China, Germany, and “Just One More Thing Negotiating

1. The “Just One More Thing Negotiating Tactic

For the last six years, China and the EU have been negotiating a new (and massive) investment/trade agreement. Then, at the last minute, China tossed out “one more thing”: the right for Chinese companies to invest as equals in EU nuclear power technology.

I learned about this when a loyal reader (and long-time Asia resident) sent me a link to an article on this, along with the suggestion that we blog about this “one more thing” negotiation tactic. Great idea.

Writing about this negotiation tactic is a great idea because our China contract lawyers see this tactic constantly — in fact, we saw it the very same day we got this article. In our case, a client had been negotiating an NNN Agreement to protect its intellectual property from its Chinese manufacturer and at the last minute, the Chinese manufacturer dropped in a new provision that would essentially allow it to copy our client’s product. Yes, you read this right. Right when our client believed its manufacturer would sign the agreement, it changed a few words to essentially eviscerate its entire meaning. Even this is incredibly common.

2. How to Fight Back Against the “Just One More Thing Negotiating Tactic”

What should Germany do now that China dumped a massive impediment at its feet in the last minute of negotiations? What should you do when this happens to you and your company?

Many years ago, I was working on drafting a contract for a client who had studied Zen Buddhism and had extensive China experience. We were negotiating a deal with a Chinese company and every time the Chinese company would stall or push too hard or lie or agree to nine out of ten things one day and then three out of the same ten things the next day , my client’s response would be, “we will be the rabbit.”

According to this client, “being the rabbit” was a Zen concept of fighting back by not fighting at all, like a rabbit that goes limp when attacked by an eagle. So when the Chinese company would come back with massive changes from the day before, my client would send the Chinese company a nice email saying something like, “I understand your new position and we will be reviewing it and responding when appropriate.” And then he would do nothing. For a long long time.

Eventually, the Chinese company would come back and accuse him of having delayed the deal and would reiterate how everyone needed to close the deal quickly. At that point, my client would say something like, I understand why you are in such a rush but we are more concerned with doing the deal correctly than quickly so if you have any ideas on how we can speed this up, please let me know. The Chinese company would get so frustrated it would start backtracking on its backtracking and essentially return to where it had been before it had tried to gain more against our client at the last minute. I got the sense the Chinese company was simply not used to a Western company displaying Zen-like patience and it threw them off their game.

I often find myself instructing clients to “be the rabbit” in the face of last minute (but long-planned) proposed changes. Another of our lawyers is less Zen about how to fight back against the last minute change tactic and he advocates just telling the Chinese company in no uncertain terms that we will never do a deal with you that contains your last minute change, end of story. These two tactics are essentially the same and both emphasize not backing down in the face of the last minute proposal.  If you do go along with the Chinese company’s last minute proposal — either in whole or in part — you almost certainly will have just opened yourself up to one or more new last minute proposals.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.