Product Recalls Involving Chinese Manufacturers Part I: Can Overseas Buyers Recover Their Losses? Explore Legal bases and Recoverable Losses

1. A Recall Can Become a Cross-Border Recovery Claim

On 24 September 2026, the U.S. Consumer Product Safety Commission (“CPSC”) announced a recall of INMO AIR3 smart glasses after reports that the left temple could overheat during extended use. Approximately 1,643 units were affected in the United States and 120 in Canada.

The overseas importer or distributor may be required to deal with consumers and regulators first. But where the defect originated from design, manufacturing, components or quality control in China, the resulting costs may give rise to a recovery claim against the Chinese supplier.

2. Contractual Claims: The Main Route to Recovery

For most overseas buyers, the starting point is the supply contract. Relevant documents may include manufacturing or distribution agreements, purchase orders, product specifications, quality agreements and supplier warranties.

The key issue is whether the recalled goods complied with the supplier's contractual obligations, including:

• technical specifications;
• agreed materials and components;
• product safety standards;
• destination-market regulatory requirements;
• testing requirements; and
• inspection standards.

The more precisely these requirements are defined, the easier it will generally be to establish contractual non-conformity.

3. The CISG and PRC Law

Foreign buyers should also consider whether the United Nations Convention on Contracts for the International Sale of Goods (CISG) applies.

Where the buyer and seller have their places of business in different CISG Contracting States, the CISG may apply unless validly excluded. Article 35 requires the seller to deliver goods that conform to contractual requirements and, depending on the circumstances, are fit for their ordinary purpose. A serious safety defect resulting in a recall may therefore constitute non-conformity.

Where PRC law applies, Articles 615 and 617 of the PRC Civil Code similarly require the seller to deliver goods meeting agreed quality requirements and provide remedies for non-conforming goods.

For many overseas buyers, breach of contract will therefore be the principal basis for recovery.

4. Product Liability and Statutory Recourse

A separate issue arises where an overseas distributor has already compensated consumers for injury or damage caused by defective products.

Article 5 of the CISG also excludes seller liability for death or personal injury caused by the goods from the Convention's scope.

Under Article 1203 of the PRC Civil Code, where a product defect is attributable to the producer and the seller has paid compensation, the seller may have a right of recourse against the producer. This should be distinguished from an ordinary contractual damages claim.

For this reason, international supply agreements should expressly address product liability, third-party claims, indemnification, defence costs and insurance.

5. Recall and Indemnity Clauses

The strongest recovery position is often created before the recall occurs. A well-drafted supply agreement should address:

• what constitutes a recall;
• notification obligations;
• cooperation with regulators;
• return, repair, replacement and destruction;
• logistics and storage costs;
• consumer claims;
• retailer chargebacks;
• indemnification; and
• insurance.

Where the agreement expressly requires the manufacturer to indemnify the overseas buyer for recall costs caused by manufacturing or design defects, recovery may be considerably more straightforward. Without such provisions, the parties must rely on general rules of breach, causation, foreseeability and damages.

6. What Losses May Be Recoverable?

Not every recall-related loss will necessarily be recoverable. The answer depends on the contract, governing law, causation, foreseeability and available evidence.

6.1 Direct Recall Costs

The strongest claims usually involve documented costs such as:

• consumer refunds;
• replacement products;
• return freight;
• warehousing;
• inspection and testing;
• repair and reworking;
• recall notices; and
• destruction or disposal.

Under Article 74 of the CISG, damages may include losses caused by the breach, subject to foreseeability.

Where the supplier knew that the products were intended for sale in a particular overseas market, ordinary recall expenses may in appropriate cases fall within that scope.

6.2 Retailer and Customer Chargebacks

A recall may also trigger retailer administration fees, reverse logistics costs, inventory write-offs and contractual chargebacks. Whether these losses can be passed to the Chinese supplier will depend largely on the contract and whether they were foreseeable when the contract was made.

6.3 Lost Profits

Lost profits may potentially be claimed under Article 74 of the CISG or the PRC Civil Code. The main difficulty is usually proof. Useful evidence may include historical sales data, confirmed orders, cancellation notices, retailer correspondence and financial records.

Speculative future profits will generally be harder to recover.

6.4 Reputational Loss

Reputational loss is more difficult to establish. The claimant will generally need objective evidence of actual commercial consequences. Many contracts also exclude liability for indirect or consequential losses.

6.5 Regulatory Fines

Regulatory fines require separate analysis.

A penalty imposed on an overseas importer or distributor is not automatically recoverable from the manufacturer merely because the product was defective.

Relevant factors include the reason for the penalty, the overseas company's own regulatory conduct, the manufacturer's contribution to the violation and the wording of any indemnity clause.

7. Conclusion

A recall involving Chinese-manufactured products may create a significant recovery claim for an overseas importer, distributor or brand owner.

Potential legal bases include:

• breach of contract;
• the CISG;
• PRC product liability rules; and
• contractual recall or indemnity provisions.

The strongest claims generally combine a clearly established defect, a sound contractual or statutory basis and well-documented losses.

8. How Chen & Chen Can Assist

Chen & Chen advises overseas companies on disputes involving products manufactured and supplied from China.

Our work may include:

• reviewing manufacturing, supply and distribution agreements;
• advising on PRC law and CISG claims;
• preparing formal notices and recovery claims;
• assessing recoverable recall losses;
• assisting with evidence preservation;
• investigating Chinese counterparties and corporate structures;
• advising on settlement negotiations;
• representing clients in litigation and arbitration; and
• developing enforcement strategies against assets in China.

Part II considers the practical issues that often determine whether a claim can actually be recovered: notice, evidence preservation, identification of the correct Chinese counterparty, dispute resolution and enforcement.

This publication is provided for general information only and does not constitute legal advice.