One of the biggest challenges in China is that there are significant differences between Chinese political and ethical philosophy and western perspectives of democracy and of what constitutes fair and responsible business conduct.
The Organisation for Economic Co-operation and Development (OECD) is working to reconcile those differences and to bring China more fully within the community of nations governed by the rule of law and responsible business practices. Toward those ends, the OECD recently released for comment its draft report, entitled "China-OECD Project on Government Approaches to Encouraging Responsible Business Conduct."
Please read on for more about the report, including my review of intellectual property issues. This blog also contains link and, at the bottom of the posting, Resources Notes to direct you to other invaluable sources of information and assistance. For more about OECD's role in the creation and harmonization of international commercial law, check out another of my postings here.More on the OECD Draft Report
Labor rights, food and health safety, and environmental protection predominate in this draft. The prominence of these issues should telegraph to American and other companies that there are opportunities for them to align their China ventures with these hot button and high profile issues and to thereby build greater leverage in that challenging market.
This report, in final form, should continue to motivate China to adopt business practices that more closely comport with western standards for transparency and free markets. As with increasing intellectual property protections in their country, the pragmatic Chinese should be increasingly motivated by the realization that such standards are good for business.
Read on for my comments on intellectual property protections and other highlights from my review of the report.
Intellectual Property Protection
Intellectual property protections are conspicuously inadequate in the text of the draft report. The report contains three minor references. That said, the two referenced IP protection requirements of the Shenzhen Stock Exchange have the potential to increase respect for intellectual property rights as Chinese companies increasingly move to access capital through the financial markets.
In Paragraphs 173-74, the report discusses a dispute resolution mechanism in China, called "conciliation," that is not present in many other jurisdictions. There is a specific conciliation procedure for intellectual property disputes, but the report does not elaborate. It does list a variety of dispute resolution and arbitration bodies in which China cooperates, including, via cooperation agreements, with conciliation centers in New York and Hamburg.
The only other mentions of intellectual property protection are in the report's Annex 1, which reproduces the Shenzhen Stock Exchange's Social Responsibility Instructions of Listed Companies, dated September 25, 2006.
In Article 4, those Instructions state that listed companies should not infringe upon the intellectual property rights of others, but this requirement is notably drafted so as NOT to mandatory.
Article 20 of those Instructions does include mandatory "shall not infringe" language, but limits that prohibition on infringement to the rights of the listed companies' customers and suppliers. Of course, one can see that such a mandate only reflects good business sense and not any inherent respect for intellectual property rights in general. Customers and suppliers naturally have degrees of leverage in their relationships with Chinese companies, and infringements of customers and suppliers' intellectual property rights can have the very practical effects of injuring the Chinese company that engages in such conduct. Regrettably, the pragmatism for which Chinese companies and business leaders are so renowned apparently does not yet encompass third-party intellectual property rights, and neither does the Instructions' mandate.
Other Comments on Review
Paragraph 3. The OECD report states that the Chinese government is "strongly encouraging" Chinese businesses to adhere to high standards of behavior. It states that the latest Company Law encompasses principles of responsible business conduct (RBC) by requiring companies to comply with applicable law and social and business morality. It gives, as an example, of a code of conduct established for the Chinese textile industry, long known for its sweat shop operations.
Paragraphs 71-80. The report gives an excellent backgrounder on key aspects of Chinese philosophy and business culture and the influence of these inherent characteristics upon the view and adoption of international, and largely westernized, standards of responsible business practices. In our China-focused competitive intelligence work, we have seen these forces at work, particularly within large family-owned enterprises in the high tech sector, or what we call "industrial dynasties," and within state-owned enterprises and those closely tied by indirect ownership to the Chinese government, such as Lenovo, which acquired IBM's personal computer business in 2005.
Paragraphs 148-58. Transparency is an essential component to compliance with and enforcement of responsible business practices. The OECD report provides a concise history of the development of China's Company Law, Accounting Law, and other laws, regulations, and initiatives geared toward the promotion of transparency within Chinese companies. The report also discusses the importance of competitive intelligence in making good business decisions for the China market. See Resource Note below.
Paragraphs 159-77. Here, the report documents the key ways in which the Chinese government can promote and ensure the adoption of responsible business conduct by countries operating in that country. Among the ways discussed are further development of the Chinese legal system, increased education of its business professionals, independence of the Chinese judiciary, and better collaboration with the international community. The ABA China Committee has been active in such collaborations and in facilitating the development of Chinese legal system and the independence of its courts.
Box 10 & Paragraphs 186-87. The report lists relevant United Nations Conventions to which China is a party and, tellingly, not yet a party. It has, for example, agreed to the United Nations Convention Against Corruption, but not to certain conventions protecting the rights of women.
Table 2 & Paragraph 198-203. Chinese corporations are beginning to publish annual RBC reports. Table 2 lists sixteen (16) domestic Chinese companies and eight (8) foreign-invested Chinese enterprises (FICEs) that the Chinese Enterprise Confederation says filed 2007 RBC reports. The domestic companies include huge cell phone makers, white goods giant, Haier, whose magnificent central building in Quingdao is pictured above, chemical companies, water suppliers, and financial institutions. The FICEs include big name American, European, and Japanese companies, such as Ford, Peugot, Sony, and Toshiba.
Unfortunately, CFC does not make any of these RBC reports available online. Haier, for instance, likewise does not publish its report online.
The draft report is unpublished. If you would like a copy, please contact us at +1.208.939.4472 or info@technologylawgroup.com.
RESOURCE NOTES:
On the subject of competitive intelligence, the U.S. Department of Commerce operates the U.S. Commercial Service for the purpose of assisting American companies find, evaluate, and obtain businesses partners around the world. This source of competitive intelligence is both invaluable and affordable. To learn more, check out the U.S. Commercial Service in Boise. For contact information for Director Amy Benson, click here.
For a current list of bilateral agreements that the United States has with China, check out the Treaties in Force, last published by the U.S. Department of State in November 2007. The listing for China is on Pages 16-19. Listings for China's Special Administrative Regions of Hong Kong and Macao are on Pages 19-20.
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