Earlier this month I testified earlier than the U.S. Congress’s U.S.-China Financial and Safety Overview Fee concerning Rule by Legislation in China. Go here if you happen to want to see my testimony and/or the complete day of testimony given by varied way more skilled China legislation professors.
That is the third time I’ve testified earlier than a Congressional fee concerning China, and the second time I’ve carried out so reside. I point out the “reside” half as a result of I discover strolling the halls of the Dirksen Senate Workplace Constructing and seeing the places of work of United States Senators is a tremendous and humbling expertise. I analogize it to how I felt the primary time I attended a Main League Baseball sport—coincidentally additionally in Washington DC. I used to be about seven years outdated and bear in mind strolling up the steps and out via a gap to have a look at the sphere. I can nonetheless image the enormous subject with the attractive and completely manicured grass as if it have been yesterday. I used to be in awe. Complete awe.
Having the chance to assist the U.S. authorities — by a miniscule quantity — creates that very same sense of awe for me. To cite Winston Churchill: “Democracy is the worst type of authorities apart from all these different varieties which were tried on occasion.”
That is the third time I’ve testified earlier than a Congressional commision concerning China, and the second time I’ve carried out so reside. I point out the “reside” half as a result of I discover strolling the halls of the Dirksen Senate Workplace Constructing and seeing the places of work of United States Senators to be a tremendous and humbling expertise. I analogize it to how I felt the primary time I attended a Main League Baseball sport — coincidentally additionally in Washington DC. I used to be about seven years outdated and I bear in mind strolling up the steps and out via a gap to have a look at the sphere. I can nonetheless image the enormous subject with the attractive and completely manicured grass as if it have been yesterday. I used to be in awe. Complete awe.
Having the chance to assist the U.S. authorities — by a miniscule quantity — creates that very same sense of awe for me. To cite Winston Churchill: “Democracy is the worst type of Authorities apart from all these different varieties which were tried on occasion.”
Anyway, the under is the written testimony I supplied to the Fee earlier than I testified reside.
My identify is Dan Harris. I’m a global lawyer who has for the final 20 years been serving to American and European corporations navigate China’s authorized panorama. I point out this as a result of a lot of what I’m going to let you know immediately is predicated on what I’ve seen whereas representing corporations that do enterprise in or with China.
I’ll principally be speaking about how the Chinese language Communist Occasion makes use of legal guidelines and laws to maximise its energy and management to the detriment of American corporations. This can be a tactic often called lawfare.
I’ve seen firsthand how China employs lawfare to hurt American companies, and I’ve additionally seen how China’s lawfare in opposition to American corporations elevated when Xi Jinping turned the CCP’s highest rating officer in 2013, and once more when he turned “president for all times” earlier this 12 months. The worldwide humiliation China suffered from the spy balloon incident, coupled with our authorities’s efforts to disclaim China entry to modern chip expertise, make me assured that China’s lawfare in opposition to American corporations will proceed to extend.
QUESTION ONE. How is the CCP’s political affect more and more shaping authorized rulings in home Chinese language courts? What’s the expertise of U.S. corporations in Chinese language courts on points which can be influenced by nationalism or Occasion aims? How have these situations modified beneath Xi Jinping?
My purchasers usually ask me in regards to the equity of China’s courts and my reply has at all times been the identical. In case you are suing a Chinese language firm for breaching a contract to make rubber duckies, you possible will get a good trial. In case you are suing a Chinese language firm for stealing cutting-edge semiconductor mental property, good luck.
Many China attorneys name this the 90-10 rule. Ninety p.c of the time the Chinese language courts rule pretty as a result of that permits China’s economic system to operate and that finally advantages the CCP. But when a case is vital to CCP energy and management, equity will get tossed out the window. That ten p.c is lawfare.
Xi Jinping usually makes clear that China’s nationwide safety pursuits are broader and extra vital than they as soon as have been, and that China’s financial and funding pursuits at the moment are narrower and fewer vital. Studying the writing on the wall – writing that has largely been propagated by state-owned media retailers – the Chinese language courts have acted accordingly. Because of this the variety of instances Chinese language judges see as implicating China’s nationwide safety pursuits have elevated. And this has been to the detriment of international corporations.
Focus on the design and implementation of China’s cybersecurity legislation. What prompted its introduction and what sectors is it geared in the direction of? Is it equally enforced for home and international corporations? How is it shaping the business conduct of international corporations working in China or doing enterprise with Chinese language corporations?
Below China’s cybersecurity legislation, the CCP has authorized entry to any information saved in China. This legislation additionally offers authorized entry to information held by any firm or particular person in China, wherever that information could also be saved. This has primarily at all times been true, however with every iteration within the legislation, entry has grow to be extra express. China has enacted these legal guidelines and laws so the CCP can monitor just about every little thing in China.
The CCP solely not often makes use of its energy to mandate {that a} international firm flip over its information, however it’s because it already has prepared entry to all information in China. The CCP controls China’s web, communication methods, and server farms. The CCP has pushed practically every little thing — from utility payments to each day communication — into WeChat so it will probably monitor what everybody does in China. It has carried out a lot the identical factor with firm information.
What authorized recourse do multinationals have once they really feel that their proprietary expertise or cybersecurity has been compromised? Focus on the expertise of corporations looking for to guard delicate applied sciences in Chinese language courts, with a give attention to corporations creating expertise helpful to the CCP.
Multinationals generally file IP theft instances in Chinese language courts. If that lawsuit includes rubber ducky expertise, they will prevail. But when their case includes cutting-edge semiconductor expertise, they not often can prevail. The extra cutting-edge and vital the expertise, the much less possible the multinational will prevail in an IP case in a Chinese language courtroom.
Multinationals usually can sue a Chinese language firm outdoors of China. But when a multinational secures a judgment or award outdoors China and that judgment or award must be enforced in China – which is usually the case — that enforcement will happen solely whether it is within the CCP’s curiosity.
What are different main legal guidelines, such because the anti-monopoly legislation, or enforcement patterns, reminiscent of China’s tendency towards regulatory crackdowns, that China makes use of to tilt the taking part in subject in favor of its personal corporations or advance coverage objectives? How do these legal guidelines and their implementation affect U.S. pursuits, and what can the US do to mitigate or forestall this affect?
China’s new counter-espionage legislation expands the definition of espionage to incorporate any “objects associated to nationwide pursuits,” with none parameters for what constitutes nationwide pursuits. This vagueness within the legislation is meant to permit the CCP to arrest anybody at any time.
The CCP will use this legislation in opposition to foreigners and Chinese language residents which can be seen as too near foreigners. This may make it tough and costly for international corporations to rent and retain staff in China. In flip, this may scale back international firm competitiveness in China.
China excludes international corporations from many industries. Whereas we debate banning TikTok, all main U.S. social media platforms are primarily banned from working in China.
If the CCP or the Chinese language persons are indignant with a selected nation, you’ll be able to count on the CCP to crack down on corporations from that nation. The CCP doesn’t randomly select the businesses on which it cracks down. It chooses corporations primarily based on the message its crackdown will ship. The current raids in opposition to The Mintz Group and Bain & Firm have been to ship the message that the CCP controls details about China and it’ll punish those that search to disclose info the CCP doesn’t need revealed.
The Fee is remitted to make coverage suggestions to Congress primarily based on its hearings and different analysis. What are your suggestions for Congressional motion associated to the subject of your testimony?
The CCP will harass and discriminate in opposition to American corporations till there aren’t any extra American corporations in China.
One of the simplest ways for the U.S. authorities to cut back CCP strong-arming in opposition to U.S. corporations is to assist these corporations go away China. The U.S. authorities ought to present loans and grants to American corporations that transfer their operations or manufacturing from China to the U.S. or to an allied nation. Australia and Japan have carried out this, and we must always too—possibly considerably alongside the strains of what we’re doing with the semiconductor business. The U.S. authorities also needs to enact laws that encourages imports from nations that share our values and we ought to be doing extra to cease American funding of Chinese language corporations that function in opposition to our safety pursuits.
