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Can’t Be Too Careful

Magazine article for CalBizCentral, a publication of the California Chamber of Commerce

Can’t Be Too Careful: Importers and Liability

Over half of the goods for sale in United States markets come from abroad. In 2007, imports into the U.S. were valued at more than $2 trillion.1

However, due to a few high-profile cases of unsafe products that came into the country from China during the last couple of years (toys with lead paint, contaminated pet food, and toothpaste containing the solvent diethylene glycol or DEG), concerns have grown about consumer safety when it comes to imported goods and the liability of importers.

Every importer has the responsibility to learn about the laws and liabilities it faces when bringing foreign goods into the United States. If there is a recall, the importer is liable. If someone finds contaminants in an imported product, the importer is liable. Companies that actively import goods always need to stay on top of suppliers, the safety of their products, and changing regulations. For those considering entering the import business, there is a lot to learn, but there are many resources for California businesses to leverage.

John Leitner, president of custom brokerage firm W.J. Byrnes & Company says, “Importing can be tricky, but if you spend the time to do your homework, you can avoid a lot of problems.”

Mr. Leitner purchased W.J. Byrnes & Co. in 1973, and has since written books about international trade, taught at Golden Gate University, and served on the President’s Export Council. He lectures widely about on how to get into the business of international trade and how to stay out of trouble.

It’s Up to Importers

“Informed compliance” is the official government term that describes importers’ responsibility to know the law and comply with it. Compliance includes using “reasonable care,” to ensure that:

  • Your suppliers are legitimate
  • Your products meet safety and other requirements
  • Your shipment has proper documentation for the journey
  • Your importation papers, including your commercial invoice, get filed at the port of entry upon arrival
  • You have arranged for examination and release of your goods
  • You pay any assessed duties

“Don’t wait for someone to come knocking on your door,” Leitner says. “Start making sure that you have all of the answers you need before anyone starts asking questions. The best place to start is the Customs and Border Protection web site.”

U.S. Customs and Border Protection
This government agency, also known as CBP, is part of the Department of Homeland Security. It’s responsible for communicating requirements to importers, and as such, the CBP web site, at www.customs.gov, is a great resource for new and established importers alike.

CBP also posts all of its Informed Compliance Publications here (in the Trade section), including information on recordkeeping, reasonable care, rules of origin, fines, seizures, penalties, etc., as well as papers on specific types of products.

The must-have CBP publication Importing Into the United States, A Guide for Commercial Importers is available as a free download on the site. “This is the basic primer for importing into the United States,” says Leitner. The document’s 211 pages explain the process of importing goods, as well as many industry terms, in detail.

If you have questions about specific issues that aren’t answered by the web site or guide, it’s best to contact your local CBP office for information.

Consumer Product Safety Commission
“The Consumer Products Safety Commission is another government agency to get to know,” says Leitner. “They cover a huge range of products, including apparel, power tools, and toys, among many others.”

The CPSC web site, at www.cpsc.gov, lists recalls and product safety news, as well as information about regulated products, safety standards, how to conduct a recall, and other topics for importers. You can even sign up for free email announcements.

U.S. Food and Drug Administration
“If you deal with food of any kind, the FDA is going to be involved,” says Leitner. “After 9/11, they realized that another way of causing great harm to this country would be with tainted food.” Consequently, all food importers must file prior notice of what they’re bringing in and who their manufacturers are. All the manufacturers must also register.

“The industry, including W.J. Byrnes, really supports a lot of these new regulations,” says Leitner. “Tuna is a good example of why. Every now and again, there would be a problem with contaminated tuna, so the FDA would put the kibosh on every kind of imported tuna. Because of the new registration requirements, they can quickly trace problems back to specific manufacturers. Oftentimes, the contamination comes from a single source, so they can pinpoint the problem, and not have to loop everyone else in on the ban. The system works much better now.”

The FDA regulates food and drugs primarily, but also medical devices, biologics, radiation-emitting products, cosmetics, and veterinary products. Check out the web site at www.fda.gov to understand regulations that may affect you.

DIY vs. Hiring a Professional
Leitner says, “Importing is similar to taxes and a court of law in this way: You can do almost anything and everything yourself, or you can hire an expert to help you. You can do your taxes yourself, or you can hire an accountant. You can represent yourself in court, or you can hire an attorney. If you don’t pay the right amount of tax, or get yourself unjustly convicted, too bad. You’re still liable. The government operates on the same premise for importing. You can do it yourself, or you can work with a professional customs broker.”

Because the process of clearing Customs is complex and requires a certain amount of specific knowledge, many importers hire the services of customs brokers, which are licensed by CBP. They act on behalf of importers in preparing and filing the required customs documents, and basically shepherding goods through the multi-layered import protocol. They can also represent you in customs matters, including payment of duties and release of your goods.

The National Customs Brokers and Forwarders Association web site, at www.ncbfaa.org, offers a searchable directory to help you locate one in your area.

Professional importing guidance can also come from other private-sector experts including attorneys who specialize in customs law and consultants. You don’t have to go it alone.

Reasonable Care

Reasonable care is a term the government uses a lot when referring to your responsibility in complying with laws. The legal definition is: the degree of care that a reasonably prudent person would use under like circumstances.

John Leitner says, “Nobody expects you to be a super sleuth, but if you’re just going to throw a dart at a map to find a supplier, or randomly pick one off the Internet, then you’re not using reasonable care.”

At some point, you will be examined. CBP uses a policy of random selection, which adds to the security of the system, but also means that you have to be ready at all times. It’s like going through security at the airport, or getting audited. The difficulty of the process all depends on how fast you can come up with the right information.

Carl Watson is the president of M.J. Carlyle and Company, an L.A.-based manufacturer and wholesaler of belts, handbags, and wallets for specialty chain stores. He says, “ Every importer has had their shipments searched. It’s very frustrating. If you’re a regular who follows the rules, and have shipments coming in every week, they don’t pull you over very much. But when your number comes up, it can delay you anywhere for three days or two weeks—and they charge you for it!”

“I encourage my clients to bend over backwards to show that they’ve used reasonable care,” says Leitner. “You need to know your manufacturers and use quality control. If you can show them everything they need to see right away, they’ll look it over and be out of there in a jiffy. If you can’t, they can camp out for weeks. Keeping a paper trail of written documentation is imperative, and you need to keep it for five years. If you don’t, you’ll be subject to penalties.”

Proposition 65
California’s Proposition 65, The Safe Drinking Water and Toxic Enforcement Act of 1986, is of particular interest to California importers. This is the law that requires certain products to display the following advisory: “Warning: This product contains chemicals known to the State of California to cause cancer and birth defects or other reproductive harm.” The law also allows for people to sue if products contain more than the allowed amount of lead or other toxins, which are lower in California than in other states.

Katie Holle, who manages the sales and marketing for Unison Gifts, her family’s Los Angeles-based gift import company, thinks about proposition 65 almost every day. “Everyone heard about the toys imported from China recently that contained lead,” Holle says. “Because of Proposition 65 and the recent bad press, manufacturers, retailers, importers and exporters in the U.S. and China are more cautious and aware.”

Unison Gifts imports gifts manufactured in China, including figurines, jewelry, and hand-blown glass. As the Unison Gifts line expands, the company has to be vigilant about working with its manufacturers to ensure they know everything that goes into making their products, and that everything gets tested. Says Holle, “Whoever imports the product is liable. If there is lead in your product, for example, and you didn’t know about it, but someone found it, you’d be liable, even if it didn’t cause harm to anyone. A lot of our customers now require that we complete testing before they’ll carry our products, because they could get sued too.”

Unison Gifts has taken extra precautions to ensure reasonable care when it comes to safeguarding against toxicity. Holle says, “We ask our factories to test, we send our products to testing centers, and we also have little lead test kits of our own that we use to test at our office. You really can’t be too careful.”

Keeping Up on Regulations
To keep up on the latest news and regulations, Holle subscribes to trade magazines and regularly checks the web sites of industry associations. She says, “I consult the International Housewares Association, the Gift and Home Trade Association, NRF (National Retailers Federation), and the Toy Retailers Association. They provide information about importing, but also about the retail and gift businesses in general, such as how stores are doing across the country and around the world, consumer indicators, and buying trends.”

Choosing International Business Partners

Choosing reliable business partners is one of the most time-consuming aspects of importing, and choosing poorly could harm your business. In fact, it’s one of the top reasons new importing ventures fail. Be cautious. Do your homework. Ask for references from banks and other businesses.

Watson says, “We go to China and visit factories to find our suppliers. In the beginning, it’s hard because they don’t trust you and you don’t trust them. Sometimes they’ll tell you what you want to hear, but they end up doing something else. We’ve been through that, and we don’t do business with those factories any more. That’s the biggest reason why we go over there and meet them in person.”

“When you first start off,” agrees Holle, “you have to have a few failures. That’s part of the learning process. Success comes at a price.”

Disaster stories abound about importers finding a really good deal, only to find out after the fact that they paid a high price for junk. Holle cautions, ”Be careful of great deals! Sometimes you find one, and it’s legitimate, but you really do get what you pay for most of the time.”

Here’s one of those disaster stories. “I was at a meeting of the Maritime Exchange,” remembers John Leitner, “and saw photographs of a couple of shipping containers that had blown up at sea. The contents were declared as scrap plastic. Apparently, the importer had gone to a web site to search for scrap plastic, and picked the cheapest source. The stuff came out of Mexico, got put on a vessel in L.A., and was on its way to China when it blew up. The “scrap plastic” turned out to be ground up old gas cans, and they blew up near the Equator because the gas residue got so hot it combusted. The Internet is a great place to go shopping, but you have to be careful. You’re liable for what you import. If that’s the only place you know about your supplier, you’re taking a big risk.”

The Internet
Alibaba.com is getting a lot of attention in the international trade community these days. The web site promotes itself as “the world’s largest online B2B marketplace.” There’s no doubt: it is amazing. With just a few clicks, you can find suppliers for feed grade amino acids, solar water heaters, embroidery machines, kaftans, oranges, forklifts, and it seems anything else you can possibly imagine. Alibaba.com isn’t the only one either.

Leitner has his doubts about those sites. “I think the Internet is best for sharing information instantaneously. In that regard, it has facilitated international trade tremendously. But it has also added risk, because it’s so easy for someone to make a non-existent company look legitimate.”

Watson can attest to that. He says, “I’ve seen web sites that show a nice-looking factory that seems like it makes good-quality products, but when we went to visit, the buildings looked like they’d been bombed out, and the working conditions were very poor.”

Both Watson and Holle appreciate the ease with which they can communicate with suppliers thanks to the Internet, however. Holle says, “I remember my parents always having phone calls and faxes in the middle of the night. They had to ship samples back and forth. But now, we can approve samples or share sketches a lot faster by sending images via email or FTP (file transfer protocol).”

Trade Shows
Importers can attend trade shows abroad to meet suppliers and see their products first hand, but you have to be careful there too. It’s relatively easy to put together a nice booth for a trade show, and the quality of the booth doesn’t necessarily reflect the quality of the company’s facilities or their products.

One drawback of sourcing at trade shows is that your competitors can buy the very same products, and you might end up importing the same goods as everyone else. “When we visit our suppliers,” says Holle, “we take our ideas, and develop new designs with the factory. There’s risk there, too, because the factory can turn around and sell your idea to another customer. You learn from experience which companies you can trust, which will honor an exclusivity agreement. When you do find a good one, you can build a long-lasting relationship.”

Making the News?
John Leitner shares this good rule of thumb: “If you’re doing business in a part of the world that’s making the news, and it’s not because of the great weather or good deals for travelers, then it’s time to pay attention.”

Looking Ahead

Because of the rising cost of fuel, transportation costs have increased dramatically in the last couple of years. Complicating that is the falling value of the U.S. dollar compared to the European euro, Japanese yen, and Chinese yuan.

“Our costs have increased quite a bit with China,” says Watson. “Fuel costs are driving it, but labor costs are also rising. People are looking into Vietnam, Cambodia, and Bangladesh for manufacturing.

Holle has experienced the same thing. “The cost of shipping a container has definitely gone up,” she says, “and the price of trucking has doubled. All the shippers, UPS, FedEx, and DHL, keep raising their rates. In order to cover our costs, our products are becoming more expensive. It makes me wonder if products made in the U.S. will eventually be competitive again.”

1. U.S. Department of Commerce