CHINA ESQUIRE

Yes, its Sunday and I am doing my review. (normally I do it on Saturday) But due to lack of posts recently, I wanted to put something real up yesterday. So here is my review piece. Rich Brubaker of All Roads put up a post entitled “When Sourcing in China. Cash = Control”. And it contains a lot of very basic advice–much of it common sense–which I think is helpful. Businesses going into China should not check their brain in at the visa office. Some of the highlights:

. . . [I]t is hear that I will blend a few phrases that I have heard in my time on earth… “cash is king”… and “I’ll believe it when the money is in the bank”… or “logistics is simply controlling frieght”…

Where these random cliches come together, is that I never consider a consulting deal closed until the money is in the bank, and that when sourcing in China I am only in the power position for as long as I control the money… and what amazes me is how many people forget these simple rules.

A while back I wrote a post about quality control I received an email from someone who had bought a container full of product that was crap. It wasn’t to spec, he had fully paid out, and he wanted to know how to recover. The problem was compounded by the fact that he had no other supplier ready in the wings, his current supplier knew that, and he felt stuck.

He assumed that his partner would get everything right, but failed to force his supplier to take on any risk - after all a 100% payment at shipment essentially is the best deal a manufacturer can get!

Rich’s advice to his client:

1) He needs to find a 2nd and 3rd supplier of goods as a backup

2) He should forget about returning the goods (the logistics of that alone was 6-8k USD with no indication the supplier would take it back)

3) He had to begin QCing the goods through either his own eyes, or trusted eyes

4) As long as his payment terms were as they were, his suppliers had no skin in the game and therefore there was no reason to believe this wouldn’t happen again.

For those who are sourcing in China, it really is important to understand that as long as you “owe” your supplier money, you are still in the position of power. You can change an order size more easily, you can demand a 3rd party audit, and if the QC process shows a red flad you can return product much more easily. Because until you are 100% paid up, the supplier at some level will be at a loss, and that is power.

In watching buyers in China for the last 5 years now, where I am often surprised is just how easily that is lost. that the basic understanding of the power of money is lost on some who will structure their deal in such a way that they lose all ability to return items that are not up to spec. That rather than quality control in China, and then have the ability to fix it on site, many will find themselves with a container full of junk that is unreturnable.

So, a couple quick lessons in global sourcing. Make sure your goods are up to spec before they leave the country (because there is little you can do once they hit your dock), and never cash your supplier out until your final audit has been perform….

All good advice here. I harp on QC all the time, and its important. So important that you need to do it in China. And you are probably better off either having someone on the ground there from your business or having an agency that you trust A LOT. All clients should be advised accordingly.

I’ve talked about Americans decrying Chinese imported products on this blog, and the need for American and multinational corporations to get their act together in due diligence and quality control. (Dan Harris at CLB had a post on QC which quotes the good ideas from Nina Ying Sun’s post here recently, in case you didn’t read it)

Well this story was so strange that I had to post it. It’s not exactly your run-of-the-mill Trader Joe’s or even pet food melamine case. Instead, Congress is targeting importation of actual (plastinated) human bodies for display from China. ABC News reports ( h/t to Above the Law) here:

Twenty-one members of Congress have sponsored a bill that would strike a major blow to the multi-million-dollar industry that puts human bodies on display because they say the bodies could be from executed Chinese prisoners.

Republican Rep. Todd Akin of Missouri introduced the bill that would prohibit the importation of any “plastinated” human body part into this country. Atlanta-based Premier Exhibitions uses “unclaimed” Chinese bodies infused with silicone through a process called “plastination” for display across the nation in an exhibit called, “Bodies…The Exhibition.”

“This is a human rights issue about affording human dignities to people around the world,” said Rep. Akin, adding that he is concerned that the Chinese people in the exhibit did not give permission for their bodies to be on display. “We cannot verify the source of each body coming from China, so we decided the best approach was to say that in our country, you cannot import plastinated bodies,” he said.

This is arguably a QC issue: companies not verifying where their dead are coming from. Of course, I doubt that because it seems like its general knowledge that companies can get bodies without consent from China:

Gunther von Hagens who invented the plastination process puts on another show featuring plastinated bodies called “Body Worlds.” He, too, would be affected as his plastination factory is located on the German-Polish border. Von Hagens says all his bodies are donated and that he no longer works with corpses obtained from China.

So its not quite a QC issue. Because companies are knowingly doing it. This is not an issue of those “evil” and “greedy” Chinese manufacturers, and so, consumers cannot call it that. (unlike a situation such as Panama’s cough syrup with glycerine) It seems to me that the problem isn’t QC, its unscrupulous businesses using China as a source for bodies. And sadly, I would bet that those companies would go elsewhere if plastinated bodies weren’t available from China.

Note, this isn’t just a ban on Chinese plastinated bodies. It’s a ban on all such imports. So it’s not an anti-China matter.

And yes, there are domestic and international standards of decency and laws on the books on what you do with cadavers and human bodies. But this ban is not about QC or about the law. It’s about politics. Honestly, the nature of this debate is sort of sickening to me… which is why I chose law and not medicine. I am not sure I’d call it human rights when we are dealing with dead people, so it’s sort hard to come up with any sort of classification for this sort of mess.

Anyways, I thought it was interesting to at least think about. I hope it doesn’t ruin your lunch today.

Well, I’m not even sure if I can call it quality fade to be honest.  Quality fade assumes the quality was good from the start and then went down later.  Its more like just the usual cutting of corners.  So perhaps its more a lack of QC and due diligence…  and it is also a clear sign of why rampant corruption can turn deadly.  This tops the Panama cough syrup glycerine any day.

Paul Midler ran an post on Friday, highlighting an article called “Why China’s Buildings Crumbled”.  I want to display more of the article than he did because it shows how deadly cutting corners can be:

But while rescue crews fought to reach the victims, awkward questions were being asked about the tragedy. One man, gazing at the corpse of his nine-year-old cousin, said he had disturbing evidence that could explain the collapse of the five-storey Juyuan school building, along with eight other schools in the region.

The man, who gave his surname as Ren, is a 32-year-old steel worker who has worked for a decade in the local construction industry. He said he always knew that the Juyuan school was a disaster in waiting. Local officials, he said, had pocketed money that was budgeted for the school, while a private construction company had saved money by cutting corners on the project.

To boost its profits, the company used iron instead of steel in many parts of the construction of the building, Mr. Ren said. It cut back on the size and number of steel braces in the cement foundation slabs. And it used cheap materials to make the concrete walls, weakening the entire structure.

Many other survivors were convinced that corruption had played a role in determining which buildings collapsed and which were unscathed. One man pointed to a new building whose first floor had collapsed, even as older buildings around it were intact. “They used fewer bricks in the new building, so they could earn more money,” he said.

The shoddily constructed buildings are commonly called “tofu buildings” because of their weak structural condition.

They should be so lucky that this wasn’t a U.S. based tragedy or the construction companies involved would be facing a very nasty civil lawsuit and probably criminal prosecution.  I’ve hard on due diligence and QC before, so I won’t beat a dead horse.  Just another warning to be careful…  you never know when human lives depend on it.

CNN World Business ran an article this past week that states that food exports have dropped by 30% to Japan, which is a key market for Chinese food products.  I am not sure that I actually feel too badly for China in this case, but let me explain after the article:

China’s food exports to Japan, a key market, plunged 30 percent in February, hurt by a scare over poisoned Chinese-made dumplings, according to data reported Friday.

Japan is the third-largest market for Chinese exporters of fish, dumplings and other processed food, and the drop in sales is a severe blow to the fast-growing industry.

China’s food exports to Japan in February totaled 186,000 tons, down 30 percent from the same month in 2007, the General Administration of Customs reported.

Exports from Shandong, the eastern province that is the base for food processors serving Japan, fell 60 percent, the official Xinhua News Agency said.

“Influenced by such things as the `poisoned dumpling incident,’ our country’s food exports to Japan fell one after the other,” said a customs agency statement.

Chinese-made dumplings were pulled from Japanese supermarkets in December after traces of a banned insecticide were found in the dumplings and in the vomit of people who fell ill after eating them.

Bad Chinese products are nothing new.  And it is not all too surprising considering that China is become the world’s manufacturer, not just America’s sourcing base.  And as expected, there are issues of quality fade, lack of quality control, and lack of repeat due diligence.  So sometimes I actually think its a miracle that there aren’t more Chinese products issues on a regular basis.  Thankfully, most issues are not lethal, like the glycerin that Panama bought some time back for cough syrup.

But why do I say that China has no one to blame but itself?  Because it often takes the stance that it’s importing country’s responsibility to check out product issues, not the exporter’s.  The Chinese SFDA did that when it came with pharmaceuticals here (and I covered this topic in this post):

But the SFDA said that based on international practice, “safeguarding the legality, safety and quality of raw materials imported for use in pharmaceuticals is the responsibility of the importing country.”

This was the official policy regarding pharmaceuticals, so I know it’s not quite the same thing.  But it is my belief that this has been China’s stance toward food and other exported products as well.  Here was China’s response:

Chinese authorities say their investigation has found the poisoning probably was an isolated, deliberate case. They say there is little chance it happened in China and have accused Japanese police of failing to cooperate with them.

Sure, but if China is trying to implement domestic food safety standards, then it must know that there are food export issues as well.  As long as the government refuses to tackle this issue head on, and expend some serious capital and resources to deal with it, then China really has no one to blame if Japan or other countries decide to start consuming less food products from China.  That’s pretty logical actually.  And I am not trying to be cruel.  In the end, China can only blame itself if the market for Chinese exports, particularly food exports, drops.

This is a good opportunity for the government to get involved in regulating its exports.  It doesn’t need to massively regulate.  But more regulation, though costly, will be welcome.  And ultimately, it may cost China less if other countries can learn to trust Chinese exports again.

An article that was sitting in my mailbox that was just waiting for comment was entitled “EU and US team up on Chinese toys” from BBC News. It’s a little old, but since the news was not covered on any of the blogs I frequent, I thought I would talk about it:

The EU and the United States have agreed to work closely to persuade Chinese toy-makers to improve the safety of their products.

Millions of Chinese-made toys were recalled in 2007 after safety concerns about lead paint or detachable magnets.

EU commissioner Meglena Kuneva said, after talks with her US counterpart, Nancy Nord, that the world’s two major economies had to speak with one voice.

“We are pro-open markets, [but] not compromising on safety,” she said.

China has pledged to step up the way it monitors products.

Ms Nord, chair of the US Consumer Product Safety Commission, said she wanted the EU to agree to a global set of product safety standards.

Bringing the two systems together would be “for the benefit of consumers; it is certainly for the benefit of product manufacturers”, she said.

Currently, the EU uses a CE mark but European consumer groups have called for a stricter standard awarded by an independent regulator.

First off, how will the EU and the US “persuade” Chinese toy makers to improve their safety? They won’t. That is more or less an impossibility. Chinese toy makers are in this business because they want to make money, and because they sell to larger multinational companies, I don’t see how western governments are going to persuade anyone in China to do anything. So this is actually a mislabeling in my mind.

That’s not to say the EU and the US have no power. They have power on businesses sourcing from China but based in the U.S. or other countries in the west. In other words, your business. In the U.S., civil and criminal liability are already deterrences against harmful products. Add regulatory penalties to the list. That’s not too much of a threat, but just having to deal with government inspections, the time wasted on such a process, and sheer nuisance value does make this a possibility.

And so I will continue to preach quality control and due diligence. Especially quality control because quality fade is still very real. (think Greek Olympians)

My other thought is regarding a “global” standard. Who determines this? I have a hard time seeing a real consensus here. And of course, what effect can it have on consumers? A lot. If other countries raise the ceiling ridiculously high (which is desirable), then imagine the increase in costs for products worldwide. Do you think China as the world’s manufacturer will help the pinched consumer in America who fears a recession? No. I like the independent regulator idea. But I just can’t see this working out in a beneficial way for most people.

And of course, we go back to the quality fade problem.  You have a regulator certify a product.  You have some random, but not-too-often type of inspections.  You are asking for quality fade.  And Chinese suppliers will give you in a heartbeat.  QC and due diligence can only do so much against economic realities.  So watch out.

Ultimately, it’s probably so that the EU and America can wring their hands when problems arise and say “I am innocent”.

The China Daily mentioned in an article last week ( h/t to China Digital Times today) that some of China’s new ideas for a food safety system won’t just be suggestions: they are being drafted into a new law.  That is indeed interesting.  Here is how the article reads in part:

The new product identification and tracking system, which has been in the spotlight recently over concerns it may raise production costs, has been written into the draft food safety law, a senior quality control official said Tuesday.

The system has become part of the draft food safety law and will become a legal obligation for all food companies if it is passed by the Standing Committee of the National People’s Congress (NPC), Pu Changcheng, deputy director of the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), said at a working conference in Beijing.

“It allows every stage of a product’s production and distribution cycle to be tracked.”

Food companies, however, have argued the system will increase their production costs. More than 20 firms, including Nestle, Mars, Coca-Cola and Pepsico, have submitted a joint petition against the system to the legislative affairs commission of the NPC Standing Committee and State Council Legislative Affairs Office.

The system will require new equipment to be purchased, will slow production, and changes will have to be made to packaging and design, the firms said in the petition.

In a report submitted to the AQSIQ, the China National Food Industry Association said all 40 of the food companies it surveyed last month said the system will raise their production costs, and 31 said it will lead to price rises of up to 15 percent.

“More importantly, the system is of little use in ensuring product safety, as it doesn’t deal with the quality of raw materials,” Li Yu, scientific and regulatory affairs director of Mars China, said.

“Also, the system doesn’t apply to small food plants, and they have the most problems,” he said.

Well, I have many thoughts regarding this sort of a law.  First, it is very encouraging that the government is stepping up to the plate regarding food safety regulation.  Standards are fine, but laws are required if you want broader enforcement.  Will this law have any real teeth?  Only time will tell.  (Charlie McElwee and I had some discussion about enforcement of China’s new environmental laws, and the conclusion was the same: we can only hope that enforcement steps up)  But it is a very positive step in terms of possible enforcement.

Second, it means the government is acknowledging that there are issues with food safety.  And it isn’t just foreign countries’ imports (think the whole pet food and shrimp scandal, and China’s backlash)–they are acknowledging that domestic products also need regulation and enforcement.  Yes, China needs to become more transparent.  But things like this (and the admission that the 3 gorges dam is an environmental disaster) gives me great hope that this country will indeed become more and more transparent.  And be able to better dialog in a somewhat more western manner with criticisms and problems domestically.

Third, there is a big question of who is going to receive the toughest treatment?  I suspect it will be the foreign and multinational enterprises, those with larger pools of resources, that receive the brunt of this.  Because it is enforcement, but it is also with a somewhat Chinese sense of fair play.  I think some Chinese companies will get theirs as well, don’t get me wrong.  But indeed, it is the Nestles and Mars & Company’s that have the most to lose.  And so they will have to eat the rising costs.  (or worse, pass them on to the consumer, and only add to Chinese inflation)

Is there a benefit to this for them?  Of course.  If they implement and other companies don’t, then I expect that Chinese citizens with some means will start buying the more expensive, but more likely safe products, en masse.  Not everyone will be able to, but the Chinese wealthy and middle classes sure will.  If you have the means and you have only one child, will you feed him garbage?  Over your dead body.  No, everyone wants to buy with confidence.  It is not a Chinese-only thing.  So expect the premium products to control just that a–a slight premium.

Finally, just to be a little cynical, what will happen when some of the more shady Chinese food producers realize that Nestle and Mars sells well?  Compete?  No.  (Some will)  But I can see what happens in smaller markets by smaller, fly-by-night producers: counterfeiting.  And then we have an IP / trademark problem on our hands.  But we will cross that bridge when we get there.

CNN Money apparently did.  Just be glad that you or your child didn’t find one of these.

Yet another China products safety article, this time focusing on camouflaged eggs and spinning egg top toys. Right in time for Easter. The very brief article entitled “Easter egg toys recalled” states:

About 13,000 camouflage eggs and spinning egg top toys, imported by Hobby Lobby Stores Inc. and made in China, because the paint on the toys contains high levels of lead, which is toxic if ingested by children.

No injuries or incidents have been reported. The recalled products include the Camouflage Easter Egg Treat Containers, with the item No. 1031, and the Easter Spinning Egg Tops, with the item No. 1054.

They were sold at Hobby Lobby Stores nationwide from January 2008 through this month.

For more information, visit http://www.HobbyLobby.com or http://www.cpsc.gov.

Just another reminder that periodict and/or constant QC and follow up, coupled with due diligence, are your best friends to avoid embarassment, civil liability, or even worse, criminal liability.

Happy Easter everyone!

Despite all of the hubbub about Tibet (which is important news, don’t get me wrong), the headline that caught my eye fastest yesterday at China Digital Times was that the Heparin contaminant was actually identified.  Here is the article from the Los Angeles Times ( h/t to CDT):

A compound related to a common nutritional supplement has been identified as the contaminant in a blood-thinning drug imported from China that sickened hundreds of frail patients in the U.S. and is suspected in a number of deaths, federal officials said Wednesday.

The substance mimics the real drug — heparin — in standard safety tests and may have been deliberately substituted for the genuine compound somewhere along the line to boost middlemen’s profits. It could also have been added through a mishap or some kind of misguided experiment. Because of difficulties in back-checking, it’s unclear whether Food and Drug Administration officials will ever know for sure.

The recall inflamed public concerns about the safety of consumer goods from China; the heparin investigation may give a boost to legislation stalled in Congress that would set up a much more rigorous import inspection system.

“It is unacceptable that Americans have died and been seriously injured by what appears to be deliberate tampering,” Sen. Edward M. Kennedy (D-Mass.), who chairs a panel that oversees the FDA, said in a statement. “Whether this contaminant was introduced intentionally or by accident, the full force of the law must be brought to bear to bring those responsible to justice.

“To guard against future abuses, every drug manufacturer needs to inform FDA of where it sources its ingredients and what it is doing to ensure that these ingredients are pure and potent.”

“This is not a new problem,” said England, who now advises foreign companies on how to comply with U.S. regulations. “This is a close cousin of problems that have presented themselves before.”

The FDA is chronically short of resources to meet its mandate to oversee a vast array of drugs, medical devices, and processed and natural foods. Inspections of foreign producers in particular are infrequent. And China has been difficult territory for U.S. regulators.

I have already been on the record many times about doing QC and due diligence with regards to the Heparin debacle, so I will refrain from overly beating a dead horse.  (see “ first pet food, then trader joe’s, now heparin…” and “ heparin update part 2: chinese fda lays responsibility on importers“)  Note that the FDA cannot catch all of the bad apples. It is short of resources–in fact, woefully short of resources.  So if you are counting on regulatory agencies to help solve your sourcing quality issues, the U.S. has no resources and the Chinese have disclaimed all responsibility.  In other words, the ball is in your court.  ‘Nuff said.

The other thing that I want to note is that Senator Kennedy is on the record saying “the full force of the law must be brought to bear to bring those responsible to justice.”  Well, if the LA City Attorney’s Office can do it, so can others.  We now have a Heparin contaminant identified.  As the article points out, we may never know where the problematic materials were introduced.  So who will take the fall?  The FDA won’t. I foresee yet another criminal case coming in the future.  Maybe not now, but if deadly toothpaste and pet food can warrant a criminal case, you can be sure this Heparin thing will too.  I don’t know if it will be Baxter or someone else, but just wait and see.  It may even be a different set of charges because this criminal liability thing for Chinese sourced products is so new that prosecutors have room to be creative in which causes of action to bring.

The storm is coming.  Do you feel it?

I noticed this past week that the New York Times decided to do back-to-back articles yesterday and today about Chinese products. Not all that surprising since it has become a media sensation to bash China and stir up China fears. (albeit sometimes justifiably so) The last time around, it was Trader Joe’s that made the news. Now its more on Heparin (which I have tried to follow closely) and toothpaste, which Brad Luo at China Business Law Blog picked up on recently.

Before I go ahead and present the articles, I do want to say: this is going to be the norm for some time to come. And though the Chinese economy is not slowing and China sourcing is not about to keel over and die (or even slow in my opinion), I think the media will continue to have a field day with China. It has to be popular in America, especially with the rhetoric that’s been flying around the presidential primary elections. And it will sell newspapers. So get used to it.

First, the Heparin update from the Times:

The German authorities said Friday that they had asked all German producers of the blood thinner heparin to check whether their ingredients came from China, after allergic reactions to the drug there were linked to two Chinese suppliers.

In cases where China did supply the raw ingredient, manufacturers were asked to test for any irregularities. The German authorities recalled the suspect heparin on Wednesday after receiving reports of allergic reactions in about 80 patients.

The German authorities identified the two plants as Changzhou Quianhong Bio Pharma Company, and the Yantai Dongcheng Biochemicals Company. Both are among the top 10 Chinese exporters of heparin, according to a report last September by the China Chamber of Commerce for the Import and Export of Medicines and Health Products.

The European Medicines Agency, which is based in Britain, has looked through databases in Europe and concluded that there had been no allergic reactions to heparin in any European countries except Germany.

So that makes the U.S. and Germany as the only two countries where Heparin has been an issue. This is not really big news in my mind. Just another warning to conduct due diligence, regular QC, and do periodic followup.

Second, and more importantly, the Los Angeles City Attorney’s office, in conjunction with the FDA, filed a criminal complaint against some executives at two companies that imported toothpaste that contained the rather poisonous diethylene glycol. (think Panama cough syrup) The article ( h/t to Brad Luo) states:

Criminal charges were filed on Thursday against four executives at two American companies who imported toothpaste from China that contained a poison used in some antifreeze, the city attorney in Los Angeles said in a statement.

The chemical, diethylene glycol, which is banned from certain ingestible items in the United States, was discovered in almost a million tubes of toothpaste last May and led to recalls in 34 countries. The chemical, commonly used in antifreeze and as a solvent, can lead to kidney damage or liver disease.

The toothpaste ended up being distributed in the United States in prisons, luxury hotels, hospitals and discount stores. It was one of the earliest global alerts to broader manufacturing problems in China that allowed scores of tainted products, including toys, children’s jewelry and pet food, to end up on store shelves. The chemical in the toothpaste was used instead of the more expensive chemical glycerin.

The Los Angeles city attorney, Rocky Delgadillo, working with the Food and Drug Administration, filed a criminal complaint against two Los Angeles-based importers, Vernon Sales Inc. and the Selective Imports Corporation.

At Selective, Frahad Nazarian, the president, and Yones Ghermezi, the vice president, were charged with two counts of receiving, selling and delivering the tainted products.

At Vernon Sales, Kamyab Toofer, the president, and Pejman Mossayi, the vice president, were charged with 14 counts of receiving, selling and delivering an adulterated drug.

“This is just going to keep happening every day,” said Richard Cellini, vice president of Integrity Interactive, a consulting firm in Waltham, Mass. “It’s becoming clear that law enforcement isn’t afraid to act.”

The executives are accused of receiving, selling and distributing Cooldent-branded toothpaste containing the diethylene glycol.

In May after federal health officials discovered that tainted Chinese toothpaste had entered the United States, they warned that it would be found largely in discount stores. As it turned out, nearly one million tubes have turned up in hospitals, prisons and elsewhere.

I have already discussed criminal liability for wire-tap fraud in this post regarding pet food, and so you should know that criminal liability is to be expected. This new case just re-affirms the point: you can be criminally liable for the products you import from China, so be very very careful. Again, I don’t think its realistic to cut off all ties to China–just be aware of the potential liability.

I will try to write more about the actual criminal charges in a future post.

The AP recently published this article regarding the Baxter Heparin probes that arose from 4 deaths and 300+ allergic reactions. There is actually no real information about the progress in tracking where the problem might be. However, the article did have an interesting little tidbit in there that I just had to highlight.

Straight from the horse’s mouth:

SHANGHAI, China (AP) — China’s drug safety agency, commenting on a probe into the recalled drug heparin, said Wednesday it enforces strict controls on chemicals used in pharmaceuticals, but that importing countries are ultimately responsible for ensuring product safety.

The State Food and Drug Administration, in a statement on its Web site, said it was cooperating with a U.S. probe into a factory that makes heparin, a blood-thinning drug by Baxter International that is subject to a massive recall due to adverse patient reactions.

“We attach high importance to this,” the agency said in its first comment on the heparin recall. SFDA officials have not responded to repeated inquiries about the case.

But the SFDA said that based on international practice, “safeguarding the legality, safety and quality of raw materials imported for use in pharmaceuticals is the responsibility of the importing country.”

Let’s be honest here. The Chinese FDA (”SFDA”) is not going to take any responsibility for pharmaceuticals causing problems. Of course, I am sure they wouldn’t want to. 4 deaths for Heparin. Many deaths in the Panama glycerine cough syrup. This is a nasty can of worms here for the SFDA. And so the SFDA’s response is that they will pass the buck for pharmaceuticals.

So does this mean that the U.S. FDA or your country’s equivalent will be willing to shoulder the burden for a defective product that is imported into the country? Likely not. It will be on the importers themselves. If this is not a wake-up call for importers (and if you are doing China imports, this means you), then I don’t know what is. You must do your due diligence, QC, and constant follow-up.

Is this trinity of QC, diligence, and follow up going to make your imports fool proof? Probably not. But hopefully it will at least shield you from major civil liability from plaintiff’s lawyers who would love to go after your products.

I have already written about the need for quality control and due diligence. And for QC, I harp on this everytime I see a news article that mentions that some Chinese imported product has lead paint, poisoned someone, or killed a pet. It seems like every other day when I read articles about this now.

Here is a new twist though. If you don’t do your own quality control, someone else might do it for you. In a pair of articles last week, it seems that both the European Union and some major retailers have decided to test products themselves.

From CNN Money, there was an article last Friday that talks about WalMart and Toys ‘R Us:

Wal-Mart Stores and Toys “R” Us announced new mandatory safety checks Friday for its toy manufacturers following a wave of recalls that hurt the industry this past holiday season.

The separate announcements came ahead of next week’s scheduled statement from the Consumer Product Safety Commission (CPSC) about new stricter toy safety guidelines for both toymakers and retailers.

Wal-Mart, the world’s largest retailer, said it told its suppliers in January that they would have have to meet enhanced safety standards for new and “reordered toys” that will be sold in its stores this year.

The Toys “R” Us guidelines include third-party testing of each batch of toys that’s imported into the United States and calling for a significant reduction in lead content found in paints used for coating toys.

Toys “R” Us - the nation’s biggest independent toy retailer - said these new stricter guidelines apply to all manufacturers whose products are shipped to the company on or after March 1.

The retailer said that, by the end of 2008, all infant products sold at its namesake and Babies “R” Us stores in the United States are prohibited from containing any phthalates, chemicals that have been linked to possible reproductive problems and birth defects.

Wal-Mart spokeswoman Melissa O’Brien said toys made by its suppliers cannot have more than 0.1% phthalate content.

“We are requiring independent third-party lab testing of all new and reordered toys for chemical content,” O’Brien said.

And the European Union is inspecting rice in this AP article:

The European Union imposed strict new testing rules Tuesday on imported rice from China, claiming recent shipments contained a genetically altered strain that is banned in the EU.

EU Health Commissioner Markos Kyprianou said the decision was intended to prevent any future imports of the banned Bt-63, genetically modified variety of rice, which was discovered during 2006-2007 by national food safety authorities.

“Under food safety legislation only GMO’s (genetically modified organisms) which have undergone a thorough scientific assessment and authorization procedure may be put on the EU market,” Kyprianou said in a statement.

The European Commission said that, despite repeated notifications, Chinese authorities have been unable to prevent the banned rice from reaching Europe, so all rice imports will now face testing.

Now, do not think that this means you can get away without doing QC because someone else will do it for you. I’m sure that Toys ‘R Us or WalMart will not continue to buy from you if its your toys that continue to fail the product tests. Sure, you may get away with some of it, but for the long-term health of your business, that’s bad policy. So now you have a few incentives to do QC:

• civil liability, which we all expected;
• criminal liability, which is now being used in the U.S. in the pet food cases;
• media criticism, which happens frequently;
• loss of revenue if your retailer dumps you or you can’t even get your product into the E.U.

Need I say more?

An update on this breaking story from the New York Times. Earlier, I pinned the blame on both the U.S. FDA and Baxter because neither did quality control on the Changzhou plant. Well, it seems like there is a third party that can take some of the blame as well: China’s Drug Agency. Here is an excerpt:

A Chinese factory that supplies much of the active ingredient for a brand of a blood thinner that has been linked to four deaths in the United States is not certified by China’s drug regulators to make pharmaceutical products, according to records and interviews.

Because the plant, Changzhou SPL, has no drug certification, China’s drug agency did not inspect it. The United States Food and Drug Administration said this week that it had not inspected the plant either — a violation of its own policy — before allowing the company to become a major supplier of the blood thinner, heparin, to Baxter International in the United States.

Baxter announced Monday that it was suspending sales of its multidose vials of heparin after 4 patients died and 350 suffered complications. Why the heparin caused these problems — and whether the active ingredient in the drug, derived from pig intestines, was responsible — has not been determined.

The plant in Changzhou, west of Shanghai, appears to fall into the type of regulatory void that American and Chinese health officials are trying to close — in which chemical companies export pharmaceutical ingredients without a Chinese drug license.

Of course, I have not yet blamed the Chinese factory. Yes, they were not licensed to produce these products, so they share some of it. But really, Baxter should’ve been doing more due diligence, not to mention both countries’ drug regulatory bodies. (whether or not it did a “reasonable” amount of due diligence is not my problem because human lives are at stake–you could always do more) It’s scary how much can slip under the radar. But as the Times mentions, we still don’t know if it was the Chinese manufacturer:

The heparin plant in China has not been accused of providing a harmful product. The American majority owner of that plant, Scientific Protein Laboratories, also owns a plant in Wisconsin that produces the active ingredient in heparin for Baxter.

So here the most astounding fact: the U.S. FDA proceeds so slowly that it would take 35-70 years to do an inspection of all approved drug plants in China, not to mention the fly-by-night types. This is downright scary:

Congress has criticized the oversight by the Food and Drug Administration of bulk pharmaceutical ingredients made by foreign manufacturers and sold in the United States. A growing number of those ingredients now come from China. Of the 700 approved Chinese drug plants, the United States agency has inspected only 10 to 20 each year.

So who’s to blame? I think the U.S. FDA should bear much of the brunt on this. They can do better. And then Baxter for failure to quality control their products. If the Chinese factory is properly linked to the deaths, then it definitely has the lion’s share of it. But until then, let this be another warning to all who would import Chinese products: Caveat emptor.