Global Economy: May 2009 Archives

By Jessica L. Weinstein | FOX news
May 28, 2009

Even if an American company goes to court and beats a Chinese manufacturer for providing faulty products, it's virtually impossible to get the overseas company to make good on its legal debt.

It was a David and Goliath battle from the beginning: a small American photo paper distributor suing the largest national photosensitive materials manufacturer in China. Only this time, David may come up short.

In 2006, California-based Royal Marketing Inc. made a deal to distribute photographic paper made by China Lucky Film Corp. It wasn't long before Royal Marketing's customers started to complain that the paper was junk, and the company's vice president, Farshid Ourian, learned it did not meet U.S. quality standards.

So Royal Marketing sued China Lucky for negligent misrepresentation, breach of warranty and breach of the implied covenant of good faith and fair dealing -- seeking an award of over $135 million.

In March, China Lucky got lucky. Royal Marketing won its lawsuit, but a California jury awarded it only $3 million. And, so far, that's $3 million more than China Lucky has paid.

Ourian's 27-year-old business is now on the ropes -- its reputation damaged, its staff shrunk from 26 employees to five.

Meanwhile, China Lucky, which is nearly 50 percent owned by the Chinese government, continues to thrive.

"These people have come here, totally ruined our company and get away with that? Where is the fairness in that?" Ourian asks.

And Royal Marketing is not alone. Even if an American company goes to court and beats a Chinese manufacturer, it's virtually impossible to get the overseas company to make good on its legal debt.

"It's a great accomplishment, but you're not even half-way there. You have a piece of paper, what's that worth? You've got to collect it," says Stephen Ching, an attorney who represents both American and Chinese companies in lawsuits.

Experts agree that the only path to success is to put a lien on a Chinese company's American assets -- "But if it's an exporter from China, without any presence in the U.S. beyond its exports, then it's harder to attach the lien to anything, therefore harder to collect," says Gary Hufbauer, a China expert at the Peterson Institute for International Economics.

"They feel and act untouchable," says Jeffrey Killino, a product-liability attorney who's filed lawsuits against Chinese manufacturers of defective toys, tires and pharmaceuticals.

"They will tell me in meetings to my face, 'Look, my client's in China. You can't collect this judgment anyway.' They know there's no treaty."

So after investing hundreds of thousands of dollars in legal fees, and after winning its case in California Superior Court, Royal Marketing is unlikely to see a dime of the $3 million it won in damages. What's more galling is that China Lucky can continue to do business here.

"There should be a mechanism to force companies who have a judgment against them to pay it before doing business in the U.S.," said Daniel Krishel, Royal Marketing's attorney. "What's wrong is that they're allowed to continue selling their products in the U.S."

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By Nick Zieminski | REUTERS | via UNCENSORED Yahoo! News
May 21, 2009

U.S. manufacturers and retailers that get products or components from China are increasingly concerned about quality, intellectual property and rising costs in China, and more are looking at alternate sites, according to a study published on Thursday.

Twenty-six percent said China contributes the most risk to their supply chain, up from 21 percent who said so three months ago, according to AMR Research Inc, a Boston-based market research firm. Other Asia-Pacific countries and the United States were seen as less risky in AMR's quarterly survey.

"The perception of risk has increased in China," said Kevin O'Marah, AMR's chief strategist.

The group works on supply chain issues with companies such as Boeing Co, Cisco Systems Inc, Intel Corp, Safeway Inc, Johnson & Johnson and Genzyme Corp.

More manufacturers are concerned about labor costs in China and 51 percent cited product quality as a risk, up from 45 percent in the first quarter. More of them are rethinking their China strategy, according to AMR.

O'Marah cited Samsung Electronics Co Ltd, sound systems maker Bose and Hewlett-Packard Co among companies favoring other Asian countries. German toymaker Steiff will shift production back to Germany and Portugal after outsourcing a fifth of it to China in 2003.

"People are rebalancing their portfolios," O'Marah said. "They will end up not looking at China as the be-all, end-all low-cost manufacturing location of the world."

CONCERNS OVER INTELLECTUAL PROPERTY

AMR's survey of 133 companies found 59 percent say China poses an intellectual property (IP) risk, compared with 8 percent who said so about India and 4 percent for Eastern and Central Europe.

A quarter said IP is a bigger risk than a year ago, reflecting the extent to which China has become an integral part of the supply chain. Where before Chinese factories merely assembled products, today they make them from scratch and have greater access to engineering and sourcing information.

As a result, auto, technology and drug companies cite IP as a growing risk, O'Marah said. Machinery makers such as Caterpillar Inc and Deere & Co are concerned about counterfeit parts. Such parts are also a "major issue" for aircraft makers, including Boeing.

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