Our China lawyers had a team meeting yesterday, and as is so often the case at such meetings, much of the meeting involved talking about what we have been seeing lately. We mostly focused on the following trends:
1. Six months ago, we rarely worked with our firm’s international trade lawyers. Sure, we would occasionally call one of them to help with a sticky customs issue or a client concerned about getting hit with antidumping or countervailing duties, but these days we find ourselves working with them constantly. Companies that are getting hit or will soon be hit with having to pay 25% tariffs are looking for help in figuring out how to have their Made in China products made elsewhere so they can legally avoid having to pay the tariffs. See China Tariffs and What to do Now.
2. Six months ago, about 90% of the international contracts we drafted involved China or the EU. That number is now nearing 60% as our existing and new clients are diversifying outside China, mostly to Vietnam, Thailand, Taiwan, Malaysia, and Mexico.
3. International litigation is on the rise. We are reading about this and we are seeing it. This is happening because of the uncertainty and the disruptions stemming from the tariffs. With disruptions and uncertainty comes disputes. We see no end in sight to this increase.
4. China is more open to foreign businesses than it has been in years. Forming a WFOE is a faster, cheaper and easier than it was just a few years ago. Check out The NEW Steps for Forming a China WFOE.
5. Chinese factories are copying and selling their foreign customers’ products faster than ever. Almost every week we hear of a Chinese factory that sold its foreign customer’s product before or right after shipping out the foreign customer’s first order. The tariffs are causing Chinese factories to question the viability of long-term relationships with foreign buyers and they are deciding that they can make more by selling their customers’ products online themselves. In the past, our lawyers did not push back when start-up companies wanted to “test” their product in the marketplace before spending for a contract to protect against their Chinese manufacturer competing with them. We now make clear this is a bad idea because by the time market strength has been determined, there may no longer be a product to sell. See China Trademark Theft. It’s Baaaaaack in a Big Way and Protecting Your Product From China: The 101.
6. The number of companies coming to us with big China legal problems has gone way down but the number of companies coming to us to proactively prevent China legal problems has gone way up. Foreign companies realize that China has gotten both serious and effective at enforcing its laws as against foreigners. See Doing Business in China Without a WFOE: Will the Defendant Please Rise for a good example of China cracking down on foreign company illegality and see China Employer Audits: The FAQs for a good example of what foreign companies are doing to avoid future legal problems.
What are you seeing out there?