February 7, 2008 in City

Chinese imports keep coming, despite lawsuits

Jeffrey Gold Associated Press
The Spokesman-Review photo

Steve McElvain works on a push scooter at Patmont Motor Werks in Minden, Nev.
(Full-size photo)

NEWARK, N.J. – When an American scooter maker lost patience with cheaper Chinese-made models flooding the United States market, it got some attention by filing an antitrust lawsuit.

Patmont Motor Werks Inc. accused the Chinese government and companies there of making it impossible for the Minden, Nev.-based company to sell its products to Chinese. One aim of the lawsuit was to open China’s doors to American-made products.

That improbable goal is now in ashes, when Patmont’s lawyers couldn’t even track down the companies they were suing to serve them court papers.

An increasing number of companies and individuals are likely to face similar frustration. The flood of Chinese imports has triggered a growing number of lawsuits, but individuals and companies often find it impossible to win damages or other legal redress, especially for lawsuits filed overseas. Foreign companies are also filing lawsuits in Chinese courts, and occasionally winning, against local companies caught violating trademarks, copyrights and patents.

The legal obstacles are unlikely to be removed soon, although China has pledged to curb its mounting trade surpluses with the U.S. and has carried out a nationwide campaign to improve product quality and safety.

Within a decade, however, China is likely to conform more closely to international legal standards, said Gary Hufbauer, a China expert at the Peterson Institute for International Economics, a Washington think tank.

“The drift is clearly toward a normalized situation,” he said.

Current obstacles arise because the targets of lawsuits are often companies that are partly owned by the Chinese government or army, or are allied with provincial governors, said Hufbauer. As a result, their clout can outweigh efforts by the trade ministry to adhere to international agreements, he said.

In addition, he said the Chinese government sometimes obstructs litigation to retaliate when it believes the U.S. or the European Union is “poking it with a stick.”

Washington’s growing impatience over Chinese trade practices has prompted dozens of retaliatory bills in Congress, as the U.S. trade deficit with China for 2007 is expected to exceed a record $250 billion. The U.S. lawmakers view 2008 – when China hosts the Olympics – as an opportunity to highlight their grievances.

Experts in international law say they know of no case in which Americans collected any money from a verdict or court order against a Chinese company, although some have been paid through settlements.

A federal judge dismissed the Patmont lawsuit 2 ½ years after it was filed because Patmont had been unable to deliver the lawsuit to the defendants, as court rules require.

The failure was not for lack of trying, said a Patmont lawyer, Brian R. Irvine.

“It’s like the Whac-A-Mole game. Once you serve them at one address, you get a letter back saying they are not there,” Irvine said.

Patmont founder Steven J. Patmont said the lawsuit convinced some American companies to stop selling the Chinese-made knockoffs, but that China has failed to adhere to trade agreements and his company has barely survived a tenfold drop in sales since 2000.

“They were allowed to come into our country,” Patmont said. “But they did not lower their trade (barriers).” As a result, Patmont’s Go-Ped motor scooters face a 167 percent markup in China, he said, due to a 150 percent tariff and a 17 percent value-added tax.

While the number of lawsuits pending is not available, experts say lawsuits against Chinese companies are proliferating, asserting claims of product piracy, impure ingredients and unsafe products.

“My sense is, we’re just seeing the tip of the iceberg,” said Michael Lyle, a Washington, D.C.-based lawyer at Weil, Gotshal & Manges who represents companies in product liability and trade cases. “Because of our global economy, and the fact that China is a major player, you are going to be seeing more of these cases.”

Most Chinese companies have no assets in the United States, so they have no trouble ignoring a U.S. court order.

“There is no treaty between the United States and China that requires the enforcement of each other’s judgments,” said Lyle, a former Clinton White House official.

China is a signatory to an international accord known as the Hague Convention, but does not accept all of the treaty’s articles.

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