Right of Return Takes Effect on 15 March 2014

Can a buyer return a product they have bought simply because they do not like it, not because it is defective, and receive a full refund of the purchase price? In the European Union, consumers are entitled to do so with long-distance sales. In China, to date, they are not, even though in practice many retailers offer this service for goodwill reasons.

A new Law on the Protection of Consumer Rights and Interests (“CPL”) will change this and certain other aspects of China’s consumer business. The current CPL has been in effect for 20 years without modifications. On 15 March 2014, a revised version of the CPL will finally come into force, as announced by the Standing Committee of the National People's Congress on 25 October 2013. Before finalising the new CPL, the NPC had released two draft versions of the new CPL to solicit public comment, the first in May 2013 (“First Draft”) and the second in September 2013 (“Second Draft”).

As already set out in the First and Second Drafts, business operators in China that distribute products online or by other means of long-distance selling, such as TV shopping channels, telephone, mail order business, etc., will probably be most affected by the consumers’ new seven-day unconditional right of return with full refund of the purchase price. This right is now stipulated in Article 25 of the CPL.

Other major innovations of the First and Second Drafts described in our earlier newsletters have also been retained in the new CPL, e.g.

• liability of providers of online sales platforms,
• liability of social groups, other organisations and individuals that participate in fraudulent advertising involving the recommendation of goods or services,
• strengthened power of consumer organisations,
• increased punitive damages for breaches of the CPL, and
• power of the Chinese authorities to publicise breaches of the CPL.

However, compared with the First and Second Drafts, the new CPL contains several new features, such as:

• online downloads are exempt from the right of return,
• returned products must be intact,
• no time limitation for sending back returned products,
• shipping fees for return to be borne by the consumer, and
• two failed attempts at repair no longer required for return of defective products.

1. Online downloads exempt from the right of return

In order to exclude the unconditional seven-day right of return in unreasonable cases, the right must be subject to certain exemptions. Throughout the First and Second Drafts, these exemptions had been modified in various ways. The final CPL now sets out the following exemptions where the right of return is excluded:

(1) Products customised for the consumer
(2) Fresh and perishable commodities
(3) Audio-visual products, computer software and other digital products that are downloaded by the consumer online or where the packaging of said products has been opened by the consumer
(4) Newspapers and magazines

2. Returned products must be intact

An additional new detail which has been added in the new CPL is the clear requirement in Article 25 that the goods returned by consumers must be intact and in good condition. This clarification should be very much welcomed by business operators as it will protect them against consumers misusing the right of return. It is now clear that consumers may not make extensive use of a product and then return it for a full refund of the purchase price.

3. No time limitation for sending back returned products

In contrast, another requirement which had been introduced by the Second Draft has now disappeared in the final CPL, i.e. that consumers must return the goods within seven days after submitting a corresponding request to the business operator. It is of course unsatisfactory for sellers if a buyer is permitted to use the bought item for a considerable time after their request for return, before actually returning it. It remains to be seen whether sellers will be sufficiently protected against misuse by the requirement to receive the product intact and in good condition, instead of being protected by a requirement of timely return.

4. Shipping fees for return to be borne by consumers

Furthermore, in contrast to the First and Second Drafts and certainly to the relief of business operators, Article 25 of the CPL now contains a provision stating that the shipping fees incurred due to the return shall be borne by the consumer unless otherwise agreed upon by the parties.

5. Two failed attempts at repair no longer required for return of defective products

In contrast to the newly available right of return for defect-free products within seven days in long-distance sales, buyers have had the statutory right to return defective products within the contractual or statutory warranty periods since 1999. The former CPL of 1994 included the requirement that the seller had to be granted two attempts to repair a defective product before the consumer was entitled to return the product. In contrast, the PRC Contract Law which entered into effect in 1999 does not contain this two-attempt repair requirement. Consequently, the First Draft aimed to remove it from the CPL. In the Second Draft, somewhat surprisingly, the two-attempt repair requirement appeared again. However, Article 24 of the CPL now shows that it has not made it into the final CPL.

Such a strict two-attempt repair requirement does not fit with the current Chinese civil law system and would be completely out of place. Given that the PRC Contract Law, which serves as the fundamental legal basis for civil law contracts, including consumer contracts, does not include such a requirement, it would be strange to specifically impose it on consumer contracts. This would mean that in terms of their right to return defective products, consumers would be in a worse position than business purchasers. If the latter are entitled to request immediate return, consumers can hardly be expected to have to wait for two failed attempts at repair before being able to return an item.

Due to the considerably modified framework established by the new CPL for B2C contracts, it is highly recommended that business operators in China adjust their contractual practice, including sample contracts, warranty agreements and general terms and conditions of sale, to the new law.