What are the top three environmental law compliance issues facing outside investors in China?
China regulates end-of-pipe emissions in a similar fashion to that of many Western countries. What the US investor usually finds most surprising are the following programs:
- Environmental Impact Assessments are required for all new construction in China (not just government-backed projects, as in the United States).
- China has adopted several laws that incorporate sustainable development principles, such as the Clean Production Law, that require audits of the product design and production process to certify that there is no way to, for instance, make the product with fewer hazardous raw materials, or with less water or energy.
- In the product sale and post-consumer arenas, China has enacted regulations similar to the EU’s Restriction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE) directives. These regulations impose a complex set of obligations upon those who sell certain types of products in China, ranging from the attachment of specific labels to payment into a fund to support the proper disposal of discarded products.
Are environmental laws implemented and enforced uniformly from city to city and region to region in China? How can a foreign-invested enterprise (FIE)'s compliance program manage the vagaries in the practice among different jurisdictions in China?
To answer the first question, no; there are wide variations in environmental law implementation and enforcement at the subnational level in China. As a rule, the laws are more uniformly applied and enforced in China’s prosperous eastern coastal regions and Tier 1 cities. In less populated and prosperous regions, enforcement can be spotty at best.
An FIE’s compliance program should ignore these regional vagaries and conform to the national standards wherever the company operates in China (adopting stricter local rules where applicable). A program that seeks only compliance with the prevailing local custom invites serious trouble in the event of an audit of the locality by national officials or exposure by a green nongovernmental organization (NGO). Sometimes one of the biggest environmental compliance challenges in China is insisting that local authorities issue you a permit that they have never before required of your local peers.
Are the administrative and judicial remedies for decisions by the environmental authorities effective?
If you are fined by a local Environmental Protection Bureau, you have the right to challenge the imposition of the fine in a local People’s Court. Regardless of the facts of the case, the chances of an FIE prevailing in such a challenge are small. On the bright side, the imposition of penalties is usually a last resort in China (after informal attempts to ensure the FIE corrects a violation have failed) and the penalties authorized by China’s environmental laws are very low compared to US penalties; the average penalty is well below US$10,000. Having said this, the fact that you have been fined will be picked up quickly by local and international media and result in negative publicity.