Kids, Don't Try This At Home In Washington: China Enacts Draconian Recall Law
Usually, China gets accused of copying from America. This time, U.S. lawmakers will itch to copy a new Chinese law that comes in effect on January 1. Stealing this idea could help solve the current cash flow problems in Washington, and could provide a happy ending to the DC fiscal cliff-hanger. It also could provide an elegant way to eliminate disagreeable competitors. Car companies would not like it at all.
China’s new Administrative Regulations on the Recall of Defective Automobile Products, Number 626, were signed into law on October 22, 2012 by China’s outgoing premier Wen Jiabao. Previous rules provided for slaps on the wrists in the amount of $5,000 max if an automaker refused to recall defective vehicles. The new law raises the fine to $32,000, still bupkis compared to the $16.4 million an ignored recall could cost stateside. But wait, there is more, much more:
Egregious acts, such as failure to stop producing, selling, or importing defective automobile products; concealing defect information; and failure to implement a mandated recall can become extremely costly. In that case, says Article 24, China’s Product Quality Supervision Department shall impose a fine of “more than 2% but less than 10%” the value of the affected goods.
Let’s run the numbers: The gas pedal, floor mat, and steering rod affairs did cost Toyota $16.4 million each, for a total of $50 million (including $800,000 for legal costs…). According to published information, the three recalls affected 8.7 million units. Using an average price of $30,000 per unit, the matter would have cost … $26.1 billion under the new Chinese law.
Oooops.
In 2010, lawmakers tried to raise the cap from $16.4 million to $300 million. That law never made it, but if enacted would have netted the Treasury less than a billion for the aforementioned affairs, still cheap compared what the fine in allegedly low-cost China could be.
There is another provision in the Chinese law that might be even more enticing to certain lawmakers: “In serious cases, the licensing organ may revoke the relevant permit of the concerned party.” Meaning: The company can be fined and kicked out of the country.
“Illegal gains shall be confiscated.”
Interested parties can find the law (in Chinese) here.
Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.
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Does anyone else see this as a legal way for the Chinese government to seize the assets of any company they choose? "There is another provision in the Chinese law that might be even more enticing to certain lawmakers: “In serious cases, the licensing organ may revoke the relevant permit of the concerned party.” Meaning: The company can be fined and kicked out of the country. “Illegal gains shall be confiscated.”" That part really scares me, with the highly political court in China when it comes to business, I see this as an opening of the door so that if in the future the government doesn't like a country/company they can just take everything because of the companies "crimes"
China has all kinds of draconian laws like this. It's why foreign companies hire lawyers to use complicated structures to avoid certain liabilities in China. Not much to see here, but companies that opened factories in China should have known what they were getting into.