ACCA’S 2001 ANNUAL MEETING ADDING VALUE 505 Doing Business in China and the Pacific Rim Zhi-Ying James Fang Partner Davis Wright Tremaine LLP George A. Pisaruk General Counsel & Assistant Secretary Three-Five Systems, Inc. Thomas M. Yih Senior Counsel - International Storage Technology Corporation This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). Materials may not be reproduced without the consent of ACCA. Reprint permission requests should be directed to James Merklinger at ACCA: 202/293-4103, ext. 326; [email protected] ACCA's 2001 ANNUAL MEETING ADDING VALUE Faculty Biographies Zhi-Ying James Fang Zhi Ying James Fang is a partner at the Los Angeles and Shanghai offices of Davis Wright Tremaine LLP. Mr. Fang has over 20 years of experience in representing U.S. companies doing business in China, particularly in structuring, documenting, and negotiating strategic alliance, merger and acquisition, joint venture, assets-based financing, and BOT projects for U.S. and international clients; advising U.S. technology clients on developing strategies and programs for intellectual property protection and licensing, distribution, joint R&D projects, troubled business work-out, and representing U.S. clients in judicial, arbitration and administrative proceedings in China. He also represents many Chinese companies doing business in United States. Prior to joining Davis Wright Tremaine LLP, Mr. Fang worked as a foreign attorney with Brown & Wood in New York, and Preston, Thorgrimson, Ellis & Holman in Seattle (presently Preston Gate Ellis). He was also a law professor in international business law and department director of the East China Institute of Political Science and Law. He practiced law in China, as well. Mr. Fang is speaks frequently for various conferences, seminars, and training programs in the United States and China. Among them are programs sponsored by the Ministry of Justice of China, the Prince of Wales Business Leaders Forum, and those for various provincial governments in China as well as the University of Washington Law School and the Willamette College of Law. Mr. Fang received a master of laws (equivalent to an LLM) from the Shanghai Academy of Social Sciences Law Institute; he also received an LLM and PhD in Comparative Law from the University of Washington School of Law. George A. Pisaruk George A. Pisaruk is general counsel and assistant secretary of Three-Five Systems, Inc., headquartered in Tempe, Arizona. Three-Five’s worldwide operations also include China, the Philippines, and the United Kingdom. He provides legal counsel to the company’s worldwide operations and its board of directors on a variety of issues, including corporate governance, intellectual property, securities and business transactions, employment, and international matters. Prior to joining Three-Five, Mr. Pisaruk held various professional positions in the contracts/subcontracts, operations, and purchasing fields for Westinghouse Electric, Molex, and Hewlett-Packard. Mr. Pisaruk has worked in both government contracts and commercial avionics, and has extensive experience in international transactions with entities in Europe, Asia, and the Middle East. Mr. Pisaruk speaks frequently on international law and business issues at the Arizona State University School of Business and the Thunderbird American Graduate School of International Management. He is a member of the Arizona State Bar. This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 2 ACCA's 2001 ANNUAL MEETING ADDING VALUE Mr. Pisaruk received his BS and MBA from Arizona State University, and his JD from the University of Nebraska. Thomas M. Yih Thomas M. Yih is senior counsel—international for Storage Technology Corporation in Boulder, Colorado. His responsibilities include providing legal counsel to StorageTek’s international divisions on transactional matters, corporate governance, employment, and U.S. export compliance. Prior to joining StorageTek, Mr. Yih was associate counsel with Maytag Corporation. While at Maytag, he led the International Trade Practices Group, established a pro bono program, and began his pursuit of an MBA at the University of Iowa. Mr. Yih has had two articles published in the ACCA Docket, "Creating an International Distribution Database and Termination System" and "Six Steps to Better Foreign Counsel Relationships." Mr. Yih received a BA from Wittenberg University and is a graduate of Suffolk University Law School. This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 3 ACCA's 2001 ANNUAL MEETING ADDING VALUE Three-Five Systems American Corporate Counsel Association October 17, 2001 Introduction • TFS manufactures display modules for use in a variety of electronic equipment and cell phone applications • Markets products and services in North America, Europe, and Asia • Manufacturing & Production facilities in Tempe, Manila, & Beijing This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 4 ACCA's 2001 ANNUAL MEETING ADDING VALUE TFS Sales and Customers • The Company’s has relationships with Motorola, Mitsui, Hewlett-Packard • Our customers are constructing production facilities in China • Over 40% of 2000 net sales were to customers in Asia Three-Five Systems (Beijing) Co., LTD • Commenced manufacturing operations in 1998 (leased building) • 60,000 square foot manufacturing and design center completed in July, 1999 • 10,000 class clean room • Over 700 employees • Over 150 are professionals This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 5 ACCA's 2001 ANNUAL MEETING ADDING VALUE Three-Five Systems (Beijing) Co., LTD • All of the professionals have college level or advanced degrees People’s Republic of China This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 6 ACCA's 2001 ANNUAL MEETING ADDING VALUE Lessons Learned in China • Relationships are key to succeeding in China – Guanxi – Face – Hierarchy Lessons Learned in China • Intellectual Property – China is a member of WIPO (1980) – Chinese Patent Law passed by Congress in 1984 (Chinese Patent Office) – 20 year protection on patents – Infringement (2) options • Patent Office • Court This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 7 ACCA's 2001 ANNUAL MEETING ADDING VALUE Lessons Learned in China • Intellectual Property – No trade secret protection in China (UTSA) • Be careful of the IP you bring into China • Future….This area will become more “westernized” in the near term Lessons Learned in China • Choice of business entity should be based upon your specific situation and goals – 4 main types of entities for foreign investment • Equity Joint Venture (EJV) • Contractual Joint Venture (CJV) • Technology Joint Venture (TJV) • Wholly Foreign Owned • Enterprise (WFOE) This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 8 ACCA's 2001 ANNUAL MEETING ADDING VALUE Pros & Cons of Investment Options · · EJV Easier approval Less control · · Built-in guanxi IP risk higher · · Can be cheaper Guanxi can be a limitation · · CJV Little investment Very little control risk · · TJV Centralized R&D Can lose IP if divest later · · WFOE Greater control More expensive · over hiring, quality, Restricted to IP distribution certain sectors Lessons Learned in China • WFOE is subject to a separate law for foreign enterprises – The Law of the People’s Republic of China Concerning Enterprises with Wholly Foreign Investment (April 1986) • Expropriation is not a problem in China – No cases since 1978 This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 9 ACCA's 2001 ANNUAL MEETING ADDING VALUE Lessons Learned in China • Contracts are very different in China – A contract is just one of several pieces of paper in a relationship – Integration and parole evidence rules do not exist – The form contract vs. side agreement dichotomy – Patience will be rewarded in negotiations – Know your BATNA Lessons Learned in China • Land cannot be privately owned in China • Foreign enterprises can obtain long-term leasehold rights • In China mandatory labor contracts are required between the enterprise and the employee(extensive) This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 10 ACCA's 2001 ANNUAL MEETING ADDING VALUE Lessons Learned in China • Corruption is a major concern in China – Know the FCPA • Try to locate your enterprise in Special Economic Zones • SEZ’s are established by the Central Govt. to promote and attract international businesses (TFS is in a SEZ) Lessons Learned in China • Dispute resolution is very different in China – Arbitration is the norm • China has an extensive notary system –“Know where your chop is” This material is protected by copyright. Copyright © 2001 various authors and the American Corporate Counsel Association (ACCA). 11 ACCA's 2001 ANNUAL MEETING ADDING VALUE GAAT & WTO • Responsibilities of a GAAT member – MFN Treatment – National Treatment – Tariff Concessions