Trump’s Trade War Extends To…The Supreme Court?

It is not often the case that issues regarding foreign policy make their way into the Supreme Court, but this past week one of the most pressing topics involving foreign affairs did just that, as an aspect of China’s trade practices took center stage in one of the Court’s final determinations of this term.

The day before the Chinese Commerce Ministry (The Ministry) accused the White House of launching a “trade war” against China, it lost an economic battle at the Supreme Court.

Formally known as Animal Science Products, et al. v. HeBei Welcome Pharmaceutical, et al., the lawsuit did not involve the Chinese government as a direct party to the case, but the legal matter did implicate multiple Chinese corporations that manufacture and export vitamin C to America. These companies (whose names were consolidated and listed under HeBei Welcome Pharmaceutical et al.), were subjected to a lawsuit by US companies which purchase their nutrient over the issue of alleged anti-trust law violations.

The US companies argued that the Chinese manufacturers were violating American laws by fixing the prices and quantities of their exports, but the vitamin suppliers filed a motion to dismiss these claims on the grounds that their practices were a result of China’s legal requirements and thereby not subject to America’s anti-trust rules. To bolster the Chinese suppliers’ claims, The Ministry actually filed a brief in support of the motion to dismiss which claimed that the alleged misconduct was in reality a pricing scheme that was mandated by China’s government.

According to The Ministry’s brief, the entire lawsuit was really nothing more than a misunderstanding and a misplaced frustration on behalf of the American vitamin purchasers. With this court filing, the Chinese manufacturers had a significant chance of succeeding in their motion to dismiss.

However, one problem arose while the District Court was assessing the manufacturers’ motion. There was no evidence that could conclusively prove the claims that The Ministry was making in its court filing. In fact, most of the evidence that was presented at this point in the proceedings directly contradicted these claims.

The US companies involved in the case pointed out some major holes in the Chinese manufacturers’ most critical, government backed, defense. They cited the fact that The Ministry’s brief did not clearly point out a definitive law or regulation mandating the Chinese sellers’ export agreement, and they drew attention to a publication which actually announced that the Chinese companies’ pricing strategy was made without the government’s compulsion.

In light of all of this evidence, and supplementary expert testimony, the District Court rejected the motion for dismissal. In response, the Ministry again submitted a brief in support of the Chinese companies’ defense as the case subsequently proceeded to trial. After the District Court was presented with even more evidence that The Ministry’s claims were inaccurate (apparently China publicly informed the World Trade Organization sixteen years ago that it ended its export oversight of vitamin C), the case went to a jury which ruled against the Chinese manufacturers.

Surprisingly, the US Court of Appeals for the Second Circuit later reversed this District Court ruling, not because the evidence that persuaded the jury was wrong, but because the lower court inappropriately rejected the Chinese companies’ motion to dismiss the case in the first place. According to the Second Circuit, “when a foreign government whose law is in contention submits an official statement on the meaning and interpretation of its domestic law, federal courts are ‘bound to defer’ to the foreign government’s construction of its own law, whenever that construction is ‘reasonable.’” In solely evaluating The Ministry’s brief, the Second Circuit found its claims to be reasonable and the lower court’s actions to be irresponsible.

Several questions and points of confusion then arose. Are federal courts bound to the “reasonable” interpretations that other country’s provide for their laws as the Second Circuit suggested? Was the Ministry’s interpretation truly “reasonable” in light of all of the evidence that was presented to the District Court?

Here the Supreme Court stepped in, and it did so unanimously.

While technical, the Court’s final opinion was concise: when a foreign government submits clarifying statements regarding its laws for consideration in an American lawsuit, the federal court involved in the proceedings must show “respectful consideration” to such statements but not “conclusive” deference under Federal Rule of Civil Procedure 44.1.

The Court wrote the the following in its very direct holding of the case:

A federal court should carefully consider a foreign state’s views about the meaning of its own laws. The appropriate weight in each case, however, will depend upon the circumstances; a federal court is neither bound to adopt the foreign government’s characterization nor required to ignore other relevant materials. No single formula or rule will fit all cases, but relevant considerations include the statement’s clarity, thoroughness, and support; its context and purpose; the transparency of the foreign legal system; the role and authority of the entity or official offering the statement; and the statement’s consistency with the foreign government’s past positions.

In light of this view, the Supreme Court sent the case back down to the lower courts for it to be re-argued in accordance with this proper understanding of how to evaluate The Ministry’s statements.

Obviously this case does not directly involve the “trade war” that President Trump has initiated in the eyes of the Chinese government, but do not be fooled by the indirect implications of the Court’s unanimous decision.

China’s Ministry of Commerce would not have repeatedly filed briefs in defense of these exporting companies, briefs riddled with glaring problems, if leaders in the Chinese government did not have a vested interest in maintaining the status quo of this small, but to some extent evidently important, vitamin trade. With this Supreme Court decision, the Chinese manufacturers involved in the case will most likely be required by American courts to end their damaging economic collusion (as they were at first ordered to by the initial District Court ruling), and everyone ought to believe that this lost legal battle will be noted by the warring economic advisors of both China and America.

***

JG

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