Thursday, May 29, 2014
Here's a piece just published by Jerry Cohen entitled, "Lawfare or Warfare? Let Impartial Tribunals Cool Asia’s Maritime Disputes."
Sunday, May 25, 2014
According to the Financial Times, "China has ordered state-owned enterprises to cut ties with US consulting companies such as McKinsey and Boston Consulting Group because of fears they are spying on behalf of the US government." This comes on the heels of a report just a few days earlier that "Beijing has banned central government departments from installing Windows 8." (I will assume for the sake of this discussion that "installing" includes "purchasing.")
Questions have been raised as to whether these moves are WTO-compliant. Fortunately, the Windows 8 case is easy, and we don't even have to figure out whether software is a good covered by the GATT or a service covered by the GATS. This is because the ban applies to "central government departments," and so is clearly a case of government procurement. As China has not yet joined the Government Procurement Agreement (GPA), it can do what it likes in that area.
The management consulting case is harder. The first thing to do is to check China's schedule of commitments under the GATS to see if it made any commitments in the area of management consulting. Yup, there it is:
The next step is to figure out if there's any reason why that commitment should not apply in this case. How about government procurement? After all, the government didn't order everyone to stop using US consulting services; only state-owned enterprises (SOEs).
But making this argument puts China in an awkward position. At this very moment it is negotiating the terms of its accession to the GPA and resisting demands from other members that SOEs be included as subject to GPA commitments, presumably by arguing that SOEs are just regular market-oriented folks who seek the best product at the cheapest price and don’t take orders from government. This is in fact what it stated in the WTO accession negotiations in response to Working Party concerns. Here are the relevant parts of the Working Party Report:
6. State-Owned and State-Invested Enterprises
43. The representative of China stated that the state-owned enterprises of China basically operated in accordance with rules of market economy. The government would no longer directly administer the human, finance and material resources, and operational activities such as production, supply and marketing. The prices of commodities produced by state-owned enterprises were decided by the market and resources in operational areas were fundamentally allocated by the market. The state-owned banks had been commercialized and lending to state-owned enterprises took place exclusively under market conditions. China was furthering its reform of state-owned enterprises and establishing a modern enterprise system.
44. In light of the role that state-owned and state-invested enterprises played in China's economy, some members of the Working Party expressed concerns about the continuing governmental influence and guidance of the decisions and activities of such enterprises relating to the purchase and sale of goods and services. Such purchases and sales should be based solely on commercial considerations, without any governmental influence or application of discriminatory measures. In addition, those members indicated the need for China to clarify its understanding of the types of activities that would not come within the scope of Article III:8(a) of GATT 1994. For example, any measure relating to state-owned and state-invested enterprises importing materials and machinery used in the assembly of goods, which were then exported or otherwise made available for commercial sale or use or for non-governmental purposes, would not be considered to be a measure relating to government procurement.
45. The representative of China emphasized the evolving nature of China's economy and the significant role of FIEs and the private sector in the economy. Given the increasing need and desirability of competing with private enterprises in the market, decisions by state-owned and state-invested enterprises had to be based on commercial considerations as provided in the WTO Agreement.
46. The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments.
47. The representative of China confirmed that, without prejudice to China's rights in future negotiations in the Government Procurement Agreement, all laws, regulations and measures relating to the procurement by state-owned and state-invested enterprises of goods and services for commercial sale, production of goods or supply of services for commercial sale, or for non-governmental purposes would not be considered to be laws, regulations and measures relating to government procurement. Thus, such purchases or sales would be subject to the provisions of Articles II [regarding most favored nation treatment], XVI [regarding market access] and XVII [regarding national treatment] of the GATS and Article III [regarding national treatment] of the GATT 1994. The Working Party took note of this commitment.
The commitments mentioned in Paras. 46 and 47 are more than just idle promises; they are incorporated by reference into China’s WTO Protocol of Accession and therefore form part of its WTO obligations. Thus, it seems that were China to call this a case of government procurement, it would not only be undermining its current position in the GPA negotiations, but would also be violating its specific commitments in its WTO Protocol of Accession.
Well, wait a minute, you might say. Isn't there some kind of broad national security exception countries can always invoke? It turns out that the national security exception, at least as written, is pretty narrow. Here's what the GATS says about it in Article XIV bis:
1. Nothing in this Agreement shall be construed:
(a) to require any Member to furnish any information, the disclosure of which it considers contrary to its essential security interests; or
(b) to prevent any Member from taking any action which it considers necessary for the protection of its essential security interests:
(i) relating to the supply of services as carried out directly or indirectly for the purpose of provisioning a military establishment;
(ii) relating to fissionable and fusionable materials or the materials from which they are derived;
(iii) taken in time of war or other emergency in international relations; or
(c) to prevent any Member from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.
That's it. Surprisingly enough, it doesn't look like "fear of state secrets leaking into the hands of a foreign power," no matter how legitimate that fear might be, counts. Needless to say, there is absolutely zero chance that any government would put WTO rules above its own conception of its security needs.
My conclusion, then, is that the anti-Windows 8 measure passes muster but the anti-management consulting measure does not. Let me add that I'm not a WTO expert and don't even play one on television, so there may be some aspect of the issue that I've overlooked. Check this space for a red-faced update.
Sunday, April 27, 2014
Wednesday, April 9, 2014
On February 14th I posted what was definitely not a valentine to Confucius Institutes written by University of Chicago anthropologist Marshall Sahlins, as well as a response written by my colleague Ed McCord. Sahlins has now written a rejoinder, and McCord in turn a surrejoinder (I think that's what it's called - if the debate goes on any longer I will run out of vocabulary).
This is an important debate to have. I think Sahlins is right to be concerned, even seriously concerned. If Confucius Institutes did not exist, would anyone not in the Chinese government have proposed them as a model for promoting China studies around the world? At the same time, I know Ed McCord to be a scholar of integrity and sound judgment, who has not hesitated to offend the PRC government in the past when his principles called for it. Both perspectives need to be heard.
Saturday, April 5, 2014
"Minor property rights" (小产权) is the term used to describe the rights you get (or think you get) when you "buy" rural, collectively-owned land. I use quotation marks because you can't actually buy collectively-owned land. You can't even buy a long-term use right to it, the way you can buy a 70-year use right to land for residential use in urban China. But villages purport to sell these rights and urbanites purport to buy them, because they're cheaper than the fully lawful and relatively robust rights you get when you buy urban land. And the developments on minor property rights land can be pretty substantial (see the photo below); we're not talking about tarpaper shacks here.
Now the media is reporting that minor property rights land is being occupied not just by the living, but by the dead - and for the same reasons. It's getting too expensive to die in China, so people have to find cheaper options. Here are some reports:
Friday, February 14, 2014
Confucius Institutes, which are part of the Chinese government's soft power efforts, have been in the news recently (at least in the academic community) following this blast last fall by the noted University of Chicago anthropologist Marshall Sahlins. I recommend it.
At the same time, I also recommend this recent and very cogent response by my GWU colleague Ed McCord, which he has kindly consented to have me post here. It's must reading for anyone who wants to have a fully informed view.
[Feb. 16: Replaced earlier version of McCord piece with a later, slightly modified version.]
Tuesday, February 11, 2014
Here's a good piece by Jeff Bader of Brookings on the Obama administration's recent explicit rejection of China's "nine-dash line" as the basis for maritime claims.
If you want to dig deeper, here’s a good relevant resource put together by OUP: http://opil.ouplaw.com/page/222/debate-map-disputes-in-the-south-and-east-china-seas. They call it a "debate map" for the East China Sea and the South China Sea controversies. It breaks down the issues and provides links to various official sources and commentary relevant to each.
I posted yesterday about Prof. Zhang's upcoming talk at GWU Law School (Feb. 12th, 6 p.m. EST); here's the URL to the live webcast. The talk will also be recorded and made available on line; URL to be announced.
[Post slightly edited and URL changed after initial posting.]
Wednesday, February 5, 2014
Thursday, January 30, 2014
This doesn't have much to do with Chinese law, but I think it's a pretty interesting development. From my friend Dan Rosen at the Rhodium Group (copied here with permission):
Full year 2013 China GDP was released on January 29. The total was just over $9 trillion USD for the first time, at CNY 56.9 trillion (2013 average CNY/USD rate: 6.313). That’s up 7.67% over 2012 (and is the level the United States was at in 1992, in 2009 dollars; versus just about $16 trillion today). Here is a significant fact: as of the end of 2013, China’s services sector is officially the largest segment of its economy for the first time in the modern era, at 46%, versus 44% for industry and manufacturing and 10% for primary activity such as farming. That updraft in the share of services started in about 2006, and should keep going for, oh, I’d say about another 20 years before flattening out. That’s a pretty important change in the structure of growth, and one that Xi Jinping’s Plenum reforms both recognize and react to, on the one hand, and aim to bolster and sustain on the other. Remember: investment in services sector capital stock doesn’t just mean ice rinks, movie theaters, hospitals and schools, but also the injection of value-adding services activity into manufacturing giants like China Aluminum, which to date have been all about smelting and little about sales and marketing, R&D, environmental engineering, new applications development and other white collar multipliers of profit.
Wednesday, January 29, 2014
Sunday, January 26, 2014
I recently came across a very short notice from the Supreme People’s Court instructing lower courts how to handle certain arbitration disputes. I think it’s worth writing about because in a few short sentences, it encapsulates a key feature of the Chinese legal system—that is, its essentially bureaucratic nature—that I think make it fundamentally different from systems that are essentially adjudicatory. One can have a view as to whether that difference is a virtue or a vice in general or in particular cases, but it’s not my purpose here to take a stand on that issue; I just want to argue that the system is indeed different.
First, some background. China has rules about the recognition and enforcement of arbitration awards by courts; there are two relevant ones here.
(1) A valid arbitration agreement must clearly stipulate the forum. This is a general rule of contract law and not unique to China—if we can’t find a meeting of the minds on where to arbitrate, there’s no agreement to enforce—although Chinese courts have tended to be overly demanding about what constitutes “clearly”.
(2) Domestic arbitration can be carried out only by state-approved arbitration bodies; ad hoc arbitration (i.e., arbitration by persons or institutions not recognized by the state even if agreed upon by the parties) is not recognized by courts.
One of China’s major officially recognized arbitration bodies is the China International Economic and Trade Arbitration Commission (CIETAC). In 2012, when the problem I am about to describe arose, CIETAC had offices (sub-commissions) in Beijing and other Chinese cities, including Shanghai (Shanghai CIETAC) and Shenzhen (South China CIETAC). Thus, if the agreement said, “Arbitration at Shanghai CIETAC” or “Arbitration at CIETAC in Shenzhen”, it would have met the requirements of both of the above rules and been valid; everyone knows which arbitration forum is meant and it’s an officially recognized one.
In 2012, CIETAC issued new arbitration rules that came into effect in May of that year. Shanghai CIETAC and South China CIETAC didn’t like the rules and essentially declared independence. South China CIETAC changed its name to “South China International Economic and Trade Arbitration Commission” or “Shenzhen Court of International Arbitration”, and both the Shenzhen municipal government and the Guangdong provincial government have recognized it as a qualified arbitration organization. In April 2013, Shanghai CIETAC changed its name to Shanghai International Arbitration Center, and I believe has also been officially recognized by the Shanghai government.
In response, CIETAC issued an announcement on Dec. 31, 2012 stating that it was terminating the authorization of Shanghai CIETAC and South China CIETAC to accept and administer arbitration cases and forbidding them to conduct any further arbitration in the name of Shanghai CIETAC and South China CIETAC. CIETAC has also opened a new sub-commission in Shanghai (I’m not sure about Shenzhen) and sent its arbitrators there. In its Dec. 2012 announcement, CIETAC stated that when parties had designated Shanghai CIETAC or South China CIETAC in their arbitration agreements, they should submit their requests for arbitration to CIETAC (in Beijing), which would then take care of it. (For a good backgrounder on the dispute, see this memo from Winston & Strawn.)
Obviously, we have here a recipe for great confusion. Try to apply Rule 1: when an arbitration agreement says, “CIETAC Shanghai,” for example, which arbitration body does it mean? And what about Rule 2: do the new local arbitration bodies count as officially recognized? Who has the authority to recognize them? The Arbitration Law doesn’t say. Until this confusion is cleared up, parties have no way of knowing whether their arbitration agreement will be upheld. Courts in Ningbo and Suzhou refused to uphold arbitration awards of the newly independent Shanghai CIETAC, but were overturned on appeal.
Clearly it’s time for somebody—anybody—to step in and make a definitive ruling on these issues. The Supreme People’s Court is the obvious candidate. In September 2013, it did so. Here’s the full text of a Notice (tongzhi 通知) it issued to lower courts at that time:
Supreme People’s Court Notice on Problems Related to the Correct Adjudication of Cases Involving Judicial Review of Arbitration
To the Higher-Level People’s Court of each province, autonomous region, and separately administered city; the military courts of the People’s Liberation Army; and the Production and Construction Corps branch courts of the Higher-Level People’s Court of the Xinjiang Uighur Autonomous Region:
Recently, the China International Economic and Trade Arbitration Commission’s (“CIETAC”) May 1, 2012 implementation of its revised rules of arbitration, together with the name changes and implementation of new arbitration rules on the part of the CIETAC Shanghai Subcommission (“Shanghai CIETAC”) and the CIETAC South China Subcommission (“South China CIETAC”), have led to disputes among parties related to issues such as the application of rules of arbitration and the jurisdiction of the above-mentioned arbitration organizations. The people’s courts of all areas have accepted case after case of arbitration review resulting from such disputes. In order to unify the standard for judgments and ensure that people’s courts correctly adjudicate cases, we now notify you as follows regarding relevant issues:
With respect to cases in which the above-mentioned disputes result in parties applying for a confirmation of the validity of the arbitration agreement, as well as cases in which the above-mentioned disputes result in parties applying for a cancellation or ruling of non-implentation of awards rendered by CIETAC, Shanghai CIETAC, or South China CIETAC, the people’s court must, before making a ruling, submit the matter for discussion by its Adjudication Committee and then report up level by level to the Supreme People’s Court. Only after the Supreme People’s Court has made its reply may the ruling be made.
Supreme People’s Court
Sept. 4, 2013
There are two things worth noting about this document. First, it was not publicly issued. It’s an internal instruction to courts immediately below it, and they are to pass it on to courts below them. Second, and most importantly, it does not solve the problem. It does not purport to state any rule or even vague principle that courts should use in addressing problematic cases; it does not state how the SPC intends to handle them. Yet the SPC certainly does intend to handle them, and it will produce a result. If the result is the same in cases where the relevant facts are identical, then that’s a rule of law that it would be helpful to let parties know about; if the result is not the same, then apparently there are more relevant facts than we thought.
The key point here is that the SPC is not acting as adjudicator-in-chief in a system that applies laws. It’s acting as decider-in-chief in a system that maximizes administrative discretion to the point where even here, where it would be simple to come up with a rule to resolve any ambiguity, it is unwilling to do so and reserves the right to reach different results in cases that, as far as statutorily relevant facts are concerned, are identical.
Saturday, January 25, 2014
Here's the report (in Chinese) from the court's Weibo feed, and here's some pre-sentence commentary from the Global Times. The spin is that Xu Zhiyong is being punished not for the content of what he was seeking, but for the way in which he sought it. Of course, the article contains the usual tendentious claims that people like Xu demand legal immunity for whatever actions they might take in pursuit of their goals - claims that are not backed by any evidence and are too silly to bother refuting.
[Some text and links changed from original post.]
Friday, January 24, 2014
Thursday, January 23, 2014
In a puzzlingly familiar pattern, the authorities in Xu Zhiyong's trial - who after all control the outcome - have gone out of their way to avoid even the appearance of fairness. According to the New York Times, the court told Xu and his lawyers that no prosecution witnesses would appear in court to be cross-examined, and Xu would not be allowed to present any witnesses of his own. The response of Xu was to remain silent and refuse to present a defense. Nevertheless, he did attempt to make a closing statement, which was stopped by the court after ten minutes. Here it is: Chinese | English.
On another listserv of which I'm a member, there's been some discussion of whether Xu can be called a "moderate" and whether his recent actions have been a strategic mistake.
If you read anything Xu Zhiyong has written, including his closing statement above, or consider the actions he has taken, it’s hard to see why the word “moderate” should not apply. What is immoderate and extremist are the government’s actions against him and others like him. I cannot see any reason to call Xu immoderate unless anything that gets you persecuted is by definition immoderate. That logic would make it impossible to conclude that governments ever persecute moderates, and so doesn’t seem very helpful as a tool of social science analysis, in addition to its unacceptable moral privileging of governments over their opponents.
A discussion about whether Xu made some kind of strategic mistake seems to me to miss the point of what Xu is doing and why he is doing it. He is not engaging in some kind of Chicago-school cost-benefit analysis; who would be an activist and oppose this government on rational cost-benefit grounds? The collective action problems are insurmountable. I have met Xu only a few times and can’t claim intimate knowledge of what motivates him, but my own take is that he does what he does because he feels he must, and cannot do otherwise. This accounts for his calm and steadfastness in the face of intense pressure, and explains why he inspires such fear and loathing in the mighty state. I’m not suggesting he doesn’t have a healthy streak of pragmatism as well, but in many cases analyzing what people like him do in terms of tactical or strategic mistakes will miss the point, since they aren’t trying to avoid “mistakes.” We don’t analyze why people tip at restaurants they’ll never go back to by (a) assuming they believe it will somehow benefit them down the road, and then (b) asking whether that belief is mistaken. Same here.
I've previously blogged about SEC proceedings in federal district court against Deloitte China; they have also been engaged in administrative proceedings against the Chinese affiliates of the Big Four, and a decision in that matter was issued on Jan. 21 (WSJ report here (paywalled)). That decision imposes a six-month bar on auditing US-listed companies. It can still be appealed to the full Commission and from there to the federal courts, so we probably haven't seen the end of it. As I've been involved as an expert witness, I won't comment further on the substance here. But it's quite important. For some high-quality commentary, see Paul Gillis's China Accounting Blog; he's been following these cases closely. Here's his take on the decision. His conclusion: "Ultimately, the only way this gets settled is if China agrees that companies that list in the U.S. are subject to all U.S. securities laws. For those companies that are too sensitive for that, like some large SOEs, China should pull their U.S. listings."
Tuesday, January 21, 2014
The International Consortium of Investigative Journalists has completed its investigation of offshore holdings by China's elite and has published a story in English and Chinese. It will be naming and shaming on Jan. 23rd.
Needless to say, the Chinese government has
publicly thanked the ICIJ blocked the ICIJ's web site for its contribution to Xi Jinping's anti-corruption drive, and has demonstrated its determination to go forward by releasing Xu Zhiyong putting Xu Zhiyong on trial today.