Legal 'Culture Gap' One Root of Made-in-China Recalls

BEIJING — Chinese executives need to understand American product safety laws to avoid dangerous and costly recalls, Atlanta lawyers told a conference in Beijing on Saturday.

The conference — organized by the Chinese government and sponsored by Atlanta law firm Morris, Manning & Martin — sought to explain American consumer protection laws to Chinese officials and representatives of dozens of companies that export to the United States.

Because China's insurance industry, civil courts and consumer protections "all differ from ours, (Chinese companies) face the same kind of culture gap that many U.S. businesses face when seeking to enter the China market," said Jeffrey Schulte, a partner at Morris, Manning & Martin.

A string of recent recalls of Chinese-made products has damaged China's reputation as an export power. Last March, a Chinese-made pet food ingredient was linked to the death of cats and dogs in North America. Later in the year, U.S. agencies recalled potentially dangerous tires, toothpaste, seafood and toys.

In November, the Consumer Product Safety Commission recalled millions of toy beads marketed as Aqua Dots after they were found to contain an industrial chemical that could cause breathing problems, seizures and death if swallowed. At least eight children were hospitalized in the United States after eating the beads.

Experts point to a perfect storm of weaknesses that led to the recent recalls. Cut-throat competition has led some businesses to substitute cheaper parts while fragmented supply chains and the rapid growth of China's exports has taxed inspectors. China exported $233 billion worth of goods to the United States last year, more than four times the amount exported in 2001, according to Chinese government figures.

But a weak legal system and a misunderstanding of American law has also contributed to shoddy export quality, experts at the conference said.

While the United States began implementing legal protections for consumers in the early 1900s, China's Communist government established a court system only in the 1970s.

Since then, the government has passed many laws protecting individuals. But in practice the regulations are often weak because few Chinese citizens understand their legal rights and judges appointed by local officials often favor companies.

"We need to speed up legal reforms in China to protect consumers," said Li Baoguo, the director of several Chinese associations working to improve product quality. "If we can enforce legal protections here, we won't have as many problems with exports."

The litany of recalls last year threatened China's position as the world's factory and prompted a massive campaign by Beijing to improve product quality.

Officials dispatched across the country to inspect shops and manufacturers closed 192,000 "unlicensed food shops" and seized 1,253 tons of "substandard food," according to a state media report.

After Mattel, the world's largest toy manufacturer, recalled more than 21 million Chinese-made toys worldwide last year due to design flaws and because some contained lead paint, which can cause brain damage if eaten, China's southern Guangdong province revoked or suspended the export licenses of 764 toy factories "because of various quality problems" and ordered another 690 factories to make improvements.

The government also has tightened export regulations. One national food safety law under discussion would require that all labels on food products include ingredients, additives and expiration dates.

Despite the acknowledged problems, Beijing has accused Washington and other governments of using safety concerns to protect domestic industries from low-cost Chinese imports. In a television special aired in August, a top Chinese official said unnamed groups had "demonized Chinese products" to limit imports.

"The Chinese public has a perception that recent recalls are an attack against China because the United States doesn't want to see China continue to grow," said Tim Xia, an expert in Chinese law at Morris, Manning & Martin.

Xia said that the law firm, which he said has "more than 30" Chinese clients, had organized the conference with Beijing to strengthen business connections with China and to reduce the chances of a trade dispute between the countries.

"It's important that more Chinese companies realize that a market economy in the end is a legal economy and that you have to be a good corporate citizen," he said.

Georgia's Department of Economic Development helped sponsor the conference to advertise the state to participating companies. On Saturday, Kenneth Stewart, the department's commissioner, spoke to delegates about the benefits of investing in Georgia.

"As Chinese companies grow they are going to think about diversifying into different countries and I believe we're going to see a logarithmic increase in investments from Chinese companies to the United States," he said. "My job is to sell Georgia."