March 01 2007
China's rapid economic development has led to a greater awareness of and demand for consumer protection at government level and among consumers themselves. In an effort to stamp its authority on this vital issue, China is planning to introduce a version of the US 'lemon laws' on vehicle safety. The draft Regulation on the Responsibilities for the Repair, Replacement and Return of Domestic Use Vehicle Products, known as the 'Three Rs Regulation', was first proposed in 2001 by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) for public consultation by the end of 2004. Despite widespread speculation that the regulation would be implemented in 2006, AQSIQ is apparently still undecided on the implementation date.
The draft regulation aims to improve product quality and protect the rights of purchasers and users of personal use vehicles. It obliges all sellers, manufacturers (including foreign manufacturers and importers that fall within the regulation's definition of 'manufacturers') and repairers to guarantee that vehicles comply with operating and safety standards, and repair, replace or accept the return of a faulty vehicle at the customer's request.
The draft regulation gives customers recourse against sellers, manufacturers or repairers. It allows customers to demand that a vehicle be replaced, repaired or accepted for refund in the event of a serious and dangerous malfunction or other quality problem during the validity period set out in the regulation. This period is set at two years or 40,000 kilometres (km) for the whole vehicle and three years or 60,000km for main components and systems (eg, the engine, transmission, chassis, steering, brakes, suspension, electrics and axles). The period is calculated from the date of the first invoice issued by the seller and stated in a certificate issued to the customer. If the period for wear and tear on parts differs from that applicable to the whole vehicle, the manufacturer must indicate this on the certificate.
During the validity period the customer may demand full repairs, seek a replacement or return the vehicle if:
The right of repair, replacement or return also applies if serious safety defects, such as a crack in the chassis, a fuel leak or brake or steering failure, occur within 30 days of sale. The question of what constitutes a quality problem or serious safety defect will be arguable; the draft regulations provide that parties may enlist the help of an independent verification body recognized by AQSIQ to adjudicate in the event of a dispute.
If the total repair time in respect of an alleged product quality problem exceeds 35 working days, the seller must provide a free replacement vehicle of the same brand and model or equal or better specification. Repairers must provide a courtesy vehicle or equivalent compensation for repair time over three working days.
Despite the protection offered under the draft regulation, AQSIQ has not yet set out a schedule for promulgation. Representatives of vehicle manufacturers and dealers object strongly to the broad terms of the regulation and have voiced concerns over the regulation's imprecise language and implementation and enforcement provisions. There have been numerous consultations between AQSIQ and the industry on these key subjects; the consensus is that there should be an adjustment period. There are also fiscal difficulties to be considered, as the return of a vehicle involves refunding the vehicle registration fee, vehicle tax and insurance premium. This will require not only the involvement of AQSIQ, but also the cooperation and administrative support of many other departments if a one-stop service is to be provided. As there are relatively few qualified independent verification bodies in China, questions of burden of proof and the subjectivity and fairness of verification reports by vehicle manufacturers will be crucial. These issues must be considered and resolved before the new obligations are introduced, but implementation it is surely only a short time away.
For further information on this topic please contact Terence Lee or Karrie Cheung at Smith and Partners by telephone (+852 259 487 41) or by fax (+852 259 487 18) or by email (firstname.lastname@example.org or email@example.com).
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