China’s New Labor Contract Law (II)

After the promulgation of the Labor Contract Law of the P. R. China, the legal community interested in Chinese law is abuzz with excitement and curiosity. For those who have not been able to view the full text in English, get it here. If you can read it in Chinese, get it here. Further, I suggest that you read the Labor Contract Law in conjunction with the Labor Law of P. R. China, and for that in Chinese view it here. (English version, here.) If you are a labor and employment lawyer in need of a thorough understanding of Chinese labor law, you might also want to read the Ministry of Labor’s Several Opinions on the Implementation of the Labor Law of the P. R. China (Chinese only). For regulations on minimum wage in China, you may want to read the order issued by Ministry of Labor and Social Security in 2003. (Read it here.)

Sweeping the New Labor Contract Law is on paper, but I agree with the sentiment expressed by Dan Harris of China Law Blog where he stated “Enforcement is Key.” As the law aims to extend protection to multitudes of workers from China’s vast countryside, enforcement of this law would be more problematic since so many of those from the countryside sleep on their rights for many reasons. They might simply not know what their rights are; or, they might not care to have their rights protected for the sake of getting or keeping a job.

For another comment I wrote on China's Labor Law, please read:

What Foreign Companies Need to Know About Chinese Labor Law

American Passport & China Franchise Registration

What do getting an American passport and registering a franchise in China have to do with each other? Normally, I would say NOTHING unless you have to register your franchise personally in China (which by the way is totally unnecessary).

Now, I think one word accurately describes them both---hard.

If you are an American and you need a passport to travel this summer, my deepest sympathy goes to you for what will have to endure to acquire it. Images of people encircling a passport office in the summer heat makes me feel lucky about my passport experience in China seven years ago.

The Bush Administration initiated a new security rule requiring all U.S. citizens to show their I.D. and proof of U.S. citizenship at border crossing. (Read about it here.) This requirement threw Americans quiet a bit, and a large number of Americans began to apply for a passport at the beginning of 2007. Passport offices, faced with a sudden increase of applications, are not equipped with the necessary personnel and equipment to process the applications, thus generating a back log of applications. When travelers figured out that if they do not do something to speed up the application process, they would not be able to leave the country as planned. Hence, the long lines.

The root of the problem is governmental regulations without the requisite resources to carry them out.

Chinese franchise regulators have created just the same problem. Three pieces of franchise regulations went into effect on May 1, 2007:

Regulations for the Administration of Commercial Franchising Operations
Commercial Franchise Registration Management Measures
Commercial Franchise Information Disclosure Management Measures

These new regulations did away with pre-approval in order to franchise in most industries in China. However, they impose mandatory registration and disclosure duties on franchisors. For American franchisors, registration and disclosure are nothing new because disclosure is required under the FTC Franchise Rule, and 15 states require registration as well. Registration of franchises, however, is new to both Chinese franchisors and regulators in that it has not been done before, and administrative glitches abound, to say the least.

Both local and central governments are not adequately equipped and prepared to implement the registration rules. Registration of a franchise in China involves a large quantity of paper work to be reviewed by regulators, and documents filed by franchisors are to be archived by the government. In addition, franchisors are required to amend material changes and file annual reports with the regulators. These mandates inevitably necessitate personnel, equipment, office space, and other resources.
A lack of planning and preparation is not the end of the story. At the end of 2006, China has about 26,000 franchise systems in place according to an industry report. Mandatory registration requirement means all of the 26,000 plus franchise systems must be registered before May 2008 to avoid administrative penalties. Imagine the amount of documents, the volume of phone calls, and number of inquiries that the regulators would have to keep up with. I am not even counting all of those foreign franchisors impatiently waiting to cash in before the 2008 Olympic gold rush.

The Chinese franchise regulators are not prepared, if not overwhelmed, to carry out rules made by the government.

With due respect to regulators in China and the U.S or elsewhere, regulating personal or commercial activities ain’t as simple as passing a law (sorry to state the obvious). Before making people do or not do something, it benefits all if the government would do a little bit more planning.

Please!

China’s Anti-monopoly Law: A Second Look

The Standing Committee of the People’s Congress read the draft anti-monopoly law for the second time on June 24, 2007. Six new proposals (Chinese only) have been added onto the draft law. Since there is so much hype about the much anticipated law, I will detail what was added in the 2nd read.

1. The central government shall formulate and implement regulations to strengthen and improve macro control, and to effect a unified, open, competitive, and orderly market system.

国家制定和实施与社会主义经济相适应的竞争规则，加强和完善宏观调控，健全统一、开放、竞争、有序的市场体系。

The overall policy concern underlying this addition is to achieve a balanced and coordinated relationship between anti-monopoly and other economic policies.


2. Operators can legally combine and merge through fair competition and voluntary association to expand the scale of operations, and improve their market competitiveness.

经营者可以通过公平竞争、自愿联合，依法实施集中，扩大经营规模，提高市场竞争能力。

This addition is aimed at achieving a balance between combating monopoly and allowing Chinese companies to join forces against global competition. However, in order to accomplish large scale mergers, operators must face a proposed western-style legislative hearing in order to effectively prevent monopoly.


3. Operator in dominant market positions may not abuse their position to exclude or restrict competition.

具有市场支配地位的经营者，不得滥用市场支配地位，排除、限制竞争

This new rule corresponds with # 2. As many developed countries allow companies to gain dominant market positions yet at the same time regulate against the manipulation of such position to the detriment of trade, China sees that it should adopt similar antimonopoly rules that keep companies in check once they become big enough to be able to abuse its market power. During the 2nd read session of the law, the issue of price fixing was also raised.


4. State-owned companies with a national franchise are to be scrutinized in their pricing.

专营专卖将被严格监控

There has been growing dissatisfaction in China with state-owned companies in many industries, i.e, telecom, oil & gas, and other utilities. These companies seem to be immune from market forces in that they charge unreasonable fees for their products and services. This new provision represents an attempt to keep state-owned companies in strategic industries on the national pedestal yet scrutinize their commercial activities relative to consumer protection.


5. Industry associations should strengthen self regulation to guide the operators to compete legally, and to maintain the market competition order.

行业协会应当加强行业自律，引导本行业经营者依法竞争，维护市场竞争秩序。

Industry associations wear a semi-governmental hat. It has been given the responsibility of guiding players in relevant industries to play by the rules of the Pricing Law fair competition regulations.


6. Foreign mergers and acquisitions may not endanger national security

外资并购不得危及国家安全

This provision places national security checks on acquisitions of domestic firms. Mr. Paul Jones has a very interesting comment on this, and I quote here in full:

The draft has been amended since the first reading to include provisions regarding a review of mergers and acquisitions with regard to security considerations. The Chinese version of the article on this topic specifically mentions the concern expressed in the U.S. regarding the proposed acquisition of Unocal by a Chinese company. This aspect does not appear in the English language news stories that I have seen.

China FDA: Will the Monkeys Behave Now?

Yesterday, the breaking news out of China concerns the fate of the Chinese top Food & Drug administrator. News reports around the world relayed his death sentence:

The Beijing No. 1 Intermediate People's Court convicted Zheng Xiaoyu (郑筱萸) of
taking bribes in cash and gifts worth more than $832,000 when he was director of
the State Food and Drug Administration.

The sentence seems harsh for a crime of embezzlement, which occurs very frequently among corrupt officials in China. And the amount over which Zheng was convicted was $832,000 seems small in contrast with other convicted Chinese officials who had been handed much lighter sentences. One has to wonder if there is a political motivation behind this high profile case at this very sensitive time when the whole world is wary of food and drug exports from China. In recent memory, Chinese food and drugs have grabbed headlines world wide:

--Poisonious baby formula
--Pet food with chemical toxic--melamine
--Chinese toothpaste with lethal chemical sold in the Dominican Republic
--Chinese cough mixture with lethal chemical sold in Panama
--Frozen Chinese cat fish with banned antibiotics sold in the Sourthern states of the U.S.

The list can go on and on, but you get the picture. A consumer has to wonder about what exactly is the Chinese government doing to food and drug safety, and how the laws on food and drug safety are enforced in China. State Food and Drug Admisinstration is in charge of enforcing food and drug safety laws and regulations in China.

Chinese laws on food and drug safety:

《医疗器械监督管理条例》自2000年4月1日起施行
Regulations of Medical Equipment Supervision Management, Effective on April 1, 2000
http://www.sda.gov.cn/cmsweb/webportal/W4249/A19565.html

《中华人民共和国药品管理法》2001年12月1日
Drug Management Law of the P.R. China, Effective on December, 1, 2001
http://www.sda.gov.cn/cmsweb/webportal/W68210/A21847.html

《中华人民共和国药品管理法实施条例》, 2002年9月15
Implementation Regulations of the Drug Management Law of P.R. China, Effective on September, 15, 2002
http://www.sda.gov.cn/cmsweb/webportal/W68210/A12160102.html


《食品安全监管信息发布暂行管理办法》2004年10月22日
Interim Regulations on the Information Management of Food Safety Supervision, Effective October 22, 2004
http://www.sda.gov.cn/cmsweb/webportal/W28413144/A64000404.html

Like many things in China, the extent and pace of regulations far exceed those of enforcement. In the face of mounting international pressure and the very image of Chinese exports, the Chinese government went back to its bag of tricks, the Chinese idioms for a quick solution to the rampant, dangerous, and downright embarrassing problems of food and drug safety—“kill the chicken to scare the monkeys so that they may behave” (杀鸡儆猴).

Aside from the death sentence of Mr. Zheng, the Chinese government is undertaking some measures to step up the enforcement of its food and drug safety measures.

1. to advance completely the implementation of an accountability system in the supervision of food safety;
2. to effectively grasp the food safety work in rural areas;
3. to strengthen the monitoring of food safety;
4. to further the establishment of a food safety credibility system;
5. to strengthen food safety education and awareness;
6. to launch comprehensive food safety evaluations;
7. to quicken the establishment of an food safety emergency response system.

Without sounding negative or pessimistic, I just want to air my wariness of yet more measures issued by the central government in an effort to strengthen the enforcement of existing laws and regulations. Obviously, the above-mentioned seven steps all look and sound like effective things to do to combat a ever-worsening problem, but the fundamental mechanism for effective enforcement of laws and regulations can not simply be established by the death of a corrupt and incompetent top enforcement chief, nor can it be accomplished by issuing yet another order to be enforced with the hope of better enforcement. This is circular logic.

What really needs to happen in enforcing existing laws and regulation is not more laws about enforcement; rather enforcement of laws and regulations require a system in which the enforcers of such laws and regulation have sufficiently independent power to carry out its duties, yet at the same time being checked by another government entity, the courts.

China Admits Law Enforcement Is Lagging Behind

The Starbucks Court in Shanghai did it in grand style! It explained the law, upheld the law, and actually ENFORCED it by following through all the way until "Copycat" Shanghai Starbuck Ltd. changed its corporate name and took down all signage that created confusion with Starbucks Co. of Seattle Washington.

As I was enjoying a few moments of reverie about enforcement of laws, especially in IP protection, I came across this (in Chinese only) today, which kind of woke me up and brought me back to reality. Since Mr. Harris at Chinalawblog has decided to continue the theme of "copycats," I thought I might just copy him by carry on the discussion about the enforcement of laws and court rulings in China.

No doubt about it, China's legislative efforts in recent years have ushered in a stunning array of very important laws and regulations in international and domestic commerce, foreign trade, and basic civil codes. For instance, just this year quite a number of them were promulgated, the Private Property Law, the new Corporate Tax Law, the new Franchise Law, and the Partnership Law (to be effective on June 1, 2007), to name just a few.

While all of us can be and are actually pysched about these new laws, the reality of enforcement on the ground remains a huge problem, which is in almost stark contrast with the progress that China has made in legislating.

Reasons abound for the lack of advancement and progress in enforcement. The above quoted article states a few:

1. rampant local protectionism challenges the authority of laws.
2. the unwillingness and lack of resolve to follow laws and the seeming immunity for not complying with laws all discredit the actual authority of laws.
3. the lack of a basic and fundamental framework of the rule of law permeats the society which creates a challenging environment for law enforcement.

The article then goes on to substantiate with actual examples of how law enforcement lags behind, but it falls short of expressing or even suggesting what can be done about this phenomonon.

So, it got me thinking what exactly needs to be done in China to ensure the enforcement of laws, regulations, and court orders.

To answer that question, I think that one needs to go a little further than simply examine the obvious--what the U.S. or the West does to achieve enforcement, because copying (gosh, I'm getting a little nervous about using the word "copy" now.) what the U.S. does might not work too well. (Reasons I will explain later)

With that said, I think there need to be a two-step approach to analyze the issue...

--to be continued