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Food Safety Modernization Act : The Breakdown (Part 2 – The Impact) 3/24/2011

Did you miss Part One?… Food Safety Modernization Act: The Breakdown (Part 1 – The Facts)

Now that we have the background of the law covered, let’s dive into what this means to us and how it can impact our food sources and supply chains.

How will this law make imported food safer?

New authorities under the Act include:

  • Importer Accountability Importers must verify that their foreign suppliers have adequate preventive controls in place to ensure safety.
  • Third Party Certification – The FDA will be able to accredit qualified third party auditors to certify that foreign food facilities are complying with US food safety standards. In preparation for the FDA audits, our partner company FactoryAudits.com offers comprehensive Food Safety Assessments that analyze your facilities’ HACCP plan implementation, chemical control processes, pest control processes, sanitation risks and hazards and much more.
  • High Risk Foods – The FDA now has the authority to require that high-risk imported foods be accompanied by a credible third-party certification as a condition of admission into this country .
  • Additional resources – Foreign inspections will receive additional resources to complete necessary inspections.
  • Food Refusals The FDA now has the authority to refuse entry into the US of a food that has refused or failed U.S. inspection.

What is required to become a certified facility?

  • The FDA is in the process of developing a proposed rule that will establish science-based minimum standards for the safe production and harvesting of fruits and vegetables and will address soil amendments, worker health and hygiene, packaging, temperature controls, water, and other issues.
  • Food facilities will be required to implement a written preventive control plan, provide for the monitoring of the performance of those controls, and specify the corrective actions the facility will take when necessary. Don’t get caught unprepared: these seafood processors were not following the food safety rules and now they are warned and red flagged to clean up their act.

The time line is dated from the date of the enactment (January 2011). The following items are to be completed by the FDA no later than the corresponding times. (According to the law at this point in time.)

FSMA Timeline

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Food Safety Modernization Act : The Breakdown (Part 1 – The Facts) 3/24/2011

food safety modernization actAs the Food Safety Modernization Act starts working its way through the implementation process, I thought it would be most helpful to post a breakdown of the act and what it means to importers and manufacturers of consumable products. As you will see, the Act is very new, but will definitely have a large impact on the regulations of the food industry and hence, the level of  security in our food safety system. Read on for more details.

Note: There are two more parts in this series to come!

S. 510 FDA – Food Safety Modernization Act (FSMA)

Background

  • U.S. consumers enjoy imported foods from more than 150 countries.
  • Previous food safety laws did not provide the FDA with necessary funding/staffing to properly regulate and inspect America’s food supply.
    -Less than two percent of all imported food was inspected in 2010. The latest food safety scare in China involves tainted pork, read the article here.
    -Approximately 600 foreign food facilities were inspected in 2010.
  • The U.S. Centers for Disease Control and Prevention estimate that there are approximately 76 million foodborne illnesses each year in the U.S.
    -Those illnesses cause more than 300,000 hospitalizations and 5,000 deaths annually.
    -Those illnesses also cost the country $152 billion annually.

The Approval of the New FSMA Law: December 2010

  • The 2010 Food Safety Modernization Act passed the Senate and the House last winter and was signed into law by President Obama on December 22, 2010.
  • The new law is considered the biggest change in food safety oversight in 70 years.
  • The two main outcomes of the law are as follows:
    1. The FDA will be allowed to force companies to issue recalls when they suspect food may be contaminated. (Activated Now)
    2. The law greatly increases the FDA’s ability to perform inspections on both foreign and domestic manufacturing facilities.

Food Safety Modernization Act Overview

What are the 5 major elements of the law?

  1. Preventive controls- For the first time, the FDA has a legislative mandate to require comprehensive, prevention-based controls across the food supply.
  2. Inspection and Compliance- The law specifies how often FDA should inspect food producers.  FDA is committed to applying its inspection resources in a risk-based manner and adopting innovative inspection approaches.
  3. Imported Food Safety- For the first time, importers must verify that their foreign suppliers have adequate preventive controls in place to ensure safety, and FDA will be able to accredit qualified third party auditors to certify that foreign food facilities are complying with U.S. food safety standards.
  4. Response- For the first time, the FDA will have mandatory recall authority for all food products.  FDA expects that it will only need to invoke this authority infrequently since the food industry largely honors the requests for voluntary recalls.
  5. Enhanced Partnerships- The legislation recognizes the importance of strengthening existing collaboration among all food safety agencies—U.S. federal, state, local, territorial, tribal and foreign–to achieve our public health goals.

FSMA By the Numbers

Cost: $1.4 Billion – over next 4 years

Necessary Staffing: Over the next 4 years, the FDA will be hiring 2,000 new inspectors.

Inspection Schedule: The bill requires the inspection of 50,000 foreign and domestic food production facilities by 2015.

  • Inspections are to be completed by either the FDA or state, federal or local agencies acting on the FDA’s behalf.
  • Projected Foreign Facility Inspection Breakdown by Year:
    2011
    : 600 inspections
    2012
    : 1200 inspections
    2013
    : 2400 inspections
    2014
    : 4800 inspections
    2015
    : 9600 inspections

For your reference, you can read the full text of the act here.

Read part two of the series: Food Safety Modernization Act: The Breakdown (Part 2 – The Impact)

and part 3 of the series: Food Safety Modernization Act: The Breakdown (Part 3 – The Next Steps)

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Spring Canton Fair Update 3/17/2011

Canton Fair - SpringIf you are planning on attending the 109th Canton Fair this Spring in Guangzhou, make sure to check out this great little guide I found on their website with all of the dates and information necessary to navigate your way through the huge expo grounds.

It has information on a lot of things like travel and hotels, but also has information on how to attend the fair. You have to get an e-invite and that can be done easily on their website through their BEST tool or Buyer E-Service Tool.

Phase 1: April 15-19, 2011 from 9:30-18:00
Phase 2: April 23-27, 2011 from 9:30-18:00
Phase 3: May 1-5, 2011 from 9:30-18:00

For a better run down of all the activities and a video, see our earlier blog post 2011 Spring Canton Fair Dates & Information.

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Vietnam & India Sourcing: Advantages and Disadvantages 3/2/2011

China India Flags

So you are already sourcing from China…have you ever thought of sourcing from India? What about Vietnam? Are buyers trending away from China? What are the advantages and disadvantages of sourcing from other developing countries like these? Let’s explore!

A survey was recently released by Global Sources reporting on how China’s increasing labor costs and the fluctuation of the yuan have impacted buyers’ sourcing strategies overseas.

Over 380 buyers were surveyed and more than 50 percent of respondents said they have seen higher prices as a result of the yuan’s appreciation. But are they changing their strategy? The answer is yes… somewhat.  More than 50 percent of buyers say they are planning to step up their sourcing from India and Vietnam sometime in the future. (It did not indicate whether or not they plan to decrease their China sourcing however.)

The truth is: Vietnam and India are becoming increasingly attractive for foreign enterprises due to their low-cost and abundant labor supply.

What does this mean to American companies?

Places like Vietnam and India could be a viable option for your company if you specialize in low-end products. Industries that are labor intensive can also be successful in these countries due to the large labor pool (bigger than China’s) and the low cost of labor. Industries like textiles (clothes, shoes, sheets etc) have been successful at increasing savings by moving production to countries like India where the workforce is robust and there is a large percentage of English speaking workers (20% higher than China’s workforce). Also, India’s income tax will decrease this year in order to be more competitive with China.

Although the numbers do indicate an uptick in sourcing from these developing countries, do be forewarned: This is not the ideal plan for everybody. India and Vietnam are still in their youth, and fall short in a number of critical manufacturing areas in comparison to the United States and China. The traditional means to becoming a manufacturing powerhouse no longer stand alone. Not only will a country need to be strong in labor, energy and materials, but the country will also need to have a strong-willed work force with innovative thinkers.

Another critical aspect that must be taken into consideration is the different countries’ logistics infrastructure.  The logistics infrastructure in China for example is much more developed and sophisticated than in India or Vietnam.  We typically find that sourcing from China is much more efficient because of the hundreds of billions of dollars invested over the last 20 years in roads, highways, ports and airports.  With that being said, if quick turn-around and reliable, timely shipping and receiving are a must for your business, China might be a better choice.

China India Vietnam
Total Airports 502 352 44
Major Ports 130 12 14
Railways 77,834 km 64,015 km 2,347 km
Roadways 3,583,715 km 3,320,410 km 171,392 km

It is to be noted however, that although India has the third largest road network in the world, about 2.6 million km or almost 75 percent of their roads are considered rural. Travel by roadway in India is also often times considered dangerous; people do not abide by traffic laws, roads are bumpy and uncared for and traffic is intensely crowded. In fact, the National Highway make up only 2% of the nation’s roadway length, but handles about 40 percent of the roadway traffic.

Beyond logistics, the 2nd most common issue when looking beyond China is your raw material supply chain.  As nearly every major industry’s supply chain has shifted to China over the last 20 years, so have the raw materials companies/suppliers.  When evaluating a move away from China, it’s important to understand whether or not your source of raw material is available in your next destination.  If you don’t, you very well may end up finding out that while you are benefiting from cheaper labor elsewhere, you are offsetting those savings by your increased logistics and duties costs as you ship your raw materials in from China.

China also excels at supporting large-scale investment projects – something that Vietnam and India struggle with due to their infancy in the manufacturing arena as well as the large government bureaucracies that you must deal with.  If a company wanted to expand and build a new facility to ramp up production in China, it could take 6 months, whereas in India it could take 2 to 3 years.

In conclusion, China is still the manufacturing powerhouse for most, and will remain so for quite a few years to come.  However, we are likely to see a shift in the type of manufacturing China is involved in. They are now encouraging investments in high tech industries and research and development enterprises. Their goals is to move towards a more sophisticated manufacturing region that can garner higher wages and eventually propel more and more people into the coveted middle and upper classes.

We would love to hear how your company’s overseas buying strategy has changed (or hasn’t changed)!

Sources:

http://www.globalsources.com
http://www.2point6billion.com/news/2011/02/17/china-india-compared-by-al-jazeera-8606.html
https://www.cia.gov/library/publications/the-world-factbook/geos/in.html
http://online.wsj.com/article/SB10001424052748703800204576159410421853214.htmlhttp://www.business-in-asia.com/ports_in_vietnam.html
http://understand-china.com/?manufacturing=logistics-4

http://indiatoday.intoday.in/site/Story/110495/Cover%20Story/wealth-does-not-create-roads-rather,-roads-create-wealth.html

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Test Your China/US Knowledge 1/31/2011

China Knowledge QuizThis week’s Time Magazine had an interesting short quiz testing readers’ knowledge of China, as well as the United States. Do you know all the answers?

1. When did China become the second largest economy?
a. 2010
b. 2009
c. 2008
d. it hasn’t yet

2. Since 1999, the proportion of researchers (out of all employed persons) int he U.S. has risen 8%. How much has the proportion of researchers in China increased?
a. 11%
b. 50%
c. 102%
d. 111%

3. In 1994, china’s secondary-school enrollment rate was 48%. What is it now?
a. 65%
b. 96%
c. 51%
d. 76%

4. The average trade balance as a percentage of GDP in the U.S. is 6%. What is it in China?
a. -5%
b. even
c. 7%
d. 14%

5. In 1995, China was 14th in the world in thh publication of science and engineering papers. Where does it rank now?
a. 1st
b. 2nd
c. 3rd
d. 4th

6. In what year is China projected to overtake the U.S. in number of patent applications?
a. 2011
b. 2015
c. 2020
d. 2025

How did you fare? Here are the answers:

1. A; 2. D; 3.D; 4.C 5. B; 6. A

Source Time Magazine: January 31, 2011 Issue

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New China WFOE Taxes 1/19/2011

China Currency - WFOE TaxBeginning on December 1st 2010, all Wholly Foreign Owned Enterprises (WFOEs) in China will now be taxed the exact same as all other Chinese businesses. The two taxes that were formerly only charged to Chinese businesses, are now being added onto the tax bill of all WFOEs.

The two new taxes for WFOEs are:

1.       The Urban Maintenance and Construction Tax

2.       The Educational Surcharge Tax

This is the result of the so-called “national treatment” movement, which is a direct result of China joining the World Trade Organization (WTO).  One of the requirements for the WTO is to give all foreign and domestic businesses the same fair treatment.

In China, however, this means that the advantages and privileges that had initially been given to the WFOEs will no longer apply.

When China started to open its doors to foreign investment, both the central and local governments instituted a multitude of incentives to attract foreign capital. Such incentives included the “duty free for 3 years” program and certain tax reductions were given for five years to some companies. They also set up different kinds of incentives based on the city and provincial regulations in which WFOEs could utilize additional incentives.

It would not be a stretch to say that some of the WFOEs came to China specifically for these privileges. Even for the companies who had to invest in the Asian market, the incentives were most likely among the top things to consider when decided where to set up shop, because the saved money trickles down to additional profit.

Everybody who moved to China for the incentives knew that they wouldn’t last forever. The incentives began disappearing about five years ago as the 3 year free tax and 5 year tax reduction policies vanished. They first disappeared from the provincial development areas and now you would be hard pressed to find certain incentives even in the big development areas.

In addition, as part of China’s “green movement,” they are now introducing more incentives for the development of sustainable, eco-friendly companies and industries. This also means however, that the more labor-intensive industries will not be able to set up companies as easily, especially those who put off large amounts of pollution as a byproduct of production. China is now favoring the high tech industries and R&D enterprises that will bring forward thinking individuals with high levels of education into the country.

The “National Treatment” movement and the additional taxes have brought some negative sentiment among businesspeople towards their bottom lines. The additional taxes will actually not be much for most businesses, however this does indicate that China is changing, and moving towards the high tech industries and those focusing on green innovation.

This shift suggests a change in paradigm for China; when the former plan was to get as many companies to invest as possible, to the new idea of encouraging fewer companies of higher quality to invest. Don’t get me wrong, there are still plenty of incentives available out there, however you should not only focus on where you can find the best investment incentives but how you are going to compete in a strengthening marketplace with strong quality products at competitive prices.

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New China Rep Office Regulations for 2011 1/12/2011

Attention companies and business owners with Rep Offices in China (and those thinking about setting one up)…China’s State Council recently announced the new regulations for their representative office structure. The regulations were put in place to “strengthen” the structure of foreign owned ROs. However, the regulations are tightening down on activities that ROs are allowed do and enforcing more strict penalties. But don’t worry, Rep Offices aren’t for everyone and a lot of companies benefit from converting to a WFOE or FICE  because of the greater flexibility that they offer.

Below is a breakdown of the new regulations for ROs:

Main Points:

  • Representative Offices (ROs) will now need to provide audited accounting information twice a year.
  • ROs cannot conduct profit activities. Enforcements of this rule will increase with the penalties clearly defined. Possible penalties include fines up to five times the amount owed and possible jail time for amounts above 10,000 RMB.
  • The tax structuring has changed:
    – ROs are now liable for deemed profit rates of a variable 15 to 30%  (up from a fixed 10%)
    – ROs cannot apply for tax exemption (could do this occasionally in the past)

Who this affects:

  • ROs currently established in China
  • Future ROs to be established

When it comes into effect:

  • March 1, 2011

Bottom Line- A Rep Office is not for you if your business needs to be able to:

  • Directly buy and sell
  • Have your own import/export license and
  • Legitimately trade in China

If you fall into the above scenario, you will need to convert to a Wholly Foreign Owned Enterprise (WFOE) or Foreign Invested Commercial Enterprise (FICE), depending on what type of business your are running. A great description of what it takes to set up a WFOE and FICE can be found here at our partner site, Understand-China.com.

Converting to a FICE or WFOE will require you to close the RO (if you already have one established) but portions of the closing process can be combined with opening the new structure when properly planned out.

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Global Trade Resource Predicts Top Holiday Toys 12/8/2010

Panjiva, an online trade platform used by sourcing and supply chain professionals to screen US import data, released their predictions for the top holiday toys of 2010.  Panjiva’s database tracks the overseas shipments of more than 1.5 million companies doing business across borders. Panjiva’s top toy selections are based on the number of toy shipments sent to the United States (the majority of which are coming from China). The graphs below show the top toys for each category. The “rookie toys” versus the “veteran toys.” The “rookies” are the toys released this year versus and the “verteran” toys are toys that existed prior to 2010.

Top Holiday Toy Predictions RookiesTop Holiday Toy Predictions Veterans

As you can see, there is almost a three way tie in the rookie category between the Squinkies, Paper Jamz, and Zoobles. For the Veterans, the victor is much more clear: Toy Story toys have been shipped much more than the second and third place toys, Elmo and Airhog Helicopters.

They also had a great chart indicating the trending of toy shipments over the past three years. According to Panjiva’s database, toy shipments are up 24% from August to October when compared to the same period in 2009.

That said, I am predicting a very merry holiday for lots of children this year!

Full Blog Post

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Suzhou Industrial Parks: SND- An Alternative to SIP 11/30/2010

SND Suzhou National New & Hi-Tech Industrial Development ZoneAfter doing a post on the Suzhou Industrial Park earlier this month, I found that people have been very interested in the topic. So I decided to write a blog on the SIP’s main competitor, the Suzhou National New & Hi-Tech Industrial Development Zone (SND).

In case you didn’t read my earlier post on Suzhou Industrial Parks, I will re-cap some of the main points on Suzhou and then get into the detail of SND. Suzhou, China is located in the Jiangsu Province and is about a two-hour drive from Shanghai. Suzhou proper is also only about 2.5 hours away by car to the Shanghai Pudong International Airport and only about 20 minutes away by train to the Shanghai Hongqiao Airport.

Suzhou is abundant in human resources with over 24 universities and colleges in the region that produce over 500,000 students each year. Suzhou boasts over 15,000 foreign invested companies in many different industries

SND is located in the western region of Suzhou and began in 1990. Initially it was only about 52 km2 (about 32 sq. miles) By 2002, it grew to over 258 km2 (about 161 sq. miles) and is now home to over 1,738 foreign companies and USD 25 billion in FDI. There are over 150 American companies and 160 European companies with facilities in the SND. Over 55 of the Fortune 500 also have a presence in SND.

The most common industries of SND are IT, chemicals, environmental protection, new materials and precision machinery. There are now over 2,000 companies in the molding industry and 10% of China’s sensor revenue comes from Suzhou as well.

Below is a roadmap of what to expect if you are thinking of setting up Greenfield operations in SND. The SND provides free services to encourage foreign investment and assist with licensing, permits and registrations. Below is an approximate time-line of the establishment period that must be take place with the local government:

• Name verification: 1 working day
• EHS (Environmental Health & Safety Division) Pre-approval of environment impact: 5 working days
• EHS Detailed environmental assessment form: 1 week-1 month
• EHS Detailed environmental assessment report: 1-2 months
• Investment approval: 3 working days
• Business license: 5 working days

Below is a list provided by SND of things you will need to obtain a legal business license in SND:

1. Business License of parent company – 2 copies
2. Notarization and certification for the Business License of Parent Company – 2 originals
3. Authorization Letter –  2 originals
4. Credit Status of parent company Issued by Bank – 2 originals
5. Application – 2 originals
6. Application Form of Name Registration – 1 original
7. Environmental Impact Form –  5 originals
8. Application Letter for WFOE Registration –  1 original
9. Recommendation Letter for Directors and Supervisor – 2 originals
10. Recommendation Letter for GM and Deputy GMs – 2 originals
11. Articles of Association – 2 originals
12. Land Transfer/Building Leasing Contract –  1 original
13. Copy of Passports of Directors, GM, Deputy GMs and Supervisor – 2 copies

And lastly, if you are interested in Investing in China, please visit our partner site for more information on Incorporating a Business in China.

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Hyundai Expands China Operations 11/29/2010

hyundai china expansionHyundai began building its third manufacturing plant in Beijing today. The two existing Beijing plants could not keep up with the rising demand. As reported in the Xinhua News, the new plant will cost about 6.5 billion RMB (about 1 billion USD) and will be able to produce 400,000 cars each year.

This new factory is expected to bump Hyundai’s production u p to 1 million cars per year in China. The two existing facilities can currently produce around 600,000 cars per year, but orders for 2010 are expected to be upwards of 700,000. This new factory in eastern Beijing will be operational in 2012, reaching full capacity in the years following.

The new factory is said to be the largest and most sophisticated of all of Hyundai’s 27 overseas manufacturing facilities.

Full article

Picture source

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