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By Elizabeth M. Lynch, June 20, 2010

Like every other country outside of the United States, China is a soccer-crazed nation and with the 2010 World Cup, employers fear a loss of productivity of their workers.  With China six hours ahead of South Africa, the matches begin at 7 pm local time, with the last match starting at 2:30 AM., giving most Chinese the opportunity to watch the matches with their friends into the wee hours of the morning.  And it appears that many are taking advantage of this time difference even without a hometown team to root for.

Given China’s dominance in recent Olympics as well as its people’s love for soccer, it’s weird not to see a Chinese team at the World Cup.  Especially since even its neighbor – poor and ideologically-suffocating North Korea – made the cut.  China was able to build up its curling prowess to win a bronze in women’s curling in Vancouver – a sport most Chinese, actually most people outside of Canada, have never heard of.  Surely it can train a World Cup-worthy soccer team.  So what gives?

China - Economic superpower but not a soccer one

A recent article in the L.A. Times essential blames China’s “socialism with Chinese characteristics.”  While China’s state-controlled capitalism – where the state programs and controls much of the “free market” – has allowed for success in the economic sphere, it’s destroyed any hopes for soccer dominance.  China’s various professional soccer leagues are managed by the Chinese Football Association, a commercial entity that is overseen by the General Administration of Sport, a government body.  With dueling ideologies, the result is confusion and lack of coordination.  Additionally, China’s professional leagues have been plagued by high-level corruption, gambling scandals, and match-fixing, rotting the sport to its core.  While a recent clean-up of the corruption might have short-term impact, without better checks and balances, expect corruption to return to Chinese soccer and stymie any hope of creating a World Cup-worthy team.

Vuvuzela - Made in China

Although there is no China presence on the field, there is plenty of China presence in the stands.  Those annoyingly loud vuvuzelas that drown out referee whistles and any sounds from the field are mostly made in China.  And China’s wig production saw a huge uptick in demand for wigs dyed the national colors of various nations.

But what has received the most attention is ESPN’s Martin Tyler’s on-air comment that the North Korean fans are in fact paid Chinese actors, an allegation that was also made last month in the U.K.’s Daily Telegraph.  As a team playing in the World Cup, North Korea is given a large number of tickets to give or sell to its people.  But for most North Koreans, a flight to South Africa would cost too much, leaving many of the North Korean-designated seats empty.  But supposedly, these tickets have been transferred to China, who is sending 1,000 actors to cheer on its neighbor.

Both China and North Korea remain mum in regards to the nature of the North Korean fans and have neither denied nor confirmed the rumors.  But China has hired “professional” fans in the past.  Most notably the 2008 Beijing Olympics.  In order to fill empty seats, the Chinese government sent groups of enthusiastic Chinese volunteers, wearing yellow shirts and armed with thundersticks, into the stands to cheer for both teams playing.  That’s right – the Chinese sent volunteers to cheer not just for their own team, but for whichever teams were playing.  Essentially, the Chinese Olympic officials wanted to guarantee an enthusiastic crowd for the teams playing.

During the 2008 Olympics and now for the North Korea matches in the World Cup, the Chinese received criticism for

Fans cheer on North Korea at the 2010 World Cup

this “manufactured” support.  But I sort of think this type of magnanimity is cute and I kind of like it.  Imagine if you are the beach volleyball team from Luxemburg – you don’t even have beaches in your country let alone fans of beach volleyball that are going to watch you at the Olympics.  So how inspiring must it be to play in the Olympics and have a cheering section.  Sure it might be manufactured, but sometimes it’s just the cheers that matter for the team.  And for the other people in the stands, having a section that starts to get into the match, makes watching an otherwise boring event fun.  People don’t do the wave during the ninth inning of a tied Yankees-Red Sox game.  No.  They do the wave when they are bored, when the defeat is so obvious that you need a little entertainment to keep you involved.

So Monday morning, when North Korea takes on Portugal, I hope the fans – be Chinese or North Korean – are there wildly rooting for the North Korean team.  China should look to market this thing – a cheering section for hire and an enthusiastic one to boot?  There are a lot of politicians and disgraced corporate executives in the U.S. right now that might be interested.

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By Elizabeth M. Lynch, June 15, 2010

China's rare earth mine in Inner Mongolia

Last November, China Law & Policy reported on an obscure-sounding group of minerals found at the bottom of the periodic table: rare earth minerals.  While you may never have heard of them, you likely use them.  With their lightness in weight and resistance to heat, rare earths have been instrumental in many technological innovations, from color television, to laptops, to the iPhone.  Rare earths are also essential to any company that wants to succeed in the green technology revolution.  Rare earths are needed to create batteries for electric cars and for wind turbines.  Expect demand to increase.

But while demand increases, the global supply will decrease.  Why?  China currently produces 95% of the world’s rare earth minerals and in the beginning of June, the Chinese government announced that it was considering nationalizing its rare earth industry.  As China becomes a leader in green technology, its own domestic demand increases, leaving less to export.

Monday’s PBS Newshour did a 10 minute analysis of the rare earth dilemma, China’s demands and what it means to the U.S. as it seeks to catch up in the green technology revolution.  To watch the video or read the transcript, click here.

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By Elizabeth M. Lynch, June 2, 2010

China’s new criminal justice regulations or a paper tiger? You decide

It is rare to wake up in the morning, turn on the computer and find that China just made huge changes to its criminal procedures, and in a positive way.  But that was exactly where I found myself Tuesday morning when I saw that China passed two new criminal justice regulations, one of which attempts to stem the tide of the increasing use of confessions obtained through torture.

Torture of criminal suspects in order to obtain a confession remains a common practice in China as the confession is usually the key piece of evidence in criminal trials.   But as a signatory to the United Nations’ Convention Against Torture, such action is nominally illegal in China.  Article 43 of China’s Criminal Procedure Law (“CPL”), forbids the use of torture or coercion in obtaining statements or evidence and in the Supreme People’s Court’s Interpretation of the CPL (“SPC Interpretation”) – a document meant to provide greater detail to the vaguely drafted CPL – Article 61 states that evidence obtained through torture cannot be used as the verdict’s basis.

But neither of these provisions directly discusses the actual admissibility of this illegally obtained evidence, and the SPC Interpretation is only applicable to judicial bodies, not administrative organs such as the police or the state security bureaus.  Because current law is silent on its admissibility, confessions obtain through torture, while nominally illegal, are routinely used in criminal cases.  And the danger associated with such methods, namely the risk of sentencing an innocent person to prison or even death, have been increasing.  Just this month, Henan farmer Zhao Zuohai was released from his 11-year prison sentence when the man he was found guilty of killing, returned alive to their village.

Zhao’s story is not a one-off event, and such occurrences usually receive a tremendous amount of media attention, causing the Chinese public to be critical of the criminal justice system, question its validity, and, as a result, frighten the Chinese government.  There have been rumors of reform for the past few years, and on Monday morning such reforms were adopted.  The SPC, the Supreme People’ Procuratorate (SPP), the Ministry of Public Security (MPS), the Ministry of State Security (MSS), and the Ministry of Justice (MOJ) released two new regulations: “Regulations on Examining and Evaluation Evidence in Capital Cases” and “Regulations on the Exclusion of Illegally Obtained Evidence in Criminal Cases.” The Regulations on the Exclusion of Illegally Obtained Evidence goes the furthest in providing greater protection of criminal suspects and, through various procedural safeguards, attempts to eliminate the use of torture in obtaining confessions.

The reforms, which seem to be taken directly from a Law & Order episode, are rather sweeping and sophisticated, and

Forget about LA. Next Stop, Law & Order: China!

if implemented, can successfully eliminate torture and provide for greater justice.  But that’s the catch: in a system where more than 70% of defendants go without counsel and in the few cases with counsel, obstacles to effective representation abound, will such reforms really mean anything?  Because the regulations have yet to be publically published, the analysis below is based upon a summary provided to the Chinese media by Prof. Fan Chongyi, noted criminal law professor at the China University of Politics and Law and participant in drafting the reforms.

(1) Oral testimony that is the result of torture may be excluded from evidence.    Oral testimony that was the result of improper procedures, such as when only one investigator partakes in an interrogation [the law requires at least two interrogators], does not necessarily have to be excluded if it can be corrected.

Although this regulation certainly clarifies that courts may exclude confessions obtained through torture, the new regulation in no way creates an absolute “exclusionary rule.”  Instead, by using the term “may,” the regulation largely leaves it in the hands of the courts to decide whether to admit evidence obtained through torture.  Given the lack of judicial independence and the power of local security bureaus in China, it is questionable if local courts, when pressed by more powerful forces, will in fact exclude confessions based on torture.  Additionally, in cases where improper procedure was used, it is unclear what would need to be done to “correct” the issue and allow for the testimony to be admissible.  Perhaps the regulations, when officially issued, will clarify this.

(2) The defendant and his attorney have the right to request a pre-trial hearing concerning an illegally obtained confession.  The court may request that the defendant or his lawyer provide the names of the alleged officer involved in the illegality, the place, the time, the method used, the content of the illegality, and anything else related to the claim.

In a society with few rights for defendants, this regulation explicitly providing for the right to raise the issue of admissibility is rather extraordinary.  Additionally, the regulation calls for a pre-trial hearing to determine whether illegally obtained evidence should be admitted.  By separating the decision concerning the admissibility of the evidence from the actual trial, the regulation attempts to guarantee that the illegally obtained evidence in no way influences the final verdict.

By giving the defendant the right to question the admissibility of evidence, the regulation raises a bigger issue: when most defendants are not represented by counsel, who will inform the defendant of his or her rights?  Presumably in a situation of a confession obtained through torture, neither the police nor the prosecutor has much interest in informing the defendant of his right to attempt to invalidate the confession they just worked hard to obtain.  The alternative, that the court informs the defendant of his or her right, does not appear to be mandated by the regulations, making it questionable if the court will, on its own initiative, inform the defendant.  Given the pressures on the court as discussed in point 1 above, such action appears unlikely.

But even with a lawyer, a defendant will still have difficulty in raising the issue of a coerced confession.  A defendant’s changing his testimony, even if the prior confession was in fact the result of torture, is not in the self-interest of his attorney.  Article 306 of China’s Criminal Law (CL) provides criminal liability, and a prison term of up to seven years, to lawyers who entice their clients to change their testimony in opposition to the facts or to give false testimony.  While the overarching purpose of the sanction – to ensure that lawyers do not encourage their clients to lie – is laudable, Article 306 has been used by police and prosecutor as a way to intimidate defense counsel from questioning the validity of any confession, even when torture is obvious.  And this is not an idle threat.  This past year, after a high-profile case representing an organized crime syndicate in Chongqing, criminal defense attorney Li Zhuang was charged with violating Article 306 by advising his client to recant his confession on the basis that it was obtained through torture.  Li was eventually found guilty and sentenced to one year and six months in prison.  Thus, as long as there is Article 306, there remains an incentive for lawyers to advise their clients NOT to recant their confession.

Finally, while the regulation’s designation of a pre-trial hearing to determine the admissibility of illegally obtained evidence is a step in the right direction, such a pre-trial hearing is meaningless if the judge deciding the admissibility of the evidence is the same judge that will determine the guilt or innocence of the defendant (in China, judges determine guilt; there are no juries).  Having the same judge decide both would defeat the purpose of attempting to prevent illegally obtained evidence from influencing the trial portion.  It will be interesting to see if the officially published regulations will clarify this issue.

(3) After the defendant or his lawyer raises the issue of illegally obtained evidence and provides the details required by the court [see point 2 above], the burden of proof then switches to the prosecutor to show that the evidence was obtained legally.

This regulation is perhaps the most impressive in that it is also the most sophisticated.  Burdens of proof are

Prosecutors await trial in China

difficult concepts to understand, and knowing when to switch the burden from one party to another, can give an otherwise ineffective rule teeth. The law seeks to switch the burden of proof to the party that has the greatest opportunity to determine the truth.  Here, as China correctly notes, that party is the prosecutor.  The prosecutor, in working with the police and at times as part of the interrogation, has the best opportunity to demonstrate the admissibility of the confession.

Additionally, switching the burden of proof can also create an entirely new incentive structure to prevent the illegal behavior from ever occurring.  Here, China utilizes this concept.  Once the prosecutor has the burden of proof to show that evidence was obtained legally, he or she will seek to have procedures in place to guarantee that the police do not violate the law in obtaining evidence so that if the defendant raises the issue, the prosecutor can win.  For example, while there has been a few cities in China that have experimented with videotaping police interrogations, this practice has largely remained isolated.  But, with the switched burden of proof, prosecutors all across China will seek to implement methods to guarantee that confessions are obtained legally, and may seek to pressure their police counterparts to begin recording all interrogations. This regulation could potentially change the way interrogations are performed and recorded, reducing the risk that torture is used.

However, it is still subject to the criticism noted in points 1 and 2 above: will the court decide to exclude evidence even if illegally-obtained since it is not required to do so and will the defendant even know to act upon his or her rights?  If the answer is no, then the incentives created by the switched burden of proof remain irrelevant.

(4) The interrogator (usually the police or the prosecutor) must appear in court and testify.

While this might seem mundane to most Americans, as Prof. Fan notes, for China, this is pioneering.  In China, there is very little live testimony during criminal trials.  Just forcing someone to actually appear and testify in court is radical.  Having that person be a police officer is even more shocking.  In China, the state security apparatus is a powerful body and far outranks the courts or the nascent criminal defense bar.  The fact that the MSS and the MPS agreed to this regulation is certainly surprising and raises a red flag: has the MSS and MPS really agreed to give the courts power over their employees?

Again, the criticism of the new regulations noted in point 1 and 2 are applicable here as well.  Will we even reach the point that there is a hearing questioning the legality of evidence?  Likely not.  But regardless of those issues, the regulation itself seems to be without any bite.  Unless the officially published version expounds upon this regulation, there are no procedures in place to determine which party can call the police office to testify or whether defense counsel will be permitted to cross-examine the police officer, both necessary to guarantee that the regulation is effective.

(5) In regards to illegally obtained physical evidence, if the illegally obtained evidence has the potential to influence the fairness of the trial, then it should be excluded unless there is a reasonable reason for the illegality or it can be corrected.

This regulation is perhaps the vaguest, and thus weakest of them all; it appears to be inspired by the U.S.’ “fruit of the poisonous tree” (FPT) doctrine.  Under the FPT doctrine, other evidence discovered as a result of an illegal search or interrogation is also excluded.   For instance, after an illegal search of a house (the poisonous tree) a key to a locker is found and in that locker is the murder weapon (fruit), that murder weapon will also be excluded.  An exception exists if it can be shows that the discovery would have been inevitable or the discovery would have been made through an untainted source.

China’s regulation here seems to adopt the spirit but not the substance of the FPT doctrine, by only looking to the FPT exceptions.  In the U.S., the exceptions to the FPT doctrine are only applied to the fruit; no exception is made for the poisonous tree.   Here, China applies similar exceptions to the actual tree, to the evidence that was obtained directly as a result of the illegal violation.

This regulation is further weakened by the fact that these terms “reasonable reason” and “corrected” are left completely undefined.  Courts are left to their own devices to determine what these terms mean, a situation that was suppose to be avoided by these new regulations.

China’s “Regulations on the Exclusion of Illegally Obtained Evidence in Criminal Cases” is impressive and provides the architecture necessary to guarantee greater fairness in China’s criminal trials by excluding evidence obtained illegally.  The sophistication of some aspects of the new regulations reflects China’s increasing understanding of the need for effective procedures in order to give meaning to its legal principles.  However, these regulations should be viewed as a step toward greater progress; China has only stuck its foot in the water; it has yet to jump fully in.  China needs to find solutions to the systemic problems plaguing its criminal justice system. Unless China makes efforts to foster a vibrant criminal defense bar, provide access to attorneys early in criminal investigations, and takes steps to create a judiciary independent from the state security and Party apparatus, the new regulations will likely have little impact in the short-term.

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By Elizabeth M. Lynch, May 24, 2010

Only a handful of the 200 U..S. officials at today's Strategic & Economic Dialogue in Beijing

The second U.S-China Strategic & Economic Dialogue (S&ED) is off to an interesting start in Beijing.  The U.S.’ agenda for the talks – agreement on Iran sanctions, change in China’s currency policy, and greater openness of China’s procurement market for foreign companies – was largely overshadowed this morning by South Korea’s announcement that it will hold North Korea responsible for the torpedo attack on a South Korean war ship, the Cheonan, in March 2010 which resulted in the death of 46 sailors.

As the S&ED was set to open in Beijing, South Korea’s president, Lee

Chinese President Hu Jintao greets U.S. Secretary of State Hillary Clinton at Monday's opening of the S&ED

Myung-Bok, issued the strongest statement against North Korea in decades and announced that all trade between the Koreas would be suspended, investment would be stopped, and North Koreans would not be permitted to visit South Korea.  Additionally, South Korea will also reinstall megaphones at the border between the two countries and resume anti-North Korean broadcasting, a practiced it stopped in 2004 when tensions were easing between the two Koreas.  Previously, North Korea stated that any retaliation by South Korea in response to the Cheonam incident would be seen as an act of war; today it announced planned attacks on any South Korean megaphones at the border.

In her remarks during the S&ED’s opening ceremony, Secretary of State Hillary Clinton, who is accompanied by 200 U.S. officials on this trip, brought up the issue of North Korea’s increasing “belligerent” actions and the need for the U.S. and China to work together in regards to North Korea.  Chinese President Hu Jintao did not mention North Korea in his speech.

But President Hu did bring up the currency issue in his remarks, to the surprise of most.  In his speech, President Hu promised that China would continue to reform its currency policy, but noted it would be on China’s terms and such reform would be gradual.

With the delay of the Treasury Department’s report on China’s currency policy and recent op-eds in the state-controlled Chinese press regarding the need to give more flexibility to China’s currency — the yuan — it appeared that China would make some sort of concession on the currency issue.  However, the recent crisis in Greece and the European Union, which has resulted in a 20% drop in the value of the Euro against the dollar, changed that opinion.  By effectively tying the yuan to the dollar, as the dollar gets stronger against the Euro, Chinese goods become more expensive in the European Union, China’s largest export market.  So President Hu’s promise to do something about China’s currency policy was a bit of a surprise.  And the public nature of the comment was even more surprising since the revaluation of the yuan is a hot-button issue for the Chinese domestically: Beijing does not want to appear to be placating to U.S. demands.

But what remains to be seen is when: when will China adjust its currency policy.  Don’t expect that question to be answered at the S&ED which concludes Tuesday afternoon.

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By Elizabeth M. Lynch, May 12, 2010

Link here for webcast (or go through the House website here).

Click here for CL&P’s Written Testimony Submitted to the Committee

Yesterday, the Committee  on House Administration held a hearing to discuss  and analyze the DISCLOSE Act (H.R. 5175), the legislation drafted to deal with some of the issues raised by the Supreme Court’s decision in Citizens United v. Federal Election Committee.  Most of the new legislation deals with what disclosure should be made when a corporation runs a commercial or ad as part of its political activity.  But Section 102 of the proposed legislation seeks to close the loophole that enables foreign corporations, operating through U.S. subsidiaries, to fund “electionteering communications.”

China Law & Policy’s article, “Citizens United: U.S. Politics with Chinese Characteristics” was picked up by the Committee’s staff and I was invited to testify about potential foreign government influence in our elections post-Citizens United.  On the panel also included former Federal Election Committee (FEC) chair and lead staffer on the McCain-Feingold, Trevor Potter of Campaign Legal Center; Prof. John C. Coates of the Harvard Law School and expert in corporate governance; Michael Toner, partner at Bryan Cave and former FEC Chair; and William McGinley an attorney at Patton Boggs.  The House Committee is to vote on the legislation on Thursday, May 13.

The full webcast can be watched here (or here).  It was a very interesting discussion and I recommend watching all of it (total time is 1 hour 31 minutes), but for those just interested in the discussion on foreign influence (or the parts where I speak), below is a breakdown by time of the discussion.  Thank you for watching!

Discussion on Foreign Influence in U.S. Elections:

14:45 – 16:45 Trevor Potter, Opening Statement

21:49 – 22:27 John C. Coates, Opening Statement

22:38 – 27:45 Elizabeth M. Lynch, Opening Statement

29:28 – 31:05 Michael Toner, Opening Statement

34:03 – 34:32 William McGinley, Opening Statement

42:56 – 46:14 Rep. Lungren, Question for the Panel

• 46:15 – 47:12 Coates, Response to Rep. Lungren
• 47:13 – 48:47 Lynch, Response to Rep. Lungren
• 48:48 – 49:46 Lungren Conclusion

1:02:59 – 1:03:21 – Toner, Response to Rep. Harper

1:05:45 – 1:10:22 – Rep. Capuano, Questions for the Panel, Back-forth with Toner, and China issue Lynch

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By Elizabeth M. Lynch, May 10, 2010

China Law & Policy will be appearing before Congress tomorrow.  The Committee on House Administration, which has jurisdiction over federal elections, is seeking testimony on the potential for foreign influence in U.S. elections post-Citizens United.  I have been invited to testify.  Congress is seeking to pass legislation, called the DISCLOSE Act, to rectify some of the issues caused by the Supreme Court’s Citizens United decision.

The hearing  will be at 5 PM at 1310 Longworth House Office Building in Washington DC.

The hearing will also be shown LIVE on the web: http://cha.house.gov/ (on the left-hand hand side will be a link for live webcast)

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By Elizabeth M. Lynch, April 27, 2010

With the fortieth anniversary of Earth Day this past April, Americans celebrated with vigor and advocated saving the planet.  Well, most Americans did.  As China-observer Marcy Nicks Moody notes, recent breakdown between Democrats and Republicans in the Senate could forestall any hope of the U.S. moving forward on climate change legislation.  And could allow China to remain ahead of the green technology game for a long time.

Happy 40th? – Congress Says Bye, Bye Climate Change Legislation

By Marcy Nicks Moody

Last Thursday, Americans celebrated the fortieth anniversary of Earth Day, established by U.S. Senator Gaylord

Earth Day Founder, Sen. Gaylord Nelson

Nelson in 1970 to raise awareness of environment-related issues. Last Sunday, thousands gathered on the National Mall in Washington, DC to participate in the Earth Day Climate Rally with the alleged goals to “stop protecting polluters,” “enact comprehensive climate legislation,” and “demand accountability from Washington.” There were exhortations to grow kitchen gardens along with clamorous chanting of the word ‘green.’ The weather was glorious, and spirits did not seem dampened by the blow dealt to climate legislation by the U.S. Senate just the day before.

Sandwiched between Earth Day and the Earth Day Climate Rally was the day on which another U.S. Senator, Republican Lindsey Graham of South Carolina, announced that he would no longer participate in negotiations on a Senate version of proposed climate legislation. In a letter to colleagues Senators John Kerry (D-MA) and Joseph I. Lieberman (I-CT), Senator Graham cited his disappointment over reports that the Democratic leadership of the Senate was planning to take up discussions of immigration before addressing climate change as a reason for his changed stance.

Senators Graham, Kerry, and Lieberman were the primary architects of this bill-to-be and had been planning to formally announce the bill with the White House last Monday. But any debate on immigration would make it impossible to deal with national energy and climate change policy, the South Carolina Senator said. So he won’t support the draft climate change bill, in spite of the fact that he helped create it. Senator Graham won’t support some legislation because talking about something else would just be too painful or distracting? This seems a bit irrational.

In Happier Times - Senators Graham, Kerry & Lieberman

Setting aside speculation over why Senator Graham radically and suddenly changed positions, the simple fact that he did it is disappointing. To be sure, the Senator is not the only culpable party in this turn of events. He is likely under enormous pressure from fellow Republicans to stop negotiating with Democrats. And if reports are true that both the White House and the Democratic Senate leadership had been planning to take up immigration first not because it could pass (the House has not yet discussed the matter) or because it is more urgent (climate change is equally as urgent: the longer we wait to address climate change, the more expensive it will be), but because it could present a useful wedge issue for the Democrats in the coming election cycle, then Senator Graham has every right to be peeved.

But unless Graham’s strategy has the result of getting climate change legislation considered in this session of Congress, it is bad for Americans. The science demonstrating the negative and possibly catastrophic consequences of anthropogenic climate change is overwhelming. That emissions of greenhouse gases (GHGs) must decrease is flagrantly obvious. And that the United States, which prides itself on its innovative strength, global leadership, and remains the largest economy in the world, has still not acted on this evidence is disgraceful.

It is also bad for business. The clean technology market is big and growing, but without the passage of climate change legislation, signals to U.S. businesses as to the future prices of clean versus pollution-intensive energy remain unclear. A recent Pew report on clean energy in the G-20 economies notes that appropriate domestic policies—such as those aimed at reducing GHG emissions or incentivizing the use of renewable energy—have tended to positively affect a country’s competitive position in the clean-tech market. The winners in this race include Brazil, the United Kingdom, Germany, Spain, and—who else?—China. The United States does not make the shortlist of enlightened energy and environment policymakers of the rich world.

Lights out for the U.S. in the race for green tech?

In fact, the Pew report finds that China has already overtaken the United States on several important measures (including, of course, its dubious distinction of being the largest emitter of greenhouse gasses for the past several years). In 2009, for instance, China overtook the United States for highest financing of and investment in clean energy. And it is likely to overtake the United States in installed renewable energy capacity soon. Though targets are not always met, Beijing has set ambitious targets for wind, biomass, and solar energy usage, and these targets do not exist solely not to be met. They may currently be aspirations, but that’s more than the United States currently has to go on.

Mitigating climate change and making U.S. clean-tech business better is accomplished by limiting greenhouse gas emissions. The best way to limit GHG emissions is to put a price on them. Indeed, the fact markets have not already done so has been described by climate expert Nicholas Stern as “the greatest market failure the world has ever seen.” The climate legislation which has been stalled and stalled and stalled again in the U.S. Senate is generally envisaged as a cap and trade system that would cap GHG emissions at a certain level, create a scheme in which licenses to emit GHGs could be traded, and eventually shrink gross amount of permissible emissions. This amounts to an indirect tax on GHG emissions, and though it is far from ideal, it would create a price for emissions at the margin and therefore makes strides in the right direction.

As the Senate continues to dawdle, the Earth Day Climate Change rally on the National Mall was far from unimportant. Especially in a democracy like the United States, it is important that citizens buy into ‘going green.’ It is important, frankly, that green be cool. But though considerations of how to green one’s lifestyle are admirable, they are not game changers. Coal is still cheap; Whole Foods is expensive, and “going green” remains largely the privilege of the wealthy in society.  Unless we change our laws.  The Senate should get to work. The alternative is to accept an outcome in which a hundred U.S. kitchen gardens bloom while a hundred Chinese companies compete for the top spots in clean-tech. In addition to, well, catastrophic climate change.

Marcy writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

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By Elizabeth M. Lynch, April 20, 2010

On Monday, I posted my take on the Rio Tinto trial which elicited significant response from China law scholars.  I was lucky to have a very thoughtful response from Prof. Vivienne Bath of the University of Sydney and Director of the Centre for Asian and Pacific Law at the University of Sydney.

Prof. Bath has a different perspective on the Rio Tinto trial and you can find her comments below.  She also points out two mistakes that I made in the original article.  In the original article, I state that foreign press was permitted into the bribery portion of the trial.  This is incorrect.  They were only permitted access to the verdict and sentencing portion.  A second mistake is that I state that there was live witness testimony; there was not.  There was only the presentation of written testimony; not actually live witness testimony.  I have made these corrections to the original article and my apologies to the readers.

I thank Prof. Bath for her response to my article and for giving me permission to post it to China Law & Policy to offer a different perspective.

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By Elizabeth M. Lynch, April 19, 2010

Originally Posted on Foreign Policy Digest

Developments

Last summer, the billion dollar steel industry watched in rapt attention as China cracked down on one of its own.  On July 5, 2009, Chinese authorities in Shanghai detained four employees of the Australian mining company Rio Tinto, then later sentenced them to prison terms ranging from seven to fourteen years.  Many China watchers and industry insiders considered the sentencing and charges of bribery and commercial espionage to be retaliation for the recent tough iron ore pricing negotiations, and Western media were quick to portray the Rio Tinto incident as a reflection of China’s irreverence toward rule of law and its politicization of the legal system for corporate advantage.   However, in examining the Rio Tinto case, the Chinese prosecutors followed legal procedure more precisely than they do in most ordinary criminal trials in China.  While there may have been some misuse of criminal process for corporate gain, it appears that the Australian government and Rio Tinto itself may have acted as passive accomplices in its politicization.

Background

Rio Tinto is keenly aware of China’s importance in its operations.  In 2009, China’s imports accounted for $10.56 billion, or close to a quarter of Rio Tinto’s overall profits.  With China as one of the few countries still growing during the global finical crisis, it is no wonder that Rio Tinto’s 2009 Annual Report listed “strengthen [its] relationship with China” as a key strategic goal for 2010.

In China, it is neither unusual nor unlawful for suspects to be detained without being officially arrested or charged with a crime.  Article 69 of the Chinese Criminal Procedure Law (CPL) permits authorities to detain a suspect

Stern Hu

without arrest for up to 30 days in certain instances—one of which is in cases with multiple suspects.  When the four employees were detained by Chinese State Security officials on July 5, 2009, Stern Hu—an Australian citizen—Wang Yong, Ge Mingqiang, and Liu Caikui appeared likely to be charged with stealing state secrets, a grave offense under the Articles 111 and 113 of the Chinese Criminal Law (“CL”) that can carry a life or, even death, sentence if convicted.  State secret trials are particularly nontransparent; the trial is completely closed, with even the defendant’s lawyer excluded.  However, upon their official arrest on August 12, the four Rio Tinto employees were not charged with stealing state secrets; instead all four were charged with the lesser crimes of stealing corporate secrets and commercial bribery, which carry prison terms of three to seven years and five years, respectively.  There is a thin line between stealing state secrets and stealing corporate secrets when the entity involved is a state-owned company, as are most Chinese steel companies.  But, given Stern Hu’s Australian nationality, it was crucial to Sino-Australian relations that China make such a distinction in this case.  On February 10, 2010, a three-judge panel in the Shanghai Number One Intermediate Court agreed to accept the case, and the four employees were officially indicted.

While in custody, the four employees received support from both Rio Tinto and the Australian government.  Sam Walsh, chief executive of Rio Tinto’s iron ore operations, remained confident in his employees’ innocence and repeatedly expressed his concern over the charges.  Australian officials who paid consular visits to Hu, as mandated by the China-Australia Agreement on Consular Relations (the “Consular Agreement”), continued to discuss the case with the press, and the Western media remained actively interested in the case, wondering how the Chinese government was going to execute what was perceived as trumped up charges against Rio Tinto employees.

Australian Consul-General Tom Connor (centre) makes a statement to the media outside the Shanghai No. 1 Intermediate People's Court in Shanghai, on March 22, following the first day in the trial of four Rio Tinto employees.

In a surprising turn of events, on March 22, 2010—the opening day of the long-awaited trial–all four Rio Tinto employees pled guilty to accepting bribes totaling $13 million.  In accordance with the Consular Agreement, an Australian consular official was allowed to attend the bribery portion of the trial.   Domestic press was given access to the trial, but with only guilty pleas, there was little to report.  Foreign press was excluded.* After the guilty plea, Rio Tinto and the Australian government, the only two Western entities that have seen the actual evidence that caused the four to plead guilty, stated that there was enough evidence to support the bribery charge.  But this allegedly “clear evidence” has not been made public, making it impossible to evaluate its credibility.

On the second day of the trial, the Court tried all four defendants in a closed-door trial on the charge of stealing commercial secrets.  Even Australian consular officials, who are permitted to attend all trials under the Consular Agreement, were denied entry.  After concluding the trial on March 24, the Court reached its verdict on the following Monday, March 29, 2010.  With Stern Hu’s wife in the courtroom–the first time she had seen her husband since the day he was taken away by authorities–the Court found all four defendants guilty of stealing commercial secrets.  In accordance with Chinese practice, sentences were immediately handed out: Stern Hu received a total of 10 years in prison, and Wang Yong, Ge Mingqiang and Liu Caikou received fourteen, eight and seven years, respectively.  All of the sentences were within the timeframe allowed by the Criminal Law.

Analysis

The Rio Tinto case makes clear that the Chinese criminal justice system could use improvement, particularly in regards to the public’s access to evaluate the evidence in non-closed trials.  But it is not the grave travesty the Western media portrays it to be.  In many ways, the Rio Tinto employees were given more protection of the criminal law than must ordinary Chinese defendants.  The Rio Tinto employees were all given access to defense counsel; Stern Hu met with his attorneys on ten different occasions before trial. In China, most defendants are unrepresented and the few who retain an attorney usually have no access to that attorney prior to trial.  Additionally, the Rio Tinto commercial secrets trial lasted two days, one day longer than most trials in China, with examination of evidence, including statements from witnesses.  In China, most criminal cases rely solely on a defendant’s confession with little to no other evidence.*

But the Western media has been particularly focused on the closed commercial secrets portion, with some arguing that the closed trial violates Chinese domestic law (see here and here).  Indeed, Article 152 of the CPL states that criminal trials, except for those involving state secrets or personal private matters, are open to the public.  However, the CPL is not the only instructive document.  The Supreme People’s Court (SPC), China’s highest court, issues binding interpretations to clarify the law.  Article 121 of the SPC’s “Interpretation of the CPL” maintains that in cases involving “business secrets,” the court may close the trial if a party requests it.  The Interpretation does not say that “party” is limited to either prosecutor or one of the defendants in the case; presumably any party with an interest in the secret may request the closure.  In this case, Rio Tinto, the Chinese steel companies involved, or the Chinese government, all of whom likely have reasons to keep the public out of the seedy affairs of iron ore pricing, likely requested a closed trial.

However, it is problematic that an Australian consular officer was excluded from the corporate secrets portion of the trial, and equally disturbing that the Australian Foreign Minister would neglect to discuss or criticize the Consular Agreement violations after the verdict.  The Consular Agreement is clear that an Australian consular official is permitted to attend all trials involving Australian citizens in China.  China’s claim that “judicial sovereignty” necessitated the closing of the commercial secrets portion of the trial is specious at best and leaves China open to the Western media’s assertion that the Rio Tinto case was purely political.

Yet, there is also reason to question the roles of Rio Tinto and the Australian government in the politicization of this case.  From the beginning, when the charges were changed from state secrets to commercial secrets, both the Australian government and Rio Tinto likely exerted pressure on the Chinese government, taking advantage of the political nature of the Chinese legal system which the Western media has criticized China for.

Sam Walsh, Rio Tinto's Iron Ore Chief

After the four employees were found guilty, Rio Tinto was quick to report that while “clear evidence” showed beyond a doubt that the four employees had accepted bribes, all bribe-taking was conducted outside of Rio Tinto.  It seems difficult to believe that a $13 million bribery scheme, presumably resulting in cheaper prices for iron ore for Chinese steel makers or more iron ore sold to a preferred Chinese steel maker, would leave not a single trace of evidence on Rio Tinto’s systems – not a single email or a price discrepancy or any evidence that more iron ore was being sold to one steel company, nothing. Also, as others have pointed out, with regard to the charge of stealing commercial secrets, one must wonder, who was the ultimate beneficiary of the theft?   Although evidence in the commercial secrets theft is not public, during sentencing the Court stated that the Rio Tinto employees obtained secret information about the China Iron and Steel Association’s “next price for upcoming iron ore negotiations.”  In other words, the limit one can charge the Chinese steel industry for iron ore.  This is information that Rio Tinto the company would want but would be less valuable to individual employees such as Stern Hu.

There are other legal tools to use to find out this information, but it appears that the Australian government has chosen not to use them.  Under Australian law, bribery of foreign officials by an Australian company and its employees is illegal and can be prosecuted in an Australian court, even if the bribery happened abroad.  Here, the Rio Tinto employees were convicted of stealing commercial secrets.  While one could steal commercial secrets by burglarizing someone’s office or hacking into their computer, it is most likely that the Rio Tinto employees obtained the secrets from someone on the inside of China’s state-owned steel industry.  It is most likely the Rio Tinto employees paid for this type of information, which is not easily attainable or free.  Such an act would be in violation of Australia’s criminal law prohibiting bribery of foreign officials and could subject Rio Tinto to large monetary penalties.  But the Australian government has made no overtures of either investigation or prosecution of other Rio Tinto employees or Rio Tinto itself.

China’s legal system is far from perfect; greater transparency could result in a more reliable legal system, less vulnerable to censure.  In this case, allowing the public to see the evidence relating to the bribery charges and giving some sort of an explanation for closing the commercial secrets portion of the trial could have been useful.  But, ultimately, the Rio Tinto case is not the poster child for China’s retreat from rule of law or for the danger of foreign companies doing business in China.  Instead, this case makes clear that the oft quoted adage by lawyers that “bad facts make bad law” is equally as apt to the press: “bad facts make bad journalism.”

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* Corrections were made to the original article to better reflect the facts (see here).  The author still stands behind the views expressed in this article.

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By Elizabeth M. Lynch, April 16, 2010

Will China allow its currency to float?

As Marcy Nicks Moody pointed out in her article, “A Dusty Springfield Approach to the Chinese Exchange Rate,” the Treasury Department was to release its report on international economic and exchange rate policies on April 15.  But last week, Treasury Secretary Tim Geithner announced that he would delay the release of the report  noting that key meetings with world leaders in the upcoming months necessitated the delay.  Many saw this as a sign that the U.S. was in dialogue with the Chinese about the exchange rate with the real possibility that China would give its currency some freedom.

But in today’s New York Times, Michael Wines reports that perhaps we shouldn’t be so sure.  Domestic fiscal and monetary policy issues are pushing Chinese leaders not to float the yuan, Chinese currency (a.k.a. the renminbi or RMB).  Interestingly, the online version of this article has the title “China’s Recovery Keeps Focus on Interest Rates and Currency” while the title in today’s paper version is the more explosive “China Move on Currency Not at Hand.”

So will China succumb to foreign pressure or will it remain focused on its own recovery and not look to change its currency policy just yet?  You decide.  Take our poll on this issue listed on the left hand side of the website.  Results will be posted next Friday, April 23.