In the PRC, product liability can arise under the PRC Contract Law, the PRC Product Quality Law, the PRC Law on the Protection on the Rights and Interests of Consumers and the PRC Tort Law. In particular, Article 111 of the PRC Contract Law entitles users and consumers to claim repair, replacement and return of products in case of defects. The above three remedies are generally called “three guarantees”.
In regard to automobiles, already since 2004 special regulations exist. The PRC Regulation on Administration of Recall of Defective Automobile Products jointly issued by the State Quality Supervision, Inspection and Quarantine Bureau (“SAQSIQ”), the State Development and Reform Commission, the Ministry of Commerce and the General Customs on March 12, 2004 imposes recall obligations for defective automobiles on automobile manufacturers or importers, if certain circumstances are fulfilled.
Already since 2004, the SAQSIQ has been working on a more detailed regulation regulating the three guarantees for so-called household automotive products, i.e. automobiles used by consumers. The first draft of such regulation had already been published end of 2004 for public comments. Two subsequent drafts followed in 2011 and early 2012. Finally, after 8 years the SAQSIQ on December 29, 2012 promulgated the Regulations on Liability for Repair, Replacement and Return of Household Automotive Products (“Automobile Guarantee Regulations”). They will take effect on October 1, 2013.
Under the Automobile Guarantee Regulations, consumers are entitled to request for repair, replacement and return (“Three Guarantees”) of automobiles and their related parts within certain periods.
Household automotive products are defined as passenger cars purchased and used by consumers for personal consumption. Such automobiles shall be accompanied with a product inspection certificate in Chinese or relevant certification, a user’s manual, a three guarantee voucher and a maintenance manual.
The Automobile Guarantee Regulations list in detail the respective obligations of producers, sellers and repairers. The sellers of automobiles must assume liability for the Three Guarantees. If the liability is attributable to the producer or other business operators, the sellers are entitled to reimbursement by the latter.
1. Warranty Period and Three Guarantee Period
According to Article 17 of the Automobile Guarantee Regulations, the warranty period for automobiles shall not be less than three years or 60,000 km, whichever is earlier and the validity term of the Three Guarantees shall not be less than 2 years or 50,000 kilometers, whichever is earlier. The warranty period and the validity term of the Three Guarantee Period commence from the date of issuance of the purchase invoice by the seller.
According to Article 18 of the Automobile Guarantee Regulations, if product quality problems occur during the warranty period, the consumer is entitled to repair free of charge provided that the consumer presents the three guarantee voucher. During the validity term of the Three Guarantee Period the consumer is entitled to ask for replacement or return of the product, if the conditions as set out in the Automobile Guarantee Regulations are met. Therefore, after the expiration of the Three Guarantee Period consumers still have the right to request free repair for an additional period of 1 year up to a mileage of 60,000 kilometers.
The scope of repair, replacement and return are different depending on which parts of the automobile are defective.
Repair: In case of quality problems during the warranty period the consumer is entitled to receive free repair services (including man-hour costs and material costs) by presenting the three guarantee voucher.
- Engine and transmission: Free replacement of the engine and transmission in case of quality problems of the main parts within 60 days or 3000 kilometers (whichever comes earlier) after issuance of the purchase invoice. The scope of the main parts of the engine and transmission shall be stated in the three guarantee voucher issued by the manufacturer and shall be in line with the relevant national standards and the provisions on specific requirements to be issued separately by the SAQSIQ.
- Consumable spare parts: Free replacement of consumable spare parts in case of quality problems within the guarantee period. The scope of the such parts and components shall be explicitly stated by the manufacturer in the three guarantee voucher and shall comply with the relevant national standards and the provisions on specific requirements to be issued separately by the SAQSIQ.
- Entire automobile: Replacement of the entire automobile by presenting the three guarantee voucher and the purchase invoice in case the accumulative repair time for quality problems has surpassed 35 days or the automobile has been repaired for more than 5 times due to the same quality problems within the Three Guarantee Period.
Return: The consumer is entitled to return the automobile or ask for replacement in the following four situations:
- The steering system or brake system failed to function properly, the automobile body cracked or oil leaked within 60 days or 3000 kilometers (whichever comes earlier) after the issuance of the purchase invoice.
- Serious safety malfunction could not be excluded or new serious malfunctions have occurred after the second repair within the Three Guarantee Period.
- The engine or the transmission or the main parts thereof fail to function properly after the second replacement within the Three Guarantee Period.
- The main parts of the steering system, the brake system, the suspension system, the front/rear axle or the automobile body fail to function properly after the second replacement within the Three Guarantee Period.
The Automobile Guarantee Regulations also impose the following obligations on the manufacturer, seller and repairer:
- Where, during the warranty period, the time of each repair (including time of waiting for the spare parts for repair) for a product quality problem is more than 5 days, the consumer shall be provided with a spare vehicle or reasonable compensation for travel expenses.
- Repairers shall maintain a reasonable reserve of spare parts necessary for repair to ensure normal repair work and avoid prolonged repair for lack of spare parts.
- If, during the Three Guarantee Period, the consumer files a written request for replacement or return of the product, the seller must make a written reply within 10 working days of receipt.
Liability under the Three Guarantee may be exempted under certain circumstances, e.g.
- the consumer has been informed in writing of the defects existing in the product at the time of purchase;
- the automobile is used for leasing or other for–profit operations;
- the product is damaged as a result of the consumer’s improper handling after the occurrence of a product quality problem;
- the product is damaged as a result of the consumer’s failure to correctly use, maintain or repair the product in accordance with the requirements of the user’s manual;
- the product is damaged due to Force Majeure.
Exemption also applies, if the consumer cannot produce a valid invoice and a three guarantee voucher.
The Automobile Guarantee Regulations are an important step forward to protect consumers’ rights. The regulations also expressly encourage business operators to make their three guarantee commitment more stringent than the statutory requirements. Currently, due to the fierce market competition in China, a number of automobile manufacturers indeed do already provide consumers with guarantees which are more favorable than the statutory requirements.