It has been years since thousands of U.S. homeowners, mostly in Florida and a few other coastal states, realized that Chinese-made drywall was emitting corrosive fumes that attacked copper wiring, air conditioner coils, electronic devices, and other metal components of the homes. After years of litigation, most of the resulting lawsuits have been settled in the New Orleans federal courtroom of Judge Eldon Fallon. But a few thousand cases still drag on.
Knauf Tianjin, the largest supplier of defective Chinese drywall, a subsidiary of the German-based building materials conglomerate Knauf, has settled with homeowners and has been paying claims. But another supplier, Taishan Gypsum Co. Ltd., has been stonewalling the court until very recently, refusing even to respond to the complaint or appear in court. Knauf had practical reasons to settle: the company and its subsidiaries do a lot of other business in the United States, exposing the company to possible U.S. penalties; and European courts offer another avenue for plaintiffs to pursue their case. Taishan, by contrast, never did anything in the United States but sell defective drywall, and its ownership is obscure.
Now, lawyers for U.S. plaintiffs are trying to press their case in China. They argue that Taishan Gypsum is effectively owned by a Chinese government agency, the "State-Owned Assets Supervision and Administration Commission," and they want that agency to answer for Taishan's wrongs. The Washington Post has a report (see: "Chinese drywall suit and Chinese government agencies," by Janet McConnaughey | AP).
"An attempt to serve the lawsuit under the Hague Convention was rejected," the AP reports. "A copy sent by Sandra Duggan, an attorney for the homeowners, showed the commission’s notation that it 'is the Chinese central government agency which shall enjoy sovereign immunity and not be subject to foreign jurisdiction.'" Other attempts to serve court papers have also been rebuffed.
The drywall case is just one example of a broader issue in U.S.-Chinese trade relations. A U.S. government commission created in 2000 to monitor and report on trade issues in the U.S.-Chinese relationship, the U.S.-China Economic and Security Review Commission, has been studying the situation (see: "China’s Great Legal Firewall: Extraterritoriality of Chinese Firms in the United States," by Kevin Rosier). Notes the Commission: "Chinese businesses participating in the U.S. financial services sector can effectively operate behind a firewall that keeps them largely immune from the jurisdiction of U.S. courts and regulatory agencies, leaving U.S. partners, competitors, and investors vulnerable. Greater legal protections for U.S. entities, including requiring Chinese firms in the United States to assign a domestic agent to receive legal papers such as subpoenas and court notifications, are a possible solution to this dilemma of jurisdiction."