Lawsuits are expensive, complex and time consuming, so liability is something business owners should consider for every aspect of their supply chain.

Planning and preparation are important steps in mitigating product liability. Organizations should assess the product liability risks tied to individual products and in different markets and consider potential loss scenarios. Strategies for product design, manufacturing, marketing and product recall planning can then be developed—to minimize or mitigate liability risk.

Organizations should be proactive and research the quality control measures and risk management plans of all suppliers to have a complete understanding of the supply chain; this includes procedures and plans of second- and third-tier suppliers. Businesses should also consider including language on compliance, indemnification and financial penalties into their supplier contracts.

Another important planning step is the preparation of a crisis plan detailing how organizations will act in the event of a product failure or contamination event. A crisis plan should clearly define roles and processes governing all aspects of a recall. This should include communications—via multiple channels—with customers, regulators, employees, suppliers and news media.

Businesses should be prepared to trace products and components throughout their supply chain, be ready to execute a recall as necessary, and be able to account for all related costs for claims purposes.

Having the right infrastructure in place ahead of time—for example, the ability to launch web sites and staff call centers in multiple languages, and a plan to collect unsafe products and redistribute safe products—can help organizations to quickly initiate a recall and recover from it.

Want to dive deeper into the regulations and requirements for selling in international markets? Check out the FITTskills Products & Services for a Global Market online course.

What should your next steps be to reduce your product liability?

Despite efforts to ensure best in brand quality standards are adhered to, and conscientious compliance with safety and production regulations, product liability disputes can still develop. It is recommended that organizations:

• Routinely buy liability insurance as a safeguard against litigation and factor the cost of liability insurance into their business plans
• Conduct due diligence when engaging in foreign markets
• Engage legal services not only for contract reviews, but also to provide a product liability environmental analysis from the legal perspective
• Ensure production design, testing and quality controls are rigourous, enforced and documented
• Implement proactive strategies to ensure product compliance with regulations in all markets product is distributed, such as by employing compliance specialists
• Put contingency plans in place to manage product recalls and potential liability

Consider creating a global insurance policy inventory

A detailed insurance policy inventory can also help businesses identify coverage gaps that may need to be addressed. A standard commercial general liability policy may offer protection against bodily injury tied to the failure or contamination of a product. But businesses may also consider other forms of coverage that are available in most countries. For example:

• Product liability insurance, which protects manufacturers and sellers from liability for losses or injuries to consumers or others as a result of a product defect or failure. Coverage could also include design defects or “failure to warn” claims.
• Product recall insurance, which can be customized to provide coverage for business interruption and extra expense, brand rehabilitation, third-party risk, and expenses associated with the execution of a recall.
• Industry-specific solutions—for example, clinical trials insurance coverage for life sciences companies.

Handle issues in the future by preparing to do so in the present

In the broadest sense, product liability risks must now be anticipated and managed by businesses participating at every level of the supply chain. The interplay of regulatory regimes and liability regimes cannot be ignored in a world where authorities are increasingly adopting an interventionist approach to product risks, and consumers are connected through Internet-based communications.

With authorities in regular communication across national borders and consumers ever more alert to product safety issues in other countries as well as their own, businesses operating in the global arena need to ensure they are properly advised and coordinated in managing and responding to these issues.

The post Avoid costly lawsuits and PR disasters by mitigating your product liability appeared first on Trade Ready.

Responsibility for a product defect that results in injury lies with all the sellers of the product within the distribution chain. Generally, given regulations that manufacturers must comply with, a product is expected to meet the ordinary expectations of the consumer. When a product does not meet these expectations, manufacturers and sellers are vulnerable to legal action from consumers.

A product can be found liable by contract breach or by law. Where the issue of product liability cannot be answered by the contract or the governing laws, private international law must be deferred to in order to fill in the gaps.

Product liability tort covers lawsuits to settle claims of injury or dispute due to negligence or strict liability on the part of the manufacturer or those responsible for the product in question.

As a result, product liability standards have steadily increased in most parts of the world including Europe, Asia and North America.

As with other aspects of both public and private international law, there is a need to govern or harmonize disparate national laws and proceedings more uniformly with respect to product liability.

This includes evidentiary standards, uniform reward of damages and punitive actions.

Many governments have passed legislation to limit the occurrence of product liability. The following examples provide a brief description of some of the legislative measures implemented by various governments around the world.

1. U.S.

Most product liability laws are enacted at the state level and while they vary from state to state with regard to standards of proof, since the 1960s most are based on strict liability as opposed to proving the manufacturer’s negligence.

Under the theory of strict liability, the manufacturer, regardless of whether or not they caused the defect, is liable for a defective product and must pay or compensate the injured parties. There is no manufacturer liability cap to date.

2. EU

As of 1977, the EU also began to move toward the theory of strict liability to reinforce its commitment to a common market where all members have common laws. The 1981 preamble to the Treaty of the European Union states, “liability without fault on the part of the producer is the sole means of adequately solving the problem, peculiar to our age of increasing technicality, of a fair apportionment of the risks inherent in modern technological production”.

Recent EU Court of Justice rulings regarding risk in the absence of proof of physical injury with regards to cardiac pacemakers and defibrillators that belong to a defective series will impact product liability proceedings moving forward.

Signed in 1985 and implemented in 1988, the Product Liability Directive holds producers and manufacturers responsible for damages caused by product defects.

The legislation only applies to products put on the market from the time the directive was enacted. The Directive provides a 10 year statute, and caps manufacturer compensation (per defect) at EUR 70 million.

3. Australia

Replacing the common law principles of tort that had governed compensation due to loss or injury from product defects, Australia’s product liability law enacted in 1992, closely resembles the EU directive of strict liability.

There is a 20-year statute of limitation in the Australian law as well as directives for representative action to be taken by the Trade Practices Commission on behalf of consumers.

Interested in a broader look at the topic that also includes service development? Then the FITTskills Products & Services for a Global Market course is for you!

4. Taiwan

In 1994, Taiwan imposed a strict liability law to replace the existing negligence-based laws that required injured parties to prove the manufacturer was at fault or negligent.

5. Japan

Going into effect January 1, 1995, Japan’s Product Liability Law holds a manufacturer (which also includes the processor and importer) responsible for property damage or personal injury caused by a defect (here, defect means a lack of safety a product should normally provide) in a product.

Instead of strict liability, Japan’s legislation provides manufacturers with a defence on the grounds of not knowing about the defect when the product was sold. Japan also puts a claim limit of 3 years from the time of injury for injured parties to seek compensation. Similarly, manufacturers cannot be held responsible if it has been more than ten years since the product was delivered.

6. China

Quality legislation enacted in China’s 1993 Product Quality Control Law holds manufacturers, producers and importers responsible to uphold national and international standards for products and their packaging, and to see that unreasonable danger is not posed to people or property. If found liable, manufacturers are responsible for damages or injuries to people and property.

Like Japanese laws, China’s claims have time limitations and are defensible if the manufacturer did not put the product on the market, did not know about the defect at the time due to scientific or technical limitations or the defect was not present when the product was put on the market.

A major amendment of the Law on Protection of Consumer Rights and Interests entered into effect in March 2014—the first major development in the product liability regime since the implementation of the Law in 1994.

The Law puts in place new consumer-friendly provisions, reversing the burden on the consumer to prove non-conformity with quality warranties where such non-conformity is discovered within six months of receipt of the goods or services and conferring a right of return within seven days of consumers buying goods at a distance.

7. Hong Kong

The only product safety law in Hong Kong is the Toys and Children’s Product Safety Ordinance (1993), which states that reasonable safety is required for all toys manufactured, imported or supplied.

Manufacturers, importers and suppliers must ensure that general safety requirements are met according to one of a number of international toy standards (for example, the International Committee of Toy Industries’ Voluntary Toy Safety Standard).

While defensible, if found liable, enforcement and penalties start at a HKD 100,000 fine and a year in prison and grow with each subsequent offence.

The post 7 examples of how product liability laws change from country to country appeared first on Trade Ready.

Did you have a computer in your house 25 years ago?

Odds are, the answer to that question is no. In the years since, however, computers have become omnipresent, and our phones are rarely further than a couple of feet away from us. With so many devices connected to the internet, buying and selling goods and services online has transformed from a revolutionary new idea to an unremarkable daily occurrence.

The problem is that NAFTA, the largest regional multilateral free trade agreement, originally negotiated 25 years ago, hasn’t been updated to reflect these modern realities. So what should be done about that, and how will it affect the lives of international trade professionals and consumers?

Why is it so important to take NAFTA into the 21^st century?

On November 29, Canada 2020 hosted the NAFTA Goes Digital seminar to discuss these important questions and provide some answers.

The seminar was moderated by Heather Scoffield, Ottawa Bureau Chief for the Canadian Press.

The panelists were:

• Peter Clark, President of Grey, Clark, Shih and Associates and experienced Canadian trade advisor and commentator
• Laura Dawson, Director of the Wilson Center’s Canada Institute in Washington, DC
• Ari Giovenco, Director of Trade and International Policy for the Internet Association in Washington, DC

One of the earliest questions addressed why this digital chapter will be important for so many businesses.

“There’s been a prevailing idea that we can put a bubble around a national economy for goods, to control what goes in or out, and provide incentives or affect prices in other ways,” Dawson argued. “But now, we have a totally different digital economy without that bubble. Until this chapter is completed, we’re trying to apply old rules to a new situation that doesn’t fit them.”

Giovenco then explained that this chapter will affect any business using e-commerce that allows sales beyond domestic borders, whether they’re intentionally going after international customers or not.

“The internet is a borderless medium, so companies can go international without ever intending to do so. Since this is the case, how do you know things are going where they need and that people have the access they want? What are the rules about advertising on social media, monitoring and controlling the flow of data, copyright legislation, or customs and tariffs that can be added to products purchased through e-commerce?”

Dawson explained that most digital issues discussed in the NAFTA talks fall under one of four categories: freedom to move data across borders and prohibiting data localization, technology service provider freedoms, protecting IP (copyright, source codes), and customs facilitation and digital supply chains.

When could we start to see changes come into effect?

The prevailing consensus among the group of experts was that most of the pressing digital issues had already been addressed during the TPP negotiations. While that agreement was never put into effect, the decisions were easily transferable from the original TPP text, with small modifications to reflect the specific NATFA context as well as changes in the digital realm since those negotiations took place in 2012.

“Many of the negotiators on the digital chapter of NAFTA are the same people who had negotiated these issues in the TPP, and can essentially continue the same debate,” explained Giovenco. “There’s a lot of goodwill because everyone realizes how many companies are affected.”

Clark added that liability issues for service providers is the only major issue still without resolution, and that there should be an agreement in the near future.

Dawson countered that there are so many potential liability issues to tackle, from legal to financial and others, which may still prove a challenge for negotiators.

Despite the fact that negotiators of the digital chapter are aligned on most issues, its place within the larger NAFTA framework may delay its implementation. There are also certain topics such as service exports and finances, that need to be updated before aspects of the digital chapter can be finalized.

Who benefits most, and what may change?

One important change that may be coming, according to the panelists, is an increase to Canada’s de minimis threshold, or the value of goods Canadians can bring back into the country without paying duties. While the U.S. de minimis is set at $800, Canada’s is just $20, one of the lowest in the industrialized world.

The U.S. has advocated for Canada to increase their de minimis to at least $200, and studies have shown that Canada currently spends more to enforce this regulation than it reaps in duties.

“Canada will not want to be forced by the U.S. into giving too much,” Dawson explained. “Along with dairy access, de minimis is one area where Canada has not moved so far, but has room to do so.”

Clark agreed, and predicted it would move to somewhere between $200-300 by the end of negotiations. This would facilitate an increase in duty-free online shopping for Canadians from American websites, a popular demand from consumers across the country.

Giovenco offered that finalizing the digital chapter is crucial for many companies and would serve to foster further innovation and technological development.

“About 425,000 jobs and billions of dollars’ worth of business are affected by laws governing safe harbours for IP and copyright. Canada and the U.S. have different laws governing these issues, while Mexico has very few in place, so it’s essential to unify these laws in order to drive innovation and open the three markets to companies.”

While the U.S. or other parties may prove to be short-term winners, there was unanimous agreement that this chapter would be a win for everyone in the long-term, especially service providers and exporters in Canada, the U.S. and Mexico.

One final lingering concern is the way that major global corporations like Google or Netflix may or may not be regulated. Giovenco was most concerned with opening access, while Dawson focused on how to protect user data or prevent such companies from erasing Canadian culture.

It’s safe to say that NAFTA’s digital chapter will have a major impact on North American trade. By enacting a framework that aligns with the 21^st century realities of digital trade, and deals with major issues like liability, digital privacy and IP protection, companies will have a clear path to digital expansion and expanding their businesses across the NAFTA region.

The post NAFTA will soon have new digital trade rules – how will they affect you? appeared first on Trade Ready.

Congratulations! You’ve found and vetted a fantastic distributor for your product overseas.

Now the fun part begins – time for some negotiating. But are you truly ready to go there?

Once a company has identified a suitable agent or distributor, it’s time to negotiate and sign a binding agreement.

This written agreement will offer protection to both sides, and reduces the risks associated with the transaction. But there are many things to consider before jumping in.

To cover all of your bases, companies should always consult with an experienced trade lawyer to ensure they have covered every criterion possible when drawing up the agreement.

Be prepared for compromise

As with any business negotiation, it is not always possible to obtain a perfect fit between the capabilities and objectives of the two parties involved. A compromise might be necessary to ensure that the essential interests of each party are protected as much as possible.

There are nine key issues that deserve close attention in any agreement with an agent or distributor. These are detailed below, along with suggestions as to how a compromise might be made.

1. Marking your territory

There might be a mismatch between the target market that the exporter has in mind and the territory covered by the sales representative.

The representative might want the rights to a larger territory to satisfy sub-agents, whereas the exporter may be afraid of overextending and want to limit penetration to an area that can be comfortably supplied from existing facilities.

To satisfy both concerns, this part of the agreement might specify a strategy of gradual growth into the territory.

2. Granting exclusivity

Most representatives want exclusive rights to sell the product in their territory, but an exporter might want to maintain some traditional house accounts or key customers. The exporter might also want to be able to engage different representatives to handle different product lines.

The situation also might arise where a new buyer wants to deal directly with head office and bypass the representative.

In these cases, it might be necessary to pay commission to an agent even if sales were made directly from head office.

Exclusivity must adhere to international trade law in the countries concerned.

In some regional trading blocs, exclusive rights to one country alone cannot be enforced. This is one reason why it is essential for companies to consult lawyers experienced in international trade.

3. Working out a fair commission

An agent might want to charge higher commissions to serve new exporters, justifying this by stating that the increase will offset the additional effort required to start up and position a new product line.

This might also occur if agents are asked to serve a territory that they have not serviced before. Agents might also ask for higher commissions to represent customized products designed for a narrow customer base, or products that require a longer and more intensive selling cycle.

4. Positioning status

Another issue of importance is the extent to which the agent or distributor is associated with and represents the exporter. This is especially critical in agreements in which agents wish to use the exporter’s business card and present themselves as part of the company.

If the agent is deemed an employee of the firm, this might have implications for taxation or employment regulations in the target market. In such a close association, there is also a danger that the exporter’s interests can be undermined by the agent’s inappropriate actions.

5. Asserting control and motivation

It is important to ensure that the agent or distributor acts in the interests of the exporter as much as possible.

The agent’s or distributor’s motivation will largely depend on how important they deem the exporter in comparison with other clients.

Large firms with numerous clients might not pay sufficient attention to a supplier that comprises a small fraction of their business. Small exporters may therefore be better served if they work with small representatives.

If strategic considerations (market coverage, access) lead the exporter to choose to enter into an agreement with a larger representative, additional incentives, such as higher commissions or performance bonuses, might be used motivate the representative.

6. Training and intellectual property

To sell a product effectively, a representative must be familiar with all aspects of its performance and manufacture, and be able to differentiate it from the competition.

The representative might require special training, supporting materials, technical specifications and other information.

The agreement should specify who will pay for this training and material. Because some of the material and knowledge transferred might be proprietary, companies should consider how they can ensure security.

7. Handling sales

The way in which sales are made and orders are received is important, especially in agency agreements.

For example, negotiations should cover how leads are to be handled. In most cases, if the exporting company encounters promising leads (for example, at a trade show) and has an agent, the leads should be handed over to the agent for follow-up.

Similarly, even if the exporter makes a direct sale within the agent’s territory, that sale will be credited to the agent and a commission paid on it. The agreement should also state who will take orders and who is responsible for order fulfillment.

8. Making payments

Two types of payment are important in agreements with trade representatives: Payment by the end-user and payment of commissions.

The negotiation of payment is less complicated with distribution agreements because a distributor will pay the exporter for goods received and then take payment for them from purchasers.

In the case of agency agreements, key issues are the rate of commission, how commissions will be calculated and when they will be paid.

In most cases, commissions are paid to the agent after the exporter receives payment from the buyer. The agent might wish to ensure that payment terms do not allow an excessively long interval between finalizing the sale and receiving payment.

Deciding who should pay for expense items such as sales trips is a separate issue.

9. Providing service and liability

Many products are sold with after-sales service and warranties. The agreement with the sales representative should spell out respective responsibilities.

To whom should the end-user turn for spare parts, repairs and replacements?

Who is liable in the event that the merchandise is defective or unsafe?

Who should pay for liability insurance?

How can the exporter be protected if the representative oversells the qualities or capabilities of the product?

Coming to a clear agreement for all foreseeable situations will not only help keep your trading relationships positive, it will ensure you do not end up on the losing end of the bargain.

Do you see any possible situations we have missed? What are your go-to negotiating tactics?

The post 9 things you need to consider to avoid getting swindled in negotiations with agents or distributors appeared first on Trade Ready.

Each of these issues must be negotiated between exporters and importers to clearly determine which party is legally responsible for each specific aspect of the trade transaction. These discussions can be compounded by disparities in language and culture.

To improve communication and mitigate the risks of misunderstandings, the ICC developed Incoterms (International Commercial Terms) to serve as universal trade definitions. It is now far easier for trading partners in different languages and from different cultures to do business.

How and why to use Incoterms

The Incoterms establish clarity in issues such as:

• Costs: Who pays for the various shipping expenses (packing, transportation, duties) encountered throughout a shipment’s journey?
• Ownership/Responsibility: At various points of the shipment’s journey, which party owns the goods and assumes the risk?
• Liability: If goods are damaged, who is responsible for paying damages, and at what point?

Do use Incoterms to establish party obligations, risks and costs with regard to:

• Delivery terms (destination, timelines, proof requirements)
• Standards of conduct
• Required or government imposed licenses and formalities
• Transportation mode and carriage terms
• Transfer of risk from seller to buyer

Don’t use Incoterms to:

• Outline rights and obligations for service contracts or any contract other than delivery
• Outline provisions before or after delivery (only during)
• Define breach remedies
• Determine how title of goods is transferred

Incoterms categories and responsibilities

Each incoterm is referred to by a three-letter abbreviation, and they are usually listed by category.

Rules for any mode or modes of transportation:

• EXW — Ex Works: The seller’s minimum responsibility is to make the goods available at the specified location. The buyer accepts all other risks and costs.
• FCA — Free Carrier: The seller ensures the goods are made available for the buyer’s named carrier at a specific named location. The buyer then assumes all risks and costs.
• CPT — Carriage Paid To: The seller pays the freight to a named destination. The buyer then assumes all risks and costs.
• CIP — Carriage and Insurance Paid To: Same as for CPT, but the seller must also provide insurance. The buyer then assumes all risks and costs
• DAT — Delivered to Terminal or Port (Used for ocean or inland waterway transport or multimodal transport): The seller pays all transport costs to a named port but does not clear the goods through customs. The buyer then assumes all risks and costs.
• DAP — Delivered at Place (Used for all modes of transport, as long as the final shipment to the named place is by land): The seller’s obligations terminate when the goods are delivered to the specified place. The buyer is responsible for clearing customs. The buyer assumes all risks and costs from this point on.
• DDP — Delivered Duty Paid: The seller pays all costs, including customs clearance, associated duty/taxes and delivery costs, to the buyer’s named delivery address.

Rules for sea and inland waterway transportation:

• FAS — Free Alongside Ship: The seller’s obligations are fulfilled when the goods have been placed alongside the principal ship at the dock or specified port. The buyer then assumes all risks and costs.
• FOB — Free on Board: The seller’s obligations are fulfilled when the goods are placed on board the ship by the exporter. The buyer then assumes all risks and costs.
• CFR — Cost and Freight: The seller pays all costs necessary to transport the goods to the named destination. Risks are transferred to the buyer when the goods pass over the ship’s rails.
• CIF — Cost Insurance Freight: Same as for CFR, but the seller must also provide marine insurance.

Each of these groups reflects varying degrees of seller cost and risk, and establishes the balance of responsibilities between the buyer and the seller.

Departure, main carriage unpaid and main carriage paid Incoterms are all shipment contracts. In these, the seller delivers simply by handing over the contract goods to a carrier somewhere on the seller’s side.

Depending on the terms, the place could be the seller’s premises, a carrier’s terminal, and a forwarder’s warehouse, or alongside or on board a ship. The need for payment to be made to the seller is recognized as soon as this delivery occurs.

Incoterms letter meanings

Terms beginning with the letter ‘E’ indicate that the seller’s responsibilities are fulfilled when the goods are made available for shipping by the buyer’s chosen carrier.

Terms beginning with the letter ‘F’ refer to shipments where the primary cost of shipping is not paid for by the seller.

Terms beginning with the letter ‘C’ refer to shipments where the seller pays for a portion of the shipping but the seller’s responsibility ends when the goods are delivered to the carrier somewhere on the seller’s side.

Terms beginning with the letter ‘D’ are destination contract terms because the seller delivers somewhere on the buyer’s side. The shipper or seller’s responsibility ends when the goods arrive at a predefined point. Delivery on the buyer’s side means that recognition of payment is deferred.

What other advice or information about Incoterms do you think are necessary to become adept with them?

It is advisable for entrepreneurs to become familiar with Incoterms to accurately and clearly understand what rights they are entitled to and obligations they are responsible for when transporting goods internationally. This in turn can help them determine the insurance requirements compatible with their business needs.

The post Avoid logistics and shipping pains by refreshing your knowledge of Incoterms! appeared first on Trade Ready.