Page 174 - DECO405_MANAGERIAL_ECONOMICS

Unit 10: Imperfect Competition – Monopoly

Notes

Case Study In Curbing Anti-Dumping, Chinese Companies Sued
for Monopoly in US.

n a closely watched case that could test the reach of U.S. antitrust law, four Chinese
companies face powerful evidence that they colluded to limit production and fix prices
Iof vitamin C in the United States. The evidence is so convincing, in fact, that the
defendants have not contested the allegations.
But they still have a potentially solid legal defense: the Chinese Government made them
do it. It's a position that has been bolstered by the Chinese government itself, which made
an official appearance in the case -- believed to be its first ever in a U.S. court -- to file briefs
in support of the defendants. After more than six years of litigation, a Brooklyn federal
judge is expected to decide soon whether the case can be decided without a trial.
The legal theory underpinning the defendants' argument is known as the foreign sovereign
compulsion doctrine, which protects foreign companies that were compelled by their
own government to break U.S. law. As Chinese companies increasingly become the target
of antitrust lawsuits in the United States, the doctrine is expected to undergo more legal
scrutiny. In addition to the vitamin C case, Chinese companies have raised the sovereign
compulsion defense in two other price-fixing cases.
The outcomes of those cases are not expected to have an immediate impact on U.S. trade
relations with China, the largest supplier of goods imported into the United States. As
China's economic power continues to grow, however, the disputes could be a sign of more
trade fights ahead.

Shanker Singham, a partner at Squire, Sanders & Dempsey and the chairman of the
International Roundtable on Trade and Competition Policy, said that a ruling for the
defendants would undermine global competition. "It would be a declaration of war on the
market system where business competition on the merits is the organizing economic
principle," Singham said.

Pact Limits Export Volumes
Until recently, Chinese companies have been known for low production costs that have
benefited consumers worldwide, and only in the last five years have they been accused of
coordinating production in an effort to raise prices. "The appearance of Chinese cartels
that are hiding behind the state is a disturbing trend," said John Connor, a professor at
Purdue University specializing in antitrust law enforcement.
Among the documents in the vitamin C case is a 2001 written production and price
agreement among the four Chinese manufacturers, which together controlled around 60
percent of the world's vitamin C market. The pact explicitly limited each company to a
specific volume for export. According to the plaintiffs, after the agreement was made, spot
prices for vitamin C shot to as high as $7 per kilogram in December 2002 from $2.50 per
kilogram in December 2001.
In an amicus brief filed in support of the defendants, China's Ministry of Commerce
argued that the vitamin C manufacturers were compelled by Chinese law to coordinate
their production and pricing. It also argued that a ruling against the manufactures would
"improperly penalize" them for "the sovereign acts of their government and would adversely
affect implementations of China's trade policy."
Contd...

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