In response to a series of well-publicized incidents involving contaminated food produced in China, the Chinese government enacted the PRC Food Safety Law (“Law”) and the Implementation Regulations of PRC Food Safety Law (“Implementation Regulations”) aimed to address food safety concerns. These new rules broadened the government’s authority to regulate food production in China and granted consumers a right of action to sue for compensatory and punitive damages. This e-Update highlights parts of the new legislation that may affect the packaged food manufacturers in China.
In addition to complying with the Ministry of Commerce rules on establishing business entities, an enterprise planning to set up food related production in China must also apply for a permit specifically for making food products. According to Article 20 of the Implementation Regulations, an enterprise must first obtain conditional approval for its corporate name. Then it must submit an application to the local branch of the Ministry of General Administration for Quality Supervision and Quarantine for a permit to produce food products. The process for obtaining this special permit takes about sixty days. After obtaining the special permit, the enterprise can then apply for a business license. Please note that a foreign invested enterprise must also apply for a foreign investment approval certificate.
A food manufacturing permit is valid for three years. At present, the Law and the Implementation Regulations do not address permit renewal. Permits that were issued before the effective date of the Law are still valid.
Unlike the old law, the Law now requires food manufacturers to maintain detailed records of their packaged food production. When a production facility purchases ingredients for making food products, it now must keep detailed records on all purchased ingredients used for production. An entry in the records about a purchased ingredient must include: the ingredient’s name and specifications, quantities purchased, and the supplier’s contact information.
Likewise, when a production facility ships out its finished goods, it must record the production date, the production batch number, the finished product’s name and specifications, quantity shipped, and the purchaser’s contact information. These records must be kept for at least two years.
Initiating Food Recalls
Before the current legislation on food safety, food recall in China was governed by administrative rules. Now, Article 53 of the Law has empowered the central government to establish a standardized national food recall system. According to Article 53, when a food product fails to conform to the food safety standards set forth in the Law, the responsible manufacturer should initiate a voluntary food recall.
During a food recall, the manufacturer must: (a) suspend production of the product being recalled, (b) recall all products that have entered the stream of commerce, (c) notify all consumers, (d) keep records of the recall, (e) destroy the recalled products or take other appropriate actions, and (f) report the incident to the local quality supervision administration. If the food manufacturer fails—or refuses—to initiate a food recall, the government has the power under Article 53 of the Law to commence a mandatory food recall.
Compared to the old law, the Law has increased the penalties for violators. Besides facing possible criminal prosecution from the government, the Law granted a private right of action to injured consumers for suing the company that produced the tainted product. Besides suing for compensatory damages, the injured consumers now have the right to sue for punitive damages. The amount of the punitive damages could be up to ten times the retail purchase price.
Besides granting a private right of action, the Law also gave the injured consumers priority to collect damages. Under the priority rule stated in Article 97 of the Law, if a company does not have sufficient resources to pay money damages awarded to the injured consumers and monetary penalties to the government at the same time, the consumers’ money damages will be paid first.
China has enacted the PRC Food Safety Law and its Implementation Regulations to promote food safety for consumers. Packaged food manufacturers operating in China should review their operating procedures to ensure that they comply with the new requirements. Besides facing sanctions from the government for non-compliance, violators of the Law also risk paying compensatory and punitive damages to consumers.