Brief Note on the Trade Shootout
It is no surprise to anyone familiar with Chinese thinking on foreign policy or negotiating practice that China is balking at changing its laws to reflect what the American negotiators apparently thought had been previously agreed. From the Reuters article -
In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: Theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.
One can marvel at American stupidity, if that is what is involved; or simply invoke the negotiating principle that no items are agreed to until all items are agreed to. One can call it Chinese perfidy, but that would simply imply that the Americans are so uninformed about Chinese negotiating tactics that they should not be in the same room with their counterparties at all. To paraphrase Harold Washington on politics, trade negotiations ain't beanbag.
So let's get past the propaganda and posturing. This below is what no negotiating is going to change. It is at the heart of some American thinking on the trade battle.
This is from Dan Harris at China Law Blog, the best China business advisory online - Doing Business Overseas? Have you Checked Your Trademarks?
From time to time when we write something here with which a reader disagrees, we get a comment or an email accusing us of scare-mongering.... If I can scare a few more companies into not losing their trademarks I will have achieved my goal.
... stealing a brand name is a lot easier (and usually a lot more profitable) than stealing a product design. Our international IP lawyers deal with probably three trademark theft cases for every one design case.
Why does any of this matter?
It matters because if someone beats you to registering “your” trademark and you are having products made with that trademark on it, the person or company who owns “your” trademark can stop you from manufacturing your product or exporting the product with the trademark on it. The The trademark owner can also register its mark with its own country’s customs authorities and then have customs seize the trademarked product at the port, preventing your shipment from leaving the country in which it was made. This is a particularly nasty surprise in those cases where the foreign buyer has already paid for the product.
Who is going to register your trademarks? It is typically someone you know, like someone tied to your factory, one of your competitors or even a disgruntled employee. One of our China lawyers loves to talk about what happened a few years ago when he gave a series of lectures in China on how to protect your brand and product when manufacturing in China. After the talks, he went to dinner with a group of foreign company production managers who talked of how they had for years been urging the foreign companies for whom they worked to register their trademark. The foreign companies consistently refused, claiming such registrations were a waste of money. These production managers then told our China lawyer the following:
We are going to form our own trading company. We will register all the important trademarks of our employers in China in the name of that trading company. When we get fired, we will register “their” marks with China customs and completely shut down their Chinese operations. It will serve them right for being so stupid and lazy.
Now just for the record, the laws in many countries would not allow these employees to get away with this, but the mere fact they were plotting this ought to scare many of you. In my view, your bigger threats to register your brand name where you manufacture is someone tied in with your manufacturer (they do this so they can stop you from going to someone else) and your competitors (they do this so they can stop you).
Note though that these operation managers did not say they were going to steal their employer’s product design.... But this small expense might give them considerable power over their former bosses.
Is a law or regulation negotiated at the central government level going to put a stop to what is legal, if unethical, in China? No agreement in law or regulation will stop this sort of practice, if for no other reason than China is big and law and regulation are heavily decentralized. Forget Mr. Xi’s language about rule of law and forget the pronouncements from the new Foreign Investment Law and forget the new National Supervision Commission combining government and CCP regulation of conduct.
There is one, and only one, issue in the trade shootout, and that is IP theft, whether theft by cyber or by hand. By this point in 2019, after decades of dealing with Chinese companies, everything else is attributable to American naivete and some assumptions about beanbag.
The culture of lying and deception in business should be well understood by now. As I always say, this means no disrespect to those Chinese business owners who manage to conduct business honorably, whether one uses Confucian or western standards of conduct. The Silver Rule is fundamentally no different than the Golden Rule – treat others as you would want to be treated. Sunzi and San shi liu ji are about deceiving an enemy. Business partners in the west are not usually thought of as enemies.
As I wrote in No Way Out from the Middle Kingdom -
Think about it this way - is there another major American trading partner where one need fear being kidnapped over a real or imagined payment dispute? Is there another American major trading partner for which the best trade advisories scream, danger, danger, danger?
Caveat emptor, especially in China. Perhaps an urgent note to our dear leader and his negotiators would be useful.