Earlier this month I testified before the U.S. Congress’s U.S.-China Economic and Security Review Commission regarding Rule by Law in China. Go here if you wish to see my testimony and/or the full day of testimony given by various far more expert China law professors.
This is the third time I’ve testified before a Congressional commision regarding China, and the second time I’ve done so live. I mention the “live” part because I find walking the halls of the Dirksen Senate Office Building and seeing the offices of United States Senators to be an amazing and humbling experience. I analogize it to how I felt the first time I attended a Major League Baseball game — coincidentally also in Washington DC. I was about seven years old and I remember walking up the steps and out through an opening to look at the field. I can still picture the giant field with the beautiful and perfectly manicured grass as though it were yesterday. I was in awe. Total awe.
Having the opportunity to help the U.S. government — by a miniscule amount — creates that same sense of awe for me. To quote Winston Churchill: “Democracy is the worst form of Government except for all those other forms that have been tried from time to time.”
Anyway, the below is the written testimony I provided to the Commission before I testified live:
My name is Dan Harris. I am an international lawyer who has for the last 20 years been helping American and European companies navigate China’s legal landscape. I mention this because much of what I am going to tell you today is based on what I have seen while representing companies that do business in or with China.
I will mostly be talking about how the Chinese Communist Party utilizes laws and regulations to maximize its power and control to the detriment of American companies. This is a tactic known as lawfare.
I have seen firsthand how China employs lawfare to harm American businesses, and I have also seen how China’s lawfare against American companies increased when Xi Jinping became the CCP’s highest ranking officer in 2013, and again when he became “president for life” earlier this year. The global humiliation China suffered from the spy balloon incident, coupled with our government’s efforts to deny China access to leading-edge chip technology, make me confident that China’s lawfare against American companies will continue to increase.
QUESTION ONE. How is the CCP’s political influence increasingly shaping legal rulings in domestic Chinese courts? What is the experience of U.S. firms in Chinese courts on issues that are influenced by nationalism or Party objectives? How have these conditions changed under Xi Jinping?
My clients often ask me about the fairness of China’s courts and my answer has always been the same. If you are suing a Chinese company for breaching a contract to make rubber duckies, you likely will get a fair trial. If you are suing a Chinese company for stealing cutting-edge semiconductor intellectual property, good luck.
Many China lawyers call this the 90-10 rule. Ninety percent of the time the Chinese courts rule fairly because that allows China’s economy to function and that ultimately benefits the CCP. But if a case is critical to CCP power and control, fairness gets tossed out the window. That ten percent is lawfare.
Xi Jinping often makes clear that China’s national security interests are broader and more important than they once were, and that China’s economic and investment interests are now narrower and less important. Reading the writing on the wall – writing that has in large part been propagated by state-owned media outlets – the Chinese courts have acted accordingly. This means that the number of cases Chinese judges see as implicating China’s national security interests have increased. And this has been to the detriment of foreign companies.
Discuss the design and implementation of China’s cybersecurity law. What prompted its introduction and what sectors is it geared towards? Is it equally enforced for domestic and foreign firms? How is it shaping the commercial behavior of foreign firms operating in China or doing business with Chinese companies?
Under China’s cybersecurity law, the CCP has legal access to any data stored in China. This law also gives legal access to data held by any company or individual in China, wherever that data may be stored. This has essentially always been true, but with each iteration in the law, access has become more explicit. China has enacted these laws and regulations so the CCP can monitor pretty much everything in China.
The CCP only rarely uses its power to mandate that a foreign company turn over its data, but this is because it already has ready access to all data in China. The CCP controls China’s internet, communication systems, and server farms. The CCP has pushed nearly everything — from utility bills to daily communication — into WeChat so it can monitor what everyone does in China. It has done much the same thing with company data.
What legal recourse do multinationals have when they feel that their proprietary technology or cybersecurity has been compromised? Discuss the experience of firms seeking to protect sensitive technologies in Chinese courts, with a focus on firms creating technology useful to the CCP.
Multinationals sometimes file IP theft cases in Chinese courts. If that lawsuit involves rubber ducky technology, they can prevail. But if their case involves cutting-edge semiconductor technology, they rarely can prevail. The more cutting-edge and important the technology, the less likely the multinational will prevail in an IP case in a Chinese court.
Multinationals often can sue a Chinese company outside of China. But if a multinational secures a judgment or award outside China and that judgment or award needs to be enforced in China – which is often the case — that enforcement will occur only if it is in the CCP’s interest.
What are other major laws, such as the anti-monopoly law, or enforcement patterns, such as China’s tendency toward regulatory crackdowns, that China uses to tilt the playing field in favor of its own firms or advance policy goals? How do these laws and their implementation impact U.S. interests, and what can the United States do to mitigate or prevent this impact?
China’s new counter-espionage law expands the definition of espionage to include any “items related to national interests,” without any parameters for what constitutes national interests. This vagueness in the law is intended to allow the CCP to arrest anyone at any time.
The CCP will use this law against foreigners and Chinese citizens that are seen as too close to foreigners. This will make it difficult and expensive for foreign companies to hire and retain employees in China. In turn, this will reduce foreign company competitiveness in China.
China excludes foreign companies from many industries. While we debate banning TikTok, all major U.S. social media platforms are essentially banned from operating in China.
If the CCP or the Chinese people are angry with a particular country, you can expect the CCP to crack down on companies from that country. The CCP does not randomly choose the companies on which it cracks down. It chooses companies based on the message its crackdown will send. The recent raids against The Mintz Group and Bain & Company were to send the message that the CCP controls information about China and it will punish those who seek to reveal information the CCP does not want revealed.
The Commission is mandated to make policy recommendations to Congress based on its hearings and other research. What are your recommendations for Congressional action related to the topic of your testimony?
The CCP will harass and discriminate against American companies until there are no more American companies in China.
The best way for the U.S. government to reduce CCP strong-arming against U.S. companies is to help those companies leave China. The U.S. government should provide loans and grants to American companies that move their operations or manufacturing from China to the U.S. or to an allied country. Australia and Japan have done this, and we should too—maybe somewhat along the lines of what we are doing with the semiconductor industry. The U.S. government should also enact legislation that encourages imports from countries that share our values and we should be doing more to stop American funding of Chinese companies that operate against our security interests.