China Law Blog

Great article and analysis.

What do you make of the news that some of the melamine suits are being allowed to go forward?

You can not expect that a food safety law can resolve all the problems. Rome is not built in one day. This is just the beginning. It is better than nothing. You shall not judge Chinese legislation with American standards. We are just a baby of several years old trying to solve problems by law-making.

This was a horrible article that misrepresents what actually the Chinese government actually did.

In the melamine cases, the government set up a comprehensive settlement between the injured parties and the dairy association which they recovered money from the dairy companies. Persons that were directly responsible for the cover up were then given criminal sanctions.

It was simply not the case that the government thrown the melamine cases out of hand. The courts suspended the cases while the government attempted to create a general settlement between the victims and the dairy industry. Once the settlement was reached, victims now have the option of taking the settlement, or if they are not satisfied with it, continuing with court cases. This seems to be a perfectly reasonable way of handling the situation.

People that were injured can take the settlement or if they aren't satisfied with the settlement they can file their own court cases. The court cases that were filed last year were put on hold temporarily until a settlement could be worked out which the families could accept or reject.

Trying to setting things via private lawsuits only seems to me not to work that well in practice to enforce food safety because:

1) it's enormously inefficient and a lot of the funds go to legal fees rather than compensation

2) it creates a lottery in which if you are lucky and have good legal representation you get large sums of money, at the expense of people that aren't as lucky

3) it really doesn't create good incentives. Why should a CEO care of their company goes bankrupt, and what happens to the claims if in fact that company does go bankrupt? If you have a claim against a company, the last thing that you want to have happen is for the company to go bankrupt.

As far as Beijing's supposed incompetence in creating a new agency, the article completely misses the point. If you want budgets and employees, you need an agency or commission with full time staff to fight for budgets and employees and the new Food Safety Law does exactly that.

There are no standards, regulation, timetables, and budgets because you simply cannot put these things in authorizing legislation and if you put this in legislation you end up with micromanagement. There are no standards, regulations, timetables, and budgets in the Food Safety Law for the same reason that these things aren't in the Pure Food and Drug Act.

What you put in legislation is an institutional framework and staff to work on the details, and the reason this time is likely to be different is that previous efforts divided the issue of food safety among five different agencies and when you divide something amount different agencies, it doesn't get done. The main point of this law is to centralize things in something like the Food and Drug Administration.

The reason I think this might work is that the same thing has been tried and succeeded with financial regulation. Once you centralize things in a clear agency with clear duties, powers and accountability, things happen.

Finally, the entire tone is wrong. We are no longer in an era in which the United States can lecture to China assuming that the way that the US does things is automatically correct and the way that China does things is automatically wrong. One would assume from the article that the US has a perfect system of food regulation, which from the Georgia peanut butter scandal, it obviously doesn't.

Congratulations; one of the best articles I've read in a long time.

TwoFish,

You are wrong on the following counts.

1. The Chinese government refused to hear any of the Sanlu cases for months and months and thereby effectively forced at least 95% of the injured families to take the government payment. Now, the government is talking of allowing lawsuits for the remaining 5%. There was virtually no free choice here.

2. You are right that this law itself would not contain regulations, but you are ignoring that China's new thing is to issue laws with regulations pending that never come. Want to bet there will be no regulations in three, six or ten months?

3. Nobody ever said the US way is the only way or even the right way for food safety.

Reply to Twofish: “Finally, the entire tone is wrong. We are no longer in an era in which the United States can lecture to China assuming that the way that the US does things is automatically correct and the way that China does things is automatically wrong. One would assume from the article that the US has a perfect system of food regulation, which from the Georgia peanut butter scandal, it obviously doesn't.”

You have an unerring ability consistently to miss the point. I’m sure that Mr. Dickinson does not presume to speak for “the United States;” where does he even imply that “the way that the US does things is automatically correct?”; no one in his right mind “would assume from this article that the US has a perfect system of food regulation.”

Nice article.

I haven't finished reading the entire law, but have a couple preliminary comments:

Overall, the law seems more centered around "food safety standards" rather than "food safety." For instance, recalls are triggered by food which does not meet "food safety standards." This is a change from the earlier draft of the law, which made "unsafe food" the trigger for recalls.

As Steve mentions in his editorial, creating a new "food safety standard" for every food product and food additive is going to take some time. That process alone is going to slow down enforcement.

This system of having a unique "food safety standard" for each type of food is different from the systems used in the US, the EU, Australia, and Japan. While some of those nations have food-specific quality standards, they all base recalls around food safety and threats to human health, rather than compliance with a government standard.

With respect to litigation, the earlier draft of this law gave consumers the right to sue for damage to health or property resulting from food safety problems. The new law contains no such provision.

@twofish: the new law definitely contains at least a few articles that could be considered "micromanagement." For instance, it makes mandatory changes to the labeling requirements for pre-packaged foods. Previously, labeling requirements for pre-packaged food were governed by a regulatory standard （国标), rather than a national law. I don't know whether these labeling changes will present problems for manufacturers, since the law is scheduled to take effect June 1, less than 3 months from now, and there does not appear to be any grace period.

shenlawyer: You shall not judge Chinese legislation with American standards. We are just a baby of several years old trying to solve problems by law-making.

I disagree that you shouldn't judge Chinese legislation by American standards. China should try to have the highest standards in government and law.

The problem is that people don't recognize that sometimes when you judge Chinese law by American standards, Chinese law sometimes comes out looking good. This can happen especially because things change very quickly. Ten years ago Chinese financial regulation was a mess. Today, I would argue that China has a better financial regulation system than the United States does.

Same with food safety. In 2008, China's food safety system was clearly inferior to that of the United States, but it's very possible that by 2018 or even 2011, China comes up with a better system. I don't object to people using high standards to judge the Chinese system, there are things that other countries just do better than China.

What I do object to is the idea that the "US is always better" when it is clear to the world that in some areas (witness the Sichuan earthquake response to Katrina) it isn't.

In the case of the melanine scandal, there were major holes and deficiencies in China's food safety system. However, the government response to the scandal is something that I think was actually quite good, and there has been a lot of misrepresentation of what was actually going on, and a lot of that misrepresentation has to do with the idea that if China does something different, then it must obvious be inferior.

One major problem with private lawsuits to enforce consumer safety is that these claims can take years to settle, and you can only make a claim when someone get hurt, whereas I think it would be better for everyone if you have a system that *prevents* injury in the first place.

Taking years to settle a claim gives large corporations an incentive to stonewall. You can compensate by allowing for huge punitive damages, but that causes its own problems in that it turns the legal system into a lottery. Also most product liability suits in the United States are settled out of court with a non-disclosure agreement, which is very bad because it means that there is an strong incentive to "pay and cover up."

While the scandal itself was awful, the government's eventual response of suspending lawsuits until there was a general settlement on the table was quite rational, using criminal law to go after the main culprits (which is something that the US hasn't done but should), and then creating an administrative framework to keep it from happening again.

Also, like any piece of legislation, the food safety law took a huge amount of time to put together. It might work. It might not. If it doesn't work, we figure out why it doesn't and try again.

However, the general argument used that government administrative action is useless and that everyone would be better off if gave up and used a system based solely on private liability is not a useful or valid argument.

The big problem is that I have with that argument is that people were saying exactly the same thing about banking two years ago. It's basically an ideological argument "government regulation BAD, private property and markets GOOD" that I think has been discredited over the last few months.

Dan: The Chinese government refused to hear any of the Sanlu cases for months and months and thereby effectively forced at least 95% of the injured families to take the government payment. Now, the government is talking of allowing lawsuits for the remaining 5%. There was virtually no free choice here.

The government refused to hear any of the Sanlu cases for months and months until there was a general settlement. Private litigation on food related issue can take years, so delaying the court cases until there is a settlement seems to be quite an efficient way of dealing with the situation.

At this point families can choose to take the settlement or opt out of the settlement and bring the issue to court. If you can't wait several months to resolve a legal issue, then you weren't going to get anything substantial from the courts anyway.

Part of the reason that I think it is a rational way of doing things is that it worked very well for the 9/11 cases, where the US government stepped in and arranged for a settlement among most of the parties. Without these sorts of mass settlements, cases can linger for years.

Dan: You are right that this law itself would not contain regulations, but you are ignoring that China's new thing is to issue laws with regulations pending that never come. Want to bet there will be no regulations in three, six or ten months?

If you set up a regulator and staff, it is in their interest to start issuing regulations. It may be that nothing will happen, but there are lots of cases in financial regulation where they set up a new regulator, and stuff does happen. Then you get into the messy problem of enforcement.

If nothing happens after six months, we can scream at the government then, but I think its unwarranted to assume that things are "dead on arrival."

Dan: Nobody ever said the US way is the only way or even the right way for food safety.

But the article proposes a system of private food regulation that as far as I know has never worked in the US or anywhere else, and there is no particular reason to think that it will work in China. The only argument that I've ever really heard in favor of this sort of system is "that's the way the US does it" which poses a problem since that isn't how the US does it.

Qingdao: I’m sure that Mr. Dickinson does not presume to speak for “the United States;” where does he even imply that “the way that the US does things is automatically correct?”

The solutions Mr. Dickinson are based on a neo-liberal market based system which was very much in vogue in the United States until a few months ago. One problem with this model is that it is based on a idealized version of how the courts, law, markets, economics, and politics works in the United States rather than how it actually does work.

If you take a major US corporation to court, you are not going to see a resolution for years. Even discovery in any non-trivial case is going to take about a year. What invariably happens is that the court case provides a framework for a private settlement either through negotiation or sometimes through arbitration.

However, until late 2008, you could and did promote these sorts of market based solutions based on the idea that this is how things work in the United States, which is obviously better than how they work in China.

The thing about this argument is that there is a kernel of truth in the argument. Food safety in the US *does* work better than in China, and China *should* study how food regulation works in the US, because in general it does work better than in China. And this fact *does* give people familiar with US law and food safety regulations some authority to suggest things to China.

However, what happened over the last decade was that this moral authority was used to promote neo-liberal ideas and solutions which are quite different from how things actually work in the United States. If you remove farmers and replace them with banks, you get an article that I've seen many times before.

But what you do see about food safety in the United States is that it is mostly involves administrative enforcement and judicial product liability is secondary.

But if it is the case, that Mr. Dickinson wasn't thinking about how things work in the US, then I don't see any sort of reason to think that the system that Mr. Dickinson proposes will work at all.

The topic of how to handle complex claims involving possibly millions of plaintiffs and thousands of defendants is a fascinating area of law, and it is particularly interesting because different countries do things differently.

In the United States these things are handled by a class action lawsuit. Civil law nations tend to dislike class action lawsuits because civil law nations see the rule of the courts as to render judgment in specific cases, and having a situation when a large number of defendants or plaintiffs are included in a lawsuit without them knowing about it doesn't fit very well in this system.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1296843

What some European countries do is to allow specific associations to serve as representatives of either the plaintiffs or defendants. One interesting example which is very similar to the Chinese system is that of Finland in which a class action can only be brought by a consumer ombudsman.

In short ever country does things differently, and looking at the final settlement that came out, I don't think that the substance of the settlement is much worse than what would have happened if you had a similar case in the US using a class action mechanism.

The arguments I have heard against the way that this situation was handled legally have been process based. The Chinese government did X, did not do Z, and therefore it must be bad. What that implies is that the Chinese government must do X, Y, and Z to have a fair and just settlement and given the different ways that mass actions are handled across the world, and given that mass action law is extremely controversial within countries, I'm inclined to discount process-based critiques.

Re: Why should a CEO care of their company goes bankrupt, and what happens to the claims if in fact that company does go bankrupt?

--> Two good reasons to care:

(1) The legal representative and directors of a limited company can sometimes be held personally liable for the debts of a bankrupt company.

(2)In certain circumstances, they can be held criminally liable for bankrupting a company.

Re: If you have a claim against a company, the last thing that you want to have happen is for the company to go bankrupt.

--> Questions: Since Chinese companies tend to be less leveraged than their western counterparts, does this type of claim stand a chance of being satisfied by the liquidation proceeds? I understand that Sanlu Group's assets were sold at auction for RMB 615 million.

Execution does not mean anything about the food safety system, they need to reform their food safety regulations.