Questions Linger for Brokers, Importers on FSMA U.S. Agent Reinspection Fee Liability
With U.S. Agent liability set to begin for Food and Drug Administration foreign facility reinspection fees, a bevy of questions still surrounds the issue. The fees, which can reach $289 per hour for fiscal year 2013, have been in effect since Oct. 1, 2011. But FDA still hasn’t begun invoicing for the fees, and will only do so once it finalizes a guidance on small business fee reductions. Biannual foreign facility registration renewal, which is statutorily required to run Oct. 1-Dec. 31 of this year and would include designation of U.S. Agents by foreign facilities, has also been delayed pending “finalization of related guidance documents,” said an FDA spokeswoman. And many customs brokers have removed themselves as U.S. Agents to avoid liability, said Roger Clarke of customs broker Williams Clarke Co. “It is unknown how this will play out with a shortened registration period, no published guidelines or updated Q&A, and a reduced number of possible U.S. Agents,” he said.
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U.S. Agents Now Face Drastically Increased Liability
The Bioterrorism Act of 2002 required that food facilities register and designate a U.S. Agent. The facilities needed to register only once, said Ben England, owner of FDAImports.com, and U.S. Agents were tasked with facilitating communications between FDA and the foreign facility. “As a result, U.S. Agents would charge anywhere from $500 to $1,000 in order to act as U.S. Agent for a year, and that was in case the government ever decided to call,” he said. With little liability or obligation, customs brokers and importers jumped at the chance for a little extra money, he said.
But with passage of the Food Safety Modernization Act (FSMA), FDA now has authority to collect reinspection fees when, following “non-compliance materially related to a food safety requirement” during an initial inspection of a foreign food facility, FDA officers have to return later to verify if compliance has been achieved. Liability for the fees falls squarely on the shoulders of the agent designated on a foreign food facility’s registration. “FDA is required by law to assess and collect foreign facility reinspection fees from that facility’s U.S. Agent,” said an FDA spokeswoman. “It is up to the U.S. Agent and the foreign facility to decide how and by whom the fee will be paid.”
The fees could total $50,000 to $150,000 per foreign reinspection, England said. “So all these companies that are making a thousand bucks on a U.S. agency every now and then… all the sudden are potentially looking at a big nut if this thing ever came into fruition for one of their clients,” he said.
Companies May be Unaware They’re Serving as U.S. Agent
“FDA has unilaterally transferred the U.S. Agent designated under the [Bioterrorism Act] to include the FSMA requirements without any concurrence by the U.S. Agent,” said Roger Clarke, who is chair of the National Customs Brokers and Freight Forwarders Association (NCBFAA) Regulatory Agencies Committee. And making matters worse, it can be difficult for companies to determine if they’re on the hook, he said. The Bioterrorism Act only required that foreign facilities furnish their U.S. agent’s information, and FDA would then send the designated agent an email for confirmation and acceptance. If FDA received no response after a short period of time, it would deem the agency accepted, said Clarke. “This became a problem over the years as many times a company’s employee would accept the U.S. Agent responsibility to get the shipment through without keeping any record” and with management unaware of the added responsibility, he said.
Companies can request that FDA furnish a list of facilities they are acting as agent for, but it takes some time for FDA to process the request, Clarke said. For large express carriers that have acquired a large list of firms and individuals they serve as agents for, FDA has in the past taken ten years for some firms, he said.
Brokers Now Ending Agent Relationships, Relying on Contracts
The only way U.S. Agents can remove themselves from liability for reinspection fees is through a written request to the FDA, Clarke said. “This fact is well known within the brokerage industry and over the past two years the NCBFAA has taken many approaches to ensure its members have full understanding of this requirement,” he said. Many customs brokers have removed themselves as a U.S. Agent, he said, and others are relying on contractual provisions requiring reimbursement from foreign food facilities for any reinspection fees paid on behalf of those facilities.
But indemnification agreements guaranteeing reimbursement for fees are “only as good as good as your ability to enforce them,” said Patrick Caulfield of Grunfeld Desiderio. If the company is located in a country where contract enforcement is difficult, and they don’t have a big interest in exporting to the U.S., “it’s going to be extremely difficult to collect on that.”
In China, for example, judgments of U.S. courts have virtually no value, said Dan Harris of Harris Moure in a blog post on China Law Blog (here). “Neither a treaty nor a reciprocal arrangement exists between China and the United States regarding the recognition or enforcement of judgments in civil matters,” he said. “Chinese courts simply disregard U.S. judgments.” So if the Chinese company has no U.S. assets to seize in a U.S. court action, companies would have to file suit Chinese courts. And if the contract is in English, then the court will use its own translator, which can lead to unpredictable results, Harris said.
Sparse Guidance from FDA on U.S. Agent Liability
“The major problem is that FDA has yet to publish formal written guidelines on facility inspections, which would include the U.S. agent,” said Roger Clarke. As Clarke understands it, the agent confirmation and acceptance procedure will change, and some form of information will be furnished to the U.S. Agents before any reinspection process would start, he said.
FSMA now requires biannual registration for foreign food facilities, which was set to occur for the first time Oct. 1-Dec. 31, but has since been delayed. When it begins, foreign facilities will once again have to designate a U.S. Agent. When FDA conducts the reinspection, it will confirm the identity of the U.S. agent with the foreign facility, said the FDA spokeswoman. Discrepancies between the foreign facility’s statements and the U.S. Agent listed on the facility’s registration will be handled on a case-by-case basis, she said.
Meanwhile, FDA has not begun invoicing U.S. agents for foreign reinspections, said the FDA spokeswoman, despite fees being in effect since October 2011. “FDA has begun the process of tracking and assessing foreign facility reinspection fees,” she said, and “U.S. Agents will be liable for any foreign facility reinspection fees for which they are invoiced.” FDA declined comment on whether it will retroactively invoice U.S. Agents for reinspections that occur between the October 2011 effective date for the fees and the formal beginning of invoicing.
(See ITT’s Online Archives 12073133 for summary of the FY 2013 fees. See also ITT’s Online Archives 11110328 for summary of NCBFAA comments to FDA calling on it to keep the role of U.S. Agent for purposes of Prior Notice filings separate from the role of U.S. Agent for fee liability. See ITT’s Online Archives 11010426 for a comprehensive summary of FSMA.)