Draft Regulations on the Supervision and Administration of Automotive Product Recalls

Issuing Body: General Administration of Quality Supervision, Inspection and Quarantine
Issuing Date: July 2, 2010

China's General Administration of Quality, Supervision, Inspection and Quarantine (AQSIQ), which is responsible for the oversight and administration of product quality nationwide, has issued a draft version of regulations that would strengthen the country's auto product recall rules, broadening them to cover safety-related components in addition to vehicles themselves. By aligning China's auto product recall rules with international standards, the Draft Regulations on the Supervision and Administration of Automotive Product Recalls (Draft Auto Recall Regulations), which were released for public comment on July 2, 2010, are expected to improve quality and strengthen the competitiveness of China's domestic automakers.

The Draft Auto Recall Regulations are based on the Administrative Regulations on Defective Automotive Product Recalls (2004 Auto Recall Regulations), which were jointly issued by the National Development and Reform Commission, the Ministry of Commerce, and the General Administration of Customs in 2004. The Draft Auto Recall Regulations bring major automotive components under the umbrella of China's recall rules, simplify recall procedures to enhance enforcement efficiency, impose significant fines on companies for the failing to enforce a compulsory recall, and grant AQSIQ investigative powers relating to defective automotive products.

The draft rules would apply to automotive products manufactured in, imported to, or sold in China. Automobiles and parts that are manufactured or installed in China and subsequently exported are subject to the recall rules of destination countries.

Expanded Scope of Products Subject to Recall

One of the most important changes effected by the Draft Auto Recall Regulations is the expansion of products subject to auto recall rules. In addition to the products already covered by the 2004 Auto Recall Regulations (vehicles, combination vehicles, trailers), the Draft Auto Recall Regulations would cover major safety-related automotive components, including tires, automotive chassis, and child safety seats.

New Recall Measures

The Draft Auto Recall Regulations require automobile makers to recall defective products that are unreasonably dangerous to the public as a result of incorrect, improper, or absent labeling, addition to design and production issues already covered by the 2004 Auto Recall Regulations. Corresponding to that expansion, the Draft Auto Recall Regulations contain new measures to address defects, such as the correction or supplementation of labeling on defective automotive products.

Simplified Recall Procedures and Tightened Timelines

Under the Draft Auto Recall Regulations, the timeline for an automaker to enforce a recall would be shortened, with the goal being to increase efficiency and better protect consumers. Under the draft rules, an automobile recall would involve the following procedures:

• The automaker ceases production, sale and/or import of the defective automotive products immediately after discovery and confirmation of defects or receipt of a compulsory recall order from AQSIQ; notifies sellers to cease sales; notifies customers of the defects, risks, safe use suggestions, and protective measures, including a warning to stop using the defective product, if necessary; and submits a recall implementation report to AQSIQ within five working days after the discovery of defects or receipt of a compulsory recall order. Under the 2004 Auto Recall Regulations currently in effect, automakers have ten working days to notify sellers, importers, and customers of defect information and one month to develop a recall plan.
• AQSIQ releases a recall announcement to the public upon its receipt of a recall implementation report submitted by the automaker.
• AQSIQ reviews and assesses the automaker's report, if necessary, and notifies the company of its review and assessment results.
• The automaker enforces the recall pursuant to the submitted report, with recall measures matching the results of AQSIQ's risk evaluation.
• The automaker submits a recall status report and final report as required by AQSIQ.

Significant Fines for Failure to Enforce a Compulsory Recall

If an automaker does not implement a compulsory recall ordered by the GAQSIQ, a fine ranging from 5 to as much as 50 percent of the total value of the affected product could be imposed. This provision would significantly increase the cost of failing to comply with the law. Under the 2004 Auto Recall Regulations currently in effect, the maximum fine is RMB30,000, with a fine being imposed if the automaker: (i) intentionally conceals defects; (ii) intends to avoid regulatory supervision by making use of a voluntary recall; or (iii) does not accomplish the goal of a completed recall, which then leads to a recurrence of damages to the public.

Investigative Power Granted to AQSIQ

In order to enable effective enforcement of the law, AQSIQ is granted the following powers when investigating defective products:

• Spot inspection in places of business of automakers, importers or domestic agencies of offshore makers, sellers, repairers, and renters;
• Inspect and duplicate relevant materials and records;
• Seize potentially defective automotive products, if necessary;
• Investigate potential defects of related entities and individuals, and solicit information from the public solicitation; and
• Request the provision of other materials as necessary.

Synchronization of Overseas Recalls by Offshore Automakers

Importers or domestic agencies of offshore automakers are required to report recalls enforced by offshore automakers to AQSIQ in a timely manner.

Conclusion

The Draft Auto Recall Regulations will be discussed and amended by AQSIQ based on public comments received before July 9, 2010, with a final version of the rules expected by the end of this year. The Draft Auto Recall Regulations follow international standards for automotive and automotive product recalls. By broadening and strengthening China's auto recall rules, the new regulations are expected to improve quality in and strengthen the competitiveness of China's domestic automakers.