A U.S. Lawyer's Opinion of the Economic Impact of Technology and Corporate Law Developments in the USSR/Russia and China from the Mid-1970s to Today

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I was a lawyer for two large American companies--first for Allis-Chalmers and then for Coming--devoting a great deal of my time to the Soviet Union and Russia beginning in 1975 (including being a resident for Allis-Chalmers in Moscow for 1977 and 1978), and to China beginning in 1983. I worked with both countries until my retirement from Coming in mid-2006. As such, I was in a position to observe significant, indeed historic, changes in both countries' relative economic developments, which I believe were based in significant part on their respective corporate and related technology-law developments during that time. This paper is based on my own observations, including my interactions over this period with many Western, Soviet/Russian and Chinese lawyers, businesspeople and government officials. (1)

In brief, this entire period saw China, beginning from a developmental base far inferior to that of the USSR, leapfrog the USSR/Russian Federation in economic development; today, any neutral observer could only conclude that China vastly outpaces the Russian Federation economically, using virtually any relevant indicia or means of comparison.

The clearest support for my personal observations contained in this paper is whether legislative changes in areas supporting foreign trade and investment were adopted more quickly and in greater depth, continuity and clarity in China than in the USSR/Russian Federation. This indeed was the case.

A very important reason for China being so comparatively successful in developing its economy, beginning with the administration of Deng Xaioping, has been its ability--indeed, its desire--to incorporate Western industrial design and manufacturing technology, and increasingly to build on this technology to develop its own sources of technology in an ever-growing number of industrial sectors. Greatly assisting China in this regard has been the country's extremely open regulatory environment in relation to foreign investment and its cultural receptivity to Western business practices, as well its extensive adoption of Western commercial law concepts, including those relating to technology. Though it is outside the scope of this paper, it must be noted that certainly important for China was the desire (if not the necessity) to be open to Western investment in order to create a rapidly growing domestic industry, making export-quality products, in order to absorb what turned out to be a rural-to-urban internal migration of a size unmatched in history. Russia did not face this problem, and hence had no corresponding need to attract foreign investment to solve it.

Given China's ongoing policies and attitudes encouraging foreign investment and other forms of foreign company participation in the Chinese economy, I do not see anything in the current commercial law developments within the Russian Federation relating to foreign companies that would, in the foreseeable future, help to narrow this development gap between the two countries.

Historical Background--Prior to 1972

In February 1972, the United States and China signed the Shanghai Communique. In May and October of that same year, the U.S. signed a series of trade accords with the USSR. The Shanghai Communique would (though beginning only in the late 1970s under Deng Xaioping) serve as the basis for what became expansive business cooperation between the two countries. This was in contrast to the relatively immediate implementation of the U.S.-USSR trade accords.

There was not extensive Soviet or Chinese trade or commercial cooperation prior to the 1970s with the U.S., Western Europe or Japan--one reason for this was that after World War II, Western companies were severely restricted in what they could trade with both countries because of the multilateral COCOM export control structure. This structure constituted the agreement by Western governments on which products and technologies could be supplied freely to Communist-controlled countries, and which could only be supplied on the basis of an export license issued by the government of the proposed exporter. …