China updates its Products Quality Law

China amended its Products Quality Law on 8th July 2000 - nearly two thirds of the old articles have been changed. The amended law came into force on 1st September 2000. The amendment aims to further improve the quality of products, reduce illegal activities currently found in manufacturing operations and to prevent the marketing of fake or poor quality products. The new law is also intended to increase the strength of the Supervising Authorities so they may more effectively monitor products and impose severe sanctions where serious offences occur.

The new Products Quality Law (the "New Law") has reflected major changes in four aspects compared with the old one.

First, further clarification of the Government's responsibilities in supervising product quality. A new article has been added stating that Governments at various levels shall put the work of improving product quality into the State Economic and Social Development Plan and strengthen the overall planning, organising and leading role in supervising product quality. Supervising product quality becomes a job of strategic importance for various Governments. Governmental officials at various levels or of different departments should not abuse their powers, ignore responsibilities, cover or even encourage illegal activities in local areas or in the same department, in the course of manufacturing and marketing products, resist or interfere with the investigations against offences of the new Law. Otherwise, legal responsibilities should be imposed on the officials in charge. The last point may be the most important and practical one. Any Government, organisation, enterprise or individual shall not block the quality-passed products manufactured by enterprises in other regions or departments from entering the market of local regions or their own departments. This article expressly declares the now illegal prevailing practices of local protectionism or departmental protectionism. The free flow of products across different regions and departments will surely encourage fair competition and improve product quality.

Second, to set up a complete system of supervising product quality for enterprises. The most important part of this system is on the source of products in circulation. Manufacturers and sellers shall set up and complement self-supervising systems of quality management and control and strictly enforce the rule that quality control be assigned to every position in the course of manufacturing and marketing, and clarify responsibilities of each position accordingly. This provision ensures the quality of products through the mandatory adoption of internal quality management and control systems in enterprises.

The remaining three measures are provided from the point of external supervision. The Authorities will from time to time carry out quality inspections through sampling. Manufacturers and sellers cannot refuse to co-operate with the Authorities in charge of such inspections as their business licenses may be cancelled. For those enterprises whose products fail to meet quality standards, the Authorities conducting the inspection may order the manufacturers or the sellers to correct their standards within a specified time limit. In case of non-correction, the Authorities at provincial level may publicly announce poor quality products. A re-inspection will be conducted after the public announcement and if failure is found again, the Authorities may order temporary closure of the business and correction within a specified period. Upon the end of the specified period, the business license may be cancelled if they fail again. The Product Quality Verification Institute (the "Institute") shall issue inspection results or a verification certificate according to relevant standards on an objective and fair basis. For those products using the verification certificate, the Institute who issued the certificate shall continue its inspection after issuance of such certificate. If the products with a verification certificate failed to meet the requirements, the Institute should request correction. In case of severe breaches, the verification certificate should be revoked. Any unit or individual has the right to report offences of the new Law to the Authorities or other relevant departments. The Authorities shall keep secret the name of these informers.

Third, to expand on the enforcing means of the Authorities. This article specially sets out the means available to the Authorities when they conduct investigations into the suspected offenses. 1) Spot investigation; 2) To make inquiries as to the persons involved for information concerning the illegal manufacturing and marketing activities; 3) To inspect and copy relevant contracts, invoices, accounting records and other documents of involved parties; 4) To seal up or detain the questioned products and the raw materials, packaging and production equipment thereof.

Fourth, to reinforce the legal sanctions against offenses. Chapter 5 of the old Product Quality Law which deals with legal sanctions has nearly all been changed. These changes can be summarized into two aspects. First, to expand the scope of parties on whom legal sanctions may be imposed. The Institutes who issue incorrect inspection results or false verification certificates may be liable for such offenses. Social organisations or other intermediary institutions that made promises or guarantees as to the quality of the products while the actual quality fails to meet the promises or guarantees shall be jointly liable with manufacturers and sellers for damages. Advertisers who make false statements about the product quality to cheat or mislead the consumers shall be liable in accordance with the PRC Advertisement Law. Enterprises or individuals who provide transportation, warehousing and storing services or production technologies for products that are prohibited by the Law to be manufactured or marketed while they know or should know such prohibition shall be subject to the sanctions. Service providers who provide services to consumers using the products prohibited by the Law to be marketed shall also be subject to punishment.

Second, to increase the sum of penalties that may be levied. One noticeable change is to substitute the original "Illegal Income", which serves as the basis to determine monetary penalties with "the value of products illegally manufactured or marketed". Obviously "the value of products illegally manufactured or marketed" is a much bigger sum than the "illegal income". The monetary penalty will thus be more severe than the original case.

These changes on sanctions are made in response to the current situation in enforcing the old Law that those offenders cannot be sufficiently punished so that they dare not commit again. And these new changes definitely reflect the great determination of the PRC Government to strike the activities of manufacturing and marketing of fake or poor quality products.

For further information please contact Luke Filei on [email protected] or +86 10 6590 0389 in Beijing or +86 21 6289 6363 in Shanghai.