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On July 20, 2014, a Chinese TV station reported that one of OSI Group's China subsidiaries, Shanghai Husi Food Co., Ltd., repackaged expired beef and chicken with new expiration dates and supplied them to restaurants.1 Chinese consumers were appalled when they found out that some of the world's largest fast-food chains, including McDonald's, KFC, Burger King, and Starbucks, were on the restaurant list.2 The consumers were furious because they expected food quality and hygiene standards in multinational restaurant chains in China to be as closely watched and managed as restaurants in western countries. Six employees of Husi were arrested for selling substandard products.3
Although McDonald's immediately cut its ties with the meat factory, its sales in the Asia-Pacific, Middle East, and Africa as of August 2014 were down 14.5 percent, far worse than its global performance.4 "A crisis of confidence in the Chinese food industry had emerged and developed after melamine was found in domestically produced baby milk formula in 2008. "5 Due to growing anxiety of Chinese consumers about contaminated food of domestic brands, many of them looked to foreign restaurants for better quality and service. "Western and local franchise brands have developed significantly in China over the past 15 years, as the Chinese consumer has become an engine of economic growth . . ."6 In terms of the number of outlets, "China is now McDonald's third-biggestmarket... and Yum's largest" market.7 The Husi meat scandal is the second food safety scandal that McDonald's and Yum have faced in recent years.8 Although the fast-food chains involved were victims of the Husi meat scandal and no suit has been filed against any chain, the scandal "certainly showcase[d] some of the problems a franchisor [may] encounter" in the area of brand and quality control "when they expand overseas," according to franchising lawyer Candice Lee.9
I. Food Safety Legislation and Implementation
With increasingly adverse publicity from numerous incidents of contaminated food, China promulgated the Food Safety Law of the People's Republic of China10 and the Regulation on the Implementation of the Food SafetyLaw of the People's Republic of China in 2009.* 11 In 2015, the legislature significantly amended the Food Safety Law, which is being "touted as China's toughest food safety law to date" and will go...