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Marler Blog Providing Commentary on Food Poisoning Outbreaks & Litigation

Compensation arrangements in China milk crisis do not ensure improved product safety

"According to the latest news reports, the 22 companies implicated in the Chinese powdered milk crisis are likely to pay 1.1 billion yuan ($160 million) in compensation to the families of the over 294,000 children sickened by tainted milk products. The reports indicate that the compensation will range from 2,000 yuan ($290) for children who suffered kidney stones to 200,000 yuan ($29,000) for the families of the children who died as a result of consuming tainted powder milk. To put these figures into perspective, if a similar number of children became sickened by tainted food products in the United States, the payout would rival the current automotive industry bailout. Nevertheless, one might assume that $160 million in compensation to the victims of this pervasive failure of Chinese dairy safety is a good thing, right? The answer is both "yes" and "no."

The fact that the Chinese companies implicated in the crisis have offered to "shoulder the compensation liability" shows at least some recognition of companies’ responsibility to the purchasers of their products. Furthermore, any compensation the victims receive cannot come soon enough, as many of the families have incurred significant medical bills from their children’s hospitalizations. Still, the victims of the crisis will be left to ponder the $160 million question: Will this voluntary form of compensation, meant to ensure customer goodwill, result in safer food products in China?

Chinese courts have yet to accept any of the civil cases filed on behalf of victims of the powdered milk crisis. The cases have sat in limbo for months, and with the prospect of a voluntary corporate payout, the chances of these cases ever seeing the light of day are slim to nil. The fact remains that, in the kind of rampant business-economy that China seeks to create, civil cases create a liability threshold for corporations. If a company chooses to ignore safety standards, a well-functioning civil court system will (in theory) ensure that the company faces a significant financial risk in doing so. Unfortunately, the precedent China has set in the powdered milk crisis, by refusing to hear civil cases and encouraging a corporate payout, creates a system in which corporate liability is a voluntary option. This, in turn, leads to businesses that do not see manufacturing safe products as a mandatory legal requirement, but as public relations consideration that can be remedied by simply choosing to "shoulder the compensation liability."

Only time will tell whether the voluntary payout will encourage Chinese companies to manufacture safer products; let’s hope, for the sake of the 294,000 sickened children, that the biggest lesson Chinese companies take from the crisis is that selling contaminated products is not a profitable business."