This is a U.S. Supreme Court decision in the ‘Chinese Vitamins case’ (Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd, 585 U. S. [to be determined] (2018), available here).
As to the facts of the case, in 2005 Animal Science sued Hebei Welcome. Animal Science manufactures livestock supplements, in which it uses Vitamin C. It alleged that Hebei and other Chinese manufacturers had fixed the prices of the Vitamin C that they sold to the United States. The Chinese sellers moved to dismiss the complaint on the ground that Chinese law required them to fix the price and quantity of vitamin C exports, thus shielding them from liability under U. S. antitrust law by the act of state doctrine, the foreign sovereign compulsion doctrine, and under principles of international comity.
The Ministry of Commerce of the People’s Republic of China (the ‘Ministry’) filed an amicus brief explaining that it is the administrative authority authorized to regulate foreign trade, and that the alleged cartel was actually a pricing regime mandated by the Chinese Government. Animal Science countered that the Ministry had identified no law or regulation ordering the Chinese sellers’ price agreement. Animal Science also highlighted a publication announcing that the Chinese sellers had agreed to control the quantity and rate of exports without government intervention, and presented supporting expert testimony.
The first-instance District Court did not regard the Ministry’s statements as “conclusive,” particularly in light of the U. S. purchasers’ evidence. The case was then tried to a jury, which returned a verdict for the U. S. purchasers – including a conclusion that the Chinese sellers were not “actually compelled” by China to enter into the cartel.
On appeal, the U.S. Court of Appeals for the 2nd Circuit ruled that the claim should be thrown out. It explained that U.S. courts should defer to evidence provided by the Chinese government indicating that Chinese law required Hebei Welcome and the other defendants to agree on their prices and quantities. Such deference, the court emphasized, is appropriate whenever a foreign government, as here, “directly participates” in a case in U.S. courts by offering sworn evidence about “the construction and effect of its laws and regulations” and that evidence is “reasonable under the circumstances presented.”
On appeal, the Supreme Court unanimously held that a U.S. court does not need to take at face value a foreign government’s word about how that country’s laws operate. Instead, although courts should “carefully consider” what a foreign government says about its own laws, they are not bound by those views; they can also take into account other materials that might shed light on what the foreign law at issue means.
Under Federal Rule of Civil Procedure 44.1, foreign law “must be treated as a ruling on a question of law”. This means that courts are not limited to materials submitted by the parties, but “may consider any relevant material or source.” A court should carefully consider a foreign state’s views about the meaning of its own laws. The appropriate weight in each case, however, will depend upon the circumstances; a federal court is neither bound to adopt the foreign government’s characterisation nor required to ignore other relevant materials. No single formula or rule will fit all cases. Relevant considerations include the foreign government statement’s clarity, thoroughness, and support; its context and purpose; the transparency of the foreign legal system; the role and authority of the entity or official offering the statement; and the statement’s consistency with the foreign government’s past positions. This approach seems to be in line with international practice.
Comment: A number of countries have adopted export-based development models which rely on private companies entering foreign markets. The catch is that such companies are, in reality, subject to extensive levels of state control. The advantage of the companies presenting themselves as privately-owned is that they allow for the avoidance of a number of constraints that would apply to publicly-owned enterprises (e.g. WTO-rules – in this case, the Chinese Vitamin C market was subject to a WTO investigation in which the Chinese government said it had abandoned export controls, including promoting the export cartel, which seems to contradict its statement to the US courts –, or enhanced domestic scrutiny). At the same time, as this case demonstrates, the control structure can also be used to avoid a number of regulatory controls that are normally imposed on private companies, such as antitrust rules.
As these countries’ economies grow, and the extent of their activities across the world increase, one would expect the number of cases dealing with the correct treatment of such companies under competition law to increase. While this case is, on its face, merely an important decision regarding the impact of foreign statements on the resolution of competition cases, underlying it is the question of how to deal with these types of ‘state-controlled but privately-owned’ companies. I would not be surprised to see similar cases pop up in the future