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April 21, 2014

Avoid Liability for FDA User Fees

The FDA requires foreign food facilities, as part of their FDA registration, to appoint a "U.S. Agent" – which is a person or entity that maintains a residence or office, and is physically present, in the United States. The purpose of the U.S. Agent, prior to FSMA, was to act as a conduit for information received from the FDA – it would receive routine communications and relay those on to the foreign facility. Prior to FSMA, there was no liability associated with being named a "U.S. Agent", so many U.S.-based operations of multinational food companies or U.S.-based cooperatives with foreign members agreed to act as "U.S. Agent" for their foreign affiliates; likewise, many U.S. based customers agreed to be appointed as "U.S. Agent" for their foreign-based suppliers. There was no harm or risk in doing so at that time. FSMA has now changed that. 

FSMA authorizes FDA to collect certain user fees, including charges to cover 100% of FDA's costs for reinspections of foreign food facilities. A facility reinspection is a follow-up inspection conducted by FDA subsequent to a previous facility inspection that identified noncompliance materially related to a food safety requirement and is conducted specifically to determine that compliance has been achieved. The fees charged by the FDA will be based on the number of direct hours spent on such reinspections, including time spent conducting the physical surveillance or reinspection at the facility, making preparations and arrangements for the reinspection, traveling to and from the facility, drafting any reports, analyzing any samples, and reviewing any product labels. FSMA does not provide an "open checkbook" to FDA, however - it limits the amount charged for such reinspection costs to $25 million. 

Who's responsible to pay such fees?  Under FSMA, the FDA will invoice the "U.S. Agent" for each foreign facility, for these reinspection costs. In other words, under FSMA there is significant liability exposure for accepting appointment as "U.S. Agent" – you run the risk of subjecting your U.S.-based assets to the liabilities associated with the costs of an FDA-reinspection conducted at a foreign facility.  Worse yet, you may have little or no control over the operations at that foreign facility, and you have even less control over how efficient the FDA will be in conducting the reinspection.  We are encouraging our clients to consider avoiding this liability altogether by not agreeing to act as "U.S. Agent" and by engaging (or directing your foreign affiliate or customer to engage) independent third party service providers to render this service.     

Clients might also consider using a third-party service provider for an additional reason. Appointing someone in your supply chain – a freight forwarder, your customs broker, or your food broker – may give them leverage in the event of a dispute. They might resign as "U.S. Agent", resulting in food shipments being denied entry at the border, and disrupting the sale or supply of product until such time as a "replacement" U.S. Agent can be appointed.  That may be a risk you want to avoid.

© 2014 Varnum LLP

About the Author

Partner

Steve helps regulated businesses - in particular, food and medical device companies - successfully bring their products to market. He also advises management on the day-to-day legal issues facing their companies. Steve helps his clients stay competitive while keeping a close watch on the regulatory issues that can derail products before and after they get to market.

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