Wednesday, 21st April 2010 by David Thorley
Trade between China and Latin America has exploded over the past few years but inevitably between two such different partners there are clashes of cultures.
Sino-Latin trade has been growing since 2003
The cultural divide between China and Latin America is deeply rooted in a difference between two ancient philosophical traditions.
At least that is the opinion of Rodrigo do Val Ferreira, who mans Brazilian firm Felsberg, Pedretti, Mannrich e Aidar Advogados′ office in Shanghai, which opened last year. Since being in China, Val Ferreira has learned that Latin American and Chinese traditions have one particular point of divergence, ′due to the Catholic tradition and moral standards, which are in many cases the antitheses of Confucianism′. He explains: ′Whereas in the Christian thinking we are bound to respect each other, regardless of the relationship, give the benefit of the doubt and so on, in Confucianism they are taught to act in accordance to the role each person plays, depending on the relationship. In other words, we are taught to treat everyone equally, whereas they are taught to treat each one according to the relationship in place.′ As he points out, this has significant implications on doing business in general, especially on the moral standards and rules to be applied.
Val Ferreira is not the only Latin American lawyer to discover this contrast in business etiquette of late, for in spite of their profoundly divergent origins, the two regions′ recent developments are leading them to become natural business partners. In the fourth quarter of 2009 China′s economy grew by more than 10 per cent, capping the strongest recovery from the downturn of any of the world′s large economic powers. And as the country gains further financial clout, its rapid and grand-scale developments in infrastructure leave it more heavily dependent on imported natural resources. Resource-rich Latin America, then, appears a natural business partner for China, and the rampant growth in trade between the two sides of the globe bears this theory out. Since 2003, China′s trade with Latin America has grown by about 40 per cent each year. The country has displaced the US as Brazil′s leading trade partner, and remains the second-largest partner of Argentina, Peru, Costa Rica and Cuba. China′s relationship with the region is only set to deepen as the last couple of years have seen a spate of free trade agreements signed between China and the region′s countries, including Chile, Peru, Colombia and Costa Rica, while a set of trading agreements with Brazil have also been laid out.
Foreign direct investment, while also on the increase between China and Latin America has not kept pace with the import-export business - a sign perhaps that, although Chinese and Latin businesses recognise the buying power of each market, they do not yet feel comfortable tying their own capital into that market or becoming an active participant in a business climate so alien to their own. A lengthening string of high-profile, high-value investment deals between the two regions, however, suggests that the will to invest in spite of the challenges is growing stronger.
All this makes for a comparatively untapped source of work for Latin American law firms. Already this year a number of them have benefited from big transactions coming out of China, not least the China National Offshore Oil Company (CNOOC)′s US$3.1 billion acquisition of a 50 per cent stake in Argentina′s Bridas, and the US$400 million acquisition of a stake in Brazilian miner MMX by China′s Wuhan Iron and Steel Group, WISCO – the largest investment ever made by a Chinese company in Brazil.
Unsurprisingly a growing group of firms have strategies in place to take advantage of such opportunities. Three Brazilian law firms now have licensed offices in China: Noronha Advogados; Duarte Garcia, Caselli Guimarães e Terra; and, of course, Felsberg Pedretti, which has the largest. Even the leading Spanish firms opening premises in China cite Latin American business opportunities as a driving factor. Garrigues Abogados has a 20-lawyer office in Shanghai, opened in 2005, and its team is gearing up for Sino-Latin trade to become one of its main activities, while in January fellow Spanish firm Uría Menéndez opened an office in Beijing focusing on foreign investment between Asia, Europe and Latin America. The same month, Cuatrecasas Gonçalves Pereira opened an office in Shanghai.
At home, Felsberg Pedretti and fellow Brazilian firm Veirano Advogados each boast a Mandarin speaker at the head of their São Paulo-based China desks, and through its membership of the Multilaw network Peru′s Barrios Fuentes Gallo Abogados has formed a taskforce with a Chinese firm to develop relations between their clients. Chile′s Cariola, Diez, Pérez-Cotapos & Cía Ltda zoned in on China some years back, a strategy that partner Sergio Diez says is finally beginning to pay dividends. ′After five years of effort with no great result, today we are proud to be one of the most active Chilean law firms in representing Chinese clients,′ he says. The firm has also hired Tzu-Hsin Shen, whom the firm says is the first Chinese native to practice Chilean law.
Networking plays as important a role in generating work from China as it does anywhere else in the world. Giovanni Biscardi of Brazil′s Machado, Meyer, Sendacz e Opice Advogados, who acted for WISCO in the MMX deal, says that, although in that case the client came to the firm acting on a recommendation from its financial advisers, Machado Meyer also attracts Chinese clients through referrals from international firms and as a result of its participation in a Latin American-Chinese seminar last year. Biscardi adds that having a Chinese-speaking associate helps the firm to make the team cohesive in its dealing with the Asian superpower.
A bridge between cultures
With competition for Chinese business intensifying among the region′s firms, early moves to develop practical expertise along with network contacts and experience are likely to prove invaluable as the Chinese-Latin business axis strengthens – particularly in light of just how wide the cultural divide is.
As intermediary parties in transactions, lawyers have come to realise that a key part of their role is to help make two wildly differing cultures intelligible to one another. As Rodrigo do Val Ferreira says: ′In fact these cultural differences are the source of our work. They are the main reason we are in China. They generate the need for our assistance. In China, our main role is to function as a bridge between cultures.′
For example, while personal contacts are important in both cultures, the processes by which those relationships are established are wildly different. Val Ferreira explains, ′In Brazil, it does not take much effort to become friends with a stranger and trust each other, right away, based on the benefit of the doubt. In China, as long as the person is still considered a stranger, and the friendship is still not clearly established, it is very hard for the Chinese counterpart to trust and to be trusted.′
But investment in this relationship, he says, has its rewards: ′Once the relationship is established, however, you can trust them even more than any Western person. This is extremely different for us and many Western people find it hard to understand.′
It′s something lawyers at Cariola Diez have learnt from trips to China too. ′With Chinese people, you have to be especially patient and proactive,′ says Diez. ′You have to let them know the facts, your local culture and to give warnings and local tips, even if they think it is not needed, even if you are not asked to do so.′
Francisco Soler Caballero, who leads Garrigues′ Shanghai office, sees the differences telescoped into practice, with the effect that ′respect for the more senior team members in the Chinese party render the negotiation meetings more formal, and objections from the technical staff will not be delivered during the negotiations but only at a later stage.′
Added to that, he says, ′Chinese people tend to avoid confrontation and being direct in saying ′no′, so this may mislead the Latin American party and falsely increase its expectations in the negotiations.′
Suspicion of lawyers
This difficulty is likely to be compounded by what Diez perceives as Chinese culture′s natural suspicion of lawyers and the legal profession in general. He explains, ′They do not regard legal advice as a must on every transaction. They see lawyers as a cost and not as a value-adding service to help complete a transaction in their best interest. It is very frequent for Chinese clients not to keep their lawyers totally informed about a transaction, only asking isolated questions which are impossible to answer without an overall picture of the deal.′
Fundamentally, in fact, China′s business community seems to value lawyers far less than those working to Western models do. No one ever had to convince a US company making a multibillion-dollar acquisition in Latin America that they should hire lawyers, but Chinese companies often seek other ways of doing business. In Bolivia, where traditional corporate work has been on the decline with the advent of interventionist governments, meaning the influx of Chinese companies should be a useful source of replacement revenue for the country′s law firms, one managing partner notes: ′For some of the massive projects going on, not only are we not working on them, but to the best of our knowledge none of the other corporate firms are either. They seem to be doing it without lawyers, by negotiating directly with the government.′
This natural wariness about lawyers seems also to feed into a suspicion of contracts in general. Soler Caballero says, ′Signing a contract is not always perceived by the Chinese party as the end of the story.′ A part of the reason for this, he suggests, could be that ′China is a country with a very young and rapidly-evolving legal system, so Chinese companies tend to rely more on past experiences than on laws and regulations, which does not necessarily fit very well with the way we do business.′
Certainly this has been the experience of the general counsel of a large Brazilian company, who describes a similar experience negotiating with Chinese suppliers. ′The thing with Chinese deals is that you spend hours – weeks – negotiating the tightest, most diplomatic, mutually beneficial contracts, sign them, celebrate, and then two weeks later, at three o′clock in the morning you get a call saying they want to change them,′ he says. ′And you can argue and complain, but short of walking away from the deal there′s little you can do. And try telling the business team that a potentially multibillion deal is just too difficult...′
The problem, he says, is power structures within the Chinese political and commercial world that are different from the European or US->
The issue feeds into dispute resolution. Developing trade relations has also meant an increase in the number of disputes made under Chinese-Latin FTAs. Raul Barrios, of Peru′s Barrios Fuentes Gallo, says that another challenge in doing business with China has been ′distrust between parties,′ part of which stems from ′bad experiences in the past over how the sales of China products have been conducted to Latin America, involving dumping, poor-quality goods, payment problems′.
Certainly China′s displacing the US as Brazil′s number one trading partner has coincided with a surge in the number of anti-dumping investigations launched by the Brazil′s authorities over the past two years.
Given the changeable approach lawyers have found to contract enforcement, and the inevitable growth in disputes, firms are also faced with the challenge of finding a workable system for resolving conflicts. This challenge, says Rodrigo do Val Ferreira, is compounded by the China′s notoriously convoluted court system: ′As the rule of law is still being implemented in China, we strongly advise our clients to do their utmost to avoid having to go to the court to settle disputes.′ A good deal of his work, he explains, involves arming his clients with credit reports and reviewing the contracts which govern the supply chain, to give them a clear idea of the people they are doing business with.
Likewise, Barrios explains that he sees finding a suitable forum for dispute resolution as one of the most important parts of his work: ′We recommend that in case of any controversy, it should be better settled through an international arbitration institution,′ he says.
What skills are required?
Such challenges can be perplexing and difficult to navigate, developing the right skill set is essential to facilitate negotiations. Val Ferreira says, ′In a very changeable legal environment we have to adapt quickly to changes both in regulations and in practice. It is very important to be able to explain to our clients, in ′Western′ terms, the legal framework in China, how things are applied in practice and the differences with the legal systems of their home countries.′
So the role of the lawyer is then to keep in touch with and navigate these fast-paced developments and to act in the capacity of translator. And it′s a role to which Val Ferreira says the profession is especially well-suited: ′Lawyers have a small advantage in dealing with these differences, as many of us were prepared, from the beginning, to rationalise, understand and be aware of these cultural differences and use them to our advantage. If you are aware of these differences and the reasons they exist, you are better prepared to deal with them and use them in your favour, instead of spending your life criticising them or trying to structure a deal on a trial-and-error basis.′
Legal advisers that do work across the Sino-Latin American divide need to be able to draw on knowledge outside of the usual expertise a lawyer demonstrates. A good grasp of the social sciences in general is also essential, Val Ferreira says, adding that as far as the legal know-how required on cross-border transactions goes, ′it is way more important to have a reasonable amount of knowledge of every subject of law than to be a profound specialist in a specific matter.′
In the absence of a large number of naturally Chinese-Spanish or Chinese-Portuguese bilingual lawyers, communication skills obviously become critical too. Navigating the language barrier is not easy, but Tzu-Hsin Shen says, ′Speaking even a few words of Chinese is a nice surprise for Chinese businessmen, and they will applaud the effort.′
With many Chinese businesses still in the infancy of their dealing with Latin America and vice versa, Diez points out that patience with clients who do not understand all the complexities of the other′s legal system is essential. Patience is also the watchword of Barrios, who explains that the quality is also required in dealing with China′s large number of state-owned companies, which ′take more time to take decisions in order to close a deal′.
Given that the solution to problems arising during negotiation, or in contract enforcement, will not necessarily always lie in a recourse to a system of rules and precedent when dealing with Chinese businesses and banks, ′a certain amount of charisma and social knack are fundamental, in order to create and maintain the network of relationships that will help you solve those problems,′ Val Ferreira says.
Where next?
With these skills established and teams in place for work on Chinese-Latin deals, what is the next step for law firms seeking to tap the deepening well of opportunities stemming from China?
With China′s economy continuing to grow almost in direct proportion to its dependence on natural resources from Latin America, Val Ferreira sees no reason to forecast anything other than a steady growth in business for his firm. But he points out that even with China established as Brazil′s largest trading partner there is still room for development in foreign direct investment between the two countries. ′Commercial and investment relations between both countries are still in a very early stage, compared to those with Europe or the US. It means there is a lot to be done still, and the forecast is for it to grow even more.′
Likewise, from Garrigues′ Chinese outpost, Soler Caballero remains confident that Latin American work ′will probably be one of the main drivers of our growth in China′, and that Sino-Latin American work, ′especially outbound work for Chinese companies investing in Latin America, will be one of our main activities in the future′. In 2010, he says, ′we are planning to recruit more Chinese lawyers.′
Estudio Echecopar′s Luis Alonso García says that the Free Trade Agreement between Peru and China, now in force for just over a year, will see the flow of investment between the two countries continue to grow, all the more so given that Peru is positioning itself as the gateway for investment in Latin America from Asia.
There are signs that China and Latin America will find a more aligned approach towards doing business. Caballero notes that lawyers on both sides of the divide have developed parallel skills in some areas of their negotiations. For instance, ′government involvement is higher in both areas than in other places like the US′ – a feature he says has made lawyers from both sides of the globe more adept at handling often-complicated regulatory systems. And as the business relationship develops, inevitably, the language barrier will need to be further broken down. Lawyers working on Sino-Latin deals are already seeing improvements in communications between parties from the two regions, but the process is still quite clearly in a transitional phase.
Equally, from the perspective of a lawyer representing Chinese clients from outside of China, Tzu-Hsin Shen puts the unpredictable business of dealing with Chinese clients down to a transitory moment for the country′s business sector too. ′Sometimes a Chinese client will make you lose a lot of time explaining every step of the transaction or doing works that you consider unnecessary. But sometimes you will find clients willing to sign anything you put in front of them. Some Chinese clients will make you wait months for an answer, but others will answer you promptly, and demand the same promptness from you,′ he notes.
This disparity, he suggests, may well be a consequence of a new generation having emerged in China′s professional >
The fact that lawyers from China and Latin America do have some common points of reference also suggests that in the future their business relationship will be more harmonious.
Felsberg Pedretti′s Val Ferreira says that despite the profound differences of culture, China and Brazil do have some similarities, not least the importance of interpersonal relationships in doing business. ′In China, as in Brazil, personal contacts play a much more important role in doing business, as compared to doing business in Europe or in the US, where strictly technical and financial aspects are usually predominant.′ This is also the experience of Soler Caballero: ′Both in China and Latin America business people like the personal relationship when doing business, they like to know each other before closing a deal.′ With Sino-Latin business bringing together two such divergent philosophical traditions, these small points of commonality are likely to become the cornerstone of many a professional partnership.
(Latin Lawyer 21.04.2010)
(Notícia na íntegra)
