Chinese companies continue to face trade difficulties
Issue: October
2007
From Easy-Bake Ovens to pet food, US consumers are
following through with their objections to unsafe products, and legal
practitioners say that Chinese companies will have to bear some of the costs.
Class actions have been filed against Mattel and Fisher-Price, and costs for
lead-poisoning tests and punitive damages awarded by US courts may also filter
back to producers.
According to Simon Luk of international law firm
Heller Ehrman, Chinese manufacturers are now facing the consequences of a lack
of prior planning to ensure their products have been rigorously tested
according to US standards. With claims that purchased products are not meeting
safety requirements now starting to come in from US companies, Chinese
manufacturers which have sold below-standard products are experiencing
difficulties in fending off liability. Unfortunately, you don't have much of a
choice when you sell to the US, he says. If you sell to the US, you will be
sued.
While questions of which standards to use are
typically associated with contractual obligations, strict liability spans the
borders much more easily, as tort claims in the US can be easily enforced
against the assets of manufacturers, wherever they are located. US accounts
held by Chinese companies can be directly charged by way of court order, while
indemnity claims by toy retailers can entail additional costs.
While design flaws account for around 90% of
recalled products, contributory negligence is often an issue in such cases,
depending on the indemnity language in the contracts. However, as is common
practice among manufacturers in China, purchase agreements are often not even
written down, making such situations even more difficult to resolve.
Wilfred Fung, whose law firm Keller and Heckman
helps food exporters determine whether their products are in compliance with
international standards, says that his clients have faced increasing
difficulties in light of similar well-publicized cases.
Fung notes that while cases such as the Mattel
recalls are about determining liability, food exporters have been penalized
simply because they have produced a similar product to that of another company
which caused a scare. One such case involved a client which produced wheat
gluten and whose goods were automatically confiscated at port inspection
because its type of product was associated with widely-reported problems with
pet food.
