US ruling on vitamin C price fixing case could exacerbate trade tensions with China

In the unanimous ruling, the court sent the case back to appeals court. The decision, written by Judge Ruth Bader Ginzburg, said that the lower court had shown too much deference to the Chinese government when it ruled that the Chinese vitamin C makers were merely complying with their country’s own laws on the pricing of exports when they colluded to fix the price of this widely used and traded commodity.

Case is more than a decade old

A civil court judge had originally settled the case, first filed in 2005, in favor of the plaintiffs, two US companies, one of which, Animal Sciences Inc., is still in business. That ruling mandated that the defendants, Hebei Welcome Pharmaceutical Co. and an affiliated company, North China Pharmaceutical Group​​ Corp., pay out $148 million in fines and damages.

Thursday’s ruling means that the case goes back to the Second Circuit Federal Appeals Court for review where the judgement could be reinstated. It does not close the door on the use of principles of ‘international comity’ (basically the notion of countries respecting each others’ laws) in deciding such cases, however.

Ginzburg’s opinion stated US courts, “[S]hould accord respectful consideration to a foreign government’s submission, but the court is not bound to accord conclusive effect to the foreign government’s statements.”​

In the meantime, the vitamin C market will continue along as it has for the past decade or more.

After the successful collusion on pricing (something the Chinese companies did not deny), the cost of vitamin C more than tripled, but has remained more or less stable at the higher level. As this ingredient is added to tens of thousands of finished product SKUs worldwide every year, the market seems to have adapted, according to Scott Steinford, principal in the consulting firm Trust Transparency Center and CEO of both the International CoQ10 Association and the Natural Algae Astaxanthin Association (NAXA).

Both organizations have Chinese companies as members, and Steinford himself has had extensive experience in the trade of ingredients coming from China as former CEO of finished goods brand Doctor’s Best.

Ruling further complicates trade picture

The ruling comes at a delicate time in US-China relations.On Friday morning the Trump Administration announced plans to move forward in placing new tariffs on $50 billion of Chinese products.

The list of affected products announced by the office of the United States Trade Representative applied mostly to industrial materials, machinery, electronic devices and so forth. But Steinford said the tensions could play out in unexpected directions, and aren’t limited to the items on the list.

“The decision comes at a time when Chinese and US trade relations are most strained. Both the Senate and the House are seeking to reimpose sanctions on Chinese telecommunications giant ZTE for illegally selling products to Iran and North Korea. Chinese President Xi Jinping personally intervened to influence the removal of the enforcement actions requesting reinstatement of the ability for ZTE to resume sales to US companies and the US government,” ​Steinford said.

“Chinese officials have stated their displeasure with the actions and rhetoric of US officials. China’s commerce ministry has called the actions by the US government and Supreme Court ‘hostile and disrespectful.’ Sentiment expressed by Chinese suppliers is also reflecting disdain and disappointment in the state of trade relations between the two countries,”​ he added.

Consumers to pay the price

Steinford said if the trade war escalates to include tariffs on many common dietary ingredients, consumers will be the ultimate losers. For many ingredients (such as vitamin C), there is no US alternative.

US made dietary supplements are popular in China, but many are made with ingredients that were either manufactured in China or traded through there, so Chinese consumers could ultimately end up paying more, too, he said.

“The current tensions between the United States and China will likely negatively impact the nutritional supplement consumer. The extent of the impact remains to be seen but the path towards impact is becoming increasingly clear with each passing day of stressful rhetoric,”​ Steinford said.