Chinese Government's Interpretation of Chinese Law Rejected by District Court in Vitamin C Antitrust Case
Yamuna Bhaskaran | Bloomberg Law
Defendants were members of the Vitamin C Subcommittee (Subcommittee) of the Chinese government’s Chamber of Commerce of Medicines and Health Products Importers and Exporters (Chamber). By 2002, defendants controlled over 80 percent of the vitamin C imports into the United States. Defendants were sued in the U.S. District Court for the Eastern District of New York under Section 1 of the Sherman Act and Sections 4 and 16 of the Clayton Act for allegedly forming a cartel that illegally fixed prices and limited supply for exports. Following discovery, defendants moved for summary judgment on the basis of foreign sovereign compulsion, act of state, and international comity.
Federal Rule of Civil Procedure 44.1 provides that the determination of a foreign country’s law is a question of law and that a court may consider “any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence.” Although a government’s statements regarding its own laws were once considered conclusive, there has been a recent trend away from that position. For example, in Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70, 92 (2d Cir. 2002), the Second Circuit observed that “a foreign sovereign’s views regarding its own laws merit—although they do not command—some degree of deference.”
To establish Chinese law, defendants relied on an amicus brief submitted by the Ministry of Commerce of the People’s Republic of China (Ministry), as well as testimony from Professor Shen Sibao, an expert on Chinese law. Plaintiffs did not have a Chinese law expert and relied instead on Ministry directives, Chamber documents, and public statements made by the Chinese government to both the World Trade Organization and the U.S. government.
Describing Karaha Bodas as “the law of the Circuit,” the Court not only refused to treat the Ministry’s interpretation of Chinese law as conclusive, but also declined to defer to its interpretation, relying instead on “more traditional sources of foreign law” such as government directives and the Subcommittee’s and Chamber’s charter documents. The Court found numerous discrepancies between the Chinese government’s representations about the sources of supposed “compulsion” and the factual record, concluding that the “Ministry’s assertion of compulsion [was] a post-hoc attempt to shield defendants’ conduct from antitrust scrutiny rather than a complete and straightforward explanation of Chinese law.”
According to the Court, “the Chinese law and regulatory scheme [at issue] is something of a departure from the concept of ‘law’ as we know it in this country.” For instance, defendants were accorded “wide, and possibly unbounded, discretion in setting the price and output levels.” Notwithstanding the Chinese government’s representations to the contrary, the record showed that defendants had the ability to change or suspend some of the government requirements without penalty. In addition, at one point, membership in the Subcommittee was no longer required to legally export vitamin C from China, and defendants could have therefore avoided joining the cartel.
The Chinese government’s regime actually created a favorable environment for defendants, thereby casting doubt on the claim that defendants’ actions were “compelled.” The Court could not “ignore the obvious fact that a compulsory regime is unlikely to be present where the defendants’ economic interest is in accordance with the allegedly compelled conduct.” Refusing to accept defendants’ argument that they were “compelled” to follow the very regulations that they had a hand in making and enforcing, the Court denied defendants’ motion for summary judgment.
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