Many years ago, a company (and its lawyer) called me in a panic. They had just learned that the $5 million in equipment they had purchased and sent to China would not count towards the $5 million the Chinese government was requiring they send to China as their minimum capital requirement. They had read online that the cost of equipment could count towards a company’s minimum capital requirement but it had never occurred to them that this could only be the case if they had prior Chinese government approval, which they had never secured. The Chinese government was now requiring they pay $5 million in cash and they simply did not have sufficient funds to do so.
There was nothing anyone could do for them.
The Internet and AI Law Aren’t Always Reliable
I regularly use the internet and AI for legal research and beyond. I’m an avid user of AI, with a monthly subscription to Chat GPT-4, which I use alongside Claude.ai, Bard, and Bing Chat almost daily.
Despite my frequent usage, I remain skeptical. Here’s why.
The Information on this Blog May Not Suit Your Unique Circumstances
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Still, I frequently hear about people acting based on our blog. For instance, someone once mentioned a discussion on WeChat about China personal income taxes, attributing a claim to us that we never made and was factually wrong.
A reader once wrote asking if his business situation would cause the Chinese government to deem him to be doing business in China. I responded by saying there was no way I could answer his question:
Much of what you say is not at clear to me and I would need to know considerably more to know whether what you are proposing is legal or not and then we would probably want to confirm it with the local Chinese government authorities and maybe bring in a China accountant for some of the related tax issues. In any event, I cannot give specific and direct advice to anyone not our client; we first have to run a conflict check to do that. Just imagine if on the sketchiest of facts, I were to tell you that everything you are doing is okay and then you get jailed because it actually is not. See e.g., Doing Business in China Without a WFOE: Will the Defendant Please Rise. Or just imagine if one of our clients is on the verge of using my law firm to sue you and now we find ourselves representing both sides in the same lawsuit.
This reminds me of when I got an email from someone who said that people on WeChat were claiming this blog had said that foreigners need to submit some strange form to the Chinese government, when we absolutely never said such a thing nor were we even aware of such a thing.
I told this person the following (which is actually now one of my email response templates!):
You should never make a legal decision based on what you read on the internet. The below persona. example is a good reason why.
I spent nearly a year living in Spain (working and getting to know my law firm’s Spain lawyers). Before going to Spain, I read everything I could on Spain visas, but I knew I still didn’t know enough to do it on my own. I worked with a Spain immigration lawyer and in about three hours she set me straight by letting me know exactly what I needed to do, and I did it and it worked.
Ninety percent of what I had read about Spain visas on the internet was accurate, but ten percent was either wrong or had recently changed or did not apply to my specific situation. Had I gone with just what I had learned on the internet, I almost certainly would have been in violation of Spain law and I very likely would have been booted out of Spain in 90 days.
Despite all that I learned by going through this Spain visa process, when another American lawyer in my firm went to Spain a few years later, he too went to this same Spain immigration lawyer, and he reported back that she had saved him huge amounts of time and huge amounts of problems and that not everything I had done would have been best for him and his wife. I never bothered asking him what I had told him that did not make sense for him and his wife because I did not care, largely because I did not have the goal of becoming expert in Spain immigration law, but sitting here today, I can guess that it might have been that things had changed, or it might have been that his wife is from a Latin American country and Spain’s visa rules regarding people from Latin America tend to differ from those for people from the United States. Or it may have been because their plans for Spain were different than those of my wife and me. Or quite possibly, it could have been something else (or even some combination of things) entirely.
Laws are Dynamic and Local, and They Can Be Lost in Translation
I often find myself telling clients that I am 90 percent certain we will tell them to do something X way in China, but we need to do our research first to make certain this is actually the case. Our need to confirm with research is because of the following:
1. Laws are Often Localized: Laws can and do vary regionally within countries. As just one obvious example, employment laws frequently vary city by city, even within the same country. New York’s employment laws are not the same as Tulsa’s, Shanghai’s are not the same as Qingdao’s, Monterrey’s are not the same as Tijuana, and Madrid’s are not the same as Barcelona’s.
2. Written Law vs. Actual Enforcement: The law on paper often differs from the law that is enforced. This is particularly true in emerging market countries. Our lawyers often cross-check with local governments to ensure we’re on the right track. I am always telling our clients that there is a big difference between the IP protection China gives to rubber ducky technology versus high end semiconductor technology, and so the legal work that should be done to protect one might be very different than the legal work that should be done to protect the other.
3. Language Barriers: Chinese laws are in Chinese. Mexican laws are in Spanish. Vietnam laws are in Vietnamese. Online translations can range from misleading to passable. Relying solely on them is incredibly risky. See English Translations Of Chinese Laws. Don’t Call Us.
A few weeks ago, I was speaking with a company looking to move its manufacturing from China to Mexico and I said that in doing so, they needed to be sure that whatever his company would make in Mexico that it would be deemed to have been Made in Mexico for US Customs tariff purposes. They sought to assure me that would be no problem because just over 70 percent of the weight of their product was comprised of Mexican parts. Despite what they’d “read on the internet”, there is no 70 percent rule and so I connected them to one of our international trade lawyers to ensure that whatever they have made in Mexico will not be subject to the China tariffs, or if that isn’t possible, they at least understand what their tariff costs will actually be.
AI Isn’t Infallible
AI is useful for preliminary legal inquiries. However, they have limitations.
A few months ago, I was giving a speech, and an hour or so before it I realized that it would be nice to know about U.S. case law involving a particular China legal issue. I asked various of the AI programs I use and two of them gave what I thought were pretty good answers. But I was wary, so I asked both to give me the cases that supported the propositions they were espousing. Every single case they gave me was completely fictitious.