Chinese vitamin C makers off the hook for U.S. antitrust violations
October 19, 2016 | BY
Katherine JoFollowing a dismissal by a U.S. appeals court of a $147 million price-fixing judgment, Chinese lawyers say that the my-government-made-me-do-it antitrust defense may not work next time for PRC companies
Last month, a three-judge panel of the U.S. Court of Appeals for the Second Circuit vacated a $147 million lower court verdict and freed a Chinese pharmaceutical maker from U.S. antitrust liability for price-fixing on the basis of international comity.
While the decision might have been a disappointment to many in the United States, it was hailed in China as a victorious ending to a 12-year-long litigation marathon. State-run news agency Xinhua said, quoting a local legal official in the northern Hebei province, that the case could set an example for other Chinese exporters facing similar antitrust allegations in the U.S. And DeHeng Law Offices, the Beijing-based law firm that served as Chinese counsel for defendants-appellants Hebei Welcome Pharmaceutical Co. Ltd. and its parent, North China Pharmaceutical Group Corp., said in a statement that “this victory has the significance of a milestone to Chinese companies in their dealings with cross-border litigation.”
But that significance exists only in theory; in reality, the practical impact this case has on today's Chinese companies will be minimal.
“The chance of this kind of government-endorsed price-fixing behaviors happening again in the future is extremely small,” said Zhaofeng Zhou, a competition law partner at Beijing-based firm JS Partners. “Using that same argument to get out of antitrust liability in the U.S. is unlikely to succeed.”
The argument Zhou was referring to was Hebei Welcome's defense in this case. The company argued that it was complying with the Chinese government's requirements to coordinate with competitors the price and quantities of vitamin C sold abroad and should therefore be exempted from antitrust liability in the U.S.
Hebei Welcome was not lying. It was indeed pressured by the Chinese government agencies to control export prices, alongside three competitors. But it happened in a different time. In 2001, in order to avoid potential anti-dumping claims from the U.S. and the European Union against Chinese vitamin C makers, the China Chamber of Commerce for Import and Export of Medicines and Health Products (CCCMHPIE), one of the six quasi-governmental trade industry associations under China's Ministry of Commerce (MOFCOM), organized four Chinese pharmaceutical makers to coordinate an agreement on vitamin C price and export quantities.
But soon after that, the course of development changed in China's export sector: In 2004, three years after China's official accession to the World Trade Organization, MOFCOM decided that Chinese exporters no longer needed the approval from industry associations such as the CCCMHPIE to ship products abroad. Four years later in 2008, the kind of price-fixing and quantity control organized by industry associations were entirely outlawed.
Also in 2008, China's own PRC Anti-monopoly Law, which prohibits price-fixing, came into effect. That, according to Zhou, is the most important factor to keep in mind while assessing the “success” of Hebei Welcome's case. “Now that we have an Anti-monopoly Law, nobody dares to do that again,” he said. “If this [price-fixing] happens in China today, companies will be fined by the Chinese regulators regardless of whether they were coerced by the government or not.”
As for the import and export industry associations, they still exist directly under MOFCOM, which, as one of China's three antitrust regulators, has ramped up enforcement activities in recent years. Zhou said it's unlikely these associations will direct companies to conduct illegal behaviors now, since all six of them have had antitrust training, organized by MOFCOM.
By Anna Zhang, The Asian Lawyer
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