How to properly conduct an auto recall in China

While local news attributed this trend to the Regulations' role in improving consumer protection, German media appeared to be more conservative and, because most of the recalls involved foreign brands, presumed that the Chinese authorities were deliberately trying to strengthen the competitiveness of local carmakers. Spiegel, a German news outlet, for instance, reported an incident in 2014 where Mercedes-Benz cars were deemed to be defective in several countries, but were recalled only in China for safety reasons.

The new, stronger Regulations

The purpose of the Regulations is to strengthen the supervision of automotive products and ensure personal and property safety. Article 3.2 expressly defines “recall” as the activity of automotive manufacturers taking measures to eliminate the defects of their sold products.

The Regulations provide clear guidelines regarding the material and personal scopes of application. The 2016 Implementing Rules for the Regulations for the Administration of the Recall of Defective Automotive Products (Implementing Rules) issued by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), apply in accordance with the Regulations.

Material scope

The Regulations define automobiles (motor vehicles with four or more wheels) and trailers (vehicles without their own power-driven devices and must be towed). They also state that manufacturers are responsible for the recall of tires, which belong to automobile assembly parts. The Regulations only apply to automobiles produced or sold in China.

Personal scope

The personal scope of the Regulations includes manufacturers, importers and operators. Relevant national supervision and management departments and their personnel are also held legally responsible.

Manufacturer:

The liability predominantly rests with the manufacturer. Article 8.2 of the Regulations refers to manufacturers as the companies legally established within the territory of China, which make automobile products and in whose name a certificate of product inspection is issued. Unlike the 2004 Provisions, foreign manufacturers are no longer expressly mentioned as implementation objects. However, once automobile products are deemed defective, they will de facto be liable owing to the joint ventures with domestic makers.

Importer:

Article 8.3 of the Regulations reiterates that automobile importers are also considered to be manufacturers. They therefore also bear corresponding duties requiring action and possible sanctions. The equal status of both importers and manufacturers had already been outlined in the Provisions as well as the PRC Tort Liability Law.

Operator:

The Regulations slightly adjust the concept of operators. Article 11.1 defines an operator as the subject for selling, renting and repairing automobiles, in contrast to Article 5.8 of the Provisions which also included manufacturers and importers in the scope.

Manufacturer and operator responsibilities

Manufacturer:

Manufacturers must continuously monitor their production to avoid defects. Article 7 of the Provisions provides for a ten-year period, starting with the delivery of the respective product. However, in practice, manufacturers should monitor for ten years after delivery of the final automobile product. In addition, they must establish and keep records, including information on the design, manufacturing and labeling of their products, and file them with AQSIQ. The 2016 Implementing Rules specify the type of information that needs to be recorded.

Operator:

Operators need to gather and record the information for at least five years. Once an operator suspects a product defect, he must report to AQSIQ and inform the manufacturer. If AQSIQ asks for an inspection, the operator must cooperate and provide all relevant materials. The Regulations require the operator to immediately stop all respective business activities and assist the manufacturer to recall the defective automobile products once a defect is confirmed.

Criteria for recall

The Regulations define defects to be non-compliance with national or industrial standards protecting personal and property safety or other unreasonable dangers risks to such safety existing in the same lot, model or type of automotive products for design, manufacturing, labeling or other reasons. This definition is similar to the one in Article 46 of the PRC Product Quality Law, but presents two different criteria that need to be met: Firstly, the Regulations require that the products should have a series of defects (instead of individual defects). Secondly, the products may be deemed defective even if they have been manufactured in line with national and industrial standards. (Under the Product Quality Law, in contrast, Article 46 will no longer be considered once a product is identified as meeting the standards.)

Recall procedure

The Regulations require the manufacturer to analyze and investigate promptly after acknowledging the presence of defects. If AQSIQ becomes aware of a possible defect, it notifies the manufacturer to promptly conduct an investigation. If the manufacturer fails to comply, AQSIQ may initiate the investigation itself.

As provided in the 2004 Provisions, the recall procedure can be conducted by either the manufacturer itself or the AQSIQ. If the manufacturer confirms that defects identified by the Regulations exist, the manufacturer must stop production, sale and export and recall the sold products.

Once AQSIQ detects a product defect, it will instruct the manufacturer to conduct the recall. If the manufacturer believes there are no defects, it can appeal and submit the supporting evidence within 15 working days. If the manufacturer neither conducts the recall nor puts forward the objection within this time period, or AQSIQ identifies the defective auto product through technical tests, AQSIQ will order the manufacturer to conduct the recall.

According to the 2004 Provisions, AQSIQ must be notified within five working days of the defect being identified. The Regulations, however, imply that the manufacturer must inform AQSIQ of the results of the investigation without any delay.

Voluntary recall

If a manufacturer wants to voluntarily recall its products, it must notify AQSIQ within five working days. It only needs to comply with the general notification obligations to do so, particularly those for notifying defects. Article 26 of the Provisions provides for the duties for specific information. Although covered by the new Regulations, the Provisions set additional measures for manufacturers, such as informing trade partners of the defects, possibly paying damages and taking preventive measures. Sellers and importers must prevent these products from entering the market.

After the recall, manufacturers must submit a final report to AQSIQ within one month. If the recall fails to achieve the anticipated effect, AQSIQ may demand a renewal or take extra measures.

Mandatory recall

If a manufacturer refuses to conduct a recall as notified by AQSIQ, a mandatory recall will be issued, in which case the manufacturer's automobile production license will be declared provisionally invalid or revoked. For defective vehicles produced overseas, import will no longer be allowed. The Provisions also standardize the manufacturer's obligations to notify sellers, importers and owners, and require them to submit a recall plan within one month of receiving the order of mandatory recall. The recall must start on the same day as when the manufacturer notifies sellers, renters, mechanical engineers and owners. Beyond that, the manufacturer must submit a quarterly progress report.

A manufacturer can raise objections and file an administrative lawsuit for mandatory recall under the Provisions. However, if the manufacturer lodges an objection, the recall will not be suspended.

Punishments for violations

The Provisions have been criticized for failing to fulfil their ultimate purpose as a result of lack of penalty measures. The new Regulations greatly extend the possible punishments and the Implementing Rules provide for further sanctions.

Filing and reporting

If the manufacturer fails to preserve the information required to be filed for record, to report a defect or to submit a recall report, or refuses to make amendment, then it will be fined between Rmb50,000 and Rmb200,000.

Cooperating in investigations

If the manufacturer or dealer fails to cooperate with AQSIQ in an investigation, implement a recall according to the plan or notify sellers of its recall plan, it will be imposed a fine between Rmb500,000 and Rmb1 million and have its illegal income confiscated. The relevant license will also be revoked if the circumstances of violation are serious.

The Regulations stipulate the punishment measures for serious violations, e.g. if the manufacturer fails to stop producing, selling or importing defective automobile products; withholds information on defects; or refuses to implement a recall as ordered. Regardless of whether a correction is made, the manufacturer will be fined between 1% and 10% of the monetary value of defective automobile products and have its illegal income seized. Its license may also be revoked for serious violations.

Publishing and updating information

The Implementation Measures provide for further penalties for minor infringements, including the violation of publication requirements or the obligation to update information. Here, the manufacturer may be fined between Rmb10,000 and Rmb30,000.

Jörg Binding and J. Benedikt Vogel, Deutsche Gesellschaft für Internationale

Zusammenarbeit (GIZ), Beijing