In Buying Face Masks and Other PPE from China: Not For the Faint of Heart, we talked about the following as some of the key issues our international product sourcing lawyers were facing on behalf of our clients seeking to buy PPE from China:
Verification of the legitimacy of your seller is a necessary first step, but there are many other issues as well. To protect companies buying medical supplies from China, our international manufacturing lawyers typically go through the following questions:
- Is it legal for the company overseas to sell you this product, and will it get government approval to do so? Again, China wants its PPE products (things like surgical masks, N95 masks, and ventilators) going to countries it perceives as China-friendly and it does not want its products going to countries (like the United States) it perceives as unfriendly.
- Does the company from which you are buying this product actually exist? Is it properly registered and licensed to make the product you plan to buy from it? In other words, is it legitimate? How can you be sure you will get the product you order and pay for? In China Company Research: The 101 we talked about the sort of basic research our lawyers do to determine whether a Chinese company is real or not, and we do the same sort of research to determine this in every country. In well over 90 percent of the cases our lawyers see where someone sent money and got unusable product or no product at all, the debacle could have been prevented with basic company research that would have revealed the company selling the product was itself a fake.
- Is it legal for you to import this product? Does it meet your own country’s standards? Just this week, a company called us after having bought products that did not meet its own country’s standards and were therefore essentially worthless. It had received vague email confirmations from its Chinese supplier that the product met “international standards,” but because it had nothing in its contract making clear that the product met its own country’s standards, it had a very weak legal case against its suppliers.
- How can you be sure your supplier will send you the quality of product you will be ordering and paying for? Quality control inspections and properly drafted and relevant contracts are the keys here. See THE Rules When Manufacturing Overseas.
- How can you prevent your supplier from copying your product and selling it all over the world? See How to Prevent China Factory Problems and Trademark Theft That is Happening Like Never Before.
We wrote that on March 28 and just since then two very important things have happened that greatly disrupt the buying and selling of PPE. The first was on March 28 when the FDA issued new rules on respirators/masks that can be used “in healthcare settings by HCP when used in accordance with CDC recommendations to prevent wearer exposure. . . .”
Then, a few days later, China issued draconian new rules on who can export PPE and medical testing products from China. The below discusses these new rules and their impact. If you take nothing else from this blog post, take the fact that if you do not know every aspect of what it takes to secure and import and bring in usable PPE from whatever country you are buying your PPE, you either need professional assistance or you should immediately exit this work. This is true for every country selling PPE, including Taiwan (which recently stopped most such sales for a spell), South Korea, Thailand, and Mexico, among others.
As the world looks to China to provide medical supplies for dealing with the coronavirus pandemic, a series of problems has resulted. In Europe, huge quantities of Chinese coronavirus test kits and medical use masks have been rejected as defective. See Europe turned to China for coronavirus testing help. Why some are now regretting it and Netherlands recalls defective masks imported from China. Throughout the world, buyers have been deluged with offers for sale of various counterfeit products. Roughly as many have bought and paid for PPE and never received a thing. All of this has been big news and has further damaged the reputation of China and legitimate Chinese manufacturers.
In response to this situation, the Chinese authorities issued an Order that tightly regulates the export of coronavirus medical devices and supplies from China. Under this Order, any Chinese exporter of listed medical devices must meet two requirements. First, the device must be registered in China through a Medical Device Product Registration Certificate. Second, the exporter must prove that the device complies with the regulations of the importing country as they apply to that device. Compliance with these requirements will be difficult or impossible for many otherwise legitimate Chinese manufacturers. This will constrict supply just when demand is exploding.
This is obviously not a good situation and many believe China has done this not so much to protect buyers, but to keep PPE products in China at the ready if and when the coronavirus flares up again in China (which is already happening). By spinning its Order restricting PPE as having been motivated by a desire to protect foreign buyers, rather than to choke off exports, China figures it will look better internationally. No matter what its motive though, the impact will be the same. Just when countries around the world desperately need more PPE, China has to a large extent cut them off.
Details of the Order are as follows:
The title is Order Concerning the Orderly Export of Medical Supplies 关于有序开展医疗物资出口的公告.
The Order was issued effective April 1, 2020 jointly by the Ministry of Commerce, the Customs Bureau and the National Medical Products Administration. The Order is temporary and can be expanded or revoked at any time. The text of the Order and its supplementary exhibits can be found here (in Chinese only).
The Order applies to the export of the following medical supplies:
1. Novel Coronavirus Test Kits 新型冠状病毒检测试剂.
2. Medical Use Face Masks 医用口罩.
3. Medical Use Protective Clothing 医用防护服.
4. Ventilators 呼吸机.
5. Infrared External Thermometers 红外体温计.
For the listed products, the exporter must meet two requirements. First, the product or device must be registered in China having obtained a PRC Medical Device Product Registration Certificate. The exporter must provide the registration number for the product/device as a requirement for export. As an exhibit to the Order, a spreadsheet is provided that lists all entities that have obtained this required certification. For many products, the number of certified companies is very small. Second, the product or device must comply with the quality standards of the importing country. How this proof is to be provided is not stated.
The Chinese exporter is required to submit a signed form to China customs stating the required information and affirming its accuracy. A copy of this form is included as an exhibit to the Order. Exporting under an inaccurate or falsified statement subjects the exporter to liability under Chinese law.
This Order raises three important issues. First, most Chinese manufacturers that manufacture medical devices for export do not bother to obtain a domestic Chinese registration. Since they manufacture exclusively for export, no such certification was ever required for their business and so they do not have one. This then means that most Chinese exporters of PPE and medical devices cannot comply with this Order. For example, The South China Morning Post writes that only 21 of 102 Chinese medical device companies with EU medical device certifications are licensed to sell their devices within China. In other words, 81 of these companies will now no longer be able to sell their medical devices to the EU.
Huge numbers of Chinese companies that are now barred from exporting their products have already entered into agreements and been paid to supply those products. China’s new medical products Order will stop these already placed product orders, leading to a cascade of defaults down the supply chain for these products.
Second, Chinese manufacturers that have obtained certification for exporting their medical products are companies focused on the Chinese market. This makes sense because these are the companies that deemed it worthwhile to incur the time and money necessary to acquire domestic Chinese certifications. Many of these companies are neither interested in exporting their products not do they even really know how to do so. They simply are not experienced with international sales that are conducted very differently than sales of medical supplies within China.
Third, the scope of this medical products Order is not clear. For example, what is a “medical use mask”? Does this apply to the simple cloth masks often referred to as “surgical masks”? What is “medical use protective clothing”? Does this apply to simple gowns often referred to as “medical gowns”. Countless U.S. hospitals and other companies have pending orders or are working now to make major purchases of “surgical masks” and “surgical gowns” from China. Will these products fall under this new Order? Will confusion concerning the Order delay the export of these “medical” supplies to the U.S. and other countries?
Will Chinese customs officials revert to form and essentially freeze up when they see these sorts of products set to leave China, figuring their job is to prevent further embarrassment for China of the type already seen with Spain, the Netherlands, Slovakia, Turkey, and the Czech Republic, among others. China realizes that selling coronavirus selling test kits with accuracy rates less than flipping a coin is not so good for Made in China branding and its customs officials have likely gotten this message. Has China customs also been given the message to err on keeping these key medical products within China to the extent possible so as to save them for China? Has — as has constantly been rumored — China customs been instructed to be particularly tough regarding exports to countries with which China has poor relations, such as the United States, Canada, and many in the EU?
Now consider how all this can play out in the currently confused market for Chinese manufactured medical supplies. Now that the U.S. FDA has approved the sale of NIOSH certified masks to healthcare providers, interest in importing NIOSH certified masks from China is intense. The basic facts regarding NIOSH certified masks are as follows:
1. Chinese-made NIOSH masks are not certified in China because they are not a “medical device”.
2. Chinese-made masks can be imported into the U.S. as NIOSH masks.
3. Chinese-made NIOSH mask can be sold for use by HCP (Health Care Personnel) in the U.S. under the TEMPORARY FDA letter rule.
So in principle, China’s new Order should not restrict exporting the following from China:
a. NIOSH certified “industrial safety masks”. It is important to keep clear that NIOSH is a work place safety certification; it is not a medical device certification. This is why the FDA has been reluctant to treat NIOSH and related foreign certifications as the equivalent of a medical certification. As we have seen, the FDA letter is a source of substantial confusion on the certification issue.
b. “Surgical masks”, since most of these are nothing more than clothing not requiring medical registration in many countries, especially if not for hospital use.
c. “Surgical gowns”, since most of these are nothing more than clothing not requiring medical registration in many countries, especially if not for hospital use.
d. “Surgical gloves”, since most of these are nothing more than clothing not requiring medical registration in many countries, especially if not for hospital use.
e. Gauze and bandages and other “medical supplies” that have a medical use but that are not a “device” requiring registration in many countries, especially if not for hospital use.
But is this how PRC customs officials will interpret this new Order? Or will they look at the export documentation and see the term “surgical” or “medical” and decide on their own that certification is required? They should not do this, since China in general wants to export. But the answer is unclear and China’s desire to keep these products in China for its own citizens and/or to wield them for geopolitical purposes only adds to the potential confusion.
Making things even more complicated for buyers of coronavirus related medical products is that PRC customs officials at one Chinese port may make one decision and PRC customs officials at a different Chinese port may make the exact opposite decision. At the least, this risk suggests you should exercise care in how your products from China are identified and labeled. For example, there is no reason to use the term “surgical” or “protective” if that is not required. But at the same time, you need to be cognizant of the import labeling and identification requirements of the country to which your medical products from China will be going.
To add even more confusion, there are bandages registered with the U.S. FDA when they move beyond simple gauze. But these bandages are not for sale in China and they are not registered in China. In the coronavirus sector, consider this example: take a proprietary U.S. designed ventilator that is made in China. It is not registered in China because it is not sold in China. The ONLY buyer of this ventilator is the U.S. importer. Will that ventilator now be blocked from leaving China? Per China’s new Order the answer is yes, but this makes no sense at all. But those of us who have been dealing with Chinese government officials for decades know that what is written pretty much always takes precedence over what makes sense. Chinese government officials are given almost no discretion so as to be sure to follow all orders from Beijing and so as to reduce corruption. A Chinese customs official that allows this hypothetical ventilator to leave China will incur far more personal risk than a Chinese customs official that blocks it from leaving. How about a U.S. designed thermometer? Same for other U.S. proprietary devices that might fall within this Order or a future, expanded Order. China as factory to the world then becomes a big problem.
So much that arises from this new order is unclear. The above are just a few of the more central issues. Our lawyers are furiously working to try to get clarity on the new Order from Chinese government officials who, for the most part are saying they too do not know the answers. Most likely answers to what this Order really means will come the way answers to China’s new laws usually come: via what actually happens in real life. But this will probably take weeks and in the meantime more will become infected and more will die.
China’s message with this Order is clear. It cares more about its reputation than about human lives outside China. Our message should also be clear. Anyone looking to buy medical products from China, be it PPE or testing kits or thermometers or whatever must do their research and plan and contract carefully. Importing from China will not be easy or simple and it is not for the faint of heart.