Transcript JV: Basic Issues - University of Houston Law Center

Research in Foreign Law
Chenglin Liu
LL.M (China); LL.M (Sweden); LL.M, MS, JSD (U.S.)
[email protected]
Foreign and International Law Librarian
O’Quinn Law Library
Foreign Law Search
• Common Law v. Civil Law--Personal observations:
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Law School: Case book v. Hornbooks
Law Classes: Socratic (1hr) v. Lecture (3hr)
Tuition: high v. low
Exams: Memorizing v. Analyzing
Law making: Judges v. Scholars
Law making: Case by case v. Laying out all contingencies
Judicial Review: Norm v. Exception
Jurisprudence: highly practical v. highly theoretical
Judge selection: lawyer-judges v. student (scholar)-judges
Judgment: Lengthy (with dissent) v. short (W/O dissent)
Attorneys: Active role v. Passive role
Foreign Law Research
Not as easy as finding domestic law
Useful Sources
Thomas H. Reynolds & Arturo A. Flores, Foreign LawCurrent Sources of Codes and Legislation in
Jurisprudence of the World (K38 .R49 1989, Reference
Collection)
Online Research Guide
Muligan and Liu’s Foreign Primary Law on the Web
LLRX.com Resource Center - Comparative and Foreign Law
Foreign and International Law Sources on the Internet: Annotated
LexisNexis (Legal (excluding U.S.) )
Reference Librarians
On-line and Print Resources
• Lexis-Global
– Not international
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Westlaw
Government Website
Online Catalogue
Interlibrary loan
Class 2:State Structure
Basic Facts about China
• Population
– China 1.4 billion
– U.S. 200 million as of this week 10/17/06
– EU 450 million
• Size: Which country is bigger, China or the U.S.?
– CIA http://www.cia.gov/cia/publications/factbook/geos/ch.html U.S. is
bigger!
– China.org http://www.china.org.cn/e-changshi/index.htm China is bigger!
• Nationalities: minorities 56; majority 1 (Han)
• Provincial governments
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4 large cities: Beijing, Shanghai, Tianjin, Chongqing
23 provinces
5 autonomous regions
2 special administrative regions (SAR): Hong Kong and Macau
Taiwan
• Neighboring States
Foreign Direct Investment in China
From the US-China Business Council
• China's foreign direct investment (FDI) inflows
surpassed those of the United States in 2002, making
China the world's leading destination for foreign funds;
China should continue to attract significant levels of FDI
in 2003 from existing and new investors alike. The 2002
annual increases in both contracted and utilized FDI, of
20 percent and 12 percent, respectively, were
particularly striking in light of the fact that overall world
FDI flows declined in 2002 for the second consecutive
year. (Global FDI fell 50 percent in 2001 and an
estimated 25 percent in 2002).
US-China Trade Statistics and China's World Trade Statistics
http://www.uschina.org/statistics/tradetable.html
Trade in Goods (Imports, Exports and Trade Balance) with
China
http://www.census.gov/foreign-trade/balance/c5700.html
China and TWO
• China applied to join GATT in 1986.
• December 2001, became WTO member.
Foreign Investment in China
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Equity Joint Venture (EJV)
Contractual Joint Venture (CJV)
Wholly Foreign-Owned Enterprises
Holding Companies
EJV
• Governing Law
– The Law on EJV
– Regulations for the Implementation of the Law
on EJV
– Rules, notices from the State Council and
ministries
– Local rules
EJV
• The Chinese Government protects EJV’s
investment.
• No national expropriation (if it happens,
EJVs will be compensated. )
• EJVs must follow the laws and regulations
of China.
• EJVs should take the form of a LLC.
Setting up an EJV
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Approval and license
Foreign share must be over 25%.
Foreign parties should bring in high tech.
EJVs have the site use rights
Contributions
– Foreign side: high tech, cash,
– Chinese side: site, workers
EJV board of directors and general
manager
• The highest authority of a JV is its board of directors.
Term: 4 yrs.
• BD should consist of no less than 3 members. 7, 9, … in
odd numbers
• Should meet at least once a year.
• Unanimous votes required for
– Amendment of the articles of association
– Termination or dissolution of the JV
– Increase or decrease of registered capital
– Merger or division of the JV
• The General Manager runs the JV and reports to the
board.
• Do you recall the relationship between “NPC” and “State
Council?”
Net Profit Distribution
• In proportion of shares invested
• After tax, the foreign party is allowed to
remit the profit abroad.
Materials and Products
• Not restriction for acquiring materials, but
domestic market preferred.
• Products are encouraged to be marketed
in the international market, but are allowed
to be marketed in domestic market.
Dispute Solution
EJV reg. Art. 97-100
• Consultation or mediation
• Arbitration
• Court
JV: Basic Issues
• Total investment and approval
– $ 30 million
• Contribution
– Debt
– Equity (cash, know-how, IP, site, facility etc.)
Discharging Debts and Liability
• Reasons for resolving local partner’s debt
– Could become JV’s debt
– Creditors might create trouble for the JV
• Solutions
– Urge the local partner to pay off the debt
– The MNE pays it off, but the amount should
be counted in the contribution.
Size of the Total Investment
• Scale
• Ratio: 49/51; 30/70; 10/90 in favor of the MNE
• Approval purpose
– Under $ 30 million, local
– Above $ 30 million, Beijing
• Tricks
– Increase capital immediately after approved by the
local authority
– Divide a large project into several $30 million projects
– Defense
– Risk
Competition
• Agreement on non-competition
– May be difficult to enforce
– May be difficult to interpret
– For good cooperation
• Solutions
– Absorb the local partner
– Separate location
– Purchase local brand names, trademarks
Management Structures
• Appointments of board members are in
proportion to the ration of the contribution.
• Chairman of the board is the JV’s legal
representative.
• Symbolic status
• The MNE can concede this position to the
local partner.
• But, MNE should control the appointment
of the GENERAL MANAGER of the JV.
Practical Issues
• Employees
– The MNE should refuse to take all of the local
partner’s employees.
– Good faith efforts to hire former employees.
– Probation
– Arrears should be paid by the local partner.
– Or, one-time payment. (if the MNE pays off, it
should be counted in the contribution.)
Other issues
• Selection of site
• Land use
– Check if the conversion fees have been paid.
– If not, the MNE should urge the local partner
to pay off. Or the MNE pays it off, but the
amount should be counted as part of
contribution.
• Utilities