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Will the U.S. and China establish a reciprocity agreement?

On Behalf of | Oct 8, 2019 | Uncategorized

It is no secret that there currently exists monumental tension within business and trade operations between the United States and the People’s Republic of China (PRC). Meanwhile, innumerable contracts continue to connect the two countries despite seemingly incompatible regulations, political climates and investment strategies.

However, international companies have struggled with more deterrents than tariffs over the years. A lack of legal reciprocity has shown light on the difficulties of enforcing judgments between two different legal systems. Rather than recognizing and enforcing court rulings enacted in the other country, many consequences, benefits and favors are left virtually unenforceable overseas.

Forming a reciprocal agreement between the U.S. and China may be possible. And in some cases, both country’s courts have already honored rulings in kind.

Foreign judgment requirements for Chinese courts

You might speculate that companies interested in conducting business in China could benefit from a reciprocity agreement. Though, a formal agreement does not currently exist.

For a Chinese court to recognize and enforce a foreign court’s judgment, it must meet two criteria:

  • The opinion must adhere to China’s public or social interests, security, laws and principles
  • It has to comply with an applicable international convention or treaty

Lacking a reciprocity agreement, American business owners have no way of knowing whether a Chinese court would enforce a judgment from the U.S. Though in some circumstances, a Chinese court may base their practice on whether a court in the States enforced a ruling from the PRC.

Court cases indicative of a prospective agreement

It is too soon to determine if, or when, the countries will establish a reciprocity agreement. However, three court cases seem to point in that direction.

  • The first American enforcement of a Chinese judgment took place in 2009. After a California-based Robinson Helicopter Co. chopper crashed in China, bringing three people to their deaths, two Chinese companies sued Robinson. Support of the Chinese court’s earlier judgment resulted in nearly $1 million in compensation.
  • In 2017, a Chinese court enforced a California court’s decision. This initial legal support of an American ruling mentioned the Robinson case. As such, the two countries recognized some form of reciprocity.
  • Last year, a Chinese court both recognized and enforced a judgment made by an American federal court. An Illinois federal district court ruled an American individual who worked for a Chinese company and held assets in the PRC, owed an Illinois company $2 million. When the individual did not fulfill their court-ordered financial obligation, the Illinois company sought out and received backing from a court in Shanghai.

There are many considerations involved in establishing legal reciprocity between the U.S. and China. However, these cases represent the potential for the two legal systems to collaborate.

It is too soon to tell what the future holds for international business. However, developing a judicial agreement could improve the relationship between the two countries for the years to come.