Consumer Recalls: Should Distributors of Products Be Concerned About the News From China?

The recent problems with children's toys, animal feed, fish, tires and other products from China present special problems to the importers and distributors of both U.S.-branded and "house brand" products in the United States.

Several practical and legal concerns are taking center stage:

1. Consumer confidence in the brand listed as recalled or subject to problems is in immediate jeopardy unless the company has a workable plan in place.
2. Product recall costs are borne by the importer/distributor, in most cases, with less than ideal opportunity for recovery from the remote vendor.
3. Potential products liability costs may arise, raising insurance rates where a firm is not self-insured against these risks.
4. Supplier relationship issues may worsen as sole-source contracts with vendors in China become more troubling.

Before the problem gets to the costly stage of recalls, it is recommended you revisit the standard procurement and quality control systems that your company uses. In many cases, the Chinese supplier will permit the sample testing or the in-plant presence of an internationally recognized inspection service to measure quality before the containers are loaded for shipment. The company should have a viable "what if" plan in place that considers the potential for rapid retrieval of products that may pose health risks to consumers, children or pets. In addition, thoughtful and integrated litigation and document retention strategies should be formulated in advance of any recall.

Baker & Daniels attorney Jim O'Reilly, longtime chief product safety counsel for Procter & Gamble and author of books on crisis management and international programs on product recalls, recommends that companies invest some time in a review of their internal procedures for handling quality issues for imports, and consider within that review how their systems for potential retrieval would respond to problems that may be alleged with a supplier. In addition to being familiar with public company audit obligations for contingencies like major supply disruptions, our China office professionals advise clients to be culturally sensitive to these types of issues to obtain the most effective results.

A well done product recall has been shown to increase loyalty to a brand; a mishandled recall can result in bankruptcy. It is always wise to be prepared in advance and have a process in place to immediately react to recalls or product liability claims.