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Marketing and Sale
of Consumer Products and Services in Shanghai to Be Impacted by
the New Municipal Rules on Consumer Protection
by
Ron (Rongwei) Cai
[November 2002]
On October 28, 2002, Shanghai Municipal People's Congress amended
the "Shanghai Municipal Rules on the Protection of Consumer
Interest" (the "Rules"). The Rules will enter into
effect on January 1, 2003. The implementation of the Rules will
have a significant impact on the current marketing and sale practices
in Shanghai. Foreign companies and foreign invested enterprises
("FIE") selling products and services in Shanghai should
pay particular attention to the Rules and any future supplemental
regulations. The following is a summary of the new features in the
Rules.
A. Definition of Consumer
Ever since Wang Hai, a Beijing resident who became a well known
consumer protection advocate, started to go around the country to
buy fake and defective products, and then demand refunds and punitive
damages, there have been debates as to what constitutes "consumers".
Many retailers and manufacturers do not agree that individuals or
consumer rights groups, such as Wang Hai and his associates, are
qualified as "consumers" if they do not intend to consume
products or services they purchase.
The Rules seem to have yielded to the criticism from business owners.
The Rules provide that a "consumer" under the protection
of the Rules is one who, for the need of personal consumption, purchases
or uses goods, or receives services within the Shanghai Municipality.
It appears that:
(1) products consumed or services received by businesses or entities
are excluded; and
(2) buying for the purpose other than real consumption is also excluded.
It is unclear whether office or household products or services
that are purchased by businesses or entities, but are ultimately
used by individuals (such as their employees) at work place is considered
"consumer" products or services. It would be well advised,
however, for the sellers and service providers to take a conservative
approach and treat them as consumer products or services.
B. Consumer Privacy
(1) The Rules prohibit sellers and service providers (collectively,
the "operators') from requesting information from consumers
that is unrelated to the consumption of the products or the services.
(i) There is no definition of consumption here. One may argue
that while some information collected from consumers is not relevant
to the immediate consumption, it will help the operator improve
its products and services in the future. It is doubtful, however,
that the enforcement authority will take such a liberal view.
(ii) The Rules do not seem to allow information collection even
if a consumer agrees to provide such information.
(iii) It is unclear whether the Rules allow information collection
programs often seen in China and many other countries in which
an individual may receive a small gift from the information collector
if he/she completes a survey/questionnaire or provides certain
personal information.
(2) Under the Rules, "Personal Information" includes
"name, sex, occupation, education level, contact information,
marital status, income and asset information, finger prints, blood
type, health history and other information closely related to the
individual consumer and his/her family."
(3) Under the Rules, one may not, without the consumer's consent,
disclose personal information collected from a consumer, unless
such disclosure is otherwise authorized by law. That means that
no businesses (including telecom providers) may buy or sell a consumer's
personal information without his/her consent. It is unclear whether
publication of telephone directories, such as White Pages, can be
exempted. Disclosure of individual telephone numbers has been a
controversy in China. However, mobile phone service providers have
been providing individual mobile phone numbers to many businesses
for them to send short promotional messages. Lately there have been
lawsuits against those providers in several other cities in China.
(4) Under the Rules, a business has no right to search consumers'
body or personal belongings or detain consumers. It is unclear whether
search with a consumer's consent can be justified. In some lawsuits,
consents have been used by retailers as defenses. It would be interesting
to see if Shanghai allows such a defense.
C. Consumers' Right to Know
The Rules impose high standard obligations on operators to inform
consumers of the facts of the products and services, and to truthfully
answer consumers' questions. Specifically:
(1) In accordance with applicable laws, industry rules and practices,
operators should voluntarily disclose the following to consumers:
(i) price, place of manufacture, name of the manufacturer, use,
specification, main ingredients, net content, manufacture and
expiration dates, instruction for the use, after sale services,
etc.;
(ii) for real estate projects, documents evidencing the ownership
and land use rights, design of the structure, calculation and
measurement of the space, etc.
(iii) nature of services, specifications, fees, standards, test
results and services and repair records.
(2) If the seller stops sale of certain products or if the service
provider terminates certain services, it should provide a prior
notice to consumers, take proper measures to minimize negative impact
and should compensate consumers for any damages caused by the termination.
Providers of public utility services need to provide prior notices
to consumers who have failed to pay and allow them a reasonable
period of time to cure before terminating the services.
D. Direct Sales
(1) For direct sales through Internet, TV and telephonic sales:
(i) Goods and services actually delivered should be identical
to the ones on the advertisements in terms of appearance, quality,
functions, and should be delivered within the time periods as
promised.
(ii) Except for those goods and services of which quality warranty
periods are shorter than 7 days, consumers may, without any reason,
return any goods and services purchased through Internet, TV and
telephonic sales within 7 days of the purchase.
(2) For door-to-door sales:
(i) The sales person needs to obtain consents from a potential
buyer to visit the potential buyer. The sales person also needs
to present the authorization documents and his/her ID. He/she
should also provide written documentation regarding the price,
specification, functions of the goods or services, the address
of the seller, and the after sale service information.
(ii) Except for those goods and services of which quality warranty
periods are shorter than 7 days, consumers may, without any reason,
return any goods and services purchased through door-to-door sales
within 7 days of the purchase.
E. "Bonus", "Gift" and Discounted
Products and Services
The Rules provide that those bonus, gift and discounted and other
promotional products and services are not exempted from the requirements
of the Rules.
F. Product Recalls
(1) Product recalls have been a hotly debated topic in China for
the past several months. The debate is primarily focused on automobiles.
Some product makers, such as Legend, have voluntarily recalled computers,
setting precedents for the industry. However, as far as we know,
so far neither national nor local laws and regulations have mandated
product recalls.
(2) The Rules have become a pioneer in this area. They require
makers to voluntarily recall products or services that:
(i) have substantial defects; and
(ii) will likely cause damages to the personal safety or property
even if the consumer properly follows the instruction.
(3) The Rules mandate the following corrective measures:
(i) stop selling or using such products and services;
(ii) recall products and services;
(iii) immediately notify authorities or chamber of the industry
overseeing the industry; and
(iv) if the manufacturer or service provider fails to do so voluntarily,
government authorities or industry chamber may take initiative
of mandatory recall.
G. Consumers' Right of Safety
Several weeks ago, a well known CCTV anchor woman died from a fall
through a dark, unrailed and unmarked balcony on a third floor when
she dined at a restaurant in Beijing. Since then there has been
a national debate on the safety obligation of a business owner.
The Rules require businesses to provide safe products, services,
facilities and locations to consumers, and to provide clear and
truthful warnings and explanations regarding any potential hazards,
and provide instructions as to the proper use and the means to avoid
hazards. Operators of hazardous facilities (such as some entertainment
and recreation facilities) should be equipped with technical conditions
and rescue equipment and should have plans in response to any emergencies.
H. Return and Refund
Consumers may request re-make, or return and refund under any of
the following circumstances:
(1) defective products certified as such by quality certification
authorities;
(2) fraud on the part of the seller/service provider;
(3) quality problems within the warranty period and the operator
has failed to repair;
(4) the sale or service contract so requires;
(5) failure to operate properly after two repairs within the warranty
period;
(6) within 7 days after the purchase in a direct sale; or
(7) any other situations that are mandated by the law.
I. Punitive Damages
In case of consumer fraud, in addition to return and refund, consumers
are entitled to punitive damages equal to 100% of the sales price
of the goods or services.
J. Administrative Penalties
Under the following circumstances, Shanghai municipal or a district
Administrative Bureau of Industry and Commerce ("AIC")
may impose administrative penalties on the operator:
(1) failure to show the operator's service mark, or true name,
or business logo;
(2) consumer fraud;
(3) selling goods or services through coercion;
(4) short in quantity or including the weight of the package in
calculating the price of the good;
(5) failure to obtain consumer's consent or failure to provide
required documents when engaging in door to door sales;
(6) without consumers' consents, increasing charges to consumers
for the costs of the business advertisements sent to the consumers;
or
(7) failure to provide documentation to prove the sources of the
goods.
The penalties can range from warning, confiscation of the goods,
to monetary penalties up to 5 times as much as the gross revenue,
and suspension of the business license.
K. Notes
The Rules present major breakthroughs in some areas of law (for
example, product recalls) and set precedents in China. In some areas,
the protection exceeds what developed countries' laws typically
offer to consumers (for example, the prohibition against disclosure
of consumer's personal information) and may create difficulties
for businesses and commerce. Some other clauses, such as the clause
regarding "increasing charges to consumers for the advertising
costs", and the requirement for an operator who stops a product
or service line to compensate consumers, can be confusing and overbroad.
How some of the controversial clauses will be interpreted and enforced
has yet to be seen (such as recall of automobiles and real estate
development projects).
Meanwhile, it would be well advised for foreign companies and FIEs
selling goods and services in Shanghai to well verse themselves
with the Rules and any future implementation regulations, and make
necessary adjustments to prepare for the Rules implementation on
January 1, 2003.
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