Buying products overseas and importing them to the U.S. is no easy task. Companies have to worry about compliance with foreign laws and regulations (often with a language barrier and in a very different legal system) and strict and complex U.S. import rules. It is easy for companies to lose sight of the many U.S. domestic laws that can and usually do add multiple layers of complexity to foreign purchases and imports. Companies importing products cannot forget their obligations to comply with U.S. state laws wherever the products are shipped, stored, transported, marketed, or sold.
Our attorneys regularly get calls from clients and potential clients at risk of being sued or subject to enforcement actions after they have brought products to the United States that fail to comply with a state law that the company usually had no idea even existed. Most of the time, these issues could have been resolved with a short call to an attorney and a few hours of legal research or analysis before the products purchases were made. For companies that choose not to invest in a compliant program, their options after getting hit with a legal notice are usually limited to fighting or settling.
I am going to focus on California in this post because California loves putting requirements on out-of-state and foreign businesses and its Attorney General is quick to threaten and institute enforcement actions in the name of consumer protection. It is critical for businesses bringing products into California to remember to comply with its myriad laws and regulations.
Since many products are imported from China (for the time being, at least), it’s important to consider California’s Transparency in Supply Chains Act, the goal of which is to prevent human trafficking and slavery. The law applies to retail sellers and manufacturers that (1) conduct business in California, (2) file tax returns in California, and (3) have annual worldwide gross receipts exceeding $100,000,000. Such businesses must include conspicuous links on their websites to information about their companies’ efforts to address human trafficking and slavery, including the following:
- Whether and to what extent the company verifies its supply chains for human trafficking and slavery risks and if such verifications are conducted by third parties.
- Whether and how the company audits its suppliers’ compliance with the company’s standards on human trafficking and slavery and whether such audits were independent and/or unannounced.
- Whether and the extent to which the company requires direct suppliers to certify that input materials comply with applicable laws concerning slavery and human trafficking;
- How the company holds its employees or contractors accountable if they fail to meet the company’s standards on slavery and human trafficking; and
- Whether the company provides training on human trafficking and slavery to management and employees with supply chain responsibilities.
The Safe Drinking Water and Toxic Enforcement Act of 1986 (or “Prop. 65”) is another critical California law. Prop. 65 requires, among other things, that products containing certain quantities of listed chemicals (there are about 1,000) that California believes may cause cancer or reproductive harms include clear and reasonable product warnings. The warnings are very specific and technical and have certain color, size, and language requirements, and companies (of all sizes) that fail to strictly comply with these warning requirements can be subject to very expensive consumer lawsuits.
The important thing to know about Prop. 65 is that the warnings are product specific and depend on what the products contain. This means that, in addition to just buying products, companies need their foreign manufacturers to provide them with a comprehensive list of all chemicals and ingredients in the products they are buying so they can, in turn, provide accurate warnings. This raises a host of issues, especially if buying products from a foreign country manufacturer:
- What if a company is not buying products from a manufacturer directly and the seller does not have an ingredient list?
- What if the manufacturer provides false information?
- What is a company’s recourse if it only considers Prop. 65 warnings once it has the products in-hand in the U.S. and can no longer reach its foreign manufacturer or the foreign manufacturer is unwilling to provide information the company needs?
Yet another California law, which I wrote about here, regulates the Internet of Things (IoT). This law, SB-327, took effect on January 1, 2020, and it requires connected (i.e., IoT) devices be equipped with “reasonable” security measures. Companies bringing products in from foreign countries with less-than rigorous privacy laws and/or strong government surveillance programs (like China) are having a tough time complying with this law.
The laws get even more complex for non-U.S. based businesses bringing products into California (which is why we will be translating this post into Spanish. French, and German). The most significant law, by far, for foreign companies is the California Consumer Privacy Act (CCPA), which I wrote about in detail here and here. In a nutshell, CCPA (1) applies to a business anywhere in the world that “does business in California” (this term is not well defined) and meets a few other criteria; (2) is almost as broad as the EU’s extremely broad GDPR privacy regulation; and (3) requires all companies subject to it to commit to certain privacy practices (which will be very tough, if not impossible for some foreign businesses to meet). Foreign companies doing any kind of business in California need to consider the impact of CCPA because failing to do so can lead enforcement actions and massive lawsuits.
California’s laws are only a few examples of the many different types of national, state, county, and municipal laws faced by businesses bringing in products from a foreign country. Companies with operations throughout different geographic regions face significant challenges in inventorying and evaluating different areas’ regulatory risks. Strategic companies will seek to identify and prioritize their regulatory requirements and compliance risks so as to address the country and state-specific laws to ensure their operations are not disrupted.
