Solid Waste Recycling & Disposal: Manufacturers, Resellers & Land Acquirers Risk Liability

SOLID WASTE LAW

China's general framework for the handling of solid waste generated during production, distribution, importation, and use of electrical and electronic equipment, was formed by recent amendments to the PRC Preventing Solid Waste from Polluting the Environment Law (amended Solid Waste Law).¹ Key points in this legislation include:

i. Steps toward successor liability;

ii. Easier claims for environmental damages;

iii. Clearer application to solid waste of requirements affecting all hazardous waste;

iv. Specific provisions on packaging; and

v. Detailed arrangements for the importation of waste.

Successor Liability

The amended Solid Waste Law establishes successor liability in certain situations that may be broadened in the future. If an enterprise was terminated before the law's promulgation on December 29, 2004, and failed to pay for waste disposal, the law states that the "relevant people's government² is responsible for disposal expenses, but if the land use right has been lawfully transferred, the transferee is responsible for the disposal expenses; if parties agreed separately, the agreement will be implemented; but must not exempt [all] parties from pollution prevention/control duties" (Article 35).³ This wording raises numerous questions, and the eventual answers are likely to be unwelcome to persons acquiring land on which solid waste is located.

One question is: What responsibility will be borne by a land acquirer if, despite an agreement for the seller to pay disposal expenses, the seller's termination and liquidation is completed without paying the expenses? The most likely answer would be to impose liability on the acquirer, perhaps through a broad interpretation of the requirement that "the agreement ... must not exempt [all] parties".

A second question is: How will waste disposal expenses of enterprises terminated after the above date be handled? The amended Solid Waste Law indicates that later termination of an enterprise must not proceed until after proper disposal of all its solid waste (Article 35), but does not address the consequences of an enterprise being unable to pay for disposal. The most likely answer would be for a bankruptcy court to terminate the enterprise regardless of unpaid disposal expenses, and for liability to be imposed on any relevant land acquirer regardless of the enterprise termination date. ⁴

Some points are not at all in question: Any person who acquires land where there is solid waste runs a high risk of bearing liability for its eventual disposal. Contractual allocation of liability to the land transferor or other person is useful, but not sufficient if that transferor or other person disappears.

An additional point expressly reaffirmed by the amended Solid Waste Law is that "change" of an enterprise does not cancel its liability for disposal. This provision once again includes the exception that "if parties agreed separately, the agreement will be implemented; but must not exempt [all] parties from pollution prevention/control duties" (Article 35). This application of land acquirer liability is relevant to any party in an enterprise change agreement.

Lawsuits, Evidence and Proof

In lawsuits involving damages caused by solid waste pollution, the amended Solid Waste Law specifies that the burden of proof is to be borne by the defendant in disproving causation or proving that legal requirements do not apply. The law also specifies that environmental monitoring institutions must provide relevant data requested by lawsuit claimants. Potential acquirers of land and other assets or enterprises are recommended to seek this data in order to evaluate exposure to future lawsuits.

Packaging

Packaging materials of certain types must be recycled, with responsibility borne by producers, distributors and importers (Article 18). A catalogue specifying products and packaging materials that must be recovered is expected to be issued and publicized in the near future. Standards to prevent excess packaging will be issued by the China Standardization Administration (Article 18).

Hazardous Solid Waste

The amended Solid Waste Law also reaffirms various requirements for hazardous waste generation, recycling and storage that were previously established under more general legislation. Notably, enterprises that generate hazardous waste must establish hazardous waste management plans and register them with local environmental protection administrative agencies (Article 53). Enterprises engaging in recycling of hazardous waste must obtain licences from provincial or central-level environmental protection administrative agencies (Article 57). Hazardous waste cannot be stored for more than one year, except with approval from an environmental protection administrative agency (Article 58).

Importation

Before importation of any solid waste, the amended Solid Waste Law requires inspection (Article 25). Importation of non-recyclable solid waste is prohibited, while importation of "restricted" recyclable solid waste must be licensed, after examination by concerned departments of both SEPA and the Ministry of Commerce (MOFCOM) (Article 25).⁵

OTHER WASTE IMPORT REGULATIONS

Foreign suppliers of waste materials to China must register with the State Administration of Quality Supervision, Inspection & Quarantine (SAQSIQ), under a 'Market Access System for Import of Waste Materials', according to several opinions issued in July 2003.⁶ In July 2004, SAQSIQ clarified registration procedures and standards (including a requirement that each foreign supplier hold an ISO14000 certificate or other similar qualification) by issuing implementing measures.⁷

DRAFT SUPPLIER REQUIREMENTS

The next key step will be the expected imposition of responsibility on manufacturers, resellers and importers for ensuring that their products and components are disposed of through eventual disassembly, segregation, recycling, and (on a much-reduced scale) supervised destruction. Detailed progress towards this approach has already been made in draft Measures on Recycling and Disposal of Waste and Used Household Electrical Appliances (draft Supplier Requirements)⁸, which are reportedly pending State Council approval. The most widely circulated version of the draft, as summarized below, adopts many of the approaches of the European Union's 2003 WEEE Directive.⁹

The Draft Supplier Requirements require "producers" (including not only manufacturers but also resellers and importers, but excluding manufacturers of products solely for export) to (i) identify recyclable and non-recyclable components; (ii) reduce usage of environmentally harmful components; (iii) arrange for availability of disassembly for recycling and proper disposal of products and their components at the end of their usage life; and (iv) avoid incineration of recyclable products.

Primary responsibility for the above will be borne by "producers" (as defined above) for products made after a specified cut-off date, while previously-made products will be the joint-responsibility of producers, consumers and local governments.

The draft Supplier Requirements also adopt the approach of a 2003 EU directive,¹⁰ by requiring that new electrical and electronic equipment being sold in the PRC market not contain lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB), polybrominated diphenyl ethers (PBDE).

GLOBAL CONTEXT AND TRENDS

The similarity of recent Chinese legislation to the EU directives is not coincidental. Indeed, the directives affect a large portion of China's exports to Europe, so China is rushing to assist its export manufacturers with compliance. Because the substantial costs of compliance are necessary for maintaining China's exports to the European market, the incremental cost is relatively small when applying identical standards to domestic sales, and the resulting domestic environmental and health benefits appear to be a bargain. This dovetailing of export promotion with domestic environmental protection appears to have facilitated a consensus on rapid legislation in this area and is likely to support prompt implementation and enforcement.

These convergent interests are a positive sign. The immediate beneficiaries will include not only providers of recycling and disposal services, but also suppliers that can leverage their European experience to achieve cost-effective compliance with Chinese standards. Longer term beneficiaries will include all economic actors who prefer predictability in China and consistency with Europe, and of course all those whose quality of life and health is affected by China's environment - both inside and outside the country.

Endnotes

1 Issued by the Standing Committee of the 10th National People's Congress on December 29, 2004, effective from April 1 2005.

2 The "relevant people's government" could be interpreted to mean the local government in charge of the site where waste is located, or alternatively where the enterprise has its legal address.

3 The original Chinese text of the key article 35 reads as follows:

第三十五条　产生工业固体废物的单位需要终止的，应当事先对工业固体废物的贮存、处置的设施、场所采取污染防治措施,并对未处置的工业固体废物作出妥善处置,防止污染环境。

产生工业固体废物的单位发生变更的，变更后的单位应当按照国家有关环境保护的规定对未处置的工业固体废物及其贮存、处置的设施、场所的污染物防治责任另有约定的，从其约定；但是，不得免除当事人的污染防治义务。

对本法施行前已经终止的单位未处置的工业固体废物及其贮存、处置的设施、场所进行安全处置的费用，由有关人民政府承担；但是，该单位享有的土地使用权依法转让的，应当由土地使用权受让人承担处置费用，当事人另有约定的，从其约定；但是，不得免除当事人的污染防治义务。

4 There may also be a temptation for authorities to find liability on the part of an enterprise's legal representative, managers, directors and/or suppliers of goods, services or technology.

5 This basic approach was previously reflected in the 2004 amendments to the PRC Foreign Trade Law (Article 16 and 26).

6 On July 18, 2003, SAQSIQ issued a Notice of Several Opinions Regarding Further Strengthening of the Administration of Import Inspection of Solid Waste Materials.

7 The Implementing Measures on Registration for Offshore Supplying Enterprises for Imported Waste Materials, issued by SAQSIQ on May 8th, 2004, with effect on the same date.

8 The draft Measures on Recycling and Disposal of Waste and Used Household Electrical Appliances were prepared by the National Reform & Development Commission in 2004 and are reportedly awaiting approval by the State Council.

9 Issued in February 2003; stated to be effective August 13, 2005, but subject to possible deferral by individual European countries.

10 Directive Regarding Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (ROHS), issued in February 2003.