The recall of defective auto products is an important mechanism for a country to protect the consumer’s interest as well as public safety. China, with the rapid development of its auto market in recent years, has also started to build such mechanisms into its legal system. Since 2004, China has promulgated a series of rules in this field, such as the fundamental one Administration Rule for Recall of Defective Auto products (“Rule No. 60”) which was followed by the issuance of Administration Rule for Information System for Recall of Defective Auto products and Administration Rule for Establishment and Management of Expert Database for Recall of Defective Auto products. 

 

With the implementation of those rules, according to the public information, up to 29 October, 2012, accumulatively 8.986 million defective autos have been recalled from the Chinese market.

Nevertheless, compared with other countries as well as considering the quantity of possessed auto in China which approximately reached 114 million, it could be claimed that there is still room for improvement in China’s safety mechanisms as well as its implementation.

 

Given such a background, on 22 October, 2012, China issued a new regulation entitled Administration Regulation for Recall of Defective Auto products (“Regulation No. 626”) which shall take effect from 1 January, 2013. Compared with Rule No. 60, Regulation No. 626 has higher legal authority, as well as setting up much higher requirements to the obliged, with the purpose of strengthening the recall mechanism. 

 

This article below will briefly outline the Chinese legal protocol with regards to recalling defective auto products, including the latest development brought by Regulation No. 626, which may be worthy of the attention of enterprises engaged in the auto products industry.

 

 

According to PRC law, the recall mechanism is applicable to auto and trailer products (Auto products) manufactured or distributed within the territory of mainland China.  

 

Moreover, it is clarified that, auto products manufactured within the territory of mainland China but exported outside, or auto products imported into mainland China by consumers themselves, are not subject to Chinese recall mechanism.  

 

• The Obliged Party for Recall

 

For clarification, Regulation No. 626 states that the obliged party for recall shall be the “Manufacturer”, which includes:

 

(1) the manufacturer of Auto products, which shall be an enterprise legally established within the territory of mainland China manufacturing Auto products and issuing product inspection certificate in its name; and

(2) Chinese import merchants importing Auto products from outside and distributing them within the territory of mainland China.

 

Consequently, it could be concluded that overseas Auto products producers selling Auto products to Chinese import merchant are not classified as “Manufacturers” under the recall’s legal regime, and is not the obliged party. Therefore, from the perspective of Chinese import merchants, they should be very cautious about the Chinese recall requirement, as well as prepare sound agreements with the overseas producer to stipulate the liability and compensation to Chinese import merchants in case it suffers any losses or damages arising from the recall of defective Auto products in mainland China.  

 

• The Obliged Party for Assisting the Recall

 

The dealer engaged in selling (excepting Chinese import merchants), leasing or repairing of Auto products is obliged to assist the Manufacturer in carrying out a recall, as well as immediately stop selling, leasing or using defective Auto products. 

 

• The Obliged Party for Administration 

Currently, the General Administration of Quality Supervisor, Inspection and Quarantine of the People’s Republic of China (“AQSIQ”) is the authority in charge of national administration of recall of defective Auto products, which may delegate part of its power to its local branch. 

 

 

As information administration about defects of Auto products is amongst the key elements for recall, the PRC law has specific rules regulating such administration, with further emphasis addressed by Regulation No. 626.

 

• Information Management System of AQSIQ 

 

AQSIQ has established the Information Management System for Recall of Defective Auto products to collect, organise, analyse and process information about defective Auto products.

 

Regulation No. 626 emphasizes the filing requirement of the Manufacturer, according to which it shall file the following information with AQSIQ: 

 

• Basic information about the Manufacturer;

• Information on the technical parameters of Auto products and the initial purchasers of Auto products;

• Information on repair, replacement or return of Auto products for malfunctions of Auto products which endanger personal or property safety;

• Information on recall of Auto products outside the territory of mainland China;

• Other information required by AQSIQ

 

With respect to the Dealer, upon be aware of any possible defects in Auto products, it shall report to AQSIQ and notify the Manufacturer of relevant information. 

 

In addition to the information reported by the Manufacturer or Dealer, public complaints or information shared by other authorities are also resources for AQSIQ to supervise the possible defects of Auto products. 

 

• Long-term Information Record of Enterprises

 

In addition to the aforementioned reporting obligation of relevant information, the Manufacturer and Dealer also have obligations to keep record of certain information in the long term.

 

With respect to the Manufacturer, the following information shall be kept for no less than ten years:

• Information about the Auto products on designing, manufacturing, labelling and inspection, etc.; and

• Information on initial purchasers of Auto products.

 

With respect to the Dealer, it shall keep the information required by the rule of AQSIQ for no less than five years. Nevertheless, currently there is no specific rule regulating which information is subject to the said record requirement. According to our anonymous enquiry with AQSIQ, the coming interpretation and implementation rule of Regulation No. 626 may clarify this issue.

 

 

Defects investigation is critical to judging whether the defects exist. As defined by the PRC law, defects of Auto products shall refer to defects which exist “generally in the same lot, model or type of auto products for design, manufacturing, labelling and other reasons.”

 

The PRC law has set up procedures and requirement for the investigation, mainly as follows:

 

• Investigation conducted by the Manufacturer

Upon such an outcome, be aware of any possible defects in its produced/imported Auto products, the Manufacturer shall immediately organise an investigation and will report the result to AQSIQ.

 

• Investigation conducted by AQSIQ

 

If AQSIQ notifies the Manufacturer to conduct investigation upon AQSIQ is aware of any possible defects in Auto products, while the Manufacturer fails to conduct investigation as notified, AQSIQ has the power to conduct the investigation by itself.

 

Notwithstanding the above, in case AQSIQ deems that a possible defect in Auto products may cause serious consequences, it may directly initiate the investigation without waiting for the Manufacturer’s investigation.

 

It is notable that, the Manufacturer and Dealer has the obligation to cooperate for AQSIQ’s investigation. Moreover, Regulation No. 626 strengthened AQSIQ’s power, according to which AQSIQ can enter into the business premises of Manufacturer and Dealer, to conduct on-site investigation, consult or copy relevant information and records. 

 

• Test Entity

Test entity may be involved in investigation process. Up to now, based on publicly available information, in total there are 27 test entities recognised by AQSIQ as qualified to conduct test for defective Auto products.

 

IV. Recall Procedure 

 

• Initiation of Recall

 

According to the PRC law, recall of defective Auto products can be initiated by the following means:

 

• Initiated actively by the Manufacturer

In case the result of the investigation conducted by the Manufacturer confirms the existence of defects, the Manufacturer shall immediately initiate the recall.

 

• Initiated based on AQSIQ’s order

In case the result of the investigation conducted by AQSIQ confirms the existence of defects, AQSIQ shall notify the Manufacturer to initiate the recall. 

 

If the Manufacturer believes that the non-existence of the defects, it may raise objection to AQSIQ within 15 working days after receipt of the notice of recall, as well as provide supporting materials. AQSIQ shall organise experts to deliberate on the supporting materials and, when necessary, conduct technical the testing of Auto products.

 

Nevertheless, in case the Manufacturer fails to raise objections within the required period, or the deliberation or testing confirms the existence of defects, AQSIQ shall order the Manufacturer to initiate the recall, and the Manufacturer shall follow such orders.

 

• Filing of Recall Plan

 

To carry out the recall, the Manufacturer shall make recall plans- as well as file it with AQSIQ. The recall shall be implemented in accordance with the filed recall plan.

 

• Report

 

The Manufacturer shall submit both an interim report and a final report to AQSIQ summarising the results of the recall. AQSIQ will supervise the implementation, as well as evaluate the effects of the recall.

 

 

The PRC law expressly regulates that, with respect to the recall of defective Auto products, the following cost shall be undertaken by the Manufacturer:  

• Expenses for the elimination of defects; and

• Necessary expenses for transporting defective Auto products

Nevertheless, in addition to the cost arising from the recall, in case there is any other damage suffered by the consumer due to the defective Auto products, the damage shall also be compensated accordingly.

 

VI. Punishment  

 

The PRC law sets up punishment to the Manufacturer or Dealer for violating legal requirements with respect to recall of defective Auto products, such as failure to keep record of information, non-cooperation of defects investigation, etc. 

 

It is notable that, compared with Rule No. 60, Regulation No. 626 sets up much severe punishment to the Manufacturer, with imposing a fine from 1% to 10% of the value of defective Auto products, together with confiscating the illegal income, as well as revoking the relevant license, if the circumstances are serious for the following violation: 

• Failing to stop manufacturing, selling or importing defective Auto products; or

• Concealing  information on defects; or

• Refusing to implement a recall as ordered.

 

VII.Conclusion
 

 

Currently, the Chinese legal system is undergoing a rapid development with respect to the recall of defective auto products, which can be evidenced by the recent issuance of Regulation No. 626, as well as its implementation rule. It could be expected that the legal mechanism will become more and more protective for the consumer, while the other parties, such as the manufacturer, importer, dealer, etc, will bear more liability. Enterprises engaged in auto products industry shall be aware of such development, to be in greater compliance with the PRC law.  

By Manuel Torres & Grace Ge