In recent years, the general public has become increasingly concerned about food and beverage (F&B) safety issues in China. As a result, professional consumers have mushroomed in this sector: the aim of this peculiar type of ‘professional’ is to identify products that violate laws and regulations in order to claim economic compensation.
Zhu Jingliang, lawyer, and Mireia Paulo, Director of the European-American Market and Overseas Investment Projects, A&Z Law Firm, examine this phenomenon outlining some of the key things that these ‘professionals’ look out for and how to cope with these situations.
What’s behind the trend?
There are two main reasons behind the proliferation of ‘professional consumers’. The first is that the Chinese Government now attaches great importance to F&B safety, and imposes heavy compensation liabilities on those that commit F&B safety infringements, which spells profit to professional consumers. Second, F&B products are more likely to have problems in their quality, labelling and how they are advertised, in comparison to other goods, which makes these products easy targets.
In addition to this, professional consumers’ rights are currently quite highly protected, which has placed a lot of pressure on enterprises and administration institutions, which have to spend large amount of resources to crack down on them. Besides making adequate improvements to ensure F&B quality and safety, they also have to now learn how to avoid falling into the traps set by professional consumers.
Three common targets for professional consumers
Non-conformity with safety standards
Safety standards in the F&B industry cover, but are not limited to: quality and sanitary requirements with respect to F&B safety; labels; marks; and instructions regarding health, nutrition and other food safety requirements. As the supervision of F&B firms becomes increasingly stringent, professional consumers find it more difficult to make claims based on the lack of quality of F&B goods. They have discovered that it is in fact easier to claim against labelling issues regarding F&B safety requirements, according to laws and regulations such as the General Rules for Labelling of Prepackaged Foods and the General Rules for Nutrition Labelling of Prepackaged Foods. When producers or traders are found to not meet safety standards, in addition to the compensation for losses, they may also be required to provide compensation equal to ten times the product price or three times the losses. When the additional amount of compensation is less than CNY 1,000, they will be subject to a compensation liability of CNY 1,000.
Labelling errors for F&B products refers to labels that contain errors but do not affect the safety of a product, for example, a label with formatting problems. Under such circumstances, the PRC Protection of Consumer Rights and Interests will apply. In addition to the compensation for losses, the firm involved may also face an increased compensation liability up to three times the costs that the consumer paid for the goods. When the additional amount paid is less than CNY 500, the compensation liability will be deemed to be CNY 500.
Certain advertising activities may be found to violate the regulations of the PRC Advertising Law of the People’s Republic of China, for instance, stating that the food tastes are ‘the best’ in China or declaring untrue information such as advertising ‘pork’ as ‘beef’. Should such kind of illegal act be verified, the firm involved may face penalties meted out by the Industrial and Commercial Bureau according to the PRC Advertising Law.
How to cope with such issues?
Ensuring compliance in daily operations
- F&B production Food and beverage producers must ensure that their products comply with national, industrial and internal company standards, and should maintain inspection reports of each batch of product produced.
- Labelling and advertising designs Food and beverage firms should strictly follow the standards and requirements as set forth in the laws and regulations mentioned above regarding label compliance and advertising. It is also advisable that corporates consult with a professional third party, such as an advertising association or a lawyer, to review their designs and ensure that they avoid breaching relevant laws and regulations.
Cracking down on Professional Consumers
- Self-examination When a professional consumer files a claim, the company targeted should first conduct self-assessment and make a judgement. If any of the three main common issues mentioned above are found to exist, the company is recommended to take the involved product or advertisement off the shelves to avoid further losses. However, the company may also ignore the professional consumer’s claim in the event that after self-assessment it does not detect any infringement. Should the Industrial and Commercial Bureau conduct an investigation of the company, the company should cooperate, providing an explanation note if necessary. It is not advisable, however, that the company adopts a blind conciliatory attitude towards the professional consumer by providing any amount of compensation, as this may encourage their malicious claims.
- Handling issues of non-conformity with safety standards In the event of a professional consumer filing a claim on products that do not meet safety standards, it is recommended that the company judges whether such claim is a malicious action or a rational, legal-right safeguard on basis of documents such as shopping receipts. If the company recognises that the product claimed against has indeed violated laws and regulations, for instance ingredients are mixed in sealed products, it should make compensation accordingly.
- Handling labelling errors Food and beverage firms should first judge whether or not a labelling error is in compliance with regulations for labelling regarding health, nutrition and other food safety requirements. Understanding if there is a safety issue is crucial as the liability and handling measures are different for the two types of issues. China’s Supreme People’s Court officially clarified that in the case of a customer being aware of a product that has infringed F&B safety, and yet is still intentionally purchasing such a product, then both producer and seller should not defend on these grounds. In the circumstances that the product does not affect safety, both producer and seller may defend on the grounds that the customer is a malicious professional consumer.
- Handling issues of advertising If any advertising issues as mentioned above arise, the involved company should provide supporting documents evidencing the sincerity of the advertisement, for example press news and investigation data on the basis of which the advertisement was made.
This article is mainly a summary based on our relevant experience. For the sake of entirely eliminating the risk of being attacked by malicious professional consumers, F&B firms should always ensure the quality and safety of their products.
A&Z is a leading Chinese law firm, which employs over 55 experts consisting of attorneys, legal practitioners and business analysts across 11 jurisdictions. The Shanghai, Beijing, Dalian, Wuhan and Tokyo offices provide a full range of services covering Foreign Investment, Overseas Investment, Competition and Antitrust, Intellectual Property, M&A and Corporate Restructuring, Labour and Social Security, Dispute Resolution, Compliance and Corporate Social Responsibility, Finance and Capital Markets, Customs Logistics and Maritime Commerce, and Environment, Health and Safety (EHS).