Thursday, October 18, 2007

Product Safety

Lately, I have lots of conversations about food and product safety. Everyone knows this is a big deal issue. Here is a recent example. It crosses all kinds of interests from child welfare, to public health, to international trade. The question I get is whether it is a Customs law issue. Clearly it is not one of the core legal areas of customs compliance. By that I meaning it does not impact classification, value, duty assessments, etc. But, to the extent you are trying to fill contracts or secure the release of merchandise, any hang up in Customs immediately becomes a "customs law issue."

What you need to keep in mind is that Customs and Border Protection is the border enforcement arm for dozens of other government agencies including FDA and CPSC. An importation that is contrary to U.S. law is subject to seizure and forfeiture. That means you might lose your merchandise. There is also the possibility that your entry documents contain material false statement or omissions (such as the fact that the stuff is admissible). If so, you are subject to penalties for negligence, gross negligence, or fraud. Because there may be no revenue impact, the violations might result in very high penalties (20% or 40% of value for negligence).

A more common problem is the nasty "Notice to Redeliver." This is a notice from Customs that they want you to get the merchandise back to them. Often, that is impossible because it is long gone from the importer's control. When that happens, Customs can institute a liquidated damages action against your bond. This can be an expensive proposition and will make your surety very unhappy. This, by the way, is completely separate from a product recall notice.

A lot of what happens in these cases, from a customs lawyer perspective is working with the port to figure out if there really is a violation and what can be done to fix it. We like to ask questions like "How did CBP test for lead paint?" and "Is that the test industry would accept as accurate?" Assuming the product has a problem, we help negotiate a means of correcting it if possible. Maybe the issue is just a label and not a defective device. Can it be re-labeled and released? If not, you might be sunk.

The other side of this issue is the commercial relationship. If you bought rubber ducks from a supplier and end up losing them because they are covered in lead paint, the question is who is liable for your loss? Did you properly spec the product so that the supplier agreed to produce a lead-free duck? That is a breach of contract case. Who is liable for any injury your product might have caused? That has to do with indemnification and jurisdiction. Assuming you have pushed some liability onto the supplier, how will you collect? If China, Vietnam, El Salvador or some other country is your forum, is there a reasonable chance you will be able to collect in local courts? A lot of companies select the U.S. as the forum for enforcement. If you do that, will you ever be able to get access to the supplier or any of its assets in the U.S? This all relates the transaction, which is why you need a good deal lawyer negotiating your deal.

When your stuff gets hung up in customs, you need a good customs lawyer.

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