This is a very interesting read…
The AEI Public Policy Blog reports a rather Kafkaesque affair..
An American court prioritizes China
A US federal court decision to throw out a price-fixing judgment against Chinese vitamin C makers may be on sound on highly technical legal grounds. But it definitely puts the US on weaker economic grounds. If the US legal system will not act, American policymakers must. Chinese firms breaking US law should not be allowed to participate in the American market.
The court’s argument is effectively that the companies involved cannot be held liable because they were required by the Chinese government to violate US law. The violations took the form of predatory pricing – undercutting competitors to drive them out of the market in order to then be able to charge monopoly prices and harm consumers.
While vitamin C hardly seems to warrant a strong policy response, it’s the tip of a very large iceberg. Elements of the Chinese government have over time directed firms in many industries to take economically (if perhaps not legally) similar steps as the vitamin C makers, examples ranging from rare earth elements in 2009 to low-end steel in 2016. These actions do not always help China, but they typically harm trade partners.
More important, they are a natural outgrowth of a long-term development model that guarantees widespread overproduction within China. The domestic oversupply makes predatory pricing in foreign markets appealing. Chinese firms in industries ranging from auto parts to zinc smelting are candidates for directives from Beijing that would undermine competition in the US. They also undermine competition in other markets, harming US firms seeking to do business overseas.
The court just insisted antitrust laws that protect American consumers may not be used in response. The message to Chinese companies is that ostensibly unlawful attempts to win monopoly status in the US are no-risk endeavors. It’s thus almost certain more will try, if not otherwise prevented. And, unless it is discouraged, the Chinese government will become more active in enabling them.
If firms are guilty of violating US antitrust law and cannot be subject to legal remedy, they and their subsidiaries should be banned as a matter of policy.
Heading them off is simple in principle. Chinese companies exist only at the sufferance of the Communist Party and cannot resist state edicts. The Party itself is not interested in law, American or Chinese.
The US, however, should be under no obligation to permit such state-directed companies to do business here, whether shipping underpriced goods or investing to establish operations to then seek monopoly. If firms are guilty of violating US antitrust law and cannot be subject to legal remedy, they and their subsidiaries should be banned as a matter of policy.
There are important practical questions to be faced: what documentation of anti-competitive behavior is sufficient, what agencies will be responsible, what punishments are suitable for specific, state-directed and anti-competitive actions? It is crucial to do all of this well in order to simultaneously reassure law-abiding foreign firms, since their trade and investment activities are beneficial.
But the idea that the Chinese Communist Party can order American markets be undermined and American consumers harmed, even if tenable in US court, is nothing short of insane as US policy. While it would be reassuring if the World Trade Organization could help prevent this, the US must not wait for or rely on any external body. Congress and the President should begin immediately to create the necessary tools to deter and, if necessary, punish this behavior.
