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 Show Date: 2/25/2008
 Segment 1 Ė Current Issues in Importing Ė Kelby Woodard

Colette: Thanks for joining us today. Iím Colette Marshall, Worldwide Brands Marketing Director, and Iím in for Robin Cowie and Chris Malta today. A few weeks ago we had a show where we talked about how to limit your importing liability and we didnít get a chance to cover all that information. So we thought it was very important for online sellers so we asked Kelby Woodard of TradeInnovations.com to come on back and finish up our conversation about steps you can take to protect your business interests and successfully implement importing into your eBiz.

Colette: Kelby, welcome back to the show.

Kelby: Thank you, thank you for having me.

Colette: Itís wonderful to have you on the show. We had such a great show last time, I wished we had more time, so Iím glad to have you back on again.

Kelby: Good, thank you.

Colette: Last time you were here we discussed how China recently had some highly publicized problems with the quality of their exports. What changes and regulations can we expect as a result of the recent emphasis on quality issues from China?

Kelby: What weíre seeing is that customs, as the enforcement arm of so many different government agencies, is starting to take a very hard look at Chinese imports. So any entry you have coming in from China is receiving an extra scrutiny that they didnít receive prior to this issue late last fall. And so you are starting to see some delays out of China as a result of this. The FDA is under a lot of pressure to increase its enforcement and its inspections. You hear a lot today about the U.S. Congress talking about stronger enforcement for FDA. Theyíre giving them more staff. Theyíre giving them more leeway to stop shipments, especially coming from China, although they say itís from all imports. But primarily China is the focus today because of the issues weíve seen.

Colette: And thatís such a great point to make about delays. Itís great that theyíre really getting some emphasis on those requirements, because it just means better quality in the long run. But of course, it always means lots of changes we have to be familiar with. And we need to plan ahead if we are going to import products from China or from any other country. If you want to sell in the holiday season you better be planning now for the products you actually want to be importing in. But talking of that, is the quality issue only isolated to China, I mean, itís got to be other countries that are being very strict with these policies?

Kelby: Thatís true. There are many other countries that are having some of the same issues and the U.S. government is focusing on that as well. But really, the trade with China is very political, so itís the one that gets most of the press and really, most of the emphasis from the enforcement agencies on the import side today. So I would say that while itís an issue everywhere, the focus really is on China today. And I should also add, as weíre talking about China, that not only are we seeing an increase in scrutiny, but also a significant increase in pricing from China. And there are a lot of different factors in that, one of which is an increased inspection rate going on at factories in China, both by the Chinese government and the U.S. government. But secondarily, also, youíre seeing some pretty good inflation rates in China that have not been seen before. Iím seeing estimates anywhere from 15% to 25% price increases at cost of goods being sourced in China.

Colette: Wow.

Kelby: So thereís a culmination of issues, obviously, going on there from compliance to these new safety regulations by the Chinese government and U.S. government, as well as the inflation issues, the value of the yen versus the dollar. All those things are becoming a significant driver of price in the Chinese market.

Colette: What things can an importer do to provide the most cost effective controls and limit that liability?

Kelby: There are a few things. I think the #1 thing, obviously, is to know who youíre dealing with and that relationship, that trusted relationship, is probably the primary thing to ensure that youíre going to be a compliant importer. And then secondarily, it really is record keeping, being able to understand that this is not a domestic purchase. The record keeping requirements are much more stringent and so the more youíre able to provide documentation to customs when they ask for it regarding an import, the easier it is to get that import through. So if youíre spending days and weeks trying to get information from your supplier regarding documentation, then of course thatís going to add to the delay. But if you have that documentation up front and you have all that information, all that record keeping when customs asks for it, it significantly takes a chunk out of the delay, if you will.

Colette: Itís all about being prepared, right?

Kelby: Thatís correct.

Colette: Know exactly what you need to get and it will make your life a lot easier on the back end of it.

Kelby: Thatís correct.

Colette: Now, should sellers be worried about buying counterfeited product or having their product counterfeited in any way? I mean, I know we hear that quite a lot, our customers are always asking us about buying counterfeited products and they werenít aware of it.

Kelby: Right. Letís start first with buying counterfeited product, because thatís becoming a larger and larger issue. Some of the major manufacturers, major companies, in the U.S. have been able to convince customs to increase their enforcement on IPR, intellectual property right issues, companies like Nike and a lot of the pharmaceutical companies. So what weíre seeing again is an increase in enforcement from customs on counterfeiting. And in fact, I had a client years and years ago who was bringing in watches and just as a family was bringing watches from China, and they were counterfeit. Well, if you bring in over five watches, then itís considered smuggling versus just a minor transgression. So he wasnít able to prove that they werenít counterfeit and they were counterfeit, and he paid a very significant fine as a result just from a personal standpoint.

Colette: Wow.

Kelby: So you can take that and extrapolate that out to your business as you bring more and more product in front countries like China. And the fines can be very significant and the penalties can be very significant. So you have to be careful on the counterfeiting piece and sometimes youíre going to get caught with all the right procedures in place to prevent it. So be prepared.

Colette: Well, thatís a great point, though. What are some of those questions that sellers can be asking the agents that theyíre working with or if theyíre working directly with the manufacturer, to make sure that theyíre not dealing with a counterfeited product?

Kelby: A lot of it depends upon the field that theyíre in or the manufacturing supply base that theyíre using. Because there is different litigation here in the U.S. regarding counterfeiting. If itís pharmaceuticals, of course, itís a bigger issue than if youíre trying to bring in toys and things like that. What you can ask for from the agent is proof that this is not counterfeit, that thereís been no claims against this particular supplier for counterfeiting. The second piece, and this is probably the easiest and most effective way, is to Google your manufacturer, your supplier. Google some of your trademarks that may be infringed in this particular matter. So if youíre bringing in dolls, as a very quick example, look up Barbie Doll counterfeiting. Because a lot of times if theyíve been caught before there is an internet story regarding that and that can be your first due diligence.

Colette: Thatís such a great point. If they are working with third parties what is the role of the third parties in validating a companyís compliance to these new and existing regulations, especially now that theyíre changing and getting even more strict?

Kelby: Thatís a very important point because a lot of times if youíre dealing with agents, especially directly, overseas, their knowledge of these changes is minimal. So by dealing with somebody here in the U.S., especially if youíre a first time importer or a fairly new importer, to deal with somebody in the U.S. who understands the regulations and making sure all the Iís are dotted and the Tís crossed from the regulations standpoint is a very good move. Itís money well spent to do that.

Colette: Letís move on from these legal implications. What else can an importer expect if they run afoul of U.S. and international trade laws and expectations?

Kelby: Customs likes to tell you that importing is a privilege, not a right, and that at any given point that privilege can be taken away from you. Now, they donít do that lightly, but they certainly can if they find fraud. So for instance, if youíre bringing in counterfeit product and they can prove that you knew it was counterfeit and you didnít care, you could lose your ability to import into the U.S. But I think those significant impacts on somebodyís supply chain today by not being compliant, or on their import process is when customs detains that shipment. Because it can take weeks and weeks for customs to clear some of those shipments because, 1) they do have an increased focus on enforcement which means their manpower is not sufficient to be able to handle this increase in inspections and enforcement, so expect delays if youíre not compliant. And if youíre found to be deficient in any way from record keeping to fraud, expect a penalty and a fine associated with that.

Colette: Thatís just part of doing business, right?

Kelby: Thatís correct. Weíre all used to that.

Colette: Even with all this, you know, it sounds difficult and sounds complicated, but really itís not. And the amount of opportunity in China for sourcing opportunities is tremendous. Would you agree? I mean, whatís your assessment of the current market in China?

Kelby: Absolutely. If youíre a company especially that is looking at China as a potential sales market as well, those risks you take by sourcing from China are definitely risks well taken. You just need to have all your ducks in a row. You need to have all your record keeping, as weíve been talking about, your compliance structure, all those things in place to minimize those risks. Because some of those risks exist if you buy from a manufacturer in the United States as well. So there have certainly been cases in the past as well where domestic production has had quality assurance issues as well.

Colette: It is time for a quick break. Weíll definitely come back to the subject and talk a lot more on importing from China. Subscribe to our free product sourcing newsletter at ProductSourcingNews.com to stay up to date with the latest product sourcing news, check for upcoming tradeshows in your area, and find spotlighted suppliers you can use in your ebusiness. Weíll continue learning more with Kelby Woodard when we return. Iím Colette Marshall.

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