Any time you import goods from another country, you are required to assure that the goods meet your country's health and safety standards. If they do not and there is a claim, you as the importer are likely to be held responsible. This situation is especially true when importing from China. In most western countries it is virtually impossible for an importer to pursue a products liability claim against a Chinese manufacturer because:
- Every step in litigation can be an ordeal when the defendant is a Chinese company.
- Chinese companies will assert that your country's courts have no jurisdiction.
- It is illegal to take depositions in China.
- Most Chinese companies have no assets in your country, so they have no trouble ignoring a court order.
What can you as an importer do to protect yourself?
You should investigate the possibility of obtaining insurance protection.
Product Liability Insurance
Product liability insurance covers claims arising out of product-related damage to third-party property or injuries to consumers and the costs of defending a product liability lawsuit. This insurance is the first line of defense against a claim.
Product Recall Insurance
A product recall policy covers when a product on the market is likely to cause damage or injury to third parties; there doesn' need to be an actual incident of damage or a claim. The policy covers the costs to prevent claims such as refunding money for goods sold, communicating about goods to consumers and public relations costs to avoid taint of company name in the wake of a problem.
Trade disruption insurance
This insurance covers the cost of finding a replacement supplier if necessary.
Although it can be difficult to accomplish or to enforce, you should make every attempt to try and protect your company by negotiating contractual assurances and protections. For example:
- Require suppliers to maintain product liability insurance, at their expense and require a Certificate of Insurance as evidence.
- Request that policies include your company as an additional insured.
- Require that the insurer notify you if the insurance is cancelled or materially altered.
- Policy endorsements naming the importer as an additional insured, or otherwise confer it rights under the supplier's liability polices.
- Obligate the supplier and its liability insurers to notify the importer in writing if any of the supplier's pertinent insurance contracts are cancelled, not renewed or materially changed.
- Particularly in China, require arbitration of any disputes.
Unless you are covered, it may be wise to stay away from consumables, products that may involve children and anything that has a medical application, since these are some of the most tightly regulated areas of consumer products as well as the areas which have seen problems in the recent past.
Is the bottom line that you shouldn't import? No, not at all, importation often gives you the best opportunity for higher profit and unique products. You should, however, exercise caution in your product choice and your contractual commitments.