June 07, 2011 Articles

Discovery Practice in Conflict with China's State Secrets Law

By Josh Johanningmeier and Patricia Wheeler

Product liability litigants in American courts are accustomed to the broad scope of civil discovery, whereby anything "reasonably calculated to lead to the discovery of admissible evidence" is fair game. Fed. R. Civ. P 26(b)(1). Combine this standard with the exponential increase in the retention and availability of documents and other discoverable information arising from the dawn of the digital age, and the sheer volume of discoverable information can become overwhelming. With the 2006 e-discovery amendments to the Federal Rules of Civil Procedure, and the quick adoption by nearly half the states of e-discovery procedural rules that mirror the Federal Rules, the new electronic discovery requirements have an impact on both state and federal litigation. Indeed, presumed access to all discoverable information has led litigants and courts to expect that nearly any request may be met, provided someone is able to bear the financial burden. And, with the globalization of manufacturing and commerce, one might expect that those expectations know no borders, so long as the maze of the Hague Convention and local practice can be navigated. However, one noteworthy obstacle in China, home of the world's second largest economy and a country that manufactures products for sale around the world, may frustrate litigants and judges. China's draconian state secrets law, now more than two decades old, stands in the way of obtaining what would likely be seen as routine information in civil discovery. (Analysis of state secrets law is based on the translation of the law provided by the Congressional-Executive Commission on China.)

China's Emergence as Manufacturing Superpower
In the last quarter century, China has emerged as a manufacturing superpower; it has transitioned from an agricultural economy into industrial juggernaut and is on the verge of surpassing the United States as the world's leading manufacturer. Since the 1980s, China's annual growth rate has averaged 10 percent or more as hundreds of millions of Chinese have entered the industrial workforce. China now boasts the second largest economy in the world and is on pace to pass the United States by 2030. Low labor costs and a huge workforce give Chinese manufacturers a decisive advantage over global competitors. In fact, companies from all over the world have established manufacturing operations in China in the last 20 years.

China's rise to manufacturing dominance is not without drawbacks for companies that do business there. The most significant is the absence of the rule of law in China. The Chinese government exercises an extraordinary degree of control over not only China's legal system but also any individual or business with a presence in China. The notion of an impartial judiciary, with strict rules of evidence and completely transparent proceedings, is an alien concept in China. The Chinese government does not afford due process rights to anyone, least of all foreign companies doing business in China.

China's State Secrets Law
One of the most troubling manifestations of China's lack of procedural safeguards and judicial transparency is the state secrets law. China's use of the state secrets law to prosecute employees of American businesses has become an increasingly prominent issue in relations between the two countries. It has profound implications for any company with manufacturing or other business interests in China.

China's state secrets law went into effect on May 1, 1989. The law is divided into five chapters: (I) General Provisions, (II) Scopes and Categories of State Secrets, (III) Security Rules, (IV) Legal Responsibility, and (V) Supplemental Responsibility. The law consists of 35 articles in total.

Chapter I provides an overview of the law. Article 1 describes the purpose of the state secrets law in benign terms: "guarding state secrets, safeguarding state security and national interests and ensuring the smooth progress of reform, of opening to the outside world, and of socialist construction." However, the law's scope is broad and vague: "State secrets shall be matters that have a vital bearing on state security and national interests and, as specified by legal procedure, are entrusted to a limited number of people for a given period of time."

Chapter II delineates secrets into three categories of secrecy: most confidential, classified, and confidential. The chapter defines the highest level of secrecy—most confidential—as "vital state secrets, the divulgence of which will cause extremely serious harm to state security and national interests." It describes "classified information" as "important state secrets, the divulgence of which will cause serious harm to state security and national interests." Finally, it defines "confidential information" as "ordinary state secrets, the divulgence of which will cause harm to state security and national interests." The law provides no further details regarding the standard for determining the relative categories of secrecy.

There is no central classification authority in China. According to articles 10 and 11, the designation of information as a "state secret" is conducted by state secrets bureaus at the provincial, regional, or municipal levels. The law provides only the vaguest description of the bureaus themselves, identifying them only as "state secret-guarding departments." But it is  important to note that classification authority also extends to other government agencies. Article 11 states that "[s]tate organs and units at various levels shall, in accordance with the stipulations on the specific scopes and categories of state secrets, classify the state secrets arising in these organs and units." Thus, government officials at multiple levels, from the national government in Beijing to municipal authorities in the provinces, have both the responsibility and the authority to classify any particular piece of information as a state secret.

Chapter II also defines what types of information constitute state secrets. It declares that state secrets include all of the following:

  1. secrets concerning major policy decisions on state affairs;
  2. secrets in the building of national defense and in the activities of the armed forces;
  3. secrets in diplomatic activities and in activities related to foreign countries as well as secrets to be maintained as commitments to foreign countries;
  4. secrets in national economic and social development;
  5. secrets concerning science and technology;
  6. secrets concerning activities for safeguarding state security and the investigation of criminal offences; and
  7. other matters that are classified as state secrets by the state secret-guarding department.

The last category acts as a catchall. It essentially gives the state secrets bureaus and other Chinese government bodies complete authority to deem any piece of information a "state secret." As if that point were not already clear enough, article 15 adds the further clarification that the "categories of state secrets and the periods for guarding them shall be altered in the light of changing circumstances. Such alterations shall be decided on by the state organs or units that determined the categories of the secrets and the periods for guarding them or by superior departments." Thus, without limitation, the law empowers the government to expand the definition of state secrets in light of "changing circumstances," whatever that might mean.

Chapter III deals with the security rules. It provides basic guidance regarding the measures that must be taken to prevent state secrets from being divulged. The relative intensity of the security measures depend on the particular classification level of the information. If a document or other information has been deemed a state secret, it cannot be divulged in any form. Article 26 emphasizes that "no documents or any other material or objects classified as a state secret shall be carried, transmitted, posted or transported out of the country's territory" without the government's permission. Any divulging of the information—be it through email, cell phones, papers, regular mail, or in face-to-face conversation—is a violation of the law.

Chapter IV address the critical question of legal responsibility for violations of the state secrets law. It expressly provides that "[p]ersons who steal, spy on, buy or illegally provide state secrets for institutions, organizations and people outside the country shall be investigated for criminal responsibility in accordance with law." Article 31 further warns that even if the release of a state secret is unintentional, the accused may still incur criminal penalties "if the consequences [of the release] are serious." The law does not define "serious" or describe what kind of criminal penalties may be imposed for violations. However, defendants accused of violating the state secrets law have received punishments ranging from three years to life in prison. Long sentences have been imposed on American citizens as well as Chinese nationals.

Those accused of violating the law have virtually no chance of securing a verdict of not guilty. Prosecutors do not need to establish independent proof that the information is in fact a state secret; they simply need formal confirmation from a government official that, in the government's view, the information is a state secret. Moreover, during the court proceedings, there is no investigation or analysis of how or why the information was classified. The mere fact that the government claims that a document or information is a "state secret" is good enough for the court. In reality, therefore, the court proceedings are simply used to determine the level of punishment imposed, not to ascertain a defendant's guilt or innocence. For all practical purposes, the government's claim that a crime has occurred is tantamount to a conviction.

Application of the State Secrets Law to Discovery in American Cases
Every nation in the world seeks to protect its classified information from public disclosure. China's law is different from other countries' classification practices for two reasons. First, the state secrets law applies to virtually all information, regardless of whether the information has any connection to the Chinese government, military, or intelligence community. Indeed, the law expressly encompasses secrets related to "economic and social development" as well as to "science and technology." It also includes the catchall provision that any "other matters" may be classified as state secrets as well.

Second, the determination of whether a particular piece of information triggers the state secrets law is made solely by the Chinese government. There is no appeal from its decisions. If the state "secret-guarding department" or other government unit determines that a document falls within the scope of state secrets, the court will view the agency's conclusion as a proven fact, one beyond dispute.

The implications are enormous for American businesses with operations in China or working with suppliers in China. The extraordinarily broad scope of the state secrets law means that virtually any document in the possession of an American company in China, a Chinese affiliate of an American company, or a Chinese company that supplies products or component parts to an American company could be deemed a state secret by Chinese authorities. Moreover, the law covers information as well as documents. Thus, under the state secrets law, providing deposition testimony could constitute a criminal offense if the testimony involves economic, social, scientific, technological, or other "secrets," as determined by Chinese authorities. The fact that the information is the subject of a subpoena or court order in the United States has no bearing on the government's determination concerning a violation of the state secrets law.

Accordingly, the Chinese state secrets law empowers the Chinese government to punish employees of American companies in China who provide documents or testimony for litigation in American courts. For example, information about the manufacturing processes, testing, quality assurance, and performance of Chinese-manufactured goods—all typical fodder for discovery in American products liability litigation—could easily be deemed within the scope of the state secrets law, particularly if any government official has a vested interest in preventing the information's disclosure. Such officials could use the state secrets law to suppress the dissemination of information regarding manufacturing or other business operations within their jurisdiction. Moreover, if the information is revealed before they have the opportunity to suppress it, the officials can retroactively deem the information a "state secret" and prosecute the individuals who divulged it to foreign parties or foreign courts.

New Developments
The Chinese government has recently expanded the scope of the state secrets law. The State-owned Assets Supervision and Administration Commission (SASAC), a Chinese government body that manages state-owned enterprises, has announced that commercial secrets of state-owned enterprises fall within the scope of the state secrets law. At first blush, the announcement does not represent a major departure from past practice. In the past, Chinese authorities have repeatedly used the broad nature of the law to prosecute individuals for divulging commercial secrets that government officials deemed a threat to national security.

However, SASAC's announcement is important in that will affect future prosecutions. By expressly warning that commercial secrets are covered by the law, it signals to foreign companies operating in China that the rate and volume of prosecutions for commercial "violations" will increase in the future. That should be a cause for concern for every American company with Chinese operations.

Further, under an amendment that went into effect in October 2010, authorities may use the state secrets law to prosecute companies that facilitate the flow of information—both physical and electronic—out of China. In particular, the new amendment empowers prosecutors to bring criminal charges against employees of any Internet service provider that serves as the medium for the transfer of "state secrets" out of China. Equally troubling, the new law compels service providers to cooperate with Chinese authorities in investigating and identifying individuals allegedly involved in divulging state secrets.

Conclusion
For the foreseeable future, any company with business interests in China, or ties to China, must operate with extreme caution, not only in the regular course of business, but in litigation as well. While it is taken for granted in the American system that every stone can be turned, doing so with respect to information and documents that exist in China risks running afoul of the state secrets law.

Keywords: litigation, products liability, discovery, China State Secrets Law


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