Bloomberg News

Ex-China Official Says Firms Forced to Fix Vitamin Prices

March 05, 2013

Ex-Chinese Official Testifies Firms Forced to Fix Vitamin Prices

U.S. bulk vitamin C buyers alleged the Chinese companies acted voluntarily, abusing their dominance over the global market from at least late 2001 through mid-2006. Photographer: Joe Raedle/Getty Images

A former Chinese official testifying for vitamin C exporters sued by U.S. companies said they had no choice but to follow China’s rules and thus can’t be blamed for price-fixing in the $500 million market.

Qiao Haili, a retired Ministry of Commerce official who oversaw the vitamin C companies, testified yesterday in federal court in Brooklyn, New York. A key witness for the defense, he told jurors vitamin C makers were required by the Chinese government to adhere to agreed-upon pricing and volume restrictions.

Hong Kong-based China Pharmaceutical Group Ltd. (1093), its Weisheng Pharmaceutical unit, North China Pharmaceutical (600812) Co., and its Hebei, China-based unit Hebei Welcome Pharmaceutical Co. are accused of fixing prices for bulk vitamin C sold in the U.S.

Speaking through a translator, Qiao testified that the agency where he worked would “convene meetings, discuss export pricing and prevent malicious competition in order to protect the healthy development” of vitamin C manufacturers in China.

Qiao told jurors that he instructed the defendants to form a subcommittee for the purpose of conducting the industry coordination of vitamin C exports.

‘Strictly Implement’

“Defendants were required to strictly implement industry coordination measures under the chamber’s supervision, with penalties imposed for any attempts at circumvention,” lawyers for the defendants said in court documents.

Animal Science Products Inc., a livestock-supplement firm based in Nacogdoches, Texas, and Ranis Co., a food company based in Elizabeth, New Jersey, filed complaints in 2005 accusing the Chinese companies of conspiring to inflate prices for bulk vitamin C.

U.S. bulk vitamin C buyers alleged the Chinese companies acted voluntarily, abusing their dominance over the global market from at least late 2001 through mid-2006.

Together, the firms supplied about 80 percent of the vitamin C in the U.S., William Isaacson, a lawyer for the plaintiffs, said in his opening statement last month. Prices rose to as much as $15 a kilogram ($6.82 a pound) in April 2003 from about $2.50 a kilogram in December 2001 as a result of the alleged conspiracy, the plaintiffs said. The scheme cost U.S. businesses $54.1 million in damages, Isaacson said.

State Action

Initially, Aland Jiangsu Nutraceutical Co. and Shenyang, China-based Northeast Pharmaceutical Group (000597) Co. were also accused of participating in the scheme. Those companies settled with plaintiffs before the trial.

State action isn’t an unusual defense in antitrust cases targeting foreign companies, said Jeffrey S. Jacobovitz, an antitrust lawyer at Arnall Golden Gregory LLP who isn’t involved in the case.

However, when the foreign government is accused of direct involvement, “it changes the nature of the litigation,” he said in a phone interview. “The political overtones are important to the extent that the government probably will not be pleased to be accused of facilitating antitrust violation.”

Qiao’s testimony marks the first time a former Chinese official has testified in a U.S. court, according to lawyers in the case.

Qiao formerly served in the Ministry of Commerce as an official at the China Chamber of Commerce of Medicines and Health Products Importers & Exporters and specifically oversaw vitamin C export regulation, according to court papers.

Export Regulator

Prior to his career as a vitamin C export regulator, Qiao spent 21 years in the Chinese army and received a college degree in Chinese literature, according to the papers.

He joined China’s commerce ministry, formerly the Ministry of Foreign Trade and Economic Cooperation, in 1992 and retired in 2011, according to court filings.

U.S. District Judge Brian M. Cogan allowed Qiao to take the stand, setting aside plaintiffs’ objections that, according to a brief filed in November, he would exceed “the bounds of proper lay witness testimony” by describing Chinese legal matters.

In a September 2011 ruling, Cogan found that the Chinese government didn’t necessarily compel price-fixing by the companies after policy changes in 2002. Around that time, China told the U.S. and the World Trade Organization that it had given up export administration of the nutrient, according to Cogan’s order.

‘Self-Disciplinary’ Organization

A new charter in 2002 described the subcommittee as “a self-disciplinary industry organization jointly established on a voluntary basis,” according to the ruling.

Cogan noted in his order that he disagreed with an interpretation of Chinese law submitted to the court by the ministry, which said in a 2009 filing that vitamin C makers were subject to a “system of self-discipline.”

“Self-discipline does not mean complete voluntariness or self-conduct,” the Ministry said in the filing. “Under this regulatory system, the parties involved consult with each other to reach consensus on coordinated activities for the purpose of reaching the objectives and serving the interest as set forth under Chinese laws and policies.”

The case is In re Vitamin C Antitrust Litigation, 1:06- md-01738, U.S. District Court, Eastern District of New York (Brooklyn).

To contact the reporter on this story: Christie Smythe in Brooklyn at csmythe1@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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