Friday, August 24, 2007

Ramen Noodles, Price Fixing, and Beyond

After a month-long investigation into complaints of price fixing, the National Development and Reform Commission of China (“NDRC”) delivered its verdict for the China Ramen Noodle Association (“Association”)—guilty (report in Chinese only).


Governmental investigations revealed that the Association organized three meetings in a span of about 6 months (from 2006 to 2007). During the meetings, the Association and its members strategized on uniform price increases across the Ramen noodle industry in response to price hikes in raw materials, such as oil and flour. Of particular importance in the investigation was that the Association published minutes of its meetings in its industry magazine, and the news of price increase caused a panic among consumers who rushed to buy large quantities of Ramen noodles.

The NDRC acknowledged that higher production cost could lead to an increase in price in Ramen noodles, but price fixing by an industry association violates the Price Law of China, specifically Article 7, 14, and 17.

Current Law on Price Collusion:

Article 14 of the Price Law of P.R.China [full text of the law in English] provides:

Business operators must not act whatsoever in the following ways to effect abnormal price behaviors:

1. To work collaboratively with others to control market prices to great detriments to the lawful rights and interests of other business operators or consumers;

3. To fabricate and spread price rise information for pushing up the prices to
excessively high level;

6. To disguisely raise or lower prices at irrational ranges by artificially raising or lowering grades of merchandises or services;

7. To seek exorbitant profits in violation of laws and regulations; and

8. To effect other illicit price behaviors that are forbidden by law or administrative decrees

Furthermore, the NDRC charged that the Association breached Article 4 of the Interim Provisions on Preventing the Acts of Price Monopoly (Text in Chinese; subscription required for English text) which states:

Business operators shall not fix, maintain, or modify prices through agreement, resolution, coordination or any other means of collusion.

Agency Order:

Since the NDRC found the Association guilty of violating the law (and price regulations), it ordered the Association to immediately “change its wrongful ways, make public notices to rectify negative impact of the price fixing, and to delete from its minutes contents regarding collective price increases…”

While at it, the NDRC sent a warning to other industry associations too, admonishing them to enhance their “sense of the rule of law.”

Other Remedies:

Curiously enough, no consumers sued either the Association or Ramen noodle companies that colluded in price fixing. Article 41 of the Price Law provides a private right of action to injured consumers, to wit:
Whereas business operators have caused overpayment by consumers or other business operators in violation of price law, the part in excess of the due payment shall be returned. If damages are done, the business operators shall undertake to compensate for the losses.

If a suit were to be filed, a plaintiff could invoke the NDRC’s administrative order as evidence of wrongdoing. Upon a showing of actual damages, victory in such a suit would be reachable. But lawsuits in China are costly, as are in the United States. Chinese consumers, however, could turn to class action as a way to pool their resources in order to seek their justice and redress for damages. See Class Action Litigation As a Means of Enacting Social Change in China, 75 UMKC L. Rev. 227 (2006); Class Action Litigation in China, 111 Harvard Law Review 1523 (1998).

In the present situation, class action does not seem to be a viable option for probably two reasons: 1) the damages are not great enough; 2) Chinese courts’ unwillingness to hand out large amounts in damages.