China: Shanghai Regulations Stipulate That Product Defects Must Be Reported To Authorities

Last Updated: 16 July 2012
Article by Falk Lichtenstein

On 1 September 2012, the new Shanghai Municipality Regulations on Product Quality ("Shanghai Regulations") will enter into effect. The Shanghai Regulations have been adopted by the Standing Committee of the Shanghai Municipal People's Congress. With the Shanghai Regulations, the Shanghai Municipality intends to establish and promote high local quality standards for goods within the Shanghai area.

The Shanghai Regulations are applicable to any person or entity that manufactures or sells a product within the area of Shanghai. Several provisions of the Shanghai Regulations match the exact wording of national legislation, i.e. the PRC Product Quality Law and PRC Tort Law. However, certain articles are innovative and diverge from national law. As local provisions, the Shanghai Regulations do not rank above national law, but they must be abided by in Shanghai if they contain stricter requirements than national law.

The most significant aspects of the Shanghai Regulations are summarised below.

1. New Reporting Obligation

If any product turns out to be hazardous to human health, personal safety or personal property, according to Article 18 of the Shanghai Regulations the manufacturer is obliged to take remedial measures, such as recalling the product, as well as reporting the incident to the Quality Supervision Authority. This means the Shanghai Regulations extend the scope of a mere recall obligation by including a new duty to report incidents to the Product Quality Supervision Authority. Under national law, such reporting is required neither by Article 46 of the PRC Tort Law nor by the PRC Product Quality Law. While the PRC Consumer Protection Law does already stipulate an obligation to report defective consumer products, it does not specify which authority such incidents should be reported to. The Shanghai Regulations now include additionally the obligation to report defective products not only sold to consumers, and specify that reports should be made to the Product Quality Supervision Authority.

2. More Details on Product Quality Management Obligations

According to the PRC Product Quality Law, each manufacturer must establish and maintain a product quality management system. However, this obligation is formulated in a very general way. Article 9 of the Shanghai Regulations now requires manufacturers to establish a product quality management system which will ensure compliance with laws, regulations and quality standards. Manufacturers also have to conduct inspections on incoming raw materials and utilities as well as inspections prior to delivery. Manufacturers must create product quality files to record the detailed status of inspections on incoming raw materials, accessories, components, deliveries, sales, recovery and disposal, etc. This means business operators will need to check if their quality management system covers all of the above details.

3. Local Standards and Enterprise Standards

To ensure human health, personal safety and safety of property, all products must comply with national and industry standards and should have the features which such products normally have and/or are indicated on the product or its packaging. This is clearly outlined in national legislation and reiterated in the Shanghai Regulations. In addition, Article 7 of the Shanghai Regulations stipulates that products must also comply with local standards. For the first time, Article 8 of the Shanghai Regulations specifies that where there are no national, industry or local standards in production activities, enterprises must set enterprise standards. This constitutes a new obligation in terms of quality management.

4. Labelling of Products

Compared to Article 27 of the PRC Product Quality Law, manufacturers within Shanghai must also label their products according to Article 10 of the Shanghai Regulations a) with production licence sign and number if the product is subject to licensing; and b) with a certification sign if the product is subject to compulsory certification.

Furthermore, Article 11 of the Shanghai Regulations states that imported products must be labelled with their Chinese product name, the origin of the product, as well as with the name and address of the importer or general distributor. Also, in certain cases mentioned in Articles 11 and 12 of the Shanghai Regulations, an installation and/or operating manual must be enclosed. Under the Regulations, certain products will thus require some additional labelling.

5. Liability

The Shanghai Regulations confirm the principle of national law that states that sellers and manufacturers are jointly and severally liable for product defects. This corresponds to Article 40 of the PRC Product Quality and Article 43 of the PRC Tort Law. As with national law, Article 17 of the Shanghai Regulations specifies that the victim may claim compensation from either seller or manufacturer if the defective product has caused physical injury or damage to personal property. According to Article 16 of the Shanghai Regulations, the seller's liability for defects takes precedence over the manufacturer's. If the seller can prove that the product is defective due to the production process, the seller is entitled to seek recourse from the manufacturer or the importer of the product if the seller made compensation in advance.

6. Inspections and Fines

Manufacturers are subject to regular inspections by the Product Quality Supervision Authority. According to Article 29 of the Regulations, if the manufacturer or seller does not accept the result of the inspection, both the manufacturer and the seller have the right to apply in writing for re-inspection within a period of 15 days. Failure to comply with the above time limit will be deemed as acceptance of the inspection result by the manufacturer or seller.

Once it is proven that a product does not meet the required standards, the manufacturer or seller must take remedial measures to improve the quality and then apply for re-inspection. If this fails, the products will be deemed disqualified for further distribution and the manufacturer or seller must destroy them. If they refuse destroying the products, the seller or manufacturer will be subject to a fine of between RMB 10,000 and RMB 50,000 under Article 46 of the Shanghai Regulations. Notwithstanding, according to national law the competent Administration for Industry and Commerce remains entitled to order cessation of business activities and revocation of the manufacturer's or seller's business licence.

The Shanghai Regulations introduce a more complex framework for product liability and are in some respects more stringent than national legislation. They must be carefully considered by all business operators who manufacture or sell products within the area of Shanghai. They should adjust their quality management system accordingly to meet the provisions of the Shanghai Regulations. Most importantly, they should be aware that it will no longer be possible to carry out product recall measures in secret, as such measures now have to be reported to the Product Quality Supervision Authority.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 04/07/2012.

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