International Law

The Law and New Tech in China

By Stan

Here’s something a bit on the practical side. I wrote so much about how the international media and U.S. politicians have been bashing China this week that I thought I should end on some real lawyer-type commentary. That way, I can ensure that my readership plummets precipitously going into the weekend. Anyway, here goes.

Been meaning for a while to write about something that comes up quite often when I do regulatory work, particularly in the IT sector.

Here’s the fact pattern: Company A makes nano-widgets in the U.S. and sells them in the U.S., EU and parts of Asia. They now wish to sell in China and would like to know if China permits foreign companies to sell nano-widgets in the PRC.

Company A calls me up and asks me to check this out. First, we take a look at the relevant laws and regulations. No surprise, there is no law in China regulating nano-widgets because the technology is so new.

Second, one of my associates calls over to the Ministry of Mysterious Technology (MMT) to find out what their policy is on this. The official at MMT says that he is aware of nano-widgets, and although the Ministry has yet to take a formal position on the issue via publishing a regulation, their internal policy is that foreigners may not sell nano-widgets in China.

Further research shows that two foreign companies are selling these products, one in Tianjin and the other in Shenzhen. I ask the MMT about the likelihood of administrative enforcement, and the official says that MMT will not take any action and is aware of what these companies are doing.

What do you tell Company A? There are several possibilities:

1. There is no law that says you cannot sell nano-widgets in China. Go for it.

2. China has no licensing scheme at the present time for the sale of nano-widgets, therefore Company A cannot secure a license to sell these products.

3. It is illegal for Company A to sell these products because the MMT says that it is prohibited.

4. Company A should go ahead with sales in China because even though there is an internal policy against it, the lack of enforcement implies a tacit acceptance by MMT in the absence of regulation.

5. Company A should sell more traditional products.

This is by no means a strange fact pattern, although it is not a perfect example - I didn’t want to get too close to a real situation here for obvious reasons. I have come across this sort of thing many times. The most difficult issue is not the lack of clarity by the government, although that is indeed frustrating.

No, the most challenging part of this is explaining everything to a regulatory compliance person back in Company A’s HQ in New York, who is not at all amused when I respond to his "What’s the degree of legal risk if we decided to market our product?" with "That’s hard to say. Depends on your definition of ‘legal risk.’"

Full post as published by China Hearsay on April 18, 2008 (boomark / email).