Expert opinion: Face the challenge and turn crises into opportunity
The US Cable News Network (CNN) this week began broadcasting a 30-second commercial in Asia emphasizing that products "Made in China" are the result of profit sharing and cooperation between parties intertwined by globalization. This commercial was developed by the Chinese Ministry of Commerce in conjunction with four Chinese trade chambers, and is considered the first government-led Chinese brand campaign. Apart from Asia, the next step is to broadcast in other major trading partner countries in North America and Europe. The commercial has attracted the attention of worldwide media regarding the "Made in China" brand, which is good, according to Shi Yaodong, deputy director general of the State Council's Development Research Center. It makes people think about recent incidents, especially the "China-made drywall" incidents that created a lot of attention in the United States.
"Toxic" Chinese drywall damages reputation of Chinese enterprises
The Chinese drywall incident began in the second half of 2008. US media reported that a number of US residents who used Chinese drywall complained of a rotten-egg odor that made occupants sick, corrosion of copper pipes and ruined TVs and air conditioners. Some homeowners suffered nosebleeds, headaches and other symptoms. The US Consumer Product Safety Commission claimed to have received more than 2,100 complaints against the quality of Chinese drywall. Some US homeowners even filed lawsuits demanding compensation from Chinese enterprises. It is estimated that the number of American families affected could reach hundreds of thousands, with approximate cost of $15 billion to $25 billion. The safety commission's investigation is reported to be the largest in history.
In May 2009, the safety commission and the US Environmental Protection Agency released a report based on drywall tests suggesting that in respect to sulfur gases, Chinese drywall showed slightly higher levels than non-China made products. However, formaldehyde and acetaldehyde were detected in both Chinese and US drywall.
In November 2009, the safety commission released another report based on drywall, which found that there exists a "connection" between Chinese drywall and the corrosion of electrical appliances in homes. However, harmful toxic substances are relatively low, and do not exceed the US drywall product specifications. In addition, the report also confirmed that the association between Chinese drywall and health problems was still unconfirmed. Similar problems were also found in US products.
Interestingly, the massive coverage from US media upon release of the above-mentioned report did not contain references to the "not exceeding specifications" nor to the "no association with health problem" but rather highlighted the "connection".
Despite a lack of sufficient evidence, the United States claimed that Chinese drywall was "toxic" and constantly "demonized" them. These complaints have damaged the reputation of Chinese enterprises and caused them to suffer from big losses. However, so far, the United States still cannot come up with convincing evidence that the Chinese drywall should be so accused.
One article of the Associated Press pointed out the effect of the "stigmatization": George Brincku, 48, who bought his southwest Florida house in 2004, immediately began noticing an odd smell and the corrosion of wires and headaches. When he saw reports about Chinese drywall, he assumed the latter was the cause of the problems with his house until he called the contractor who installed the drywall in question. Nevertheless, Brincku himself admits that he has "100 percent American-made drywall". Actually, there are many households using American drywall. However, the number of claims on Chinese products is much higher than that of American products. Another effect of "stigmatization" is that it "shields and filters" some other problematic drywall products. "All the media reports are about China, China and China," said George, who then proceeded to ask, "How many people give up claims just because they found that they were not using Chinese drywall and believed that their products were thus not polluted?"
US companies cannot avoid liabilities
Interestingly, George did not sue this US company. But the safety commission confirmed that there are several other legal charges against US drywall manufacturers. The US reports also stated that "US companies are also facing the same troubles even if complaints are fewer than those addressed to Chinese companies."
The cause of housing problems is complex. The gypsum board product, environmental factors, the way of use, construction methods, and even other building materials all may be related to the problems currently being observed. Concerning the dispute over Chinese drywall, experts believe that US legal proceedings should follow legal norms at every level to pursue the industry chain and each party should bear its responsibilities. It is unreasonable to neglect the value chain of the building materials in the lawsuits and point fingers only at Chinese manufacturers.
The current scenario is that US media have assigned all blame to "Chinese drywall" without solid evidence. Some politicians and media have gone as far as highlighting Chinese State-owned plasterboard enterprises, the industry leader, in an attempt to escalate the issue from simple product liability to a national level.
In the United States, product liability cases for plasterboard should include developers, contactors, distributors and importers as well as manufacturing companies and raw material suppliers. Developers, contactors, distributors and importers, as US companies, must ensure the products they use or distribute comply with US quality and safety standards. Also, regulatory bodies in the US have the duty and responsibility to implement appropriate product quality and safety standards and to oversee the implementation. Experts suggest that, because the US departments cannot prove that Chinese drywall does not comply with US quality standards, then the parties facing product liability lawsuits should be participants in the value chain rather than the Chinese manufacturers only. The drywall is produced in accordance with the relevant US ASTM standards and the requirements of US buyers. It is obviously uncommon to dump all the blame on the Chinese manufacturers for problems arising from imperfectness of relevant US standards and requirements. One officer of a Chinese plasterboard manufacturer said that all parties involved in the value chain should be jointly responsible. US enterprises cannot avoid paying compensation only because they are in a bad economic situation and lack funds. It is not acceptable.
In fact, a similar case happened two years ago with Chinese toys. At the beginning of the incident, all accusations were directed to Chinese toy manufacturers but when they informed the public that the production was done according to the US toy designing and manufacturing standards, then the US toy manufacturer Mattel had to assume the responsibility and paid compensation to Chinese toy manufacturers.
This may serve as a precedent for China's drywall manufacturers.
Chinese enterprises should actively respond and defend themselves.
The Chinese government is taking action. A recent example is the commercials on "Made in China" launched in the US.
Because of the global economic crisis and the deterioration of the international trade environment, in many European countries and in the US, trade protectionism is on the rise. According to the Ministry of Commerce statistics, in the first three quarters of this year, 19 countries and regions initiated 88 trade remedy investigations on Chinese products, including 57 anti-dumping and 9 countervailing duty cases, for a total of approximately $10.2 billion. These include Chinese toys, drywall, tires and steel. The Commerce Ministry has also warned domestic export enterprises that the threat of trade protectionism around the world is increasing, and next year trade friction will be even worse. Export enterprises should be wary of rising exchange earnings and trade risks.
Chinese enterprises often endure a painful experience caused by the lack of awareness about the country's exporting system, related policies and regulations. They are always in a passive position.
The US legal system encourages litigation. When the plaintiff wins the litigation the lawyer will be awarded a high commission. Moreover, there are many rules and terms of the US legal system which are advantageous to US companies and citizens. These rules make Chinese companies the sole party responsible for enormous costs in international litigation suits. During the long period of litigation, the US companies and some institutions use the power of the media to negatively influence public opinion by misleading consumers, and by doing so destroy the reputation of Chinese companies, which adversely affects the market. . The usual trick of US complainants is to sue one or a few individual or small Chinese companies that are easy to defeat in the proceedings. Currently, a few leading Chinese drywall enterprises are being forced into a position of having to protect and defend themselves and the reputation of the whole Chinese drywall industry.
In response to these situations,experts pointed out that: the modern law in many countries protects consumer's legitimate rights and interests but also protects the manufacturer's rights and interests from being violated. A valid defense in US product liability litigation includes "individual/personal risks", "fault-sharing", the unconventional use of products, special sensitivity, stipulation of contract, limitation of technology and development risks. These factors should be carefully analyzed by Chinese drywall enterprises. For the Chinese drywall case, in order to defend themselves, Chinese enterprises could adopt the argument that their production followed the requirement of the importers, which at the time failed to reveal known defects.
The most crucial thing is that Chinese enterprises should have the courage to defend themselves in US litigations.
An expert said only a serious study of the law, active response and distinguishing the attribution of responsibility are the best ways to expose and eliminate the stigma of Chinese drywall. At the same time, the government should improve the regulatory system and develop and promulgate quality standards complying with international standards, especially with attention to products affecting people's livelihood. "The goal is to issue ' certification' only for products from companies which devote efforts on research and development and product testing." The purpose is to minimize the disputes caused by the differences between laws and standards among countries and to minimize or avoid reputation or economic losses suffered by Chinese companies.
