Why Russia’s Current Situation Is Eminently China Relevant

Though it is Labor Day, it is also a Monday and on Monday mornings I like to map out what will likely be going on during the upcoming week both for me and for my law firm. And I just realized how much of this upcoming week is going to involve Russia.

Many years ago, my law firm had a booming Russia practice. We represented American companies involved in Russian Far East fishing, mining, timber, energy, finance, and transportation. We also represented a number of Russian companies doing the same thing.  9-11 led to a major decline in this business as it caused the Russian Far East to look much more to Moscow for assistance and much less to the United States. And right around that time, our China practice started accelerating, mitigating the need for us to worry much again about Russia.

But Russia is giving us a massive, decidedly short term boost right now as many of our China clients (and some of our old Russian clients) are contacting us in quasi-panics.  We find ourselves engaged in the following sorts of work:

• Helping our clients decide if what they have been doing in Russia for years violates any United States’ sanctions against doing business in Russia.

• Fighting with American and European companies over who is responsible for the loss of a deal that was halted by either U.S. or European sanctions or by Russia’s own embargoes against certain goods. We are finding ourselves becoming intimately familiar with the deeper meaning of Incoterms and with legal concepts like force majeure, rescission and restitution.

• And the latest are panicked (and panicked is probably an understatement) emails from companies who have read about proposed new sanctions that might include cutting Russia off from the SWIFT payment network. These companies are rightly afraid that this may mean that Russian companies that owe them money may have no way to pay. On the flip side, it may mean that the American and European companies that have product on order from Russia will never get it because the Russian side of the transaction will not send it for fear of not getting paid.

• Russian companies seeking answers to what they can do in the United States, legally, so as to avoid massive disruptions to their operations because of the above.

Why though am I writing about Russia on this, a China Law Blog? Two reasons. One is that most companies that do business in China do business internationally and for many that includes Russia. But really it is because it strikes me that nobody (myself included) thinks enough about things like the above when doing business with China. I am NOT saying that we are on the verge of a situation with China similar to what is going on with Russia, because we are not. But I am saying that it would not hurt to at least think about that possibility and start laying the groundwork now.

Just by way of one salient example. Many of the China documents we see (before our China lawyers get to revise them) are either hopelessly vague as to when title of goods passes and as to who is responsible for non-delivery of goods. Even worse, some of those documents clearly provide that the American or European company gets no refund of payment if the Chinese supplier cannot produce or ship product due to a force majeure event. If you take the time now to put just these sorts of things in order in your documents with your China supplier or even with your insurance company, you might end up saving your company millions of dollars down the road.

And if you have been thinking about utilizing a China plus one strategy to diversify your supply chain, maybe now is the time to actually get going on that plan.

Just saying….