On 11 March 2022, the State Tobacco Monopoly Administration of China (the “STMA”) passed the ‘Electronic Cigarette Administration Measures’ (the “Measures”), which will be effective on 1 May 2022.In line with the development of the e-cigarette industry in recent years, the Chinese government has updated the regulatory framework for e-cigarette products, particularly in relation to product quality and protection of minors. On 10 November 2021, the State Council amended the ‘PRC Implementing Regulations for the Tobacco Monopoly Law’, which makes e-cigarettes subject to the same regulatory requirements as normal cigarettes.
The Measures, once implemented, will form the basic regulatory framework for e-cigarette products in China. The key highlights are set out below:
I. REGULATORY SCOPE
The Measures apply to the manufacture, importation and business operation for all e-cigarette products in China.
E-cigarette products include e-cigarette cartridges, devices, and combination products. Cartridges have been defined as e-cigarette modules containing e-atomization materials. Devices have been defined to include e-cigarettes, heated tobacco and other novel tobacco products.
The Measures further provide that heated tobacco products are regulated as normal cigarettes that are governed under existing Tobacco Monopoly Law, but other novel tobacco products, such as smoke-free products, are regulated by the Measures.
II. PRODUCT REVIEW
E-cigarette products will be required to conform to mandatory national standards. On 11 March 2022, a second draft of the ‘Electronic Cigarette standards‘ was published by the State Administration for Market Regulation (the “SAMR”) and the STMA for public consultation (the “Draft Standards”). The Draft Standards set out the standards for e-cigarette design and materials, technical specifications, testing methods, markings, and a schedule of preliminarily permitted e-atomization additives, etc.
The Measures have also introduced a product review system; this has replaced the previously proposed e-cigarette product registration system, the first draft of which was published in December 2021.
The STMA will engage professional institutions to conduct the technical review, including inspection and testing reports. An e-cigarette product that does not pass the technical review shall not be sold in China.
Only qualified e-cigarette inspection and testing institutions can perform the requisite inspection, testing, monitoring and evaluation. The STMA will also conduct random inspection and testing system on e-cigarette manufacturers and e-cigarette products.
III. MANUFACTURING LICENCE
A manufacturing licence issued by the STMA is a pre-condition for the incorporation of a company involved in the manufacture of e-cigarette products (including Original Equipment Manufacturer (“OEM”) companies), e-atomization materials or e-cigarette nicotine (“Manufacturers”).
STMA’s approval will be required for any IPO or expansion of manufacturing capability by construction of infrastructure or through innovation.
Manufacturers shall purchase the tobacco leaves and cut tobacco from qualified suppliers, which are subject to already established purchase and sale schemes implemented by the STMA.
An e-cigarette product must bear a registered trademark in China and the required package markings and warnings.
Manufacturers will be required to formulate an internal product quality assurance system and be responsible for the product quality. Brand owners shall be responsible for the quality of its OEM products. The STMA will also establish a unified product traceability system to strengthen the whole life cycle for e-cigarette products.
IV. SALES LICENCE
The sale of e-cigarette products, whether wholesale or retail, is licensed, and a licence must be obtained from the competent tobacco monopoly administration.
The STMA will create a national e-cigarette transaction management platform (the “Platform”). Manufacturers, wholesalers and retailers are required to conduct transactions via the Platform. The Platform will revive the opportunity to sell e-cigarette products online as such sales have been banned since November 2019 following the SAMR and the STMA’s ‘Announcement on Further Protecting Minors from Harm of E-cigarettes’. However, the Measures specify that online sales of e-cigarette products, e-atomization materials and e-cigarette nicotine are only allowed on the Platform.
There are also substantial restrictions on the promotion and sale of e-cigarette products specified in the Measures. This is in line with existing legislation, for instance, the PRC Advertising Law (2021) and the Internet Advertisement Interim Advertising Law (2016) which already ban the advertisements of e-cigarette products in public media, online or indirectly in the advertisements of other products. Exhibitions and forums are not permitted for e-cigarette products. E-cigarette products cannot be sold to minors or through vending machines, and a seller must state clearly that its products are not provided for minors. An e-cigarette product shop cannot be opened near certain types of schools, such as middle or primary schools.
One of the most significant restrictions is that the sale of flavoured e-cigarettes other than tobacco flavour and the sale of e-cigarettes which can be added with e-atomization materials are prohibited.
V. IMPORTATION REQUIREMENTS
E-cigarette wholesalers must obtain the importation licences from the STMA. Imported e-cigarette products, e-atomization materials and e-cigarette nicotine can only be subsequently sold on the Platform to wholesalers or Manufacturers if prior importation applications have been filed with the STMA. An imported product shall pass the technical review, custom inspection and bear a registered trademark in China.
VI. ENFORCEMENT
The STMA and its local offices will investigate and punish any entity contravening the Measures, and will target acts such as the manufacture or sale of low-quality products. The STMA will also work with other competent authorities to enforce intellectual property rights and punish intellectual property infringements. The punishments may include disqualification on the Platform, suspension of business, order for rectification, and/or revocation of licence, in addition to punishment under other applicable laws.
For further information, please contact:
Alison Wong, Partner, Bird & Bird
alison.wong@twobirds.com
