Any broker, importer or other U.S. business that agreed eight years ago to be the agent of a foreign food processor may be in for a costly surprise from the Food and Drug Administration.
The Bioterrorism Act of 2002 ordered non-U.S. processors to register their facilities and identify a U.S. agent for administrative purposes. The new Food Safety Modernization Act adds a new obligation: paying the bill when the FDA’s officers re-inspect a facility. The U.S. agent could be stuck with a bill as high as $40,000.
The FDA is aggressively building up its foreign inspection program. A food facility’s first inspection is free. If it doesn’t pass muster, FDA officers will re-inspect, but for a fee of $325 per hour. The law took effect Oct. 1, but the FDA is delaying collections until January 2012.
“Our good friends in Congress specifically stated that the U.S. agent was responsible for the repayment of the re-inspection, period,” said Roger Clarke, president of Williams Clarke, a Los Angeles customs broker specializing in food imports. “There was no mention of having any liability for the foreign facility.”
“The real shocker, it’s not the customs brokers. It’s the importers, or just relatives of people back in 2003 who agreed to be an agent,” said Russell K. Statman, president of Registrar, a Hampton Va., compliance consulting firm. “You may have done one deal with a supplier back in 2003. He asked you to be his agent. Or maybe he didn’t ask, he just did it. The U.S. agent may not know he’s been identified that way.”
Clarke said the FDA has a file of some 300,000 U.S. agents. The FDA did not grant an interview with a member of the management team that is overseeing the agency’s foreign operations.
Industry executives say there is a tie between the laws that can take companies by surprise.
“The problem is the Bioterrorism Act is a completely different law from the Food Safety Modernization Act,” Clarke said. “What FDA is trying to do is say a company that signed up under the Bioterrorism Act is automatically responsible under the FSMA.”
The Bioterrorism Act was Congress’s rapid response to securing the international food supply chain. It was one of a string of security laws responding to the September 11 terror attacks. The law created an online registry for foreign facilities, including the designated agent, and expanded the FDA’s presence overseas.
The FDA’s role took on heightened importance when a string of food adulteration cases stung the import trade in 2007, and the FSMA was the congressional response to the scare involving food imports, particularly those from China.
“This appears to be part of FDA’s initiative to push the inspections offshore. Stop the problem over there before it gets over here,” said Robert De Camp, director of regulatory affairs for customs broker A.N. Deringer. “It’s been a reasonably well-communicated philosophy for a couple of years, and I see this as one of the first steps.”
Re-inspections could hit an agent’s cash flow, but they also offer a new business opportunity. Williams Clarke is setting up a subsidiary to assume the U.S. agent role. But the risk for an agent that registered under the Bioterrorism Act has gone up exponentially. The law doesn’t provide a way for the agent to recoup the fee. “It’s like having your tax accountant being responsible for your taxes,” Clarke said.
Clarke said the biggest problem is mitigating risk. Sureties are looking into the question of insuring such losses, but no one has found a solution yet. Opting out of being a U.S. agent also may be difficult, depending on whether the facility or the agent registered under the Bioterrorism Act.
If the foreign company registered, “you have no ability to log in to opt out. The only thing you can do is tell the facility to ask FDA, you don’t want to be the agent,” Clarke said. “Who knows if they will or not (agree). You may not even be handling that account any more; they could care less.”
Statman said the best option could be transferring agency responsibility to a company such as Registrar, a U.S. agent for 5,000 foreign food facilities. The risk is spread over a wider base. The very best way to avoid re-inspection fees is to get FDA certification in the first place. Statman’s company provides compliance specialists to help companies prepare for FDA inspection.
U.S. agents may have two or three years of grace from re-inspection fees, because the FDA is still gearing up its foreign program. De Camp said the FDA estimates the re-inspection rate may be 7 to 9 percent. According to an FDA spokesman, the agency plans to complete 600 inspections this year, doubling that each year until the annual rate is 15,000. The agency also is setting up a certification program for third-party inspectors.
Clarke said the FDA is aware of the trade community’s concerns, and together they may work out a solution. “But at the same time, the agency is locked in by the law,” he said. “That doesn’t give them much leeway other than collecting from the U.S. agent.”