Import Liability Buffer Zones. (Product Liability Prevention)

By Cahill, Katherine Ann; Ludwig, Mark | Risk Management, May 2003 | Go to article overview

Import Liability Buffer Zones. (Product Liability Prevention)


Cahill, Katherine Ann, Ludwig, Mark, Risk Management


Imagine yourself, the CEO, sitting in your corporate boardroom reveling in the fact that your corporate stock price is soaring and your company is now the national leader in smoked fish products. Not content to sit on your laurels, your marketing department is diligently exploring other areas where your company can broaden its product lines. It has been determined that your profits on smoked herring could be higher. After all, your customers are clamoring for "the same kind of herring you can get in Europe."

Marketing has suggested that your company go to a manufacturer in Europe that is well known for its smoked herring. The European manufacturer will make a custom product with your branding. Adding this new product will increase sales significantly. The plan goes ahead, the product is shipped to the United States, and distributors soon have it on retailers' shelves.

Things do not, however, go according to plan. The safety director explains that a pregnant consumer was diagnosed with food poisoning after eating your new herring. Samples of the product have tested positive for Listeria. Twenty-four hours later, she miscarries. Within seventy-two hours, you have reports of deaths and hospitalizations from Listeria poisoning. Your brand name, which has been rock-solid for the past one hundred years, is now on the six o'clock news. Every paper has your company's problem on the front page. And the FDA has notified you that you have a Class I recall on your hands.

Just when you think things could not get worse, your risk manager informs you that your company dropped its product recall coverage last year as a result of increased premiums and the unlikely event of a product recall. It is estimated by your accountants that the company will spend millions of dollars to complete the recall, not including the cost of settling the numerous lawsuits from the families of the deceased and injured.

Managing the Risks of Global Manufacturing

In today's complex regulatory environment, the burden of producing safe and compliant products rests with the manufacturer. Most American industries have best practices that are routinely deployed by internal safety teams, which continuously inspect and test goods before they are sent to distributors and retailers. At the same time, an increasingly competitive global business environment is forcing companies to consider ways to lower product costs while improving product quality and diversity. To meet these demands, many American companies are partnering with foreign manufacturers to produce custom-branded goods--a unique product that is manufactured by a third party.

Most countries do not have--or do not actively enforce--the strict product safety regulations found in the United States. The problem many U.S. manufacturers encounter is that while they may be saving money manufacturing abroad, the products, materials and facilities in which merchandise is produced are substandard. Additionally, many foreign manufacturers do not perform the type of testing required in the United States to ensure that safe, compliant products reach the market. What can manufacturers do to mitigate this risk?

Two Answers: Bonded Warehouses and Foreign Trade Zones

For companies sourcing some or all of their custom-branded products from foreign manufacturers, protecting and preserving brand integrity and thereby preventing a costly product recall crisis is an important concern. One solution may be in the programs administered by the U.S. Customs Service. Increasingly, companies sourcing merchandise abroad are utilizing customs bonded warehouses or foreign trade zones to protect their brand names and product integrity. Many of these companies are also finding that these programs offer additional benefits above and beyond this originally intended purpose.

A bonded warehouse is a secured area located within the United States, which is treated as being outside the customs territory of the country for customs purposes. …

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Import Liability Buffer Zones. (Product Liability Prevention)
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