Canadian winery owners beg Chinese court for mercy in smuggling case

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A Shanghai-based former worker for a Canadian winery says he warned his bosses years ago that they needed to raise the price they were declaring to Chinese customs before he left the company, saying he feared he was breaking the law.

Canadian citizens John Chang and Allison Lu have been charged with smuggling wine into China, accused of falsifying prices on paperwork for bottles they shipped to China from Lulu Island Winery in Richmond, B.C., one of three the Taiwanese-born couple own. Chinese authorities say they owe nearly $20-million and have seized 267,000 bottles of their wine; the maximum punishment for smuggling is life in prison and a fine up to five times the amount owed.

The case has raised new questions about Canada's pursuit of trade with China after lawyers for the couple petitioned Ottawa for help, saying the couple has been victimized by a country where commercial disputes can land in an abuse-prone criminal -justice system controlled by the Communist party. They say the charges are trumped-up, and complained that the trial would be held behind closed doors.

Related: Daughter of winery owners facing trial in China pleads for Trudeau to intervene

But Chinese authorities allowed The Globe and Mail and Canadian diplomats to attend the trial, held Friday at Shanghai No. 3 Intermediate People's Court. When security barred a reporter from taking a notebook into the courtroom, a court worker offered pens and a sheaf of paper.

White-gloved court officers escorted Mr. Chang and Ms. Lu into court with Bian Shihua, a Taiwanese man who once worked for Lulu in Shanghai, where he did logistics. All three were detained last March. They have each been charged under the Chinese Criminal Law, whose definition of smuggling is broad.

Their trial lasted just over four hours.

The Chinese procurator said its case was based on confessions and written documents, including order forms and e-mails, although none were presented in court. Though Lulu sold its wine for $69 to $95 in Canada, it declared its value to Chinese customs for much less, in some cases well below $10.

The gap had raised concerns long ago.

Mr. Bian testified that a Chinese customs clearance firm had told him Lulu was understating the value of its goods – and warned him to abandon the winemaker, he said.

They "told me, 'the number you reported is too low. You better leave,'" he said.

In 2013, after passing those warnings along to Lulu in Canada, he left the company. "A major reason I gave up the work is because I was afraid I was breaking the law," he said.

Lulu says Mr. Bian was fired for stealing wine (he says he merely moved wine to a cheaper warehouse), and Mr. Chang said he had placed his trust in Chinese expertise to navigate a customs system he did not know well.

The customs clearance firm advised which price he should declare, he said, adding that the numbers he used were 30 to 40 per cent higher than average prices for top-selling wine brands from other countries. When he was warned the price was too low, he raised it, he said.

"I thought it was a proper price," Mr. Chang said. "I thought I was exporting legally," he added.

Mr. Chang's lawyer, Chen Shen, argued that any errors were not deliberate, and that a misunderstanding should not land a businessman in criminal court. Experts he reached, he said, were staggered at how the Lulu owners have been treated.

The case should be treated under "administrative law, rather than smuggling," he said. He argued strenuously against the methods used to calculate the nearly $20-million that Chinese authorities say they are owed.

Lu Feng, the prosecutor, acknowledged that "the fairness of Chinese law" and the image of Chinese justice were at stake, but said the country's rules make clear that Lulu had engaged in criminal smuggling.

Mr. Chang may not have known the letter of the law, but he did know the value of his goods and had experience exporting elsewhere.

The procurator pressed Mr. Chang for evidence of the actual price he had sold his wine in China. "If it's not a real price, it's a counterfeit price," Mr. Lu said.

China's Customs Law says those who counterfeit or falsify customs documents "shall be investigated for criminal liability." The country's Criminal Law says a person who "evades or dodges payable duties" is a smuggler.

The procurator told the court that the willingness of all three defendants to self-surrender and co-operate should be mitigating factors in their sentencing.

But it defies reason that the three could be called smugglers, said Mr. Bian's wife, who attended the trial and gave only her surname, Liu.

"After all, they paid tax," she said. "Secretly smuggling in product – that's smuggling." She has not been able to see, call or write her husband since he was taken away last March, she said.

Canadian legal counsel for Mr. Chang and Ms. Lu has called their treatment "particularly troubling" at a time when Ottawa is pursuing a free-trade deal with China.

"It is imperative that Canadians seeking to do business with China can do so in reliance on agreed upon rules and basic principles of justice, both substantive and procedural," Fasken Martineau wrote in a legal brief prepared for the Trudeau government.

Frictions over legal matters and the imprisonment of Canadian citizens in China have played an outsized role in relations between the two countries over the past two decades, from Beijing's long battle to bring home smuggler Lai Changxing, to disputes over the treatment of people such as Uyghur-Canadian dissident Huseyin Celil and Kevin Garratt, a Canadian missionary.

Even so, the past few months have seen an unusual number of cases seize the agenda, even as Ottawa seeks to warm ties with Beijing and stage an ambitious trade expansion.

Billionaire Xiao Jianhua, who holds a Canadian passport, appears to have been taken to the mainland from Hong Kong by Chinese authorities, renewing fears about Beijing's willingness to cross into other political jurisdictions to silence critics and political threats.

Falun Gong practitioner Sun Qian, also a Canadian citizen, has been detained and, family members have said, kept from proper access to a lawyer, training new attention on China's campaign against the banned spiritual practice.

The interrogation of Wilson Wang, a Chinese man with a Canadian wife, has illuminated abuses in China's prosecution of a major anti-graft campaign, one it has sought to extend to countries such as Canada, which it accuses of harbouring corrupt fugitives. Fasken Martineau has called the Lulu winery case a customs dispute, saying China is violating international trade obligations.

In Shanghai Friday, the defendants begged for light sentences. Ms. Lu urged the court to consider the couple's contributions to China, after Lulu provided a "China House" at the 2010 Vancouver Olympics for Chinese athletes and officials to relax.

"We have this attitude of loving the motherland," she said, using a term with powerful patriotic connotations toward Beijing.

Outside court, though, she pleaded for Canadian help, shedding tears when approached by the Globe.

"My family has had such a tough time. I hope the Prime Minister of Canada can bring us home as quickly as he can," she said.

"Because this is not our home."