Virtual Conference Addresses Legal Issues in China Business (September 7, 2006)

First co-organized in October 2005 by the Association of Corporate Counsel, Hong Kong Business Association of the Midwest, Hong Kong Corporation Counsel Association and facilitated by the Hong Kong Trade Development Council in Chicago, the conference was extended to its venues in California and Hawaii due to overwhelming demand. The 2007 conference will see additional participants from U.S. cities such as San Francisco.

Following a pre-conference networking reception and brief opening remarks, conference participants were introduced to the expert legal panel: Los Angeles moderator Dawn Haghighi, president of the National U.S. Hong Kong Business Association and member of the Association of Corporate Counsel; Jonathan Ross of Bank of China (HK) Ltd.; Noelle Tai of Yahoo! Hong Kong; Clara Wong of Accenture and Hong Kong moderator Ralph Ybema of CSMC Technologies Corp.

Discussion was focused around six organizing topics: 1) Trends, pitfalls and development of PRC joint ventures, 2) Goods, software and procedural IP protection for imports into the PRC, 3) Legal concepts and practical approaches to IP rights under PRC law, 4) Non-compete provisions and hospitality in PRC labor management, 5) Distribution in the PRC and 6) Effective dispute resolution in the PRC.

Joint ventures in the PRC - The equity JV is no longer the vehicle of choice; the trend towards offshore JVs, especially in regulated industries, has come about with changing establishment procedures and new SAFE regulations. Although pitfalls remain in areas such as land use rights, due diligence, the labor market and decreases in capital and liquidation, positive developments that have come about in the last decade include increasingly sophisticated business acumen in terms of solid professional advice, language skills and long-term thinking, often supplied by the service sector in Hong Kong.

Imports into the PRC - For the import of goods, the four-step process involves the use of qualified customs agents for clearance procedures and different valuation methods according to location. As such, due diligence of regional customs authority and the consolidated use of customs agents should be factored into import strategies. For software import, approval is required only for encrypted software and that falling within restricted or prohibited categories, and contract registration with the Ministry of Commerce. Software owners can register voluntarily with the National Copyright Administration to prove ownership for copyright enforcement purposes, but do so at the risk of disclosing source codes, a required component for registration.

IP protection and litigation under PRC law - Although the PRC is party to international treaties on IP protection, enforcement in practice remains problematic as there is a tendency for authorities to use threat of criminal sanctions rather than civil court action. Some pragmatic strategies for IP protection include registration, filing oppositions, tighter control licensees and considering using Hong Kong for IP-sensitive areas.

Labor management in the PRC - The non-compete provision in PRC law allows a company to enforce post-employment non-compete restriction if it is backed by compensation paid to the individual. The amount adequate as compensation varies by location, and a company that takes on individuals who are still under employment contracts may have to pay damages to the original employer. In dealing with hospitality, gifts and purchasing practices, compliance procedures should be established that takes into consideration whether the other party is owned by the government or subject to government procurement rules. It is important to know the customer's internal code of conduct and to seek corporate official acceptance from the customer.

Distribution in the PRC - As trading was forbidden territory for foreign-invested enterprises (FIEs), experience in terminating replacing distributors is limited. Local distributors were largely state-owned corporations, and real third party distribution has only recently begun. Although the PRC Contract Law provides compensation for damages on termination of "mandate contracts," there are no specific rules for distribution.

Dispute resolution in the PRC - "Effective dispute resolution" remains an oxymoron in the PRC, as courts are not independent, there is a shortage of qualified legal staff and foreign court orders are difficult to enforce, save for provincial level "treaties" between Guangzhou and Hong Kong. Apart from using threats of criminal sanctions as means of exercising pressure, arbitration is the norm in resolving disputes. The China International Economic and Trade Arbitration Commission (CIETAC) has the largest case load of any international arbitration body so far. Foreign arbitration methods, as employed by the Hong Kong International Arbitration Centre (HKIAC), are preferred, and companies are advised to beware of defective of defective standard clauses.

For additional information on the conference, including photos, speaker profiles and the full presentation in .pdf format, please visit the HKASC's online conference page at
http://www.hkasc.org/VideoConf28Sep06Registration.htm.