Chinese Cartel Case May Strain U.S. Diplomacy

BROOKLYN, N.Y. (CN) ­­­­­­­­- Chinese manufacturers failed to dismiss an antitrust class action accusing them of running an illegal cartel that fixed prices and limited supplies for vitamin C exports.

Consumers say Hebei Welcome Pharmaceutical, Aland (Jiangsu) Nutraceutical, Northeast Pharmaceutical and Weisheng Pharmaceutical captured more than 60 percent of the worldwide market for vitamin C by November 2001.

Around this time, China's share of vitamin C imports to the United States rose from 60 percent in 1997 to more than 80 percent by 2002, while other countries' competitors discontinued or reduced production, court documents state.

The Chinese manufacturers do not deny the price-fixing allegations, but argued instead that their Ministry of Commerce mandated the practices.

"The three doctrines upon which defendants rely recognize that a foreign national should not be placed between the rock of its own local law and the hard place of U.S. law," U.S. District Judge Brian Cogan explained. "However, that concern is insufficient to protect defendants from their acknowledged violation of the antitrust laws because, here, there is no rock and no hard place. The Chinese law relied upon by defendants did not compel their illegal conduct."

In a 72-page order, Cogan said the ministry encouraged "self-discipline" with regard to price-fixing, not compulsion.

"In short, 'self-discipline' does not involve coercion - as the term 'self-discipline' suggests on its face, defendants were engaged in consensual cartelization," he wrote.

That finding contradicted the Chinese government's own statements submitted to the court in an amicus brief.

"Although defendants and the Chinese government argue to the contrary, the provisions of Chinese law before me do not support their position, which is also belied by the factual record," Cogan wrote. "I decline to defer to the Chinese government's statements to the court regarding Chinese law."

The judge refused to toss the case to avoid straining diplomatic relations.

"Although this case could affect foreign relations, these foreign policy concerns stem directly from the degree of conflict between Chinese and American laws and policies," the order states.

A footnote on the first page of the order says that there are two similar price-fixing suits pending against Chinese producers of magnesite and bauxite.

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