Defective Chinese drywall brings to prominence concerns about inability to hold Chinese manufacturers accountable

The Kansas City Star pointed out on June 30, 2009, that the enormous problems associated with defective Chinese drywall have brought to the surface the compounding problems associated with holding Chinese manufacturers accountable.  The paper reminded readers that in recent months the list of faulty Chinese products identified in the media have included:

    "highchairs whose seat backs failed, steam cleaners that burned their users, bikes whose front-wheel forks broke, saunas that overheated, illuminated exit signs that stopped working when commercial power failed, dune buggies whose seat belts broke on impact and coffee makers that overheated and started fire...a soccer goal net that entrapped and stangled a child and a toy chest whose poorly supported lid fell on a toddler's neck and killed him."

During 2007, fully 69 percent of products recalled in the U.S. were manufactured in China, and previously recalled products continue to be imported, including "breakable toys on which infants can choke, lead toys, toys painted in lead-based colors and cribs whose slats are far enough apart to trap babies' heads."

The defective products continue to be imported, the Star pointed out, because as a practical matter, American consumers and retailers enjoy no recourse against the Chinese producers.  In many states, this leaves middle-men such as retailers and contractors "holding the bag" for a defect.  In Michigan, where retailers are immune from liability for defective products, it leaves the victim holding the bag if the manufacturer cannot be made accountable.

The paper recounts the formidable problems associated with attempting to sue a Chinese manufacturer of a defective product.  Many products have no identifiable manufacturer and are virtually untraceable; if traceable, the process is expensive and time-consuming and frequently identifies a state-owned or cottage manufacturer who cannot be reached for indemnification.  The allegations against the manufacturer must be translated into Chinese and delivered to the manufacturer's home government for service of process---usually a calendar-year delay.  If the manufacturer is, in fact, owned by the government [as with much of Chinese industry], the process takes even longer and is fraught with obstructions and passive-aggressive behavior.

Once identified and served, many Chinese manufacturers escape responsibility by relying upon the use of wholesalers or importers to claim that they do not have adequate presence in the location of injury or damage to allow them to be held accountable.  If a judgment is entered in the U.S. court anyway, most of the manufacturers have no U.S. assets to be seized, and no insurance, and there is no agreement between the U.S. and China which would allow enforcement of the U.S. judgment in China. A case must then be brought in Chinese courts, where even Chinese citizens are allowed only negligible recourse for defective products. (For example, in the enormous tainted-milk controversy, the families of dead or catastrophically injured children were paid only a few hundred dollars in compensation--where they were paid at all. The Chinese answer to product liability in that case was to execute a "tainted" government regulator.)

While some experts believe that the answer to these problems is legislation requiring the manufacturers to register in the U.S. and consent to suit, the only true solution is to assure that they purchase liability insurance coverage.  In states other than Michigan, concerned middle-man can protect themselves and customers by insisting on indemnification and coverage at the time of wholesale purchase.  In Michigan, however, where retailers face no exposure for selecting inferior products from unidentified suppliers, the consumer is literally left without recourse--due to the "reform" statute granting retailers immunity from product defects.

This problem has been discussed previously in the TOV weblog (see entry for June 19, 2007, for example) and will also be addressed in this year's University of Michigan Journal of Law Reform.  The firm has also encountered the issue directly, in the Charlevoix Fireworks litigation arising out of the use of allegedly defective Chinese fireworks in an incident that killed one spectator and catastrophically injured several others.