It’s time for New Year’s resolutions. Unfortunately for direct-response marketers who sell products manufactured abroad, the U.S. Customs Service and Food & Drug Administration (FDA) have resolved border inspections of imported goods will be on the rise. What will an increase in the depth and frequency of importer audits and shipment inspections, along with an increase in the number of inspectors and investigators at most U.S. ports of entry, mean to the average importer? For one thing, it means a greater potential for delays and penalties.
Most foods, dietary supplements, drugs, cosmetics, medical devices and electronic products that emit radiation are subject to FDA scrutiny under the federal Food, Drug, and Cosmetic ("FD&C") Act. For imported products subject to its jurisdiction, the FDA relies on Customs as its eyes and ears at the border. While Customs will check that a shipment of imported goods is properly marked with the foreign country of origin under its regulations, Customs will also ensure the FDA’s requirements of drug approval and proper labeling of ingredients are met. If Customs examines a shipment of goods and is concerned that the country identified on the package is inaccurate or that the item sought to be imported has not been approved for importation, the regulatory dance begins.
Since the FDA has recently updated its Import Alert regarding certain dietary supplements containing "unapproved new drugs," what might happen to a shipment of weight-loss products containing natural Chinese herbal ingredients? The first hint of trouble an importer receives is a "request for information" from Customs. Perhaps Customs will take a sample from the shipment. Many times, the imported goods are released "conditionally" to the importer.
What does this mean? Don’t ship those dietary supplements to customers just yet, because a conditional release means Customs has the right to demand redelivery of the product. It can do so if, for example, it finds the products are "misbranded" (that is, they make unauthorized health claims). Therefore, dietary supplements the importer believes contain only natural Chinese herbal ingredients may actually be unapproved new drugs in the FDA’s eyes, and may not be permitted in the United States.
Next, the FDA will issue a "hold and detention" notice to the broker, but word of that may not make it to the importer before it distributes the goods to customers. The importer is now greeted with an FDA "refusal of admission" notice, along with Customs’ "Notice of Redelivery" demanding the full return of the shipment to Customs. What happens when a company informs Customs that it no longer has the product?
Typically, importers are assessed liquidated damages equal to three times the value of the full shipment of the supplements because the goods are considered to be unapproved and misbranded drugs. Payment of this penalty is one option, but a company may also challenge Customs’ decision.
In this instance, the importer lays out arguments why the full damages should not be assessed, identifies all corrective actions that have been implemented, and seeks mitigation or remission of the damages assessed. For example, an importer may explain the dietary supplements are properly labeled and might also inform Customs it was due to inadvertent error that the goods were shipped out prematurely.
It is not uncommon for a request to mitigate damages to take more than one round of petitions before the damages are lessened or remitted. In such cases, Customs will coordinate with the FDA as to its recommendation for the appropriate level of penalty. Exactly what that level is typically depends upon the perceived gravity of the offense(s) and the actions taken by the importer.
With the likelihood of greater delay and increased scrutiny of products at the border, there is ever more the need to ensure that goods comply with all government agency regulations. When in doubt, seek guidance or even pre-clearance so you can avoid a detention or seizure of your products.