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As China takes the final steps toward entry into the World Trade Organization, U.S. law firms are cautiously optimistic about opportunities for business in the world’s most populous country. Most lawyers anticipate that the economic and legal reforms to which China has committed as a condition of membership in the WTO will attract a new wave of foreign investment, which has tapered off since a peak of $45 billion a year in 1997 and 1998. But some lawyers with a long-standing China practice preach caution. They have seen at least four such waves of activity in the past 20 years, each of which has been followed by a downturn, as businesses stymied by a formidable bureaucracy and arcane business culture are forced to pull out. Last month, the Chinese government granted licenses to 11 foreign law firms and two Hong Kong law firms, bringing the total to 92 foreign law offices from 11 countries, and 28 Hong Kong law firms. China officially opened its doors to foreign firms in 1992. About 100 foreign law firms are still awaiting approval to open branch offices, according to one Chinese official. Two New York firms — 937-attorney White & Case and 294-attorney Chadbourne & Parke LLP — were among those to receive licenses last month, bringing the total number of New York firms licensed by China to 11. Duane Wall, chairman of White & Case, said that the firm, which currently has 150 lawyers in the region, “has been committed to the Far East since the mid- to late-1970s,” including an “active China practice.” He described the newly approved Shanghai office as “a milestone in our development.” Chadbourne & Parke’s operating partner Charles O’Neill said the firm was “thrilled” that China had finally approved its application for a license, which had been pending since 1994. Chadbourne, which has been working on China-related deals out of its Hong Kong office for several years, will be opening an office in Beijing. RESTRICTIONS EASED? It is widely anticipated that China, which has been seeking entry into the WTO for 14 years, will join the trade group later this year or early next year. The most significant obstacle to membership was removed late last year, with the signing of a bilateral trade agreement between the U.S. and China. China also signed a trade pact with the European Union in May, leaving the remaining number of trade partners in the 136-member WTO with which China must negotiate at just five. After these hurdles are overcome, China must take two additional steps to gain formal WTO entry: “Multilateralize” all bilateral agreements and compile them into a WTO Working Party Report, then win approval of the report from the WTO General Council. Lawyers are divided on whether WTO membership will propel China to loosen its traditionally tough restrictions on foreign law firms. In addition to the arduous, and extremely lengthy licensing process, China forbids foreign lawyers from taking the Chinese bar or giving opinions on Chinese law, forming associations with Chinese lawyers or operating offices in more than one location. China has hinted that regulations would be eased. Minister of Justice Gao Chang-li has said that “after China joins the World Trade Organization, the legal service sector in China will be further opened.” According to Wu Mingde, deputy director of the Justice Ministry’s Department of Lawyers and Notation, after WTO entry, foreign law firms will be allowed to open more than one office in China. Most lawyers express optimism that indeed this will be the case, although no one interviewed expected any such changes to happen overnight. MANY STILL CAUTIOUS Others were even more cautious. Nicholas C. Howson, the partner in charge of the Beijing office of Paul, Weiss, Rifkind, Wharton & Garrison, pointed out that contrary to what was commonly reported, China’s trade pact with the U.S. actually puts lawyers under greater restrictions than those currently in place. For example, Howson said, the bilateral agreement requires the head of a foreign law firm’s China office to be a partner of the firm. No such requirement exists right now. Alarmed by the potentially adverse implications for law firms doing business in China, Paul Weiss successfully lobbied to get a better deal in China’s trade pact with the European Union. As a result, since all the agreements must ultimately be presented as a uniform package to the WTO, although the U.S.-China trade pact “isn’t necessarily good news for the legal services sector, it may have been ameliorated substantially by what the European Union did,” Howson said. WAVE OF ACTIVITY Most lawyers and others who monitor foreign investment in China agree that entry into the WTO will result in a wave of corporate activity in China. China’s trade agreement with the U.S., for instance, permits increased investment in Chinese high-tech and Internet companies, cuts industrial and agricultural tariffs, allows banks to conduct business in local currency, and gives American film studios greater distribution rights in the country. And increased business activity translates into more work for lawyers. “We are going to be extremely busy in the near future,” Howson said. Others downplayed the importance of WTO membership. “It is quite possible that entry into the WTO will come along and no one will notice,” said Edward L. Turner IV, Asian managing partner at Shearman & Sterling, which operates a branch office in Beijing. Although Turner considers WTO membership “a positive step,” he added, “If the WTO completely failed, China would still move ahead.” “The momentum is already there,” Turner said. “In the next few years, China will become an increasingly significant player on the global economic scene,” he added. “We feel pretty bullish on China,” he said. Overall, however, the sense is of a more sober business environment than in the past. John Ford, vice president of the U.S.-China Business Council, a Washington, D.C.-based trade association composed of 250 companies and law firms, described the mood as one of “cautious optimism.” While companies are cautious on the basis of past experiences with the Chinese, he explained, they are also optimistic, in light of Beijing’s present commitment to be a responsible business partner. “Businesses are teeing up,” Ford said, “making sure that they are in position to take advantage of opportunities when they arise.” SERIOUS COMMITMENT A common theme sounded by lawyers with a China-based practice is the extraordinary level of commitment required of U.S. law firms who wish to maintain a successful and significant presence in the country. “If you are a new firm suddenly romanced by the idea of doing business in China, you can’t just send a lawyer over from Minnesota or New York,” Howson said. As a threshold requirement, Howson emphasized linguistic competence. At Paul Weiss’ Beijing office, he said, “We all work in Chinese.” Second, lawyers must have a good substantive knowledge of the legal systems of both countries. This can be challenging, because the Chinese legal system is still evolving. “It’s not a case of knowing what the SEC will do,” Howson said. Lawyers need to know what the regulation is, how it is articulated, how it is enforced and who enforces it, he explained. China’s legal tradition also leaves “tremendous discretion in the hands of bureaucrats,” said John Kuzmik, head of the China practice at White & Case. To meet WTO requirements, Beijing plans to overhaul more than 170 domestic laws. However, a mass of local legislation, much of which contradicts national laws, remains in place. In the long term, however, Howson is “fairly optimistic,” not because of WTO membership, but because the government “recognizes that to attract foreign capital and protect new Chinese property holders, China needs a rule of law.” A third challenge for lawyers and business people alike is understanding both the U.S. and Chinese business culture and political environment. Because of the differences in business practices, “one side may have a particular request which may sound totally absurd to the other party,” said Yingxi Fu-Tomlinson, a partner in the Shanghai office of Kaye, Scholer, Fierman, Hays & Handler LLP. Fu-Tomlinson is a Chinese national who studied and practiced law in the U.S. for a number of years before moving to Hong Kong in 1995 and then back to her native Shanghai two years ago. For instance, the Chinese tend to bargain on price until the last minute, she said. George Haley, a partner in the San Francisco office of Pillsbury Madison & Sutro LLP, who has been representing businesses in China for 17 years and teaches American business law in China, agreed: “They don’t know when to stop — they’ll keep pushing you until there’s nothing left of the deal.” And even after the deal is signed, “there is always room for further negotiations,” he added. The difficulties are compounded by China’s “highly regulated business environment,” said Turner of Shearman & Sterling. Seeking and obtaining approval from the various government authorities is a “very tedious process,” he added. But even if foreign investors find it difficult to break into China, Haley said that law firms should do well. “There’s money to be made for lawyers,” Haley said, adding, “even if it may not be there for the client.”

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