Brett Zhu

Trade Suit Victory Suggests New “Aokang Model” For Chinese Business Abroad

The European Court of Justice, where Aokang won its potentially landmark lawsuit. (Gwenaël Piaser/Flickr)

In mid November of this year, the European Court of Justice ruled in favor of Aokang Group Ltd, China’s largest privately-owned shoe manufacturer, in its lawsuit against what it labeled unfair anti-dumping tariffs. The ruling stipulates that Aokang will no longer be labeled a price manipulator and will be refunded all anti-dumping duties paid over the past six years—an amount totaling almost 5 million RMB (about US$800,000).

While this case may not initially appear significant, especially given the low recompense involved, private business owners and export firms in China greeted the ruling with much interest. The case is not only a rare victory for a Chinese-owned business in a foreign court, but a likely precedent for Chinese companies operating in the global economy. As Xie Rongfang, Executive Director of the Wenzhou Shoe industry Association said, “It is a guide that tells us what to do when we encounter future global interest disputes, [and that] is to protect ourselves with the weapon of law and to play by Western rules.”

History of a marathon lawsuit

Aokang’s marathon lawsuit began in October, 2006, when the EU imposed a 16.5 percent anti-dumping tariff on leather shoes imported from China. In 2009, the tariff was extended another 15 months. As a result of the EU’s tariff, Aokang’s European exports began to lose money and faced insolvency—a fact not lost on China’s other shoemakers. Soon after, Aokang executives decided to take action and filed suit against the tariff along with four other co-plaintiffs.

The suit got off to a rocky start for Aokang, which lost in a local court. According to an interview with the president of Aokang Group, this loss shook their confidence and made them reconsider their desire to pursue legal recourse. However, despite the departure of four co-plaintiffs, Aokang stayed the course and appealed the ruling to the European Court of Justice. “We discussed [the case] the whole night and morning. [Company] President Wang gave us just two words: ‘Go ahead,’” recounted a member of Aokang’s legal team on a recent television show called Dui Hua.

The appeal represented a turning point for Aokang. In April 2010, the Chinese government threw its weight behind Aokang’s efforts and filed a WTO complaint,  accusing the EU of imposing illegal duties. One year later, in 2011, the EU canceled the anti-dumping duties upon the tariff’s expiration, and soon after Aokang won its appeal in the European Court of Justice.

The “Aokang model”

During a recent panel hosted by China Central Television (CCTV), a scholar named Mr. Mei Yuxin argued that average Chinese citizens believe the company’s legal battle deserves recognition and that it represents a larger behavioral shift by Chinese companies. More specifically, it breaks from traditional Chinese methods of dealing with international economic challenges, and demonstrates that Chinese companies can successfully challenge Western authority through legal channels. Beyond simply accept foreign rulings or abandoning investments, Chinese companies can follow the Aokang model.

Mr. Mei also stated that only a handful large-scale Chinese companies have  taken action against foreign anti-dumping rulings and are currently trying to protect their interests. Instead, the majority of Chinese manufactures choose to wait for aid from the Chinese government aid and tend towards inaction.

“They think that foreign trade lawsuits take up a lot of resources in terms of time, energy and money, and that they stand little chance of winning,” He Weiwen, director of International Business and Economics at the Sino-U.S. Economy and Trade Center, told a Global Times reporter. Mr. He said that more companies should take legal measures in foreign trade disputes.

Indeed, Aokang sets a positive example for all Chinese entrepreneurs who are interested in international expansion but nervous about encountering a hostile environment. This is especially true given the spate of Chinese firms currently being investigated or sued by foreign courts, including Huawei, ZTC, SANY, and several solar panel manufacturers.

Lawyers have suggested that Aokang’s challenge in the European Court of Justice can serve as an excellent precedent for other manufactures dealing with similar cases. The case is relevant not only in the Western world, but in all localities in which Chinese companies are expanding. Given the economic slowdown in Europe and weak economic performance in the United States, China is gaining an increasingly significant share of international commerce. To survive and protect themselves, Chinese enterprises will have to increasingly adapt to global and local laws. If they study and utilize these laws—rather than waiting for Chinese government aid or simply giving in—sometimes they can win.

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Brett Zhu

Serving as a regional manager with a Chinese company, Brett takes charge of business exploration in the Middle East and East Europe. He can be reached through LinkedIn
  • Jahar

    Who would have thought that “playing by western rules” might actually end up being a fair way to do things?