Regardless of where a company is conducting business, the company must comply with generally applicable laws, such as those laws related to taxes, truthfulness, and safety, as well as industry specific laws. When it comes specifically to manufacturing, the company must comply with laws related to employment, intellectual property, government subsidies, fair pricing, consumer product safety, confidential information, and data protection.
United States Import Regulations
When importing products into the United States that have been manufactured in another country, such as India, there are a number of federal and state agencies that impose regulations on those products. These agencies include, among others, the Food and Drug Administration (FDA), National Highway Traffic Safety Administration (NHTSA), and Consumer Product Safety Commission (CPSC). These regulations provide that the products must meet U.S. standards and codes.
As a result of these regulations, it is important for a company engaging in manufacturing activities in India to create a compliance strategy to eliminate the potential for fines, legal fees, and penalties. Below are a number of tips that will help ensure U.S. legal compliance:
A Company Should Know its Product and Standards
It is important to determine on the front end whether or not the manufactured product can be imported into the United States. If the product can be imported, the company must have a clear understanding of both the legal standards, as well as the internal standards, that govern the product. These standards of compliance should be documented and clearly communicated to the Indian manufacturer. The company may also want to ensure these standards are being met by visiting the facility from time to time.
Contract with a Reputable Manufacturer
It will be very important for the company to make sure the Indian manufacturer is credible, has a good facility, reputation for quality and reliability, and complies with internationally recognized standards. Once a manufacturer is found, the company should conduct due diligence, assess the manufacturer’s capability (technical specifications, expertise, pricing, and services), and conduct reference checks. Lastly, there should be a written agreement for all dealings. This contract should be very detailed and clear and provide the company the right to audit, control, and inspect the activities of the manufacturer.
Maintain Clear and Accurate Documentation of Everything
The company should work with the manufacturer to make sure that there is accurate trade documentation and data of all manufacturing activities. All documentation should be kept for at least five years.
Know the Laws that Govern the Importation of the Product
Some of these laws and regulations may require a license, permit, or additional paperwork prior to the import. It is important to note that different types of manufacturing will have different regulations. More information on the agencies and regulated products can be found in the Appendix below.
Comply with Generally Applicable Legal Regulations
The company should make sure to comply with all generally applicable laws; this may include compliance with laws regarding tax, marketing, environment, employment, safety, and data protection and security (Information Technology Act 2000).
Comply with Industry Specific Regulations
It will be important to determine which federal agency covers the consumer product. If a product is regulated by any federal or state agency, the company must abide by all agency requirements. The product may be regulated by, among others, the Food and Drug Administration (FDA), Environmental Protection Agency (EPA), Department of Transportation (DOT), or Consumer Product Safety Commission (CPSC). There may also be special product regulations, such as on fur (16 CFR 301), leather (16 CFR 24), and wool (16 CFR 300).
Comply with Customs and Border Protection (CBP)
The company must know where the product was made, who made it, and how it was made, including the material that was used. Compliance assessments, pursuant to 19 U.S.C. 1509, will look at the company’s record keeping, merchandise classification/trade statistics, merchandise quantities, antidumping/countervailing duty operations, quota conformity, merchandise value, warehouse or foreign trade zone operations, merchandise transshipment, and special trade programs. The CBP requires accurately completed documentation which may include: air waybill, commercial invoice, and certificate of origin. Pursuant to 19 U.S.C. 1484 (entry of merchandise), this documentation should include the products value and product description, the product description must also comply with 19 U.S.C. 1481 (Invoice; contents). The product must also be clearly marked with its country of origin pursuant to 19 U.S.C. 1304 (Marking of imported articles and containers); if the product is a textile or apparel it must also comply with 19 U.S.C. 3592 (Rule of origin for textile and apparel products). Duties are also likely to be imposed unless there is an exception; these duties may include countervailing duties pursuant to 19 U.S.C.1671 when appropriate. Lastly, taxes may also be imposed at the state level for the import.
Stay Up to Date
Keep up to date on compliance laws, regulations, and judicial decisions that may change compliance standards or requirements.
United States Export Regulations
There may also be U.S. export control issues involved in the outsourcing of the manufacturing to India. There may be restrictions on the selling, shipping, or transferring (including electronic transfer) of any goods, technology or services outside the United States. If there is an export involved, the manufacturer will need to ensure classification compliance.
In order to comply with export regulations, the company will first need to determine if there are any items that are controlled exports. Such items would include dual use products, software or technology, defense articles or services, as well as the training of foreign nationals in design, production, or operation of a controlled product. If there is an export, the company must make sure all exportation is in compliance with the controlling authority: defense articles and services must comply with Traffic in Arms Regulations (ITAR), and products, software, and technology that have a dual use must comply with Export Administrative Regulations (EAR). All items should be appropriately classified and necessary licenses should be obtained (license exceptions may apply).
India Export Regulations
It will also be important for the company to comply with all local laws. The company should first make sure it can export the manufactured product out of India. The company should pay attention to relevant tax laws and duties (including exceptions and subsidies), intellectual property laws, and labor laws (Industrial Disputes Act 1947). The transfer of financial information should also comply with Indian data privacy law.
When it comes to manufacturing in India, the company will want to carefully determine which legal structure will be the best fit for the company. A company may want to either have an owned set-up in India or outsource to a third party.
If a company wants an owned set-up, it may choose a branch office, wholly owned subsidiary, joint venture company, or acquisition of an existing Indian company. A wholly owned subsidiary has been found to be the most commonly chosen structure for manufacturers. This option will allow the company to have more control over the day-to-day operations and ensure quality and compliance. This option, however, adds the need to comply with local laws and risks cultural clashes, as well as the added burden and challenges of managing remote operations.
If a company wants to outsource to a third party, it may choose to build operate transfer, staff augmentation, service legal agreements, or project based outsourcing. This option tends to be the most cost effective and works best for small volume projects that are intermittent in nature. If this option is chosen, the company must be prepared for potential performance control issues and must make sure the arrangement is not a permanent establishment in which case the company will need to pay additional taxes in India.
The company should also remember that manufacturing in India may have an impact on production and delivery times, quality, and rules of production than would not be the case for manufacturing in the United States.
Some Regulatory Agencies
- Alcohol and Tobacco Tax and Trade Bureau (TTB)
- g., alcohol, tobacco/tobacco products
- Bureau of Alcohol, Tobacco, and Firearms (ATF)
- g., ammunition, firearms
- Chemical Safety and Hazard Investigation Board (CSB)
- g., chemical safety
- Consumer Product Safety Commission (CPSC)
- g., coffee makers, toys, lawn mowers, fireworks
- Department of Transportation (DOT)
- g., automobiles, trucks, motorcycles
- Environmental Protection Agency (EPA)
- g., pesticides, fungicides
- Federal Aviation Administration (FAA)
- g., aircraft
- Food and Drug Administration (FDA)
- g., food, drugs, cosmetics, electronic product radiation, medical devices, veterinary medicines
- National Highway Traffic Safety Administration (NHTSA)
- g., automobiles, car seats, motorcycles, tires, trucks
- Nuclear Regulatory Commission (NRC)
- g., radioactive materials
- Occupational Safety & Health Administration (OSHA)
- .g., industrial/commercial products/farm
- United States Department of Agriculture (USDA)
- g., foods
Some Regulated Products
- Aircraft (FAA).
- Alcohol (TTB)
- Ammunition (ATF)
- Animal and veterinary (FDA)
- Automobiles (DOT) (NHTSA)
- Bicycles (CPSC)
- Blood and biologics (FDA)
- Car seats (NHTSA)
- Chemical safety (CSB)
- Coffee makers (CPSC)
- Cosmetics (FDA)
- Dietary supplements (FDA)
- Drugs (FDA)
- Electronic product radiation (FDA)
- Farm industrial/commercial products (OSHA)
- Firearms (ATF)
- Fireworks (CPSC)
- Food (FDA) (USDA)
- Fungicides (EPA)
- Lawn mowers (CPSC)
- Medical devices (FDA)
- Motorcycles (DOT) (NHTSA)
- Pesticides (EPA)
- Radioactive materials (NRC)
- Radiation admitting products (FDA)
- Tires (NHTSA)
- Tobacco/ tobacco products (TTB) (FDA)
- Toys (CPSC)
- Trucks (DOT) (NHTSA)
- Vaccines (FDA)
- Veterinary medicines (FDA)