Danone freezes assets in China venture battle

By Neil Merrett

- Last updated on GMT

Related tags: Danone, United states, Joint venture

France-based Danone has successfully frozen the assets of a number
of enterprises allegedly linked to Chinese joint venture partner
Wahaha, on the back of increasing legal pressure over property
rights in the country.

Micheal Chu, a legal representative for France-based Danone, told DairyReporter.com that the company has successfully petitioned overseas courts to freeze the assets of ten businesses allegedly linked by press sources to its Chinese partner. The step is another stage in the increasingly bitter dispute over contract and intellectual property issues. Though an increasing number of food and beverage groups are working with local partners to expand into new markets like China, the strategy is not without its problems for some manufacturers. Danone in particular has been engaged in a number of legal disputes with various joint venture partners in China, India and South America over the last year, relating to how its brands are marketed and produced. However, the group's success in obtaining two separate court orders to put various enterprises into receivership will give some hope to foreign investors looking to high growth emerging markets. Chu said that Samoa's Supreme Court had put two offshore businesses - Mega Source Investments and Honour Bright Investments - into receivership, temporarily freezing their assets on 14 November. On 9 November the High Court of the British Virgin Islands ordered a freeze on the assets of eight enterprises operating in the country, Chu added. Though unable to state whether the groups were linked to Wahaha, Chu said that the action was taken following complaints from four Danone companies. The dispute stems from an agreement established between the two parties in 1996, which prevents Wahaha from manufacturing goods that compete directly with products released through its joint ventures with Danone. This has led to further allegations from Danone, that some Wahaha executives may be involved in counterfeiting its goods. Former Wahaha chairman Zong Qinghou described Danone's decision to begin legal proceedings against the company in a US court in June as "despicable"​. Qinghou has since been replaced by Danone's Emmanuel Faber, a move Wahaha executives claimed was in violation of their corporate charter. Danone said the importance of emerging markets like China made a quick resolution imperative. "Our sales in emerging countries represent more than 30 per cent of our total sales,"​ a spokesperson said. The counterfeit issue has become increasingly politicised with EU trade minister Peter Mandelson also hoping to discuss the problem of counterfeiting this week, at a trade summit in the country, calling China's progress "disappointing and slow".​ The increasingly troubled relationship with China-based joint venture partner Wahaha even has formed part of France's president Nicola Sarkozy's agenda for his three-day state visit to the Asian country this week, news reports have said. Sarkozy yesterday raised the issue of the dairy groups' ongoing battle during dinner with his Chinese counterpart, due to increasing concerns over protecting intellectual property in the country, according to the Reuters news agency. "President Hu took note,"​ a French official was quoted as saying by Reuters. "[The discussion was] not conclusive but not negative either."​ Danone has joined a number of non-Chinese food and beverage manufacturers, which allege that they are struggling to protect their brands and copyrights in the country from local businesses and individuals. Food manufacturers including chocolate manufacturer Ferrero, say they are also struggling to prevent poor quality and often dangerous counterfeit versions of their brands being circulated from within the Chinese market. Producers of spirits such as whisky are also concerned about protecting their products in the country and in Asia, where demand is high. In terms of overall quantities of all food and non-food items seized at the EU's borders, China accounts for 80 per cent of the total figure, according to figures supplied by the bloc. Legislators have attempted therefore to step up measures to protect its intellectual property. EU legislation, which came into effect on 1 January 2007, requires all of the bloc's importers and exporters to have a special security certificate for easier access across borders. The new procedure is aimed at reducing terrorism, fraud and counterfeit products. The EU customs security scheme allows those qualifying for the special security certificate to move their goods quickly to and from the EU.

Related topics: Markets, Danone, Emerging Markets

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