China CISG Stuff:

China and CISG by Ding Ding

Implementation of Law in the PRC by Jianfu Chen, Yuwen Li, Jan Michiel Otto

Contracts for International Sale of Goods in China by Allison E. Butler

Posts of the Week: 9/1 - 9/7

China Arbitration. When, Why, Why Not, And Where. at China Law Blog

The Basics of Arbitration in China at China Briefing

Microsoft Plays the Piracy Card at China Hearsay

Sometimes All Roads Should Not Lead to China at All Roads Lead to China

Ultimate China Sourcing Guide - Part I at bizCult

Is the Great Firewall of China effective? at China Law Prof

Just For Fun
Myths and Facts About 19th Century Chinese Immigrants to the US: at Volokh Conpsiracy

McCain's Acceptance Speech & China

I would have written about this earlier, but we were hazing the new provisional members of the San Diego International Law Journal last night. And I promise, no more posts about political rhetoric until at least Monday.

Here's rhetoric related to China from McCain's speech last night:

1. "Now, my opponent promises to bring back old jobs by wishing away the global economy. We're going to help workers who've lost a job that won't come back find a new one that won't go away."

That was it. I like it a lot. The jobs aren't coming back, so you've got to find a new one.

Merchant Pirates Strike in Shanghai

Several years ago I read Under the Black Flag by David Cordingly which was about exactly what the subtitle says it's about: "The Romance and the Reality of Life Among the Pirates." The main thing I learned was that unless your name was Sir Francis Drake you probably weren't plundering gold and silver from the Spanish Treasure Fleet. The typical pirate attacked merchant ships full of manufactured goods from Europe. The pirate would then take the prize and the cargo to a friendly port where the cargo could be sold and the bounty on the prize claimed. Not as glamorous as gold, but, as Cordingly makes clear, a much more pleasant existence than serving on a demanding merchant or military ship.

Today the Shanghai Daily reported on the trial of the largest copyright case to hit Shanghai, City's biggest copyright case hits court. These guys are by no means Drakes; they're just selling a basic stolen good, Norton antivirus software. What is amazing is the volume of sales (677,000 units), the price per unit ($15 compared to $24.95 for legitimate product), and a business structure with full time sales people.

Two thoughts:

1. Did the specialization or business structure contribute to the success of the operation? I'm going with the business structure actively pursuing sales.
   
2. Who pays $15 for a pirated copy of an antivirus software when the value of antivirus software is in updates unavailable to owners of pirated copies? I guess the answer is at least 677,000 people, and according to the article the largest client was an American.
   

Palin's Acceptance Speech & China

Why am I so interested in campaign rhetoric? Because it's some sort of verbal promise, and if we accept through election then there's gotta be some sort of expectation of performance... Here's Palin's sole thin reference to China:

1. ...

Actually, Palin made not even a thinly veiled reference to China. Our foreign policy with China is probably the most important foreign policy matter, and not a single reference... Giuliani is currently saying that she doesn't yet have foreign policy experience so we shouldn't expect much from her yet, but she had no trouble talking about Russia, Georgia, and the Middle East...

This might be construed as a reference to China:

• "We need American energy resources, brought to you by American ingenuity, and produced by American workers."

This wasn't really at all about her views towards China. Rather it was an attack against Obama saying that energy resources in the US need to be exploited by American workers.

I've got to stop here because I'm about to break, rather than bend, Thumper's mother's rule.

What Bush Got Right: China Policy

I think I shared this anecdote at some other blog, or even here, but it's useful and I'm gonna use it again. Over the summer during lunch with my colleagues in Shanghai I was complaining about some aspect of President Bush's foreign policy, I seem to recall it had something to do with the use of military force over something that didn't exist, detailed in this report. My colleague replied that as far as he knew, Bush had been very good to China. I can understand why a foreigner living in a foreign country would use policy toward his country as a barometer of the success of another country's foreign policy.

The man who has recently done the most for US-China relations is Treasury Secretary Hank Paulson. He writes about US-China relations in a recent article in Foreign Affairs, A Strategic Economic Engagement: Strengthening US-Chinese Ties. In the article he writes about the history of US-China relations, the nature of the relation, recommendations for China to strengthen itself, and potential problems rising on both sides of the Pacific.

Mr. Paulson makes some strong specific points, particularly on energy policy, China's economic policy, trade issues between the countries, and how China could improve its image in the world. As the RNC primetime is about to kickoff, I'll leave you with the three most important passages from the article:

1. The George Kennanesque one:

"Despite the two countries' long history of interaction, they frequently display a stunning ability to misunderstand each other."

2. The economic nationalism is unfounded one:

"Americans who worry that China might overtake the United States are worrying about the wrong thing. They should instead be concerned that Beijing may not make key reforms or that it will face significant economic difficulties down the road. Serious troubles in China's economy could threaten the stability of the U.S. and global economies."

3. The tough talking one:

"The United States and China share many interests, but as is inevitable in any broad and complex relationship, they also have significant differences. When it comes to China's military modernization, its enforcement of intellectual property rights, and its human rights record, Washington and Beijing have strongly diverging views and sometimes competing interests. On such issues, Washington must be both direct and vigilant in its efforts to advance U.S. interests bilaterally or, where appropriate, multilaterally. Such an approach will invariably create tensions, as it sometimes does in the United States' relations with other countries. But differences with China must not be allowed to stand in the way of progress and cooperation."

All wise words.



One thing did bother me while I was reading this article, though: I couldn't help but think that the article's focus on the wonders of the US-China Strategic Economic Dialogue (SED), which Mr. Paulson spearheaded, was mainly about Mr. Paulson's desire to preserve his legacy.