Chinese Government And The Courts: Always/Never/Sometimes The Twain Shall Meet

Excellent post on the Managing the Dragon blog, entitled, Danone/Wahaha: Divine Intervention (Pt. 6). Forget Danone/Wahaha and focus on the divine intervention part. The post is about the role of the Chinese “government” in legal disputes.

Some definitions are in order here since courts are government as well. The issue with which Managing the Dragon deals is the role/influence the non court government plays in Chinese court cases. This is actually a favorite issue of mine, both in China and elsewhere.
Many years ago, the United States Federal government seized a Russian fishing vessel for allegedly fishing in U.S. waters. The US attorneys’ office in Anchorage, Alaska, was demanding a $700,000 fine. The vessel owner’s response was to seek Russian government intervention, which went nowhere. Weeks passed and the vessel remained docked in Alaska, as its crew grew weary and the spouses of the crew grew angry. The Russian media ran story after story on the crew’s terrible plight. President Yeltsin called President Clinton and requested the vessel be released, but there it sat. Eventually, a Russian client of mine based here in Seattle told the vessel owner to hire a lawyer and I was brought in on the case.

I immediately flew to Anchorage, sat down with the US attorney, explained that the fine was too high, that my client did not have $700,000 to pay, that the Russian flagged vessel would sell for scrap only in Alaska, and that we needed to resolve the problem. Within about a day, we had struck a deal, my client would pay $190,000 (most of which was to reimburse the government for the charges it had incurred while the vessel was in port) and the vessel would be released.

The Russian media hailed me as a hero for having achieved what President Yeltsin could not. Of course, it was ALL BULL. All I had done was what any decent American lawyer would have done, which was to work within the US legal system. The Russians had tried to use political forces to sway the US Attorneys’ office in Anchorage and there was just no way that was going to work.

Not saying politics are completely irrelevant in U.S. legal matters, but the U.S. system is set up to minimize that relevance as much as possible.

The Managing the Dragon post starts out by noting how scarce the news has been lately on the Danone Wahaha dispute. It then talks about how recently elected French President Nicolas Sarkozy brought up the dispute in his state dinner with President Hu Jintao told volumes, which Managing the Dragon sees as having the following meaning:

What it told me is that the dispute must be at a stalemate, hopelessly mired in the legal system, with divine intervention by the nations’ highest leaders seen as one of the only remaining ways out.

Enlisting the help of senior government officials from your home country to intervene and help resolve a dispute in China, or to push a deal approval over the finish line, is a tactic that has been used ever since the country opened up to the outside world. I can admit to resorting to this tactic myself, and companies like Airbus and Boeing use it all the time to clinch deals for new aircraft orders. My contacts tell me that General Motors used a visit to Beijing by then Vice President Al Gore to maximum effect as a way to obtain approval for Shanghai GM’s highly successful assembly joint venture in China.

Managing the Dragon questions the effectiveness of state intervention in this sort of dispute:

Resolving disputes is another matter, however. Disputes in China tend to be complicated, with each side convinced of its own righteousness. While billions for new Airbus jets and Alcatel-Lucent telecom contracts were announced, there was no obvious progress on Danone. The fact that these disputes even exist and need to be discussed at the senior-most levels of government represents a loss of face for both leaders. No doubt, both President Hu and President Sarkozy had been briefed ahead of time by their respective staffs and received somewhat different versions of events that were biased one way or another.

Given these circumstances, the best one can hope for is that the visibility the dispute received at the top level of China’s leadership is enough to incentivize a lower level official to help resolve the matter. In some cases, this may be just enough to clear up outstanding issues. But in most, I am afraid, a great deal of tough negotiations remain ahead.

I tend to agree with Managing the Dragon with respect to this particular case, but as a whole, I just do not know. It would seem to me that if politics were going to resolve the Danone Wahaha dispute, it would have already happened by now.

Would love to hear more views on this important issue.

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