Profits Above The Law: China’s Melamine Tainted Milk Scandal

This paper considers China's food safety regulatory regime and the fundamental flaws that permeate both its supervision system and governing laws. Part I examines the market structure in the dairy industry and how the government failed to regulate the chaotic market that forced competitors to externalize costs and resulted in the inevitable milk scandal. Part II addresses how the Sanlu Group and local government concealed the scandal for fear of bad publicity and loss of profits. Part III examines the measures that the Chinese government took in response to this scandal and previous crises. The paper argues that the government should search for a new direction- both in law and policy, because its traditional, paternalistic, top-down style of supervision has failed repeatedly. The paper also argues that the present system does little to prevent the dairy industry from pursuing profits at the expense of consumer welfare, and that the government should regulate the market towards inducing milk processors to internalize the cost of doing business. Furthermore, much could be achieved by consumer participation in product safety issues through private litigation